<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 31, 1999
TRANSOCEAN SEDCO FOREX INC.
(Exact name of registrant as specified in its charter)
Cayman Islands 1-7746 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
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
On December 31, 1999 at 1:00 a.m. Houston time (the "Effective Time"),
Transocean Offshore Inc. ("Transocean") completed its merger with Sedco Forex
Holdings Limited ("Sedco Forex"), the former offshore contract drilling service
business of Schlumberger Limited ("Schlumberger"), following the spin-off of
Sedco Forex to Schlumberger stockholders on December 30, 1999. Under the terms
of the Agreement and Plan of Merger dated as of July 12, 1999 among
Schlumberger, Sedco Forex, Transocean and Transocean SF Limited, a wholly owned
Transocean subsidiary, Transocean SF Limited merged with and into Sedco Forex,
and Schlumberger stockholders exchanged all of the Sedco Forex shares
distributed by Schlumberger in the Sedco Forex spin-off for ordinary shares of
Transocean. At an Extraordinary General Meeting of Shareholders held on
December 10, 1999, Transocean shareholders approved, among other things, the
issuance of the Transocean ordinary shares required to consummate the merger
with Sedco Forex. Effective upon the merger, Transocean changed its name to
"Transocean Sedco Forex Inc."
At the Effective Time of the merger, Sedco Forex owned, had an ownership
interest in or operated 40 mobile offshore drilling rigs. Sedco Forex's fleet
consisted of three fourth-generation semisubmersibles, twenty second- and third-
generation semisubmersibles, one first-generation semisubmersible, two
drillships, ten jackup rigs and four tenders, as well as one multi-purpose
service jackup rig, six swamp barges and two land drilling rigs. Sedco Forex
also had under construction three Sedco Express-class semisubmersibles and one
independent-leg cantilevered jackup rig. Sedco Forex contracted these drilling
rigs, related equipment and work crews primarily on a dayrate basis to drill
oil and gas wells. Transocean Sedco Forex intends to continue to use Sedco
Forex's assets in substantially the same manner in its worldwide offshore
contract drilling business.
Pursuant to the terms of the merger agreement, Schlumberger stockholders
received 0.1936 ordinary shares of Transocean for each share of capital stock of
Sedco Forex distributed in the spin-off of Sedco Forex (the "Merger Ratio"). On
December 30, 1999, the closing price on the New York Stock Exchange of
Transocean ordinary shares was $32-15/16 per share. Transocean issued
109,696,660 ordinary shares to Schlumberger stockholders in the merger, of which
145,102 were sold on the market for cash paid in lieu of fractional shares. The
Merger Ratio was determined through arm's-length negotiations. Prior to the
merger, (i) Transocean received the written opinion from its independent
financial advisors that, as of the date of such opinion, the Merger Ratio was
fair to Transocean and its shareholders from a financial point of view, and (ii)
Schlumberger received the written opinion of its independent financial advisors
that, as of the date of such opinion, the Merger Ratio was fair to
Schlumberger's stockholders from a financial point of view, as if they were
current holders of the shares of Sedco Forex capital stock. Transocean
accounted for the merger using the purchase method, with Sedco Forex treated as
the acquiror for accounting purposes.
On December 31, 1999 following the Effective Time, Sedco Forex repaid
indebtedness to Schlumberger in the aggregate amount of $303.6 million with the
proceeds of an intercompany loan from Transocean to Sedco Forex. Transocean
borrowed the amount it required to fund this advance under a $400 million term
loan facility with a group of financial institutions led by SunTrust Bank,
Atlanta.
Upon completion of the merger, Jean P. Cahuzac, formerly President of Sedco
Forex, was appointed Executive Vice President and President, Europe, Middle East
and Africa of Transocean Sedco Forex. David Mullen, formerly Director of
Personnel for Geco Prakla, a unit of Schlumberger, was appointed Vice President,
Human Resources of Transocean Sedco Forex. Ricardo Rosa, formerly the
Controller of Sedco Forex, was appointed Vice President and Controller of
Transocean Sedco Forex. In addition, Victor E. Grijalva, who is currently Vice
Chairman of Schlumberger, and Arthur Lindenauer, who is currently a Senior
Advisor of Schlumberger and President of Schlumberger Technology Corporation,
were elected to the Transocean Sedco Forex Board of Directors. Under the merger
agreement, Transocean agreed to use its reasonable best efforts to maintain a 50
percent allocation of directorships of Transocean Sedco Forex for Schlumberger
designees and to maintain the initial appointments thereunder for a period of
three years following the merger. Pursuant to the merger agreement, Mr.
Grijalva was appointed Chairman of the Board of Transocean Sedco Forex and
entered into a consulting agreement with Transocean Sedco Forex.
