<PAGE>
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SONAT OFFSHORE DRILLING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1381 72-0464968
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
----------------
4 GREENWAY PLAZA HOUSTON, TEXAS 77046 (713) 871-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<TABLE>
<S> <C>
COPIES TO:
ERIC B. BROWN, ESQ. JOHN K. HOYNS, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY HUGHES HUBBARD & REED LLP
4 GREENWAY PLAZA ONE BATTERY PARK PLAZA
HOUSTON, TEXAS 77046 NEW YORK, NEW YORK 10004
(713) 871-7500 (212) 837-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and the
conditions to the Exchange Offer described herein have been satisfied or
waived.
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM PROPOSED AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
REGISTERED(1) REGISTERED PER SHARE(2) OFFERING PRICE FEE(3)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01
per share............ 28,652,037 shares $50.16 $1,437,186,100 $210,726.10
</TABLE>
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- -------------------------------------------------------------------------------
(1) Up to 28,652,037 shares of Registrant Common Stock will be exchanged for
54,060,448 shares of Transocean ASA, par value 5 Nkr per share
("Transocean Stock").
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act, based upon
54,060,448 shares of Transocean Stock to be received by the Registrant
pursuant to the Exchange Offer at Nkr 170.25 per share, the average of the
high and low sale price per share of Transocean Stock on the Oslo Stock
Exchange on July 24, 1996. For purposes of calculating the registration
fee, the price per share was translated into U.S. dollars at the rate of
$1.00 to Nkr 6.4040, which represents the noon buying rate on July 24,
1996 in New York City for cable transfers in Norwegian Kroner as certified
for customs purposes by the Federal Reserve Bank of New York.
(3) Pursuant to Rule 457(b), the registration fee was reduced by $284,855.31
paid by the Registrant to the Commission on June 7, 1996, in connection
with the filing of preliminary proxy materials that, as subsequently
revised, are included in this Registration Statement.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
SONAT OFFSHORE DRILLING INC.
----------------
CROSS REFERENCE SHEET
----------------
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B)
OF REGULATION S-K BETWEEN ITEMS IN PART I OF
REGISTRATION STATEMENT (FORM S-4) AND LOCATION IN THE
PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/ OFFER TO
FORM S-4 ITEM NUMBER AND HEADING PURCHASE/ PROXY STATEMENT
-------------------------------- --------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Available Information; Incorporation
of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information...................... Summary; Risk Factors; Market Price
and Dividend Data
4. Terms of the Transaction.......... Summary; The Exchange Offer; The
Combination; Tax Consequences of the
Exchange Offer, The Mandatory Bid and
Compulsory Acquisition; Description of
Capital Stock and Charter Documents of
the Company; Certain Changes in Rights
of Transocean Stockholders Resulting
from the Combination
5. Pro Forma Financial Information... Summary; Unaudited Condensed Pro Forma
Combined Financial Statements
6. Material Contracts with the
Company Being Acquired........... The Combination--Background of the
Combination
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... *
8. Interests of Named Experts and
Counsel.......................... *
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. *
B.INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants...................... Description of Sonat Offshore; Sonat
Offshore Selected Consolidated
Financial Data; Sonat Offshore
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Market Price and Dividend
Data; Consolidated Financial
Statements of Sonat Offshore;
Condensed Consolidated Financial
</TABLE> Statements of Sonat Offshore
<PAGE>
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS/ OFFER TO
FORM S-4 ITEM NUMBER AND HEADING PURCHASE/ PROXY STATEMENT
-------------------------------- --------------------------------
<S> <C>
11. Incorporation of Certain
Information by Reference.......... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or
S-3 Registrants................... *
13. Incorporation of Certain
Information by Reference.......... *
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants....................... *
C.INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3
Companies......................... *
16. Information with Respect to S-2 or
S-3 Companies..................... *
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies......................... Description of Transocean; Transocean
Selected Consolidated Financial Data;
Transocean Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Market Price
and Dividend Data; Consolidated
Financial Statements of Transocean;
Condensed Consolidated Financial
Statements of Transocean; Exchange
Rates
D.VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be
Solicited......................... Summary; Risk Factors; The Sonat
Offshore Special Meeting; The
Combination; Description of Sonat
Offshore
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer............................. Summary; Risk Factors; The Exchange
Offer; The Combination; Description of
Sonat Offshore; Description of
</TABLE> Transocean
- --------
* Omitted because not required, inapplicable or answer is in the negative.
<PAGE>
SONAT OFFSHORE DRILLING INC.
4 Greenway Plaza
Houston, Texas 77046
, 1996
Dear Sonat Offshore Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Sonat Offshore Drilling Inc., a Delaware corporation ("Sonat Offshore" or the
"Company"), to be held at 4 Greenway Plaza, Room C-100, Houston, Texas on
August 29, 1996, at 8:00 a.m., local time (the "Sonat Offshore Special
Meeting"). This meeting has been called in connection with the offer by the
Company (the "Exchange Offer") to the holders of shares of Transocean ASA, a
Norwegian company ("Transocean"), to exchange such shares for common stock,
par value $.01 per share, of the Company ("Company Common Stock") and cash.
Accordingly, at this important meeting you will be asked to consider and vote
upon proposals (the "Proposals") (i) to approve the issuance of up to
28,652,037 shares of Company Common Stock pursuant to the Exchange Offer (the
"Exchange Offer Proposal"), (ii) to amend the Restated Certificate of
Incorporation of Sonat Offshore (the "Company Charter") to increase the
authorized number of shares of Company Common Stock that the Company is
authorized to issue from 55,000,000 to 150,000,000 shares (the "Share Increase
Amendment"), and (iii) to amend the Company Charter to change the name of the
Company to "Transocean Offshore Inc." (the "Name Change Amendment" and,
together with the Share Increase Amendment, the "Charter Amendments").
The Company is offering .53 of a share of Company Common Stock per
Transocean share for 80% of the outstanding shares of Transocean and $27.25
per Transocean share for 20% of the outstanding shares of Transocean. The
largest shareholder of Transocean, with 17.2% of the outstanding Transocean
shares, has agreed to tender its Transocean shares in the Exchange Offer.
Consummation of the Exchange Offer is subject to satisfaction or waiver by the
Company of a number of conditions, as is more fully described in the attached
Prospectus/Offer to Purchase/Proxy Statement, including the approval by the
stockholders of Sonat Offshore of the Proposals. The Company will not
implement the Name Change Amendment unless the Exchange Offer is consummated.
However, the Company will implement the Share Increase Amendment if it is
approved by Sonat Offshore's stockholders regardless of the consummation of
the Exchange Offer. The Company may waive the condition to the Exchange Offer
that the proposals for the Charter Amendments be approved by the Sonat
Offshore stockholders unless, in the case of the Share Increase Amendment, the
Company's Board should alter the terms of the Exchange Offer to increase the
Company Common Stock to be issued.
Consummation of the Exchange Offer will result in a combination of the
respective businesses of Sonat Offshore and Transocean. The combined company
will be one of the world's leading deep water and harsh environment drillers,
based upon its technically advanced fleet of drilling units, financial
strength, engineering capabilities, management expertise and experienced
workforce.
The Exchange Offer Proposal must be approved by a majority of the shares of
Company Common Stock voted at the Sonat Offshore Special Meeting, provided
that the total vote cast represents a majority of the outstanding shares of
Company Common Stock, and the Charter Amendments must be approved by the
affirmative vote of a majority of the outstanding shares of Company Common
Stock.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE EXCHANGE OFFER PROPOSAL, THE SHARE
INCREASE AMENDMENT AND THE NAME CHANGE AMENDMENT ARE IN THE BEST INTERESTS OF
SONAT OFFSHORE AND ITS STOCKHOLDERS, AND RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE PROPOSALS.
Goldman, Sachs & Co., Sonat Offshore's financial advisors, have rendered a
written opinion to Sonat Offshore that as of July 26, 1996, the aggregate
consideration proposed to be paid in the Exchange Offer to holders of 100% of
the Transocean stock is fair to Sonat Offshore. A copy of this opinion is
attached as Annex A to the Prospectus/Offer to Purchase/Proxy Statement and
should be read in its entirety by the Sonat Offshore stockholders.
YOUR VOTE IS VERY IMPORTANT. The presence at the Sonat Offshore Special
Meeting in person or by proxy of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote is required to constitute a
quorum for the transaction of business. We hope you will find it convenient to
attend the Sonat Offshore Special Meeting in person. Whether or not you plan
to attend, please complete, date, sign and mail promptly the enclosed proxy in
the return envelope provided. If you attend the Sonat Offshore Special Meeting
you may revoke your proxy and vote your shares in person, if you so desire.
Sincerely,
/s/ J. Michael Talbert
J. Michael Talbert
Chairman of the Board and Chief
Executive Officer
<PAGE>
SONAT OFFSHORE DRILLING INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 29, 1996
To the Stockholders of
Sonat Offshore Drilling Inc.:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders of Sonat
Offshore Drilling Inc., a Delaware corporation ("Sonat Offshore" or the
"Company"), will be held at 4 Greenway Plaza, Room C-100, Houston, Texas, on
August 29, 1996, at 8:00 a.m., local time (the "Sonat Offshore Special
Meeting"), for the following purposes:
(1) To consider and vote upon a proposal to approve the issuance of up to
28,652,037 shares of common stock, par value $.01 per share, of the Company
("Company Common Stock") in an offer to the holders of shares of Transocean
ASA, a Norwegian company, to exchange such shares for Company Common Stock
and cash.
(2) To consider and vote upon a proposal to approve an amendment to the
Restated Certificate of Incorporation of Sonat Offshore (the "Company
Charter") to increase the number of shares of Company Common Stock that the
Company is authorized to issue from 55,000,000 to 150,000,000 shares.
(3) To consider and vote upon a proposal to amend the Company Charter to
change the name of the Company to "Transocean Offshore Inc."
The Board of Directors has fixed the close of business on July 22, 1996 as
the record date for holders of Company Common Stock entitled to notice of, and
to vote at, the Sonat Offshore Special Meeting and any adjournment or
postponement thereof. Stockholders who execute proxies solicited by the Board
of Directors of Sonat Offshore retain the right to revoke them at any time;
unless so revoked, the shares of Company Common Stock represented by such
proxies will be voted at the Sonat Offshore Special Meeting in accordance with
the directions given therein. If a stockholder does not specify a choice on
such stockholder's proxy, the proxy will be voted in favor of the approval of
the foregoing proposals.
In the event that there are not sufficient votes to approve the proposals,
it is expected that the Sonat Offshore Special Meeting will be postponed or
adjourned in order to permit further solicitation of proxies by Sonat
Offshore.
Further information regarding the Sonat Offshore Special Meeting is set
forth in the attached Prospectus/Offer to Purchase/Proxy Statement and the
attachments thereto. Please read them carefully.
YOU ARE CORDIALLY INVITED TO ATTEND THE SONAT OFFSHORE SPECIAL MEETING.
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SONAT OFFSHORE SPECIAL MEETING
IN PERSON, PLEASE COMPLETE, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE ENCLOSED POSTPAID ENVELOPE.
By Order of the Board of Directors
/s/ Eric B. Brown
Eric B. Brown
Secretary
, 1996
4 Greenway Plaza
Houston, Texas 77046
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 26, 1996
PROSPECTUS/OFFER TO PURCHASE RELATING TO
OFFER TO EXCHANGE FOR EACH SHARE, PAR VALUE NKR 5 PER SHARE,
OF TRANSOCEAN ASA,
.53 OF A SHARE OF COMMON STOCK
OF SONAT OFFSHORE DRILLING INC.
(EXPECTED TO BE CALLED TRANSOCEAN OFFSHORE INC.
UPON CONSUMMATION OF THE EXCHANGE OFFER)
FOR 43,248,358 TRANSOCEAN SHARES
AND
$27.25 NET IN CASH
FOR THE REMAINING TRANSOCEAN SHARES
----------
PROXY STATEMENT RELATING TO SONAT OFFSHORE DRILLING INC.
SPECIAL MEETING OF HOLDERS OF COMMON STOCK
TO BE HELD ON AUGUST 29, 1996
THE EXCHANGE OFFER WILL EXPIRE AT 4 P.M., OSLO,
NORWAY TIME, ON AUGUST 29, 1996, UNLESS EXTENDED.
ONCE TRANSOCEAN STOCK IS TENDERED IN THE EXCHANGE
OFFER IT MAY NOT BE WITHDRAWN UNLESS THE EXPIRATION
DATE OF THE EXCHANGE OFFER HAS BEEN EXTENDED BEYOND
SEPTEMBER 13, 1996.
This Prospectus/Offer to Purchase/Proxy Statement relates to a "combination
of equals" transaction (the "Combination") whereby the businesses of Sonat
Offshore Drilling Inc., a Delaware corporation ("Sonat Offshore" or the
"Company"), and Transocean ASA, a Norwegian company ("Transocean"), will be
combined under the ownership of one company to be known as "Transocean Offshore
Inc." (the "Combined Company").
In order to effect the Combination, the Company hereby offers, on the terms
and subject to the conditions set forth herein (the "Exchange Offer"), to
exchange for the issued and outstanding shares of Transocean, par value Nkr 5
per share (the "Transocean Stock"), (i) .53 of a share of common stock, par
value $.01 per share, of the Company (the "Company Common Stock") for each of
43,248,358 shares (the "Share Amount") of Transocean Stock, representing 80% of
the outstanding shares of Transocean Stock on a fully diluted basis, and (ii)
U.S.$27.25 for each remaining share of Transocean Stock. A holder of Transocean
Stock ("Transocean Stockholder") tendering Transocean Stock may elect to
receive cash rather than shares of Company Common Stock (the "Cash Election"),
provided that no cash consideration will be paid unless shares of Transocean
Stock in excess of the Share Amount are duly tendered and then only to the
extent provided in "The Exchange Offer--Terms of the Offer--Cash Payments." If
the Cash Election is oversubscribed, tendering Transocean Stockholders making
the Cash Election will receive shares of Company Common Stock in addition to
cash pursuant to the Exchange Offer, and if the Cash Election is
undersubscribed, tendering Transocean Stockholders making the Cash Election
will receive all cash and tendering Transocean Stockholders not making the Cash
Election will receive cash and shares of Company Common Stock, in each case as
more fully described in this Prospectus/Offer to Purchase/Proxy Statement.
Subject to the rules and regulations of the U.S. Securities and Exchange
Commission (the "Commission") and the Oslo Stock Exchange (the "OSE"), the
Company may elect (but shall not be obligated) (i) to increase the Share Amount
or the number of shares that will be accepted for exchange for cash and (ii) to
accept for exchange for shares of Company Common Stock or for cash all or any
additional shares of Transocean Stock pursuant to such increase.
On July 26, 1996, the closing price on the New York Stock Exchange (the
"NYSE") of Company Common Stock was $51.50 per share, or $27.30 for .53 of a
share. On July 26, 1996, the closing price on the OSE for the Transocean Stock
was Nkr 169 per share, or $26.45 based on a Noon Buying Rate (as defined
herein) for such date of $1.00 = Nkr 6.3905. The current market value of
Company Common Stock offered will fluctuate with changes in the market price of
the Company Common Stock and the currency exchange rate.
THE EXCHANGE OFFER IS CONDITIONED ON (I) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER MORE THAN 80% OF THE
TRANSOCEAN SHARES ON A FULLY DILUTED BASIS, (II) THE APPROVAL BY THE REQUISITE
AFFIRMATIVE VOTE OF THE STOCKHOLDERS OF THE COMPANY OF THE PROPOSALS TO BE
SUBMITTED AT THE SPECIAL MEETING OF STOCKHOLDERS OF THE COMPANY DESCRIBED
BELOW, (III) THE RECEIPT OF ALL APPLICABLE GOVERNMENTAL AND STOCK EXCHANGE
APPROVALS, (IV) THE CONTINUED EFFECTIVENESS OF THE EXEMPTION GRANTED BY
APPROPRIATE NORWEGIAN GOVERNMENTAL AUTHORITIES FROM THE RESTRICTIONS ON VOTING
TRANSOCEAN STOCK UNDER THE NORWEGIAN BUSINESS ACQUISITION ACT, AND (V) THE
SATISFACTION OF THE OTHER CONDITIONS TO THE EXCHANGE OFFER SET FORTH UNDER "THE
EXCHANGE OFFER--CERTAIN CONDITIONS OF THE EXCHANGE OFFER" IN THIS
PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT.
THE BOARD OF DIRECTORS OF TRANSOCEAN HAS DETERMINED THAT THE EXCHANGE OFFER
IS FAIR TO, AND IN THE BEST INTERESTS OF, TRANSOCEAN AND ITS SHAREHOLDERS, AND
RECOMMENDS THAT SHAREHOLDERS ACCEPT THE EXCHANGE OFFER. THE LARGEST SHAREHOLDER
OF TRANSOCEAN, WITH 17.2% OF THE OUTSTANDING TRANSOCEAN SHARES, HAS AGREED TO
TENDER ITS SHARES IN THE EXCHANGE OFFER.
This Prospectus/Offer to Purchase/Proxy Statement is also being furnished to
the holders of Company Common Stock in connection with the solicitation of
proxies by the Board of Directors of Sonat Offshore for use at a special
meeting of holders of Sonat Offshore Stock ("Sonat Offshore Stockholders") to
be held at 8:00 a.m. on August 29, 1996 (including any adjournments or
postponements thereof, the "Sonat Offshore Special Meeting"). At the Sonat
Offshore Special Meeting, the Sonat Offshore Stockholders will be asked to
consider and vote upon proposals (the "Proposals") (i) to approve the issuance
of up to 28,652,037 shares of Company Common Stock in the Exchange Offer (the
"Exchange Offer Proposal"), (ii) to amend the Restated Certificate of
Incorporation of Sonat Offshore (the "Company Charter") to increase the
authorized number of shares of Company Common Stock from 55,000,000 to
150,000,000 shares (the "Share Increase Amendment"), and (iii) to amend the
Company Charter to change the name of the Company to "Transocean Offshore Inc."
(the "Name Change Amendment" and, together with the Share Increase Amendment,
the "Charter Amendments").
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 OF THIS PROSPECTUS/OFFER TO
PURCHASE/PROXY STATEMENT FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE
CONSIDERED BY HOLDERS OF TRANSOCEAN STOCK IN CONNECTION WITH THEIR
CONSIDERATION OF THE EXCHANGE OFFER.
----------
NEITHER THE COMBINATION NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS
PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/OFFER TO PURCHASE/
PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus/Offer to Purchase/Proxy Statement is July , 1996
<PAGE>
This Prospectus/Offer to Purchase/Proxy Statement and the accompanying forms
of proxy are first being mailed to the Sonat Offshore Stockholders on or about
, 1996. This Prospectus/Offer to Purchase/Proxy Statement serves as a
prospectus of Sonat Offshore under the Securities Act of 1933, as amended (the
"Securities Act"), for the issuance of up to 28,652,037 shares of Company
Common Stock to be delivered to the Transocean Stockholders pursuant to the
Exchange Offer.
Certain statements made in this Prospectus/Offer to Purchase/Proxy Statement
or in connection with the Exchange Offer and the Combination relating to
plans, conditions, objectives and economic performance go beyond historical
information and may provide an indication of future results. To that extent,
they are forward-looking statements within the meaning of Section 21E of the
Exchange Act, and each is subject to factors that could cause actual results
to differ from those in the forward-looking statement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE SET FORTH OR INCORPORATED BY REFERENCE HEREIN
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY SONAT OFFSHORE. THIS PROSPECTUS/OFFER TO
PURCHASE/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO OR A SOLICITATION OF
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE
ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF TRANSOCEAN STOCK IN ANY JURISDICTION
IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
LAWS OF SUCH JURISDICTION. HOWEVER, THE COMPANY MAY, IN ITS SOLE DISCRETION,
TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE EXCHANGE OFFER IN ANY
SUCH JURISDICTION AND EXTEND THE EXCHANGE OFFER TO HOLDERS OF TRANSOCEAN STOCK
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS/OFFER TO
PURCHASE/PROXY STATEMENT NOR ANY EXCHANGE OR SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SONAT OFFSHORE OR TRANSOCEAN SINCE THE DATE AS OF WHICH INFORMATION
IS FURNISHED OR THE DATE HEREOF.
IN ACCORDANCE WITH VARIOUS STATE SECURITIES LAWS APPLICABLE TO THE EXCHANGE
OFFER WHICH REQUIRE THE EXCHANGE OFFER TO BE MADE TO THE PUBLIC BY A LICENSED
BROKER OR DEALER, THE EXCHANGE OFFER IS HEREBY MADE TO THE TRANSOCEAN
SHAREHOLDERS RESIDING IN EACH SUCH STATE BY GOLDMAN, SACHS & CO., ON BEHALF OF
THE COMPANY.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Glossary of Defined Terms.......... 5
Available Information.............. 7
Incorporation of Certain Documents
by Reference...................... 8
Exchange Rates..................... 9
Summary............................ 10
Risk Factors....................... 21
Integration of Sonat Offshore and
Transocean...................... 21
Labor Relations.................. 21
Non-Tendering Transocean
Stockholders.................... 21
Possible Volatility of Market
Price of Company Common Stock
Following the Exchange Offer.... 22
Anti-Takeover Provisions......... 22
Changes in Rights of Transocean
Stockholders.................... 22
Arcade Drilling Rigs............. 22
Turnkey Contracts and Fluctuation
in Quarterly Results............ 23
Limitation on Ownership by Non-
U.S. Citizens................... 23
Recent Developments................ 23
The Exchange Offer................. 25
Terms of the Offer............... 25
Mandatory Bid and Compulsory
Acquisition..................... 26
The Offer Period................. 27
Procedures for Tendering
Transocean Stock................ 27
Withdrawal Rights................ 28
Acceptance for Exchange; Delivery
of Company Common Stock......... 29
Dividends and Distributions...... 29
Certain Conditions of the
Exchange Offer.................. 29
Financing Arrangements........... 33
Fees and Expenses................ 34
Agreement with Tiger Management.. 34
Miscellaneous.................... 34
The Sonat Offshore Special
Meeting........................... 35
Purpose of Meeting............... 35
Date, Time and Place of Meeting.. 35
Record Date, Stockholders
Entitled to Vote and Required
Vote............................ 35
Solicitation, Revocation and Use
of Proxies...................... 35
No Dissenters or Appraisal
Rights.......................... 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposal to Approve the Issuance of Company Common Stock Pursuant to the Exchange Offer.. 36
Proposal to Increase the Authorized Number of Shares of Company Common Stock............. 36
Proposal to Change the Company's Name to "Transocean Offshore Inc."...................... 37
Stockholder Proposals.................................................................... 38
Other Business........................................................................... 39
The Combination............................................................................ 40
Background of the Combination............................................................ 40
Reasons for the Combination; Boards' Recommendations..................................... 41
Fairness Opinions........................................................................ 43
Review of Pro Forma Results.............................................................. 51
Business Strategy of the Combined Company................................................ 52
Stock Exchange Listings.................................................................. 52
The Norwegian Share Registry............................................................. 53
Accounting Treatment..................................................................... 53
The Company Board of Directors........................................................... 54
Operations After the Combination......................................................... 54
Tax Consequences of the Exchange Offer, Mandatory Bid And Compulsory Acquisition........... 55
Introduction............................................................................. 55
United States Tax Consequences........................................................... 55
Norwegian Tax Consequences............................................................... 58
United Kingdom Tax Consequences.......................................................... 59
Regulatory Matters......................................................................... 61
U.S. Antitrust Laws...................................................................... 61
Norwegian Competition Act................................................................ 61
Norwegian Business Acquisition Act....................................................... 61
State Takeover Laws...................................................................... 62
Other Laws............................................................................... 62
Market Price and Dividend Data............................................................. 63
Market Prices............................................................................ 63
Dividends................................................................................ 64
Unaudited Condensed Pro Forma Combined Financial Statements................................ 65
Description of Sonat Offshore.............................................................. 70
Business Strategy........................................................................ 70
Drilling Units........................................................................... 70
Drilling Contracts....................................................................... 74
Arcade Drilling.......................................................................... 75
Industry Conditions and Competition...................................................... 76
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Operating Risks..................................................................................... 76
International Operations............................................................................ 77
Regulation.......................................................................................... 77
Employees........................................................................................... 78
Legal Proceedings................................................................................... 79
Directors of Sonat Offshore......................................................................... 79
Executive Officers of Sonat Offshore................................................................ 81
Ownership of Company Common Stock by Directors and Executive Officers............................... 82
Common Stock Ownership of Certain Beneficial Owners................................................. 83
Sonat Offshore Selected Consolidated Financial Data................................................... 84
Sonat Offshore Management's Discussion and Analysis of Financial Condition and Results of Operations.. 85
Overview............................................................................................ 85
Operating Results................................................................................... 85
Other Factors Affecting Operating Results........................................................... 91
Market Outlook...................................................................................... 92
Liquidity and Capital Resources..................................................................... 93
New Accounting Pronouncements....................................................................... 96
Description of Transocean............................................................................. 97
Business Strategy................................................................................... 97
Business Areas...................................................................................... 98
Key Customers....................................................................................... 102
Foreign Operations.................................................................................. 102
Legal Proceedings................................................................................... 102
Exchange Controls and Other Limitations Affecting Security Holders.................................. 103
Industry Conditions and Competition................................................................. 103
Regulation.......................................................................................... 103
Employees........................................................................................... 104
Directors of Transocean............................................................................. 104
Executive Officers of Transocean.................................................................... 105
Related Party Transactions.......................................................................... 106
Beneficial Ownership of Certain Transocean Shareholders and Management.............................. 106
Compensation of Directors and Officers.............................................................. 107
Transocean Selected Consolidated Financial Data....................................................... 108
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Transocean Management's Discussion and Analysis of Financial Conditions and Results of Operations.. 109
Overview......................................................................................... 109
Operating Results................................................................................ 110
Other Factors Affecting Operating Results........................................................ 115
Market Outlook................................................................................... 115
Liquidity and Capital Resources.................................................................. 116
Foreign Currency and Interest Rate Risk Management............................................... 118
Description of Capital Stock and Charter Documents of the Company.................................. 119
Capital Stock.................................................................................... 119
Provisions Having Possible Anti-takeover Effects................................................. 120
Statutory Provisions............................................................................. 120
Certain Changes in Rights of Transocean Stockholders Resulting from the Combination................ 122
Changes in Rights of Transocean Stockholders..................................................... 122
Size and Classification of the Board of Directors................................................ 122
Removal of Directors............................................................................. 122
Indemnification of Board Members................................................................. 123
Meetings of Stockholders......................................................................... 123
Stockholder Vote Required........................................................................ 123
Business Combinations with Interested Stockholders............................................... 124
Dissenters' Rights............................................................................... 124
Dividends........................................................................................ 125
Preemptive Rights................................................................................ 125
Amendment of Charter Documents................................................................... 126
Legal Matters...................................................................................... 126
Experts............................................................................................ 126
Index to Financial Statements...................................................................... F-1
Annex A--Opinion of Goldman, Sachs & Co. .......................................................... A-1
Annex B--Opinion of CS First Boston Corporation.................................................... B-1
Annex C--Text of the Charter Amendments............................................................ C-1
</TABLE>
4
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
$...................................................................... 9
Acceptance Form........................................................ 14
Adjusted Market Value.................................................. 48
After-Tax Cash Flow.................................................... 47
Agent.................................................................. 33
Aggregate Cash Amount.................................................. 25
Aggregate Consideration................................................ 12
Amoco.................................................................. 72
Anchor Drilling Fluids................................................. 10
Antitrust Division..................................................... 61
Arcade Drilling........................................................ 22
Arcade Rigs............................................................ 75
business day........................................................... 27
Cash Election.......................................................... 1
CFPS................................................................... 45
Charter Amendments..................................................... 1
Code................................................................... 55
Combination............................................................ 1
Combination Conditions................................................. 13
Combined Company....................................................... 1
Commission............................................................. 1
Companies Act.......................................................... 13
Company Charter........................................................ 1
Company Common Stock................................................... 1
Company................................................................ 1
Compulsory Acquisition................................................. 13
Cooperation Agreement.................................................. 97
Credit Agreement....................................................... 33
CS First Boston........................................................ 11
Depositary............................................................. 14
Depreciated Replacement Cost Economics................................. 48
DGCL................................................................... 22
DRCE................................................................... 48
EBIT................................................................... 45
EBITD.................................................................. 45
EBITDA................................................................. 44
Engagement Letter...................................................... 47
Engineering & Construction.............................................101
EPS.................................................................... 45
Exchange Act........................................................... 8
Exchange Offer......................................................... 1
Exchange Offer Proposal................................................ 1
Exchange Ratio......................................................... 12
Expiration Date........................................................ 14
FASB................................................................... 96
FTC.................................................................... 61
Full Cash Shares....................................................... 25
Global Marine.......................................................... 97
Goldman, Sachs......................................................... 11
HSR Act................................................................ 61
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IBES.................................................................. 44
Information Agent..................................................... 14
ISS................................................................... 79
LTM................................................................... 44
M-1 Drilling.......................................................... 97
Management Agreements................................................. 75
Management Forecasts.................................................. 44
Mandatory Bid......................................................... 13
MARAD................................................................. 23
Minimum Condition..................................................... 12
Ministry.............................................................. 61
Name Change Amendment................................................. 1
Newco................................................................. 33
Nkr................................................................... 9
Non-U.S. Holder....................................................... 56
Noon Buying Rate...................................................... 9
Normalized EBITDA..................................................... 48
Norwegian Business Acquisition Act Condition.......................... 12
Norwegian GAAP........................................................ 20
NYSE.................................................................. 1
Offer Period.......................................................... 14
Offering.............................................................. 70
OPA................................................................... 78
OPEC.................................................................. 76
OSE................................................................... 1
Oversubscription Fraction............................................. 25
Pareto................................................................ 11
PEII.................................................................. 74
Procon................................................................ 101
Proposals............................................................. 1
Reading & Bates....................................................... 40
Registration Statement................................................ 7
Regulatory Approval Condition......................................... 12
RISK.................................................................. 58
Ross Offshore......................................................... 40
Securities Act........................................................ 2
Selected Companies.................................................... 44
Selected Transactions................................................. 45
SFAS.................................................................. 96
Share Amount.......................................................... 1
Share Excess.......................................................... 25
Share Increase Amendment.............................................. 1
Shipping.............................................................. 75
Simmons............................................................... 34
Sonat Offshore........................................................ 1
Sonat Offshore Board.................................................. 10
Sonat Offshore Brasil................................................. 79
Sonat Offshore Special Meeting........................................ 1
Sonat Offshore Stockholders........................................... 1
Sonat Offshore Stockholder Approval Condition......................... 12
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Standstill Agreement.......... 75
Statoil Agreement............. 109
Ten Percent U.S. Shareholder.. 55
Tiger......................... 41
TIN........................... 56
TPT........................... 100
Transocean.................... 1
Transocean Articles........... 122
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Transocean Board............ 10
Transocean Offshore Inc. ... 1
Transocean Stock............ 1
Transocean Stockholder...... 1
U.K......................... 59
U.S. $...................... 9
U.S. GAAP................... 15
Undersubscription Fraction.. 25
VPS......................... 53
Wilrig...................... 40
</TABLE>
6
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (together with
all amendments, documents incorporated by reference and exhibits thereto, the
"Registration Statement") under the Securities Act with the Commission
covering the Company Common Stock.
This Prospectus/Offer to Purchase/Proxy Statement does not contain all the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the rules and regulations of the Commission.
For further information pertaining to Sonat Offshore and Transocean, reference
is made to the Registration Statement and the exhibits thereto, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W. Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates. Statements contained in this Prospectus/Offer
to Purchase/Proxy Statement or in any document incorporated by reference in
this Prospectus/Offer to Purchase/Proxy Statement to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement or such
other document.
Sonat Offshore is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports and other information
(including proxy statements) with the Commission. Such reports, proxy
statements and other information can be inspected and copies made at the
public reference facilities of the Commission, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and
Seven World Trade Center, New York, New York 10048, and copies of such
materials can be obtained from the public reference section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company Common Stock is listed on the NYSE, and such reports, proxy
statements and other information concerning Sonat Offshore are available for
inspection at the offices of the NYSE at 20 Broad Street, New York, New York
10005. The Transocean Stock is listed on the OSE.
The information concerning Transocean contained herein has been furnished by
Transocean or obtained from publicly available information. Sonat Offshore has
not to date had complete access to the books and records of Transocean and is
not in a position to verify such information or statements.
7
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Sonat Offshore (File
No. 1-7746) pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are incorporated by reference in this Prospectus/Offer to
Purchase/Proxy Statement:
1. Sonat Offshore's Annual Report on Form 10-K for the year ended
December 31, 1995;
2. Sonat Offshore's Quarterly Report on Form 10-Q for the period ended
March 31, 1996;
3. Sonat Offshore's Current Report on Form 8-K dated April 25, 1996;
4. Sonat Offshore's Current Report on Form 8-K dated May 20, 1996; and
5. The description of the Company Common Stock contained in the Company's
Registration Statement on Form 8-A, dated May 12, 1993.
All documents and reports filed by Sonat Offshore pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus/Offer
to Purchase/Proxy Statement and prior to the date of the termination of the
Exchange Offer described herein shall be deemed to be incorporated by
reference in this Prospectus/Offer to Purchase/Proxy Statement and thereby
deemed to be part of this Prospectus/Offer to Purchase/Proxy Statement from
the date of filing such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus/Offer
to Purchase/Proxy Statement to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Offer to
Purchase/Proxy Statement.
THIS PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT INCORPORATES OTHER
DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER OF COMPANY COMMON STOCK OR TRANSOCEAN STOCK TO
WHOM THIS PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, DIRECTED, TO SONAT OFFSHORE DRILLING
INC., 4 GREENWAY PLAZA, HOUSTON, TEXAS 77046, TELEPHONE: (713) 871-7500,
ATTENTION: SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUESTS SHOULD BE MADE BY NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
EXPIRATION DATE (AS HEREINAFTER DEFINED).
8
<PAGE>
EXCHANGE RATES
All currency amounts in this Prospectus/Offer to Purchase/Proxy Statement
are, unless otherwise indicated, expressed in U.S. dollars ("U.S. $" or "$").
This Prospectus/Offer to Purchase/Proxy Statement contains translations of
certain amounts in Norwegian kroner ("Nkr") into U.S. dollars. For convenience
purposes only, unless otherwise indicated, translations of Norwegian kroner
into U.S. dollars have been calculated at the rate of $1.00 to Nkr 6.415,
which represents the noon buying rate in New York City for cable transfers in
Norwegian kroner as certified for customs purposes by the Federal Reserve Bank
of New York as of March 31, 1996. These should not be construed as
representations that the Norwegian kroner amounts actually represent such U.S.
dollar amounts or that Norwegian kroner could be converted into U.S. dollars
at the rate indicated or at any other rate. The noon buying rate in New York
City for cable transfers in Norwegian kroner as certified for customs purposes
by the Federal Reserve Bank of New York (the "Noon Buying Rate") at the end of
the five years ended December 31, 1995 and the three months ended March 31,
1996 and the average, the high and the low exchange rates for each of such
five-year and three-month periods were as follows:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995 1994 1993 1992 1991
--------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
At end of period........................ 6.415 6.321 6.764 7.532 6.948 5.985
Average for period*..................... 6.447 6.312 7.011 7.132 6.226 6.492
High for period......................... 6.533 6.811 7.573 7.532 6.948 7.146
Low for period.......................... 6.316 6.116 6.199 6.630 5.510 5.664
</TABLE>
- --------
* Represents the average of the Noon Buying Rates on the last business day of
each full month during the relevant period.
During the period from April 1, 1996 to July 26, 1996, the high and low Noon
Buying Rates, respectively, were Nkr 6.616 and Nkr 6.3905. On July 26, 1996,
the Noon Buying Rate was U.S. $1.00 = Nkr 6.3905.
9
<PAGE>
SUMMARY
The following is a summary only and is qualified in its entirety by reference
to the full text of this Prospectus/Offer to Purchase/Proxy Statement and the
Annexes hereto and the documents incorporated herein by reference. Sonat
Offshore Stockholders and Transocean Stockholders are urged to read this
Prospectus/Offer to Purchase/Proxy Statement in its entirety.
THE PARTIES
SONAT OFFSHORE
Sonat Offshore is a Delaware corporation engaged in the contract drilling of
oil and gas wells in offshore areas throughout the world. The principal
executive offices of Sonat Offshore are located at 4 Greenway Plaza, Houston,
Texas 77046, and its main telephone number is 713-871-7500.
TRANSOCEAN
Transocean is a corporation organized under the laws of the Kingdom of
Norway. Transocean operates in three business areas: offshore drilling of oil
and gas wells by mobile units; platform drilling and well intervention; and
engineering and construction. Transocean sold substantially all of the assets
of Anchor Drilling Fluids, a wholly-owned subsidiary of Transocean ("Anchor
Drilling Fluids"), which constituted its drilling fluid services business area,
in June 1996. The principal executive offices of Transocean are located at
Plattformveien 2-4, P.O. Box 65, 4056 Tananger, Norway, and its main telephone
number is 011-47-51-69-49-00.
THE PROPOSED COMBINATION
The Board of Directors of Sonat Offshore (the "Sonat Offshore Board") and
Board of Directors of Transocean (the "Transocean Board") have approved a
"combination of equals" transaction whereby the businesses of Sonat Offshore
and Transocean will be combined under the ownership of one company to be known
as "Transocean Offshore Inc." The respective Boards of Sonat Offshore and
Transocean believe that the Combination offers the unique opportunity to
combine two successful companies into one company. The Combined Company will be
one of the world's leading deep water and harsh environment drillers, based
upon its technically advanced fleet of drilling units, financial strength,
engineering capabilities, management expertise and experienced workforce.
Following the consummation of the Combination, the equity of the Combined
Company will be held (assuming the Minimum Condition is satisfied)
approximately 55% by the current Sonat Offshore Stockholders and 45% by the
current Transocean Stockholders. The Combination will be accomplished through
the consummation of the Exchange Offer and, if necessary, the Mandatory Bid and
the Compulsory Acquisition. See "The Exchange Offer."
Following the consummation of the Combination the Board of Directors of the
Combined Company will consist of Richard D. Kinder, Ronald L. Kuehn, Jr.,
Robert J. Lanigan, Max L. Lukens, Martin B. McNamara and J. Michael Talbert,
who currently serve as directors of Sonat Offshore, and Fridtjof Lorentzen,
Reidar Lund, Einar Kloster and Kristian Siem, who currently serve as directors
or officers of Transocean. In addition, the Company intends that J. Michael
Talbert serve as Chairman of the Board and Chief Executive Officer of the
Combined Company and that Reidar Lund serve as President of Transocean
following consummation of the Combination. The Company expects that
Transocean's activities that are currently managed in Tananger will, to a large
degree, continue to be managed in Tananger and that Sonat Offshore's activities
that are currently managed in Houston will, to a large degree, continue to be
managed in Houston. The principal executive offices of the Combined Company
will be in Houston. The Company expects that the Combination will have a
limited effect on Transocean's and Sonat Offshore's employees.
10
<PAGE>
After giving effect to the Combination, the Combined Company would have had
1995 sales of nearly $671 million (based on the combined sales of Sonat
Offshore and Transocean but excluding the sales of the Anchor Drilling Fluids).
See "Unaudited Condensed Pro Forma Combined Financial Statements." For
additional information concerning Sonat Offshore, see "Description of Sonat
Offshore" and the Sonat Offshore Consolidated Financial Statements contained
elsewhere herein. For additional information concerning Transocean, see
"Description of Transocean" and the Transocean Consolidated Financial
Statements contained elsewhere herein.
REASONS FOR THE PROPOSED COMBINATION; BOARDS' RECOMMENDATIONS
Sonat Offshore. The Sonat Offshore Board believes that the Combination is
fair to, and in the best interest of, Sonat Offshore and the Sonat Offshore
Stockholders. Accordingly, in order to implement the Combination, the Sonat
Offshore Board unanimously recommends that the Sonat Offshore Stockholders vote
FOR adoption of the Proposals.
The Sonat Offshore Board believes that the Combination offers the unique
opportunity to combine two successful companies into one company. The combined
company will be one of the world's leading deep water and harsh environment
drillers, based upon its technically advanced fleet of drilling units,
financial strength, engineering capabilities, management expertise and
experienced workforce. The Sonat Offshore Board considered the significant
benefits associated with combining Sonat Offshore's and Transocean's offshore
drilling businesses in light of the Sonat Offshore Board's belief that the
Combination represents an excellent fit of the two companies' respective
strategic advantages in key geographic markets, particularly the Gulf of Mexico
and the North Sea. See "The Combination--Reasons for the Combination; Boards'
Recommendations."
In arriving at its determination, the Sonat Offshore Board considered a
number of factors, including the opinion dated as of July 26, 1996, of Goldman,
Sachs & Co. ("Goldman Sachs"), financial advisor to Sonat Offshore, described
herein. For a discussion of the factors considered by the Sonat Offshore Board
in reaching its decision, see "The Combination--Reasons for the Combination;
Boards' Recommendations" and "--Fairness Opinions."
Transocean. The Transocean Board has determined by a vote of four to three
that the terms of the Exchange Offer are fair to, and in the best interests of,
Transocean and the Transocean Stockholders. Accordingly, the Transocean Board
recommends that the Transocean Stockholders ACCEPT the Exchange Offer. All of
the stockholder representatives on the Transocean Board voted for the
recommendation. The three employee representatives on the Transocean Board
voted against this recommendation because they prefer that Transocean remain
independent. The employee representatives recommend however, that if Transocean
Stockholders prefer a business combination to remaining independent, the Sonat
Offshore offer is the preferable offer.
Since 1990, Transocean has implemented a consistent strategy focused on
creating a major international contract drilling and well intervention company
with emphasis on modern high specification floating drilling equipment. The
Transocean Board believes that the Combination offers the opportunity to create
an outstanding combined company with the financial resources, the competitive
strengths and the flexibility to provide its customers with a wide range of
quality drilling services.
Transocean's Board also concluded that, through a "combination of equals"
transaction such as the Combination, Transocean would, among other things,
increase significantly its diversity of geographic markets.
In reaching its determination, the Transocean Board consulted with
Transocean's management, as well as its financial advisors, and considered a
number of factors including the opinion of CS First Boston Corporation ("CS
First Boston") described herein and advice of Pareto Fonds AS ("Pareto"),
financial advisors to Transocean. See "The Combination--Reasons for the
Combination; Boards' Recommendations" and "--Fairness Opinions."
The largest shareholder of Transocean, with 17.2% of the outstanding
Transocean shares, has agreed to tender its shares in the Exchange Offer.
11
<PAGE>
FAIRNESS OPINIONS
Sonat Offshore Financial Advisors. Goldman Sachs has delivered its written
opinion, dated as of July 26, 1996, to the Sonat Offshore Board that, as of
such date, the Aggregate Consideration proposed to be paid in the Exchange
Offer to holders of 100% of the Transocean Stock was fair to Sonat Offshore.
Transocean Financial Advisors. CS First Boston has delivered its written
opinion, dated July 17, 1996, to the Transocean Board to the effect that, as of
the date of its opinion, the Exchange Ratio was fair to the Transocean
Stockholders from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINIONS OF GOLDMAN SACHS AND CS FIRST BOSTON,
WHICH SET FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINIONS, ARE ATTACHED HERETO AS
ANNEXES A AND B TO THIS PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT,
RESPECTIVELY, AND SHOULD BE READ IN THEIR ENTIRETY. SEE "THE COMBINATION--
FAIRNESS OPINIONS."
THE EXCHANGE OFFER
TERMS OF THE OFFER
The Company hereby offers, on the terms and subject to the conditions set
forth in this Prospectus/Offer to Purchase/Proxy Statement, to exchange for the
issued and outstanding shares of Transocean Stock (the "Exchange Ratio") (i)
.53 of a share of Company Common Stock for each of 43,248,358 shares of
Transocean, representing 80% of the currently outstanding shares of Transocean
Stock on a fully diluted basis, and (ii) U.S. $27.25 for each remaining share
of Transocean Stock (the aggregate consideration proposed to be paid in the
Exchange Offer for 100% of the Transocean Stock shall be referred to herein as
the "Aggregate Consideration"). A tendering Transocean Stockholder may elect to
receive cash rather than shares of Company Common Stock, provided that no cash
consideration will be paid unless shares of Transocean Stock in excess of the
Share Amount are duly tendered, and then only to the extent provided in "The
Exchange Offer--Terms of the Offer--Cash Payments." If the Cash Election is
oversubscribed, tendering Transocean Stockholders making the Cash Election will
receive shares of Company Common Stock in addition to cash pursuant to the
Exchange Offer, and if the Cash Election is undersubscribed, tendering
Transocean Stockholders making the Cash Election will receive all cash and
tendering Transocean Stockholders not making the Cash Election will receive
cash and shares of Company Common Stock, in each case as more fully described
in this Prospectus/Offer to Purchase/Proxy Statement. Subject to the rules and
regulations of the Commission and the OSE, the Company may elect (but shall not
be obligated) (i) to increase the Share Amount or the number of shares that
will be accepted for exchange for cash and (ii) to accept in exchange for
shares of Company Common Stock or for cash all or any additional shares of
Transocean Stock pursuant to such increase. See "The Exchange Offer--Terms of
the Offer."
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
The consummation of the Exchange Offer is subject to (i) the approval by the
Sonat Offshore Stockholders of the Proposals (the "Sonat Offshore Stockholder
Approval Condition"), (ii) the valid tender and nonwithdrawal on or prior to
the date on which the Exchange Offer expires by the Transocean Stockholders of
more than 80% of all the outstanding shares of Transocean Stock on a fully
diluted basis (the "Minimum Condition"), (iii) the receipt of all applicable
governmental and stock exchange authorizations, consents, orders and approvals,
(the "Regulatory Approval Condition"), and (iv) the continued effectiveness of
the exemption granted by appropriate Norwegian governmental authorities from
the application of the Norwegian Business Acquisition Act to the acquisition of
Transocean Stock pursuant to the Exchange Offer such that, upon consummation of
the Exchange Offer, the Company shall be entitled to exercise all voting rights
as a holder of Transocean Stock (the "Norwegian Business Acquisition Act
Condition," and collectively with the Sonat Offshore Stockholder Approval
Condition, the Minimum Condition, the Regulatory Approval Condition, and the
12
<PAGE>
other conditions more fully described below under "The Exchange Offer--Certain
Conditions of the Exchange Offer," the "Combination Conditions"). The
Combination Conditions may be waived, to the extent permitted by law, by the
Company in whole at any time or in part from time to time.
The Company has not determined to waive any of the foregoing conditions. In
evaluating any possible waiver of any of the foregoing conditions, the Company
would consider the likely effect of the waiver on the Company after giving
effect to the acquisition of the shares of Transocean Stock pursuant to the
Exchange Offer. In particular, in evaluating any waiver of the Minimum
Condition, the Company would consider, among other things, the advisability of
offering to acquire a greater number of shares of Transocean Stock for cash
pursuant to the Mandatory Bid, the Company's ability to finance such greater
cash consideration, the effect of such waiver on the Company's ability to
comply with the Credit Agreement and the Company's ability to exercise control
over Transocean after giving effect to the purchase of 80% or less of the
shares of Transocean Stock pursuant to the Exchange Offer. The Company's Credit
Agreement permits the Company to waive the Minimum Condition so long as the
Company acquires not less than 78% of the Transocean Stock for Company Common
Stock, but other provisions of the Credit Agreement may effectively limit the
Company's ability to waive the Minimum Condition. Accordingly, the Company
cannot predict if it would be able to waive the Minimum Condition should it
desire to do so and, if it were able to do so, the extent to which the Minimum
Condition could be reduced. To the extent that this Prospectus/Offer to
Purchase/Proxy Statement, as it may be amended or supplemented, omits to state
a material fact necessary to make the statements herein not misleading with
respect to any waiver of the Minimum Condition, the Company may be required to
resolicit holders of Transocean Stock who have tendered their Transocean Stock
prior to the correction of any such omission. See "The Exchange Offer--Certain
Conditions of the Exchange Offer."
If the Company exchanges 80% of the shares of Transocean Stock for .53 of a
share of Company Common Stock per Transocean share, as provided in the Exchange
Offer as initially promulgated, a maximum of 22,921,629 shares of Company
Common Stock will be issued. However, the Company has reserved the right to
increase the shares of Company Common Stock or cash offered, although the
Company has no plans to do so. If the Exchange Offer Proposal is approved by
the Sonat Offshore Stockholders, no further vote will be required to revise the
terms of the Exchange Offer, including any increase in the shares of Company
Common Stock offered, provided that the number of shares of Company Common
Stock issued will not exceed 28,652,037 shares.
MANDATORY BID AND COMPULSORY ACQUISITION
If the Company acquires more than 45% of all of the issued and outstanding
shares of Transocean Stock pursuant to the Exchange Offer, it will be required
to make a mandatory bid (the "Mandatory Bid") to be settled in cash or
including a cash alternative for any remaining shares of Transocean Stock at a
price not less than the highest price paid by the Company to acquire Transocean
Stock during the six months preceding consummation of the Exchange Offer. For
these purposes, the OSE has advised the Company that the price paid in the case
of shares of Transocean Stock acquired for Company Common Stock pursuant to the
Exchange Offer will be determined based upon the closing price of the Company
Common Stock on the NYSE Composite Tape on the day preceeding the date that the
Company purchases shares of Transocean Stock pursuant to the Exchange Offer.
If, as a result of the Exchange Offer or otherwise, the Company acquires a
number of shares of Transocean Stock representing more than 90% of the number
of all issued and outstanding shares of Transocean Stock, then the Company (and
each remaining Transocean Stockholder) will have the right under the Norwegian
Limited Companies Act (the "Companies Act"), to commence a process leading to a
compulsory acquisition for cash of any shares of Transocean Stock not
theretofore acquired at a price to be determined in accordance with the
Companies Act, which may be higher or lower than the consideration paid in the
Exchange Offer (the "Compulsory Acquisition"). No assurance can be given that
the Compulsory Acquisition will be consummated or, if consummated, as to the
timing or price thereof. See "The Exchange Offer--Terms of the Offer".
13
<PAGE>
PROCEDURES FOR TENDERING TRANSOCEAN STOCK
In order for a holder of Transocean Stock to validly tender Transocean Stock
pursuant to the Exchange Offer, an acceptance form (the "Acceptance Form") or
facsimile copy thereof, properly completed and duly executed, together with any
other required documents, shall be delivered to the Depositary specified
therein and must be received by the Depositary at one of its addresses set
forth on the back cover of this Prospectus/Offer to Purchase/Proxy Statement
prior to the Expiration Date. See "The Exchange Offer--Procedures for Tendering
Transocean Stock."
