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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-79363
RBF FINANCE CO.
(Exact name of registrant as specified in its charter)
Delaware 76-0599699
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
901 Threadneedle, Houston, Texas 77079
(Address of principal executive offices)(Zip Code)
(281) 496-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes_X_ No___
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Forward-Looking Statements and Assumptions
This Quarterly Report on Form 10-Q may contain or incorporate
by reference certain forward-looking statements. The Company
strongly encourages readers to note that some or all of the
assumptions, upon which such forward-looking statements are based,
are beyond the Company's ability to control or estimate precisely,
and may in some cases be subject to rapid and material changes.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or Group of Companies for Which Report is Filed:
RBF Finance Co.
The financial statements for the three months ended June 30,
1999 and for the period from inception (March 19,1999) to June 30,
1999, include, in the opinion of the Company, all adjustments
(which only consist of normal recurring adjustments) necessary to
present fairly the financial position and results of operations
for such periods. The financial data for such periods included
herein have been prepared in accordance with generally accepted
accounting principles for interim financial information. Results
of operations for the three months ended June 30, 1999 and for the
period from inception (March 19,1999) to June 30, 1999 are not
necessarily indicative of results of operations which will be
realized for the year ending December 31, 1999. The financial
statements should be read in conjunction with the Company's
audited financial statements as of March 31, 1999 and for the
period from inception (March 19, 1999) to March 31, 1999 which are
included in the Company's Form S-4 (registration no. 333-79363) as
filed with the Securities and Exchange Commission on May 26, 1999.
RBF FINANCE CO.
BALANCE SHEET
(in thousands)
(unaudited)
AS OF
JUNE 30, 1999
-------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,212
Interest and commitment fee receivable 22,491
---------
Total current assets 23,703
---------
LOANS TO R&B FALCON CORPORATION 800,000
---------
TOTAL ASSETS $ 823,703
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued interest expense $ 23,618
Accrued income taxes 30
---------
Total current liabilities 23,648
---------
LONG-TERM OBLIGATIONS 800,000
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Capital in excess of par value 1
Retained earnings 54
---------
Total stockholders' equity 55
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 823,703
=========
The accompanying notes are an integral part of the financial statements.
RBF FINANCE CO.
STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
FOR THE FOR THE PERIOD
THREE FROM INCEPTION
MONTHS ENDED (MARCH 19, 1999) TO
JUNE 30, 1999 JUNE 30, 1999
------------- -------------------
REVENUES:
Interest income $ 20,935 $ 21,956
Commitment fee 1,451 1,746
-------- --------
Total revenues 22,386 23,702
EXPENSES:
Interest expense 22,392 23,618
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (6) 84
INCOME TAX EXPENSE (BENEFIT) (2) 30
-------- --------
NET INCOME (LOSS) $ (4) $ 54
======== ========
The accompanying notes are an integral part of the financial statements.
RBF FINANCE CO.
STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
FOR THE PERIOD
FROM INCEPTION
(MARCH 19, 1999) TO
JUNE 30, 1999
-------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
Accrued interest income and commitment fee (22,491)
Accrued interest expense 23,618
Accrued income taxes 30
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Net cash provided by operating activities 1,211
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to R&B Falcon Corporation (800,000)
----------
Net cash used in investing activities (800,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations 800,000
Issuance of common stock 1
----------
Net cash provided by financing activities 800,001
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,212
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,212
==========
The accompanying notes are an integral part of the financial statements.
RBF FINANCE CO.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
A) BUSINESS, INDUSTRY CONDITIONS AND LIQUIDITY
RBF Finance Co. (the "Company") is a limited purpose
Delaware corporation organized on March 19, 1999 solely for
the purpose of and limited to issuing secured notes as full
recourse obligations of the Company and loaning the proceeds
from the sale of the secured notes to R&B Falcon Corporation
("R&B Falcon"). The Company is an affiliate of R&B Falcon
through common management, and all of the Company's shares
are owned by management and shareholders of R&B Falcon. On
March 26, 1999, the Company issued two series of senior
secured notes with an aggregate principal amount of $800.0
million (the "Senior Secured Notes"). The Senior Secured
Notes consist of $400.0 million of 11% senior secured notes
due 2006 and $400.0 million of 11.375% senior secured notes
due 2009.