A copy of Transocean's press release dated December 31, 1999 announcing the
merger closing described above is incorporated by this reference in this report.
1
<PAGE>
The statements included or incorporated by reference in this Current Report
on Form 8-K/A 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 that Transocean Sedco Forex
"intends" a particular course of conduct or similar expressions are intended to
identify forward-looking statements. Forward-looking statements in this Current
Report on Form 8-K/A include, but are not limited to, statements involving the
integration of Transocean and Sedco Forex. 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 and development, exploration success by producers, oil and gas
prices, demand for oil and gas, competition and market conditions in the
contract drilling industry, Transocean Sedco Forex's ability to successfully
integrate the operations of Transocean and Sedco Forex, delays or cost overruns
on construction projects and possible cancellation of drilling contracts as a
result of delays, work stoppages by shipyard workers where our newbuilds are
being constructed, our ability to enter into and the terms of future contracts,
the availability of qualified personnel, labor relations and the outcome of
negotiations with unions representing workers, operating hazards, political and
other uncertainties inherent in non-U.S. 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 and
other factors discussed in Transocean Sedco Forex's other filings with the
Securities and Exchange Commission (the "SEC"), which are available free of
charge on the SEC's website at www.sec.gov. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those indicated. You should not place
undue reliance on forward-looking statements. Each forward-looking statement
speaks only as of its date and Transocean Sedco Forex undertakes no obligation
to publicly update or revise any forward-looking statements.
2
<PAGE>
ITEM 7. Financial Statements and Exhibits.
(a) Financial Statements.
The audited financial statements required by this Item 7(a) were previously
reported by the registrant in the registrant's Current Report on Form 8-K filed
November 9, 1999.
The condensed combined financial statements of Sedco Forex Holdings Limited
included herein have been prepared, without audit, pursuant to the rules and
regulations of the SEC. Certain information and notes normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations. These financial statements should be read in conjunction
with the audited combined financial statements and the notes thereto included
within Exhibit 20.1 to the registrant's Current Report on Form 8-K filed
November 9, 1999.
SEDCO FOREX HOLDINGS LIMITED
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
- -----------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Revenue
Operating $516,840 $824,481
Interest and other income 8,512 5,019
- -----------------------------------------------------------------------------
525,352 829,500
- -----------------------------------------------------------------------------
Expenses
Cost of services 425,805 503,884
Research and engineering 9,026 8,731
General and administrative 12,493 19,126
Interest expense, net 9,849 12,278
- -----------------------------------------------------------------------------
457,173 544,019
- -----------------------------------------------------------------------------
Income Before Taxes 68,179 285,481
Income Taxes (2,319) 35,017
- -----------------------------------------------------------------------------
Net Income $ 70,498 $250,464
=============================================================================
Pro Forma Earnings Per Share
Basic $ 0.64 $ 2.28
============================================================================
Diluted $ 0.64 $ 2.28
============================================================================
Pro Forma Shares Outstanding
Basic 109,697 109,697
- -----------------------------------------------------------------------------
Diluted 109,769 109,769
- -----------------------------------------------------------------------------
</TABLE>
See Notes to the Sedco Forex Holdings Limited
Condensed Combined Financial Statements.
3
<PAGE>
SEDCO FOREX HOLDINGS LIMITED
CONDENSED COMBINED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30,
1999
- -------------------------------------------------------------------------------
(In thousands)
<S> <C>
ASSETS
Cash and short-term investments $ 25,560
Receivables, less allowance for doubtful accounts of $6,359 159,714
Receivables from related parties 83,710
Materials and supplies 42,049
Other current assets 26,284
- -------------------------------------------------------------------------------
Total Current Assets 337,317
- -------------------------------------------------------------------------------
Fixed assets 2,347,953
Less accumulated depreciation 1,121,158
- -------------------------------------------------------------------------------
Property and Equipment, net 1,226,795
- -------------------------------------------------------------------------------
Deferred taxes on income 34,395
Equity in joint ventures and other 25,621
- -------------------------------------------------------------------------------
Total Assets $1,624,128
===============================================================================
LIABILITIES AND EQUITY
Bank overdrafts $ 5,353
Accounts payable and accrued liabilities 198,102
Payables to related parties 66,018
Estimated liability for income taxes 25,358
Current portion of long-term debt 16,285
Deferred gain on sale of rigs 26,167
- -------------------------------------------------------------------------------
Total Current Liabilities 337,283
- -------------------------------------------------------------------------------
Long-term debt 72,903
Related party debt 495,741
Deferred gain on sale of rigs 76,321
Other long-term liabilities 22,003
- -------------------------------------------------------------------------------
Total Liabilities 1,004,251
- -------------------------------------------------------------------------------
Equity 619,877
- -------------------------------------------------------------------------------
Total Liabilities and Equity $1,624,128
===============================================================================
</TABLE>
See Notes to the Sedco Forex Holdings Limited
Condensed Combined Financial Statements.