ACCEPTANCE FOR EXCHANGE
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange, and will exchange, all shares of Transocean
Stock validly tendered during the Offer Period (as herein defined) in
accordance with the procedures set forth in this Prospectus/Offer to
Purchase/Proxy Statement. The "Offer Period" shall mean the period from and
including , 1996 to and including the Expiration Date. The term
"Expiration Date" shall mean 4:00 P.M., Oslo, Norway time, on August 29, 1996,
unless extended, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer Period, as so extended, shall expire.
WITHDRAWAL RIGHTS
HOLDERS OF TRANSOCEAN STOCK WILL NOT HAVE THE RIGHT TO WITHDRAW SUCH
TRANSOCEAN STOCK FROM THE EXCHANGE OFFER ONCE TENDERED UNLESS THE EXPIRATION
DATE HAS BEEN EXTENDED BEYOND SEPTEMBER 13, 1996. IF THE EXPIRATION DATE HAS
BEEN SO EXTENDED, TENDERED TRANSOCEAN STOCK MAY BE WITHDRAWN DURING THE FIVE
DAY PERIOD ENDING SEPTEMBER 20, 1996, IN ACCORDANCE WITH THE PROCEDURES
SPECIFIED IN THIS PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT. SEE "THE
EXCHANGE OFFER--WITHDRAWAL RIGHTS."
FRACTIONAL SHARES
No fractional shares of Company Common Stock will be issued to holders of
Transocean Stock in connection with the Exchange Offer. In lieu thereof, the
Company shall pay to such holders otherwise entitled to a fractional share cash
in an amount equal to the product of such fraction and the closing price for a
share of Company Common Stock on the NYSE on the first trading day after the
Expiration Date.
FINANCING ARRANGEMENTS
The Company expects to fund the cash requirements of the Exchange Offer,
which (including the expenses relating to the Combination) are expected to
aggregate approximately $310 million (assuming all outstanding Transocean
shares are tendered), and the repayment of certain indebtedness of Transocean,
which is expected to aggregate approximately $150 million, with borrowings
under the Credit Agreement among the Company, ABN Amro Bank N.V., Houston
Agency, as Agent, Bank of Montreal, Houston Agency, The Fuji Bank Limited,
Royal Bank of Canada and Wells Fargo Bank (Texas), National Association, as Co-
Agents, and SunTrust Bank, Atlanta, and Credit Lyonnais, New York Branch, as
Documentation Agents, and the other banks named therein providing for aggregate
borrowings of $600 million. See "The Exchange Offer--Financing Arrangements."
NO DISSENTERS' OR APPRAISAL RIGHTS
The Sonat Offshore Stockholders do not have appraisal rights in connection
with the Proposals. Transocean Stockholders do not have appraisal rights as a
result of the Exchange Offer and will not be entitled to payments other than
pursuant to the Exchange Offer and, if applicable, the Mandatory Bid or the
Compulsory Acquisition.
INFORMATION AGENT; DEPOSITARY
The Company has retained Morrow & Co., Inc. to act as the Information Agent
and Sundal Collier & Co a.s to act as the Depositary in connection with the
Exchange Offer. See "The Exchange Offer--Fees and Expenses."
14
<PAGE>
CERTAIN TAX CONSEQUENCES
Sonat Offshore Stockholders. The consummation of the Exchange Offer, the
Mandatory Bid and the Compulsory Acquisition and the Combination will not
result in any United States federal income tax consequences to the Sonat
Offshore Stockholders or to the Company.
Transocean Stockholders. Disposition of Transocean Stock by U.S. holders
thereof generally will be a taxable transaction for United States federal
income tax purposes. Disposition of Transocean Stock by Norwegian holders
thereof generally will be a taxable transaction for Norwegian income tax
purposes. Disposition of Transocean Stock by U.K. holders thereof generally
will be a taxable transaction for U.K. income tax purposes. For a further
discussion of tax consequences of the Exchange Offer, the Mandatory Bid, and
the Compulsory Acquisition, see "Tax Consequences of the Exchange Offer,
Mandatory Bid and Compulsory Acquisition."
ACCOUNTING TREATMENT
The Combination will be accounted for under the "purchase" method of
accounting, in accordance with U.S. generally accepted accounting principles
("U.S. GAAP").
STOCK EXCHANGE LISTING
The Company Common Stock is listed on the NYSE. The additional listing on the
NYSE of the shares of Company Common Stock to be issued in the Exchange Offer
has been approved, subject to satisfaction of the Sonat Offshore Stockholder
Approval Condition and to official notice of issuance. In addition, the Company
Common Stock has been approved for a secondary listing on the OSE.
RISK FACTORS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
TRANSOCEAN STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE EXCHANGE OFFER,
SEE "RISK FACTORS" FOLLOWING THIS SUMMARY.
SONAT OFFSHORE SPECIAL MEETING
The Sonat Offshore Special Meeting will be held at 4 Greenway Plaza, Room C-
100, Houston, Texas, on August 29, 1996, at 8:00 a.m. At the Sonat Offshore
Special Meeting, the Sonat Offshore Stockholders will be asked to consider and
vote upon the following proposals: (i) to approve the issuance of up to
28,652,037 shares of Company Common Stock pursuant to the Exchange Offer; (ii)
to amend the Company Charter to increase the number of shares of Company Common
Stock that the Company is authorized to issue from 55,000,000 to 150,000,000
shares; and (iii) to amend the Company Charter to change the name of the
Company to "Transocean Offshore Inc." See "The Sonat Offshore Special Meeting--
Purpose of Meeting" and "--Date, Time and Place of Meeting."
VOTING
Only holders of record of Company Common Stock at the close of business on
July 22, 1996, are entitled to notice of and to vote at the Sonat Offshore
Special Meeting. The presence in person or by proxy of a majority of the
outstanding shares of Company Common Stock is necessary to constitute a quorum
at the Sonat Offshore Special Meeting. If there are insufficient votes to
constitute a quorum, the Sonat Offshore Special Meeting may be adjourned in
order to permit further solicitation of proxies. Broker non-votes and
abstentions count for the purpose of determining a quorum. At the Sonat
Offshore Special Meeting, each Sonat Offshore Stockholder is entitled to one
vote for each share of Company Common Stock held. The affirmative vote of a
majority of the shares voting at the Sonat Offshore Special Meeting, provided
that the total vote cast represents a majority of the outstanding shares of
Company Common Stock, is required to approve the Exchange Offer Proposal and
the
15
<PAGE>
affirmative vote of a majority of the outstanding shares of Company Common
Stock is required to approve the Charter Amendments. See "The Sonat Offshore
Special Meeting--Record Date, Stockholders Entitled to Vote and Required Vote."
SOLICITATION, REVOCATION AND USE OF PROXIES
All holders of Company Common Stock represented at the Sonat Offshore Special
Meeting by properly executed proxies received prior to or at the Sonat Offshore
Special Meeting, unless such proxies previously have been revoked, will be
voted at the Sonat Offshore Special Meeting in accordance with the instructions
on the proxies. If no contrary instructions are indicated, such proxies will be
voted FOR the approval and adoption of the Proposals.
Any proxy given pursuant to this solicitation may be revoked by the person
giving such proxy at any time before it is voted. Proxies with respect to
Company Common Stock may be revoked by filing with the Secretary of Sonat
Offshore written notice of revocation bearing a later date than the proxy, by
duly executing a later-dated proxy relating to the same Company Common Stock or
by attending the Sonat Offshore Special Meeting and voting in person (although
attendance at the Sonat Offshore Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice revoking a proxy with
respect to Company Common Stock must be sent to Secretary, Sonat Offshore
Drilling Inc., 4 Greenway Plaza, Houston, Texas 77046.
MARKET PRICE DATA
The last sale price of Company Common Stock as reported on the New York Stock
Exchange Composite Tape on July 26, 1996, was $51.50 per share. The last sale
price of the Transocean Stock on July 26, 1996, on the Oslo Stock Exchange was
Nkr 169 per share.
HOLDERS OF SHARES OF COMPANY COMMON STOCK AND TRANSOCEAN STOCK ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR SUCH SECURITIES.
16
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF THE COMBINED COMPANY
The following selected unaudited pro forma combined financial data illustrate
the estimated effects of the proposed Combination. The unaudited condensed pro
forma combined balance sheet data is based on the unaudited March 31, 1996
condensed consolidated balance sheets of both Sonat Offshore and Transocean and
assume the Combination occurred on that date. The unaudited condensed pro forma
combined statement of operations data is based on the condensed consolidated
statements of operations of Sonat Offshore and Transocean for the year ended
December 31, 1995, and the unaudited three month period ended March 31, 1996
and assume the Combination occurred at January 1, 1995. The Unaudited Condensed
Pro Forma Combined Financial Statements of the Combined Company have been
prepared applying U.S. GAAP, under which the Combination has been accounted for
as a "purchase". The selected unaudited pro forma combined financial data
should be read in conjunction with the Unaudited Condensed Pro Forma Combined
Financial Statements of the Combined Company and accompanying Notes, together
with the historical financial statements, including notes thereto, and other
financial information of Sonat Offshore and Transocean included elsewhere in
this Prospectus/Offer to Purchase/Proxy Statement.
THE SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF THE COMPANY DOES
NOT PURPORT TO REPRESENT WHAT THE FINANCIAL POSITION OR RESULTS OF OPERATIONS
OF THE COMPANY WOULD ACTUALLY HAVE BEEN IF THE COMBINATION HAD IN FACT OCCURRED
ON THE DATES INDICATED OR TO PROJECT THE FINANCIAL POSITION OR RESULTS OF
OPERATIONS FOR ANY FUTURE DATE OR PERIOD.
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
------------------ -------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating Revenues............ $ 170 $ 671
Operating Income.............. 9 20
Income (Loss) from Continuing
Operations................... (17) 10
Income (Loss) from Continuing
Operations per Common Share.. $(0.32) $ 0.19
BALANCE SHEET DATA
(at end of period)
Total Assets.................. $2,483
Total Debt--Excluding Current
Portion...................... 560
Stockholders' Equity.......... 1,566
</TABLE>
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA PER SHARE FINANCIAL INFORMATION
The following table sets forth (i) the historical income from continuing
operations per common share, the historical book value per share data and cash
dividends per common share of the Company Common Stock; (ii) the historical
income from continuing operations (loss) per common share and the historical
book value per share data of Transocean Stock (applying U.S. GAAP); (iii) the
unaudited pro forma income (loss) per common share and the unaudited pro forma
book value per share data of the Company Common Stock after giving effect to
the Combination accounted for as a purchase, as if it had occurred at the
beginning of the period; and (iv) the Transocean unaudited equivalent pro forma
income per share and the unaudited equivalent pro forma book value per share
attributable to .53 shares of the Company Common Stock. The information
presented in the table has been prepared applying U.S. GAAP and should be read
in conjunction with the Unaudited Condensed Pro Forma Combined Financial
Statements and the separate historical consolidated financial statements of
Sonat Offshore and Transocean and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------- ----------------------
TRANSOCEAN
SONAT OFFSHORE TRANSOCEAN (2) COMBINED EQUIVALENT(1)
-------------- -------------- -------- -------------
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM
CONTINUING OPERATIONS
PER COMMON SHARE
Three months ended
March 31, 1996........ $ 0.42 $(0.36) $(0.32) $(0.17)
Year ended December 31,
1995.................. $ 1.65 $ .01 $ 0.19 $ 0.10
BOOK VALUE PER SHARE
March 31, 1996......... $13.13 $ 7.08 $30.47 $16.15
December 31, 1995...... $12.80 $ 7.06 N/A N/A
CASH DIVIDENDS PER SHARE
Three months ended
March 31, 1996........ $ 0.06 $ 0 $ 0.06 $ 0.03
Year ended December 31,
1995.................. $ 0.24 $ 0 $ 0.24 $ 0.13
</TABLE>
- --------
(1) Transocean's pro forma equivalent per share information assumes each of
43,248,358 shares of Transocean Stock are exchanged for .53 of a share of
Company Common Stock.
(2) Amounts translated into U.S. dollars for purposes of this presentation at a
rate of $1.00 = Nkr 6.409 and Nkr 6.319 as of March 31, 1996 and December
31, 1995, respectively, and using the weighted average rates of exchange
for the three-month period ended March 31, 1996 and for the year ended
December 31, 1995 of $1.00 = Nkr 6.412 and Nkr 6.329, respectively.
18
<PAGE>
SONAT OFFSHORE SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for each of the five years ended
December 31, 1995 have been derived from audited consolidated financial
statements of Sonat Offshore. The selected financial data for the three month
periods ended March 31, 1996 and 1995 have been derived from the unaudited
condensed consolidated financial statements of Sonat Offshore which include all
adjustments, consisting only of normal recurring accruals, which Sonat Offshore
considers necessary for a fair presentation of its financial position and
results of operations for these periods. The following data should be read in
conjunction with "Sonat Offshore Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Sonat Offshore's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus/Offer to Purchase/Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------- ---------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ----- ----- ----- ---- ----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Operating Revenues.................. $ 81 $ 71 $ 323 $ 243 $ 271 $202 $173
Operating Income.................... 14 11 52 21 24 7 22
Income Before Cumulative Effect of
Accounting Change(1)............... 12 7 47 13 24 -- 9
Income Before Cumulative Effect of
Accounting Change Per Share(2)..... $ 0.42 $ 0.26 $1.65 $0.45 $1.00
BALANCE SHEET DATA
(at end of period)
Total Assets........................ $ 562 $ 542 $ 493 $ 472 $440 $417
Total Debt--Excluding Current
Portion............................ 30 30 30 -- 178 165
Stockholders' Equity................ 374 364 321 314 108 108
Cash Dividends Declared Per
Share(3)........................... $ 0.06 $0.24 $0.24 $0.06 -- --
</TABLE>
- --------
(1) 1993 excludes a $10 million charge ($7 million after tax) which was
recognized as a cumulative effect of accounting change relating to
recording the transition obligation in connection with the adoption of SFAS
No. 106, Employers' Accounting for Postretirement Benefits Other than
Pensions, in January 1993 and includes $24 million ($16 million after tax)
of interest income relating to the settlement of Sonat Inc.'s consolidated
federal income tax case for the years 1983 to 1985.
(2) Earnings per share are not presented for periods prior to 1993, since Sonat
Offshore was wholly owned by Sonat Inc.
(3) 1993 excludes $106 million paid to Sonat Inc. prior to Sonat Offshore's
initial public offering on June 4, 1993.
RECENT RESULTS
Sonat Offshore had net income for the quarter ended June 30, 1996, of $25.5
million, or $0.89 per share, compared to $8.2 million, or $0.29 per share for
the same period in 1995. Revenues for the 1996 quarter were $108.9 million,
compared to $85.5 million for the same period in 1995. During the 1996 period,
Sonat Offshore recognized an after-tax gain of $4.3 million, or $0.15 per
share, resulting from the disposal of the Offshore Bahram, a bottom-supported
rig out of service since January, 1996.
For the six months ended June 30, 1996, net income was $37.3 million, or
$1.31 per share, compared to net income of $15.5 million, or $0.54 per share
for the six months ended June 30, 1995. Revenues for the first six months of
1996 were $190.1 million, compared to revenues of $156.2 million in the 1995
period.
19
<PAGE>
TRANSOCEAN SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth a summary of the financial information for
Transocean as of the dates and for the periods indicated. The financial
information for periods prior to 1996 has been restated to reflect the merger
of Wilrig and Transocean under the pooling of interests accounting method. The
information for periods prior to 1994 has been restated to reflect the merger
of Ross Offshore under the pooling of interests accounting method for Norwegian
generally accepted accounting principles ("Norwegian GAAP") purposes. The
selected statement of operations data for each of the three years ended 1995
and the balance sheet data as of the end of 1995 and 1994 have been derived
from the audited consolidated financial statements of Transocean, and the other
annual selected financial data has been derived from unaudited consolidated
financial statements of Transocean. The selected financial data for the three
month periods ended March 31, 1996 and 1995 have been derived from unaudited
condensed consolidated financial statements of Transocean. The following data
should be read in conjunction with "Transocean Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Transocean's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus/Offer to Purchase/Proxy Statement. The following table reflects a
translation for convenience of the Norwegian kroner amounts included in
Transocean's consolidated financial statements into U.S. dollars using the
exchange rate at March 29, 1996 and December 29, 1995 of U.S.$1.00 = Nkr 6.415
and Nkr 6.321, respectively. Transocean prepares its consolidated financial
statements in accordance with Norwegian GAAP, which differs in certain
significant respects from U.S. GAAP. See Note 34 to the Consolidated Financial
Statements of Transocean and Note 5 to the Condensed Consolidated Financial
Statements of Transocean included elsewhere in this Prospectus/Offer to
Purchase/Proxy Statement for a description of the significant differences
between Norwegian GAAP and U.S. GAAP affecting Transocean's consolidated net
income (loss) and shareholders' equity. In particular, under Norwegian GAAP the
results of Anchor Drilling Fluids, which Transocean sold in June 1996, are
included in the operating results of Transocean, whereas under U.S. GAAP such
results are excluded from the operating results of Transocean and shown as
results of discontinued operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
----- ----- ----- ----- ----- ----- ------ ------ -----
U.S.$ U.S.$
(IN MILLIONS OF NORWEGIAN KRONER OR, IN THE INDICATED
COLUMN, MILLIONS OF U.S.$, EXCEPT PER SHARE DATA )
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Amounts in accordance
with Norwegian GAAP:
Operating Revenues.... $128 822 699 $501 3,164 3,044 3,292 2,953 2,604
Operating Income
(Loss)............... 3 16 (42) 20 127 (16) (239) (221) (2)
Net Income (Loss)..... (4) (24) (110) 3 19 (128) (580) (561) (209)
Net Income (Loss) Per
Share................ (0.07) (0.45) (2.09) 0.06 0.36 (2.61) (12.95) (14.53) (8.04)
Amounts in accordance
with U.S. GAAP:
Operating Revenues.... 89 571 476 349 2,203 1,805 1,557
Operating Income
(Loss)............... 1 9 (65) 16 100 (116) 17
Income (Loss) from
Continuing
Operations........... (19) (125) 39 0 2 (91) (133)
Income (Loss) from
Continuing Operations
Per Share............ (0.37) (2.33) 0.74 0.01 0.03 (1.86) (2.97)
Net Income (Loss)..... (19) (119) 40 3 20 (17) (76)
Net Income (Loss) Per
Share................ (0.35) (2.23) 0.76 0.06 0.39 (0.35) (1.70)
BALANCE SHEET DATA
(at end of period)
Amounts in accordance
with Norwegian GAAP:
Total Assets.......... 769 4,934 797 5,035 5,387 5,704 6,090 6,153
Total Debt--Excluding
Current Portion...... 258 1,654 265 1,672 2,050 2,034 2,240 2,223
Stockholders' Equity.. 368 2,362 362 2,290 2,269 2,201 2,653 3,168
Cash Dividends
Declared Per Share... 0 0 0 0 0
Amounts in accordance
with U.S. GAAP:
Total Assets.......... 727 4,663 757 4,782 5,157
Total Debt--Excluding
Current Portion...... 248 1,594 243 1,533 1,977
Stockholders' Equity.. 372 2,388 382 2,412 2,384
Cash Dividends
Declared Per Share... 0 0 0 0 0
</TABLE>
20
<PAGE>
RISK FACTORS
INTEGRATION OF SONAT OFFSHORE AND TRANSOCEAN
The Combination will involve the integration of two companies that have
previously operated independently. No assurance can be given that the Company
will not encounter difficulties in integrating the respective operations of
Sonat Offshore and Transocean. Any unexpected costs incurred in connection
with such integration could have a material adverse effect on the Combined
Company's business, operating results or financial condition. There can be no
assurance that the Combined Company will not experience the loss of key Sonat
Offshore or Transocean personnel.
LABOR RELATIONS
Subsequent to the announcement of the agreement in principle between Sonat
Offshore and Transocean relating to the Combination, certain representatives
of employees of Transocean indicated their opposition to any business
combination of Transocean with a non-Norwegian company and requested that the
Norwegian government block the Combination. In addition, the three employee
representatives on the Transocean Board voted against recommending that the
shareholders of Transocean accept the Exchange Offer, stating that they
preferred that Transocean remain independent. See "The Exchange Offer--
Background of the Combination." Although the Company believes that the
Combination is in the best interests of Transocean and Sonat Offshore,
including their respective employees, no assurance can be given that the
Norwegian government will not seek to prevent the consummation of the
Combination.
The Company believes that its future success will be dependent, to a
significant extent, on good relations with employees. Sonat Offshore has
operated in Norway since 1985, and it believes that its employee relations
have been good. However, the Company cannot predict the future course of
employee relations.
NON-TENDERING TRANSOCEAN STOCKHOLDERS
If the Company acquires more than 45% of all of the issued and outstanding
shares of Transocean Stock pursuant to the Exchange Offer, it will be required
under Norwegian law to make a Mandatory Bid to be settled in cash or including
a cash alternative for any remaining shares of Transocean Stock at a price not
less than the highest price paid by the Company to acquire Transocean Stock
during the six months preceding consummation of the Exchange Offer. For these
purposes, the Company has been advised by the OSE that the price paid in the
case of shares of Transocean Stock acquired for Company Common Stock pursuant
to the Exchange Offer will be determined based upon the closing price of the
Company Common Stock on the NYSE Composite Tape on the day preceding the date
that the Company purchases shares of Transocean Stock pursuant to the Exchange
Offer. If the Company acquires more than 90% of the shares of Transocean
Stock, it has the right to acquire the remaining shares and the holders
thereof have the right to require the Company to purchase such shares pursuant
to a Compulsory Acquisition. If the parties cannot agree on the purchase price
in the Compulsory Acquisition, it will be submitted to a court for final
determination.
As a result of the foregoing provisions of Norwegian law, the Company may be
required to acquire shares of Transocean for more than the anticipated $295
million of cash in the aggregate (equivalent to 20% of the outstanding shares
of Transocean Stock on a fully diluted basis at $27.25 per share) if the price
required to be paid in the Mandatory Bid or the Compulsory Acquisition exceeds
$27.25 per share or if the Company waives the Minimum Condition, acquires less
than 80% of the outstanding Transocean Stock for Company Common Stock pursuant
to the Exchange Offer and acquires more than 20% of the outstanding Transocean
Stock for cash.
If the Company does not acquire all of the outstanding shares of Transocean
Stock pursuant to the Exchange Offer, the Mandatory Bid and the Compulsory
Acquisition, provided that the Company acquires a majority of such shares, the
Company will have control of Transocean but its flexibility in managing
Transocean may be reduced. For example, any dividend paid by Transocean would
be paid on all of its shares, including those held by any public stockholders.
In addition, the Transocean Stock may continue to be listed on the OSE,
subjecting Transocean to additional regulation. Moreover, any shares of
Transocean Stock that are not acquired by the Company pursuant to the Exchange
Offer, any Mandatory Bid or any Compulsory Acquisition would remain
21
<PAGE>
outstanding and, depending on the number thereof, the liquidity and market
value thereof could be adversely affected.
POSSIBLE VOLATILITY OF MARKET PRICE OF COMPANY COMMON STOCK FOLLOWING THE
EXCHANGE OFFER
Assuming the Minimum Condition is satisfied, approximately 23 million
additional shares of Company Common Stock will be issued and will be freely
tradeable. As a result of the issuance of this large number of additional
shares, the market price of Company Common Stock may experience temporary
volatility or decline unrelated to the financial performance of the Company.
ANTI-TAKEOVER PROVISIONS
The Company Charter and By-Laws contain provisions that could prevent or
delay an acquisition of the Company by means of a tender offer, a proxy
contest or otherwise. Such provisions also may adversely affect prevailing
market prices for the Company Common Stock. These provisions, among other
things: (i) classify the Company Board into three classes of directors, each
of which will serve for different three-year periods; (ii) provide that the
Company's Board may designate the terms of any new series of preferred stock
of the Company; (iii) provide that any stockholder of the Company who wishes
to propose any business or to nominate a person or persons for the election as
director at any annual meeting may only do so if advance notice is given to
the Secretary of the Company; (iv) provide that no stockholder action may be
effected by written consent; (v) provide that any newly created directorship
(resulting from any increase in the number of the directors or otherwise) will
be filled by the affirmative vote of the remaining directors; (vi) provide
that only a majority of the directors may call special meetings of the
stockholders of the Company; and (vii) limit the ability of the stockholders
of the Company to amend or repeal certain provisions of the Company Charter
and By-laws. In addition, the Company is subject to Section 203 of the
Delaware General Corporate Law (the "DGCL"), which limits transactions between
a publicly held company and "interested stockholders" (generally, those
stockholders who, together with their affiliates and associates, own 15% or
more of the Company's outstanding capital stock). See "Description of Capital
Stock and the Company Charter." The Company may in the future adopt a
stockholder rights plan pursuant to which the holders of Company Common Stock
would be issued rights to acquire, in certain circumstances, shares of
convertible preferred stock of the Company. Such rights might, if issued, have
certain anti-takeover effects.
CHANGES IN RIGHTS OF TRANSOCEAN STOCKHOLDERS
Upon consummation of the Exchange Offer, holders of Transocean Stock who
tender such shares into the Exchange Offer and are not paid cash therefor will
own shares of Company Common Stock. Transocean is a corporation organized
under the laws of the Kingdom of Norway and the Company is a corporation
incorporated under the laws of the State of Delaware. There are a number of
significant differences between the rights of holders of Transocean Stock and
holders of Company Common Stock as a result of differences between the
corporate laws of the Kingdom of Norway and the State of Delaware, as well as
from differences between the governing instruments of the two companies. For
example, the directors of the Company are divided into three classes, each of
which is elected for a three year term. The directors of Transocean are
elected for two year terms. Directors of the Company may be removed only for
cause, and vacancies on the Board of the Company may be filled only by the
remaining directors. Directors of Transocean may be removed at any time by a
general meeting of stockholders, and vacancies may be filled by stockholders.
See "Certain Changes in Rights of Transocean Stockholders Resulting from the
Combination" for a fuller discussion of such differences.
ARCADE DRILLING RIGS
Two of the fourth-generation semisubmersibles in which Sonat Offshore has an
ownership interest are owned by Arcade Drilling as. ("Arcade Drilling"), a
Norwegian corporation in which Sonat Offshore owns a 25% equity interest but
which is controlled by Reading & Bates Corporation, a competitor of Sonat
Offshore. Sonat Offshore entered into agreements with Arcade Drilling under
which Sonat Offshore managed these rigs.
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The management contract for one of these rigs expired in December 1995. The
other rig is bareboat chartered to Sonat Offshore in connection with a
drilling contract that expires September 1996. Sonat Offshore's management
contract with Arcade Drilling for this rig will run for the term of such
drilling contract. During 1995, Sonat Offshore had operating income of $2.7
million as a result of its management agreement and bareboat charter contract
with respect to these two Arcade Drilling rigs. The Company had operating
income of $0.4 million in the first quarter of 1996 relating to the management
and bareboat charter of one of such rigs. All management fees and bareboat
charter fees to the Company will cease with the termination of such management
and charter. See "Description of Sonat Offshore--Arcade Drilling" and
"Description of Sonat Offshore--Drilling Contracts."
TURNKEY CONTRACTS AND FLUCTUATION IN QUARTERLY RESULTS
Sonat Offshore engages in drilling services pursuant to turnkey drilling
contracts under which Sonat Offshore agrees to drill a well to a specified
depth for a fixed price. Generally, Sonat Offshore is not entitled to payment
unless the well is drilled to the specified depth. Sonat Offshore must bear
the costs of performing drilling services until the well has been drilled and,
accordingly, turnkey projects typically require significant cash commitments
by Sonat Offshore. In addition, profitability of the contract is dependent
upon keeping expenses within the estimates used by Sonat Offshore in
determining the contract price. In performing a turnkey project, Sonat
Offshore employs a drilling unit from its own fleet or from another drilling
contractor under a dayrate contract. Drilling a well under a turnkey contract
offers the possibility of financial gains and losses that are substantially
greater than those which would ordinarily result from drilling such well under
a conventional dayrate contract, since Sonat Offshore retains any excess of
the fixed price over its expenses (including the drilling unit dayrate) but
must pay any excess of expenses over such price. The financial results of a
turnkey contract depend upon the performance of the drilling unit, drilling
conditions and other factors. See "Description of Sonat Offshore--Drilling
Contracts." For a discussion of the contribution of turnkey projects to the
Sonat Offshore's results, see "Sonat Offshore Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operating Results."
Sonat Offshore's earnings may fluctuate from quarter-to-quarter as a result
of, among other reasons, the manner in which Sonat Offshore accounts for its
turnkey contracts. Turnkey profits are recognized on completion of the well
and acceptance by the customer; provisions for turnkey losses are made on
contracts in progress when losses are anticipated.
LIMITATION ON OWNERSHIP BY NON-U.S. CITIZENS
The Company, as the owner of United States flag vessels, is subject to the
Shipping Act, 1916, which provides that a controlling interest in the Company
may not be acquired by a non-U.S. citizen without the consent of the U.S.
Secretary of Transportation, acting through the United States Maritime
Administration ("MARAD"). A similar restriction applies to the Company under
the terms of agreements between the Company and MARAD with respect to certain
non-United States flag vessels. If a non-U.S. citizen were to acquire a
controlling interest in the Company without MARAD's consent, MARAD would have
the right to exercise various remedies under the Shipping Act, 1916, and the
Company's agreements with MARAD, including seizure of vessels, civil penalties
and certain misdemeanor criminal penalties.
RECENT DEVELOPMENTS
Sonat Offshore had net income for the quarter ended June 30, 1996, of $25.5
million, or $0.89 per share, compared to $8.2 million, or $0.29 per share for
the same period in 1995. Operating income for the three months ended June 30,
1996 and 1995 was $30.2 million and $11.9 million, respectively. Revenues for
the 1996 quarter were $108.9 million, compared to $85.5 million for the same
period in 1995.
For the six months ended June 30, 1996, net income was $37.3 million, or
$1.31 per share, compared to net income of $15.5 million, or $0.54 per share
for the six months ended June 30, 1995. Operating income for the
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six months ended June 30, 1996 and 1995 was $44.2 million and $22.6 million,
respectively. Revenues for the first six months of 1996 were $190.1 million,
compared to revenues of $156.2 million in the 1995 period.
The increases in net income for the three and six months ended June 30, 1996
were primarily due to increases in both operating income and other income,
slightly offset by a related increase in income taxes. Operating income
increases are primarily attributable to improved dayrates during the 1996
periods. Since operating expenses do not necessarily increase with higher
dayrates, the increase in operating income is attributable to higher revenues
without a corresponding increase in expenses.
Other income increased $8.1 million and $11.6 million for the three and six
months ended June 30, 1996, respectively, primarily due to a $6.6 million pre-
tax ($4.3 million or $0.15 per share after-tax) gain on the disposal of the
Offshore Bahram, a bottom-supported rig out of service since January 1996,
increased equity in unconsolidated joint ventures, and additional interest
income on cash balances. Other income for the six months ended June 30, 1996
includes $1.0 million of interest income related to the finalization of the
interest component on a previously settled tax case and a gain of $0.8 million
on the sale of Sonat Inc. stock owned by Sonat Offshore.
General and administrative expense decreases of $1.1 million and $1.2
million for the three and six months ended June 30, 1996, respectively, were
primarily attributable to higher general and administrative expense amounts in
the 1995 periods due to non-recurring expenses associated with accelerated
vesting of restricted stock and potential corporate acquisition costs.
In light of the continued improvements in the market and planned upgrades,
Sonat Offshore has reevaluated and extended the remaining lives on nine of its
rigs by an average of approximately five years, effective July 1, 1996.
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<PAGE>
THE EXCHANGE OFFER
TERMS OF THE OFFER
General. The Company hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus/Offer to Purchase/Proxy Statement, to
exchange for the outstanding shares of Transocean Stock (i) .53 of a share of
Company Common Stock for each of 43,248,358 shares of Transocean
Stock, representing 80% of the currently outstanding shares of Transocean
Stock on a fully diluted basis, and (ii) U.S. $27.25 for each remaining share
of Transocean Stock. A tendering Transocean Stockholder may elect to receive
cash rather than shares of Company Common Stock, provided that no cash
consideration will be paid unless shares of Transocean Stock in excess of the
Share Amount are duly tendered. Subject to the rules and regulations of the
Commission and the OSE, the Company may elect (but shall not be obligated) (i)
to increase the Share Amount or the number of shares that will be accepted for
exchange for cash and (ii) to accept for exchange for shares of Company Common
Stock or for cash all or any additional shares of Transocean Stock pursuant to
such increase.
Cash Payments. If the number of shares of Transocean Stock acquired by the
Company pursuant to the Exchange Offer exceeds the Share Amount (such excess,
the "Share Excess"), then an aggregate amount (the "Aggregate Cash Amount")
equal to U.S. $27.25 multiplied by the Share Excess shall be paid in cash for
tendered Transocean Stock on the following basis:
(i) If the number of shares of Transocean Stock as to which the Cash
Election is made equals or is less than the Share Excess, then the Company
shall pay U.S. $27.25 for each such share (the "Full Cash Shares");
(ii) If the number of shares of Transocean Stock as to which the Cash
Election is made exceeds the Share Excess, then the Company shall deliver
for each such share (A) cash in an amount equal to U.S. $27.25 multiplied
by a fraction (the "Oversubscription Fraction"), the numerator of which
shall be the Aggregate Cash Amount and the denominator of which shall be
U.S. $27.25 multiplied by the number of shares as to which the Cash
Election was made and (B) a fraction of a share of Company Common Stock
equal to .53 multiplied by a fraction equal to one minus the
Oversubscription Fraction; and
(iii) If the number of shares of Transocean Stock as to which the Cash
Election is made is less than the Share Excess, then the Company shall
deliver for each share of Transocean Stock acquired by it in the Exchange
Offer other than the Full Cash Shares (A) cash in an amount equal to U.S.
$27.25 multiplied by a fraction (the "Undersubscription Fraction") the
numerator of which shall be (x) the Aggregate Cash Amount less (y) the
product of U.S. $27.25 and the number of Full Cash Shares, and the
denominator of which shall be (x) U.S. $27.25 multiplied by (y) the number
of shares acquired by the Company in the Exchange Offer minus the number of
Full Cash Shares and (B) a fraction of a share of Company Common Stock
equal to .53 multiplied by a fraction equal to one minus the
Undersubscription Fraction.
Pursuant to the foregoing formula, if the Cash Election is oversubscribed,
tendering Transocean Stockholders making the Cash Election will receive a pro
rata share of $27.25 in cash and .53 of a share of Company Common Stock for
each tendered Transocean share, determined based on the proportion of (i) the
aggregate amount of cash offered by the Company pursuant to the Exchange Offer
to (ii) the aggregate amount that would be required to pay $27.25 for all
shares as to which the Cash Election was made. If the Cash Election is
undersubscribed, tendering Transocean Stockholders making the Cash Election
will receive $27.25 per Transocean share, and the tendering Transocean
Stockholders not making the Cash Election will receive a pro rata share of
$27.25 and .53 of a share of Company Common Stock for each tendered Transocean
share, determined based on the proportion of (i) the aggregate amount of cash
offered by the Company pursuant to the Exchange Offer, minus the aggregate
amount of cash to be paid to those making the Cash Election, to (ii) the
aggregate amount that would be required to pay $27.25 per Transocean share for
all tendered shares other than those as to which the Cash Election was made.
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Illustration. The following table illustrates the terms of the Exchange
Offer and the consideration to be received in respect thereof based on the
number of shares of Transocean Stock validly tendered and accepted in the
Exchange Offer and the number of such shares as to which the Cash Election has
been validly made.
<TABLE>
<CAPTION>
% OF OUTSTANDING CONSIDERATION TO BE CONSIDERATION TO BE
% OF OUTSTANDING SHARES OF RECEIVED FOR EACH SHARE OF RECEIVED FOR EACH SHARE OF
SHARES OF TRANSOCEAN STOCK TRANSOCEAN STOCK TRANSOCEAN STOCK
TRANSOCEAN STOCK TENDERED AND ACCEPTED TENDERED AND ACCEPTED TENDERED AND ACCEPTED
TENDERED AND ACCEPTED AND AS TO WHICH A CASH AND AS TO WHICH NO CASH AND AS TO WHICH A CASH
IN THE EXCHANGE OFFER ELECTION HAS BEEN MADE ELECTION IS MADE ELECTION IS MADE
- --------------------- ---------------------- -------------------------- --------------------------
<S> <C> <C> <C>
80% 0% .53 shares of N/A
Company Common Stock
80% 10% .53 shares of .53 shares of
Company Common Stock Company Common Stock
80% 80% N/A .53 shares of
Company Common Stock
90% 0% .4711 shares of N/A
Company Common Stock
and
$3.03 cash
90% 10% .53 shares of $27.25
Company Common Stock
90% 90% N/A .4711 shares of
Company Common Stock
and
$3.03 cash
100% 0% .424 shares of N/A
Company Common Stock
and
$5.45 cash
100% 10% .4711 shares of $27.25
Company Common Stock
and
$3.03 cash
100% 100% N/A .424 shares of
Company Common Stock
and
$5.45 cash
</TABLE>
Fractional Shares. No fractional shares of Company Common Stock will be
issued to holders of Transocean Stock in connection with the Exchange Offer.
In lieu thereof, the Company shall pay to such holders otherwise entitled to a
fractional share cash in an amount equal to the product of such fraction and
the closing price for a share of Company Common Stock on the NYSE on the first
trading day after the Expiration Date.
MANDATORY BID AND COMPULSORY ACQUISITION
If the Company acquires more than 45% of all of the issued and outstanding
shares of Transocean Stock pursuant to the Exchange Offer, it will be required
to make a Mandatory Bid settled in cash or including a cash alternative for
any remaining shares of Transocean Stock at a price not less than the highest
price paid by the Company to acquire Transocean Stock during the six months
preceding consummation of the Exchange Offer, as determined by the OSE. For
these purposes, the Company has been advised by the OSE that the price paid in
the case of shares of Transocean Stock acquired for Company Common Stock
pursuant to the Exchange Offer will be determined based on the closing price
of the Company Common Stock on the NYSE Composite Tape on the day preceding
the date that the Company purchases shares of Transocean Stock pursuant to the
Exchange Offer.
If, as a result of the Exchange Offer or otherwise, the Company acquires
shares of Transocean Stock representing more than 90% of the issued and
outstanding shares of Transocean Stock, the Company (and each remaining
Transocean Stockholder) would have the right under Section 3-15 of the
Companies Act to commence
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<PAGE>
a process leading to the Compulsory Acquisition. If this level is obtained by
the Company as a result of the Exchange Offer or otherwise, the Company
intends to exercise its right to effect the Compulsory Acquisition. Any
Compulsory Acquisition initiated by the Company will relate to all shares of
Transocean Stock.
If the Company and all remaining holders of Transocean Stock are not able to
agree as to the price to be paid in the Compulsory Acquisition, the price will
be submitted to a court convened under the Act on Valuation Procedure 1917 for
final determination. The court will determine the price based on an evaluation
of Transocean.
THE OFFER PERIOD
The term "Offer Period" shall mean the period from and including , 1996
to and including the Expiration Date. The term "Expiration Date" shall mean
4:00 P.M., Oslo, Norway time on August 29, 1996, unless and until the Company
extends the Offer Period, in which event the "Expiration Date" shall mean the
latest time and date at which the Offer Period, as so extended, shall expire.
The Company expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the Offer Period for the Exchange Offer
for any reason, including the occurrence of any of the events specified in the
conditions set forth in "The Exchange Offer--Certain Conditions of the
Exchange Offer," by giving oral or written notice of such extension to the
Depositary.
Subject to the applicable rules and regulations of the Commission and the
OSE, the Company also reserves the right, in its sole discretion, at any time,
to (i) delay acceptance for exchange of and, regardless of whether any
Transocean Stock has theretofore been accepted for exchange, delay delivery of
shares of the Company Common Stock for any Transocean Stock tendered into the
Exchange Offer pending receipt of any governmental or other regulatory
approvals or other actions specified in "Regulatory Approvals," (ii) terminate
the Exchange Offer and not accept for exchange any Transocean Stock upon the
occurrence of any of the events specified in the conditions set forth in "The
Exchange Offer--Certain Conditions of the Exchange Offer," and (iii) waive (to
the extent permissible) any condition described in "The Exchange Offer--
Certain Conditions of the Exchange Offer," or otherwise amend the Exchange
Offer in any respect, by giving oral or written notice of such delay,
termination or amendment to the Depositary and to the OSE and by making a
public announcement thereof.
Without limiting the manner in which the Company may choose to make any
public announcement, whether in connection with an extension, delay,
termination, amendment or waiver of any of the terms of the Exchange Offer,
and except as provided by applicable law, the Company shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by making a press release to the Dow Jones News Service and to the
OSE. If such press release relates to an extension of the Exchange Offer, the
Company shall issue such press release no later than 9:00 a.m. on the next
business day after the scheduled termination of the Exchange Offer. For
purposes of the Exchange Offer, a "business day" means any day other than a
Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
Transocean has arranged for the Company to obtain a list of holders of
record of Transocean Stock. This Prospectus/Offer to Purchase/Proxy Statement
and related materials will be mailed by the Company to such record holders and
will be furnished by the Company to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on such lists for subsequent transmittal to beneficial owners of
Transocean Stock, or who otherwise indicate to the Company that they are
holding Transocean Stock.
PROCEDURES FOR TENDERING TRANSOCEAN STOCK
General. In order for a holder of Transocean Stock to validly tender
Transocean Stock pursuant to the Exchange Offer, an Acceptance Form or
facsimile copy thereof, properly completed and duly executed, together
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<PAGE>
with any other required documents, shall be delivered to the Depositary
specified therein and must be received by the Depositary at one of its
addresses set forth on the back cover of this Prospectus/Offer to
Purchase/Proxy Statement prior to the Expiration Date.
ANY TRANSOCEAN STOCKHOLDER WHOSE TRANSOCEAN STOCK IS REGISTERED IN THE NAME
OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST
CONTACT SUCH PERSON IF SUCH TRANSOCEAN STOCKHOLDER DESIRES TO TENDER SUCH
TRANSOCEAN STOCK.
IN ORDER FOR A HOLDER OF TRANSOCEAN STOCK TO VALIDLY TENDER TRANSOCEAN STOCK
PURSUANT TO THE EXCHANGE OFFER, THE ACCEPTANCE FORM MUST BE SIGNED BY THE
SHAREHOLDER OR HIS AUTHORIZED ATTORNEY AND, IF APPLICABLE, BY ANY REGISTERED
HOLDER OF RIGHTS TO SUCH HOLDER'S RELEVANT VERDIPAPIRSENTRALEN (THE NORWEGIAN
REGISTRY OF SECURITIES) ACCOUNT(S).
The valid tender of Transocean Stock pursuant to the procedure described
above will constitute a binding agreement between the tendering Transocean
Stockholder and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of
Transocean Stock will be determined by the Company with respect to the
Exchange Offer, in its sole discretion, which determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any
or all tenders determined by it not to be in proper form, or the acceptance
for exchange of which may, in the opinion of its counsel, be unlawful. The
Company also reserves the absolute right to waive any defect or irregularity
in the tender of any Transocean Stock. No tender of Transocean Stock will be
deemed to have been validly made until all defects or irregularities relating
thereto have been cured or waived. None of the Company, the Depositary, the
Information Agent, or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. The interpretation by the
Company of the terms and conditions of the Exchange Offer (which includes the
Acceptance Form and the instructions thereto) will be final and binding.
If the Acceptance Form is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Depositary, proper evidence satisfactory to
the Depositary of their authority to so act must be submitted.
The acceptance of Transocean Stock by the Company pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering Transocean Stockholder and the Company upon the terms and subject to
the conditions applicable to the Exchange Offer.
WITHDRAWAL RIGHTS
AFTER ACCEPTING THE EXCHANGE OFFER BY SUBMITTING AN ACCEPTANCE FORM, AS
DESCRIBED IN "--PROCEDURES FOR TENDERING TRANSOCEAN STOCK" ABOVE, HOLDERS OF
TRANSOCEAN STOCK WILL NOT HAVE WITHDRAWAL RIGHTS UNLESS THE EXPIRATION DATE
HAS BEEN EXTENDED BEYOND SEPTEMBER 13, 1996.
If the Expiration Date is extended beyond September 13, 1996, Transocean
Stock tendered pursuant to the Exchange Offer may be withdrawn pursuant to the
procedures set forth below during the five day period ending September 20,
1996. Holders of Transocean Stock will not have any other withdrawal rights.
To be effective, a written notice of withdrawal or a facsimile transmission
thereof must be timely received by the Depositary at one of its addresses set
forth on the back cover of this Prospectus/Offer to Purchase/Proxy Statement
and must specify the name of the person having tendered Transocean Stock to be
withdrawn, the number of shares of Transocean Stock to be withdrawn and the
VPS account number of the person who tendered the shares of Transocean Stock
to be withdrawn.
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<PAGE>
Withdrawals of tendered Transocean Stock may not be rescinded, and any
Transocean Stock properly withdrawn will thereafter be deemed not validly
tendered for the purposes of the Exchange Offer. However, withdrawn Transocean
Stock may be re-tendered by following one of the procedures described in "--
Procedures for Tendering Transocean Stock" above at any time during the Offer
Period.
All questions as to the validity (including the time of receipt) of notices
of withdrawal with respect to the Exchange Offer will be determined by the
Company in its sole discretion, whose determination will be final and binding.
None of the Company, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give any
such notification.
ACCEPTANCE FOR EXCHANGE; DELIVERY OF COMPANY COMMON STOCK
Upon the terms and subject to the conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the Company will accept for
exchange, and will exchange, as promptly as practicable after the Expiration
Date, all Transocean Stock validly tendered into the Exchange Offer and not
withdrawn prior to the Expiration Date. Subject to applicable rules of the
Commission, the Company expressly reserves the right to delay acceptance for
exchange of, or delivery of any consideration for, Transocean Stock tendered
into the Exchange Offer pending receipt of any governmental or other
regulatory approvals, orders or actions specified in "Regulatory Approvals."
The issuance of Company Common Stock pursuant to the Exchange Offer will be
subject to all applicable requirements of law.
In all cases, Transocean Stock accepted for exchange pursuant to the
Exchange Offer will be exchanged only after timely receipt by the Depositary
of an Acceptance Form (or facsimile copy thereof) properly completed and duly
executed and any other documents required by the Acceptance Form.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and thereby acquired, Transocean Stock validly tendered
to it pursuant to the Exchange Offer as, if and when the Company gives oral or
written notice to the Depositary of its acceptance for exchange of such
Transocean Stock tendered pursuant to the Exchange Offer.
If the Company is delayed in its acceptance for exchange of, or issuance of
the Company Common Stock in exchange for, Transocean Stock or is unable to
accept for exchange, or issue the Company Common Stock in exchange for,
Transocean Stock pursuant to the Exchange Offer for any reason, then, without
prejudice to the rights of the Company with respect to the Exchange Offer
under this Prospectus/Offer to Purchase/Proxy Statement (but subject to
compliance with applicable rules of the Commission), the Depositary may
nevertheless, on behalf of the Company, retain tendered Transocean Stock.
Under no circumstances will interest be paid, nor will any additional Company
Common Stock be issued, by the Company, regardless of any delay in making such
exchange.
If any tendered shares of Transocean Stock are not accepted for exchange or
exchanged for any reason, any such stock will be returned, without expense to
the tendering Transocean Stockholder, as promptly as practicable after the
Expiration Date or termination of the Exchange Offer.
DIVIDENDS AND DISTRIBUTIONS
If, on or after the date hereof, Transocean should make a dividend or
distribution of Transocean Stock or split, combine or otherwise change any
Transocean Stock or its capitalization, or disclose that it has taken any such
action, then, without prejudice to the rights of the Company under "The
Exchange Offer--Certain Conditions of the Exchange Offer," the Company may
make such adjustments to the purchase price (or portion thereof), Exchange
Ratio and other terms of the Exchange Offer as it deems appropriate to reflect
such split, combination or other change.