All of the Company's future cash flows and long-term
obligations are guaranteed by R&B Falcon. The following is a
description of R&B Falcon's industry conditions and
liquidity.
Industry Conditions
Activity in the contract drilling industry and related
oil service businesses has deteriorated significantly in the
past year due to decreased worldwide demand for drilling
rigs and related services resulting from a substantial
decline in crude oil prices. In recent months, crude oil
prices have recovered somewhat, but there can be no
assurance that demand for drilling rigs and related services
will increase. The financial condition and results of
operations of R&B Falcon and other drilling contractors are
dependent upon the price of oil and natural gas, as demand
for their services is primarily dependent upon the level of
spending by oil and gas companies for exploration,
development and production activities. In late 1998 and
early 1999, lower crude oil prices affected exploration and
production spending, which created significantly lower
dayrates and utilization for offshore drilling companies,
particularly in the U.S. Gulf of Mexico. Crude oil and
natural gas prices have continued to fluctuate over the last
several years. If crude oil prices decline from current
levels, or a weakness in crude oil prices continued for an
extended period, there could be a further deterioration in
both rig utilization and dayrates.
Liquidity
During the first six months of 1999, R&B Falcon
received net proceeds of approximately $1.3 billion from the
issuance of senior notes and preferred stock. R&B Falcon
used the proceeds to repay existing indebtedness of
approximately $556.0 million and the remainder will be used
to acquire, construct, repair and improve drilling rigs and
for general corporate purposes. As of June 30, 1999, R&B
Falcon had $681.3 million of cash, cash equivalents and
short-term investments.
R&B Falcon is currently in the process of completing
two project financings. One financing in the amount of
approximately $270.0 million is in the form of a synthetic
lease that would be collateralized by the drillship
Deepwater Frontier, drilling contract revenues from such
drillship and a $50.0 million letter of credit. Proceeds of
such financing would be used in part to repay advances made
to the joint venture which operates the Deepwater Frontier,
which is owned 60% by R&B Falcon and 40% by Conoco. The
second financing in the amount of approximately $250.0
million is a project financing that would be collateralized
by the semisubmersible Deepwater Nautilus (formerly RBS8M),
as well as the drilling contract revenues from such rig. R&B
Falcon is also considering certain asset sales, including
the Seillean, Iolair and domestic boat business.
R&B Falcon is currently constructing or significantly
upgrading nine deepwater drilling rigs. R&B Falcon estimates
its capital expenditure commitments on these projects and
its other routine capital expenditures for the remainder of
1999 to total approximately $475.0 million.
R&B Falcon believes its projected level of cash flows
from operations, which assumes an industry recovery in 2000,
cash on hand, expected proceeds from the two project
financings and potential asset sales will be sufficient to
satisfy R&B Falcon's short-term and long-term working
capital needs, planned investments, capital expenditures,
debt, lease and other payment obligations. If R&B Falcon
were to build excess cash balances from the various sources
mentioned above, it will most likely use a portion of the
excess to retire debt obligations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
RBF Finance Co. (the "Company") is a limited purpose Delaware
corporation organized on March 19, 1999 solely for the purpose of and
limited to issuing secured notes as full recourse obligations of the
Company and loaning the proceeds from the sale of the secured notes to
R&B Falcon Corporation ("R&B Falcon"). The Company is an affiliate of
R&B Falcon through common management, and all of the Company's shares
are owned by management and shareholders of R&B Falcon. On March 26,
1999, the Company issued two series of senior secured notes with an
aggregate principal amount of $800.0 million (the "Senior Secured
Notes"). The Senior Secured Notes consist of $400.0 million of 11%
senior secured notes due 2006 and $400.0 million of 11.375% senior
secured notes due 2009.