4
<PAGE>
SEDCO FOREX HOLDINGS LIMITED
CONDENSED COMBINED 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 $ 70,498 $ 250,464
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 96,908 93,218
Amortization of deferred gain on sale of rigs (19,642) (19,634)
1999 and 1998 charges 30,049 23,350
Deferred income taxes (16,457) (5,105)
Equity in earnings of joint ventures (3,719) (2,515)
Other, net 300 7,650
Changes in operating assets and liabilities
Accounts receivable 74,467 (67,869)
Receivables from related parties 1,968 11,390
Accounts payable and accrued liabilities (12,575) 13,900
Income taxes receivable/payable, net (15,700) 16,098
Other assets and liabilities, net (14,922) (22,192)
- --------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 191,175 298,755
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Capital expenditures (412,096) (270,334)
Other, net 7,711 3,215
- --------------------------------------------------------------------------------
Net Cash Used in Investing Activities (404,385) (267,119)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Advances and other to related parties, net (15,003) (27,718)
Payments of principal of long-term debt (11,410) (48,401)
Proceeds from issuance of related party debt 166,589 -
Payments of principal of related party debt (78,250) (16,423)
Other, net 2,363 (1,691)
- --------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 64,289 (94,233)
- --------------------------------------------------------------------------------
Net Decrease in Cash and Short-Term Investments (148,921) (62,597)
- --------------------------------------------------------------------------------
Cash and Short-Term Investments at Beginning of Period 174,481 95,117
- --------------------------------------------------------------------------------
Cash and Short-Term Investments at End of Period $ 25,560 $ 32,520
================================================================================
</TABLE>
See Notes to the Sedco Forex Holdings Limited
Condensed Combined Financial Statements.
5
<PAGE>
SEDCO FOREX HOLDINGS LIMITED
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Principles of Combination and Merger
Principles of Combination
The accompanying combined Sedco Forex Holdings Limited financial statements
include the offshore contract drilling service business of Schlumberger Limited
and its subsidiaries ("Schlumberger"), which is comprised of certain businesses,
operations, assets and liabilities of Sedco Forex Holdings Limited, its
subsidiaries and Schlumberger, in accordance with a distribution agreement
described below (collectively referred to as "Sedco Forex"). Although Sedco
Forex was not a separate public company, the accompanying combined financial
statements are presented as if Sedco Forex had existed as an entity separate
from its parent, Schlumberger. The combined financial statements include the
historical assets, liabilities, revenues and expenses that were directly related
to the offshore contract drilling service business of Schlumberger during the
periods presented and have been prepared using Schlumberger's historical basis
in the assets and liabilities and the historical results of operations of Sedco
Forex.
Certain amounts of Schlumberger's corporate expenses, including centralized
research and engineering, legal, accounting, employee benefits, real estate,
insurance, information technology services, treasury and other corporate and
infrastructure costs, although not directly attributable to Sedco Forex's
operations, were allocated to Sedco Forex on bases that Schlumberger and Sedco
Forex considered to be a reasonable reflection of the utilization of services
provided or the benefit received by Sedco Forex (see Note 3). However, the
financial information included herein may not reflect the combined financial
position, operating results, changes in equity and cash flows of Sedco Forex in
the future or what they would have been had Sedco Forex been a separate, stand-
alone entity during the periods presented. All significant intercompany
accounts and transactions within Sedco Forex have been eliminated.
Because Sedco Forex historically did not operate as a separate, stand-alone
entity, and in many cases Sedco Forex's results were included in the
consolidated financial statements of Schlumberger on a divisional basis, there
are no separate meaningful historical equity accounts for Sedco Forex. Changes
in equity represent Schlumberger's contribution of its net investment in Sedco
Forex after giving effect to the net earnings of Sedco Forex, dividends paid,
plus net cash transfers to and from Schlumberger and other transfers from
Schlumberger.
Certain assets and liabilities included in these financial statements,
primarily associated with employee benefits, income taxes and balances due to
or from Schlumberger companies other than Sedco Forex, were retained by
Schlumberger in accordance with the distribution agreement described below. In
addition, certain financial matters were agreed to which limited debt and
required a minimum cash level at the time of the audited pre-closing financial
statements delivered prior to the distribution.
Sedco Forex provided offshore drilling services with semisubmersibles, jackup
rigs, dynamically positioned drillships and drilling tenders to customers
throughout the world. Sedco Forex principally operated in one industry segment,
offshore contract drilling services.