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company will
not be required to accept for exchange or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under
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<PAGE>
the Exchange Act (relating to the Company's obligation to pay for or return
tendered Transocean Stock promptly after the termination or withdrawal of the
Exchange Offer), to exchange any shares of Transocean Stock not theretofore
accepted for exchange or exchanged, and may terminate or amend the Exchange
Offer as described herein, if (1) at the Expiration Date, each of (a) the
Minimum Condition, (b) the Sonat Offshore Stockholder Approval Condition, (c)
the Regulatory Approval Condition, and (d) the Norwegian Business Acquisition
Act Condition shall not have been satisfied, or (2) at any time on or after
June 1, 1996, and before the acceptance of such shares of Transocean Stock for
exchange or the exchange thereof, any of the following conditions shall exist:
(a) there shall be threatened, instituted or pending any action,
proceeding, application or counterclaim by any government or governmental
authority or agency, domestic or foreign, or by any other person, domestic
or foreign, before any court or governmental authority or agency, domestic
or foreign, (i) challenging or seeking to, or which is reasonably likely
to, make illegal, delay or otherwise directly or indirectly restrain or
prohibit, or seeking to, or which is reasonably likely to, impose voting,
procedural, price or other requirements, in addition to those required by
U.S. securities laws and the Norwegian Business Acquisition Act, in
connection with, the making of the Exchange Offer, the acceptance for
exchange, or exchange, or ownership, of some of or all of the shares of
Transocean Stock by the Company or any other affiliate of the Company, or
the consummation by the Company or any affiliate of the Company of a
Mandatory Bid for, or Compulsory Acquisition of, shares of Transocean
Stock, or otherwise directly or indirectly relating to the transactions
contemplated by the Exchange Offer, (ii) seeking to prohibit the ownership
or operation by the Company or any affiliate of the Company of all or any
portion of the business or assets of Transocean and its subsidiaries or of
the Company or any affiliate of the Company or to compel the Company or any
affiliate of the Company to dispose of or hold separate all or any portion
of the business or assets of the Company or any affiliate of the Company or
of Transocean or any of its subsidiaries or seeking to impose any
limitation on the ability of the Company or any affiliate of the Company to
conduct its business or own such assets, (iii) seeking to obtain material
damages against Transocean or any of its affiliates or the Company or any
of its affiliates, (iv) seeking any material diminution in the benefits
expected to be derived by the Company or any affiliate of the Company as a
result of the transactions contemplated by the Exchange Offer and the
Combination, (v) adversely affecting the financing of the Exchange Offer or
the transactions contemplated thereby or (vi) materially adversely
affecting the business, properties, assets, condition (financial or
otherwise), operations, results of operations or prospects of Transocean or
any of its subsidiaries;
(b) there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction enacted,
enforced, promulgated, amended, issued or deemed applicable to
(i) Transocean or any affiliate of Transocean or the Company or any
affiliate of the Company or (ii) the Exchange Offer, by any legislative
body, court, government or governmental authority or agency, domestic or
foreign, that, in the sole judgment of the Company, might, directly or
indirectly, result in any of the consequences referred to in clauses (i)
through (vi) of paragraph (a) above;
(c) any change shall have occurred or been threatened (or any condition,
event or development shall have occurred or been threatened involving a
prospective change) in the business, properties, assets, condition
(financial or otherwise), operations, results of operations or prospects of
Transocean or any of its subsidiaries that is or may be materially adverse
to Transocean and its subsidiaries taken as a whole, or the Company shall
have become aware of any facts that have or may have material adverse
significance with respect to either the value of Transocean or any of its
subsidiaries or the value of the shares of Transocean Stock to the Company
or any affiliate of the Company;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market in the United States or Norway, (ii) any
extraordinary or material adverse change in the financial markets or major
stock exchange indices in the United States or Norway, including, without
limitation, a decline of more than 25% in the Standard & Poor's 500 Index,
(iii) a suspension of, or limitation on, the markets for United States or
Norwegian currency, (iv) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or Norway,
(v) any limitation (whether or not mandatory) by any government
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or governmental authority or agency, domestic or foreign, on, or other
event that, would reasonably be expected to materially adversely affect,
the extension of credit by banks or other lending institutions, (vi) a
commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United States
or Norway or (vii) in the case of any of the foregoing existing at the time
of the commencement of the Exchange Offer, a material acceleration or
worsening thereof;
(e) Transocean or any of its subsidiaries shall have (i) split, combined
or otherwise changed, or authorized or proposed a split, combination or
other change of, the shares of Transocean Stock or Transocean's
capitalization, (ii) acquired or otherwise caused a reduction in the number
of, or authorized or proposed the acquisition or other reduction in the
number of, any currently outstanding shares of Transocean Stock or other
securities, (iii) issued or sold, or authorized or proposed the issuance or
sale of, additional shares of Transocean Stock, shares of any other class
of capital stock, other voting securities or any securities convertible
into, or rights, warrants or options, conditional or otherwise, to acquire,
any of the foregoing (other than the issuance of 38,500 shares of
Transocean Stock reserved for issuance as of May 1, 1996), (iv) declared,
paid or proposed to declare or pay any cash dividend or other distribution
on any shares of capital stock of Transocean, (v) altered or proposed to
alter any material term of any outstanding security, (vi) incurred any debt
other than in the ordinary course of business, (vii) authorized,
recommended, proposed or entered into an agreement with respect to any
merger, consolidation, liquidation, dissolution, business combination,
acquisition of assets, disposition of assets, release or relinquishment of
any material contractual or other right of Transocean or any of its
subsidiaries or any comparable event not in the ordinary course of business
(other than the sale of the Anchor Drilling Fluids), (viii) authorized,
recommended, proposed or entered into, or announced its intention to
authorize, recommend, propose or enter into, any agreement or arrangement
with any person or group that in the sole judgment of the Company could
adversely affect either the value of Transocean or any of its subsidiaries
or the value of the shares of Transocean Stock to the Company or any
affiliate of the Company, (ix) entered into any employment, severance or
similar agreement, arrangement or plan with any of its employees other than
in the ordinary course of business or entered into or amended any
agreements, arrangements or plans so as to provide for increased benefits
to the employees as a result of or in connection with the transactions
contemplated by the Exchange Offer, (x) except as may be required by law,
taken any action to terminate or amend any employee benefit plan of
Transocean or any of its subsidiaries, or the Company shall have become
aware of any such action that was not disclosed in publicly available
filings prior to December 31, 1995, or (xi) amended, or authorized or
proposed any amendment to, its Articles of Association, or the Company
shall become aware that Transocean or any of Transocean's subsidiaries
shall have proposed or adopted any such amendment, that was not disclosed
in publicly available filings prior to December 31, 1995;
(f) the Company shall have otherwise learned that (i) any person, entity
(including Transocean or any of its subsidiaries) or "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) shall have acquired
beneficial ownership of 10% or more of any class or series of capital stock
of Transocean (including the shares of Transocean Stock), through the
acquisition of stock, the formation of a group or otherwise, or shall have
been granted any right, option or warrant, conditional or otherwise, to
acquire beneficial ownership of 10% or more of any class or series of
capital stock of Transocean (including the shares of Transocean Stock),
other than acquisitions for bona fide arbitrage purposes only, (ii) any
such person, entity or group that prior to December 31, 1995 had owned 10%
or more of the outstanding Transocean Stock has acquired, through the
acquisition of stock, the formation of a group or otherwise, beneficial
ownership of 1% or more of any class or series of capital stock of
Transocean (including the shares of Transocean Stock), or shall have been
granted any right, option or warrant, conditional or otherwise, to acquire
beneficial ownership of 1% or more of any class or series of capital stock
of Transocean (including the shares of Transocean Stock);
(g) the Company shall become aware (i) that any material contractual
right of Transocean or any of its subsidiaries or affiliates shall be
impaired or otherwise adversely affected or that any material amount of
indebtedness of Transocean or any of its subsidiaries shall become
accelerated or otherwise become due prior to its stated due date, in either
case with or without notice or the lapse of time or both as a result of
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the transactions contemplated by the Exchange Offer or (ii) of any
covenant, term or condition in any of Transocean's or any of its
subsidiaries' instruments or agreements that has or may have, in the sole
judgment of the Company, a material adverse effect on (A) the business,
properties, assets, liabilities, capitalization, shareholders' equity,
condition (financial or otherwise), operations, licenses or franchises,
results of operations or prospects of Transocean or any of its subsidiaries
(including, but not limited to, any event of default that may ensue as a
result of the consummation of the Exchange Offer or the acquisition of
control of Transocean) or (B) the value of the shares of Transocean Stock
in the hands of the Company or any affiliate of the Company;
which, in the sole judgment of the Company in any such case, and regardless of
the circumstances (including any action or inaction by the Company or any of
its affiliates) giving rise to any such condition, makes it inadvisable to
proceed with the Exchange Offer and/or with such acceptance for exchange or
exchange.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular
facts and circumstances shall not be deemed a waiver with respect to any other
facts and circumstances, and each such right shall be deemed an ongoing right
that may be asserted at any time and from time to time. Any determination by
the Company concerning the events described above will be final and binding
upon all persons.
The Company has not determined to waive any of the foregoing conditions. In
evaluating any possible waiver of any of the foregoing conditions, the Company
would consider the likely effect of the waiver on the Company after giving
effect to the acquisition of the shares of Transocean Stock pursuant to the
Exchange Offer. In particular, in evaluating any waiver of the Minimum
Condition, the Company would consider, among other things, the advisability of
offering to acquire a greater number of shares of Transocean Stock for cash
pursuant to the Mandatory Bid, the Company's ability to finance such greater
cash consideration, the effect of such waiver on the Company's ability to
comply with the Credit Agreement and the Company's ability to exercise control
over Transocean after giving effect to the purchase of 80% or less of the
shares of Transocean Stock pursuant to the Exchange Offer. Although the Credit
Agreement permits the Company to waive the Minimum Condition so long as the
Company acquires not less than 78% of the Transocean Stock for Company Common
Stock, other provisions of the Credit Agreement may effectively limit the
Company's ability to waive the Minimum Condition, including the cash
availability requirements and other financial covenants of the Credit
Agreement. The ability of the Company to comply with such provisions cannot be
predicted, since it will be dependent on a number of factors, including the
offer price required in the Mandatory Offer (which in turn is dependent on the
closing price of the Company Common Stock on the day preceding the Expiration
Date), the Company's projected liquidity requirements for three months after
consummation of the Exchange Offer and the financial condition and results of
operations of Sonat Offshore and Transocean. Accordingly, the Company cannot
predict if it would be able to waive the Minimum Condition should it desire to
do so and, if it were able to do so, the extent to which the Minimum Condition
could be reduced.
If the Company waives the Minimum Condition and acquires less than 80% of
the outstanding Transocean Stock, provided that the Company acquires a
majority of such shares, the Company will have control of Transocean but its
flexibility in managing Transocean may be reduced. For example, any dividend
paid by Transocean would be paid on all of its shares, including those held by
any public stockholders. In addition, the Transocean Stock may continue to be
listed on the OSE, subjecting Transocean to additional regulation. Moreover,
any shares of Transocean Stock that are not acquired by the Company pursuant
to the Exchange Offer, any Mandatory Bid or any Compulsory Acquisition would
remain outstanding and, depending on the number thereof, the liquidity and
market value thereof could be adversely affected. To the extent that this
Prospectus/Offer to Purchase/Proxy Statement, as it may be amended or
supplemented, omits to state a material fact necessary to make the statements
herein not misleading with respect to any waiver of the Minimum Condition, the
Company may be required to resolicit holders of Transocean Stock who have
tendered their Transocean Stock prior to correction of such omission.
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FINANCING ARRANGEMENTS
The total amount of funds required by the Company to purchase the shares of
Transocean Stock tendered by holders of Transocean Stock pursuant to the
Exchange Offer (assuming all outstanding shares are tendered) and to pay the
fees and expenses associated with the Combination will be in the aggregate
approximately $310 million. In addition, if the Exchange Offer is consummated
the Company will repay approximately $150 million of outstanding indebtedness
of Transocean.
The Credit Agreement, among ABN Amro Bank N.V., Houston Agency, as Agent
(the "Agent"), Bank of Montreal, Houston Agency, The Fuji Bank Limited, Royal
Bank of Canada and Wells Fargo Bank (Texas), National Association, as Co-
Agents, SunTrust Bank, Atlanta, and Credit Lyonnais, New York Branch, as
Documentation Agents, the other lenders named therein and the Company (the
"Credit Agreement"), provides, upon satisfaction of the conditions contained
therein and described below, for borrowing by the Company under (i) a six-year
term loan facility in the amount of $200 million and (ii) a six-year revolving
credit facility in the amount of $400 million. In addition to providing the
above described required funds to satisfy the cash requirements of the
Exchange Offer, to pay expenses relating to the Combination and to repay
Transocean indebtedness, the borrowing capacity under the Credit Agreement
will be used to provide working capital for general corporate purposes and may
be used to refinance Sonat Offshore's $30 million 6.9% Senior Notes if the
noteholders do not agree to certain amendments requested by Sonat Offshore to
accommodate the Combination. Loans under the Credit Agreement will bear
interest, at the option of the Company, at either (i) a base rate equal to the
higher of (A) the federal funds rate, as published by the Federal Reserve Bank
of New York one business day in arrears, plus 1/2% per annum and (B) the
commercial loan rate of the Agent as announced from time to time at its office
as its base rate for U.S. dollar loans in the United States or (ii) an annual
rate equal to the London Interbank Offered Rate plus a margin based upon the
Company's ratio of funded debt to total capital, which margin is initially
expected to be .45%.
The Credit Agreement contains various conditions to the funding of the loans
thereunder, including the following: (i) the lack of any material legal
proceedings relating to the Exchange Offer; (ii) receipt of all necessary
consents and governmental approvals; (iii) availability of sufficient cash and
cash resources to consummate the Combination, to fund the Company's reasonably
anticipated capital expenditure needs for three months after consummation of
the Exchange Offer and to maintain specified cash reserves and/or availability
under the Credit Agreement during such period; (iv) receipt by the Agent of
customary legal opinions; (v) accuracy of representations and warranties in
all material respects; (vi) receipt by the Agent of evidence of insurance,
evidence of existence, good standing, authority and authorization of the
Company, legal organizational chart, and officer's certificates; (vii) absence
of any default, material adverse litigation or material adverse change in the
financial condition, business, affairs, properties or prospects of the Company
or of Transocean; (viii) payment of the fees and expenses of the Agent
pursuant to the Credit Agreement; and (ix) satisfaction or, in certain
instances, waiver (if such waiver is not reasonably likely to have a material
adverse effect or, in the case of the Minimum Condition, so long as the
Company acquires not less than 78% of the Transocean Stock for Company Common
Stock) of the conditions to the Exchange Offer.
Immediately after consummation of the Exchange Offer, the Company intends to
transfer all of the acquired Transocean Stock to a newly formed Norwegian
subsidiary of the Company ("Newco") in part as a capital contribution and in
part as a sale in exchange for a promissory note of Newco in the principal
amount of $300 million. Such promissory note and 65% of the stock of Newco
will be pledged by the Company as security for its obligations under the
Credit Agreement. The Company's obligations under the Credit Agreement will be
guaranteed by its direct, domestic material subsidiaries and will be secured
by pledges of the stock of 65% of the outstanding stock of direct, foreign
material subsidiaries and of all intercompany notes payable to the Company by
Newco.
The Credit Agreement contains various covenants applicable to the Company
and its subsidiaries, including the following: (i) maintenance of existence
and compliance with applicable legal requirements; (ii) maintenance of
property and equipment necessary to the proper conduct of its business in
reasonably good repair; (iii) maintenance of (x) interest coverage ratio at or
above three to one, (y) funded debt to total capital ratio at or below 45% for
the quarters ended on or prior to December 31, 1998 and 40% thereafter and (z)
consolidated net
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worth at or above 90% of the consolidated net worth after consummation of the
Exchange Offer and prior to consummation of the Mandatory Bid and thereafter
at or above $1.4 billion plus the greater of (A) zero and (B) 50% of adjusted
net income added quarterly or annually from the date of the Combination; (iv)
compliance with limitations on additional indebtedness, mergers,
consolidations, changes of control, asset dispositions, investments, advances
and extensions of credit; (v) no creation or assumption of any lien on assets
unless previously disclosed, permitted as an exception or aggregating $5
million or less; (vi) not to enter into transactions with certain related
parties other than on an arms-length basis; and (vii) not to optionally prepay
any other debt while a default exists.
The Company has other significant capital commitments, including those
relating to the upgrade of the Offshore Marianas, the construction of the
Discoverer Enterprise, the upgrade of the Offshore Amirante and certain other
matters. See "Sonat Offshore Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
FEES AND EXPENSES
Tendering Transocean Stockholders will not be obligated to pay brokerage
fees or commissions in connection with the Exchange Offer. CS First Boston and
Pareto are acting as financial advisors to Transocean with respect to the
Combination, and their fees will paid by Transocean. Goldman Sachs and Simmons
& Co. International ("Simmons") are acting as financial advisors to Sonat
Offshore with respect to the Combination, and their fees will be paid by Sonat
Offshore. See "The Combination--Fairness Opinion." In addition, Sundal Collier
& Co. a.s is acting as Norwegian financial advisor to Sonat Offshore, for
which services Sonat Offshore has agreed to pay it $100,000 plus 0.1% of the
product of $27.25 multiplied by the Share Excess, subject to a minimum payment
of $300,000.
The Company has retained Morrow & Co., Inc. to act as the Information Agent
and Sundal Collier & Co a.s to act as the Depositary in connection with the
Exchange Offer. The Information Agent may contact Transocean Stockholders by
mail, telephone, telex, telegraph and personal interview and may request
brokers, dealers, banks, trust companies and other nominee security holders to
forward the materials for the Exchange Offer to beneficial owners. The
Information Agent and the Depositary each will receive reasonable and
customary compensation for their services, will be reimbursed for certain
reasonable out-of-pocket expenses and will be indemnified against certain
liabilities and expenses in connection therewith, including certain
liabilities under the United States federal securities laws.
The Company will not pay any fees or commissions to any broker or dealer or
other person (other than the Information Agent) for soliciting tenders of
Transocean Stock pursuant to the Exchange Offer. Brokers, dealers, commercial
banks and trust companies will be reimbursed by the Company for customary
mailing and handling expenses incurred by them in forwarding offering material
of the Company to their clients.
AGREEMENT WITH TIGER MANAGEMENT
Tiger Management Corp., the owner of 9,315,762 shares of Transocean Stock
(approximately 17.2% of the outstanding shares), has agreed with the Company
to tender such shares pursuant to the Exchange Offer. Such agreement may be
terminated by either Tiger Management or the Company if (i) the Company shall
not have acquired Tiger Management's shares of Transocean Stock on or before
the 45th day after commencement of the Exchange Offer, (ii) a court of
competent jurisdiction shall have issued an order that shall be final and
nonappealable that prohibits or makes illegal the performance of the agreement
or the purchase of Transocean Stock pursuant to the Exchange Offer, or (iii)
the Sonat Offshore Stockholder Approval Condition shall not have been
satisfied on or before the 45th day after commencement of the Exchange Offer.
MISCELLANEOUS
The Exchange Offer is not being made to (nor will tenders of Transocean
Stock be accepted from or on behalf of) holders of Transocean Stock in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the
Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer
is being made on behalf of the Company by Goldman Sachs or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
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THE SONAT OFFSHORE SPECIAL MEETING
PURPOSE OF MEETING
This Prospectus/Offer to Purchase/Proxy Statement is being furnished by
Sonat Offshore to Sonat Offshore Stockholders in connection with the
solicitation of proxies by the Sonat Offshore Board for use at the Sonat
Offshore Special Meeting. At the Sonat Offshore Special Meeting, Sonat
Offshore Stockholders will consider proposals (i) to approve the issuance of
up to 28,652,037 shares of Company Common Stock pursuant to the Exchange
Offer, (ii) to amend the Company Charter to increase the authorized number of
shares of Company Common Stock that the Company is authorized to issue from
55,000,000 to 150,000,000 shares, and (iii) to amend the Company Charter to
change the name of Sonat Offshore to "Transocean Offshore Inc."
DATE, TIME AND PLACE OF MEETING
The Sonat Offshore Special Meeting will be held at 4 Greenway Plaza, Room C-
100, Houston, Texas on August 29, 1996, at 8:00 a.m.
RECORD DATE, STOCKHOLDERS ENTITLED TO VOTE AND REQUIRED VOTE
Only holders of record of Company Common Stock at the close of business on
July 22, 1996 are entitled to notice of and to vote at the Sonat Offshore
Special Meeting. As of July 22, 1996, there were 28,476,589 shares of Company
Common Stock outstanding, which is the only class of capital stock entitled to
vote at the Sonat Offshore Special Meeting. These shares were held by 195
holders of record on such date.
The presence in person or by proxy of a majority of the outstanding shares
of Company Common Stock is necessary to constitute a quorum at the Sonat
Offshore Special Meeting. If there are insufficient votes to constitute a
quorum, the Sonat Offshore Special Meeting may be adjourned in order to permit
further solicitation of proxies. Broker non-votes and abstentions all count
for the purpose of determining a quorum. At the Sonat Offshore Special
Meeting, each Sonat Offshore Stockholder is entitled to one vote for each
share of Company Common Stock held.
SOLICITATION, REVOCATION AND USE OF PROXIES
All holders of Company Common Stock represented at the Sonat Offshore
Special Meeting by properly executed proxies received prior to or at the Sonat
Offshore Special Meeting, unless such proxies previously have been revoked,
will be voted at the Sonat Offshore Special Meeting in accordance with the
instructions on the proxies. If no contrary instructions are indicated, such
proxies will be voted FOR the approval of each of the Proposals.
Any proxy given pursuant to this solicitation may be revoked by the person
giving such proxy at any time before it is voted. Proxies with respect to
Company Common Stock may be revoked by filing with the Secretary of Sonat
Offshore written notice of revocation bearing a later date than the proxy, by
duly executing a later-dated proxy relating to the same Company Common Stock
or by attending the Sonat Offshore Special Meeting and voting in person
(although attendance at the Sonat Offshore Special Meeting will not in and of
itself constitute revocation of a proxy). Any written notice revoking a proxy
with respect to Company Common Stock must be sent to Secretary, Sonat Offshore
Drilling Inc., 4 Greenway Plaza, Houston, Texas 77046.
Proxies will be solicited by use of the mails. Directors, officers and
employees of Sonat Offshore may also solicit proxies by telephone, telecopy,
telegram or personal contact and such persons will receive no additional
compensation for such services. Copies of solicitation materials will be
furnished to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of Company Common Stock held in their names. Sonat Offshore
has also retained Morrow & Co., Inc. to aid in the solicitation of proxies
with respect to the Proposals for a fee of $15,000 plus reimbursement for
reasonable and customary out-of-pocket expenses. Sonat Offshore
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will bear the cost of preparing and mailing the proxy material in connection
with the Sonat Offshore Special Meeting, Commission filing fees, the printing
costs in connection with this Prospectus/Offer to Purchase/Proxy Statement and
the fees and expenses of the proxy solicitor.
NO DISSENTERS OR APPRAISAL RIGHTS
Holders of the Company Common Stock do not have statutory appraisal or
dissenters rights with respect to the Proposals.
PROPOSAL TO APPROVE THE ISSUANCE OF COMPANY COMMON STOCK PURSUANT TO THE
EXCHANGE OFFER
The Company Common Stock is listed on the NYSE. Under the rules of the NYSE,
the issuance by a listed company of more than 20% of its outstanding shares
must be approved by such company's shareholders. Accordingly, since the
Exchange Offer contemplates the issuance of more than 20% of the outstanding
shares of Company Common Stock, the Sonat Offshore Stockholders must approve
such issuance in order for the Exchange Offer to be consummated. See "The
Combination" and "The Exchange Offer" for additional information regarding the
issuance of Company Common Stock pursuant to the Exchange Offer.
If the Company exchanges 80% of the shares of Transocean Stock for .53 of a
share of Company Common Stock per Transocean share, as provided in the
Exchange Offer as initially promulgated, a maximum of 22,921,629 shares of
Company Common Stock will be issued. However, the Company has reserved the
right to increase the shares of Company Common Stock or cash offered, although
the Company has no plans to do so. If the Exchange Offer Proposal is approved
by the Sonat Offshore Stockholders, no further vote will be required to revise
the terms of the Exchange Offer, including any increase in the shares of
Company Common Stock offered, provided that the number of shares of Company
Common Stock issued will not exceed 28,652,037 shares.
Vote Required for the Proposal. The favorable vote of a majority of the
shares of Company Common Stock voted at the Sonat Offshore Special Meeting,
provided that the total vote cast represents a majority of the outstanding
shares of Company Common Stock, will be required to approve the issuance of
Company Common Stock pursuant to the Exchange Offer.
Under the Company Charter and By-Laws and under Delaware law, abstentions
and broker non-votes will be counted for quorum purposes but will not be
counted in determining votes cast on the proposal. Accordingly, abstentions
and broker non-votes (shares not voted on a matter because a nominee holding
shares for a beneficial owner neither receives voting instructions from such
beneficial owner nor has discretionary voting power with respect thereto) may
have the effect of a vote against the proposal if they result in a failure of
the total vote cast to represent a majority of the outstanding shares of
Company Common Stock.
The Sonat Offshore Board recommends a vote FOR approval of the proposal to
issue Company Common Stock pursuant to the Exchange Offer.
PROPOSAL TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMPANY COMMON STOCK
The Sonat Offshore Board has authorized and approved, subject to stockholder
approval, an amendment to Article Fourth of the Company Charter, increasing
the number of authorized shares of Common Stock to 150,000,000. The text of
the Share Increase Amendment is set forth in Annex C to this Prospectus/Offer
to Purchase/Proxy Statement. It is contemplated that, if the proposed
amendment is approved by the Sonat Offshore Stockholders, it will be filed in
accordance with the laws of the State of Delaware so as to become effective as
soon as practicable thereafter.
Purpose of the Increase. Sonat Offshore's authorized capital stock presently
consists of 55,000,000 shares of Company Common Stock and 50,000,000 shares of
Preferred Stock. As of July 1, 1996, 28,475,338 shares of Company Common Stock
were issued and outstanding and 2,747,410 shares were reserved for issuance
pursuant to stock options issued under the Sonat Offshore Stock Incentive Plan
and for future awards under such Plan. As
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of July 1, 1996, no shares of Preferred Stock were issued and outstanding. If
the Exchange Offer is consummated as originally promulgated, an additional
22,921,629 shares of Company Common Stock would be issued. Accordingly, only
855,623 shares of Company Common Stock would remain available for issuance. If
the Company revises the offer to increase the shares of Company Common Stock
to be issued pursuant to the Exchange Offer by more than 855,623 shares, the
Exchange Offer, as revised, could not proceed unless the Share Increase
Amendment proposal was approved by the Sonat Offshore Stockholders. Whether or
not the Exchange Offer is consummated, the Company intends to implement the
Share Increase Amendment if it is approved by the Sonat Offshore Stockholders.
In addition to the shares of Company Common Stock that may be issued in
connection with the Exchange Offer, the Sonat Offshore Board believes it is
desirable to have authorized, unissued and unreserved shares of Company Common
Stock available for purposes such as financings, acquisitions, stock dividends
and stock splits. The presence of an adequate supply of authorized, unissued
and unreserved shares of Company Common Stock provides flexibility by allowing
shares to be issued without further action by the stockholders unless such
action is required in a specific case by applicable law or the rules of any
exchange on which the Company's securities may then be listed.
The additional shares of Company Common Stock which will be authorized by
the Share Increase Amendment would have the same rights and privileges as the
shares of Company Common Stock currently authorized and issued, and will be
available for issuance, without further action by the Company's stockholders,
unless such action is required by applicable laws, rules and regulations.
Except as noted herein, the Company does not have any present plans,
proposals, commitments, understandings or arrangements which would result in
the issuance of any share of Company Common Stock. Holders of shares of
Company Common Stock are not entitled to preemptive rights.
Other Considerations. Although the Sonat Offshore Board does not deem the
proposed amendment to be an "anti-takeover" proposal, the amendment could be
considered as having the effect of discouraging an attempt by another person
to acquire control of the Company since the issuance of additional shares of
Company Common Stock could be used to dilute the stock ownership of such
person or could be sold to persons who might side with the Sonat Offshore
Board in opposing a takeover bid. The proposed amendment is not part of a plan
or arrangement intended to have an anti-takeover effect, and management has no
present intention to propose additional measures to stockholders that might
have such an effect. Management reserves the right, however, as laws,
interpretations thereof, or circumstances, in management's judgment, suggest a
need for the same, to recommend such measures to the stockholders.
The Company currently has provisions in the Company Charter and By-Laws
which are intended to reduce the detrimental effects associated with certain
unsolicited takeover proposals. See "Description of Capital Stock and Charter
Documents of the Company".
Vote Required for the Proposal. The favorable vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote at
the Sonat Offshore Special Meeting will be required for approval of the Share
Increase Amendment. Under the Company Charter and By-Laws and under Delaware
law, abstentions and broker "non-votes" (shares not voted on a matter because
a nominee holding shares for a beneficial owner neither receives voting
instructions from such beneficial owner nor has discretionary voting power
with respect thereto) will have the effect of a "no" vote on this proposal.
The Sonat Offshore Board recommends a vote FOR approval of the Share
Increase Amendment.
PROPOSAL TO CHANGE THE COMPANY'S NAME TO "TRANSOCEAN OFFSHORE INC."
The Board of Directors has authorized and approved, subject to stockholder
approval, an amendment to Article First of the Company Charter, changing the
Company's name to "Transocean Offshore Inc." The text of the Name Change
Amendment is set forth in Annex C to this Prospectus/Offer to Purchase/Proxy
Statement. It
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is contemplated that, if the Name Change Amendment is approved by the
Company's stockholders and the Company acquires a majority of the shares of
Transocean Stock pursuant to the Exchange Offer, it will be filed in
accordance with the laws of the State of Delaware so as to become effective as
soon as practicable thereafter.
Reasons for the Change. If the Exchange Offer is consummated, the Company
believes that its corporate name should reflect its interests in both Sonat
Offshore and Transocean. In addition, the name "Sonat" is associated with
Sonat Inc., formerly the sole stockholder of Sonat Offshore but which no
longer owns any interest in Sonat Offshore. The Name Change Amendment will not
be effected if the Company does not acquire a majority of the shares of
Transocean Stock pursuant to the Exchange Offer.
Stockholders are not required to turn in their stock certificates for new
certificates should this proposal be adopted.
Vote Required for the Proposal. Approval of the Name Change Amendment
requires the affirmative vote at the Sonat Offshore Special Meeting of a
majority of the Company Common Stock outstanding on the record date. Under the
Company Charter and By-Laws and under Delaware law, abstentions and broker
non-votes (shares not voted on a matter because a nominee holding shares for a
beneficial owner neither receives voting instructions from such beneficial
owner nor has discretionary voting power with respect thereto) will have the
effect of a "no" vote on this proposal.
The Sonat Offshore Board recommends a vote FOR the approval of the Name
Change Amendment.
STOCKHOLDER PROPOSALS
Stockholder Proposals in the Company's Proxy Statement. In order for
proposals by stockholders to be considered for inclusion in the proxy
statement and form of proxy relating to the 1997 Annual Meeting of
Stockholders, such proposals must be received at the principal executive
offices of the Company, 4 Greenway Plaza, Houston, Texas, 77046 by no later
than November 15, 1996.
Stockholder Proposals and Nominations for Directors to be Presented at
Meetings. A stockholder who desires to propose any business at any annual
meeting of stockholders must give the Company written notice not less than 90
days prior to the anniversary of the date of the immediately preceding annual
meeting that was specified in the initial formal notice of such meeting or, if
the date of the forthcoming annual meeting is more than 30 days before or
after such anniversary date, by the close of business on the tenth day
following public disclosure by the Company of the meeting date. The
stockholder's notice must set forth (a) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (b) the name and address of the stockholder who
intends to propose such business; (c) a representation that the stockholder is
a holder of record of stock of the Company entitled to vote at such meeting
(or if the record date for such meeting is subsequent to the date required for
such stockholder notice, a representation that the stockholder is a holder of
record at the time of such notice and intends to be a holder of record on the
date of such meeting) and intends to appear in person or by proxy at such
meeting to propose such business; and (d) any material interest of the
stockholder in such business.
A stockholder who desires to nominate Directors at an annual meeting of
stockholders must give the Company written notice within the time period
described in the preceding paragraph. A stockholder who desires to nominate
Directors at a special meeting at which the Board of Directors has determined
that Directors will be elected must give the Company written notice by the
close of business on the tenth day following disclosure by the Company of the
meeting date. The stockholder's notice must set forth (a) the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the stockholder is a holder
of record of stock of the Company entitled to vote at such meeting (or if the
record date for such meeting is subsequent to the date required for such
stockholder notice, a representation that the stockholder is a holder of
record at the time of such notice and intends to be a holder of record on the
date of such meeting) and setting forth the class and number of shares so held
(including shares
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held beneficially); (c) a representation that such stockholder intends to
appear in person or by proxy as a holder of record at the meeting to nominate
the person or persons specified in the notice; (d) a description of all
arrangements or understandings between the stockholder and each nominee
proposed by the stockholder and any other person or persons (identifying such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (e) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Commission; and (f) the
consent of each nominee to serve as a Director of the Company if so elected.
The Chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if a stockholder has failed to comply
with the foregoing procedures.
A copy of the Company's By-Laws, in which these procedures are set forth,
may be obtained from the Company upon written request to the Company at its
principal place of business.
OTHER BUSINESS
Pursuant to the terms of the Company Charter, no business other than the
Proposals may be considered at the Sonat Offshore Special Meeting.
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THE COMBINATION
BACKGROUND OF THE COMBINATION
Over the past several years, Sonat Offshore has explored a variety of
strategies designed to position it for the next decade and beyond as a leader
in the deep water and harsh environment drilling markets. In 1995, Sonat
Offshore held discussions with Reading & Bates Corporation ("Reading &
Bates"), an offshore drilling company, regarding the acquisition by Sonat
Offshore of Reading & Bates, but those discussions were terminated in May
1995.
Since 1990, Transocean has implemented a consistent strategy focused on
creating a major international contract drilling and well intervention company
with emphasis on modern high specification floating drilling equipment.
Transocean has pursued its strategy through a number of acquisitions and
mergers including the acquisition of Ross Offshore AS ("Ross Offshore") in
1994 and Wilrig AS ("Wilrig") in 1995. In late 1995 and early 1996 Transocean
concluded that the drilling industry would continue to consolidate worldwide
and that continued implementation of its growth strategy would be best served
if Transocean were to combine with a drilling company located outside of
Western Europe. At the same time Transocean remained committed to the drilling
industry and determined that its future prospects would best be served through
a "combination of equals" with another major company also committed to the
industry and to growth.
In February 1996, Transocean announced that its Board was considering
alternatives for further integration within the industry, including a possible
business combination and listing of its shares on the NYSE. Thereafter,
representatives of Transocean, either directly or through CS First Boston,
held informal discussions with a number of potential United States domiciled
"combination of equals" partners, including Sonat Offshore and Reading &
Bates.
On April 18, 1996, a standstill agreement was executed by Transocean and
Sonat Offshore pursuant to which, among other things, each agreed not to
purchase securities of the other or to commence a takeover bid for the other
without the other's consent for a period of three months. On April 19, 1996,
Transocean entered into a standstill and confidentiality agreement with
Reading & Bates pursuant to which each agreed not to purchase the other's
securities except under certain circumstances and each agreed to keep
confidential information received from the other.
On April 24, 1996, Sonat Offshore submitted a proposal to the Board of
Directors of Transocean providing for the conversion of 80% of the outstanding
shares of Transocean Stock into .5005 of a share of Company Common Stock per
Transocean share and the remaining Transocean Stock into $26.70 per Transocean
share. Beginning April 30, 1996, negotiations between the senior management of
Sonat Offshore and Transocean and their advisors occurred. On May 2, 1996, an
agreement in principle between Sonat Offshore and Transocean was reached
providing for a business combination in which 80% of the outstanding shares of
Transocean Stock would be converted into .515 of a share of Company Common
Stock per Transocean share and the remaining Transocean Stock would be
converted into $27.25 per Transocean share. During this time period Transocean
also received a business combination proposal from Reading & Bates, but the
Transocean Board decided that the proposal with Sonat Offshore constituted the
best alternative for Transocean and its stockholders.
On May 4 and 5, 1996, the parties' counsel and financial advisors began
negotiation of definitive documentation relating to the proposed combination.
On May 5, 1996, Sonat Offshore and Transocean each executed, as is customary,
a confidentiality agreement providing for the exchange of confidential,
proprietary information between Sonat Offshore and Transocean for the purpose
of evaluating the proposed Exchange Offer and Combination, and during the week
of May 5 each party undertook a review of information about the other party,
although no confidential information was exchanged.
On May 7, 1996, Reading & Bates submitted a revised proposal to Transocean.
In reviewing the revised proposal of Reading & Bates and comparing it to Sonat
Offshore's proposal, Transocean consulted with its advisors and also engaged
Pareto, a Norwegian investment banking firm, as an advisor. On May 9, 1996,
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Transocean's Board determined that the Sonat Offshore proposal "was clearly
superior" to the revised Reading & Bates proposal.
On May 9, 10 and 11, 1996, members of the senior management of Sonat
Offshore and Transocean and the companies' respective counsel and financial
advisors met to continue negotiations of the definitive documentation. In
connection with those negotiations, Sonat Offshore requested certain
arrangements in support of the transactions typical in the United States, but
Transocean advised Sonat Offshore that these arrangements were not permitted
under Norwegian law or OSE regulations. Ultimately, Sonat Offshore determined
that further efforts to negotiate a definitive agreement with Transocean would
delay consummation of its proposal, and Sonat Offshore determined to proceed
with an offer made directly to Transocean Stockholders. Transocean
subsequently agreed to this procedure.
During the week of May 12, 1996, Sonat Offshore held discussions with major
Transocean Stockholders seeking their support for its proposal. Tiger
Management Corp. ("Tiger"), the owner of 9,315,762 shares of Transocean Stock,
or approximately 17.2% of the outstanding shares, advised Sonat Offshore that
it would support a business combination of Sonat Offshore and Transocean if
Sonat Offshore improved the terms of its proposal to all Transocean
stockholders. As a result, after consulting with the Chairman of Transocean,
Sonat Offshore agreed to increase the shares of Company Common Stock offered
in exchange for Transocean Stock to .53 of a share, subject to adjustment if
the average of the closing prices of the Company Common Stock on the NYSE
Composite Tape during the ten trading days ending with the second business day
preceding the commencement of the Exchange Offer multiplied by .53 exceeded
$32.00 or was less than $25.08. In addition, Tiger agreed to tender its shares
pursuant to the Exchange Offer, subject to the approval of the Sonat Offshore
Board of such agreement. No adjustment was required in the terms of the
Exchange Offer pursuant to such agreement with Tiger.
A special meeting of the Sonat Offshore Board was held on May 20, 1996 to
discuss the progress of the negotiations. At that meeting, Sonat Offshore's
senior management and financial advisors made detailed presentations to the
Sonat Offshore Board, and the Sonat Board approved the agreement with Tiger.
Another special meeting of the Sonat Offshore Board was held on July 10, 1996
to consider the Exchange Offer and Combination. At that meeting, Sonat
Offshore's senior management, counsel and financial advisors again made
detailed presentations to the Sonat Offshore Board concerning all aspects of
the Exchange Offer and Combination. A regular meeting of the Sonat Offshore
Board was held on July 26, 1996, at which Sonat Offshore's senior management,
counsel and financial advisors made further presentations regarding the
Exchange Offer and the Combination. Following such presentations, the Sonat
Offshore Board unanimously approved the Exchange Offer and Combination and
voted unanimously to recommend that holders of Company Common Stock vote FOR
adoption of the Proposals.
Meetings of the Transocean Board were held on April 24, May 2, May 8-9, May
16, and June 14, 1996 to discuss the progress of the negotiations with Sonat
Offshore. A special meeting of the Transocean Board was held on July 26, 1996
to consider the Exchange Offer and Combination, at which the Transocean Board
determined by a vote of four to three to recommend that holders of Transocean
Stock ACCEPT the Exchange Offer. All of the stockholder representatives on the
Transocean Board voted for the recommendation. The three employee
representatives on the Transocean Board voted against this recommendation
because they prefer that Transocean remain independent. The employee
representatives recommend however, that if Transocean Stockholders prefer a
business combination to remaining independent, the Sonat Offshore offer is the
preferable offer.
REASONS FOR THE COMBINATION; BOARDS' RECOMMENDATIONS
Sonat Offshore
The Sonat Offshore Board believes that the terms of the Proposals, the
Exchange Offer and the Combination are fair to, and in the best interests of,
Sonat Offshore and its stockholders and unanimously recommends that the
stockholders of Sonat Offshore vote FOR approval of the Proposals.
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The Sonat Offshore Board believes that the Combination offers the unique
opportunity to combine two successful companies into one company, which will be
one of the world's premier deep water and harsh environment drillers, based
upon its technically advanced fleet of drilling units, financial strength,
engineering capabilities, management expertise and experienced workforce. The
Sonat Offshore Board considered the significant benefits associated with
combining Sonat Offshore's and Transocean's offshore drilling contract
businesses in light of the Board's belief that the Combination represents an
excellent fit of the two companies' respective strategic advantages in key
geographic markets.
In arriving at its determination, the Sonat Offshore Board considered a
number of factors, including the opinion of Goldman Sachs, financial advisor to
Sonat Offshore, described herein. See "--Fairness Opinions." In addition, the
Sonat Offshore Board considered a number of other factors, including, without
limitation, the following:
1. The Sonat Offshore Board's view that in the future large companies
will be better able to compete in the offshore contract drilling industry
and that, following the consummation of the Exchange Offer and the
Combination, the Company will have the efficiencies and resources that are
likely to be critical to growth and success in the offshore drilling
contract industry.
2. The Sonat Offshore Board's view that Sonat Offshore's and Transocean's
respective cash flows and relatively low debt ratios will, following the
consummation of the Exchange Offer and the Combination, provide the Company
with enhanced ability to pursue strategic acquisitions and invest in the
development of its businesses.
3. The Sonat Offshore management's projections concerning the probable
financial performance and condition, business operations and prospects of
the Company on a pro forma combined basis.
4. The Sonat Offshore Board's belief that Transocean's businesses are
complementary to those of Sonat Offshore in terms of geographic area
concentration and that diversification will reduce the possible impact of
any future downturn in a single geographic area.
5. The role that Sonat Offshore's and Transocean's management is expected
to play following the consummation of the Exchange Offer and the
Combination in the management of the Company, and the Sonat Offshore
Board's assessment of the experience and skill of Sonat Offshore's and
Transocean's respective management teams.
6. The Sonat Offshore Board's assessment of Sonat Offshore's strategic
alternatives to the Exchange Offer and the Combination, including remaining
an independent company, conducting acquisitions, and merging or
consolidating with a party or parties other than Transocean.
7. The presentation of Sonat Offshore's financial advisor, Goldman Sachs,
and the delivery of its written opinion, dated as of July 26, 1996, that,
as of such date, the Aggregate Consideration proposed to be paid in the
Exchange Offer to holders of 100% of the Transocean Stock was fair to Sonat
Offshore.
The Sonat Offshore Board did not quantify or attempt to assign relative
weights to the specific factors considered in reaching its determination.
Transocean
The Transocean Board has determined by a vote of four to three that the terms
of the Exchange Offer are fair to, and in the best interests of, Transocean and
the Transocean Stockholders. Accordingly, the Transocean Board recommends that
the Transocean Stockholders ACCEPT the Exchange Offer. All of the stockholder
representatives on the Transocean Board voted for the recommendation. The three
employee representatives on the Transocean Board voted against this
recommendation because they prefer that Transocean remain independent. The
employee representatives recommend however, that if Transocean Stockholders
prefer a business combination to remaining independent, the Sonat Offshore
offer is the preferable offer.
Since 1990 Transocean has implemented a consistent strategy focused on
creating a major international drilling and well intervention company with
emphasis on modern high specification floating drilling equipment. The
Transocean Board believes that the Combination offers the opportunity to create
an outstanding combined company with the financial resources, the competitive
strengths and the flexibility to provide its customers with
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a wide range of quality drilling services. Transocean's Board also concluded
that, through a "combination-of-equals" transaction such as the Combination,
Transocean would, among other things, increase significantly its diversity of
geographic markets. Among the factors considered by Transocean's Board in
reaching the decision to recommend that Transocean stockholders accept the
Exchange Offer were the following:
1. The Combination facilitates the continuation of Transocean's strategy
of creating a major international drilling and well intervention company by
strengthening its position in selected regions of the world outside of the
North Sea and further increasing its capabilities in deepwater markets.
2. Sonat Offshore's business activities are complementary to those of
Transocean in terms of geographic concentration and rigfleet combination.
3. The amount and form of consideration offered in the Combination in
relation to the underlying share values of Transocean and Sonat Offshore
stock and the potential for increases in the share value of the stock in
the Combined Company based on the Combination as compared to the respective
share values of Sonat Offshore and Transocean stock based on continuing
their respective businesses as separate entities.
4. The advice of CS First Boston and Pareto, Transocean's financial
advisors, with respect to, and management analysis of, future earnings,
financial strength, business operations and prospects of the Combined
Company on a pro forma combined basis.
5. The increased ability of the Combined Company based on its highly
trained managers and employees to compete in the drilling industry and to
take advantage of business opportunities.
6. The exchange of technology, experience and knowledge between Sonat
Offshore and Transocean following the consummation of the Combination will
be of significant benefit.
7. The assessment of the Transocean Board and executive officers of
strategic alternatives other than the proposed Combination between Sonat
Offshore and Transocean.
8. The written opinion of CS First Boston dated July 17, 1996 to the
effect that, as of the date of such opinion, as set forth in such opinion,
the Exchange Ratio was fair from a financial point of view to the holders
of Transocean Stock.
9. The relative certainty of consummation of the Combination between
Sonat Offshore and Transocean as compared to the other transactions
proposed to Transocean's Board.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Exchange Offer and Combination, the Transocean Board
of Directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination.
FAIRNESS OPINIONS
Sonat Offshore Financial Advisor
On July 26, 1996 Goldman Sachs delivered to the Sonat Offshore Board its
written opinion, dated as of July 26, 1996, that, as of the date of such
opinion, the Aggregate Consideration proposed to be paid in the Exchange Offer
to the holders of 100% of the Transocean Stock was fair to Sonat Offshore.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AS OF JULY 26,
1996, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX A TO THIS PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. SONAT OFFSHORE STOCKHOLDERS SHOULD READ SUCH
OPINION IN ITS ENTIRETY. GOLDMAN SACHS' OPINION IS DIRECTED ONLY TO THE
EXCHANGE OFFER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SONAT OFFSHORE
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SONAT OFFSHORE
SPECIAL MEETING.
In connection with their opinion, Goldman Sachs reviewed, among other things:
(i) Sonat Offshore's Amendment No. 1 to the preliminary version of this
Prospectus/Offer to Purchase/Proxy Statement filed with the Commission on July
18, 1996; (ii) Sonat Offshore's Annual Reports to Stockholders and Annual
Reports on
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Form 10-K for the three years ended December 31, 1995, 1994 and 1993; (iii)
Sonat Offshore's Registration Statement on Form S-1, including the prospectus,
dated May 27, 1993, relating to the initial public offering of the Company
Common Stock; (iv) Sonat Offshore's Registration Statement on Form S-3,
including the prospectus, dated July 20, 1995, relating to a secondary
offering of the Company Common Stock; (v) certain interim reports to Sonat
Offshore Stockholders and Quarterly Reports on Form 10-Q of Sonat Offshore;
(vi) Transocean's Annual Reports to Stockholders for the three years ended
December 31, 1995, 1994 and 1993; (vii) certain interim reports to
stockholders of Transocean; (viii) the prospectus, dated May 12, 1995, related
to the merger between Transocean and Wilrig AS; (ix) certain other
communications from Sonat Offshore and Transocean to their respective
stockholders; and (x) certain internal financial analyses and forecasts for
Sonat Offshore and Transocean prepared (as described below) by management of
the Company (the "Management Forecasts").
Goldman Sachs also held discussions with members of the senior management of
Sonat Offshore and Transocean regarding the strategic rationale for, and
benefits of, the combination and the past and current business operations,
financial condition, and future prospects of their respective companies. In
addition, Goldman Sachs reviewed the reported price and trading activity for
the Company Common Stock and the Transocean Stock, compared certain financial
and stock market information for Sonat Offshore and Transocean with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
in the oil drilling industry and performed such other studies and analyses as
they considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by them
for purposes of their opinion. Forecasts for Transocean prepared by its
management were not made available to Goldman Sachs but were provided to
Simmons. Sonat Offshore's management developed the Management Forecasts in
consultation with Simmons based, in part, on Simmons' review of such forecasts
for Transocean. For purposes of their opinion Goldman Sachs assumed, with
Sonat Offshore's consent, that the Management Forecasts, including, without
limitation, projected cost savings and operating synergies resulting from the
acquisition of 100% of the Transocean Shares, have been reasonably prepared on
a basis reflecting the best currently available judgments and estimates of
Sonat Offshore and that such forecasts will be realized in the amounts and at
the times contemplated thereby. In addition, Goldman Sachs has not made an
independent evaluation or appraisal of the assets and liabilities of Sonat
Offshore or Transocean or any of their respective subsidiaries, and Goldman
Sachs has not been furnished with any such evaluation or appraisal. Goldman
Sachs' advisory services and the opinion expressed by them are provided for
the information and assistance of the Sonat Offshore Board in connection with
their consideration of the transaction contemplated hereby.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing their written opinion, dated as of
July 26, 1996, to the Sonat Offshore Board attached hereto as Annex A.
(i) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Sonat Offshore and Transocean to
corresponding financial information, ratios and public market multiples for
six publicly traded corporations: Diamond Offshore, ENSCO International,
Global Marine, Noble Drilling, Reading & Bates and Rowan Companies (the
"Selected Companies"). Goldman Sachs calculated and compared various
financial multiples and ratios. The multiples of Sonat Offshore, Transocean
and the Selected Companies were calculated using the closing prices of each
on July 24, 1996 and were based on the most recent publicly available
information, other than the calculations of the net asset value of Sonat
Offshore and Transocean, which were provided by Sonat Offshore's management
and Simmons. Goldman Sachs considered levered market capitalization (i.e.,
market value of common equity plus estimated market value of debt less
cash) as a multiple of Latest Twelve Months ("LTM") earnings before
interest, taxes, depreciation and amortization ("EBITDA") and as a multiple
of estimated (based on Institutional Brokers Estimate System ("IBES")
estimates) levered multiples of 1996 EBITDA. Goldman Sachs' analyses of the
Selected Companies indicated levered multiples of LTM
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EBITDA, which ranged from 15.1x to 28.6x and estimated 1996 EBITDA, which
ranged from 9.7x to 19.8x, compared to LTM EBITDA and estimated 1996 EBITDA
levered multiples of 17.0x and 10.0x, respectively, for Sonat Offshore and
16.7x and 15.6x, respectively, for Transocean. Goldman Sachs also
calculated the Selected Companies' estimated calendar year 1996 and 1997
price to cash flow ratios, which ranged from 11.0x to 17.6x for 1996 and
from 8.2x to 12.5x for 1997, compared to estimated 1996 and 1997 ratios of
15.0x and 10.2x, respectively, for Sonat Offshore and 10.0x and 8.9x,
respectively, for Transocean; and estimated calendar year 1996 and 1997
price to earnings ratios, which ranged from 20.6x to 28.1x for 1996 and
from 11.8x to 17.0x for 1997, compared to estimated 1996 and 1997 ratios of
20.5x and 13.7x, respectively, for Sonat Offshore and 20.0 and 14.8x,
respectively, for Transocean. Goldman Sachs reviewed the price to net asset
value ratios based on various industry analysts' research studies of the
Selected Companies, Sonat Offshore and Transocean, such ratios ranged from
193% to 321% for the Selected Companies, compared to 199% for Sonat
Offshore and 159% for Transocean.
(ii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis of Transocean using the Management Forecasts for
Transocean. Using Transocean's terminal values in the year 2002 based on
multiples ranging from 7.0x earnings before income taxes and depreciation
("EBITD") to 12.0x EBITD and discounting that terminal value to present
value using discount rates ranging from 8.0% to 14.0%, the implied per
share value for Transocean ranged from $22.70 to $43.10.
(iii) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the oil drilling industry
since 1993 (the "Selected Transactions"). Using a price of $51.75, the
closing price of the Company Common Stock on July 24, 1996, to value the
portion of the Stock Consideration proposed to be paid in the Exchange
Offer, such analysis indicated that for the Selected Transactions on the
one hand, as compared to the proposed transaction on the other, (i) levered
aggregate consideration as a multiple of LTM sales ranged from 1.5x to
5.4x, as compared to 3.0x; (ii) levered aggregate consideration as a
multiple of LTM earnings before interest and taxes ("EBIT") ranged from
11.9x to 105.9x, as compared to 30.3x and (iii) levered aggregate
consideration as a multiple of LTM EBITD ranged from 7.2x to 21.6x, as
compared to 14.7x.