Industry Conditions
All of the Company's future cash flows and long-term obligations
are guaranteed by R&B Falcon. The following is a description of R&B
Falcon's industry conditions. Activity in the contract drilling
industry and related oil service businesses has deteriorated
significantly in the past year due to decreased worldwide demand for
drilling rigs and related services resulting from a substantial
decline in crude oil prices. In recent months, crude oil prices have
recovered somewhat, but there can be no assurance that demand for
drilling rigs and related services will increase. The financial
condition and results of operations of R&B Falcon and other drilling
contractors are dependent upon the price of oil and natural gas, as
demand for their services is primarily dependent upon the level of
spending by oil and gas companies for exploration, development and
production activities. In late 1998 and early 1999, lower crude oil
prices affected exploration and production spending, which created
significantly lower dayrates and utilization for offshore drilling
companies, particularly in the U.S. Gulf of Mexico. Crude oil and
natural gas prices have continued to fluctuate over the last several
years. If crude oil prices decline from current levels, or a weakness
in crude oil prices continued for an extended period, there could be a
further deterioration in both rig utilization and dayrates.
Results of Operations
As the Company was organized on March 19, 1999 (see General
above), there are no comparable periods for the previous year. The
Company's results of operations for the three months ended June 30,
1999 and for the period from inception (March 19, 1999) to June 30,
1999 consists of interest and commitment fee revenues from the loans
to R&B Falcon Corporation offset by interest expense on the Senior
Secured Notes.
Liquidity And Capital Resources
Cash Flows
Net cash provided by operating activities was $1.2 million for
the period from inception (March 19, 1999) to June 30, 1999 and was
the result of changes in the components of working capital.
Net cash used in investing activities was $800.0 million for the
period from inception (March 19, 1999) to June 30, 1999 and was the
result of loans to R&B Falcon.
Net cash provided by financing activities was $800.0 million for
the period from inception (March 19, 1999) to June 30, 1999 and was
the result of proceeds from the issuance of debt obligations.
Liquidity
All of the Company's future cash flows and long-term obligations
are guaranteed by R&B Falcon. The following is a description of R&B
Falcon's liquidity. During the first six months of 1999, R&B Falcon
received net proceeds of approximately $1.3 billion from the issuance
of senior notes and preferred stock. R&B Falcon used the proceeds to
repay existing indebtedness of approximately $556.0 million and the
remainder will be used to acquire, construct, repair and improve
drilling rigs and for general corporate purposes. As of June 30, 1999,
R&B Falcon had $681.3 million of cash, cash equivalents and short-term
investments.
R&B Falcon is currently in the process of completing two project
financings. One financing in the amount of approximately $270.0
million is in the form of a synthetic lease that would be
collateralized by the drillship Deepwater Frontier, drilling contract
revenues from such drillship and a $50.0 million letter of credit.
Proceeds of such financing would be used in part to repay advances
made to the joint venture which operates the Deepwater Frontier, which
is owned 60% by R&B Falcon and 40% by Conoco. The second financing in
the amount of approximately $250.0 million is a project financing that
would be collateralized by the semisubmersible Deepwater Nautilus
(formerly RBS8M), as well as the drilling contract revenues from such
rig. R&B Falcon is also considering certain asset sales, including the
Seillean, Iolair and domestic boat business.
R&B Falcon is currently constructing or significantly upgrading
nine deepwater drilling rigs. R&B Falcon estimates its capital
expenditure commitments on these projects and its other routine
capital expenditures for the remainder of 1999 to total approximately
$475.0 million.
R&B Falcon believes its projected level of cash flows from
operations, which assumes an industry recovery in 2000, cash on hand,
expected proceeds from the two project financings and potential asset
sales will be sufficient to satisfy R&B Falcon's short-term and long-
term working capital needs, planned investments, capital expenditures,
debt, lease and other payment obligations. If R&B Falcon were to build
excess cash balances from the various sources mentioned above, it will
most likely use a portion of the excess to retire debt obligations.
Year 2000
The Company is dependent upon R&B Falcon for its Year 2000
("Y2K") compliance and the following is a description of R&B Falcon's
Y2K compliance efforts. R&B Falcon has focused its Y2K compliance
efforts in three areas: information technology systems, embedded
technology systems and systems used by third parties with which R&B
Falcon has a substantial relationship. R&B Falcon has substantially
completed its investigation and evaluation of these systems and is
currently in the process of correcting the identified problems.