Distribution to Shareholders and Merger with Transocean Offshore Inc.
Effective July 12, 1999, Sedco Forex, Schlumberger, Transocean Offshore Inc.
("Transocean") and a wholly-owned subsidiary of Transocean entered into a merger
agreement. At the same time, Schlumberger and Sedco Forex entered into a
distribution agreement that provided for a series of combination transactions
which included: the transfer of certain assets and liabilities between Sedco
Forex and Schlumberger and the distribution of Sedco Forex stock to Schlumberger
shareholders on December 30, 1999. On December 31, 1999 after the distribution,
Sedco Forex merged with a wholly-owned subsidiary of Transocean and Schlumberger
shareholders received shares of Transocean in exchange for their shares of Sedco
Forex. Following the distribution and merger, Schlumberger shareholders owned
approximately 52 percent of the outstanding ordinary shares of the combined
company that was renamed Transocean Sedco Forex Inc. These historical combined
financial statements are for a prior interim period and do not reflect the
merger.
6
<PAGE>
SEDCO FOREX HOLDINGS LIMITED
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - General
Basis of Presentation - The accompanying condensed combined financial statements
of Sedco Forex have been prepared without audit in accordance with accounting
principles generally accepted in the United States 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 accounting principles generally accepted in the United States for
complete financial statements. Operating results for the nine month period
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1999 or for any future period. 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 combined financial statements and notes thereto should be read in
conjunction with the audited combined financial statements and notes thereto
included within Exhibit 20.1 to the registrant's Current Report on Form 8-K
filed November 9, 1999.
Supplementary Cash Flow Information - Cash payments for interest and income
taxes, net were $16.9 million and $26.8 million, respectively, for the nine
months ended September 30, 1999 and $16.0 million and $21.3 million,
respectively, for the nine months ended September 30, 1998.
Capitalized Interest - Interest costs for the construction and upgrade of
qualifying assets are capitalized. Sedco Forex capitalized interest costs on
construction work in progress of $20.3 million and $4.5 million for the nine
months ended September 30, 1999 and 1998, respectively.
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 No. 133 to fiscal years beginning
after June 15, 2000. Because of Sedco Forex'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 effect on the results of operations or the financial
position of Sedco Forex. Sedco Forex will adopt SFAS No. 133 as of January 1,
2001.
Note 3 - Related Party Transactions
In certain countries, Sedco Forex participated in Schlumberger's centralized
treasury and cash processes. In these countries, cash was managed either through
zero balance accounts or an interest-bearing offsetting mechanism. Cash
disbursements for operations, acquisitions and other investments were funded as
needed from Schlumberger.
The combined financial statements include allocations of certain corporate
expenses, including centralized research and engineering, legal, accounting,
employee benefits, real estate, insurance, information technology services,
treasury and other corporate and infrastructure costs. These allocations were
determined on bases that Schlumberger and Sedco Forex considered to be a
reasonable reflection of the utilization of services provided or the benefit
received by Sedco Forex. The allocation methods included relative revenues,
headcount, square footage, transaction processing costs, adjusted operating
expenses and others. These allocations resulted in charges being recorded in
Sedco Forex's results of operations as follows:
7
<PAGE>
SEDCO FOREX HOLDINGS LIMITED
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999 1998
- -----------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cost of services $41,158 $54,490
Research and engineering 3,445 2,450
General and administrative 5,534 7,060
- -----------------------------------------------------------------------------
$50,137 $64,000
=============================================================================
</TABLE>
At September 30, 1999 Sedco Forex had long-term debt from related parties of
$495.7 million. These loans charged interest at rates based on fifty basis
points over the LIBOR. These loans were used to finance both Sedco Forex's
existing fleet of rigs and ongoing major construction projects. On December 31,
1999, Sedco Forex repaid this indebtedness to Schlumberger with proceeds from a
loan from Transocean. Interest expense on these loans aggregated $20.7 million
and $8.7 million for the nine months ended September 30, 1999 and 1998,
respectively.
The related party receivables and payables balances included in the combined
balance sheet represent amounts arising from intercompany transactions entered
into by Sedco Forex to settle outstanding customer and trade receivables and
payables with other Schlumberger entities.
Note 4 - Pro Forma Earnings Per Share
Sedco Forex did not have a separate capital structure prior to the spin-off
from Schlumberger and merger with Transocean. Accordingly, historical earnings
per share has not been presented (see Note 1). Pro forma earnings per share for
each period presented was calculated using the Transocean Sedco Forex shares
issued pursuant to the merger agreement and the dilutive effect of Transocean
Sedco Forex stock options granted to former Sedco Forex employees at the time of
the merger, as applicable.