(iv) Pro Forma Merger Analysis. Goldman Sachs reviewed pro forma analyses
of the financial impact of the proposed transaction prepared by Sonat
Offshore's management and Simmons calculating the goodwill associated with
the consideration proposed to be paid in the Exchange Offer for 100% of the
Transocean Stock based on a price of $52.28 per share of the Company Common
Stock (the average per share price for the five days prior to May 20,
1996). Goldman Sachs compared the earnings per share ("EPS") and the cash
flow per share ("CFPS") of the Company Common Stock, on a stand-alone
basis, to the EPS and CFPS, respectively, of the common stock of the
combined companies on a pro forma basis using earnings estimates for Sonat
Offshore and Transocean included in the Management Forecasts for the years
1996 through 2001, adjusting the projections for the combined company for
certain cost increases and cost decreases as well as certain reductions in
overhead associated with the combination of the two companies, the net
effect of such adjustment ranged from $0 in 1996 to $13.6 million in
benefits in 2001. Based on such analysis, the proposed transaction, would,
on an EPS basis, be accretive in 1996 and then dilutive for the years 1997
through 2000 and breakeven in the year 2001, and, on a CFPS basis, be
accretive for the years 1996 through 2001. Additionally, Goldman Sachs
reviewed a sensitivity analysis prepared by Simmons for three different
scenarios and Goldman Sachs calculated the accretive or dilutive effect of
each scenario on the EPS and CFPS of Sonat Offshore and the combined
company: (i) Case 1, Geographic Diversity, in which utilization rates for
certain Company rigs were down twelve percentage points and dayrates were
down 20% for different years depending on the type of rig; (ii) Case 2,
Higher Costs, in which the capital expenditures and the daily operating
costs for the Company's three new rigs Discoverer Enterprise, Offshore
Amirante and Offshore Marianas are assumed to be 15% greater and (iii) Case
3, Capital Expansion Program, in which 2 additional drillships identical to
the Discoverer Enterprise are purchased at a cost of $230 million each, to
be operating at the end of 1998 and the end of 1999. The analyses indicated
that, after giving effect to the combination with Transocean, (i) Case 2
would be more dilutive to Sonat Offshore in 1997, 1998 and 1999 and less
dilutive to Sonat Offshore in 1996, 2000 and 2001 on an EPS basis than Case
2 would be to Sonat Offshore EPS on a stand-alone basis; (ii) Case 3 would
be
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more dilutive to Sonat Offshore in 1997, 1998, 1999, 2000 and 2001 and less
dilutive to Sonat Offshore in 1996 on an EPS basis than Case 3 would be to
the Sonat Offshore EPS on a stand-alone basis; (iii) Case 1 would be less
dilutive to Sonat Offshore on an EPS basis than Case 1 would be to Sonat
Offshore EPS on a stand-alone basis and (iv) each of Case 1, Case 2 and
Case 3 would be less dilutive to Sonat Offshore on a CFPS basis than each
of Case 1, Case 2 and Case 3 would be to the Sonat Offshore CFPS on a
stand-alone basis.
(v) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among
other things, revenues, EBITDA, EBIT, net income and total assets) for
Sonat Offshore, Transocean and the pro forma combined company based on the
Management Forecasts for each of Sonat Offshore, Transocean and the pro
forma combined entity. Goldman Sachs analyzed the relative income statement
contribution of Sonat Offshore and Transocean to the combined company on a
pro forma basis, before taking into account any of the possible benefits
that may be realized following the Combination and based on actual 1995 and
estimated 1996, 1997, 1998 and 1999 financial data prepared by Sonat
Offshore's management. This analysis indicated that in 1995 Sonat Offshore
would have contributed 40% to combined revenues, 54.3% to combined EBITDA,
81.9% to combined EBIT, 55.9% to combined net income and 40.9% to combined
cash flow. In addition, this analysis indicated that in 1996, 1997, 1998
and 1999, Sonat Offshore would contribute 50.5%, 50.0%, 53.1% and 53.6% to
combined revenues, 52.2%, 53.5%, 58.5% and 58.6% to combined EBITDA, 62.7%,
58.9%, 62.4% and 62.3% to combined EBIT, 59.1%, 52.2%, 54.3% and 54.4% to
combined net income and 47.9%, 46.5%, 51.5% and 53.5% to combined cash
flows, respectively.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is directly
comparable to Sonat Offshore or Transocean or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
their opinion to the Sonat Offshore Board of Directors as to the fairness to
Sonat Offshore of the Aggregate Consideration proposed to be paid for 100% of
the Transocean Stock pursuant to the Exchange Offer and do not purport to be
appraisals or to necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control the parties or their respective advisors,
none of Sonat Offshore, Transocean, Goldman Sachs or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Sonat Offshore Board was one
of many factors taken into consideration by the Sonat Offshore Board in making
its determination to commence the Exchange Offer and to recommend that the
Sonat Offshore Stockholders vote for the Proposals. The foregoing summary does
not purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified by reference to the written opinion of Goldman Sachs
set forth in Annex A hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Sonat Offshore
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Exchange Offer. In addition, Goldman Sachs acted
as managing underwriter of the initial public offering and a secondary
offering of the Company Common Stock in May 1993 and July 1995, respectively.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold net long or short positions in the
securities or options on securities of Sonat Offshore and/or Transocean for
its own account and for the account of customers. As of the date hereof,
Goldman Sachs holds no securities of Sonat Offshore or of Transocean for its
own account.
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Pursuant to a letter agreement dated April 2, 1996, (the "Engagement
Letter"), Sonat Offshore engaged each of Goldman Sachs and Simmons to act as
its financial advisors in connection with the contemplated transaction.
Pursuant to the terms of the Engagement Letter, Sonat Offshore has agreed to
pay each of Goldman Sachs and Simmons a minimum fee of $100,000 and upon,
among other things, consummation of any transaction pursuant to which Sonat
Offshore acquires 50% or more of the Transocean Stock, a transaction fee of
$4,000,000 towards which payment the minimum fee will be credited. Sonat
Offshore has agreed to reimburse each of Goldman Sachs and Simmons for their
respective reasonable out-of-pocket expenses, including attorney's fees, and
to indemnify each of Goldman Sachs and Simmons against certain liabilities,
including certain liabilities under the federal securities laws.
Transocean Financial Advisor
ON JULY 17, 1996, CS FIRST BOSTON DELIVERED ITS WRITTEN OPINION TO THE
TRANSOCEAN BOARD THAT, AS OF THE DATE OF SUCH OPINION, THE EXCHANGE RATIO WAS
FAIR TO THE TRANSOCEAN STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. CS FIRST
BOSTON'S OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO AS SET FORTH IN THE
EXCHANGE OFFER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TRANSOCEAN
STOCKHOLDER AS TO WHETHER SUCH TRANSOCEAN STOCKHOLDER SHOULD TENDER ITS SHARES
IN THE EXCHANGE OFFER.
THE FULL TEXT OF THE WRITTEN OPINION OF CS FIRST BOSTON, DATED AS OF JULY
17, 1996, WHICH SUMMARIZES ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND MATTERS
CONSIDERED IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX B TO THIS
PROSPECTUS/OFFER TO PURCHASE/PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. TRANSOCEAN STOCKHOLDERS SHOULD READ SUCH OPINION IN ITS ENTIRETY,
ESPECIALLY WITH REGARD TO THE ASSUMPTIONS MADE AND MATTERS CONSIDERED BY CS
FIRST BOSTON.
In connection with rendering its written opinion dated July 17, 1996, CS
First Boston, among other things: (i) reviewed Sonat Offshore's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, and its quarterly
report on Form 10-Q for the period ended March 31, 1996; and Transocean's
Annual Report for the fiscal year ended December 31, 1995, and its quarterly
report dated March 31, 1996; (ii) reviewed certain information, including
financial projections prepared by Transocean and Sonat Offshore, relating to
the business, earnings, cash flow, assets and prospects of Transocean and
Sonat Offshore; (iii) compared the results of operations of Sonat Offshore and
Transocean with each other and with that of certain other companies CS First
Boston deemed to be reasonably similar to Sonat Offshore and Transocean; (iv)
compared the proposed financial terms with the financial terms of certain
other mergers and acquisitions that CS First Boston deemed to be relevant
including proposals made to Transocean by Reading & Bates Corporation; (v)
considered the pro forma effect of the transactions contemplated by the
Exchange Offer on Sonat Offshore's capitalization ratios and revenues;
earnings before interest, taxes, depreciation and amortization ("EBITDA");
earnings before interest and taxes ("EBIT"); net income, and net income plus
depreciation ("After-Tax Cash Flow"); (vi) evaluated the contribution to
combined revenues, EBITDA, EBIT, net income and After-Tax Cash Flow of Sonat
Offshore and Transocean relative to their respective ownership positions
following the completion of the transactions contemplated by the Exchange
Offer; (vii) reviewed the Exchange Offer; and (viii) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as CS First Boston deemed necessary or
appropriate.
In connection with its opinion, CS First Boston performed a variety of
financial and comparative analyses, including those described below. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Consequently,
the analysis underlying such an opinion is not readily susceptible to summary
description. In arriving at its opinion, CS First Boston did not attribute any
particular weight to any analysis or factors considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, CS First Boston believes that its analyses must be
considered as a whole and that considering any portions of such analyses or
such factors without considering all analyses and factors could create an
incomplete or misleading view of the process CS First Boston undertook with
respect to rendering its opinion. The data employed by CS First Boston in its
analyses contained numerous assumptions made by Transocean and Sonat Offshore
with respect to general business and economic conditions, industry performance
and other matters, many of which are beyond Sonat Offshore's or Transocean's
control. Any estimates contained
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in such materials or described below are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may trade or be acquired or sold.
The following summary does not purport to be a complete description of the
opinion rendered to the Transocean Board of Directors on July 17, 1996 or of
the analyses performed by CS First Boston in connection with the Exchange
Offer.
Valuation of Transocean
Comparable Company Analysis. CS First Boston reviewed certain financial data
for the following selected public companies in the offshore drilling industry
deemed to be comparable to Transocean (in alphabetical order): Diamond
Offshore Drilling, Inc., Global Marine Inc., Reading & Bates Corporation,
Rowan Companies, Inc. and Sonat Offshore. For purposes of this analysis, data
with respect to comparable companies were derived from a compilation of
certain publicly available information concerning estimates of historical and
future operating and financial performance of the companies as prepared by a
number of oilfield service equity research analysts, including but not limited
to CS First Boston's oilfield services equity analyst. Data with respect to
Transocean were based on financial projections provided by Transocean
management in consultation with CS First Boston. CS First Boston met with
Transocean management to discuss such projections and to discuss assumptions
for periods beyond those covered by data provided by Transocean. Transocean
management reviewed and approved these assumptions as well as the financial
projections used by CS First Boston. Using this information, CS First Boston
determined the relationship for these companies between "Adjusted Market
Value" (equity value plus debt and redeemable preferred stock and minority
interest less cash and cash equivalents) and EBITDA for fiscal years 1995,
1996 and 1997. CS First Boston also evaluated equity market values as
multiples of After-Tax Cash Flow and Net Income for each of these periods. In
addition, CS First Boston employed two additional valuation techniques used by
CS First Boston's equity research analysts to evaluate offshore drilling
companies: "Normalized EBITDA" analysis and "Depreciated Replacement Cost
Economics" analysis, or "DRCE," each of which is described below. CS First
Boston also employed traditional Net Asset Value analysis, which is based on
the estimated current market value of offshore drilling and other assets in a
company's fleet.
Normalized EBITDA analysis is a theoretical valuation technique that
evaluates the current Adjusted Market Value of a company relative to the
expected Adjusted Market Value of such company upon achievement of market
equilibrium in the offshore drilling industry. Current Adjusted Market Values
for each company in the reference group were compared to projected Adjusted
Market Values for each company to derive relative trading levels. A reference
range of multiples was then derived upon review of the comparable companies,
and these multiples were then applied to the projected Adjusted Market Value
for Transocean to calculate an implied current Adjusted Market Value.
DRCE analysis is a theoretical valuation technique which is based primarily
on the estimated replacement cost of the assets in an offshore drilling
company's fleet if such assets were to be replaced today. Such replacement
costs are depreciated based on the age of the particular rig under evaluation
and on estimates of the useful lives of particular asset classes to derive the
depreciated replacement cost of the fleet. Estimates of market values for
other assets are then added to the total depreciated replacement cost of the
company's offshore drilling fleet to determine a gross DRCE value, which is
then adjusted by adding estimates of other assets and cash and cash
equivalents to derive a DRCE-based Adjusted Market Value. Current Adjusted
Market Values for each company in the reference group were compared to
Adjusted Market Values determined using DRCE to derive relative trading
levels. A reference range of multiples was then derived upon review of the
comparable companies, and these multiples were then applied to the DRCE-based
Adjusted Market Value for Transocean to calculate an implied current Adjusted
Market Value.
Based upon its analysis of the comparable companies, CS First Boston applied
comparable multiple reference ranges to Transocean's estimated EBITDA, After-
Tax Cash Flow, and Net Income for years 1996 and 1997. For 1996 and 1997
EBITDA, the ranges were 12.0x to 13.0x and 8.0x to 9.0x, respectively; for
1996 and
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1997 After-Tax Cash Flow, the ranges were 14.0x to 16.0x and 10.5x to 11.5x,
respectively; and for 1996 and 1997 Net Income, the ranges were 21.0x to 23.0x
and 13.0x to 14.0x, respectively. The comparable company reference range for
DRCE was 150% to 160% of estimated DRCE Adjusted Market Value and for
Normalized EBITDA, 70% to 90% of estimated Adjusted Market Value based on
Normalized EBITDA analysis. CS First Boston considered the application of
these reference ranges and arrived at an equity valuation range of $1,400.0
million to $1,600.0 million for Transocean, or $25.88 to $29.57 per fully-
diluted share.
Because of some inherent differences between the operations of Transocean
and those of the selected comparable companies, CS First Boston believed that
a purely quantitative comparable company analysis would not be appropriate in
the context of the Exchange Offer. CS First Boston believed that the
appropriate use of a comparable company analysis in this instance involved
qualitative judgments concerning differences between the financial and
operating characteristics of Transocean and those of the selected companies,
including growth prospects, which judgments are reflected in CS First Boston's
opinion.
Discounted Cash Flow Analysis. Employing certain data provided by
Transocean, CS First Boston performed a discounted cash flow analysis of
Transocean in order to estimate the present value of the future unlevered free
cash flows that the Company could be expected to generate during the period
from January 1, 1996 to December 31, 2005.
Data with respect to Transocean were based on financial projections provided
by Transocean management in consultation with CS First Boston. CS First Boston
met with Transocean management to discuss such projections and to discuss
assumptions to be used for periods beyond those covered by data provided by
the Company. Transocean management reviewed and approved these assumptions as
well as the financial projections used by CS First Boston. CS First Boston
also conducted discounted cash flow analyses for Transocean employing more
optimistic and pessimistic economic and operating assumptions. The estimated
future unlevered free cash flows for the ten-year period from January 1, 1996
through December 31, 2005 were discounted at after-tax discount rates of
11.50% and 12.50%, based on a review of the weighted average cost of capital
of Transocean and its comparable companies. In addition, CS First Boston
calculated a terminal value by discounting the estimated free cash flow of
Transocean assuming that the estimated free cash flow in 2005 under each
scenario would grow at rates of 2.0% to 4.0% in perpetuity. These terminal
values were then discounted to present value using the range of discount rates
described above. CS First Boston believes its projections represent a
reasonable earnings scenario based on current rig contracts and projections
for future periods that were based on information provided by Transocean's
management and other sources. CS First Boston's discounted cash flow analysis
yielded an equity valuation range for Transocean of $1,187.0 million to
$1,537.0 million or $21.94 to $28.42 per fully-diluted share.
Comparable Acquisition Analysis. CS First Boston analyzed Adjusted Market
Values as a multiple of latest twelve-months EBITDA for a selected universe of
offshore drilling and broader oilfield service acquisitions and business
combinations, including, but not limited to Diamond Offshore Drilling's
acquisition of Arethusa (Off-Shore) Limited, ENSCO International's announced
acquisition of Dual Drilling, Noble Drilling Corporation's announced
acquisition of the Neddrill oil and gas drilling division of Royal Nedlloyd
Group NV, Tidewater Inc.'s acquisition of Hornbeck Offshore Services, Inc., BJ
Services Company's acquisition of The Western Company of North America, Noble
Drilling Corporation's acquisition of Chiles Offshore Corporation, and Ensco
International's acquisition of Penrod Drilling.
CS First Boston analyzed the multiples of the total consideration paid in
each transaction to, among other measures, such acquired companies' respective
EBITDA as reported for the latest available twelve-month period. CS First
Boston derived a range of multiples of transaction value to latest twelve
months' EBITDA and applied these multiples to the financial data of
Transocean. Based on Transocean's EBITDA for the latest twelve months and a
multiple range of 18.0x to 22.0x for offshore drilling operations and 8.0x to
10.0x for platform drilling services, this analysis suggested an implied
equity valuation range for Transocean of $1,100 million to $1,400 million, or
$20.34 to $25.88 per fully-diluted share.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse, because there are inherent differences
between the operations of Transocean and many of the selected companies
involved in the comparable acquisitions, and because of the historical rather
than the prospective nature of the
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analysis, CS First Boston believed that a purely quantitative comparable
transaction analysis would not be appropriate in the context of the proposed
Exchange Offer. CS First Boston further believed that the appropriate use of a
comparable transaction analysis in this instance involved qualitative
judgments concerning differences between the characteristics of these
transactions and the Exchange Offer that would affect the acquisition value of
the acquired companies and businesses and Transocean, which judgments are
reflected in CS First Boston's opinion.
Valuation of Sonat Offshore
Comparable Company Analysis. CS First Boston reviewed certain financial
results of the following selected public companies in the offshore drilling
industry deemed to be comparable to Sonat Offshore (in alphabetical order):
Diamond Offshore, Global Marine Inc., Reading & Bates Corporation, Rowan
Companies, Inc. and Transocean. For purposes of this analysis, data with
respect to comparable companies were derived from a compilation of certain
publicly available information concerning historical and estimates of future
operating and financial performance of the companies as prepared by a number
of oilfield service equity research analysts, including but not limited to CS
First Boston's oilfield service equity analyst. Data with respect to Sonat
Offshore were based on financial projections provided by Sonat Offshore
management and reviewed by CS First Boston. Using this information, CS First
Boston determined the relationship for these companies between Adjusted Market
Value and EBITDA for fiscal years 1996 and 1997. CS First Boston also
evaluated equity market values as multiples of After-Tax Cash Flow and Net
Income for each of these periods. In addition, CS First Boston employed the
Normalized EBITDA analysis and DRCE analysis described above under the caption
"Valuation of Transocean--Comparable Company Analysis," as well as traditional
Net Asset Value analysis.
Based upon its analysis of the comparable companies, CS First Boston applied
comparable multiple reference ranges to Sonat Offshore's estimated EBITDA,
After-Tax Cash Flow, and Net Income for years 1996 and 1997 that were similar
to those applied to Transocean. For 1996 and 1997 EBITDA, those ranges were
12.0x to 13.0x and 8.0x to 9.0x, respectively; for 1996 and 1997 After-Tax
Cash Flow, the ranges were 14.0x to 16.0x and 10.5x to 11.5x, respectively;
and for 1996 and 1997 Net Income, the ranges were 21.0x to 23.0x and 13.0x to
14.0x, respectively. The comparable company reference range for DRCE was 150%
to 160% of estimated DRCE Adjusted Market Value and for Normalized EBITDA, 70%
to 90% of estimated Adjusted Market Value based on Normalized EBITDA analysis.
CS First Boston considered the application of these reference ranges and
arrived at an equity valuation range of $1,650.0 million to $1,750.0 million
for Sonat Offshore, or $56.90 to $60.34 per fully-diluted share.
Because of some inherent differences between the operations of Sonat
Offshore and those of the selected comparable companies, CS First Boston
believed that a purely quantitative comparable company analysis would not be
appropriate in the context of the Exchange Offer. CS First Boston believed
further that an appropriate use of a comparable company analysis in this
instance involved qualitative judgments concerning differences between the
financial and operating characteristics of Sonat Offshore and those of the
selected companies, including growth prospects, which judgments are reflected
in CS First Boston's opinion.
Discounted Cash Flow Analysis. Employing certain data provided by Sonat
Offshore, CS First Boston performed a discounted cash flow analysis of Sonat
Offshore in order to estimate the present value of the future unlevered free
cash flows that Sonat Offshore could be expected to generate during the period
from January 1, 1996 to December 31, 2005.
Sonat Offshore's projected earnings and cash flows for 1996 through 2001
were provided by Sonat Offshore management and reviewed by CS First Boston. CS
First Boston discussed with Sonat Offshore management such projections and
also discussed assumptions for periods beyond those covered by data provided
by Sonat Offshore. Sonat Offshore management reviewed those assumptions as
well as the financial projections used by CS First Boston. CS First Boston
also conducted discounted cash flow analyses for Sonat Offshore employing more
optimistic and pessimistic economic and operating assumptions. The estimated
future unlevered free cash flows for the ten-year period from January 1, 1996
through December 31, 2005 were discounted at after-tax discount rates of
11.50% and 12.50% based on a review of the weighted average cost of capital of
Sonat Offshore and its comparable companies. In addition, CS First Boston
calculated a terminal value by discounting the estimated free cash flow of
Sonat Offshore assuming that the Company's estimated free cash flow in year
2005
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would grow at rates of 2.0% to 4.0% in perpetuity. These terminal values were
then discounted to present value using the range of discount rates described
above. CS First Boston believes its projections represent a reasonable
earnings scenario based on current rig contracts and projections for future
periods that were based on information provided by Sonat Offshore's management
and judgments made by CS First Boston. CS First Boston's discounted cash flow
analysis yielded an equity valuation range for Sonat Offshore of $1,578
million to $2,104.0 million or $54.41 to $72.55 per fully-diluted share.
Comparable Acquisition Analysis. CS First Boston analyzed Adjusted Market
Values as a multiple of latest twelve-months EBITDA for a selected universe of
offshore drilling and broader oilfield service acquisitions and business
combinations, including Diamond Offshore Drilling, Inc.'s acquisition of
Arethusa (Off-Shore) Limited, Ensco International, Inc.'s acquisition of Dual
Drilling, Noble Drilling Corporation's acquisition of Neddrill oil and gas
drilling division of Royal Nedllyod Group NV, Tidewater Inc.'s acquisition of
Hornbeck Offshore Services, Inc., BJ Services Company's acquisition of The
Western Company of North America, Noble Drilling Corporation's acquisition of
Chiles Offshore Corporation, and Ensco International, Inc.'s acquisition of
Penrod Holding Corporation.
CS First Boston analyzed the multiples of the total consideration paid in
each transaction to, among other measures, such acquired companies' respective
EBITDA for the latest available twelve-month period. CS First Boston derived a
range of multiples of transaction value to latest twelve months' EBITDA and
applied these multiples to the financial data of Sonat Offshore. Based on
Sonat Offshore's EBITDA for the latest twelve months and a multiple range of
18.0x to 22.0x, this analysis suggested an implied equity valuation range for
Sonat Offshore of $1,500 million to $1,800 million, or $51.72 to $62.07 per
fully-diluted share.
Because the reasons for, and circumstances surrounding, each of the
transactions analyzed were diverse, and because there are inherent differences
between the operations of Sonat Offshore and many of the selected companies
involved in the comparable acquisitions, and because of the historical rather
than prospective nature of the analysis, CS First Boston believed that a
purely quantitative comparable transaction analysis would not be appropriate
in the context of the proposed Exchange Offer. CS First Boston further
believed that the appropriate use of a comparable transaction analysis in this
instance involved qualitative judgments concerning differences between the
characteristics of these transactions and the Exchange Offer that would affect
the acquisition value of the acquired companies and businesses and Sonat
Offshore, which judgments are reflected in CS First Boston's opinion.
REVIEW OF PRO FORMA RESULTS
Pro Forma Transaction Analysis. CS First Boston also deemed it appropriate
for purposes of its evaluation to consider the pro forma capitalization and
expected benefits from the formation of the new combined entity. The data
employed in this analysis assumed the completion of the transactions
contemplated by the Exchange Offer and excluded non-recurring charges relating
to the transaction except as they affected debt levels. Taking into account
the transactions contemplated by the Exchange Offer and Sonat Offshore's other
planned capital expenditure projects that have not yet been reflected on the
Company's balance sheet, CS First Boston projected that total debt as a
percentage of capitalization for Sonat Offshore could increase from
approximately 7% at March 31, 1996 to 38% on a pro forma basis assuming all
planned capital expenditures for upgrades and new vessels were to be completed
as of this date. This analysis does not account for (i) the expected debt
reduction associated with the free cash flows to be generated by Sonat
Offshore during the upgrade and construction phase for this equipment, which
could reduce borrowing needs, and (ii) the financial benefits of cost
reductions and synergies on the Combined Companies. CS First Boston's review
of pro forma results also indicated that the pro forma After-Tax Cash Flow per
share of the combined company would be accretive in 1996 and 1997 as compared
to the comparable stand-alone projections for Sonat Offshore. The analysis
also indicated that there would be considerable earnings per share dilution in
1996 and 1997. In addition, CS First Boston evaluated the contribution to
combined revenues, EBITDA and EBIT of Sonat Offshore and Transocean relative
to their respective ownership positions following the completion of the
transactions contemplated by the Exchange Offer. Upon completion of the
transactions contemplated by the Exchange Offer, current Transocean
shareholders will own the equivalent of approximately 44% of the total
outstanding shares of Transocean Offshore Inc. Using CS First Boston's
projections for both Sonat Offshore and Transocean in 1996, Transocean will
contribute 57%, 49%
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and 43% of the revenues, EBITDA, and EBIT of the combined entity,
respectively; and for 1997, 51%, 46% and 41%, respectively; and for 1998, 47%,
41% and 37%, respectively.
In connection with rendering its opinion, CS First Boston relied, without
assuming any responsibility for independent verification, upon the accuracy
and completeness of all of the financial and other information furnished to CS
First Boston by Transocean and Sonat Offshore. With respect to the projected
financial information furnished to CS First Boston by Transocean and Sonat
Offshore management, CS First Boston assumed such information to have been
reasonably prepared or developed to reflect the best currently available
estimates and judgments of the management of Transocean and Sonat Offshore as
to the expected future financial performance of Transocean and Sonat Offshore,
respectively, and of the two companies combined. In rendering its opinion, CS
First Boston did not make or receive an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of Transocean or Sonat
Offshore, nor did it independently verify any of the publicly available
information relating to Transocean and Sonat Offshore or the information with
which it was provided pertaining to Transocean and Sonat Offshore. The opinion
of CS First Boston is necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of such
opinion. In rendering its opinion, CS First Boston relied upon Transocean as
to certain accounting matters and assumed, with Transocean's consent, that the
transactions contemplated by the Exchange Offer would be treated as a taxable
purchase for Transocean stockholders for U.S. federal income tax purposes.
CS First Boston is an internationally recognized investment banking firm
that, as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Transocean selected CS
First Boston to act as its financial advisor in connection with the Exchange
Offer on the basis of such firm's expertise.
In consideration of financial advisory services rendered in connection with
the Exchange Offer, Transocean has agreed to pay CS First Boston total fees of
$4,000,000 plus up to an additional $4,500,000, the exact amount to be
determined by a formula comparing the average price of Transocean Stock during
a certain period prior to announcement of the Exchange Offer to the average
price of Transocean Stock for the five-day trading period ending on the day
immediately preceding consummation of the Exchange Offer. In addition,
Transocean has agreed to reimburse CS First Boston for all reasonable out-of-
pocket expenses, including the fees and expenses of its legal counsel and any
other advisor retained by CS First Boston resulting from or arising out of
Transocean's engagement of CS First Boston with respect to the Exchange Offer
and has agreed to indemnify CS First Boston (and its directors, officers,
employees, and persons controlling CS First Boston) against certain
liabilities and expenses in connection with the Exchange Offer, and
transactions contemplated in connection therewith, including certain
liabilities under federal securities laws.
BUSINESS STRATEGY OF THE COMBINED COMPANY
Upon consummation of the Combination, the Combined Company will be one of
the world's leading deep water and harsh environment drillers. The Combined
Company's fleet of technically advanced floating drilling units will be one of
the largest in the industry. Its financial strength, engineering capabilities,
management expertise and experienced workforce, coupled with its fleet of
floating drilling units, represent important strategic assets. The Combined
Company's strategy will be to focus on the deep water and harsh environment
drilling markets with a goal of being recognized by customers as the
contractor of choice for deepwater drilling as well as the pre-eminent
offshore driller in Norway.
STOCK EXCHANGE LISTINGS
The Company Common Stock is listed on the NYSE. The additional listing on
the NYSE of the shares of Company Common Stock to be issued in the Exchange
Offer has been approved, subject to satisfaction of the Sonat Offshore
Stockholder Approval Condition and to official notice of issuance.
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The Company Common Stock has been approved for a secondary listing on the
OSE, subject to at least 50 persons, each owning at least one trading lot,
having registered their Company Common Stock in the Norwegian Share Registry.
THE NORWEGIAN SHARE REGISTRY
Norway has a paperless, centralized securities registry, the
Verdipapirsentralen ("VPS"). All transactions relating to securities
registered with the VPS are handled through computerized book entries. The VPS
confirms each entry by sending a transcript to the registered investor. In
order to effect such entries, the individual investor must establish a share
account with a Norwegian account agent. Norwegian banks, the Bank of Norway
and authorized securities brokers in Norway are among those authorized to act
as such agents.
The Company has applied for a secondary listing of its shares on the OSE. It
is a Norwegian law requirement that the shares of the Company which are
available for trading on the OSE be registered in the VPS. The OSE has agreed
to admit the shares of the Company to listing on the condition that at least
50 persons, each owning at least one trading lot, having registered their
Company Common Stock in the VPS.
Shares of the Company which shall be registered in the VPS will be entered
in the register of stockholders of the Company in the name of Den norsk Bank
or its designee, who will hold such shares as nominee for the relevant
investor registered in the VPS. These arrangements are set out in a Registrar
Agreement between the Company and Den norsk Bank. For the purposes of the VPS
system, Den norsk Bank will act as the operator of the Company's share account
and investors will be entered in the VPS system as owners of shares acquired
in the Company.
Under the VPS registration system all investors who have a Norwegian address
and have supplied the VPS with details of their Norwegian bank account will
receive any dividends paid on the Company Common Stock converted to Norwegian
kroner. This will also apply to foreign banks who have supplied the VPS with
details of their LORO account with a Norwegian bank. Investors who have a non-
Norwegian address or who have a Norwegian address but who have not supplied
details of any Norwegian bank account to the VPS will receive any dividends by
check in U.S. dollars. In addition, Den norsk Bank will vote shares of Company
Common Stock held by it for owners registered in the VPS in accordance with
each owner's instructions. Furthermore, an investor may at any time require
Den norsk Bank to procure the issuance of a stock certificate representing
shares registered in its name in the VPS in the name of such investor, in
which event the relevant shares will cease to be registered in the VPS and
accordingly will not be tradeable on the OSE.
ACCOUNTING TREATMENT
The Combination will be accounted for under the purchase method of
accounting, in accordance with U.S. generally accepted accounting principles.
Under the purchase method of accounting, the purchase price of Transocean,
including direct costs of the Combination, will be allocated to the assets
acquired based upon their estimated relative fair values and a portion of such
direct costs will be charged to stockholders' equity, with the excess purchase
consideration allocated to goodwill. The results of the Company's operations
will include the results of operations of Transocean commencing at the
Expiration Date.
The Unaudited Condensed Pro Forma Combined Financial Statements appearing
elsewhere in this Prospectus/Offer to Purchase/Proxy Statement are based upon
certain assumptions and allocate the purchase price to assets and liabilities
based upon preliminary estimates of their respective fair values. The
unaudited pro forma adjustments and combined amounts are included for
informational purposes only. If the Combination is consummated, then the
Company's financial statements will reflect effects of acquisition adjustments
only from the Expiration Date. The actual allocation of the purchase price may
differ significantly from the allocation reflected in the Unaudited Condensed
Pro Forma Combined Financial Statements.
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THE COMPANY BOARD OF DIRECTORS
The Company believes it to be appropriate that representatives chosen by the
existing Boards of Directors of Sonat Offshore and of Transocean constitute
the Board of Directors of the Combined Company after the consummation of the
Combination. In addition, it is the consensus of the Sonat Offshore Board and
the Transocean Board that the size of the Board of Directors of the Company be
ten directors. Accordingly, if the Exchange Offer is consummated, the Company
intends to take necessary action to cause the following individuals to
constitute the Board of Directors of the Company: Richard D. Kinder, Ronald L.
Kuehn, Jr., Robert J. Lanigan, Max L. Lukens, Martin B. McNamara, and J.
Michael Talbert, who currently serve as directors of Sonat Offshore, and
Fridtjof Lorentzen, Reidar Lund, Einar Kloster and Kristian Siem, who
currently serve as directors or officers of Transocean. The existing directors
of Sonat Offshore will continue as members of the class of directors to which
they were previously elected. Mr. Lorentzen will be elected as a Class II
director, Mr. Lund as a Class III director, Mr. Kloster as a Class III
director and Mr. Siem as a Class I director. See "Description of Sonat
Offshore--Directors of Sonat Offshore" and "Description of Transocean--
Directors of Transocean" and "--Executive Officers of Transocean" for
additional information regarding the persons who will serve as directors of
the Company after the consummation of the Combination. In addition, the
Company intends that J. Michael Talbert serve as Chairman of the Board and
Chief Executive Officer of the Combined Company and that Reidar Lund serve as
President of Transocean following consummation of the Combination.
OPERATIONS AFTER THE COMBINATION
The Combined Company intends to set up its and its subsidiaries'
organization with a view to obtaining rational and cost-efficient utilization
of the Combined Company's and its subsidiaries' resources. Any future
reorganizations are expected to be carried out in such a manner that the
existing organizations are given the necessary time to adjust. Against this
background, the Combined Company expects that Transocean's activities that are
currently managed in Tananger will, to a large degree, continue to be managed
in Tananger and Sonat Offshore's activities that are currently managed in
Houston will, to a large degree, continue to be managed in Houston. The
principal executive offices of the Combined Company will be in Houston. These
measures will be carried out in close cooperation with the employees and their
organizations in accordance with existing agreements.
The Combined Company expects that the Combination will have a limited
overall effect on Transocean's and Sonat Offshore's employees. It must,
however, be expected that changes and rationalization will be carried out and
it will therefore be necessary to transfer functions and relocate staff after
the Combination. Such changes will be based primarily on the employees'
expertise, experience and seniority. Rationalization of the administration may
result in certain staff members being given different jobs and
responsibilities from those before the Combination.
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TAX CONSEQUENCES OF THE EXCHANGE OFFER, MANDATORY BID AND COMPULSORY
ACQUISITION
INTRODUCTION
The following discussion is a summary of the principal generally applicable
United States federal, Norwegian, and United Kingdom income tax consequences
of the Exchange Offer, the Mandatory Bid and the Compulsory Acquisition and is
not intended to be a complete discussion of all potential tax effects that
might be relevant to the Exchange Offer, the Mandatory Bid or Compulsory
Acquisition. This summary may not be applicable to certain taxpayers,
including, without limitation, expatriates, insurance companies, regulated
investment companies, tax-exempt organizations, financial institutions,
securities dealers, broker-dealers, persons who hold Transocean Stock as part
of a straddle or conversion transaction, and persons who acquired Transocean
Stock pursuant to an exercise of employee stock options or rights or otherwise
as compensation. Moreover, any tax consequences under the laws of
jurisdictions other than the United States, Norway and the United Kingdom or
any state, local and estate tax consequences are not discussed, unless
otherwise indicated.
This summary is based on statutory provisions, existing and proposed
regulations, administrative pronouncements and judicial decisions, all of
which are subject to change and changes to any of which (possibly retroactive)
may affect the tax consequences described herein. No ruling has been or will
be requested from any taxing authority on any tax matter relating to the
consequences of the Exchange Offer, Mandatory Bid or the Compulsory
Acquisition.
UNITED STATES TAX CONSEQUENCES
Tax Consequences to Sonat Offshore Stockholders
The consummation of the Exchange Offer, the Mandatory Bid and the Compulsory
Acquisition will not have any United States federal income tax consequences to
Sonat Offshore or the Sonat Offshore stockholders.
Tax Consequences to U.S. Holders of Transocean Stock
Exchanges or sales by U.S. Holders of Transocean Stock pursuant to the
Exchange Offer, Mandatory Bid and the Compulsory Acquisition will be taxable
transactions for United States federal income tax purposes. For purposes
hereof, a U.S. Holder is any person that is, for United States tax purposes, a
citizen or resident of the United States, a corporation or partnership created
or organized under the laws of the United States or any state thereof, or an
estate or trust that is subject (or potentially subject) to U.S. federal
income tax on its worldwide income on a net basis. In general, a U.S. Holder
will recognize gain or loss equal to the difference between such holder's
adjusted tax basis in the Transocean Stock transferred and the amount of cash
and/or the fair market value of Company Common Stock received in exchange
therefor. If the Transocean Stock was held as a capital asset, such gain or
loss will be capital gain or loss. Any such capital gain or loss will be long-
term capital gain or loss if the Transocean Stock was held for more than one
year. U.S. Holders owning 5% or more in value of the outstanding stock of
Transocean may be required to file IRS Form 5471 to reflect the exchange or
sale of Transocean Stock.
If Transocean is or was during a five-year lookback period a "controlled
foreign corporation" (within the meaning of Section 957 of the Internal
Revenue Code of 1986, as amended (the "Code")), any United States person that
directly, indirectly or constructively owns or owned 10 percent or more of the
combined voting power of all classes of its voting stock ("Ten Percent U.S.
Shareholder") during any portion of such period when Transocean was a
controlled foreign corporation may be subject to special rules under Section
1248 of the Code. Ten Percent U.S. Shareholders should consult their United
States tax advisors regarding the effect of any Section 338 election that
Sonat Offshore may make with respect to Transocean and its subsidiaries and
the application of Section 1248 of the Code to their sale or exchange of
Transocean Stock. Sonat Offshore has been advised by Transocean management
that Transocean management does not believe that, as of the date hereof,
Transocean is or has ever been a "controlled foreign corporation." However,
there can be no assurance that this belief is or will continue to be correct.
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If Transocean is, or was at any time during a U.S. Holder's holding period,
a "passive foreign investment company" within the meaning of Section 1296 of
the Code, any gain recognized by a U.S. Holder on sale or exchange of
Transocean Stock generally will be treated as an "excess distribution" subject
to special rules under
the Code, including an interest charge. Sonat Offshore has been advised by
Transocean management that Transocean management does not believe that
Transocean is or has ever been a "passive foreign investment company."
A U.S. Holder of Transocean Stock may be subject to backup withholding tax
at a 31% rate with respect to the receipt of cash pursuant to the Exchange
Offer, the Mandatory Bid or the Compulsory Acquisition if (i) the payee fails
to furnish a social security or other taxpayer identification number ("TIN")
to the payer or establish an exemption from backup withholding, (ii) the
United States Internal Revenue Service notifies the payer that the TIN
furnished by the payee is incorrect, (iii) there has been a notified payee
underreporting with respect to interest or dividends described in Section
3406(c) of the Code or (iv) under certain circumstances, there is a failure of
the payee to certify under the penalties of perjury that it has furnished a
correct TIN and has not been notified by the IRS that it is subject to
withholding as described in Section 3406 of the Code for failure to report
interest and dividend payments. Backup withholding may be credited against the
holder's U.S. tax liability for the year and may be refunded to the extent
that it exceeds the holder's U.S. tax liability.
U.S. Taxation and Backup Withholding on Disposition of Transocean Stock by
Non-U.S. Holders. A "Non-U.S. Holder" is any person other than (1) a citizen
or resident of the United States for U.S. federal income tax purposes, (2) a
corporation or partnership created or organized under the laws of the United
States or any state thereof, or (3) an estate or trust that is subject (or
potentially subject) to U.S. federal income tax on its worldwide income on a
net basis. In general, Non-U.S. Holders who sell or exchange Transocean Stock
for cash and/or shares of Company Common Stock are not subject to U.S. income
tax on any gain recognized on such sale or exchange. However, a Non-U.S.
Holder will be subject to U.S. tax on any gain if (1) the holder is an
individual who holds the Transocean Stock as a capital asset and is present in
the U.S. for 183 days or more during the taxable year in which such stock is
sold and either has a "tax home" in the United States or an office or fixed
place of business in the United States to which the disposition is
attributable, or (2) the holder is engaged in a U.S. trade or business with
which the sale of such stock is effectively connected, unless, in either case,
the tax on such gain is reduced or eliminated under an applicable tax treaty.
In order to avoid U.S. backup withholding at the rate of 31% on the cash
proceeds paid, Non-U.S. Holders who exchange Transocean Stock through brokers
or intermediaries subject to the backup withholding requirements may be
required to certify to the broker or intermediary on Internal Revenue Service
Form W-8 that the holder is an "exempt foreign person" for backup withholding
purposes, or otherwise to establish an exemption. Non-U.S. Holders should
consult with their broker or intermediary regarding the possible application
of U.S. backup withholding to cash proceeds received upon the disposition of
Transocean Stock.
Withholding Tax and Information Reporting on Dividends Paid by Sonat
Offshore to Non-U.S. Holders. In general, dividends paid by Sonat Offshore to
a Non-U.S. Holder will be subject to U.S. withholding tax at a 30 percent rate
(or such lower rate as may be prescribed by an applicable tax treaty). To
determine the applicability of a tax treaty providing for a lower rate of
withholding, dividends paid to an address in a foreign country generally are
presumed under current Treasury regulations to be paid to a resident of that
country, unless the payor has definite knowledge that such presumption is not
warranted. Recently proposed treasury regulations, if finally adopted,
however, would require Non-U.S. Holders to comply, directly or through an
intermediary, with certain certification and other requirements to obtain the
benefit of any applicable tax treaty providing for a lower rate of withholding
tax on dividends paid after December 31, 1997 (or December 31, 1999 in the
case of dividends on stock traded on a U.S. established financial market paid
to accounts in existence on or before the date that is 60 days after the
proposed regulations are published as final regulations). In addition, under
the proposed regulations, for a foreign partnership to claim such benefit, (i)
the certification requirements generally would be applied to the partners of
the partnership and (ii) the partnership generally would be required to
provide certain information, including a TIN. The proposed regulations also
provide look-through rules for tiered partnerships.
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In addition, dividends paid to a Non-U.S. Holder will not be subject to U.S.
withholding tax if the dividends are effectively connected with a trade or
business carried on by the Non-U.S. Holder (or, in the case of a Non-U.S.
Holder eligible for benefits under a treaty, attributable to a permanent
establishment) within the United States (if the Non-U.S. Holder files certain
forms with the payor of the dividend prior to the payment of the dividend) but
will instead generally be subject to U.S. federal income tax at the same rates
applicable to United States persons. In the case of a Non-U.S. Holder which is
a corporation, such effectively connected income may also be subject to an
additional "branch profits tax" (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively
connected earnings and profits) at a 30% rate (subject to possible reduction
or elimination under an applicable treaty).
Dividends paid to a Non-U.S. Holder at an address within the United States
may be subject to backup withholding at a rate of 31% if the Non-U.S. Holder
fails to certify to its foreign status, provide a correct taxpayer
identification number, or establish it is otherwise entitled to an exemption.
Backup withholding will generally not apply to dividends paid to a Non-U.S.
Holder at an address outside the United States (unless the payor has definite
knowledge that the payee is a U.S. person). Under proposed regulations,
however, dividend payments generally will be subject to information reporting
and backup withholding unless applicable certification requirements are
satisfied. See the discussion above with respect to the rules applicable to
foreign partnerships under the proposed regulations.
United States Taxation and Backup Withholding and Information Reporting on
Dispositions of Company Common Stock by Non-U.S. Holders. Generally, a Non-
U.S. Holder will not be subject to United States federal income tax on any
gain recognized upon the disposition of such Non-U.S. Holder's shares of
Company Common Stock except under the circumstances described in the first
paragraph of "U.S. Taxation of Non-U.S. Holders and Backup Withholding on
Disposition of Transocean Stock", above, unless the Company is or has been a
"U.S. real property holding corporation" for federal income tax purposes
(which the Company does not believe that it is or is likely to become) and, in
the event that the Company Common Stock is regularly traded on an established
securities market, the Non-U.S. Holder held, directly or indirectly, at any
time during the five-year period ending on the date of disposition, more than
5 percent of the Company Common Stock.
The payment of the proceeds for the disposition of Company Common Stock to
or through the United States office of a broker will be subject to United
States information reporting and backup withholding unless the owner
certifies, among other things, such owner's status as a Non-U.S. Holder (and
the broker does not have actual knowledge to the contrary), or otherwise
establishes an exemption. The payment of proceeds from the disposition of
Company Common Stock to or through a non-U.S. office of a non-U.S. broker will
generally not be subject to information reporting (except under the
circumstances described in the following sentence) and, under current
temporary regulations, will not be subject to backup withholding. Unless the
broker has documentary evidence in its files that the owner is a Non-U.S.
Holder (and does not have actual knowledge to the contrary), information
reporting (but not backup withholding) will apply to dispositions through (a)
a non-U.S. office of a U.S. broker or (b) a non-U.S. office of a non-U.S.
broker that is either a "controlled foreign corporation" for United States
federal income tax purposes or a person 50% or more of whose gross income from
all sources for a certain three-year period was effectively connected with a
United States trade or business. Under proposed regulations that are not
currently effective, backup withholding could apply to proceeds from such
dispositions, but generally only if such broker has actual knowledge that the
payee is a U.S. Holder.
United States Estate Tax Considerations of Non-U.S. Holders. Shares of
Company Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for U.S. federal estate tax
purposes) of the United States at the time of death generally will be
includible in the individual's gross estate for United States federal estate
tax purposes, unless an applicable tax treaty provides otherwise. Such an
individual's estate may be subject to United States federal estate tax on the
property includible in the estate for United States federal estate tax
purposes.
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NORWEGIAN TAX CONSEQUENCES
The following discussion is a summary of the principal generally applicable
Norwegian income tax consequences of the Exchange Offer, Mandatory Bid and the
Compulsory Acquisition and is not intended to be a complete discussion of all
potential tax effects that might be relevant to the Exchange Offer, Mandatory
Bid or Compulsory Acquisition.
Tax Consequences to Norwegian Stockholders of Transocean
Shareholders resident in Norway for tax purposes will be liable for income
tax in respect of capital gains arising upon the disposal of the Transocean
Stock. Correspondingly, losses upon disposal of the Transocean Stock will
reduce their taxable income. Gains will be taxable as ordinary income and
losses will be allowed as a deduction from ordinary income in the year of
sale. Ordinary income is currently taxed at a rate of 28%.
The capital gain or loss on each Transocean share will be equal to the
difference between the consideration received and an adjusted base cost. The
consideration received will be equal to the value of the Company Common Stock
and the cash received as of the date of receipt thereof by the selling
stockholders. The adjusted base cost is the acquisition price (or, for certain
stockholders who on January 1, 1992, had held the shares for more than three
years without connection to the business of the stockholder, an increased cost
price), adjusted up or down in accordance with the changes in the taxed
capital of Transocean during the time the shareholder has been the owner of
the share (so-called "RISK" adjustment; RISK is the Norwegian abbreviation for
the adjustment of the base cost through changes in taxed retained earnings).
The adjustment of the base cost for each tax year is allocated to the owner of
the share on January 1 of the following year.
RISK-adjustment for Transocean has been as follows:
On 1 January 1993: Nkr 0.00 per share
On 1 January 1994: Nkr 0.00 per share
On 1 January 1995: Nkr 0.00 per share
On 1 January 1996: Nkr 0.00 per share
The RISK-adjustment on 1 January 1996 is Transocean's computation, but has
not yet been determined by the tax authorities.
If the holder disposes of only some of his shares, then the first in, first
out (FIFO) principle is applied in determining the cost of shares sold.
Costs in connection with both the purchase and sale of shares are deductible
when calculating capital gain or loss.
Tax Consequences to Non-Norwegian Stockholders of Transocean
Non-Norwegian stockholders are not normally taxable in Norway on capital
gains on the sale of shares. A tax liability in Norway may nevertheless arise
if, (1) the shares were held in connection with a business carried out in
Norway by the stockholder or (2) the stockholder has previously been resident
in Norway for tax purposes and the share is sold within five years of the
expiration of the calendar year when residency for tax purposes in Norway
ceased. In both cases, the Norwegian tax liability may be limited by tax
treaties. When a foreign owner is taxable in Norway on the sale of shares, the
calculation of the capital gain or loss follows the same principles as
described above for Norwegian shareholders. The rate of tax is also the same
(28%).
Duties on the Transfer of Shares
No duties are currently imposed in Norway on the transfer of shares, whether
on acquisition or disposal.
Tax Consequences to Norwegian Holders of Company Common Stock
Dividends received from the Company by Norwegian resident stockholders will
be taxed as ordinary income, currently at a rate of 28%. The stockholder will
be given credit for U.S. withholding taxes imposed on
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the dividend (generally at a 15% rate under the income tax treaty between the
U.S. and Norway). There will be no credit given for corporate income tax paid
by the Company, while dividends from a Norwegian company are effectively tax
free to the stockholder due to an imputation system but reduce the cost price
of the shares according to the RISK regulation system.
Gains or losses from a future disposal of stock in the Company are taxable
or deductible in the same manner as described above with respect to transfers
of Transocean Stock, except that the RISK-regulation system will not apply.
The capital gain or loss on the sale of shares of the Company is calculated as
the difference between the consideration received and the cost price (which
should be the fair market value of the Company Common Stock used for the
purpose of computing gains/losses on the exchange of Transocean Stock pursuant
to the Exchange Offer). Costs in connection with both the purchase and sale of
shares are deductible when calculating capital gain or loss.
Shareholders resident in Norway will be subject to wealth tax on their
shareholdings in the Company. The value for wealth tax purposes of listed
shares is 75% of the market price at the end of the income year. If the
Company Stock is listed both on the OSE and the NYSE, the market price on the
OSE shall be applied.
UNITED KINGDOM TAX CONSEQUENCES
The following discussion is a summary, based on current United Kingdom
("U.K.") legislation and Inland Revenue practice, of the principal generally
applicable aspects of the U.K. tax consequences of the Exchange Offer,
Mandatory Bid and Compulsory Acquisition and is intended as a general guide
only and not as a complete discussion of all potential tax effects that might
be relevant to the Exchange Offer, Mandatory Bid or Compulsory Acquisition.