Information Technology Systems. The testing and validation phase
for information technology systems includes testing of each individual
information technology system that could be affected. Through the
information technology systems investigation, R&B Falcon determined
that the accounting software utilized by Cliffs Drilling (a wholly-
owned subsidiary of R&B Falcon) required substantial modification or
replacement. The domestic accounting software was replaced with Y2K
compliant software during the fourth quarter of 1998 at a total cost
of approximately $2.3 million, the majority of which was capitalized.
Software replacements in Cliffs Drilling's foreign offices will be
completed during 1999 at a total cost of approximately $.5 million.
R&B Falcon additionally determined that certain of its remaining
accounting software and systems were not Y2K compliant. R&B Falcon
personnel have completed the majority of these modifications and the
remaining non-compliant software will be undergoing a previously
planned upgrade in August 1999.
Embedded Technology Systems. Embedded technology systems
primarily relate to the technology on board R&B Falcon's drilling
units. The testing and validation phase for the embedded technology
systems includes testing each high and medium priority system, which
consists primarily of all systems located on drilling units included
in the Deepwater and Shallow Water Divisions. For systems on board
the Inland Water units, confirmation of Y2K compliance has been
received from the manufacturers of these systems.
To facilitate the embedded technology systems investigation, R&B
Falcon hired an additional employee whose primary responsibility is
the evaluation of these technology systems. This evaluation was
completed in the second quarter of 1999. The equipment evaluated did
not demonstrate any equipment failures or other significant Y2K
compliance issues. Based on these evaluations, R&B Falcon estimates
that the total cost to replace or upgrade non-compliant embedded
technology systems will be less than $.5 million.
Third Party Systems. R&B Falcon is contacting third parties with
which it has substantial relationships to determine what actions may
be needed to mitigate its risks relating to the effects third party
technology failures may have on R&B Falcon. R&B Falcon sent out
requests for information to all of its electrical and electronic
contractors in August 1998 and has received information from 85% of
them regarding their Y2K efforts. Questionnaires were sent in the
first quarter of 1999 to all of R&B Falcon's suppliers and third party
vendors. Based on the responses received thus far, it is evident
that our contractors and suppliers are placing a priority on achieving
Y2K compliance. In the event R&B Falcon's major suppliers or
customers do not successfully and timely achieve Y2K compliance, R&B
Falcon's operations could be adversely affected.
Contingency Plans. R&B Falcon is continuing to monitor, on an
ongoing basis, the problems and uncertainties associated with its Y2K
issues and their potential consequences. R&B Falcon has accepted the
position that there will be some finite levels of risk that some
systems will not fully function after Y2K. A risk-based approach has
identified those items where absolute compliance is not guaranteed by
the vendor or supplier, and contingency plans are being developed to
deal with any safety related possibilities. These contingency plans
were completed in the second quarter of 1999.
In addition to the safety related contingency plans directly
related to uncertainties with equipment, R&B Falcon maintains plans
for all critical safety equipment as part of its normal business.
These critical safety plans are currently being modified to fit the
Y2K criteria. These modifications primarily include: having personnel
standing by at critical equipment stations before the specified time
changes, having no crane lifts in operation and having all drilling
units in a non-drilling mode. Failure of this type of equipment,
whether related to normal operational risk or Y2K problems, must be
managed with contingency planning. For this reason, additional risk
due to the Y2K issue does not measurably affect the risk to personnel
or equipment beyond the normal failure due to other causes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in interest rates with respect to
its debt obligations. The Company's debt obligations as of June 30,
1999 consist of $400.0 million at a fixed rate of 11% due March 2006
and $400.0 million at a fixed rate of 11.375% due March 2009. The
estimated fair value of both debt obligations at June 30, 1999 was
$822.0 million.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule. (Exhibit 27 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the
Securities and Exchange Commission.)
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the
three months ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
RBF FINANCE CO.
Date: August 12, 1999 By /s/T. W. Nagle
-----------------------
T. W. Nagle
Vice President
(Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of RBF Finance Co. for the period from
inception (March 19, 1999) to June 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-19-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,212
<SECURITIES> 0
<RECEIVABLES> 22,491
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 0
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<TOTAL-ASSETS> 823,703
<CURRENT-LIABILITIES> 23,648
<BONDS> 800,000
0
0
<COMMON> 0
<OTHER-SE> 55
<TOTAL-LIABILITY-AND-EQUITY> 823,703
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