The reconciliation of the numerator and denominator used for the computation
of basic and diluted pro forma earnings per share is as follows:
<TABLE>
<CAPTION>
Nine Months ended September 30, 1999 1998
- -----------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C>
Net income for basic and diluted earnings per share $ 70,498 $250,464
- -----------------------------------------------------------------------------
Pro forma shares for basic earnings per share 109,697 109,697
Effect of dilutive securities:
Employee stock options 72 72
- -----------------------------------------------------------------------------
Adjusted pro forma shares and assumed
conversions for diluted earnings per share 109,769 109,769
=============================================================================
Pro forma basic earnings per share $ 0.64 $ 2.28
- -----------------------------------------------------------------------------
Pro forma diluted earnings per share $ 0.64 $ 2.28
- -----------------------------------------------------------------------------
</TABLE>
8
<PAGE>
(b) Pro Forma Financial Information
How We Prepared The Unaudited Pro Forma Financial Information
The operating results data assume the spin-off and the merger were completed
on January 1, 1998, and the balance sheet data assume the spin-off and the
merger were completed on September 30, 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 Sedco Forex 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 over the seven-day period commencing three
days before 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.
Transaction-Related Expenses
Transocean incurred fees and expenses totaling approximately $20 million in
connection with the merger and related transactions, including amounts relating
to change of control provisions under some of Transocean's benefit plans. None
of these costs were included in calculating the purchase price. Sedco Forex's
fees and expenses were immaterial. After the merger, Transocean Sedco Forex
will incur certain additional charges and expenses relating to restructuring and
integrating the operations of Sedco Forex and Transocean. Transocean did not
adjust the pro forma information for these additional charges and expenses or
for estimated general and administrative expense savings and operational
efficiencies that may be realized as a result of the merger.
9
<PAGE>
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 1999
<TABLE>
<CAPTION>
Pro Forma
Historical Distribution Pro Forma Pro Forma
Sedco Agreement Sedco Forex Historical Purchase Pro Forma
Forex Adjustments(1) Before Merger Transocean Adjustments(2) Combined
---------- -------------- ------------- ---------- -------------- ---------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 25,560 $ 9,440 (1a) $ 35,000 $ 26,363 $ -- $ 61,363
Accounts Receivable 159,714 -- 159,714 165,046 -- 324,760
Other Current Assets 152,043 (84,818) (1b) 67,225 51,105 5,224 (2a) 123,554
---------- --------- ---------- ---------- -------- ----------
Total Current Assets 337,317 (75,378) 261,939 242,514 5,224 509,677
Property and Equipment, Net 1,226,795 -- 1,226,795 2,407,342 526,500 (2b) 4,160,637
Goodwill, net -- -- -- 661,798 446,788 (2c) 1,108,586
Other Assets 60,016 (4,074) (1c) 55,942 62,193 8,908 (2d) 127,043
---------- --------- ---------- ---------- -------- ----------
Total Assets $1,624,128 $ (79,452) $1,544,676 $3,373,847 $987,420 $5,905,943
========== ========= ========== ========== ======== ==========
Current Liabilities $ 337,283 $(107,628) (1d) 229,655 237,349 4,657 (2e) 471,661
Long-Term Debt 568,644 (286,143) (1e) 282,501 711,270 -- 993,771
Deferred Taxes and Other
Credits 98,324 (6,939) (1f) 91,385 267,100 152,815 (2f) 511,300
Shareholders' Equity 619,877 321,258 (1g) 941,135 2,158,128 829,948 (2g) 3,929,211
---------- --------- ---------- ---------- -------- ----------
Total Liabilities
and Shareholders' Equity $1,624,128 $ (79,452) $1,544,676 $3,373,847 $987,420 $5,905,943
========== ========= ========== ========== ======== ==========
</TABLE>
See Notes to the Transocean Sedco Forex
Unaudited Condensed Pro Forma Combined Financial Statements.
10
<PAGE>
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ ---------------------------
Sedco Forex Transocean Adjustments(2) Combined
----------- ---------- -------------- ----------
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $516,840 $746,229 $ -- $1,263,069
-------- -------- -------- ----------
Costs and Expenses
Operating and Maintenance 338,193 369,047 -- 707,240
Depreciation and Amortization 96,908 97,177 29,841 (2h) 223,926
General and Administrative 12,277 21,130 -- 33,407
-------- -------- -------- ----------
447,378 487,354 29,841 964,573
-------- -------- -------- ----------
Operating Income (Expense) 69,462 258,875 (29,841) 298,496
Other Income (Expense), Net (1,283) 8,471 4,097 (2i) 11,285
-------- -------- -------- ----------
Income Before Income Taxes 68,179 267,346 (25,744) 309,781
Income Taxes (2,319) 78,867 (6,755) (2j) 69,793
-------- -------- -------- ----------
Net Income $ 70,498 $188,479 $(18,989) $ 239,988
======== ======== ======== ==========
Earnings Per Share
Basic $ 1.88 $ 1.14
======== ==========
Diluted $ 1.87 $ 1.14
======== ==========
Weighted Average Shares Outstanding
Basic 100,352 109,697 (3) 210,049
Diluted 100,872 109,769 (4) 210,641
</TABLE>
See Notes to the Transocean Sedco Forex
Unaudited Condensed Pro Forma Combined Financial Statements.