The discussion relates only to Transocean Stockholders who hold their
Transocean Stock as an investment and who are resident in the U.K. for U.K.
tax purposes.
Tax Consequences to U.K. Stockholders on Disposal of Transocean Stock--
Taxation of Chargeable Gains
Liability to U.K. taxation of chargeable gains will depend upon the
individual circumstances of Transocean Stockholders and on the form of
consideration received.
A Transocean Stockholder who, together with persons connected with him, does
not hold more than 5% of Transocean Stock will not be treated as having made a
disposal of Transocean Stock for the purposes of U.K. taxation of chargeable
gains to the extent that he receives Company Common Stock in exchange for his
Transocean Stock. Instead the Company Common Stock issued to a Transocean
Stockholder in exchange for the transfer of his Transocean Stock is treated as
the same asset acquired at the same time and at the same price as his
Transocean Stock with the consequence that his tax basis in his Transocean
Stock is carried over to the Company Common Stock so that no taxable gain or
allowable loss arises on the exchange.
Any Transocean Shareholder who, either alone or together with persons
connected with him, holds more than 5% of the Transocean Stock should also be
treated in the same manner as that described in the preceding paragraph,
although no clearance has been, or is being, sought under s. 138 of the
Taxation of Chargeable Gains Act 1992 of the U.K.
A subsequent disposal of Company Common Stock by a Transocean Stockholder
may, depending upon individual circumstances, give rise to a liability to U.K.
taxation on chargeable gains with any gain (or loss) calculated by reference
to his carried over tax basis (as discussed above) in such Company Common
Stock as increased by the applicable indexation allowance.
To the extent that a Transocean Stockholder receives cash for his Transocean
Stock this will constitute a disposal or (if he also receives Company Common
Stock for such Stock) part disposal of his Transocean Stock for the purposes
of U.K. taxation of chargeable gains. Such a disposal, or part disposal, may,
depending on the Transocean Stockholder's individual circumstances, give rise
to a liability to U.K. taxation on chargeable gains with any gain (or loss)
calculated by reference to his tax basis in such Transocean Stock as increased
by the applicable indexation allowance.
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Tax Consequences to U.K. Holders of Company Common Stock--Taxation of
Dividends
Gross dividends received from the Company by U.K. resident stockholders will
be taxed in the same way as dividends from Transocean, i.e., at the corporate
tax rate of 33% for corporate stockholders and a marginal tax rate of up to 40%
for individuals and up to 39% for trustees. The stockholder may offset U.S. tax
withheld from dividends, (normally at the rate of 15% of the gross dividend
under the income tax treaty between the U.S. and the U.K.), against the U.K.
tax liability on the same dividends.
Gains or losses from a future sale or disposal of stock in the Company are
taxable or deductible in the same manner as described above with respect to
transfer of Transocean Stock.
BECAUSE OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH HOLDER OF
TRANSOCEAN STOCK IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR WITH RESPECT TO
THE TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER, A MANDATORY BID OR A
COMPULSORY ACQUISITION, INCLUDING THE EFFECT OF UNITED STATES FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX RULES AND THE EFFECT OF POSSIBLE CHANGES IN THE
TAX LAWS.
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REGULATORY MATTERS
Consummation of the Exchange Offer and the Combination is conditioned upon
the receipt of all applicable governmental and stock exchange authorizations,
consents, orders and approvals. The Company intends to pursue vigorously all
required regulatory approvals. However, there can be no assurance that such
approvals will, in fact, be obtained, or, if obtained, as to the timing of
their receipt.
U.S. ANTITRUST LAWS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade Commission
(the "FTC"), the Exchange Offer and the Combination may not be consummated
until notifications have been given and certain information has been furnished
to the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Sonat Offshore and Transocean filed a notification and report form
under the HSR Act with the FTC and the Antitrust Division on May 10, 1996 and
May 31, 1996, respectively. The required waiting period under the HSR Act was
terminated on June 5, 1996. At any time before or after consummation of the
Exchange Offer and the Combination, the Antitrust Division or the FTC could
take such action under the antitrust laws as it deems necessary or desirable
in the public interest, including seeking to enjoin the consummation of the
Exchange Offer and the Combination or seeking divestiture of substantial
assets of Sonat Offshore or Transocean. At any time before or after the
Expiration Date, and notwithstanding that the HSR Act waiting period was
terminated, any state could take such action under the antitrust laws as it
deems necessary or desirable in the public interest. Such action could include
seeking to enjoin the consummation of the Exchange Offer and the Combination
or seeking divestiture of assets of Sonat Offshore or Transocean or any of
their respective businesses. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
On the basis of knowledge and information as to the businesses in which
Sonat Offshore, Transocean and their affiliates are engaged, Sonat Offshore
believes that consummation of the Exchange Offer and the Combination will not
violate U.S. or State antitrust laws. Nevertheless, there can be no assurance
that a challenge to the Exchange Offer and the Combination on antitrust
grounds will not be made or of the result if such a challenge is made.
NORWEGIAN COMPETITION ACT
The Norwegian Competition Authority may prohibit or impose conditions for
allowing a business acquisition if, in its opinion, the acquisition will
result in a significant reduction of competition contrary to the purpose of
the Norwegian Competition Act. Before taking any action, the Competition
Authority will seek to find an amicable agreement with the acquirer. The
Competition Authority can take action against an acquisition within six months
after final agreement for the acquisition was made. In particular cases,
action can be taken within one year. The acquirer may give notice of the final
agreement to the Competition Authority. If the Competition Authority has not
within three months after receipt of such notice given notice that it
considers taking action, such action can no longer be taken.
NORWEGIAN BUSINESS ACQUISITION ACT
Pursuant to the Norwegian Business Acquisition Act, an acquisition of at
least one-third of the shares or the votes of a company that either (i) has
more than 50 employees, or (ii) an annual turn-over greater than Nkr 50
million, or (iii) has received at least Nkr 5 million in public assistance for
research and development for at least one project over the last eight years,
must be notified to the Ministry of Industry and Energy (the "Ministry"). The
Exchange Offer is subject to such Act due to certain businesses of Transocean.
The obligation to notify the Ministry must be complied with within 30 days
after the acquisition of shares. The Ministry must, within 30 days, notify if
they want to undertake a closer examination of the acquisition. Such
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examination may be undertaken if the Ministry deems that the acquisition may
have significant negative effects for the company, the business sector, or the
society, including effects on employment. The acquisition will be approved
unless it is contrary to the public interest. The Ministry can lay down
conditions for allowing the acquisition.
The acquirer will not, without the consent of the Ministry, have any voting
or other shareholder rights in the company, other than the right to receive
dividends and to subscribe for new shares, in the period from the date of the
obligation to notify the Ministry arose until the Ministry has either granted
its explicit approval or is deemed to have approved the acquisition by not
giving notice as explained above.
The Ministry has granted an exemption from the application of the Norwegian
Business Acquisition Act to the Exchange Offer to the extent that, upon
consummation of the Exchange Offer, the Company will be entitled to exercise
all voting rights as a holder of Transocean Stock. It is a condition to the
Company's obligation to consummate the Exchange Offer that such exemption
continue in effect.
STATE TAKEOVER LAWS
A number of states have adopted laws and regulations applicable to attempts
to acquire securities of corporations that are incorporated or have
substantial assets, stockholders, principal executive offices or principal
places of business or whose business operations otherwise have substantial
economic effects in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers
of corporations meeting certain requirements more difficult. However, in 1987,
in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the
State of Indiana may, as a matter of corporate law and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of
a target corporation without the prior approval of the remaining stockholders.
The state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and
were incorporated therein.
Sonat Offshore and Transocean, directly or through subsidiaries, conduct
business in a number of states throughout the United States, some of which
have enacted takeover laws. Sonat Offshore does not know whether any of these
laws will, by their terms, apply to the Exchange Offer and the Combination and
has not complied with any such laws. Should any person seek to apply any state
takeover law to the Exchange Offer and the Combination, Sonat Offshore will
take such action as then appears desirable, which may include contesting the
validity of such statute in appropriate court proceedings. If it is asserted
that one or more state takeover laws applies to the Exchange Offer and the
Combination and it is not determined by an appropriate court that such act or
acts do not apply or are invalid as applied to the Exchange Offer and the
Combination, then Sonat Offshore might be required to file certain information
with, or receive approvals from, the relevant state authorities. In addition,
if enjoined, Sonat Offshore might be unable to consummate or be delayed in
consummating the Exchange Offer and the Combination. In such case, Sonat
Offshore may not be obligated to accept for exchange any Transocean Stock
deposited under the Exchange Offer.
OTHER LAWS
Sonat Offshore and Transocean conduct operations in a number of countries
where regulatory filings or approvals may be required or advisable in
connection with the consummation of the Exchange Offer and the Combination.
The Company is currently in the process of reviewing whether other filings or
approvals may be required or desirable in other countries which may be
material to Sonat Offshore, Transocean and their subsidiaries. It is
recognized that certain of such filings may not be completed and certain of
such approvals (which are not as a matter of practice required to be obtained
prior to effectiveness of a merger transaction) may not be obtained prior to
the Expiration Date.
62
<PAGE>
MARKET PRICE AND DIVIDEND DATA
As of July 15, 1996, there were approximately 190 holders of record of
Company Common Stock. As of July 15, 1996, there were approximately 6,350
holders of record of Transocean Stock.
The market prices for, and dividends paid on, the Company Common Stock and
the Transocean Stock shown below are the market prices and dividends paid for
each security without adjustments to give effect to the Combination.
MARKET PRICES
Sonat Offshore
The Company Common Stock is listed on the NYSE. Its ticker symbol is "RIG".
The table below sets forth, for the calendar quarters indicated, the high and
low sale prices of the Company Common Stock as reported on the New York Stock
Exchange Composite Tape.
<TABLE>
<CAPTION>
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
1994
First Quarter.......................................... $18 1/2 $16
Second Quarter......................................... 20 1/8 16 1/2
Third Quarter.......................................... 21 1/2 17 3/4
Fourth Quarter......................................... 20 1/4 17 5/8
1995
First Quarter.......................................... $23 1/4 $17 3/4
Second Quarter......................................... 33 3/8 22 3/4
Third Quarter.......................................... 30 3/4 27 3/4
Fourth Quarter......................................... 49 31 3/8
1996
First Quarter.......................................... $53 $41 1/8
Second Quarter......................................... 59 46 1/2
Third Quarter (through July 26)........................ 53 3/4 50 3/4
</TABLE>
The high and low sale prices of Company Common Stock on the NYSE Composite
Tape on April 24, 1996, the last full trading day prior to the date of the
announcement of the proposal for the Combination, was $55 3/4 and $54 1/2,
respectively. The last sale price of Company Common Stock as reported on the
NYSE Composite Tape on July 26, 1996, was $51.50 per share. HOLDERS OF SHARES
OF COMPANY COMMON STOCK AND TRANSOCEAN STOCK ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE COMPANY COMMON STOCK.
63
<PAGE>
Transocean
The principal market for trading in the Transocean Stock is the OSE. Its
ticker symbol is TOD. The table below sets forth for the calendar quarters
indicated, the high and low sale prices in Norwegian kroner of the Transocean
Stock as reported on the OSE.
<TABLE>
<CAPTION>
COMMON STOCK
-------------
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter............................................. 53.00 37.00
Second Quarter............................................ 49.00 25.00
Third Quarter............................................. 48.00 25.00
Fourth Quarter............................................ 56.50 40.00
1995
First Quarter............................................. 69.50 56.00
Second Quarter............................................ 89.00 61.50
Third Quarter............................................. 106.00 83.00
Fourth Quarter............................................ 115.00 91.00
1996
First Quarter............................................. 166.00 109.50
Second Quarter............................................ 185.00 138.50
Third Quarter (through July 26)........................... 177.00 167.00
</TABLE>
The high and low sale prices of Transocean Stock on the OSE on April 24,
1996, the last full trading day prior to the date of the announcement of the
proposal for the Combination, was Nkr 155.00 and Nkr 152.00 respectively. The
last sales price of the Transocean Stock on the OSE at the close of business
on July 26, 1996, was Nkr 169 per share. HOLDERS OF SHARES OF TRANSOCEAN STOCK
ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE TRANSOCEAN STOCK.
DIVIDENDS
Sonat Offshore
Sonat Offshore has paid quarterly cash dividends of $0.06 per share of
Company Common Stock commencing with the fourth quarter of 1993. Any future
declaration and payment of dividends will be (i) dependent upon the Company's
results of operations, financial condition, cash requirements and other
relevant factors, (ii) subject to the discretion of the Board of Directors of
the Company, (iii) subject to restrictions contained in the Company's Credit
Agreement (see "Sonat Offshore Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources") and (iv) payable only out of the Company's surplus or current net
profits in accordance with the DGCL.
Transocean
Transocean has not paid dividends in respect of Transocean Stock since prior
to 1994.
64
<PAGE>
UNAUDITED CONDENSED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following Unaudited Condensed Pro Forma Combined Balance Sheet as of
March 31, 1996 and the Unaudited Condensed Pro Forma Combined Statements of
Operations for the three-month period ended March 31, 1996 and the year ended
December 31, 1995 have been prepared to illustrate the estimated effects of
the proposed Combination of Sonat Offshore and Transocean applying U.S. GAAP
under the purchase method of accounting. Allocations of purchase price have
been determined based on preliminary estimates of fair values and are subject
to change. The Unaudited Condensed Pro Forma Combined Balance Sheet as of
March 31, 1996 was prepared as if the Combination were consummated on March
31, 1996. The Unaudited Condensed Pro Forma Combined Statements of Operations
for the three-month period ended March 31, 1996 and the year ended December
31, 1995 were prepared as if the Combination were consummated as of January 1,
1995. The Unaudited Condensed Pro Forma Combined Financial Statements are
based on the historical consolidated financial statements of Sonat Offshore
and Transocean giving effect to the Combination under the assumptions and
adjustments outlined in the accompanying Notes to Unaudited Condensed Pro
Forma Combined Financial Statements.
The Unaudited Condensed Pro Forma Combined Financial Statements reflect a
total purchase price, including direct transaction costs, of $1,498,858,000,
which is calculated based on the average of the closing prices of Company
Common Stock over the five day period commencing two days before May 20, 1996,
the date on which the revised offering price was announced, assuming each of
43,248,358 shares of Transocean Stock are exchanged for .53 of a share of
Company Common Stock and U.S.$27.25 is paid for each remaining share of
Transocean Stock.
The Unaudited Condensed Pro Forma Combined Financial Statements have been
prepared applying U.S. GAAP. The financial statements of Transocean have been
converted from Norwegian GAAP to U.S. GAAP and translated into U.S. dollars
for purposes of this presentation (see Note 1 to the Unaudited Condensed Pro
Forma Combined Financial Statements). Norwegian GAAP differs in certain
significant respects from U.S. GAAP. A reconciliation of net income (loss) and
shareholders' equity of Transocean from Norwegian GAAP to U.S. GAAP is
presented in Note 34 to the Consolidated Financial Statements of Transocean
and Note 5 to the Condensed Consolidated Financial Statements of Transocean
included elsewhere in this Prospectus/Offer to Purchase/Proxy Statement.
The Unaudited Condensed Pro Forma Combined Financial Statements are provided
for illustrative purposes only and do not purport to represent what the
financial position or results of operations of the Company would actually have
been if the Combination had in fact occurred on the dates indicated or to
project the financial position or results of operations for any future date or
period. Although the Company expects to realize cost reductions from the
Combination, no effect has been given in the Company's Unaudited Condensed Pro
Forma Combined Financial Statements to any such benefits. The Unaudited
Condensed Pro Forma Combined Financial Statements should be read in
conjunction with the notes thereto and the consolidated financial statements
of Sonat Offshore and Transocean and the related notes thereto contained
elsewhere herein.
65
<PAGE>
UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ---------------------------
SONAT
OFFSHORE TRANSOCEAN(1) ADJUSTMENTS COMBINED
-------- ------------- ----------- ----------
(U.S. DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and Cash Equivalents.. $106,385 $ 52,498 $ 309,630 (4) $ 158,883
(294,630)(2b)
(6,000)(2c)
(6,000)(3)
(3,000)(5)
Accounts and Notes
Receivable................ 58,364 68,974 127,338
Other Current Assets....... 32,321 24,084 56,405
Net Assets of Discontinued
Operations................ 56,809 37,260 (2f) 94,069
-------- -------- ---------- ----------
Total Current Assets...... 197,070 202,365 37,260 436,695
Property and Equipment,
net....................... 325,576 501,469 401,431 (2e) 1,228,476
Goodwill and Intangibles... 751,600 (2g) 751,600
Other Assets............... 39,136 23,659 3,000 (5) 65,795
-------- -------- ---------- ----------
Total Assets............... $561,782 $727,493 $1,193,291 $2,482,566
======== ======== ========== ==========
Current Liabilities........ $ 68,365 $ 77,543 $ 28,000 (4) $ 173,908
Long-Term Debt............. 30,000 248,647 281,630 (4) 560,277
Deferred Taxes and Other
Credits................... 89,766 28,657 64,079 (2h) 182,502
Stockholders' Equity....... 373,651 372,646 (372,646)(2d) 1,565,879
1,198,228 (2a)
(6,000)(3)
-------- -------- ---------- ----------
Total Liabilities and
Stockholders' Equity...... $561,782 $727,493 $1,193,291 $2,482,566
======== ======== ========== ==========
</TABLE>
See accompanying notes to the Unaudited Condensed Pro Forma Combined Financial
Statements.
66
<PAGE>
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- -------------------------------------
SONAT
OFFSHORE TRANSOCEAN(1) ADJUSTMENTS COMBINED
-------------- ------------------ ---------------- ---------------
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues...... $ 81,220 $ 88,991 $ 170,211
-------------- --------------- ---------------
Costs and Expenses
Operating and
Maintenance.......... 56,155 69,100 125,255
Depreciation and
Amortization......... 6,058 11,693 $ 6,099 (6) 23,850
General and
Administrative....... 5,056 6,706 11,762
-------------- --------------- --------------- ---------------
67,269 87,499 6,099 160,867
-------------- --------------- --------------- ---------------
Operating Income........ 13,951 1,492 (6,099) 9,344
Other Income (Expense),
Net.................... 4,212 (20,838) (4,576)(7) (21,202)
-------------- --------------- --------------- ---------------
Income (Loss) from
Continuing Operations
Before Taxes........... 18,163 (19,346) (10,675) (11,858)
Income Taxes............ 6,338 85 (1,674)(8) 4,749
-------------- --------------- --------------- ---------------
Income (Loss) from
Continuing Operations.. $ 11,825 $ (19,431) $ (9,001) $ (16,607)
============== =============== =============== ===============
Income (Loss) from
Continuing Operations
per Common Share....... $ 0.42 $ (0.36) $ (0.32)
============== =============== ===============
Weighted Average Shares
Outstanding............ 28,435 53,434 51,357 (9)
============== =============== ===============
</TABLE>
See accompanying notes to the Unaudited Condensed Pro Forma Combined Financial
Statements.
67
<PAGE>
UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------- -------------------------------------
SONAT
OFFSHORE TRANSOCEAN(1) ADJUSTMENTS COMBINED
--------------- ------------------ ---------------- ---------------
(U.S. DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Revenues...... $ 322,658 $ 348,112 $ 670,770
Costs and Expenses......
Operating and
Maintenance.......... 222,367 268,259 490,626
Depreciation.......... 26,995 49,608 $ 25,190 (6) 101,793
General and
Administrative....... 21,208 36,924 58,132
--------------- --------------- --------------- ---------------
270,570 354,791 25,190 650,551
--------------- --------------- --------------- ---------------
Operating Income
(Loss)................. 52,088 (6,679) (25,190) 20,219
Other Income (Expense),
Net.................... 23,061 7,337 (19,341)(7) 11,057
--------------- --------------- --------------- ---------------
Income from Continuing
Operations Before
Taxes.................. 75,149 658 (44,531) 31,276
Income Taxes............ 28,201 405 (7,207)(8) 21,399
--------------- --------------- --------------- ---------------
Income from Continuing
Operations............. $ 46,948 $ 253 $(37,324) $ 9,877
=============== =============== =============== ===============
Income from Continuing
Operations per Common
Share.................. $ 1.65 $ 0.01 $ 0.19
=============== =============== ===============
Weighted Average Shares
Outstanding............ 28,374 52,550 51,296(9)
=============== =============== ===============
</TABLE>
See accompanying notes to the Unaudited Condensed Pro Forma Combined Financial
Statements.
68
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The Unaudited Condensed Pro Forma Combined Financial Statements have
been prepared applying U.S. GAAP. The financial statements of Transocean have
been converted from Norwegian GAAP to U.S. GAAP and translated into U.S.
dollars for purposes of this presentation at a rate of $1.00 = Nkr 6.409 as of
March 31, 1996 and using the weighted average rates of exchange for the three-
month period ended March 31, 1996 and for the year ended December 31, 1995 of
$1.00 = Nkr 6.412 and 6.329, respectively. Norwegian GAAP differs in certain
significant respects from U.S. GAAP. A reconciliation of net income (loss) and
shareholders' equity of Transocean from Norwegian GAAP to U.S. GAAP is
presented in Note 34 to the Consolidated Financial Statements of Transocean
and Note 5 to the Condensed Consolidated Financial Statements of Transocean
included elsewhere in this Prospectus/Offer to Purchase/Proxy Statement.
Certain reclassifications have been made to conform the Transocean historical
financial statements to the pro forma presentation. Such reclassifications
have no effect on total stockholders' equity or net income (loss) from
continuing operations.
(2) To reflect the purchase of 100% of the outstanding shares of Transocean
Stock for a total consideration of $1,492,858,000, assuming each of 43,248,358
shares of Transocean Stock will be exchanged for .53 of a share of Company
Common Stock and $27.25 in cash will be paid for each remaining share of
Transocean Stock. The value of Company Common Stock to be issued in the
Combination was calculated based on $52.275, which was the average of the
closing prices of Company Common Stock over the five day period commencing two
days before May 20, 1996, the date on which the revised offer was announced.
<TABLE>
<S> <C>
($ IN THOUSANDS)
----------------
</TABLE>
<TABLE>
<S> <C>
(a) Company Common Stock to be issued...................... $1,198,228
(b) Cash consideration paid................................ 294,630
----------
Total consideration to be paid........................... 1,492,858
(c) Direct transaction costs............................... 6,000
----------
Total purchase price..................................... $1,498,858
==========
The purchase price will be allocated based upon estimated fair values of the
Transocean assets and liabilities. For purposes of the Unaudited Condensed Pro
Forma Combined Financial Statements, the purchase price has been allocated as
follows:
<CAPTION>
($ IN THOUSANDS)
----------------
<S> <C>
(d) Historical net book value of Transocean................ $ 372,646
(e) Fair value adjustment of property and equipment, net... 401,431
(f) Fair value adjustment of net assets for the fluid
services business segment to be disposed of............ 37,260
(g) Excess of purchase price over the sum of fair value of
identifiable assets acquired less liabilities assumed.. 751,600
(h) Adjustment for related deferred income taxes payable... (64,079)
----------
Total purchase price..................................... $1,498,858
==========
</TABLE>
(3) To record costs directly associated with the issuance of Company Common
Stock.
(4) To record financing obtained in connection with the Combination
including $15 million of related costs, consisting of $6 million in direct
transaction costs, $6 million in costs directly associated with the issuance
of Company Common Stock, and $3 million in debt refinancing costs.
(5) To record costs directly associated with financing obtained in
connection with the Combination.
(6) To record additional depreciation expense and amortization of goodwill
resulting from the allocation of the purchase price. The pro forma adjustment
assumes estimated remaining useful lives ranging from 6 to 24 years for
depreciation and a 40 year amortization period for goodwill.
(7) To adjust interest expense, including amortization of debt issuance
costs, assuming that the additional financing was obtained as of January 1,
1995. Interest expense has been calculated using an interest rate of 6.1375%,
based on the 3-month LIBOR rate of 5.6875% as of July 15, 1996 plus a margin
of .45% and assumes principal repayments of $33.75 million over the pro forma
period as required by the Credit Agreement. A one-half percent change in
interest rates would impact interest expense in the amount of approximately $2
million over the 15 month pro forma period.
(8) To record income tax expense on the effect of the pro forma adjustments
to depreciation and interest expense. The Norwegian statutory income tax rate
of 28% has been used. Goodwill amortization has been treated as a permanent
difference for income tax purposes; therefore, it does not give rise to an
income tax effect.
(9) Weighted average shares outstanding as if the 22.9 million shares to be
issued by the Company in consideration of the Transocean Stock had taken place
on January 1, 1995.
69
<PAGE>
DESCRIPTION OF SONAT OFFSHORE
Sonat Offshore is engaged in contract drilling of oil and gas wells in
offshore areas throughout the world. The offshore contract drilling business
involves the drilling of wells for oil and gas located beneath the sea bed. An
offshore drilling contractor is generally retained by a client to provide
drilling equipment and work crews to drill a well or wells at an offshore
location for which the client holds drilling rights. The client may also
retain the drilling contractor to provide an array of other services, such as
well engineering and planning, associated with the drilling of a well.
Sonat Offshore, which operated under the name "The Offshore Company" until
1982, was founded in 1953 to develop the first jack-up rig in the Gulf of
Mexico. Sonat Offshore began international drilling operations in the late
1950's and was one of the first contractors to offer drilling services in the
North Sea. Sonat Offshore is a Delaware corporation.
On June 4, 1993, Sonat Offshore completed a public offering of 15,500,000
shares of common stock (the "Offering"), approximately 60% of its total issued
and outstanding shares. Sonat Inc., a Delaware corporation, of which Sonat
Offshore had been a wholly owned subsidiary prior to the Offering, continued
to own 39.7% of the outstanding shares of Sonat Offshore. The net proceeds of
the Offering were used to repay all amounts due to Sonat Inc. under various
borrowing arrangements and to pay a cash dividend to Sonat Inc. For further
discussion of the Offering, see Note 2 to the Notes to Consolidated Financial
Statements. In July, 1995 Sonat Inc. sold the remaining 39.7% of Sonat
Offshore through a secondary public offering. At March 31, 1996, Sonat Inc.
owned no shares of Company Common Stock.
BUSINESS STRATEGY
Sonat Offshore's strategy is to be a leader in the technically demanding
segment of the offshore drilling industry, particularly in ultra deep-water
and harsh environment markets. Sonat Offshore is committed to achieving long-
term growth within this strategic niche. As part of this strategy, in February
1996 Sonat Offshore purchased and agreed to convert a semisubmersible multi-
service vessel, the MSV P.Portia (to be renamed the "Offshore Marianas"), to
an ultra deep-water drilling rig. In May 1996, Sonat Offshore announced plans
to construct the world's largest deepwater mobile offshore drilling rig, to be
called the "Discoverer Enterprise," and to purchase and upgrade for deepwater
drilling capability a second generation semisubmersible. See "--Drilling
Units" below. In addition, consummation of the Combination of Transocean and
Sonat Offshore will result in one of the world's leading deepwater and harsh
environment drillers.
DRILLING UNITS
Sonat Offshore principally uses the following three types of rigs:
SEMISUBMERSIBLES. Semisubmersibles are floating vessels that can be
submerged so that a substantial portion of the lower hull is below the
water surface during drilling operations. They are well suited for
operations in rough water conditions.
JACK-UPS. Jack-ups stand on the ocean floor with their hull and drilling
equipment elevated above the water on connected support legs. They are best
suited for water depths of 350 ft. or less.
DRILLSHIPS. Drillships are generally self-propelled and designed to drill
in deep water. Shaped like a conventional ship, they are the most mobile of
the major rig types.
At July 1, 1996, Sonat Offshore had an ownership interest in 16 offshore
drilling units, two of which are owned by a corporation in which Sonat
Offshore has a 24.89% equity interest. One of the two rigs owned by the
corporation in which Sonat Offshore has a 24.89% equity interest is also
managed by Sonat Offshore. See "--Arcade Drilling".
The search for oil and gas has increasingly been moving into deeper and more
demanding offshore environments, and Sonat Offshore's primary focus has been
on the technically demanding deep-water and harsh
70
<PAGE>
environment segments. Sonat Offshore has historically been a leader in the
development of offshore drilling technology, and in recent years Sonat
Offshore has selectively upgraded its fleet of technically advanced drilling
units able to drill in deep water and under harsh environmental conditions.
Sonat Offshore also maintains a fleet of jack-up and semisubmersible rigs that
provide cost-efficient equipment suitable for work in less demanding offshore
drilling environments.
Sonat Offshore operates four of the world's 13 fourth generation
semisubmersibles and has an ownership interest in a fifth unit. Fourth
generation semisubmersibles are those built after 1984 that have larger
physical size than other semisubmersibles, harsh environment capability, high
variable deck load capability (greater than 4,000 metric tons), 15,000 psi
blowout preventers and superior motion characteristics. Fourth generation
semisubmersibles are frequently the most suitable for operations in deep water
and harsh environments, or for development drilling that requires larger
variable loads and the ability to handle large pieces of subsea equipment.
Three of these fourth generation semisubmersibles are owned by Sonat Offshore
and the other is owned by a corporation in which the company has a 24.89%
equity interest. The management contract for this rig expires in September
1996. Two of these units are operating in the U.S. Gulf of Mexico, one is
operating offshore Norway and one is operating in the North Sea. Sonat
Offshore also operates three other semisubmersibles, including a third
generation unit currently under contract in the North Sea and two second
generation units operating in the Gulf of Mexico.
Sonat Offshore owns two dynamically-positioned drillships which have drilled
in deeper water than have any other offshore drilling rigs. Dynamic
positioning allows a vessel to maintain a constant position through the use of
its on-board propulsion system. Sonat Offshore's dynamically-positioned
drillship Discoverer 534 set the current world record for deep-water drilling
in connection with a project during 1996 for Shell.
During 1995 Sonat Offshore drilled 34 percent of all wells drilled in over
3,000 feet of water, 67% of the wells drilled in excess of 4,000 feet of water
and all 8 wells drilled in water depths exceeding 5,000 feet.
All of Sonat Offshore's drilling equipment is suitable for both exploration
and development drilling, and Sonat Offshore is normally engaged in both types
of drilling activity. Sonat Offshore's drilling rigs are mobile and can be
moved to new locations in response to customer demand. All of Sonat Offshore's
drilling units are designed for operations away from port for extended periods
of time and have living quarters for the crews, a helicopter landing deck and
storage space for pipe and drilling supplies.
During 1995, Sonat Offshore sold six bottom-supported drilling rigs which
were not strategically aligned with Sonat Offshore's long-term focus. Five of
these rigs were located in the U.S. Gulf of Mexico: the Offshore Taurus, the
Sonat D-F 77, the Sonat D-F 84, the Sonat D-F 85, and the Sonat D-F 86. The
sixth rig, the Offshore Aquarius, was located in the Middle East. Proceeds
from the sales amounted to $40.7 million. Dixilyn-Field Drilling Company, a
subsidiary of Panhandle Eastern Corporation, received 30 percent, or
approximately $9.4 million, of the proceeds from the sale of the four rigs
which Sonat Offshore had previously acquired from Dixilyn-Field.
In January 1996, the Offshore Bahram sank while in tow offshore Egypt. All
personnel were evacuated without injury. The Company sold the rig in June 1996
for a net pre-tax gain of approximately $6.6 million.
In February 1996, Sonat Offshore acquired the semisubmersible multi-service
vessel MSV P.Portia for $40 million. The rig, to be renamed the "Offshore
Marianas," will be upgraded and converted to a drilling mode with a water
depth capability of 4,500 feet, at a total cost of approximately $160 million.
Sonat Offshore has a letter of intent with Shell Offshore regarding a proposed
three-year contract (subject to being increased to five years at the
customer's option) for the rig following its purchase and upgrade.
In May 1996, Sonat Offshore announced plans to construct the world's largest
deepwater mobile offshore drilling rig, to be called the "Discoverer
Enterprise," which will initially be outfitted to drill in 7,000 feet of water
but will be capable of exploration and development drilling in water depths up
to 10,000 feet. The
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<PAGE>
Discoverer Enterprise will possess dual-activity drilling functions, a
methodology for constructing offshore wells that should produce substantial
cost savings and shorten the amount of time required for drilling tasks on a
single well by allowing such tasks to be accomplished in a concurrent rather
than sequential manner. Sonat Offshore has prepared and filed an application
for a patent with the U.S. Patent and Trademark Office with respect to this
well construction method. Sonat Offshore and Amoco Exploration and Production
Company ("Amoco") have entered into an agreement under which Sonat Offshore
will provide the Discoverer Enterprise and a second generation semisubmersible
to Amoco for a combined minimum commitment of six years. Sonat Offshore has
purchased a second generation semisubmersible for this purpose, to be called
the Offshore Amirante, which will be upgraded and is expected to be
operational by mid-1997. The Discoverer Enterprise is expected to be
operational by mid-1998.
Sonat Offshore's fleet is currently located principally in the Gulf of
Mexico, the North Sea, the Middle East, and offshore Brazil. Sonat Offshore
also maintains offices, land bases and other facilities worldwide, including
in Houston, Texas; Metairie, Amelia and Morgan City, Louisiana; Macae, Brazil;
Aberdeen, Scotland; Cairo and Ras Shukhair, Egypt; Bergen, Norway; Ciudad Del
Carmen, Mexico; Doha, Qatar; Singapore; and Sharjah, United Arab Emirates.
Most of these facilities are leased by Sonat Offshore.
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The following table provides information about the offshore drilling units
in which Sonat Offshore has an ownership interest:
SONAT OFFSHORE
OFFSHORE EQUIPMENT SUMMARY
JULY 1, 1996
<TABLE>
<CAPTION>
YEAR WATER DRILLING
ENTERED DEPTH DEPTH ESTIMATED CONTRACT
TYPE AND NAME SERVICE CAPABILITY CAPABILITY LOCATION CUSTOMER EXPIRATION(1)
------------- --------- ---------- ---------- --------------- ----------------- ------------------
(EXPRESSED IN FEET)
<S> <C> <C> <C> <C> <C> <C>
FOURTH GENERATION
SEMISUBMERSIBLES
Paul B. Loyd, November 1999
Jr.(2)(3)(5)........... 1991 2,000 25,000 North Sea British Petroleum
Sonat Rather(5)......... 1988 4,000 25,000 Gulf of Mexico Shell July 1998
Sonat Richardson(5)..... 1988 5,000 25,000 Gulf of Mexico Shell February 1998
Henry Goodrich(4)(5).... 1985 2,000 30,000 North Sea Shell U.K. September 1996(9)
Polar Pioneer(5)........ 1985 1,500 25,000 Norway Norsk Hydro August 1997
OTHER SEMISUBMERSIBLES
John Shaw(5)............ 1982 2,000 25,000 North Sea Amerada Hess October 1996(12)
Offshore Marianas(10)... 1979/1997 4,500 25,000 Singapore -- --
Offshore Amirante(14)... 1978/1997 3,500 25,000 Gulf of Mexico -- --
Sonat D-F 97(5)......... 1977 660 25,000 Gulf of Mexico UNOCAL October 1996(13)
Sonat D-F 96(5)......... 1975 660(11) 25,000 Gulf of Mexico Texaco May 1997
DYNAMICALLY-POSITIONED
DRILLSHIP
Discoverer Seven
Seas(2)................ 1976 6,000 25,000 Brazil Petrobras December 1996(6)
Discoverer 534(2)(5).... 1975 7,800 25,000 Gulf of Mexico Amoco October 1998
JACK-UP RIGS
Offshore Jupiter(7)..... 1981 130 16,000 Sharjah, U.A.E. Idle --
Offshore Comet(5)(7).... 1980 250 20,000 Gulf of Suez-- Gulf of Suez October 1996
Egypt Petroleum Co.
Interocean III(5)(8).... 1978 300 20,000 Gulf of Suez-- Gulf of Suez July 1996
Egypt Petroleum Co.
Offshore Mercury(5)(7).. 1969 250 20,000 Gulf of Suez-- Gulf of Suez October 1996
Egypt Petroleum Co.
</TABLE>
- --------
(1) Expiration dates represent Sonat Offshore's current estimate of the
earliest date the contract for each rig is likely to expire. Many
contracts permit the customer to terminate early or to extend the
contract. See "--Drilling Contracts."
(2) Dynamically positioned.
(3) Owned by a corporation in which Sonat Offshore has a 25% interest and
which is controlled by a competitor; managed by the competitor. See "--
Arcade Drilling."
(4) Owned by a corporation in which Sonat Offshore has a 25% interest and
which is controlled by a competitor; managed by Sonat Offshore under a
management contract expiring in September 1996. See "--Arcade Drilling."
(5) Equipped with top drive drilling system.
(6) Upon completion, this unit will be mobilized to the Gulf of Mexico and
upgraded to increase the water depth capability to 6,500 feet after which
it will commence a contract with Exxon, which expires in April 1999.
(7) Cantilever rigs.
(8) Equipped with skid-off drilling package and capable of working in tender-
assist mode.
(9) Letter of intent for follow on contract with BP for three years.
(10) Originally constructed in 1979, with upgrades and conversion to drilling
mode expected to be completed in 1997. Letter of intent with Shell for a
three year contract expected to commence September 1997.
(11) Upgrade to 2,300 feet planned.
(12) Letter of intent with Shell for two and a half year follow on contract.
(13) Letter of intent for four month follow on contract with BHP.
(14) Originally constructed in 1978, with upgrades expected to be completed in
1997. The agreement with Amoco provides, in conjunction with construction
of Discoverer Enterprise, for minimum combined contract period of six
years.
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Upon the expiration of existing contracts, there can be no assurance that
such contracts will be renewed or extended, that new contracts will be
available or, if contracts are available, that they will provide revenues
adequate to cover all fixed and variable costs associated with the rigs.
DRILLING CONTRACTS
Sonat Offshore's contracts to provide offshore drilling services are
individually negotiated and vary in their terms and provisions. Sonat Offshore
obtains most of its contracts through competitive bidding against other
contractors. However, it is not unusual for Sonat Offshore to be awarded
drilling contracts for its deep water and harsh environment units without
competitive bidding. Drilling contracts generally provide for a basic drilling
rate on a dayrate basis and for lower rates for periods of travel or when
drilling operations are interrupted or restricted by equipment breakdowns,
adverse environmental conditions or other conditions beyond the control of
Sonat Offshore. Sonat Offshore also performs drilling services under turnkey
contracts, which provide for payment of a fixed price per well. Revenues from
dayrate contracts have historically accounted for substantially more of Sonat
Offshore's revenues than turnkey contracts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operating Results."
A dayrate drilling contract generally extends over a period of time covering
either the drilling of a single well or group of wells or covering a stated
term and may be terminated by the customer in the event the drilling unit is
destroyed or lost or if drilling operations are suspended for a specified
period of time as a result of a breakdown of major equipment or, in some
cases, due to other events beyond the control of either party. Some of Sonat
Offshore's contracts permit the customer to terminate the contract early by
giving notice and in some circumstances may require the payment of an early
termination fee by the customer. In addition, the contract term in many
instances may be extended by the customer exercising options for the drilling
of additional wells or for an additional term.
Under turnkey contracts, Sonat Offshore agrees to drill a well to a
specified depth for a fixed price. In general, no payment is received by Sonat
Offshore unless the well is drilled to the specified depth. Sonat Offshore
must bear the costs of performing drilling services until the well has been
drilled and, accordingly, such projects require significant cash commitments
by Sonat Offshore. In addition, profitability of the contract is dependent
upon keeping expenses within the estimates used by Sonat Offshore in
determining the contract price. In performing a turnkey project, Sonat
Offshore employs a drilling unit from its own fleet or from another contractor
under a dayrate contract. Drilling a well under a turnkey contract offers the
possibility of financial gains or losses that are substantially greater than
those which would ordinarily result from drilling such well under a
conventional dayrate contract, since Sonat Offshore retains any excess of the
fixed price over its expenses (including the drilling unit dayrate) but must
pay any excess of expenses over such price. The financial results of turnkey
contracts depend upon the performance of the drilling unit, drilling
conditions and other factors.
In 1987, Sonat Offshore entered into a partnership with Petroleum Engineers
International Inc. ("PEII") of Lafayette, Louisiana, a firm that specializes
in well planning, to provide petroleum engineering and related expertise on
turnkey projects in the U. S. Gulf of Mexico. PEII has worked on most of Sonat
Offshore's turnkey projects since 1987 in exchange for fixed fees and a small
equity participation in those projects. See "Sonat Offshore Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Market Outlook" for a discussion of Sonat Offshore's current turnkey projects.
Sonat Offshore believes that its operating and engineering expertise
enhances its ability to compete for and complete turnkey contracts
successfully. However, no assurance can be given as to the level of future
turnkey operations or the results that may occur under turnkey contracts. For
information concerning the contribution of turnkey projects to Sonat
Offshore's results, see "Sonat Offshore Management's Discussion and Analysis
of Financial Condition and Results of Operations--Operating Results."
Some of Sonat Offshore's customers are seeking to establish continuing
relationships with a small number of preferred drilling contractors rather
than seeking competitive bids for each drilling contract from a large
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number of contractors. In some circumstances, to acquire preferred contractor
status, a drilling contractor must be able to provide services such as
planning, well engineering and project management, which are in addition to
traditional drilling services. Sonat Offshore believes that those contractors
who are able to provide the highest quality and the greatest range of services
will be the ones to achieve preferred contractor status. Sonat Offshore also
believes that its operational and engineering expertise may provide it an
advantage in competing for this work. Sonat Offshore has established a
business unit to provide integrated services to meet these customer
requirements.
During the past five years, Sonat Offshore has engaged in offshore drilling
for most of the leading international oil companies (or their affiliates) in
the world, as well as for many government-controlled and independent oil
companies. During this period, Sonat Offshore's principal customers included
the Royal Dutch Shell Group, Texaco, British Petroleum, Pemex, Gulf of Suez
Petroleum Company, Amoco, Petrobras and Norsk Hydro. Sonat Offshore's four
largest customers (measured by Sonat Offshore's 1995 consolidated operating
revenues) were the Royal Dutch Shell Group, Pemex, Norsk Hydro and British
Petroleum, accounting for 23.0%, 11.4%, 10.9% and 8.5%, respectively, of such
operating revenues.
ARCADE DRILLING
In December 1990, Sonat Offshore contributed one of its fourth-generation,
harsh environment drilling rigs, the Henry Goodrich, to Arcade Drilling for
$70 million in cash and 21.75% of Arcade Drilling's common stock. Arcade
Drilling also owns another fourth generation, harsh-environment drilling rig,
the Sonat Arcade Frontier (renamed to the Paul B. Loyd, Jr. in early 1996).
Since December 1992 Sonat Offshore has purchased additional shares of Arcade
Drilling stock on the open market, increasing its interest in Arcade Drilling
to 24.89%.
In December 1990, Sonat Offshore was engaged by Arcade Drilling to manage
both of Arcade Drilling's rigs (the "Arcade Rigs") under five-year management
contracts (the "Management Agreements"). The Management Agreement for one of
these rigs, the Paul B. Loyd, Jr., expired in December 1995 and the rig is now
managed by a competitor of Sonat Offshore. The other rig, the Henry Goodrich,
has been bareboat chartered by Arcade Drilling to Sonat Offshore in connection
with a drilling contract entered into with Shell Exploration and Production
U.K. Limited. This drilling contract was extended by the customer for an
additional year expiring at the end of September 1996. Sonat Offshore's
Management Agreement with Arcade Drilling for the Henry Goodrich will run for
the term of such drilling contract. The minimum management fee under the
Management Agreement is $3,000 per day per rig while the rig is operating. In
addition, Sonat Offshore is entitled to be reimbursed for all costs and
expenses incurred in connection with its management of the Arcade Rig and to
receive payment for an allocable share of certain overhead expenses. During
1995, Sonat Offshore had operating income of $2.7 million as a result of its
Management Agreement and bareboat charter contract with respect to the Arcade
Rigs. The Company had operating income of $0.4 million in the first quarter of
1996 related to the management and bareboat charter of one of such Rigs. All
management fees and bareboat charter fees to the Company will cease with the
termination of the Company's management of the Henry Goodrich.
In August 1991 Reading & Bates, a competitor of Sonat Offshore, acquired
effective control of Arcade Shipping as ("Shipping"), a company which had a
46.25% interest in Arcade Drilling. Reading & Bates' control of Shipping,
together with the shares of Arcade Drilling that it owned individually, gave
Reading & Bates control of Arcade Drilling. In August 1991 Reading & Bates,
Shipping and Sonat Offshore entered into an agreement (the "Standstill
Agreement") providing that Reading & Bates and Shipping will not during the
Standstill Period, subject to certain exceptions, enter into a business
combination with Arcade Drilling, engage in any transaction with Arcade
Drilling on terms less favorable to it than those which might be obtained from
an unaffiliated third party, acquire the Arcade Rigs, permit Arcade Drilling
to dispose of any interest in the Arcade Rigs except for a cash sale of its
entire interest at an appraized price, permit Arcade Drilling to take any
action that would allow it to terminate the Management Agreements otherwise
than in accordance with their terms or engage in certain other transactions.
This Standstill Period continues (as to Reading & Bates and its affiliates)
until the earliest of (i) the date when Reading & Bates and its affiliates
shall have disposed of all of the 46.25% of Arcade Drilling stock initially
acquired by Shipping, (ii) September 1, 1998 or (iii) the date when Sonat
Offshore owns less than
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5% of Arcade Drilling. Pursuant to the Standstill Agreement, each of Sonat
Offshore, Shipping and Reading & Bates has agreed that it will not buy or sell
any of its shares in Arcade Drilling to or from any of Sonat Offshore,
Shipping, Reading & Bates or their respective affiliates (other than Arcade
Drilling), unless the acquiring party affords both non-acquiring parties the
opportunity to sell all their shares to the acquiring party on substantially
identical terms and at the same time.
In 1994, Reading & Bates purchased the 46.25% of the Arcade Drilling stock
previously owned by Shipping and tendered for the remaining outstanding shares
of Arcade Drilling. Sonat Offshore declined to tender the shares it owns.
Arcade Drilling was delisted from the Oslo Stock Exchange in February 1995.
INDUSTRY CONDITIONS AND COMPETITION
Historically, the offshore contract drilling industry has been highly
competitive and cyclical, with periods of high demand, short rig supply and
high dayrates followed by periods of low demand, excess rig supply and low
dayrates. The industry is characterized by high capital costs, long lead times
for construction of new rigs and numerous competitors. The offshore contract
drilling business is influenced by many factors, including the current and
anticipated prices of oil and gas (which affect the expenditures by oil
companies for exploration and production) and the availability of drilling
units.
Domestically, oil and natural gas prices have been directly affected by such
factors as natural gas production, availability of new oil and gas leases and
governmental laws and regulations regarding, among other things, environmental
protection and taxation. Factors which influence demand for Sonat Offshore's
services include worldwide demand for oil and gas, the ability of the
Organization of Petroleum Exporting Countries ("OPEC") to set and maintain
production levels and prices, the level of production by non-OPEC countries,
contractual terms imposed by governments with respect to exploration and
development of oil and gas resources, and advances in the technology relating
to the exploration and development of hydrocarbon reserves. In addition,
worldwide political and economic events, including initiatives by OPEC, are
likely to cause price volatility. See "Sonat Management's Discussion and
Analysis of Financial Condition and Results of Operations--Market Outlook" for
a discussion of current market conditions.
Drilling contracts are traditionally awarded on a competitive bid basis.
While an operator selecting a rig may consider, among other things, quality of
service and equipment, intense price competition is often the primary factor
in determining which qualified contractor is awarded a job. However, in the
markets for large, modern semisubmersibles and deep-water drillships (on which
Sonat Offshore has focused), demand has been increasing in recent years while
the supply has remained relatively constant, thus resulting in increasing
rates for these drilling units. In addition, it is not unusual for Sonat
Offshore to be awarded contracts for its technically advanced drilling units
on a negotiated basis rather than through competitive bidding. See "--Drilling
Contracts".
OPERATING RISKS
Sonat Offshore's operations are subject to the usual hazards inherent in the
drilling of oil and gas wells, such as blow-outs, reservoir damage, loss of
production, loss of well control, cratering or fires, the occurrence of which
could result in the suspension of drilling operations, damage to or
destruction of the equipment involved and injury or death to rig personnel.
Damage to the environment could also result from Sonat Offshore's operations,
particularly through oil spillage or extensive uncontrolled fires. In
addition, offshore drilling operations are subject to perils peculiar to
marine operations, including capsizing, grounding, collision and loss or
damage from severe weather.
Sonat Offshore maintains broad insurance coverage, including insurance
against general and marine public liability. Sonat Offshore's drilling
equipment is covered by physical damage insurance policies against marine and
other perils, including losses due to capsizing, grounding, collision, fire,
lightning, hurricanes, wind, storms, action of waves, cratering, blowouts and
explosions, and by policies against war risks to its rigs located in foreign
countries. Sonat Offshore also carries employer's liability and other
insurance customary in the drilling business.
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Sonat Offshore believes it is adequately insured in accordance with industry
standards against normal risks in its operations; however, such insurance
coverage may not in all situations provide sufficient funds to protect Sonat
Offshore from all liabilities that could result from its drilling operations.
Although Sonat Offshore's current practice is to insure its drilling units for
at least the net book value of the units, Sonat Offshore's insurance would not
cover the costs that would be required to replace certain of its units,
including certain of its fourth generation semisubmersibles and drillships.
Moreover, Sonat Offshore's insurance coverage in most cases does not protect
against loss of revenues. Accordingly, the occurrence of a casualty or loss
against which Sonat Offshore is not fully insured could have a material
adverse effect on Sonat Offshore's financial position and results of
operations.
Sonat Offshore is subject to liability under various environmental laws and
regulations. See "--Regulation." Sonat Offshore has generally been able to
obtain some degree of contractual indemnification pursuant to which Sonat
Offshore's customer agrees to protect and indemnify Sonat Offshore from
liability for pollution and environmental damages. However, there is no
assurance that Sonat Offshore can obtain such indemnities in all of its
contracts or that, in the event of extensive pollution and environmental
damages, the customer will have the financial capability to fulfill its
contractual obligation to Sonat Offshore. Also, these indemnities may not be
enforceable in all instances. No such indemnification is typically available
for turnkey operations.
INTERNATIONAL OPERATIONS
Sonat Offshore has derived a majority of its revenues from its foreign
drilling operations in each of the past three years. Sonat Offshore cannot
predict whether foreign drilling operations will account for a greater or
lesser percentage of such revenues in future periods. See Note 14 of the Notes
to Consolidated Financial Statements of Sonat Offshore.