11
<PAGE>
TRANSOCEAN SEDCO FOREX
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------ ---------------------------
Sedco Forex Transocean Adjustments(2) Combined
----------- ---------- -------------- ----------
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating Revenues $1,090,523 $1,089,612 $ -- $2,180,135
---------- ---------- -------- ----------
Costs and Expenses
Operating and Maintenance 562,565 484,439 -- 1,047,004
Depreciation and Amortization 124,707 116,867 48,006 (2h) 289,580
General and Administrative 25,986 28,034 -- 54,020
---------- ---------- -------- ----------
713,258 629,340 48,006 1,390,604
---------- ---------- -------- ----------
Operating Income (Expense) 377,265 460,272 (48,006) 789,531
Other Income (Expense), Net (3,244) 26,874 8,202 (2i) 31,832
---------- ---------- -------- ----------
Income Before Income Taxes 374,021 487,146 (39,804) 821,363
Income Taxes 32,443 143,730 (9,676) (2j) 166,497
---------- ---------- -------- ----------
Net Income $ 341,578 $ 343,416 $(30,128) $ 654,866
========== ========== ======== ==========
Earnings Per Share
Basic $ 3.43 $ 3.12
========== ==========
Diluted $ 3.41 $ 3.11
========== ==========
Weighted Average Shares Outstanding
Basic
100,083 109,697 (3) 209,780
Diluted 100,848 109,769 (4) 210,617
</TABLE>
See Notes to the Transocean Sedco Forex
Unaudited Condensed Pro Forma Combined Financial Statements.
12
<PAGE>
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(Amounts in thousands, except for per share amounts or unless otherwise
indicated)
(1) Represents the pro forma adjustments to the historical Sedco Forex balance
sheet accounts as of September 30, 1999 to reflect the following transactions
between Schlumberger and Sedco Forex required by the distribution agreement.
These pro forma adjustments may not be indicative of the actual adjustments made
prior to the spin-off.
. Cash was adjusted to the required minimum cash balance of $35 million;
. Certain assets and liabilities included in the historical Sedco Forex
accounts were retained by Schlumberger;
. Related party receivable and payable balances were settled;
. Related party debt was adjusted to $435 million, less the capital
expenditure shortfall, plus or minus the working capital adjustment; and
. The net amount of the pro forma distribution was treated as an
adjustment to the total equity of Sedco Forex.
A summary of the pro forma distribution agreement adjustments by balance
sheet caption is as follows:
(a) Cash and cash equivalents -- Represents the estimated cash adjustment
to reduce cash to the $35 million required minimum cash balance.
(b) Other current assets -- A reconciliation of the pro forma
distribution agreement adjustments to other current assets is as follows:
Other current assets retained by Schlumberger $ (1,108)
Settlement of related party receivables (83,710)
-------------------------------------------------------------------------
$(84,818)
=========================================================================
(c) Other assets -- Represents deferred tax assets retained by
Schlumberger.
(d) Current liabilities -- A reconciliation of the pro forma distribution
agreement adjustments to current liabilities is as follows:
Employee benefit liabilities retained by Schlumberger $ (27,100)
Other current liabilities retained by Schlumberger (9,157)
Settlement of bank overdrafts (5,353)
Settlement of related party payables (66,018)
-------------------------------------------------------------------------
$(107,628)
=========================================================================
(e) Long-term debt -- A reconciliation of the pro forma distribution
agreement adjustments to long-term debt is as follows:
Reduction in related party debt due to capital expenditure
shortfall $(126,050)
Reduction in related party debt due to working capital
adjustment (10,164)
Adjustment of related party debt as required by the
distribution agreement (149,929)
-------------------------------------------------------------------------
$(286,143)
=========================================================================
The capital expenditure shortfall was calculated as the amount by which
actual capital expenditures were less than the forecasted expenditures for
1999, and resulted in an equivalent reduction in the amount of debt that was
permitted at the date of the spin-off of Sedco Forex from Schlumberger. The
capital expenditure shortfall included above was calculated using
expenditures through the pro forma balance sheet date of September 30,
13
<PAGE>
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
1999. Permitted debt at December 31, 1999 was increased by the amount of
capital expenditures after September 30, 1999 and prior to the distribution
date.
(f) Deferred taxes and other credits -- A reconciliation of the pro forma
distribution agreement adjustments to deferred taxes and other credits is as
follows:
Postretirement benefit liability retained by Schlumberger $(3,866)
Other employee-related liabilities retained by Schlumberger (3,073)
-------------------------------------------------------------------------
$(6,939)
=========================================================================
(g) Shareholders' equity -- A reconciliation of the pro forma
distribution agreement adjustments to shareholders' equity is as follows:
Net liabilities to be retained by Schlumberger $ 38,014
Cash adjustment for required minimum cash balance, net of
bank overdrafts 14,793
Reduction in related party debt due to capital expenditure
shortfall 126,050
Reduction in related party debt due to working capital
adjustment 10,164
Settlement of related party balances 132,237
-------------------------------------------------------------------------
$321,258
=========================================================================
(2) A summary of the pro forma purchase price allocation and other
adjustments to effect the merger is as follows. The pro forma purchase price
allocation may not be indicative of the actual allocation made in the merger.
(a) Other current assets -- A reconciliation of the pro forma adjustments
to other current assets is as follows:
Fair value adjustment of prepaid periodic survey and drydock
costs $ 9,884
Adjustment of deferred tax assets for the net effect of pro
forma adjustments (4,660)
-------------------------------------------------------------------------
$ 5,224
=========================================================================
(b) Property and equipment, net -- Represents the adjustment needed to
record Transocean's property and equipment at estimated fair value.
(c) Goodwill -- The merger was accounted for as a purchase, with Sedco
Forex as the acquiror for accounting purposes. The adjusted pro forma goodwill
amount reflects 100% of the excess purchase price over the preliminary
estimated fair values of Transocean's assets and liabilities (see Note 2(g)).
The goodwill calculation reflects the actual purchase price of $2.99 billion,
based on the $2.94 billion calculated market capitalization of Transocean,
using an average closing price of Transocean ordinary shares over the seven-
day period commencing three days before July 12, 1999, the date the merger was
announced, plus the $0.05 billion estimated fair value at the merger date of
Transocean stock options. The calculated purchase price is for accounting
purposes only and is not indicative of the value of Transocean ordinary shares
received by shareholders of Sedco Forex in connection with the merger. The
recording of goodwill and the associated amortization period of 40 years are
supported by the nature of the offshore drilling industry, long-lived drilling
equipment and the long-standing relationships with core customers.
(d) Other assets -- Represents the adjustment needed to record
Transocean's defined benefit pension asset at estimated fair value.
14
<PAGE>
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(e) Current liabilities -- A reconciliation of the pro forma adjustment
to current liabilities is as follows:
Fair value adjustment of Transocean's interest rate swap
agreements, net $ 4,200
Fair value adjustment of accrued periodic survey and drydock
costs (13,893)
Effect of change of control provisions in Transocean's bonus
plan 2,500
Fees payable associated with the merger 11,850
------------------------------------------------------------------------
$ 4,657
========================================================================
(f) Deferred taxes and other credits -- A reconciliation of the pro forma
adjustments to deferred taxes and other credits is as follows:
Fair value adjustment of Transocean's defined benefit
pension liabilities $ 11,135
Adjustment of deferred tax assets for the net effect of pro
forma adjustments 141,680
------------------------------------------------------------------------
$152,815
========================================================================
(g) Shareholders' equity -- Represents the difference between the
purchase price (see Note 2(c)) and the book value of the net assets of
Transocean at the pro forma balance sheet date.