Sonat Offshore's foreign operations are subject to certain political and
other uncertainties not encountered in domestic operations, including risks of
war, expropriation of equipment, renegotiation or modification of existing
contracts, taxation policies and the general hazards associated with foreign
sovereignty over certain areas in which operations are conducted. Sonat
Offshore is protected to a substantial extent against capital loss (but
typically not loss of revenues) from most of such risks through insurance,
indemnity provisions in its drilling contracts or both, but usually not risk
of expropriation or other political risks. See "--Operating Risks". Sonat
Offshore's operations are also subject to extensive regulation by foreign
governments. See "--Regulation."
Sonat Offshore's ability to compete in the international drilling market may
be adversely affected by foreign governmental practices which favor or
effectively require the awarding of drilling contracts to local contractors or
require foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction. Sonat Offshore expects to continue to structure
certain of its operations through joint ventures or other appropriate means in
order to remain competitive in the world market.
Other risks inherent in foreign operations are the possibility of currency
exchange losses where revenues are received in currencies other than United
States dollars and losses resulting from an inability to collect dollar
revenues because of a shortage of convertible currency available to the
foreign country. Generally, Sonat Offshore limits these risks by obtaining
compensation in United States dollars or freely convertible foreign currencies
and, to the extent possible, by limiting acceptance of blocked currencies to
amounts which match its expense requirements in local currency. To date, Sonat
Offshore's foreign operations have not been materially affected by these
currency risks.
REGULATION
Sonat Offshore's operations are affected from time to time in varying
degrees by governmental laws and regulations. The drilling industry is
dependent on demand for services from the oil and gas exploration industry
and, accordingly, is affected by changing tax and other laws relating to the
energy business generally.
Foreign contract drilling operations are subject to various laws and
regulations in countries in which Sonat Offshore operates. Such laws and
regulations regulate various aspects of foreign operations, including the
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equipping and operation of drilling units, currency conversions and
repatriation, oil exploration and development, taxation of foreign earnings
and earnings of expatriate personnel and use of local employees and suppliers
by foreign contractors. Governments in some foreign countries have become
increasingly active in regulating and controlling the ownership of concessions
and companies holding concessions, the exportation of oil and other aspects of
the oil industries in their countries. In addition, government action,
including initiatives by OPEC, may continue to cause oil price volatility. In
some areas of the world, this governmental activity has adversely affected the
amount of exploration and development work done by major oil companies and may
continue to do so.
In the United States, regulations applicable to Sonat Offshore's operations
include certain regulations controlling the discharge of materials into the
environment, requiring removal and cleanup of materials that may harm the
environment or otherwise relating to the protection of the environment. For
example, Sonat Offshore, as an operator of mobile offshore drilling units in
navigable United States waters and certain offshore areas, may be liable for
damages and costs incurred in connection with oil spills for which it is held
responsible, subject to certain limitations. Laws and regulations protecting
the environment have become more stringent in recent years, and may in certain
circumstances impose "strict liability," rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. Such laws and regulations may expose Sonat Offshore to liability for
the conduct of or conditions caused by others, or for acts of Sonat Offshore
which were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on Sonat Offshore's
financial position and results of operations.
The Oil Pollution Act of 1990, as amended ("OPA"), and regulations
promulgated pursuant thereto impose a variety of requirements on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills. Few defenses exist to the liability imposed by the
OPA, and such liability could be substantial. A failure to comply with ongoing
requirements or inadequate cooperation in a spill event could subject a
responsible party to civil or criminal liability and enforcement action.
The Outer Continental Shelf Lands Act authorizes regulations relating to
safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of environmental related lease conditions
or regulations issued pursuant to the Outer Continental Shelf Lands Act can
result in substantial civil and criminal penalties, as well as potential court
injunctions curtailing operations and canceling leases. Such enforcement
liabilities can result from either governmental or citizen prosecution.
Certain of the foreign countries in whose waters Sonat Offshore is presently
operating or may operate in the future have regulations covering the discharge
of oil and other contaminants in connection with drilling operations.
Sonat Offshore believes that it has conducted its operations in substantial
compliance with applicable environmental laws and regulations governing its
activities. Although significant capital expenditures may be required to
comply with such governmental laws and regulations, such compliance has not in
the past materially adversely affected the earnings or competitive position of
Sonat Offshore. In 1992, regulations relating to offshore drilling rigs were
issued in the U.K. which required a comprehensive review of the technical
characteristics of and operating procedures for each rig in the U.K. sector of
the North Sea. It is possible that such laws and regulations in the future may
add to the cost of operating offshore drilling equipment or may significantly
limit drilling activity.
EMPLOYEES
As of June 30, 1996, Sonat Offshore had approximately 1,800 employees, of
which approximately 1,500 were assigned to rigs. Sonat Offshore requires
highly skilled personnel to operate its drilling units. As a result, Sonat
Offshore conducts extensive personnel training and safety programs. Sonat
Offshore has won awards for safety from various industry associations.
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Sonat Offshore is concerned that there could be a shortage of qualified
personnel due to recent increases in demand for oilfield services. This may
also make retention of qualified people more difficult without significant
increases in compensation. Sonat Offshore is undertaking a significant
increase in recruiting and training programs in response to these trends.
Sonat Offshore does not have any collective bargaining agreements which are
material to Sonat Offshore, and considers relations with its employees to be
good.
LEGAL PROCEEDINGS
In August 1990 and October 1990, Sonat Offshore do Brasil Perfuracoes
Maritimas Ltda. ("Sonat Offshore Brasil"), a subsidiary of Sonat Offshore, was
served with assessments from the municipality of Rio de Janeiro, Brazil, to
collect a municipal tax on services ("ISS") for the period from August 1985
through August 1987. These assessments collectively total approximately
$1,500,000. In June 1991, the municipality of Rio de Janeiro, Brazil served an
additional ISS assessment for the equivalent of approximately $11,300,000
naming both Sonat Offshore Brasil and another subsidiary of Sonat Offshore,
Sonat Offshore S.A. Neither subsidiary believes that it is liable for the
taxes claimed in the assessments. However, Sonat Offshore Brasil's defenses
were recently rejected by the Taxpayer's Council as to the August 1990 and
June 1991 assessments. If these defenses are unsuccessful, Sonat Offshore
believes that the Brazilian government-controlled oil company, Petrobras, has
a contractual obligation to reimburse Sonat Offshore's subsidiaries for ISS
payments required to be paid by them. In the opinion of management, the
outcome of these assessments will not have a material adverse effect on the
financial condition of Sonat Offshore.
Sonat Offshore and its subsidiaries are involved in a number of other
lawsuits, all of which have arisen in the ordinary course of Sonat Offshore's
business. Sonat Offshore does not believe that ultimate liability resulting
from any pending litigation will have a material adverse effect on the
operations or financial position of Sonat Offshore.
DIRECTORS OF SONAT OFFSHORE
The Sonat Offshore Board is divided into three classes (Class I, Class II
and Class III). The directors of each class are elected to serve for a three-
year term. The election of the Sonat Offshore Board is staggered such that the
terms of only one class of directors will expire and only that class of
directors will be elected at the annual stockholders meeting in each year. The
term of Class I will expire in 1997, the term of Class II will expire in 1998
and the term of Class III will expire in 1999.
The following individuals are the directors of Sonat Offshore:
Richard D. Kinder, age 51, is President and Chief Operating Officer of Enron
Corporation, a producer, transporter and marketer of natural gas. He was
elected as a Director of the Company in 1994. Mr. Kinder is also a Director of
Baker Hughes Incorporated and Enron Corporation and certain of its
subsidiaries and affiliates. During the past five years, Mr. Kinder has served
as an executive officer of Enron Corporation and certain of its subsidiaries.
Mr. Kinder is a Class I director.
Ronald L. Kuehn, Jr., age 60, is Chairman of the Board, President and Chief
Executive Officer of Sonat Inc., a diversified natural gas company. He has
served as a Director of the Company since 1975. Mr. Kuehn is also a Director
of Amsouth Bancorporation, Praxair, Inc., Protective Life Corporation and
Union Carbide Corporation, and is a member of the Board of Trustees of
Birmingham-Southern College and Tuskegee University. During the past five
years, Mr. Kuehn has served as an executive officer of Sonat Inc. Mr. Kuehn is
a Class I director.
Robert J. Lanigan, age 67, is Chairman Emeritus of the Board of Directors of
Owens-Illinois, Inc., the principal business of which is the manufacture and
sale of packaging products. He has served as a Director of the Company since
1993. Mr. Lanigan is also a Director of Chrysler Corporation, Owens-Illinois,
Inc., Sonat Inc., The Dun & Bradstreet Corporation and The Coleman Company,
Inc. During the past five years prior to
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appointment to his current position, Mr. Lanigan served as an executive
officer of Owens-Illinois, Inc. Mr. Lanigan is a Class III director.
Max L. Lukens, age 47, is President, Chief Operating Officer and a Director
of Baker Hughes Incorporated, the principal business of which is the
manufacture and sale of oil and gas related drilling and process products. He
has served as a Director of the Company since 1993. Mr. Lukens is also a
Director of Sonat Inc. During the past five years, Mr. Lukens has served as an
executive officer of Baker Hughes Incorporated and certain of its
subsidiaries. Mr. Lukens is a Class III director.
Donald G. Russell, age 64, is Executive Vice President of Sonat Inc. and
Chairman and Chief Executive Officer of its subsidiary Sonat Exploration
Company. He has served as a director of the Company since 1993. Mr. Russell is
also a Director of Sonat Inc. During the past five years, Mr. Russell has
served as an executive officer of Sonat Inc. and certain of its subsidiaries.
Mr. Russell is a Class III director.
Martin B. McNamara, age 48, is Partner-in-Charge of the Dallas, Texas,
office of the law firm of Gibson, Dunn and Crutcher and is a member of the
Executive Committee of such firm. He was elected as a director of the Company
in 1994. During the past five years, Mr. McNamara has been in the private
practice of law and has served as an executive officer of Texas Oil and Gas
Corporation, a domestic oil and gas producer. Mr. McNamara is a Class II
director.
Gilbert M.A. Portal, age 65, is President and Director of G.M.H.
International Oil and Gas Consulting, an oil and gas consulting firm. He has
served as a Director of the Company since 1993. Mr. Portal is also a Director
of Sterling Chemicals, Inc. and CNCCEF. During the past five years Mr. Portal
was Secretary General of the European Petroleum Industry Association, a trade
association representing the interests of oil companies in the European
Community. Mr. Portal is a Class I director.
J. Michael Talbert, age 49, is Chairman of the Board and Chief Executive
Officer of the Company. He was elected as a Director of the Company in 1994.
Mr. Talbert is also a Director of Equitable Resources, Inc. During the past
five years prior to assuming his current position with the Company, Mr.
Talbert served as an executive officer of Lone Star Gas Company, a natural gas
distribution company, and Texas Oil and Gas Corporation. Mr. Talbert is a
Class II director.
The Company believes it to be appropriate that representatives chosen by the
existing Boards of Directors of Sonat Offshore and of Transocean constitute
the Board of Directors of the Company after the consummation of the
Combination. In addition, it is the consensus of the Sonat Offshore Board and
the Transocean Board that the size of the Board of Directors of the Company be
ten directors. Accordingly, if the Exchange Offer is consummated, the Company
intends to take necessary action to cause the following individuals to
constitute the Board of Directors of the Company: Richard D. Kinder, Ronald L.
Kuehn, Jr., Robert J. Lanigan, Max L. Lukens, Martin B. McNamara, and J.
Michael Talbert, who currently serve as directors of Sonat Offshore, and
Fridtjof Lorentzen, Reidar Lund, Einar Kloster and Kristian Siem, who
currently serve as directors or officers of Transocean. The existing directors
of Sonat Offshore will continue as members of the class of directors to which
they were previously elected. Mr. Lorentzen will be elected as a Class II
director, Mr. Lund as a Class III director, Mr. Kloster as a Class III
director and Mr. Siem as a Class I director. In addition, the Company intends
that J. Michael Talbert serve as Chairman of the Board and Chief Executive
Officer following consummation of the Combination.
In light of the consensus that the size of the Company's Board of Directors
be ten directors, Donald G. Russell and Gilbert M.A. Portal have agreed to
resign as directors of the Company, effective upon the consummation of the
Exchange Offer. Concurrent with such resignations, the Company will enter into
advisory agreements with each of Mr. Russell and Mr. Portal. Pursuant to such
advisory agreements, each of Messrs. Russell and Portal will be available for
consultation by the Board of Directors of the Company and will receive
compensation at a rate equal to the annual retainer provided to him for his
service as a director prior to his resignation for a period equal to his
remaining term.
80
<PAGE>
EXECUTIVE OFFICERS OF SONAT OFFSHORE
<TABLE>
<CAPTION>
AGE AS OF
OFFICER OFFICE MARCH 1, 1996
------- ------ -------------
<S> <C> <C>
J. Michael Talbert...... Chairman of the Board and Chief Executive Officer 49
W. Dennis Heagney....... President and Chief Operating Officer 48
Jon C. Cole............. Senior Vice President 43
Robert L. Long.......... Senior Vice President 50
Eric B. Brown........... Vice President, General Counsel and Secretary 44
G. Austin King.......... Vice President 56
Barbara S.
Koucouthakis........... Vice President and Controller 37
Donald R. Ray........... Vice President 49
Forrest E. Wylie........ Treasurer 32
</TABLE>
There is no family relationship between any of the above-named executive
officers.
The officers of Sonat Offshore are elected annually by the Board of
Directors. The identification of an individual as an executive officer in this
report does not constitute a determination by Sonat Offshore or its Board of
Directors that such individual is an officer of Sonat Offshore for purposes of
Section 16 of the Securities Exchange Act of 1934.
J. Michael Talbert was elected a director and Chairman of the Board and
Chief Executive Officer of Sonat Offshore effective September 1, 1994, and
currently serves in that capacity. During the past five years, prior to
assuming his current position with Sonat Offshore, Mr. Talbert served as an
executive officer of Lone Star Gas Company, a division of Ensearch
Corporation, and Texas Oil and Gas Corporation.
W. Dennis Heagney was elected President of Sonat Offshore effective April 1,
1986, and currently serves in that capacity. During the past five years, Mr.
Heagney has served as an officer of Sonat Offshore.
Jon C. Cole was elected Senior Vice President of Sonat Offshore effective
April 1, 1993, and currently serves in that capacity. During the past five
years, Mr. Cole has served as an officer of Sonat Offshore.
Robert L. Long was elected Senior Vice President of Sonat Offshore effective
May 1, 1990, and currently serves in that capacity. During the past five
years, Mr. Long has served as an officer of Sonat Offshore.
Eric B. Brown was elected Vice President and General Counsel of Sonat
Offshore effective February 1, 1995, and Secretary effective September 29,
1995, and currently serves in those capacities. During the past five years,
prior to assuming his current position with Sonat Offshore, Mr. Brown served
as General Counsel of Coastal Gas Marketing Company.
G. Austin King was elected Vice President of Sonat Offshore effective May 1,
1987, and currently serves in that capacity. During the past five years, Mr.
King has served as an officer of Sonat Offshore.
Barbara S. Koucouthakis was elected Controller of Sonat Offshore effective
January 1, 1990, and Vice President effective April 1, 1993, and currently
serves in those capacities. During the past five years, Ms. Koucouthakis has
served as an officer of Sonat Offshore.
Donald R. Ray was elected Vice President of Sonat Offshore effective April
30, 1986, and currently serves in that capacity. During the past five years,
Mr. Ray has served as an officer of Sonat Offshore.
Forrest E. Wylie was elected Treasurer of Sonat Offshore effective February
1, 1995. During the past five years, prior to assuming his current position,
Mr. Wylie served as Manager of Treasury Services for Sonat Offshore from July
12, 1993, to February 1, 1995, and prior to that as Treasury Manager for
American Exploration Company.
81
<PAGE>
OWNERSHIP OF COMPANY COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount and nature of beneficial ownership of
shares of Company Common Stock beneficially owned by each of the Directors and
certain executive officers of the Company, and by all Directors and executive
officers of the Company as a group, as of June 30, 1996.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER COMMON STOCK(1)
- ------------------------ ---------------
<S> <C>
Jon C. Cole................................................. 119,644(2)
W. Dennis Heagney........................................... 171,460(2)(3)
Richard D. Kinder........................................... 10,666(4)
Ronald L. Kuehn, Jr. ....................................... 2,000
Robert J. Lanigan........................................... 3,000
Robert L. Long.............................................. 92,770(2)(5)
Max L. Lukens............................................... 2,000
Martin B. McNamara.......................................... 666
Gilbert M.A. Portal......................................... 2,000
Donald R. Ray............................................... 74,209(2)(6)
Donald G. Russell........................................... 2,000(7)
J. Michael Talbert.......................................... 225,224(2)(8)
All Directors and Executive Officers as a Group (16
Persons)................................................... 789,880(9)
</TABLE>
- --------
(1) Each Director and executive officer has sole voting power and sole
investment power with respect to all shares beneficially owned by him,
unless otherwise indicated. As of June 30, 1996, each such individual
beneficially owned less than 0.80% of the outstanding shares of common
stock of the Company and all present Directors and executive officers of
the Company as a group, consisting of 16 persons, beneficially owned less
than 2.78% of the outstanding shares of common stock of the Company.
(2) The number of shares of Company Common Stock shown for Messrs. Cole,
Heagney, Long, Ray and Talbert includes 14,620 shares, 24,060 shares,
14,270 shares, 12,880 shares and 14,730 shares, respectively, of
restricted stock granted under the Company's Long-Term Incentive Plan,
which shares had not vested as of June 30, 1996. Such persons have the
right to vote and receive dividends on such shares, but do not have the
power to dispose of, or to direct the disposition of, such shares until
such shares are vested pursuant to the terms of such plan. The number of
shares shown for Messrs. Cole, Heagney, Long, Ray and Talbert also
includes 91,443 shares, 138,220 shares, 71,197 shares, 53,790 shares, and
188,010 shares, respectively, covered by stock options granted under the
Company's Long-Term Incentive Plan that are exercisable within 60 days
after June 30, 1996, and 2,587 shares, 1,057 shares, 912 shares, 880
shares, and 319 shares, respectively, held by the Trustee under the
Company's Savings Plan as of June 30, 1996.
(3) The number of shares shown for Mr. Heagney includes 10 shares held by
each of two of his children.
(4) The number of shares shown for Mr. Kinder includes 1,000 shares owned by
his wife.
(5) The number of shares shown for Mr. Long includes 6,391 shares held in a
joint account with his wife.
(6) The number of shares shown for Mr. Ray includes 6,659 shares held in a
joint trust account with his wife.
(7) Mr. Russell's Form 5 filing for 1995 was one day late with respect to one
stock option grant.
(8) The number of shares shown for Mr. Talbert includes 1,000 shares held in
a joint account with his wife.
(9) The number of shares of Company Common Stock includes 101,687 shares of
restricted stock granted under the Company's Long-Term Incentive Plan,
which shares had not vested as of June 30, 1996; 609,356 shares covered
by stock options granted under the Company's Long-Term Incentive Plan
that are exercisable within 60 days after June 30, 1996; and 7,571 shares
held by the Trustee under the Company's Savings Plan.
82
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below sets forth certain information with respect to each person
or entity known by Sonat Offshore to be the beneficial owner of more than 5%
of Company Common Stock as of December 31, 1995 (based upon Schedule 13G
filing with the Securities and Exchange Commission).
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------------------------ ------------------ ----------
<S> <C> <C>
FMR Corp.(1)..................................... 3,790,000 13.36%
82 Devonshire Street
Boston, MA 02109
Capital Growth Management Limited
Partnership(2).................................. 1,422,900 5.02%
1 International Place
Boston, MA 02110
</TABLE>
- --------
(1) FMR Corp. reported in its Schedule 13G that it has sole voting power with
respect to 430,000 shares and sole dispositive power as to 3,790,000
shares. It further reported that various persons have the right to
receive or power to direct the receipt of dividends from or proceeds from
the sale of Company Common Stock . It further reported that the interest
of one person, Fidelity Contrafund, amounted to 1,546,600 shares or 5.45%
of Company Common Stock at December 31, 1995.
(2) Capital Growth Management Limited Partnership reported in its Schedule
13G that it has sole voting power as to 735,000 shares and shared
dispositive power as to 1,422,900 shares.
83
<PAGE>
SONAT OFFSHORE SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for each of the five years ended
December 31, 1995 have been derived from audited consolidated financial
statements of Sonat Offshore. The selected financial data for the three month
periods ended March 31, 1996 and 1995 have been derived from the unaudited
condensed consolidated financial statements of Sonat Offshore which include
all adjustments, consisting only of normal recurring accruals, which Sonat
Offshore considers necessary for a fair presentation of its financial position
and results of operations for these periods. The following data should be read
in conjunction with "Sonat Offshore Management's Discussion and Analysis of
Financial Condition and Results of Operations", Sonat Offshore's Consolidated
Financial Statements and Notes thereto and Sonat Offshore's Condensed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus/Offer to Purchase/Proxy Statement.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ----- ----- ----- ----- -----
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating Revenues.............. $ 81 $ 71 $ 323 $ 243 $ 271 $ 202 $ 173
Operating Income................ 14 11 52 21 24 7 22
Income Before Cumulative Effect
of Accounting Change(1)........ 12 7 47 13 24 -- 9
Income Before Cumulative Effect
of Accounting Change Per
Share(2)....................... $ 0.42 $ 0.26 $1.65 $0.45 $1.00
BALANCE SHEET DATA
(at end of period)
Total Assets.................... $ 562 $ 542 $ 493 $ 472 $ 440 $ 417
Total Debt--Excluding Current
Portion........................ 30 30 30 -- 178 165
Stockholders' Equity............ 374 364 321 314 108 108
Cash Dividends Declared Per
Share(3)....................... $ 0.06 $0.24 $0.24 $0.06 -- --
</TABLE>
- --------
(1) 1993 excludes a $10 million charge ($7 million after tax) which was
recognized as a cumulative effect of accounting change relating to
recording the transition obligation in connection with the adoption of
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
than Pensions, in January 1993 and includes $24 million ($16 million
after tax) of interest income relating to the settlement of Sonat Inc.'s
consolidated federal income tax case for the years 1983 to 1985.
(2) Earnings per share are not presented for periods prior to 1993, since
Sonat Offshore was wholly owned by Sonat Inc.
(3) 1993 excludes $106 million paid to Sonat Inc. prior to the initial public
offering of Sonat Offshore on June 4, 1993.
84
<PAGE>
SONAT OFFSHORE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Sonat Offshore and its consolidated subsidiaries provide contract drilling
services for oil and gas wells located in offshore areas throughout the world.
A broad array of integrated services are provided to customers on either a
dayrate or turnkey basis. Sonat Offshore's fleet of mobile offshore drilling
rigs includes some of the industry's most technically advanced rigs.
Prior to Sonat Offshore's initial public offering of 15,500,000 shares of
common stock in June 1993, Sonat Offshore was a wholly owned subsidiary of
Sonat Inc. In July 1995 Sonat Inc. sold its remaining 40 percent of the
outstanding shares of Sonat Offshore through a secondary public offering.
OPERATING RESULTS
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995
Net income for the quarter ended March 31, 1996 was $11.8 million compared
to net income of $7.3 million in 1995. This increase of $4.5 million was due
to increases in both operating income and other income, slightly offset by the
related increase in income taxes.
85
<PAGE>
Comparative data relating to Sonat Offshore's revenues and operating income
by segment and geographic area is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Dayrate Operations
U.S. Gulf of Mexico........................... $ 28,445 $ 24,874
Europe........................................ 27,334 26,311
Other Western Hemisphere...................... 6,141 6,047
Middle East/Africa............................ 13,421 7,061
-------------- --------------
75,341 64,293
-------------- --------------
Turnkey Operations
U.S. Gulf of Mexico........................... 4,012 6,927
Other Western Hemisphere...................... 1,867 --
-------------- --------------
5,879 6,927
-------------- --------------
Intersegment Eliminations(1).................... -- (494)
-------------- --------------
Total Revenues.................................. $ 81,220 $ 70,726
============== ==============
OPERATING INCOME (LOSS)
Dayrate Operations
U.S. Gulf of Mexico........................... $ 8,250 $ 5,502
Europe........................................ 6,569 7,142
Other Western Hemisphere...................... 1,284 1,069
Middle East/Africa............................ 3,205 2,587
Other......................................... (435) (117)
-------------- --------------
18,873 16,183
-------------- --------------
Turnkey Operations
U.S. Gulf of Mexico........................... 99 592
Other Western Hemisphere...................... 294 (935)
Other......................................... (105) --
-------------- --------------
288 (343)
-------------- --------------
Corporate Expenses.............................. (5,210) (5,132)
-------------- --------------
Operating Income................................ $ 13,951 $ 10,708
============== ==============
</TABLE>
- --------
(1) Intersegment eliminations reflect the elimination of the dayrate revenues
earned when Sonat Offshore's rigs are utilized in its turnkey operations.
Revenues increased to $81.2 million for the quarter ended March 31, 1996
from $70.7 million for the prior year quarter, an increase of $10.5 million or
15 percent. Operating income increased by $3.2 million or 30 percent, up from
$10.7 million in the first quarter of 1995 to $13.9 million in the same
quarter of 1996. The increase in revenues was primarily attributable to
improved dayrates during the first quarter of 1996. Since operating expenses
do not necessarily increase with higher dayrates, the increase in operating
income for the first quarter of 1996 compared to the first quarter of 1995 is
attributable to higher revenues without a corresponding increase in expenses.
Revenues and operating income from dayrate operations increased in the first
quarter of 1996 compared to the same quarter of 1995. The increases in the
U.S. Gulf of Mexico reflect a shift in the operations of one rig to the area
from offshore Italy (included in Europe), where it worked during the first
quarter of 1995. The increases
86
<PAGE>
in the U.S. Gulf of Mexico also resulted from dayrate increases which were
offset by decreased utilization of one of the drillships in drydock for a
scheduled survey and water depth upgrade during part of the 1996 quarter.
While in drydock, additional maintenance costs were incurred on special
projects. The 1995 quarter includes revenues and operating income of $5.8
million and $.6 million, respectively, for five bottom supported rigs located
in the U.S. Gulf of Mexico that were sold in the third quarter of 1995.
Revenues and operating income from the Middle East/Africa increased primarily
due to integrated services provided in Qatar in the first quarter of 1996. No
such services were provided during the prior year's first quarter. In Europe,
the increases resulted primarily from significantly higher dayrates earned in
the first quarter of 1996 over the prior year quarter, partially offset by the
shift in operations of one of the rigs from Europe to the U.S. Gulf of Mexico.
Revenues from turnkey operations were $5.9 million for the 1996 quarter as
compared to $6.9 million for the prior year quarter. In the first quarter of
1996, one turnkey well was completed in the U.S. Gulf of Mexico versus two
completed turnkey wells in the U.S. Gulf of Mexico in the first quarter of
1995. Turnkey operations in 1995 included an estimated loss of $1.7 million
for the first well in a five-well Pemex project, resulting in turnkey
operating loss of $.3 million for the 1995 quarter.
Other income increased to $4.2 million in the first quarter of 1996, up from
$0.6 million in the prior year quarter, an increase of $3.6 million. Equity in
earnings of joint ventures increased by $0.9 million primarily as a result of
higher dayrates earned by the two rigs owned by Arcade Drilling. Interest
income increased due to higher cash balances during the first quarter 1996
compared to the first quarter 1995. Interest income also included $1.0 million
related to the finalization of the interest component on a previously settled
tax case. Other income included a gain of $0.8 million on the sale of Sonat
Inc. stock owned by Sonat Offshore.
Income tax expense increased $2.3 million in the first quarter of 1996 due
to increased pre-tax income.
1995 Compared to 1994
Net income for the year ended December 31, 1995 was $46.9 million, or $1.65
per share. This compares to net income of $12.7 million, or $0.45 per share,
in 1994, an improvement of $34.2 million, or $1.20 per share. The increase in
1995 was largely due to increased utilization and improved dayrates for the
drilling fleet, as well as a net $10.8 million after-tax gain on the sale of
six bottom-supported rigs. Total fleet utilization reached 88 percent in 1995
versus 77 percent in 1994. Utilization of the eight semisubmersibles and two
deep-water drillships reached 99 percent in 1995 compared to 80 percent in the
previous year.
87
<PAGE>
Comparative data relating to Sonat Offshore's revenues and operating income
by segment and geographic area were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
REVENUES
Dayrate Operations
U.S. Gulf of Mexico............................... $ 108,836 $ 90,325
Europe............................................ 99,800 83,305
Other Western Hemisphere.......................... 24,364 21,207
Middle East/Africa................................ 29,070 28,258
Other foreign areas............................... 1,500 1,700
------------ ------------
263,570 224,795
------------ ------------
Turnkey Operations
U.S. Gulf of Mexico............................... 20,230 3,726
Mexico............................................ 36,711 23,438
Asia/Pacific...................................... 4,300 --
------------ ------------
61,241 27,164
------------ ------------
Intersegment Eliminations(1)........................ (2,153) (9,006)
------------ ------------
Total Revenues...................................... $ 322,658 $ 242,953
============ ============
OPERATING INCOME (LOSS)
Dayrate Operations
U.S. Gulf of Mexico............................... $ 32,678 $ 17,679
Europe............................................ 23,312 10,335
Other Western Hemisphere.......................... 3,908 (2,060)
Middle East/Africa................................ 8,244 10,425
Other foreign areas............................... (521) (1,141)
------------ ------------
67,621 35,238
------------ ------------
Turnkey Operations
U.S. Gulf of Mexico............................... 1,511 292
Mexico............................................ 4,247 4,032
Asia/Pacific...................................... 1,033 3
Middle East/Africa................................ (826) --
------------ ------------
5,965 4,327
------------ ------------
Corporate Expenses.................................. (21,498) (18,668)
------------ ------------
Operating Income.................................... $ 52,088 $ 20,897
============ ============
</TABLE>
- --------
(l) Intersegment eliminations reflect the elimination of the dayrate revenues
earned when Sonat Offshore's rigs are utilized in its turnkey operations.
Revenues were $322.7 million for 1995 compared to $243.0 million in 1994, an
increase of $79.7 million or 33 percent. Revenue from dayrate operations
increased by $38.8 million from $224.8 million in 1994 to $263.6 million in
1995. The increase in the U.S. Gulf of Mexico was primarily due to improved
contributions from four of Sonat Offshore's floating drilling units in this
area. Both the drillship Discoverer 534, as well as the second-generation
semisubmersible Sonat D-F 96, operated in the U.S. Gulf of Mexico under higher
dayrates with increased occupancy in 1995 compared to 1994. The fourth-
generation semisubmersible Sonat Richardson received higher bonus revenue in
1995. Sonat Offshore's other fourth-generation semisubmersible in the U.S.
88
<PAGE>
Gulf of Mexico, the Sonat Rather, was mobilized from Italy in the third
quarter of 1995 and contributed four months of revenue to this area's results.
In Europe, the increased revenue was largely a result of the full utilization
and significantly higher average dayrates of the John Shaw. In 1994 this
third-generation semisubmersible rig was stacked for 283 days. Also
contributing to the 1995 increased revenues for Europe was a full year of
revenue from the Polar Pioneer, a fourth-generation semisubmersible, which has
been operating offshore Norway since March 1994. The Polar Pioneer was
purchased in February 1994 from a partnership in which Sonat Offshore holds a
47.5 percent interest. Partially offsetting these increases for Europe were
lower contributions from various incentive drilling programs in the North Sea,
as well as only 8 months of activity in this area from the Sonat Rather in
1995. The drillship Discoverer Seven Seas operated at 100 percent utilization
offshore Brazil (included in Other Western Hemisphere) with an average dayrate
23 percent greater than 1994, when the vessel operated at 77 percent
utilization.
Turnkey revenues increased by $34.1 million to $61.2 million for 1995 from
$27.1 million in 1994. During 1995 Sonat Offshore completed six turnkey wells
in the U.S. Gulf of Mexico, three offshore Mexico and one offshore China. In
comparison, 1994 turnkey revenue was generated from the completion of one
turnkey well in the U.S. Gulf of Mexico and one well offshore Mexico (and
completed daywork operations on three other turnkey wells).
Operating income increased to $52.1 million in 1995 from $20.9 million in
1994, an increase of $31.2 million or 150 percent. The greatest share of this
increase was due to improved contributions from dayrate operations, after
depreciation, which increased $32.4 million from 1994, an improvement of 92
percent. The increase in the U.S. Gulf of Mexico was principally due to the
contribution from the Sonat Rather beginning in the third quarter, bonus
revenue from the Sonat Richardson and higher dayrates and utilization of the
Sonat D-F 96 and the Discoverer 534. The 125 percent increase in operating
income from European operations was primarily due to improved results of the
John Shaw and Polar Pioneer, tempered by only a partial year of the Sonat
Rather's operations. The Discoverer Seven Seas, with higher utilization and
dayrates, was responsible for the significantly increased operating income
from Other Western Hemisphere. Depreciation expense for 1995 included a $2.2
million valuation adjustment on the Offshore Jupiter, a jackup rig which is
stacked in the Middle East, to adjust the net book value of this asset to its
estimated net realizable value.
Although turnkey activity increased significantly in 1995 from 1994,
operating income from this segment increased only slightly as a result of
operating losses of $2.4 million incurred on two completed wells: one well
completed offshore Mexico and one well in the U.S. Gulf of Mexico. Also, Sonat
Offshore accrued a loss of $0.8 million for a well in Senegal that was planned
to start in December 1995. The third party rig that was contracted to perform
the drilling incurred operational difficulties in mobilizing to the site,
resulting in a delay in the program and a change in the rig to be used.
Operations on this well subsequently began and were completed during the
second quarter of 1996 at approximately breakeven, resulting in the reversal
of the previously accrued loss.
Corporate expenses increased $2.8 million in 1995. The increase resulted
primarily from $1.2 million of expense related to the early vesting of a
restricted stock grant, $0.7 million of costs incurred in conjunction with a
potential corporate acquisition and $0.5 million of other non-recurring
corporate charges.
Other income for 1995 included the pretax net gains of $16.6 million from
the sale of six bottom-supported rigs and $1.8 million of net interest income
related to the settlement of Sonat Inc.'s consolidated U.S. federal income tax
examination for the years 1986 to 1988. Higher cash balances in 1995 resulted
in a corresponding increase in interest income. The increased equity in the
earnings of joint ventures was primarily attributable to the increased
utilization and dayrate of the Paul B. Loyd, Jr. (formerly the Sonat Arcade
Frontier), a fourth-generation semisubmersible owned by Arcade Drilling, a
Norwegian corporation in which Sonat Offshore has a 25 percent equity
interest.
Income tax expense increased in 1995 to $28.2 million from $7.5 million,
largely due to the increase in pretax income. 1995's income tax expense
included $24.5 million of current U.S. federal income taxes, $7.9 million of
current foreign income taxes and $0.1 million of U.S. state income taxes,
reduced by $4.3 million of
89
<PAGE>
deferred U.S. federal income tax benefits. Income tax expense for 1994
consisted of $4.0 million of current U.S. federal income taxes, $0.9 million
of current foreign income taxes, $2.2 million of deferred U.S. federal income
taxes, and $0.4 million of U.S. state income taxes.
1994 Compared to 1993
Net income for the year ended December 31, 1994 was $12.7 million, or $0.45
per share, compared to net income before the cumulative effect of a change in
accounting for postretirement benefits of $24.0 million, or $1.00 per share,
in 1993. This decrease of $ 11.3 million, or $0.55 per share, was due to
decreases in operating income and other income of $3.3 million and $17.5
million, respectively, partially offset by a $9.5 million reduction in Sonat
Offshore's provision for income taxes. Other income for 1993 included $16.2
million related to the U.S. federal income tax settlement for 1983 through
1985 which was partially offset by interest expense on the debt owed to Sonat
Inc. that was extinguished with proceeds from the 1993 Offerings.
Comparative data relating to Sonat Offshore's revenues and operating income
by segment and geographic area were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
REVENUES
Dayrate Operations
U.S. Gulf of Mexico............................... $ 90,325 $ 59,691
Europe............................................ 83,305 63,864
Other Western Hemisphere.......................... 21,207 46,441
Middle East/Africa................................ 28,258 23,547
Other foreign areas............................... 1,700 1,882
------------ ------------
224,795 195,425
------------ ------------
Turnkey Operations
U.S. Gulf of Mexico............................... 3,726 2,981
Mexico............................................ 23,438 96,263
Other foreign areas............................... -- 384
------------ ------------
27,164 99,628
------------ ------------
Intersegment Eliminations(1)........................ (9,006) (23,777)
------------ ------------
Total Revenues...................................... $ 242,953 $ 271,276
============ ============
OPERATING INCOME (LOSS)
Dayrate Operations
U.S. Gulf of Mexico............................... $ 17,679 $ 14,384
Europe............................................ 10,335 3,870
Other Western Hemisphere.......................... (2,060) 10,690
Middle East/Africa................................ 10,425 4,959
Other foreign areas............................... (1,141) (4,327)
------------ ------------
35,238 29,576
------------ ------------
Turnkey Operations
U.S. Gulf of Mexico............................... 292 674
Mexico............................................ 4,032 9,637
Other foreign areas............................... 3 138
------------ ------------
4,327 10,449
------------ ------------
Corporate Expenses.................................. (18,668) (15,781)
------------ ------------
Operating Income.................................... $ 20,897 $ 24,244
============ ============
</TABLE>
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(1) Intersegment eliminations reflect the elimination of the dayrate revenues
earned when Sonat Offshore's rigs are utilized in its turnkey operations.
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Revenues were $243.0 million for 1994, a decrease of $28.3 million, or 10
percent, from the $271.3 million earned in 1993. Revenues from turnkey
activity totaled $27.1 million for 1994 compared to $99.6 million in 1993, a
decrease of $72.5 million or 73 percent. Sonat Offshore's dayrate operating
revenue, including management fees, increased by $29.4 million, to $224.8
million in 1994 from $195.4 million in 1993, an increase of 15 percent.
Dayrate revenue increases for the U.S. Gulf of Mexico were primarily due to
increased utilization of rigs that were mobilized from the North Sea to the
U.S. Gulf of Mexico. The Sonat D-F 97 and the Sonat D-F 96, both stacked for
much of 1993 in the North Sea, began mobilizing in the second half of the year
and completed their mobilization in the fourth quarter of 1993 and the first
quarter of 1994, respectively. The Sonat Richardson was mobilized from the
North Sea in the first quarter of 1993. Revenues for 1994 in the U.S. Gulf of
Mexico included $7.3 million for the Auger Platform services project compared
to $3.1 million in 1993, reflecting the progression of this contract from the
engineering and construction phase to the drilling and production phase in
1994. The North Sea incentive drilling programs, included in revenues from
Europe, contributed $8.6 million in 1994, compared to $4.8 million in 1993.
Also, 1994 revenues from Europe included $24.8 million related to the Polar
Pioneer's operations in Norway. Until February 1994 this rig was owned and
operated by a partnership in which Sonat Offshore has a 47.5 percent equity
interest. Revenue increases in the Middle East were due primarily to the
increased utilization of the Offshore Bahram and the Interocean III, which
combined had an average utilization of 97 percent for 1994 compared to 80
percent in 1993. Tempering these revenue improvements in 1994 were lower
contributions due to decreased utilization of the Discoverer Seven Seas in
Brazil (included in Other Western Hemisphere) and the John Shaw, which was
idle much of the year in the North Sea. Sonat Offshore completed two turnkey
wells in 1994: one offshore Mexico and the other in the U.S. Gulf of Mexico.
During 1993 seven turnkey wells were completed: six offshore Mexico and one in
the U.S. Gulf of Mexico.
Operating income for the year decreased by $3.3 million, to $20.9 million in
1994 from $24.2 million in 1993. This decrease of 14 percent resulted from a
combination of lower turnkey contributions and higher depreciation and general
and administrative expenses, partially offset by increased income from dayrate
operations. Dayrate operations contributed $35.2 million to operating income
in 1994, an increase of 19 percent over 1993. Operating income for 1993
included $3.2 million of mobilization charges for the Sonat D-F 96 and Sonat
D-F 97. The increased utilization and dayrates of the Sonat Richardson and the
Sonat D-F 97 combined with increased utilization of the Interocean III and the
inclusion of the Polar Pioneer's operating results in 1994 were the major
contributing factors to the increased income from dayrate operations. The
lower contributions from the Discoverer Seven Seas and the John Shaw tempered
these increases. Turnkey operations represented $4.3 million of operating
income in 1994 compared to $10.4 million in 1993. Depreciation expense for
1994 increased $3.5 million from 1993, primarily as a result of the
acquisition of the Polar Pioneer in February 1994.
Other expense was $0.7 million in 1994 as compared to other income of $16.8
million in 1993. During 1994 Sonat Offshore incurred $1.8 million of interest
expense on the $30 million senior notes partially offset by $1.6 million of
interest income on cash balances. Other income for 1993 included $24.0 million
of interest income related to the settlement with the Internal Revenue Service
of Sonat Inc.'s consolidated U.S. federal income tax liability for the years
1983 through 1985, partially offset by $7.8 million of interest expense on
debt owed to Sonat Inc. which was extinguished with the proceeds from the 1993
Offerings.
Income tax expense decreased in 1994, primarily due to a reduction of pretax
income. The 1994 income tax expense of $7.5 million consisted of $4.0 million
of current U.S. federal income taxes, $0.9 million of current foreign income
taxes, $2.2 million of deferred U.S. federal income taxes, and $0.4 million of
U.S. state income taxes. Income tax expense for 1993 of $17.0 million included
$1.7 million to adjust the January 1, 1993 deferred tax liability resulting
from the increased corporate tax rate required by the Omnibus Budget
Reconciliation Act of 1993.
OTHER FACTORS AFFECTING OPERATING RESULTS
The rate of inflation in the United States has been moderate over the past
several years and has not had a material impact on Sonat Offshore's results of
operations.
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Sonat Offshore has derived a majority of its revenues from its foreign
drilling operations in each of the past three years. Sonat Offshore cannot
predict whether foreign drilling operations will account for a greater or
lesser percentage of such revenues in future periods.
Sonat Offshore's foreign operations are geographically dispersed and are
therefore subject to certain political and other uncertainties not encountered
in domestic operations, including risks of war, expropriation of equipment,
renegotiation or modification of existing contracts, taxation policies, and
the general hazards associated with foreign sovereignty over certain areas in
which operations are conducted. Sonat Offshore is protected to a substantial
extent against capital loss (but not loss of revenue) from most of such risks
through insurance, indemnity provisions in its drilling contracts, or both.
The necessity of insurance coverage for risks associated with political
unrest, expropriation and environmental remediation is evaluated on an
individual contract basis.
Sonat Offshore's operations are also subject to extensive regulation by
foreign governments. Sonat Offshore's ability to compete in the international
drilling market may be adversely affected by foreign governmental practices
which favor or effectively require the awarding of drilling contracts to local
contractors. Sonat Offshore expects to continue to structure certain of its
operations through joint ventures or other appropriate means in order to
remain competitive in the international markets.
Other risks inherent in foreign operations are the possibility of currency
exchange losses where revenues are received in currencies other than United
States dollars and losses resulting from an inability to collect dollar
revenues because of a shortage of convertible currency available to the
foreign country. Generally, Sonat Offshore seeks to limit these risks by
structuring contracts such that compensation is made in United States dollars
or freely convertible foreign currencies and, to the extent possible, by
limiting acceptance of blocked currencies to amounts which match its expense
requirements in local currency.
During 1995, the Company managed two fourth generation semisubmersibles
owned by Arcade Drilling. See "Description of Sonat Offshore--Arcade
Drilling." Sonat Offshore had operating income of $2.7 million in 1995 as a
result of its management agreements and related bareboat charter contract with
respect to the Arcade Rigs. The Company had operating income of $0.4 million
in the first quarter of 1996 relating to the management and bareboat charter
of one of such rigs. The Company's management of one of these rigs ended in
December 1995, and its management and charter of the other is expected to end
in September 1996. All management fees and bareboat charter fees to the
Company will cease with the termination of such management and charter.
MARKET OUTLOOK
Sonat Offshore achieved an average fleet utilization of 88 percent in the
first quarter of 1996 compared to 90 percent (excluding the six bottom-
supported rigs sold in the third quarter of 1995) in the comparable 1995
quarter. Utilization of the floating drilling equipment, which in 1996
included seven semisubmersibles and two deep-water drillships, was 96 percent
compared to 95 percent in 1995.
Sonat Offshore achieved an average fleet utilization of 88 percent in 1995.
Utilization of the floating drilling equipment, which included eight
semisubmersibles and two deep-water drillships in 1995, was 99 percent. The
increased interest in deep-water and harsh environment drilling that began in
1994 continued through 1995 and long-term contracts with major operators have
been secured for all of Sonat Offshore's strategic rigs. Demand for rigs
suitable to operate in these conditions is expected to increase. Sonat
Offshore continues to evaluate alternatives, through conversions,
acquisitions, upgrades or new construction, to meet this growing demand.
The improved demand and higher dayrates in the deep-water and harsh
environment markets that began in 1995 continued into the first quarter of
1996. The improvement in the markets was due to increased interest by major
operators in harsh environment and deep-water locations caused in part by the
increasing impact of technological advances that have broadened opportunities
for offshore exploration and development. The U.S. Gulf of Mexico and North
Sea markets have experienced increased utilization and significantly higher
dayrates in 1995, and customers increasingly are seeking to contract rigs
serving in these markets under long-term contracts (as opposed to single-well
or well-to-well contracts).
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The demand for floating drilling rigs in the U.S. Gulf of Mexico remains
strong. After the completion of its current contract in Brazil, expected to be
in late 1996, the Discoverer Seven Seas is committed to begin work with Exxon
which will keep the rig utilized for up to two years. The Discoverer 534 is
under contract with Amoco at higher dayrates than it earned in 1995. This
contract is expected to keep the drilling unit utilized until October 1998.
The Sonat Rather and Sonat Richardson are operating for Shell Offshore under
contracts which are at higher dayrates than earned in 1995 and which will keep
both rigs occupied into 1998. The Sonat D-F 96, a second-generation
semisubmersible, will undergo planned capital upgrades in the U.S. Gulf of
Mexico in connection with operations for Texaco under a one-year term contract
which began May 1996 at a dayrate more than double that of early 1995. A new
U.S. law that provides royalty relief to certain projects in deep-water areas
of the central and western Gulf of Mexico is expected to result in additional
drilling opportunities. This law provides relief on production levels ranging
from the first 17.5 million to the first 87.5 million barrels depending on the
water depth of the field. Further indications of the strength of the Gulf of
Mexico market are the recent transactions involving the Discoverer Enterprise
and the Offshore Marianas. See "--Liquidity and Capital Resources."
The North Sea market continues to strengthen. The John Shaw is operating for
Amerada Hess through November 1996 and has a letter of intent from Shell for a
two and a half year follow-on contract at rates significantly higher than
those earned in 1995. The Henry Goodrich, a fourth-generation semisubmersible
owned by Arcade Drilling as and managed by Sonat Offshore, is operating for
Shell U.K. through September 1996, and has a letter of intent from BP for a
three year follow-on contract. The Company does not expect to manage the rig
following the completion of the current contract with Shell. The Paul B. Loyd,
Jr., which is managed by the majority owner of Arcade Drilling, a competitor,
is contracted to British Petroleum in the North Sea until November 1999.
Offshore Norway, the Polar Pioneer is under contract with Norsk Hydro through
mid-1997. Contract options with Norsk Hydro could keep the rig operating for
an additional four years.
In response to the increasing demands of our customers, Sonat Offshore
provides well engineering and planning through integrated service teams. These
teams may consist of Sonat Offshore personnel as well as third-party well
servicing subcontractors, with Sonat Offshore acting as lead contractor. Such
services may be provided on either a dayrate or turnkey basis. Sonat Offshore
was selected by Elf Petroleum as lead contractor on a four-well integrated
services contract in Qatar, which project has recently been completed.
In April 1996, turnkey operations were successfully completed on the fourth
well of the multi-well program offshore Mexico for Pemex and operations have
commenced on a fifth well. In the U.S. Gulf of Mexico, turnkey operations have
been completed on three wells during 1996, are in progress on one well as of
July 1, 1996 and are expected to commence in July on one additional well. A
one-well project offshore Senegal was completed in the second quarter of 1996.
Historically, the contract drilling market has been highly competitive and
cyclical, and Sonat Offshore cannot predict the extent to which the current
market conditions will continue.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the three months ended March 31, 1996
increased $10.3 million from $5.7 million in 1995 to $16.0 million in 1996.
The higher level of cash provided by operations during the current year
quarter resulted in part from an increase in operating income earned in 1996
versus 1995 as discussed above. In addition, a $6.0 million increase in cash
provided by operations (included in Other net cash provided by operating
activities) resulted from capital upgrade reimbursements received from a
client which will be recognized as revenue over the term of the contract
beginning in the second quarter of 1996. Net cash provided by (used in)
operating activities totaled $59.5 million in 1995, $63.9 million in 1994 and
($10.7) million in 1993. The increase in 1994 was primarily due to significant
collections of accounts receivable from 1993 Mexico turnkey operations.
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Cash used in investing activities increased by $20.1 million in the first
quarter of 1996 primarily as a result of progress payments made for the
purchase and conversion of the multi-service vessel, the MSV P.Portia. Cash
provided by (used in) investing activities for 1995, 1994 and 1993 totaled
$13.3 million, ($61.1) million, and ($12.2) million, respectively. Cash
provided by investing activities in 1995 resulted primarily from the sale of
six bottom-supported rigs (see discussion below) partially offset by capital
improvements to the existing rig fleet. Cash used in investing activities in
1994 was primarily for the purchase of the interests in the Polar Pioneer not
previously owned by Sonat Offshore and other capital improvements.
Additionally, financing activities during 1994 included the issuance of
$30.0 million of senior notes, the proceeds of which were used in the Polar
Pioneer purchase. In 1993 Sonat Offshore issued 15.5 million shares of common
stock. Proceeds from this issuance were used to extinguish $300.6 million of
debt owed to Sonat Inc. and pay $16.4 million of dividends to Sonat Inc.
Dividends paid to shareholders totaled $6.8 million in 1995 and 1994.
During 1995, through two separate transactions, Sonat Offshore sold six
bottom-supported drilling rigs which were not strategically aligned with Sonat
Offshore's long-term focus. Five of these rigs were located in the U.S. Gulf
of Mexico: the Offshore Taurus, the Sonat D-F 77, the Sonat D-F 84, the Sonat
D-F 85, and the Sonat D-F 86. The sixth rig, the Offshore Aquarius, was
located in the Middle East. Proceeds from the sales amounted to $40.7 million,
with Dixilyn-Field Drilling Company, a subsidiary of Panhandle Eastern
Corporation, receiving 30 percent, or approximately $9.4 million, of the
proceeds from the sale of four of the rigs, which Sonat Offshore previously
acquired from Dixilyn-Field Drilling Company.
Sonat Offshore's cash requirements for capital improvements result primarily
from the need to maintain efficient drilling operations by continuously
upgrading and expanding its drilling fleet. Sonat Offshore has flexibility in
varying its capital budget based on its assessment of current and anticipated
industry conditions. Sonat Offshore currently expects to make capital
expenditures during 1996 for additions and improvements to its existing rigs
of approximately $71 million, excluding expenditures relating to the Offshore
Marianas, the Amoco agreement and the Combination, more fully discussed below.
Sonat Offshore's current turnkey projects scheduled for 1996 are expected to
require a working capital commitment of $10.0 million to $14.0 million. These
amounts should be recovered from payments received upon completion of turnkey
contracts. Additional working capital commitments could be required if Sonat
Offshore is successful in obtaining additional turnkey projects.
In January 1996, the Offshore Bahram sank while in tow offshore Egypt. All
personnel were evacuated without injury. The Company sold the rig in June 1996
for a net pre-tax gain of approximately $6.6 million.
In February 1996 Sonat Offshore purchased a semisubmersible multi-service
vessel, the MSV P. Portia (to be renamed the "Offshore Marianas"), which it
intends to convert to an ultra deep-water drilling unit. After certain hull
modifications to the vessel, Sonat Offshore will mobilize it to a U.S. Gulf
Coast facility where it will undergo the remaining conversion to drilling
mode. The purchase and conversion of this rig, together with additions and
improvements to existing rigs, could result in capital spending of
approximately $150 million during 1996. Sonat Offshore has received a letter
of intent from Shell Offshore regarding a proposed three-year contract for the
Offshore Marianas, which could be extended to five years at the customer's
option. This contract, which is contingent upon Sonat Offshore's conversion of
the rig, should generate revenue from $128 million to $211 million, depending
on final contract length.
In May 1996, Sonat Offshore announced plans to construct the world's largest
deepwater mobile offshore drilling rig, which will initially be outfitted to
drill in 7,000 feet of water but will be capable of exploration and
development drilling in water depths up to 10,000 feet, to be called the
"Discoverer Enterprise". The Discoverer Enterprise will possess dual-activity
drilling functions, a methodology for constructing offshore wells that should
produce substantial cost savings and shorten the amount of time required for
drilling tasks on a single well by allowing such tasks to be accomplished in a
concurrent rather than sequential manner. Sonat Offshore has prepared and
filed an application for a patent with the U.S. Patent and Trademark Office
with respect to this well
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construction method. Sonat Offshore and Amoco have entered into an agreement
under which Sonat Offshore will provide the Discoverer Enterprise and a second
generation semisubmersible to Amoco for a combined minimum commitment of six
years. In June 1996, Sonat Offshore purchased for $32 million a second-
generation semisubmersible for this purpose, to be called the Offshore
Amirante, which will be upgraded and is expected to be operational by mid-
1997. In July 1996, Sonat Offshore entered into a contract, at approximately
$75 million, with a Spanish shipyard, Astilleros y Talleres del Noroeste SA,
for the construction of the hull and major marine systems of the Discoverer
Enterprise. Construction will begin immediately and the drillship is expected
to be operational by mid-1998. The required capital commitment for both rigs
(including the purchase price for the Offshore Amirante) is expected to reach
$320 million, while revenues generated from the base dayrates over the minimum
period of the Amoco agreement are expected to range from $330 million to $375
million.
As more fully discussed elsewhere in this Prospectus/Offer to Purchase/Proxy
Statement, Sonat Offshore intends to engage in the Combination with Transocean
through an offer to exchange .53 of a share of Company Common Stock per
Transocean share for 80% of the outstanding shares of Transocean and $27.25
per Transocean share for 20% of the outstanding shares of Transocean. See "The
Exchange Offer" and "The Combination." The cash component of the Exchange
Offer (assuming all Transocean shares are tendered), together with the
expenses relating thereto, is expected to aggregate approximately $310
million. In addition, if the Combination is consummated, the Company intends
to repay substantially all of the outstanding debt of Transocean, which is
expected to be approximately $150 million.
The Company intends to fund the cash requirements relating to the upgrade of
the Offshore Marianas, the cash requirements of the Exchange Offer and the
repayment of Transocean debt through available cash balances and borrowings
under the Credit Agreement. The Credit Agreement provides for borrowing by the
Company under (i) a six-year term loan facility in the amount of $200 million
and (ii) a six-year revolving credit facility in the amount of $400 million.
In addition to providing the above described required funds, the borrowing
capacity under the Credit Agreement will be used to provide working capital
for general corporate purposes and may be used to refinance Sonat Offshore's
$30 million 6.9% Senior Notes if the noteholders do not agree to certain
amendments requested by Sonat Offshore to accommodate the Combination. Loans
under the Credit Agreement would bear interest, at the option of the Company,
at either (i) a base rate equal to the higher of (A) the federal funds rate,
as published by the Federal Reserve Bank of New York one business day in
arrears, plus 1/2% per annum and (B) the commercial loan rate of the Agent as
announced from time to time at its office as its base rate for U.S. dollar
loans in the United States or (ii) an annual rate equal to the London
Interbank Offered Rate plus a margin based upon the Company's ratio of funded
debt to total capital, which margin is initially expected to be .45%. The
Credit Agreement includes various covenants applicable to the Company,
including requirements that the Company's interest coverage ratio be at or
above three to one, its funded debt to total capital ratio be 45% or below for
the 10 quarters ended on or prior to December 31, 1998 and 40% or below
thereafter, its consolidated net worth be not less than 90% of the
consolidated net worth following the consummation of the Exchange Offer and
prior to consummation of the Mandatory Bid and thereafter at or above $1.4
billion, subject to increase for adjusted net income, and restrictions in the
Company's incurrence of additional indebtedness, asset dispositions,
incurrence of liens and investments. Although the Credit Agreement does not
expressly restrict the payment of dividends by the Company, the consolidated
net worth requirement effectively imposes a limitation.
The Company has requested that the holders of its $30 million 6.9% Senior
Notes consent to amendments to the covenants applicable to such Notes to
accommodate the transactions relating to the Combination. If such consents are
not obtained, the Notes will be redeemed at par, without any prepayment
premium (based on current Treasury rates applicable to the calculation).
The Company intends to finance the construction of the Discoverer Enterprise
and the upgrade of the Offshore Amirante required for the Amoco agreement
through additional financing. Sonat Offshore has no definitive arrangements
relating to such additional financing, but has entered into discussions with
financial institutions regarding its financing alternatives and is confident
of its ability to finalize necessary financing absent significant changes in
the capital markets.
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Sonat Offshore regularly reviews possible acquisitions of businesses and
drilling units, and may from time to time in the future make significant
capital commitments for such purposes. Any such acquisition could involve
payment by Sonat Offshore of a substantial amount of cash and the issuance of
a substantial number of additional shares of Company Common Stock. Sonat
Offshore would expect to fund the cash portion of any such acquisition through
cash balances on hand, the incurrence of additional debt, sales of assets or a
combination of all three.
In September 1995 the Sonat Offshore Board approved the use of up to $50
million for the purchase of Company Common Stock from time to time. At July 1,
1996, no shares of Company Common Stock had been repurchased.
Sonat Offshore believes that its cash and cash equivalents, cash generated
from operations, borrowings available under the Credit Agreement and access to
other financing sources will be adequate to meet its anticipated short-term
and long-term liquidity requirements.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995 the Financial Accounting Standards Board (the "FASB") issued
the Statement of Financial Accounting Standard (the "SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of. This statement provides authoritative guidance on when an
impairment loss should be recognized and how the amount of that loss should be
calculated. Sonat Offshore adopted SFAS No. 121 in the first quarter of 1996.
Its adoption had no effect on the financial statements.
In October 1995 the FASB issued SFAS No. 123, Accounting and Disclosure of
Stock-Based Compensation. SFAS No. 123 establishes an alternative method of
accounting for stock-based compensation to the method outlined in the
Accounting Principles Board Opinion No. 25. This new computation is based on
the fair value of stock options and similar instruments. SFAS No. 123
encourages, but does not require, adoption of that method. Sonat Offshore
adopted the disclosure provisions of SFAS No. 123 in the first quarter of 1996
with no disclosures required before the 1996 annual report.
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DESCRIPTION OF TRANSOCEAN
Transocean is a major international drilling contractor and well service
company, providing diversified offshore drilling and well services from fixed
and mobile units worldwide. Transocean has divided its business into three
operating business areas: Mobile Units, Platform Drilling & Well Intervention,
and Engineering & Construction. The three business areas enable Transocean to
serve its customers as a fully integrated drilling contractor which can
provide a total package for offshore drilling activities. On June 11, 1996,
Transocean consummated the sale of substantially all of the assets of Anchor
Drilling Fluids, which was a wholly-owned subsidiary of Transocean, to M-I
Drilling Fluids LLC ("M-I Drilling") for a sales price of approximately
Nkr 695 million, subject to certain adjustments not yet completed. Anchor
Drilling Fluids had offered drilling fluid systems and associated services and
accounted for 29% of Transocean's revenues in 1995. Upon the sale of Anchor
Drilling Fluids, Transocean disposed of its fluid services business segment.
However, M-I Drilling and Transocean have established a strategic alliance in
order to provide integrated contracts to customers.
Transocean is among the world's largest operators of modern third and fourth
generation semisubmersible drilling rigs. Including these third and fourth
generation drilling rigs Transocean has operational and ownership interests in
eleven semisubmersible drilling rigs and two jack-up rigs. Additionally,
pursuant to a cooperation agreement (the "Cooperation Agreement") between
Transocean and Global Marine, Inc. ("Global Marine"), Transocean participates
in the cash flow from three jack-up rigs which are owned and operated by
Global Marine and Global Marine participates in the cash flow from a jack-up
rig owned by Transocean. Transocean's fourth generation drilling rigs are:
Transocean No. 8 and Transocean Arctic (formerly Ross Rig), and the third
generation drilling rigs are: Transocean Searcher (formerly Ross Isle),
Treasure Saga, Treasure Prospect, Transocean Driller (formerly Drillmar I),
Treasure Legend and Kan Tan IV (management contract, no ownership).
In July 1995, Statoil, an entity owned by the Norwegian government, and
Transocean signed an extensive cooperation agreement. It is the intent of
Statoil and Transocean that the agreement foster safe and cost-effective
operations through close collaboration and exchange of information relating to
the planned activities of both parties and that Transocean be a main provider
of rigs to Statoil for the term of the agreement. The agreement also provides
for joint development of new technology. The term of the agreement is for 10
years and provides initially for four mobile offshore rigs (Treasure Prospect,
Transocean Searcher, Treasure Saga, and Transocean Wildcat) to be contracted
to Statoil for periods estimated by Transocean to range from 2 1/2 to 4 years
with options to extend the contracts in minimum one year intervals for the
remainder of the 10 year term. The dayrate for the initial periods of these
contracts is fixed except certain escalation provisions. Option periods will
be at market dayrates. The agreement further provides on certain conditions
for Statoil to use Transocean services on their fixed installations, Gulfaks
A, B and C, Troll and Heidrun.
Transocean was founded in Norway in 1972 under the name Morco Norge A/S to
serve as a drilling contractor on the Norwegian Continental Shelf of the North
Sea. Subsequently, Transocean expanded its operations through a series of
strategic business combination transactions, including its 1994 acquisition of
Ross Offshore which, at the time of the acquisition, was operating seven
floating drilling rigs and three jack-ups, and its 1995 merger with Wilrig AS.
Wilrig had at the time of the merger ownership and operational interests in
eight semisubmersible drilling rigs and was concentrating its operations in
the areas of deep water drilling, subsea completion work and drilling of high
temperature/high pressure wells. At the time of the merger, Wilrig's fleet was
operating in Southeast Asia, West Africa and Brazil in addition to the North
Sea and its acquisition by Transocean significantly expanded Transocean's
geographic diversity.
BUSINESS STRATEGY
Transocean's strategy is to create a major international contract drilling
and well intervention company with emphasis on modern high specification
floating drilling equipment and to provide drilling and well services for the
exploration and development of offshore oil and gas reserves in Norway and
other major offshore regions.
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As part of this strategy Transocean maintains a fleet of eight third and
fourth generation semisubmersible drilling rigs. See "--Business Areas--Mobile
Units." Transocean is also focusing on providing its customers with integrated
service packages in connection with offshore drilling contracts.
BUSINESS AREAS
Transocean has divided its business into three operating business areas:
Mobile Units, Platform Drilling & Well Intervention and Engineering &
Construction. The separate business areas enable Transocean to serve its
customers as a fully integrated drilling contractor which can provide a total
package for offshore drilling activities.
Mobile Units
Transocean's Mobile Units business area is among the world's largest
operators of modern semi-submersible rigs. Through the merger with Wilrig in
1995 Mobile Units acquired a fleet of eight semisubmersible rigs with
operations in Southeast Asia, West Africa and Brazil in addition to the North
Sea. Mobile Units currently has operational and ownership interests in eleven
semisubmersible drilling rigs and two jack-up rigs. These rigs are used to
drill production wells and exploration wells, and to provide well completion
services. Mobile Units accounted for approximately 49% of Transocean's
revenues in 1995.
Equipment Description. Mobile drilling rigs are primarily used for offshore
exploration drilling (wildcat and appraisal drilling) and pre-drilling of
production wells. They can also be used as production platforms (early or
permanent production), accommodation platforms or a combination of drilling
and production. Mobile Units principally uses semisubmersible drilling rigs
and jack-up rigs.
Semisubmersible rigs are floating rigs that can be submerged so that a
substantial portion of the lower hull is below the water surface during
drilling operations. The hull consists of two separate pontoons with a deck
where the drilling unit and other technical equipment are located. When these
rigs are in operation, the pontoons are positioned below the water surface
with the rig being kept in position by anchor chains or by dynamic positioning
equipment consisting of computer controlled propellers and engines.
Jack-up rigs have a base consisting of three or more legs. When the rig is
relocated it floats on its hull. As the rig is positioned for drilling, the
legs are lowered to the seabed and driven in until stable. The hull is then
jacked out of the water until reaching a height above the water surface in
relation to maximum wave heights in the area. Jack-up rigs are normally built
for use in shallow water, i.e. water depths up to 100 meters.
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The following table sets forth offshore drilling units owned or operated by
Mobile Units and the location, customer and the dates on which Mobile Units
estimates that existing contracts will expire with respect to the presently
operating units. The water depth for which each rig is designed and equipped
to drill and its drilling depth capability are also indicated. As part of its
strategy to maintain a modern fleet, Mobile Units sold four older rigs during
the last year. As collateral for its long-term debt, Transocean has mortgaged
ten of its rigs and made a collateral assignment of such rigs' revenues and
such rigs' insurance policies. The rigs that Transocean has not mortgaged are
Transocean Driller and Transocean Discoverer.
TRANSOCEAN OFFSHORE EQUIPMENT SUMMARY
JULY 1, 1996
<TABLE>
<CAPTION>
YEAR WATER DRILLING
ENTERED DEPTH DEPTH ESTIMATED CONTRACT
TYPE AND NAME SERVICE CAPABILITY CAPABILITY LOCATION CUSTOMER EXPIRATION (1)
- ------------------------ ------- ---------- ---------- --------- ---------------- ------------------
(EXPRESSED IN FEET)
<S> <C> <C> <C> <C> <C> <C>
FOURTH GENERATION
SEMISUBMERSIBLES
Transocean No. 8(2)..... 1987 2,000 25,000 North Sea Kerr McGee August 1996(3)
Transocean Arctic(2).... 1986 1,650 25,000 Norway Statoil September 1997
THIRD GENERATION
SEMISUBMERSIBLES
Treasure Prospect(2).... 1983 1,500 25,000 Norway Statoil December 1999(4)
Transocean Searcher(2).. 1983 1,500 25,000 Norway Statoil May 2001(4)
Treasure Legend......... 1983 3,500 25,000 Brazil Petrobras December 1997
Treasure Saga(2)........ 1983 1,500 25,000 Norway Norsk Hydro April 1997(4)
Transocean Driller(2)... 1991 2,800 25,000 Nigeria Statoil May 1997
Kan Tan IV (2)
(management)........... 1983 2,000 25,000 North Sea Amerada Hess December 1997
OTHER SEMISUBMERSIBLES
Transocean Wildcat(2)... 1977 1,300 25,000 Norway Statoil December 1999(4)
Transocean
Discoverer(2).......... 1977 1,250 25,000 North Sea Amerada Hess December 1997
Transocean Explorer(2).. 1976 1,000 25,000 North Sea Elf Enterprise August 1996(5)
JACK-UP RIGS
Transocean Nor-
dic(2)(7)(8)........... 1984 300 25,000 North Sea Kerr McGee July 1996(6)
Shelf Explorer(2)(7).... 1982 300 25,000 Denmark Maersk Oil & Gas April 1997
</TABLE>
- --------
(1) Expiration dates represent Transocean's current estimate of the earliest
date the contract for each rig is likely to expire. Many contracts permit
the customer to terminate early or to extend the contract.
(2) Equipped with top drive drilling system.
(3) Follow-on contract with Esso(UK) and Phillips Petroleum in Norway expiring
November 1997. Thereafter the rig will be upgraded to deep water drilling
west of Shetland for a two year drilling contract with Amerada Hess
commencing in the spring of 1997.
(4) Contract alliance with Statoil.
(5) Follow-on contract with Total in North Sea expiring November 1996.
(6) Follow-on contract with Amoco in Norway expiring August 1997.
(7) Cantilever rig
(8) Operated pursuant to the Cooperation Agreement with Global Marine.
Transocean Nordic is owned and operated by Transocean, but Global Marine
participates in the cash flow from the Transocean Nordic under the terms
of the Cooperation Agreement. Under the terms of the Cooperation Agreement
Transocean also participates in the cash flow from three rigs which are
owned and operated by Global Marine.
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<PAGE>
Operations. The majority of the Mobile Units' rigs worked in the North Sea
during 1995. However, Transocean Driller (formerly Drillmar I), Treasure
Legend and Transocean Discoverer (formerly Treasure Seeker) operated offshore
West Africa, Brazil and Vietnam, respectively. During 1995 the utilization
rate for Mobile Units' rig fleet was 87%. As of December 31, 1995, the
utilization rate was 89%.
Drilling Contracts, Marketing and Customers. Mobile Units' contracts to
provide offshore drilling services are individually negotiated and vary in
their terms and provisions. Mobile Units' obtains most of its contracts
through competitive bidding against other contractors. However, contracts may
be awarded without bidding for Mobile Units' harsh environment semisubmersible
drilling rigs in light of recent increased demand for modern semisubmersible
drilling rigs. Drilling contracts generally provide for a basic drilling rate
on a dayrate basis and for lower rates for periods of movement between wells
or when drilling operations are interrupted or restricted by equipment
breakdowns, adverse environmental conditions or other conditions beyond the
control of Mobile Units. Mobile Units also provides drilling services under
contracts which include incentive elements linked to performance and/or
quality related parameters which are negotiated at the time the contract is
entered into.
A dayrate drilling contract generally extends over a period of time covering
either the drilling of a single well or group of wells or covering a stated
term and may be terminated by the customer in the event the drilling unit is
destroyed or lost or if drilling operations are suspended for a specified
period of time as a result of breakdown of major equipment, or in some cases,
due to other events beyond the control of either party. Many of Transocean's
contracts permit customers to terminate the contract early by giving notice
and in some circumstances these contracts may require the payment of an early
termination fee by the customer. In addition, the contract term in many
instances may be extended by the customer exercising options for the drilling
of additional wells or for an additional term.
In July 1995, Statoil, an entity owned by the Norwegian government, and
Transocean signed an extensive cooperation agreement. The agreement, which has
a duration of 10 years, includes mobile rigs and drilling from Statoil's fixed
installations Gullfaks A, B and C, Troll and Heidrun in the Norwegian part of
the North Sea. The mobile drilling rigs currently included in the agreement
are Treasure Prospect, Transocean Searcher, Treasure Saga and Transocean
Wildcat (formerly Vildkat Explorer). Such agreement also provides for co-
operation in technological development between Statoil and Transocean.
Some of Transocean's customers are seeking to establish continuing
relationship with a small number of preferred drilling contractors rather than
seeking competitive bids for each drilling contract from a large number of
contractors. Transocean believes that its broad range of services enhances its
capabilities to be selected as a partner to its clients.
During the last year, the Mobile Units' largest customers included Statoil,
Saga and Norsk Hydro which accounted for 30.5%, 8.8% and 8.4% respectively of
Mobile Units' total revenue in 1995.
Platform Drilling and Well Intervention
Transocean's platform drilling and well intervention is conducted through
Transocean Petroleum Technology AS, a wholly-owned subsidiary of Transocean
("TPT"). TPT is involved in production drilling and maintenance on fixed
installations in the Norwegian sector of the North Sea. Additionally, in 1995,
TPT expanded its operations into Argentina and Canada. Transocean believes
that TPT has a significant presence in the platform drilling market in the
Norwegian sector of the North Sea.
TPT, as of June 1, 1996, had drilling contracts on six Norwegian fields:
Gullfaks, Valhall, Snorre, Draugen, Troll and Heidrun. The drilling contract
with Statoil for work on Gullfaks A, B and C, consists of three combined
drilling and maintenance crews, and the drilling contracts for Amoco on the
Valhall field and for Saga on the Snorre field consist of one combined
drilling and maintenance crew per installation.
TPT also provides well intervention services, including coiled tubing,
nitrogen and hydraulic workover services, and owns several highly specified
coiled tubing units. TPT has tried to position itself in the most
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<PAGE>
technologically sophisticated segments of the well intervention market and is
in the process of constructing one of the most technologically advanced
hydraulic workover rigs in the market today.
In addition, TPT performs directional drilling services in the UK and
Argentina and considers itself a leader in slim hole drilling technology. Slim
hole drilling involves drilling wells with a diameter of less than five inches
at the end of the well. Historically, wells with a diameter of 8.5 inches have
been regarded as optimal. The use of slim hole drilling as a supplement to
traditional drilling methods makes it profitable to exploit oil and gas
reserves which would have not otherwise been commercially viable using
traditional drilling methods.
Platform Drilling & Well Intervention accounted for approximately 20% of
Transocean's revenues in 1995.
Platform Drilling Contracts, Marketing and Customers. TPT's contracts to
provide offshore drilling services from fixed platform installations are
individually negotiated and vary in their terms and provisions. TPT obtains
most of its contracts through competitive bidding against other contractors.
Drilling contracts generally provide for a basic day rate covering crew and
other services performed and for lower rates for periods when drilling
operations are interrupted or restricted by equipment breakdowns, adverse
environmental conditions or other conditions beyond the control of TPT. TPT
also performs drilling services under contracts which include incentive
elements linked to performance and/or quality related parameters which are
negotiated at the time the contract is entered into.
Platform Drilling contracts are typically long term contracts with a
duration of 2 to 5 years plus extension options for the customer. Well
services contracts typically are frame agreements with a duration of 2 to 5
years. Under these frame agreements, TPT may work on a call-out basis and the
level of business activity would typically vary according to customers' needs.
Both platform drilling and the well services contracts may be terminated early
by the customer, although early terminations within platform drilling are
rare, due to the stable level of activity.
In July 1995, Statoil, an entity owned by the Norwegian government, and
Transocean signed an extensive cooperation agreement. The agreement, which has
a duration of 10 years, includes mobile rigs and drilling from Statoil's fixed
installations Gullfaks A, B and C, Troll and Heidrun in the Norwegian part of
the North Sea. The agreement also provides for co-operation in technological
development between Statoil and Transocean.
TPT's largest customers during 1995 were Statoil, Saga and Amoco which
accounted for 51.0%, 13.6% and 7.0% respectively of TPT's total revenue in
1995.
Engineering & Construction
Transocean's engineering and construction business ("Engineering &
Construction") offers engineering services and studies, as well as upgrading,
modification and construction of drilling facilities and drilling equipment.
In cooperation with Transocean's other business areas, Engineering &
Construction coordinates the development of technology throughout Transocean,
including the development of new conceptual solutions in drilling. Major
recent developments include a cutting reinjection system, rig up frame for
coiled tubing systems and the hydraulic workover rig currently being
constructed by TPT. Engineering and Construction accounted for approximately
2% of Transocean's revenues in 1995.
Transocean acquired 100% of the shares in Procon Engineering ("Procon"), an
engineering based technology company in January 1996. Procon has achieved
success in the acceptance of its technology with its product packages for
process control based on weighting and dosing. Transocean believes that Procon
is a market leader in weighting and dosing equipment within the drilling fluid
process offshore in the North Sea and for the aluminium industry.
Operations. Engineering & Construction had an increased level of activity in
1995 in all departments compared to 1994. In Stavanger, the upgrading work on
the drilling unit Ekofisk 2/7 Bravo for Phillips Petroleum was the largest
project. In Bergen, there has been a high level of activity in connection with
the cuttings injection systems for Gullfaks, Oseberg and Sleipner, a pipe-
handling installation on Gullfaks and extensive modification work on the Troll
drilling unit.
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Contracts and Customers. Engineering & Construction has most of the oil
companies in Norway as customers, and has a long term relationship with
Statoil on the Heidrun field. The modification and maintenance contract for
Heidrun has a duration of four years with options to continue the work up to
ten years. Among Engineering & Construction's largest customers during 1995
were Statoil and Phillips.
Fluid Services
Transocean, through Anchor Drilling Fluids, offered drilling fluid systems
and associated services to its customers. Anchor Drilling accounted for
approximately 29% of Transocean's revenues in 1995. On June 11, 1996,
Transocean sold Anchor Drilling Fluids to M-I Drilling for a price of Nkr
695.75 million, subject to certain adjustments, paid in cash. Upon the sale of
Anchor Drilling Fluids, Transocean disposed of its fluid services business
segment. Transocean has no current plans to pursue further activity in this
segment. However, M-I Drilling and Transocean have established a strategic
alliance in order to provide integrated contracts to customers.
KEY CUSTOMERS
Other than Statoil (who accounted for 29.6% of Transocean's revenues in
1995) and Norsk Hydro (who accounted for 10.7% of Transocean's revenues in
1995), no customer of Transocean accounted for more than 10% of Transocean's
total revenues in 1995. In July 1995, Statoil and Transocean signed an
extensive cooperation agreement. The cooperation agreement ensures a long term
relationship with Statoil. Statoil was a major customer for all business areas
also prior to the agreement. Mobile Units had individual contracts with
Statoil for the mobile rigs Treasure Searcher, Treasure Prospect and
Transocean Driller (formerly Drillmar I) during 1995. Treasure Saga has been
working for Norsk Hydro throughout 1995 and will continue to do so under a
contract that is firm to the end of August 1996. See "--Business Areas--Mobile
Units--Drilling Contracts, Marketing and Customers."
FOREIGN OPERATIONS
Foreign operations have historically accounted for a significant part of
Transocean's consolidated revenues from drilling operations. Transocean's
operations in some parts of the world are exposed to certain political,
economic and other uncertainties including risks of war, expropriation, and
other general hazards associated with the assertion of foreign sovereignty
over certain areas in which operations are conducted not encountered in
domestic operations. When Transocean undertakes contracts in regions which are
considered politically unstable, Transocean will normally either (1) include
terms protecting against political risk in the agreement or (2) purchase
insurance against such risk, if available. Transocean has not incurred
material losses as a result of such political risks. For a full breakdown of
Transocean's operations by geographical area, see Note 23 to Transocean's
Consolidated Financial Statements, included elsewhere in this Prospectus/Offer
to Purchase/Proxy Statement.
LEGAL PROCEEDINGS
Other than set forth below, neither Transocean nor any of its subsidiaries
or properties is a party to, or is otherwise subject to, any material legal
proceedings or governmental investigations. Additionally, no material
proceedings are known to be contemplated by any governmental authorities.
Danish authorities claim that Transocean is obligated to pay vacation
related compensation to its employees whom have been working on the Shelf
Explorer offshore Denmark. Transocean denies this obligation, and Transocean
is considering commencing legal action against appropriate Danish governmental
authorities in order to determine the applicability of Danish law to these
individuals. Transocean believes that this case will be filed in the "Ostre
Landsrett" (lower court) later this year. Transocean estimates that the
exposure is approximately US$ 1.5 million as of June 15, 1996. In addition,
police investigations of fatal accidents onboard Transocean Arctic on December
13, 1993 and Transocean Wildcat on March 25, 1993 are ongoing. Transocean does
not believe that these proceedings and the outcome thereof will have a
material adverse impact on Transocean.
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EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no limitations either under the laws of the Kingdom of Norway or
under the Articles of Association of Transocean restricting the right of non-
residents to buy, sell, hold or vote Transocean Stock. There are no
restrictions on the remittance of dividends to non-resident holders.
INDUSTRY CONDITIONS AND COMPETITION
The offshore contract drilling industry is highly competitive and cyclical,
with periods of high demand, short rig supply and high dayrates followed by
periods of low demand, excess rig supply and low dayrates. The industry is
characterized by high capital costs, long lead times for construction of new
rigs and numerous competitors. The offshore contract drilling business is
influenced by many factors, including the current and anticipated prices of
oil and gas (which affect the expenditures by oil companies for exploration
and production) and the availability of drilling units.
Factors which influence demand for Transocean's services include worldwide
demand for oil and gas, the ability of OPEC to set and maintain production
levels and prices, the level of production by non-OPEC countries, contractual
terms imposed by governments with respect to exploration and development of
oil and gas resources, and advances in the technology relating to the
exploration and development of hydrocarbon reserves.
Historically, oil companies have sought to use a large number of vendors in
order to complete a drilling project. In recent years, however, Transocean
believes that oil companies have been seeking to reduce the number of vendors
used on drilling projects by seeking drilling contractors that offer a
complete package of integrated services. These integrated services include
operating and engineering expertise in drilling services, well intervention
services, well planning, project management, and maintenance of existing
wells. In addition, a number of oil companies have been seeking to establish
continuing relationships with a small number of preferred contractors, rather
than seeking competitive bids for each drilling contract from a large number
of contractors. Transocean believes that those drilling contractors offering
integrated services will benefit from this trend.
REGULATION
Transocean and its operations are subject to and affected by Norwegian laws
and regulations, as well as the laws and regulations of other jurisdictions.
Such laws and regulations regulate to a greater or lesser degree nearly all
aspects of Transocean's domestic and foreign operations, including but not
limited to regulations concerning Transocean's relation to its employees, the
environment and protection from pollution, health and safety at sea and
onshore and taxation.
Transocean is subject to numerous domestic and foreign environmental
regulations that relate directly or indirectly to its operations, including
certain regulations controlling the discharge of materials into the
environment, requiring removal and cleanup under certain circumstances, or
otherwise relating to the protection of the environment. For example,
Transocean may be liable for damages and costs incurred in connection with oil
spills originating from the drilling units for which it is not contractually
indemnified. Laws and regulations protecting the environment have become more
stringent in recent years and may in certain circumstances impose "strict
liability" and render a company liable for environmental damages without
regard to negligence or fault. Such laws and regulations may expose Transocean
to liability for the conduct of or conditions caused by others, or for acts of
Transocean that were in compliance with all applicable laws at the time such
acts were performed. The application of these requirements or the adoption of
new requirements could have a material adverse effect on Transocean.
Transocean has generally been able to obtain some degree of contractual
indemnification from its customer for liability for pollution and
environmental damages, but there can be no assurance that Transocean can or
will obtain such indemnities in all of its contracts or that, in the event of
extensive pollution and environmental damages, any customer will be
financially able to comply with its indemnity obligations, or that Transocean
will be able to obtain such indemnification agreements in the future.
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Transocean maintains insurance coverage in amounts and in a scope of
coverage which it believes is customary for similarly situated companies. Such
insurance provides coverage against certain environmental liabilities,
including pollution caused by sudden and accidental oil spills. There can be
no assurance that such insurance will continue to be available or carried by
Transocean or, if available and carried, will be adequate to cover
Transocean's liability in all circumstances.
EMPLOYEES
As of June 15, 1996, Transocean had approximately 2,300 employees, of which
approximately 1,850 were assigned to rigs. Transocean's employees are
represented by five Norwegian unions, each of which participates in one or
several nationwide agreements concerning salary, and other specific terms and
conditions for employees working in each area. These nationwide agreements are
established as a result of bi-annual negotiations between the various
employers' nationwide associations and the respective employees' unions. In
addition, if necessary, local agreements are made to adapt to local conditions
within each area. At present, Transocean is a part of eleven nationwide
agreements and seven local agreements. All of these agreements are currently
being renegotiated. As at June 15, 1996, 1,164 employees of Transocean were
organized under a union.
DIRECTORS OF TRANSOCEAN
The Transocean Board constitutes seven members, three of whom are elected by
and among the employees. Each director is elected for a two year term. The
following individuals are the directors of Transocean:
Kristian Siem, age 47, is Chairman of the Board of Transocean. He was
elected as a director in 1995 following the merger of Transocean and Wilrig.
Mr. Siem was Chairman of the Board of Wilrig prior to such merger. Mr. Siem is
Chairman of the Board of Norex America, Inc. and Chairman of the Board of NCL
Holding ASA, the principal business of which is the operation of the Norwegian
Cruise Lines Ltd. Mr. Siem is also a director of Ivar Holding ASA, Invesco
Blue Chip Trust Plc, Det Sondenfjeldske Norske Dampskipsselskab ASA,
Prosperity Investments, Inc., Pronor Holdings Ltd. and Lowndes Lambert Group
Holding Plc. Mr. Siem's term expires in 1997.
Fridtjof Lorentzen, age 66, is Vice Chairman and a director of Transocean
and has served as a director since 1993. Mr. Lorentzen is the owner of
Lorentzen Skibs AS and the Chief Executive Officer and Chairman of the Board
of Lorentzen Skibs AS. Mr. Lorentzen is the Chairman of the Board of AS Frilo,
AS Knemb, Gubbe Finans AS, Jane Stove AS, Treco AS, AS Rosshavet, Lorentzen
Bulkcarriers Ltd., Matheson & Enger AS, Bilhuset AS, Lorentzen Maritime AS,
Lorentzen Eiendom AS, F.H. Lorentzen & Sons AS and Lorentzen & Sonners Reideri
AS, and a director of AS Pater, AS Free, Mary Stove AS, Rosshavet Tankers Ltd.
and Naerings-Invest AS. Mr. Lorentzen is also Chairman of the Northern
Shipowners' Defense Club, President of the Baltic and International Maritime
Counsel and Unitas and a counsel member of The Norwegian Veritas and
Intertanko. Mr. Lorentzen's term expires in 1997.
Geir Aune, age 37, is a director of Transocean and has served as a director
since 1995. Mr Aune is President of Norex & Co. and of NCL Holding ASA, the
principal business of which is the operation of the Norwegian Cruise Lines
Ltd. Mr. Aune is a director of NCL Holding ASA, Norex & Co., Ivar Holding ASA,
Norwegian Cruise Line Ltd., Norex Offshore Holding AS and Norex Drillco AS and
a member of the board of directors committee of Tandberg Data ASA. Mr. Aune is
Chairman of the Board of the Directors of Det Sondenfjeldske Norske
Dampskipsselskab ASA. Mr. Aune's term expires in 1997.
Einar Kloster, age 58, is a director of Transocean and has served as a
director since 1996. Mr. Kloster is President of Eki AS, the principal
business of which is financial investments. Mr. Kloster was until 1994 the
Chief Executive Officer and Chairman of the Board of Phillips Lighting
Holding, Holland, and a member of the Group Management Committee of N.V.
Phillips Electronics. Mr. Kloster is Vice Chairman of the Board of Norsk Hydro
AS and a director of AS Backe, Heidmar, Leif Hoegh & Co. AS, Medinor AS,
Scancoil AS, Schibsted ASA, and Stormbull AS. Mr. Kloster's term expires in
1998.
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Per Inge Grimsmo, age 45, is a director of Transocean and has served as a
director since 1993. Mr. Grimsmo is an employee of Transocean and has held
such position for the last five years. Mr. Grimsmo's term expires in 1998.
Jon M. Fjose, age 45, is a director of Transocean and has served as a
director since 1993. Mr. Fjose is an employee of Transocean and has held such
position for the last five years. Mr. Fjose's term expires in 1998.
Jostein Rasmussen, age 51, is a director of Transocean and has served as a
director since 1996. Mr. Rasmussen is an employee of Transocean and has held
such position for the last five years. Mr. Rasmussen's term expires in 1998.
EXECUTIVE OFFICERS OF TRANSOCEAN
The following individuals are the executive officers of Transocean:
<TABLE>
<CAPTION>
AGE AS OF
OFFICER OFFICE MARCH 1, 1996
------- ------ -------------
<S> <C> <C>
Reidar Lund............. President and Chief Executive Officer 54
Erik Gloersen........... Executive Vice President and Vice President Mobile Units 52
Arne Austreid........... Vice President Human Resources and Corporate Services 40
Jan Erik Tveteraas...... Chief Financial Officer 35
Hakon Skretting......... President Transocean Petroleum Technology 41
Svein Inge Eide......... Vice President Engineering & Construction 41
</TABLE>
Mr. Lund is appointed by the Board of Directors of Transocean for an
indefinite term and serves at the pleasure of the Board. The other executive
officers of Transocean are appointed by Mr. Lund for indefinite terms and
serve at the pleasure of Mr. Lund. There is no family relationship between any
of the above-named executive officers.
Reidar Lund was appointed President and Chief Executive Officer of
Transocean, effective March 3, 1990, and currently serves in those capacities.
During the past five years, Mr. Lund has served as an officer of Transocean.
Mr. Lund is Chairman of the Board of Mokster Shipping, he is also a member of
the Board of the Norwegian Oil Industry Association, member of the Board of
the Norwegian Petroleum Society and a deputy member of the Board of the
Drilling and Construction Vessel Group, a division of the Norwegian
Shipowner's Association.
Erik Gloersen was appointed Executive Vice President and Vice President
Mobile Units, effective January 1, 1994. During the past two years, prior to
assuming his current position with Transocean, Mr. Gloersen served as
President of Ross Offshore, which was merged with Transocean in 1994. Prior to
that, Mr. Gloersen served as President of IM Skougen ASA (1990-1992).
Arne Austreid was appointed Vice President Human Resources and Corporate
Services effective August 1, 1994. During the past five years prior to
assuming his current position, Mr. Austreid served as Vice President
Engineering & Construction from 1990 until 1992, and Deputy Manager for
Transocean's well service operations in United Kingdom from 1992-1994 in
combination with postgraduate education.
Jan Erik Tveteraas was appointed Chief Financial Officer effective October
1, 1994. During the past five years Mr. Tveteraas, prior to assuming his
current position, served as Vice President Finance.
Hakon Skretting was appointed President of Transocean Petroleum Technology,
effective June 10, 1996. During the past five years, prior to assuming his
current position, Mr. Skretting served as Vice President of Engineering &
Construction since March 3, 1993. Before that he was technical manager at
Hitec.
Svein Inge Eide was appointed Vice President Engineering & Construction
effective June 19, 1996. During the past years prior to assuming his current
position, Mr. Eide served as Manager Engineering & Construction, Stavanger
since March 1996, and as Manager Engineering Projects, Stavanger at Kvaerner
Installasjon (Kvaerner
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Engineering before the 1995 merger) from 1993 until 1995, and as Project
Manager at Kvaerner Engineering in the period 1991-1993.
RELATED PARTY TRANSACTIONS
In March 1994, Transocean entered into an agreement with Norex Drillco AS to
acquire the third generation semisubmersible drilling rig, Transocean Driller
(formerly Drillmar I), for a purchase price of $37.65 million. Norex Drillco
AS is a subsidiary of Norex Holding ASA. Norex Holding ASA, as of March 31,
1996, held 5.38% of Transocean's outstanding shares. In addition, Mr. Kristian
Siem, Chairman of Transocean, is chairman of Norex America, Inc. and a
Director of Norex Holding ASA. Mr. Siem excused himself from all proceedings
and deliberations relating to the negotiation of the terms and conditions of
the purchase of the Transocean Driller by Transocean from Norex Drillco AS.
During the period that Norex Drillco AS owned the Transocean Driller, a
management agreement between Norex and Transocean existed for the operation of
Transocean Driller. In accordance with this agreement, Transocean received a
management fee.
Mr. Kristian Siem, Chairman of Transocean, is a non-executive director of
Lowndes Lambert Group Holding Plc which owns the insurance broker Lowndes
Lambert Holding Limited. Norex American, Inc., of which Mr. Siem is the
Chairman, owns approximately 1.75% of Lowndes Lambert Group Holding Plc. As of
March 1, 1996, Lowndes Lambert Holding Limited was placing about 65% of
Transocean's hull & machinery insurance policies.
In December 1995, Erik Gloersen, an executive vice president of Transocean,
borrowed Nkr 350,000 from Transocean. Such loan had an interest rate of 6%. As
of April 30, 1996 the loan was repaid in full.
In January 1993, Jan Erik Tveteraas, Chief Financial Officer of Transocean,
borrowed Nkr 166,447 from Transocean. Such loan had an initial interest rate
at 5%, but currently has an interest rate of 6%. As of March 31, 1996 the loan
had an outstanding balance of Nkr 50,000.
BENEFICIAL OWNERSHIP OF CERTAIN TRANSOCEAN STOCKHOLDERS AND MANAGEMENT
The following table sets forth the record ownership of Transocean Stock, as
of June 15, 1996 by stockholders of Transocean known by Transocean to own more
than 10% of the Transocean Stock.
<TABLE>
<CAPTION>
PERCENT
STOCKHOLDERS NO. OF SHARES OWNERSHIP
- ------------ ------------- ---------
<S> <C> <C>
Tiger Management Corp. ................................. 9,315,762 17.2
Chase Manhattan Bank.................................... 6,207,145 11.5
</TABLE>
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<PAGE>
The following table sets forth beneficial ownership of Transocean Stock, as
of June 15, 1996 by the directors and officers of Transocean and the aggregate
number of options to purchase shares of Transocean Stock as of June 15, 1996
held by the directors and officers of Transocean.
<TABLE>
<CAPTION>
SHARES OPTIONS
--------- -------
<S> <C> <C>
OFFICERS
- --------
Reidar Lund, President and CEO............................ 71,124 0
Erik Gloersen, Executive Vice President................... 48,037 0
Arne Austreid, Vice President Human Resources and
Corporate Services....................................... 20,057 0
Jan Erik Tveteraas, Chief Financial Officer............... 20,067 0
Hakon Skretting, President, Transocean Petroleum
Technology............................................... 10,537 0
Svein Ingc Eide, Vice President Engineering &
Construction............................................. 0 0
DIRECTORS
- ---------
Kristian Siem, Chairman(1)................................ 14 0
Einar Kloster............................................. 1,000 0
Geir Aune................................................. 55,425 37,500(2)
Fridtjof Lorentzen, Vice Chairman(3)...................... 2,532,569 0
Per Inge Grimsmo.......................................... 37 0
Jon M. Fjose.............................................. 57 0
Jostein Rasmussen......................................... 37 0
Directors and Officers as a group (13 persons)............ 2,758,961 37,500
</TABLE>
- --------
(1) Does not include 2,908,233 shares owned of record by Norex America, Inc.
and affiliated companies of which Mr. Siem is the Chairman of the Board.
(2) Options have an exercise price of Nkr 40 and expire on March 16, 1999.
(3) Includes shares owned by companies of which Mr. Lorentzen is a director or
officer.
COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1995 the aggregate amount of compensation
paid by Transocean to all directors and officers as a group was Nkr 7.3
million (US$1.1 million). Transocean does not currently have a performance
related bonus plan. For the year ended December 31, 1995, the aggregate amount
set aside or accrued by Transocean for its officers and directors as a group
for pension, retirement or similar benefits was Nkr 0.6 million (US$0.1
million).
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TRANSOCEAN SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth a summary of the financial information for
Transocean as of the dates and for the periods indicated. The financial
information for periods prior to 1996 has been restated to reflect the merger
of Wilrig and Transocean under the pooling of interests accounting method. The
information for periods prior to 1994 has been restated to reflect the merger
of Ross Offshore under the pooling of interests accounting method for
Norwegian GAAP purposes. The selected statement of operations data for each of
the three years ended 1995 and the balance sheet data as of the end of 1995
and 1994 have been derived from the audited consolidated financial statements
of Transocean, and the other annual selected financial data has been derived
from unaudited consolidated financial statements of Transocean. The selected
financial data for the three month periods ended March 31, 1996 and 1995 have
been derived from unaudited condensed consolidated financial statements of
Transocean. The following data should be read in conjunction with "Transocean
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Transocean's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus/Offer to Purchase/Proxy
Statement. The following table reflects a translation for convenience of the
Norwegian kroner amounts included in Transocean's consolidated financial
statements into U.S. dollars using the Noon Buying Rate at March 29, 1996 and
December 29, 1995 of U.S.$1.00=Nkr 6.415 and Nkr 6.321, respectively.
Transocean prepares its consolidated financial statements in accordance with
Norwegian GAAP, which differs in certain significant respects from U.S. GAAP.
See Note 34 to the Consolidated Financial Statements of Transocean and Note 5
to the Condensed Consolidated Financial Statements of Transocean included
elsewhere in this Prospectus/Offer to Purchase/Proxy Statement for a
description of the significant differences between Norwegian GAAP and U.S.
GAAP affecting Transocean's consolidated net income (loss) and shareholders'
equity. In particular, under Norwegian GAAP the results of Anchor Drilling
Fluids, which Transocean sold in June 1996, are included in the operating
results of Transocean, whereas under U.S. GAAP such results are excluded from
the operating results of Transocean and shown as results of discontinued
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
-------- ------- ------- ------------- ------ ------- ------- ------
U.S.$ U.S.$
(IN MILLIONS OF NORWEGIAN KRONER OR, IN THE INDICATED COLUMN,
MILLIONS OF U.S.$, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Amounts in accordance with
Norwegian GAAP:
Operating Revenues...... $128 822 699 $501 3,164 3,044 3,292 2,953 2,604
Operating Income
(Loss)................. 3 16 (42) 20 127 (16) (239) (221) (2)
Net Income (Loss)....... (4) (24) (110) 3 19 (128) (580) (561) (209)
Net Income (Loss) Per
Share.................. (0.07) (0.45) (2.09) 0.06 0.36 (2.61) (12.95) (14.53) (8.04)
Amounts in accordance with
U.S. GAAP:
Operating Revenues...... 89 571 476 349 2,203 1,805 1,557
Operating Income
(Loss)................. 1 9 (65) 16 100 (116) 17
Income (Loss) from
Continuing Operations.. (19) (125) 39 0 2 (91) (133)
Income (Loss) from
Continuing Operations
Per Share.............. (0.37) (2.33) 0.74 0.01 0.03 (1.86) (2.97)
Net Income (Loss)....... (19) (119) 40 3 20 (17) (76)
Net Income (Loss) Per
Share.................. (0.35) (2.23) 0.76 0.06 0.39 (0.35) (1.70)
BALANCE SHEET DATA
(at end of period)
Amounts in accordance with
Norwegian GAAP:
Total Assets............ 769 4,934 797 5,035 5,387 5,704 6,090 6,153
Total Debt--Excluding
Current Portion........ 258 1,654 265 1,672 2,050 2,034 2,240 2,223
Stockholders' Equity.... 368 2,362 362 2,290 2,269 2,201 2,653 3,168
Cash Dividends Declared
Per Share.............. 0 0 0 0 0 0
Amounts in accordance with
U.S. GAAP:
Total Assets............ 727 4,663 757 4,782 5,157
Total Debt--Excluding
Current Portion........ 248 1,594 243 1,533 1,977
Stockholders' Equity.... 372 2,388 382 2,412 2,384
Cash Dividends Declared
Per Share.............. 0 0 0 0 0
</TABLE>
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TRANSOCEAN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion of Transocean's financial condition and results of
operations is based on Transocean's Consolidated Financial Statements and the
related notes thereto. These financial statements are prepared in accordance
with Norwegian GAAP, which differs in certain respects from US GAAP. For a
summary of the principal differences between Norwegian GAAP and US GAAP as
they relate to Transocean's Consolidated Financial Statements, see Note 34 to
the Consolidated Financial Statements of Transocean and Note 5 to the
Condensed Consolidated Financial Statements of Transocean included elsewhere
in this Prospectus Proxy Statement.
Effective October 6, 1995, Wilrig AS was merged into Transocean. Transocean,
the surviving entity in such merger, became a foreign registrant in connection
with the assumption of Wilrig publicly registered debt and filed periodic
reports with the Commission. Such merger was accounted for as a "pooling-of-
interests", and the Transocean Management's Discussion and Analysis of
Financial Conditions and Results of Operations have been prepared on the basis
of Transocean's restated financial statements.
OVERVIEW
Transocean and its subsidiaries operate in the offshore drilling industry.
Transocean owns rigs and provides offshore drilling services on a worldwide
basis. Transocean's business is currently divided into three business areas:
Mobile Units, Platform Drilling & Well Intervention, and Engineering &
Construction. Prior to June 11, 1996, Transocean also had operations in a
fourth business area, Fluid Services, which was conducted through Anchor
Drilling Fluids. On June 11, 1996, the sale of substantially all of the assets
of Anchor Drilling Fluids to M-I Drilling was consummated for a sales price of
approximately Nkr 695 million, subject to certain adjustments not yet
completed. Upon the sale of Anchor Drilling Fluids, Transocean has disposed of
its Fluid Services business segment. Transocean has no current plans to pursue
further activity in this segment. However, M-I Drilling and Transocean have
established a strategic alliance in order to provide integrated contracts to
customers.
In July 1995, Statoil, the Norwegian state-owned oil company, and Transocean
signed an extensive cooperation agreement (the "Statoil Agreement"). The
Statoil Agreement, which has a duration of 10 years, includes four semi-
submersible rigs, Treasure Prospect, Transocean Searcher, Treasure Saga and
Transocean Wildcat. The Statoil Agreement will also involve work on the
Gullfaks, Heidrun and Troll installations, as well as co-operation in
technological development.