The purchase price was allocated based upon the estimated fair values of
Transocean assets and liabilities as of September 30, 1999. For purposes of
the Unaudited Condensed Pro Forma Combined Financial Statements, the purchase
price was allocated as follows:
Historical net book value of Transocean $2,158,128
Fair value adjustment of property and equipment, net 526,500
Effect of change of control provisions in Transocean's
bonus plan (2,500)
Fair value adjustment of Transocean's interest rate swap
agreements, net (4,200)
Fair value of additional liabilities associated with
the merger (11,850)
Fair value adjustment of Transocean's defined benefit
plans, net (2,227)
Fair value adjustment of prepaid and accrued periodic survey
and drydock costs 23,777
Deferred income tax effect of pro forma adjustments, net (146,340)
Goodwill 446,788
-------------------------------------------------------------------------
Total purchase price $2,988,076
=========================================================================
(h) Depreciation and amortization -- A reconciliation of the pro forma
adjustment to depreciation and amortization is as follows:
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Nine months ended Year Ended
September 30, 1999 December 31, 1998
---------------------------------------------------------------------------- -----------------
<S> <C> <C>
Additional depreciation resulting from the
adjustment to fair value of Transocean's
property and equipment $23,269 $39,333
Amortization of goodwill resulting from the
merger over a 40-year estimated life - see Note 2(c) 6,572 8,673
----------------------------------------------------------------------------------------------------
Total pro forma adjustment to depreciation
and amortization $29,841 $48,006
====================================================================================================
</TABLE>
(i) Other income (expense), net -- Represents the elimination of interest
expense associated with related party debt offset by interest expense on the
remaining debt owed to Schlumberger at an assumed rate of 5.65 percent for the
nine months ended September 30, 1999 and 5.6875 percent for the year ended
December 31, 1998 and a reduction of interest income associated with the
reduction in cash balances. The remaining debt balance owed to Schlumberger
was refinanced immediately following the merger.
15
<PAGE>
TRANSOCEAN SEDCO FOREX
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
(j) 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 income and expense adjustments were
assumed to be nondeductible for tax purposes.
(3) Basic earnings per share -- The adjustment to pro forma basic shares
outstanding represents the total Transocean shares issued pursuant to the
merger agreement.
(4) Diluted earnings per share -- The adjustment to pro forma diluted shares
outstanding is the sum of the pro forma basic shares outstanding and the
dilutive effect of Transocean Sedco Forex stock options granted to certain
Sedco Forex employees.
16
<PAGE>
TRANSOCEAN SEDCO FOREX
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 $17 million for
the nine months ended September 30, 1999 and $55 million for the year ended
December 31, 1998 for this insurance program.
Schlumberger cost allocations for research and engineering and general and
administrative expenses, which amounted to $9 million for the nine months ended
September 30, 1999 and $13 million for the year ended December 31, 1998, 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. The cost of these contractual arrangements
or the increased Transocean Sedco Forex overhead to replace these services, to
the extent they are continued, cannot be reasonably estimated at this time.
However, Transocean Sedco Forex expects that some level of cost savings will be
achieved.
Depreciation Expense
Depreciation expense of $97 million for the nine months ended September 30,
1999 and $125 million for the year ended December 31, 1998 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 $51 million for the nine months ended September 30, 1999 and
approximately $62 million for the year ended December 31, 1998.
17
<PAGE>
(c) Exhibits.
*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 -- Memorandum of Association of Transocean Sedco
Forex Inc., as amended
**4.2 -- Articles of Association of Transocean Sedco Forex
Inc., as amended
27 -- Financial Data Schedule
**99.1 -- Transocean Press Release dated December 31, 1999
**99.2 -- Certificate of Incorporation on Change of Name to
Transocean Sedco Forex Inc.
**99.3 -- Certificate of Merger
_____________________
* Incorporated by reference as indicated.
** Filed previously.
18
<PAGE>
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.
TRANSOCEAN SEDCO FOREX INC.
Date: March 10, 2000 By: /s/ Robert L. Long
_____________________________________
Name: Robert L. Long
Title: Chief Financial Officer
19
<PAGE>
EXHIBIT INDEX
*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 -- Memorandum of Association of Transocean Sedco
Forex Inc., as amended
**4.2 -- Articles of Association of Transocean Sedco Forex
Inc., as amended
27 -- Financial Data Schedule
**99.1 -- Transocean Press Release dated December 31, 1999
**99.2 -- Certificate of Incorporation on Change of Name to
Transocean Sedco Forex Inc.
**99.3 -- Certificate of Merger
_____________________
* Incorporated by reference as indicated.
** Filed previously.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 25,560
<SECURITIES> 0
<RECEIVABLES> 243,424
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 337,317
<PP&E> 2,347,953
<DEPRECIATION> 1,121,158
<TOTAL-ASSETS> 1,624,128
<CURRENT-LIABILITIES> 337,283
<BONDS> 568,644
0
0
<COMMON> 0
<OTHER-SE> 619,877
<TOTAL-LIABILITY-AND-EQUITY> 1,624,128
<SALES> 0
<TOTAL-REVENUES> 525,352
<CGS> 0
<TOTAL-COSTS> 447,324
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,849
<INCOME-PRETAX> 68,179
<INCOME-TAX> (2,319)
<INCOME-CONTINUING> 70,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,498
<EPS-BASIC> 0.64<F2>
<EPS-DILUTED> 0.64<F2>
<FN>
<F1>Restated to reflect Sedco Forex financials due to reverse acqisition of
registrant.
</FN>
<FN>
<F2>Earnings per share shown on a proforma basis.
</FN>
</TABLE>