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The following table sets forth certain financial information relative to
Transocean's business by industry segment for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C> <C>
MOBILE UNITS
Total Revenues........ 371,537 365,990 1,565,391 1,474,111 1,800,294
Operating Income
(Loss)............... 12,810 (43,906) 77,733 (125,134) (349,365)
PLATFORM DRILLING & WELL
INTERVENTION
Total Revenues........ 167,218 136,513 646,308 563,605 516,218
Operating Income...... 561 (2,913) 27,666 30,056 36,641
FLUID SERVICES
Total Revenues........ 245,938 188,049 906,636 974,385 891,938
Operating Income...... 6,809 9,637 34,359 92,439 76,676
ENGINEERING & CONSTRUC-
TION
Total Revenues........ 53,625 11,444 71,279 49,699 95,860
Operating Income
(Loss)............... 1,835 (536) 509 (8,915) 1,562
TOTAL OPERATIONS
Total Revenues(1)..... 822,394 698,748 3,164,236 3,044,343 3,292,093
Operating Income
(Loss)(2)............ 16,485 (41,788) 126,597 (16,079) (239,478)
Net Financial Income
(Expense)............ (37,889) (62,738) (93,550) (98,198) (320,900)
Net Income (Loss)..... (24,221) (109,617) 18,741 (127,986) (580,099)
</TABLE>
- --------
(1) Reflects eliminations for intra-company amounts for the three months ended
March 31, 1996 and 1995 and for the years ended December 31, 1995, 1994
and 1993 of (15,924), (3,248), (25,378), (17,457) and (12,217),
respectively.
(2) Reflects eliminations for intra-company amounts for the three months ended
March 31, 1996 and 1995 and for the years ended December 31, 1995, 1994
and 1993 of (5,530), (4,070), (13,670), (4,525) and (4,992), respectively.
OPERATING RESULTS
Quarter Ended March 31, 1996 compared to Quarter Ended March 31, 1995
Revenues By Business Area
Transocean's total revenues for the first quarter of 1996 were Nkr 822.4
million compared to Nkr 698.7 million for the comparable period in 1995, an
increase of Nkr 123.7 million or 17.7%. The increase was a result of revenue
improvements in all business areas.
Revenues for Mobile Units were Nkr 371.5 million for the first quarter of
1996 compared to Nkr 366.0 million for the comparable period in 1995, an
increase of Nkr 5.5 million or 1.5%. This increase was primarily caused by
increased day rates in 1996 as compared to 1995 for a number of Transocean's
rigs. This increase was partly offset by the sale of four rigs in 1995, the
revenues of which were included in the results of the first quarter of 1995,
and significant time at zero rate for certain rigs in the first quarter of
1996. Rig utilization was 83% for the first quarter of 1996 compared to 86%
for the same period in 1995.
Revenues for Platform Drilling & Well Intervention were Nkr 167.2 million
for the first quarter of 1996 compared to Nkr 136.5 million for the comparable
period in 1995, an increase of Nkr 30.7 million or 22.5%. Nkr 16.8 million of
the increase in revenues was attributable to Transocean's Platform Drilling
business. Although this segment has fixed long term contracts, the activity
and resulting revenues vary during the term of long-term contracts depending
on the stage of development of the field. The increase in revenues of Platform
Drilling in 1996 was primarily related to operations on the Troll and Heidrun
fields, which were fully operational in 1996 compared to 1995, when such
fields were in the pre-drilling phase, which was a lower revenue producing
phase for Transocean. The remaining Nkr 13.9 million of such increase was
related to the business of Well
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Intervention, where utilization of coiled tubing units increased to 64% in the
first quarter of 1996 compared to 43% in the comparable quarter in 1995.
Revenues for Fluid Services were Nkr 245.9 million for the first quarter of
1996 compared to Nkr 188.0 million for the comparable period in 1995, an
increase of Nkr 57.9 million or 30.8%. The sales growth was primarily due to
increased sales under a contract with Statoil.
Revenues for Engineering & Construction were Nkr 53.6 million for the first
quarter of 1996 compared to Nkr 11.4 million for the comparable period in 1995,
an increase of Nkr 42.2 million or 370%. The improvement was primarily due to
the acquisition, for Nkr 20.1 million, of Procon Engineering as of January 1,
1996, which contributed Nkr 22.7 million in revenues in the first quarter of
1996. Procon specializes in control systems used in the drilling process. The
remainder of such increase in revenues, Nkr 19.5 million was primarily
attributable to revenues generated from a new maintenance and modification
contract for the Heidrun field and project activity for Gullfaks and Troll.
Operating Income By Business Area
Transocean's total operating income for the first quarter of 1996 was Nkr
16.5 million compared to an operating loss of Nkr 41.8 million for the
comparable period in 1995, an increase of Nkr 58.3 million.
Operating income for Mobile Units was Nkr 12.8 million for the first quarter
of 1996 compared to an operating loss of Nkr 43.9 million for the comparable
period in 1995, an increase of Nkr 56.7 million. The operating loss in the
first quarter of 1995 was due to several rigs operating under contracts
negotiated during the Fall of 1994, when dayrates were significantly lower than
those operated under during 1996. In addition, several rigs were laid up during
the first quarter in 1995. The improvement in operating income during the first
quarter of 1996 was primarily attributable to higher day rates in the first
quarter of 1996 compared to the same period in 1995 on certain of Transocean's
rigs. The increase caused by higher day rates was partially offset by increased
expenses and loss of revenue on a number of rigs. Both Transocean Searcher and
Transocean Discoverer were on zero rate for an extended period of time during
the first quarter of 1996. Transocean Searcher completed its intermediate
periodic survey in January/February 1996, resulting in 25 days without any
revenues generated from such rig. Transocean Discoverer was mobilized from
Vietnam in January and arrived in Norway on January 31 for a special periodic
survey and upgrading for work in the North Sea. The yard stay lasted throughout
the first quarter and was terminated May 9. In addition, during the first
quarter of 1996, the Transocean Wildcat, Transocean Explorer, Treasure Saga and
Treasure Prospect had a total of 21 days at zero rate due to operational
difficulties.
Operating income for Platform Drilling & Well Intervention was Nkr 0.6
million for the first quarter of 1996 compared to an operating loss of Nkr 2.9
million for the comparable period in 1995, an increase of Nkr 3.5 million.
Within the Platform Drilling business, the improvement in operating income in
the first quarter of 1996 is primarily attributable to increased operations on
the Troll and Gullfaks fields compared to 1995 partly offset by reduced project
activity on Heidrun as compared to 1995. Within the Well Intervention business,
the coiled tubing drilling and directional drilling operations in the U.K.
improved. This increase was partially offset by losses on two wells drilled in
Argentina with coiled tubing units on a turnkey basis. During the drilling of
these two wells, problems in the formation and unstable pressure disrupted
drilling operations, which resulted in the recognition of an operating loss of
Nkr 7 million.
Operating income for Fluid Services was Nkr 6.8 million for the first quarter
of 1996 compared to Nkr 9.6 million for the comparable period in 1995, a
decrease of Nkr 2.8 million or 29%. The decrease in operating income was
primarily caused by reduced sales in the United States, attributable primarily
to uncertainties caused by the then pending sale of Anchor Drilling Fluids. The
sale was consummated on June 11, 1996, resulting in a gain of approximately Nkr
360 million. The agreed upon sales price was Nkr 695.75 million paid in cash,
subject to certain adjustments not yet completed. The sales proceeds were
immediately used to repay debt outstanding under the revolving credit facility.
Upon the sale of Anchor Drilling Fluids, Transocean has disposed of its Fluid
Services business segment. Transocean has no current plans to pursue further
activity in this segment.
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<PAGE>
Operating income for Engineering & Construction was Nkr 1.8 million for the
first quarter of 1996 compared to an operating loss of Nkr 0.5 million for the
comparable period in 1995, an increase of Nkr 2.3 million. The improvement in
operating income is primarily attributable to the acquisition of Procon
Engineering, which contributed approximately Nkr 1.7 million to operating
income for the first quarter of 1996.
Net Financial Expenses
Transocean's net financial expenses for the first quarter of 1996 were Nkr
37.9 million compared to Nkr 62.7 million for the comparable period in 1995, a
decrease of Nkr 24.8 million or 39.6%. The reduction in financial expenses was
primarily attributable to Nkr 18 million reduction in interest expense and a
Nkr 67.9 million currency exchange gain offset by a Nkr 74.2 million expense
related to the repurchase of U.S. $80.2 million of Senior Secured Notes. See
"--Liquidity and Capital Resources."
Income Taxes
Taxes were Nkr 2.3 million in the first quarter of 1996 compared to Nkr 4.7
million for the comparable period in 1995, a decrease of Nkr 2.4 million or
51.1%. The reduction in 1996 is due primarily to reduced net income in the
foreign subsidiaries of Anchor Drilling Fluids.
Fiscal Year 1995 Compared to Fiscal Year 1994
Revenues By Business Area
Transocean's total revenues for the year ended December 31, 1995 were Nkr
3,164.2 million compared to Nkr 3,044.3 million for the year ended December
31, 1994, an increase of Nkr 119.9 million or 3.9%. The increase was primarily
a result of revenue improvements in the Mobile Units, Platform Drilling & Well
Intervention and Engineering & Construction business areas. Revenues for the
Fluid Services business segment decreased.
Revenues for Mobile Units were Nkr 1,565.4 million for the year ended
December 31, 1995 compared to Nkr 1,474.1 million for the year ended December
31, 1994, an increase of Nkr 91.3 million or 6.2%. The revenue growth in 1995
reflected an increase in rig utilization from 69% in 1994 to 87% in 1995,
primarily due to an improved activity level for semisubmersible rigs in the
North Sea. Utilization for the semisubmersible rigs was 84% in 1995 compared
to 58% in 1994, while utilization for the jack-ups was 98% in 1995 compared to
93% in 1994.
Revenues for Platform Drilling & Well Intervention were Nkr 646.3 million
for the year ended December 31, 1995 compared to Nkr 563.6 million for the
year ended December 31, 1994, an increase of Nkr 82.7 million or 14.7%. The
revenue growth was primarily a result of high project activity in the Platform
Drilling segment throughout the year. This was mainly due to more extensive
pre-drilling phases on Heidrun and Troll platforms involving planning of
drilling operations and drilling of two extra wells on the Draugen platform.
Revenues for Fluid Services were Nkr 906.6 million for the year ended
December 31, 1995 compared to Nkr 974.4 million for the year ended December
31, 1994, a decrease of 67.8 million or 7.0%. The reduction was due primarily
to reduced activity in the Norwegian and US markets and Indonesia. On June 11,
1996, Transocean consummated the sale of substantially all of the assets of
Anchor Drilling Fluids, which comprised its Fluid Services business to M-I
Drilling for an aggregate purchase price equal to approximately Nkr 695
million, subject to certain adjustments not yet completed. Under U.S. GAAP,
Anchor Drilling Fluids has been accounted for as a discontinued operation.
Revenues for Engineering & Construction were Nkr 71.3 million for the year
ended December 31, 1995 compared to Nkr 49.7 million for the year ended
December 31, 1994, an increase of Nkr 21.6 million or 43.5%. Engineering &
Construction increased its activity level throughout the year compared to
1994, especially on the Eldfisk platform for Phillips Petroleum and the Troll
and Gullfaks platforms for Statoil.
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Operating Income By Business Area
Transocean's total operating income for the year ended December 31, 1995 was
Nkr 126.6 million compared to an operating loss of Nkr 16.1 million for the
year ended December 31, 1994, an increase of Nkr 142.7 million. The improved
result in 1995 was primarily due to higher utilization of the rigs within the
Mobile Units business area.
Operating income for Mobile Units was Nkr 77.7 million for the year ended
December 31, 1995 compared to an operating loss of Nkr 125.1 million for the
year ended December 31, 1994, an increase of Nkr 202.8 million. The primary
reasons for such increase were improved rig utilization in 1995 compared to
1994 and a Nkr 84 million net gain on the sale of four rigs, partially offset
by a nonrecurring expense of Nkr 35 million related to the Wilrig merger.
Operating income for Platform Drilling & Well Intervention was Nkr 27.7
million for the year ended December 31, 1995 compared to Nkr 30.1 million for
the year ended December 31, 1994, a decrease of Nkr 2.4 million or 8.0%. The
primary reasons for such decrease were high start-up costs incurred in
Argentina (Nkr 3.7 million) where the business unit obtained a 10 well
contract for a coiled tubing unit, and high mobilization costs for other units
which were relocated from Norway to the UK to meet expected demand.
Operating income for Fluid Services was Nkr 34.4 million for the year ended
December 31, 1995 compared to Nkr 92.4 million for the year ended December 31,
1994, a decrease of Nkr 58.0 million or 62.8%. The decrease resulted primarily
from a greater amount of sales being comprised of lower margin products and a
reduction in sales in the United States, which generally had higher margins.
Operating income for Engineering & Construction was Nkr 0.5 million for the
year ended December 31, 1995 compared to an operating loss of Nkr 8.9 million
for the year ended December 31, 1994, an increase of Nkr 9.4 million. This
improvement in operating income reflects a substantial increase in project
activity, including cutting injection systems for Gullfaks, Oseberg and
Sleipner, a pipe handling installation on Gullfaks and modification work on
Troll.
Net Financial Expenses
Transocean's net financial expenses for the year ended December 31, 1995 was
Nkr 93.6 million compared to Nkr 98.2 million for the year ended December 31,
1994, a decrease of Nkr 4.6 million or 4.7%. The reduction resulted primarily
from a Nkr 5.6 million reduction in interest expense from Nkr 196 million to
Nkr 190 million attributable to lower interest rates, partially offset by a
reduction in currency gains and other income of Nkr 1 million.
Refinancing costs incurred in 1995 amounted to Nkr 18 million and were
included in financial expenses. The accounting treatment for recording loan
fees has been changed from capitalization and amortization to expense when
incurred. The new principle is consistent with the principle followed by
Wilrig prior to the merger. The change in accounting principle has been made
effective from January 1, 1995 and the accumulated effect of the change was
included in refinancing costs for 1995.
Income Taxes
Income tax for 1995 amounted to Nkr 12.8 million compared to Nkr 11.8
million in 1994, an increase of Nkr 1.0 million or 8.5%. The income tax
expense for both years were mainly current foreign taxes from drilling and
mining operations.
Fiscal Year 1994 Compared to Fiscal Year 1993
Revenues By Business Area
Transocean's total revenues for the year ended December 31, 1994 were Nkr
3,044.3 million compared to Nkr 3,292.1 million for the year ended December
31, 1993, a decrease of Nkr 247.8 million or 7.5%. The decrease was primarily
a result of revenue decline from Mobile Units.
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Revenues for Mobile Units were Nkr 1,474.1 million for the year ended
December 31, 1994 compared to Nkr 1,800.3 million for the year ended December
31, 1993, a decrease of Nkr 326.2 million or 18.1%. The decrease in revenues
in 1994 was the result of a decrease of rig utilization to 69% in 1994 from
75% in 1993. As a result of the excess supply of drilling units in the North
Sea, dayrates were less than total operating costs for several of Mobile
Units' contracts. The principal reasons for the weak market in the North Sea
was the decline in oil prices beginning at the end of 1993, changes in the
Petroleum Revenue Taxation in the UK which discouraged exploration drilling
and cost reduction programs at several of the major oil companies.
Revenues for Platform Drilling & Well Intervention were Nkr 563.6 million
for the year ended December 31, 1994 compared to Nkr 516.2 million for the
year ended December 31, 1993, an increase of Nkr 47.4 million or 9.2%. The
improvement in 1994 compared to 1993 was primarily attributable to the
Platform Drilling business. The project start-up phases on the Heidrun and
Troll platforms began at the end of 1993 and continued throughout 1994, and
drilling activity at the Draugen platform commenced year-end 1993 and lasted
to the end of 1994.
Revenues for Fluid Services were Nkr 974.4 million for the year ended
December 31, 1994 compared to Nkr 891.9 million for the year ended December
31, 1993, an increase of 82.5 million or 9.3%. The revenue growth was
primarily a result of high demand for newly developed advanced drilling fluids
in the North Sea.
Revenues for Engineering & Construction were Nkr 49.7 million for the year
ended December 31, 1994 compared to Nkr 95.9 million for the year ended
December 31, 1993, a decrease of Nkr 46.2 million or 48.2%. The decrease was
attributed primarily to the reduced level of activity in the North Sea rig
market.
Operating Income by Business Area
Transocean's total operating loss for the year ended December 31, 1994 was
Nkr 16.1 million compared to Nkr 239.5 million for the year ended December 31,
1994, an improvement of Nkr 223.4 million or 93.3%.
Operating loss for Mobile Units was Nkr 125.1 million for the year ended
December 31, 1994 compared to Nkr 349.4 million for the year ended December
31, 1993, an improvement of Nkr 224.3 million or 64.2%. The improvement was
primarily attributable to the impact on 1993 operating income of a Nkr 283
million write-down in the value of seven rigs due to the fact that the book
value of such rigs was in excess of their perceived market value. This
improvement was partially offset by Nkr 45 million write-down in 1994 and
reduced utilization of the rigs from 75% in 1993 to 69% in 1994.
Operating income for Platform Drilling & Well Intervention was Nkr 30.1
million for the year ended December 31, 1994 compared to Nkr 36.6 million for
the year ended December 31, 1993, a decrease of Nkr 6.5 million or 17.8%. The
decrease in operating income is mainly due to write-downs in 1994 of Nkr 3.7
million related to wireline equipment in Nigeria (Nkr 1.5 million), a patent
(Nkr 0.9 million) and directional drilling equipment (Nkr 1.3 million). In
addition, a restructuring of such business through a transfer of the Platform
Drilling & Well Intervention segments to Transocean Petroleum Technology, a
wholly-owned subsidiary of Transocean involving a consolidation of U.K.
operations in 1994 resulted in certain increases in indirect overhead costs.
Operating income for Fluid Services was Nkr 92.4 million for the year ended
December 31, 1994 compared to Nkr 76.7 million for the year ended December 31,
1993, an increase of Nkr 15.7 million or 20.5%. The increase was primarily
attributable to increased sales as a result of high demand for the newly
developed, advanced drilling fluids.
Operating loss for Engineering & Construction was Nkr 8.9 million for the
year ended December 31, 1994 compared to operating income of Nkr 1.6 million
for the year ended December 31, 1993 a decrease of Nkr 10.5 million. Such
decrease was primarily due to the impact of the termination of a major
maintenance contract partially offset by a reduction in labor employed in the
construction business.
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Net Financial Expenses
Transocean's net financial expense for the year ended December 31, 1994 was
Nkr 98.2 million compared to net financial expense of Nkr 320.9 million for
the comparable year ended December 31, 1993, a decrease of Nkr 222.7 million
or 69.4%. The reduction was primarily due to currency exchange gains of Nkr
89.5 million in 1994 compared to a Nkr 120.7 million loss recorded in 1993.
Income Taxes
Income tax expense for 1994 amounted to Nkr 11.8 million compared to Nkr
16.0 million in 1993. While the tax expense in 1994 was mainly foreign current
taxes, Nkr 14 million was foreign current taxes in 1993 and the remaining Nkr
2 million was mainly deferred tax in Morocco.
OTHER FACTORS AFFECTING OPERATING RESULTS
Operating income of the second quarter of 1996 was adversely affected by Nkr
26 million due to a 24 day long strike by the employees of the Norwegian
sector oil service companies. Although Transocean was not a party in this
conflict, the five rigs operating in the Norwegian sector were forced to
suspend operations as a result of the strike.
The rate of inflation in Norway has been moderate over the past several
years and has not had a material impact on Transocean's results of operations.
Transocean's foreign operations are geographically dispersed and are
therefore subject to certain political and other uncertainties not encountered
in domestic operations, including risks of war, expropriation of equipment,
renegotiation or modification of existing contracts, taxation policies, and
the general hazards associated with foreign sovereignty over certain areas in
which operations are conducted. Transocean is protected to some extent against
capital loss from most of such risks through indemnity provisions in its
drilling contracts.
Transocean's operations are also subject to extensive regulation by foreign
governments. Transocean's ability to compete in the international drilling
market may be adversely affected by foreign governmental practices which favor
or effectively require the awarding of drilling contracts to local
contractors. To minimize such risks, Transocean occasionally operates through
joint ventures with foreign partners and/or with the assistance of local
agents.
The possibility of currency exchange losses is a risk inherent to foreign
operations. Generally, Transocean seeks to limit these and interest rate risks
by using hedging instruments such as forward contracts and currency options.
See "--Foreign Currency and Interest Rate Risk Management" below.
MARKET OUTLOOK
Commencing in 1995, the North Sea market has experienced increased
utilization and improving day rates. Transocean has recently entered into an
agreement with Amerada Hess Ltd relating to the rigs Transocean No. 8,
Transocean Discoverer and Kan Tan IV. The agreement as it relates to
Transocean No. 8 will result in upgrading such rig to deep water drilling west
of Shetland. Such Agreement is for a fixed period of two years, with an
estimated start-up in the spring of 1997. Amerada Hess has three one year
options to extend such Agreement. As a result of such Agreement, Transocean
has its rigs fully contracted throughout 1996.
Transocean No. 8 is currently operating in the UK sector. The rig has been
operating for BP during the first and second quarters of 1996, and commenced a
contract with Kerr McGee in July 1996. Thereafter, Transocean No. 8 will
commence a contract with Esso which is expected to terminate in October 1996.
After the Esso contract, such rig will be mobilized to Norwegian waters for a
one month contract with Phillips Petroleum Company Norway. Subsequently, the
rig will be upgraded and commence its drilling program for Amerada Hess as
discussed above.
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Transocean Arctic commenced operating for Statoil on the Norwegian shelf in
April 1996. The Statoil contract expires in September 1997. During the term of
such contract, such rig will drill one well for Saga on the Norwegian shelf.
The well to be drilled for Saga is expected to take approximately four months,
commencing in August 1996.
Kan Tan IV is operating for Amerada in the UK sector. Such Agreement which
was entered into in 1995 has been extended to two years as discussed above.
Transocean Discoverer is currently operating for Amerada Hess on the UK
shelf. The contract commenced in May 1996 and has a duration of 19 months.
Transocean Searcher, Transocean Wildcat, Treasure Prospect and Treasure Saga
will commence working under the Statoil contract during the course of 1996.
Such rigs are completing their current operation in the Norwegian sector. The
Statoil contract provides for day rates which are significantly higher than
those which the rigs operated under in 1995.
Transocean Explorer is currently operating in the UK sector under a contract
with Elf. The rig will commence a contract with Total in the UK sector in
August 1996.
The jack-up Shelf Explorer is operating for Maersk Oil and Gas in the Danish
sector on a long term contract which expires in April 1997. The contract
includes an additional 12 months option period.
The jack-up rig Transocean Nordic is operating for Kerr McGee in the UK
sector. The rig will be mobilized to the Norwegian sector to commence working
for Amoco under a twelve month contract which has options for two six month
periods. Transocean Nordic is part of the Global Agreement.
Glomar Adriatic VI (formerly Transocean No. 6) and Glomar Adriatic VII
(formerly Transocean No. 7) which are part of the Global Agreement, are both
operating in the US Gulf.
Glomar Adriatic V (formerly Transocean No. 5), the fourth rig of the Global
Agreement, was operating under Transocean's management in Abu Dhabi until late
April, and under Global's management is currently being mobilized for a one
year contract for Elf in Angola.
The Treasure Legend is working for Petrobras in Brazil under a contract that
commenced in January 1995 and terminates by the end of December 1997.
Transocean Driller was mobilized to Nigeria in July 1995 to work for Statoil
on a contract that terminates in May 1997.
The business area Platform Drilling & Well Intervention currently has
contracts for the Troll, Heidrun, Snorre, Gullfaks and Valhall fields.
Commercial drilling on Troll and Heidrun commenced June 15, 1995. The Troll
drilling agreement is fixed for three years, until June 1998, with a five-year
option for maintenance thereafter. The Heidrun drilling contract is also fixed
for three years, until June 1997, with three two-year options thereafter. The
Snorre contract was renegotiated in 1995 for another four years, with one
additional two-year option thereafter. Amoco reduced the activity on the
Valhall platform, and the drilling crew was demobilized in the fourth quarter
of 1995. The contract has recently been extended for three years. The Gullfaks
contract is fixed until April 1997, with a two-year option.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows (used in) operations for the three months ended March 31,
1996, increased by Nkr 35.4 million from (Nkr 36.7) million for the quarter
ended March 31, 1995 to (Nkr 72.1) million in 1996. The lower level of cash
used in operations during the first quarter of 1995 resulted primarily from
the reclassification of a US $11 million (Nkr 70 million) promissory note from
current receivables to long term receivables. Net cash provided by operating
activities totaled Nkr 299.4 million in 1995, Nkr 190.1 million in 1994 and
Nkr 365.6 million in 1993.
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Net Financial Expenses
Net cash provided by investing activities for the three months ended March
31, 1996, decreased Nkr 33.7 million from Nkr 45.4 million in 1995 to Nkr 11.7
million in 1996. Net cash provided by (used in) investing activities totaled
Nkr 3.7 million in 1995, (Nkr 424.0) million in 1994 and (Nkr 74.3) million in
1993. Cash provided by investing activities in 1995 resulted primarily from
the sale of the rigs Dundee Explorer, Treasure Searcher, Ross Explorer and
Pelerin, which were sold in four different transactions. Total proceeds from
the sales received in 1995 amounted to Nkr 316.85 million. The proceeds were
partially offset by capital improvements to the existing rig fleet. Cash used
in investing activities in 1994 was primarily related to the purchase of
Transocean Driller, partly offset by the sale of the Nordic Explorer. Cash
used in investing activities in 1993 relates to the purchase of Transocean
Nordic, partly offset by the sale of the jack-up rigs Glomar Adriatic V,
Glomar Adriatic VI and Glomar Adriatic VII to Global Marine.
Net cash flows (used in) financing activities for the three months ended
March 31, 1996, decreased Nkr 9.0 million from (Nkr 11.1) million for 1995 to
(Nkr 2.1) million in 1996 as a result of debt repayments as detailed below.
Net cash flows (used in) financing activities totaled (Nkr 337.9) million in
1995, (Nkr 10.6) million in 1994 and (Nkr 103.7) million in 1993. Cash used in
financing activities in 1995, 1994 and 1993 was primarily attributable to the
repayment of Transocean's debt.
Capital expenditures during 1995 totaled Nkr 280 million, Nkr 36 million of
these financed by leasing. Nkr 187 million related to the business area Mobile
Units. Transocean Driller was upgraded for deepwater drilling at a cost of
approximately Nkr 64 million. Transocean Explorer was upgraded with a drill
string compensator, modification to improve stabilization and various safety
case related improvements, amounting to approximately Nkr 72 million. Total
maintenance investments for the entire rig fleet amounted to Nkr 51 million.
The business area Platform Drilling & Well Intervention made capital
expenditures of Nkr 47 million, mainly related to expansion of the well
intervention services and the purchase of mud motors. Capital expenditures
related to the business area Fluid Services totaled Nkr 45 million, including
approximately Nkr 8 million for the establishment of a base in Nigeria and
approximately Nkr 7 million for improvements to a barite processing plant.
Planned capital expenditures for 1996 is approximately Nkr 326 million, of
which Nkr 70 million (Nkr 9 million of which related to Anchor Drilling
Fluids) was spent during the first quarter. Nkr 15 million of such amount
relates to the purchase of Procon Engineering by Engineering & Construction.
Nkr 173 million of the remaining planned capital expenditures relates to
Mobile Units and Nkr 79 million relates to Platform Drilling & Well
Intervention.
Within the Mobile Units business area, Transocean Discoverer was upgraded
for operation in the UK sector during January through May 1996, by
approximately Nkr 80 million. Transocean Nordic, Transocean Wildcat and
Treasure Saga will be upgraded to fulfill contract requirements for a total of
approximately Nkr 50 million. The remainder of the planned capital
expenditures, are necessary to maintain the standard of the rigs at their
current levels. The upgrade of Transocean No. 8 under the contract with
Amerada Hess is estimated at approximately US$45 million. This will take place
in 1997.
Platform Drilling & Well Intervention plans to invest approximately Nkr 45
million in the hydraulic workover rig called Rubicon, which will be financed
through a leasing agreement. Furthermore, the planned capital expenditures
include miscellaneous coiled tubing equipment of Nkr 15 million, and
drillstring for Snorre, of Nkr 7 million.
In December 1995, Transocean entered into a seven year revolving credit
facility providing for borrowings from time to time of up to US$275 million.
Borrowings under the facility have been used, among other things, to repay
other indebtedness of Transocean, including the repurchase of the remaining
outstanding Senior Secured Notes issued by Wilrig in 1994. As collateral for
the credit facility, Transocean has mortgaged ten of its rigs and made a
collateral assignment of such rigs' revenues and such rigs' insurance
policies. At June 15, 1996, following a repayment of US$110 million made on
June 12, 1996, US$124 million in borrowings were outstanding under the credit
facility. The funds used for the June 12, 1996 repayment represents primarily
the proceeds from the sale of Anchor Drilling Fluids to M-I Drilling which was
consummated on June 11, 1996.
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US$3.8 million was outstanding under a separate facility which is part of
the revolving credit facility agreement. This amount is payable in full in the
third quarter of 1996. Nkr 5.2 million was outstanding under credit facilities
entered into by Engineering & Construction.
Operating income of the second quarter of 1996 was adversely affected by Nkr
26 million due to a 24 day long strike by the employees of the Norwegian
sector oil service companies. Although Transocean was not a party in this
conflict, the five rigs operating in the Norwegian sector were forced to
suspend operations as a result of the strike.
FOREIGN CURRENCY AND INTEREST RATE RISK MANAGEMENT
Transocean's foreign currency risk management strategy has been to maximize
income and book equity measured in Norwegian kroner. A minimum of 30% of
expected foreign currency net cash flow for a rolling 12 month period is
hedged. In order to achieve this, Transocean uses hedging instruments such as
forward contracts and currency options. Transocean does not issue or hold
foreign currency instruments for trading purposes.
Transocean has a substantial surplus cash flow in U.S. dollars and a deficit
in Norwegian kroner and in U.K. pounds. At December 31, 1995, and June 30,
1996 Transocean had hedged 48% and 43% respectively of the anticipated surplus
U.S. dollars cash flow for the following twelve month periods.
Transocean's interest rate risk management strategy has been intended to
ensure that a minimum of 40% of the loan portfolio effectively has a fixed
interest rate for a minimum of two years. Interest rate swaps and forward rate
agreements are utilized to carry out this strategy. Transocean does not issue
or hold interest rate instruments for trading purposes.
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DESCRIPTION OF CAPITAL STOCK AND CHARTER DOCUMENTS OF THE COMPANY
The summary of the terms of the capital stock of the Company set forth below
does not purport to be complete, and for additional information reference is
made to the forms of the Company Charter and By-laws, which are Exhibits to
the Company's Annual Report on Form 10-K.
CAPITAL STOCK
Giving effect to the Share Increase Amendment, under the Company Charter the
total number of shares of all classes of stock that the Company has authority
to issue is 200,000,000 shares, of which 150,000,000 will be shares of Company
Common Stock and 50,000,000 will be shares of preferred stock. See "The Sonat
Offshore Special Meeting--Proposal to Increase the Authorized Number of Shares
of Company Common Stock."
Common Stock
Subject to any preferential rights of the Company's preferred stock, holders
of shares of Company Common Stock will be entitled to receive dividends on
such stock out of the assets or funds of the Company legally available for the
payment of dividends when, as and if authorized and declared by the Board of
Directors of the Company and to share ratably in the assets of the Company
legally available for distribution to the stockholders of the Company in the
event of its liquidation, dissolution or winding-up.
Holders of shares of Company Common Stock will be entitled to one vote per
share on all matters voted on generally by the stockholders of the Company,
including the election of Directors, and except as otherwise required by law
or except as provided with respect any series of preferred stock of the
Company, the holders of such shares will possess all voting power. The Company
Charter does not provide for cumulative voting for the election of Directors.
The shares of Company Common Stock, when issued to holders of outstanding
shares of Transocean Stock in connection with the Exchange Offer, will be
validly issued, fully paid and nonassessable.
Holders of the Company Common Stock will have no preferences or preemptive,
conversion or exchange rights.
Preferred Stock
The Board of Directors of the Company is authorized to issue shares of
preferred stock of the Company, in one or more series, and to fix for each
such series the designations and relative powers, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends, or
terms or conditions of redemption, as are permitted by the DGCL. The Board of
Directors of the Company could authorize the issuance of shares of preferred
stock with terms and conditions which could discourage a takeover or other
transaction that holders of some or a majority of shares of Company Common
Stock might believe to be in their best interests or in which such holders
might receive a premium for their shares of stock over the then market price
of such shares. No series of preferred stock has been established as of the
date of this Prospectus/Offer to Purchase/Proxy Statement.
Preemptive Rights
No holder of any shares of any class of stock of the Company will have any
preemptive or preferential right to acquire or subscribe for any unissued
shares of any class of stock or any authorized securities convertible into or
carrying any right, option or warrant to subscribe for or acquire shares of
any class of stock.
Transfer Agent and Registrar
The transfer agent and registrar for Company Common Stock is SunTrust Bank,
Georgia.
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PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The Company Charter and By-Laws have provisions that could have an anti-
takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors of the
Company and in the policies formulated by the Board of Directors and to
discourage certain types of transactions which may involve an actual or
threatened change of control of the Company. The provisions are designed to
reduce the vulnerability of the Company to an unsolicited proposal for a
takeover of the Company that does not contemplate the acquisition of all of
its outstanding shares or an unsolicited proposal for the restructuring or
sale of all or part of the Company. The provisions are also intended to
discourage certain tactics that may be used in proxy fights. The Board of
Directors believes that, as a general rule, such takeover proposals would not
be in the best interest of the Company and its stockholders.
Set forth below is a description of such provisions in the Company Charter
and By-Laws. The Board of Directors has no current plans to formulate or
effect additional measures that could have an anti-takeover effect.
Pursuant to the Company Charter, the Board of Directors of the Company is
divided into three classes serving staggered three-year terms. Directors can
be removed from office only for cause (as defined) and only by the affirmative
vote of the holders of a majority of the voting power of the then outstanding
shares of voting stock of the Company, voting together as a single class.
Vacancies on the Board of Directors may only be filled by the remaining
directors and not by the stockholders.
The Company Charter provides that the number of directors will be fixed by,
or in the manner provided in, the Company's By-Laws. The Company's By-Laws
provide that the whole Board of Directors will consist of not less than two
nor more than twelve members, the exact number to be set from time to time by
the Board of Directors. Accordingly, the Board of Directors, and not the
stockholders, has the authority to determine the number of directors and could
delay any stockholder from obtaining majority representation of the Board of
Directors by enlarging the Board of Directors and filling the new vacancies
with its own nominees until the next stockholder election.
The Company's By-Laws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or
a committee thereof, of candidates for election as directors and with regard
to certain matters to be brought before an annual meeting of stockholders of
the Company. In general, notice must be received by the Company with respect
to annual meetings not later than 90 days prior to the anniversary of the
immediately preceding annual meeting and with respect to special meetings not
later than 10 days after the public announcement of the meeting date and must
contain certain specified information concerning the stockholder submitting
the proposal.
Subject to the terms of any preferred stock, any action required or
permitted to be taken by the stockholders of the Company must be taken at a
duly called annual or special meeting of stockholders and may not be taken by
written consent. Special meetings may only be called by a majority of the
entire Board of Directors.
Stockholders may adopt, alter, amend or repeal provisions of the Company's
By-Laws only by vote of 66 2/3% or more of the combined voting power of the
then outstanding voting stock of the Company. In addition, the affirmative
vote of 66 2/3% of the combined voting power of the then outstanding shares of
voting stock of the Company is required to amend certain provisions of the
Company Charter, including the provisions referred to above relating to the
classification of the Board, filling vacancies on the Board, removal of
directors only for cause, prohibiting stockholder action by written consent,
prohibiting the calling of special meetings by stockholders and approval of
amendments to the Company's By-Laws.
STATUTORY PROVISIONS
The Company is subject to Section 203 of the DGCL, which prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates and/or
associates of such person, beneficially owns, directly or indirectly, 15
percent or more of the outstanding voting shares of a Delaware corporation.
This provisions prohibits certain business combinations
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(defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10 percent of
the consolidated assets of the corporation, and certain transactions that
would increase the interested stockholder's proportionate share ownership in
the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination or the transaction resulting in the
person becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired
shares; (ii) the interested stockholder acquired at least 85 percent of the
voting stock of the corporation in the transaction in which it became an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds
of the votes entitled to be cast by disinterested stockholders at an annual or
special meeting.
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CERTAIN CHANGES IN RIGHTS OF TRANSOCEAN STOCKHOLDERS RESULTING FROM THE
COMBINATION
CHANGES IN RIGHTS OF TRANSOCEAN STOCKHOLDERS
Upon consummation of the Exchange Offer, holders of Transocean Stock who
tender such shares into the Exchange Offer and are not paid cash therefor will
own shares of Company Common Stock. Transocean is a corporation organized
under the laws of the Kingdom of Norway and the Company is a corporation
incorporated under the laws of the State of Delaware. The DGCL is the statute
which governs Delaware corporations and the Companies Act governs Norwegian
companies. The following is a summary of certain significant differences
between the rights of holders of Transocean Stock and holders of Company
Common Stock. These differences arise from differences between the corporate
laws of the Kingdom of Norway and the State of Delaware as well as from
differences between Transocean's Articles of Association ("Transocean
Articles") and the Company Charter and By-laws, the governing instruments of
the two companies. See "Description of Capital Stock and Charter Documents of
the Company."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company
The Company's By-Laws provide that the Board of Directors of the Company
shall consist of not fewer than two nor more than twelve directors, with the
number fixed from time to time by resolution of the Board. The Company
currently has eight Directors. The Board of Directors of the Company is
classified into three classes, each of which is elected for a three year term.
One class of directors is elected at each annual meeting of stockholders of
the Company.
Transocean
The number of members on the board of directors is determined by the
Companies Act and the Transocean Articles. The minimum number of directors
required by law is three. Pursuant to the Transocean Articles, Transocean's
Board may have up to eight members. The number of members is decided by the
shareholders at a general meeting. Presently, there are seven Transocean Board
members. The managing director and at least half of the members of the board
of directors are required to be resident in Norway and to have lived in Norway
for the preceding two years, unless they are citizens and residents of a state
being party to the agreement establishing the European Economic Area. The
board members serve for a two-year period.
Directors are elected at the general meeting, except for those directors
elected by and among the employees. A majority of the employees may demand
that up to one-third, but at least two, directors with alternatives be elected
by and from among the employees.
REMOVAL OF DIRECTORS
The Company
The Company Charter provides that a Director or Directors may be removed
only for cause (as defined), by the affirmative vote of the holders of a
majority of the Company Common Stock. Vacancies on the Board of Directors of
the Company may be filled only by the remaining Directors.
Transocean
Under Norwegian law, directors elected by shareholders may be removed from
office by a general meeting of stockholders at any time by a shareholder
simple majority vote, and vacancies in the Board, may only be filled by
stockholder resolution, except where statute or the articles of association
prescribe otherwise.
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INDEMNIFICATION OF BOARD MEMBERS
The Company
The Company Charter contains a provision that eliminates the personal
monetary liability of a director to the Company and its stockholders for
breach of his fiduciary duty of care as a director to the extent currently
allowed under the DGCL.
Transocean
Neither Norwegian law nor Transocean Articles contain any provisions
concerning indemnification by Transocean of members of its board of directors.
MEETINGS OF STOCKHOLDERS
The Company
The Company By-laws provide that the annual meeting of stockholders shall be
held as determined by the Board of Directors of the Company. Elections of
directors and any other proper business may be transacted at the annual
meeting. Under the Company Charter, special meetings of the stockholders of
the Company may be called only by a majority of the Board of Directors of the
Company.
Transocean
An annual general meeting is required to be held within six months from the
end of each fiscal year. Extraordinary general meetings are held whenever
considered necessary by the board. Extraordinary general meetings will also be
convened within one week whenever requested in writing, for the consideration
of specific matters, by the auditor of the company or by shareholders
representing at least one-tenth of the share capital.
STOCKHOLDER VOTE REQUIRED
The Company
In order for action to be taken at a meeting of stockholders of the Company,
a quorum consisting of a majority of the outstanding shares of Company Common
Stock must be present. In general, stockholder action may be taken by the
favorable vote of a majority of the shares voted at a meeting so long as a
quorum is present, except that directors may be elected by a plurality vote
and certain other actions specified in the DGCL or the Company Charter require
a higher vote. For example, certain amendments of the Company Charter require
the favorable vote of 66 2/3% of the shares of Company Common Stock. See "--
Amendment of Charter Documents." In addition, the DGCL requires that before a
merger can be approved by the stockholders, a resolution approving the merger
must be adopted by the corporation's board of directors. After approval by the
board of directors, the merger agreement must be submitted to the stockholders
for adoption. Pursuant to the DGCL, a merger must be approved by the
affirmative vote of at least a majority of the outstanding shares entitled to
vote thereon.
Transocean
Under the Companies Act, resolutions are normally passed by a simple
majority of the votes cast unless otherwise specified in articles of
association. There are generally no quorum requirements. However, certain
resolutions require special majorities or the approval of all shareholders,
including a resolution to disapply shareholders' preemptive rights in
connection with an issue of shares, to increase or authorize the Board of
Directors to increase the share capital, to reduce the share capital, to
approve a merger or to amend the articles of association, all of which
requires a majority of at least two-thirds of the votes cast as well as at
least two-thirds of the shares represented at the meeting. However, if a
resolution to alter the legal relationship between issued shares that were
previously equal, the unanimous approval of all stockholders, or all
stockholders affected thereby, is normally required.
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BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Company
Section 203 of the DGCL prohibits a corporation which has securities traded
on a national securities exchange, designated on the NASDAQ or held of record
by more than 2,000 stockholders from engaging in certain business
combinations, including a merger, sale of substantial assets, loan or
substantial issuance of stock, with an interested stockholder, or an
interested stockholder's affiliates or associates, for a three-year period
beginning on the date the interested stockholder acquires 15% or more of the
outstanding voting stock of the corporation. The restrictions on business
combinations do not apply if (i) the board of directors gives prior approval
to the transaction in which the 15% ownership level is exceeded, (ii) the
interested stockholder acquires at one time 85% of the corporation's stock
(excluding those shares owned by persons who are directors and also officers
as well as employee stock plans in which employees do not have a confidential
right to vote) or (iii) the business combination is approved by the board of
directors and authorized at a meeting of stockholders by the holders of at
least two-thirds of the outstanding voting stock excluding shares owned by the
interested stockholder. Although a Delaware corporation may elect, pursuant to
its certificate or by-laws, not to be governed by this provision, the Company
Charter and By-Laws contain no such election.
Transocean
The Companies Act has provision similar to those outlined above with respect
to business combinations with intersected stockholders, but these only apply
for the first two years after incorporation of the company. The provisions are
therefore not applicable to Transocean. However, the Companies Act prohibits
the general meeting, the Board of Directors or any other person representing a
Norwegian company from taking any decision or action which may give certain
shareholders or others an unreasonable benefit at the expense of other
shareholders or the company.
DISSENTERS' RIGHTS
The Company
Under the DGCL, dissenters' rights of appraisal are limited. Rights of
appraisal are available to a stockholder of a corporation only in connection
with certain mergers or consolidations involving such corporation, amendments
to the certificate of incorporation of such corporation (if so provided in the
certificate of incorporation) or sales of all or substantially all of the
assets of such corporation. However, appraisal rights are not available under
the DGCL if the corporation's stock is (prior to the applicable transaction)
listed on a national securities exchange or designated on NASDAQ or held of
record by more than 2,000 stockholders; provided that appraisal rights will be
available if the merger or consolidation requires stockholders to exchange
their stock for anything other than shares of the surviving corporation,
shares of another corporation that will be listed on a national securities
exchange, designated on NASDAQ or held of record by more than 2,000
stockholders, cash in lieu of fractional shares of any such corporation, or a
combination of such shares and such cash.
Transocean
Under the Companies Act, when a person or entity alone or together with one
or more subsidiaries owns more than 90% of all the share capital in a company
and these shares represent more than 90% of the votes entitled to be cast at a
meeting of stockholders, that person is entitled to purchase the remaining
shares of such company. A person whose shares are subject to a right of
purchase may require the 90% owner to purchase its shares. If the parties fail
to reach an agreement regarding the price, the parties may submit thereafter
to a court of determination. The valuation of the minority interest would be
based on the value of the target company as a going concern. See "The Exchange
Offer--Mandatory Bid and Compulsory Acquisition."
The Companies Act contains a series of minority rights. Normally, the
minority must consist of at least one-tenth of the share capital to exercise
such rights. Among these rights is the right to require that decision at
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the ordinary general meeting on adoption of the accounts of the company and
decision to discharge the directors and officers from liability shall be
delayed to a continued general meeting which shall be held at least one and at
the most two months later, the right to demand that an extraordinary general
meeting shall be called, as explained above, the right to demand that an
additional auditor be appointed, the right to instigate the appointment of
external examiners to examine the management or establishment of a company or
specific matters concerning the management or the accounts (this right can
also be exercised by shareholders representing at least one-third of the
capital represented at the general meeting), the right to request the court to
determine a higher dividend on the shares than that adopted by the general
meeting, and the right to commence liability proceedings on behalf of and in
the name of the company against the board members, the managing director, the
auditor or others. (This right can also be exercised by shareholders who
represent 10% of the total number of shareholders if the company has 100 or
more shareholders.) If it has been decided to dissolve the company,
shareholders representing at least one-fifth of the share capital can demand
that the bankruptcy court shall take over the position of the general meeting.
DIVIDENDS
The Company
The Company has paid quarterly cash dividends of $0.06 per share of Company
Common Stock commencing with the fourth quarter of 1993. Any future
declaration and payment of dividends will be (i) dependent upon the Company's
results of operations, financial condition, cash requirements and other
relevant factors, (ii) subject to the discretion of the Board of Directors of
the Company, (iii) subject to restrictions contained in the Company's Credit
Agreement (see "Sonat Offshore Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources") and (iv) payable only out of the Company's surplus or current net
profits in accordance with the DGCL.
Transocean
Transocean has not paid a dividend since prior to 1994. Under the Companies
Act, only a general meeting of stockholders may authorize the payment of
dividends, which may not exceed the amount recommended by the Transocean Board
(except to a limited extent in the event of a demand by holders of at least
10% of the total number of shares outstanding) and which may be paid only from
funds available for dividends. Under Norwegian law, no interim dividends may
be paid in respect of a financial period as to which audited financial
statements have not been adopted by the annual general meeting of
stockholders. The normal practice in Norway is for dividends to be paid only
annually. Unless otherwise decided at a general meeting, dividends are paid to
the shareholders on the date the general meeting decides to pay dividends. The
payment date may not be later than six months after the decision date.
It is the current practice of Transocean's Board to decide upon their
recommendations in respect of the next preceding fiscal year in March of each
year, and the decision is made public at the same time. The recommendation of
the Transocean Board is considered at Transocean's Annual General Meeting,
which is usually held in May of the year following the year with respect to
which the dividend is paid.
PREEMPTIVE RIGHTS
The Company
The Board of Directors of the Company may approve the issuance of capital
stock of the Company to the extent authorized shares are available under the
Company Charter, subject to NYSE rules that require stockholders' approval
under certain circumstances. The Company Charter and By-laws do not provide
for preemptive rights. The DGCL does not provide for preemptive rights unless
specifically provided for in the certificate of incorporation of a
corporation.
125
<PAGE>
Transocean
Under Norwegian law, stockholders must approve each issue of additional
shares. Existing stockholders have preferential rights to subscribe for issues
of shares and debt instruments convertible into shares in proportion to their
stockholdings, unless the resolution for the issue itself or the company's
articles of association provide otherwise. A resolution to issue, approve or
authorize the issuance of new shares, convertible debt instruments or debt
instruments with a right (or option) to subscribe for new shares, the issuance
of which is or is not subject to the preemptive rights of existing
stockholders, requires the affirmative vote of two-thirds of the votes cast as
well as two-thirds of all of the shares represented at the meeting. The
general meeting may with the same majority authorize the board of directors to
increase the capital with or without preferential rights for shareholders. The
total nominal value of the shares that may be issued pursuant to such
authorization may not exceed 50% of the company's share capital at the time
the resolution was adopted, and such authorization may not be given for more
than five years at a time.
AMENDMENT OF CHARTER DOCUMENTS
The Company
The Company Charter may be amended if approved by the Board of Directors of
the Company and by the favorable vote of a majority of the outstanding shares
of Company Common Stock, except that certain amendments require the
affirmative vote of 66 2/3% of the outstanding shares. See "Description of
Capital Stock and Charter Documents of the Company--Provisions Having Possible
Anti-takeover Effects."
The Company's By-Laws may be amended, repealed, or altered, in whole or in
part, by a 66 2/3% vote of the outstanding shares of Company Common Stock. The
Board of Directors of the Company may amend the Company's By-Laws but may not
repeal any By-Laws adopted by the stockholders.
Transocean
The Companies Act provides that the affirmative vote of the holders of two-
thirds of the votes cast as well as two-thirds of all shares represented at
the general meeting is required to amend provisions of a company's articles of
association. Resolutions to amend the Transocean Articles which reduce any
stockholder's rights to profits or assets, restrict the transferability of
shares or alter the legal relationship between issued shares that were
previously equal normally require the unanimous approval of all the
stockholders or all stockholders affected thereby. A resolution to amend the
Transocean Articles for the purpose of requiring the retention of a larger
amount of the net profit than required by the Companies Act or otherwise
reducing the amount that may be paid as dividends normally requires the
approval of stockholders representing two-thirds of the votes cast and 90% of
the shares represented at the meeting.
LEGAL MATTERS
The validity of the Company Common Stock offered hereby will be passed upon
by Hughes Hubbard & Reed LLP, New York, New York. Thommessen Krefting Greve
Lund, Oslo, Norway, has acted as Norwegian counsel to the Company. Transocean
has been represented by Weil, Gotshal & Manges LLP, Dallas, Texas and New
York, New York, and Wikborg, Rein & Co., Bergen, Norway.
EXPERTS
The consolidated financial statements of Sonat Offshore Drilling Inc. at
December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, and the information
under the caption "Sonat Offshore Selected Consolidated Financial Data" for
each of the five years in the period ended December 31, 1995, appearing in
this Prospectus and Registration Statement have been derived from Sonat
Offshore Drilling Inc. consolidated financial statements audited by Ernst &
Young LLP, as set forth in their report thereon appearing elsewhere herein.
126
<PAGE>
Such consolidated financial statements and selected financial data are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Transocean as of December 31, 1995
and 1994, and for each of the years in the three year period ended December
31, 1995, have been included herein and in the Registration Statement in
reliance upon the report of Coopers & Lybrand ANS, independent accountants,
appearing elsewhere herein, and upon the authority of such firms as experts in
accounting and auditing.
Representatives of Ernst & Young LLP are expected to be present at the Sonat
Offshore Special Meeting, will be given an opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate
questions by Sonat Offshore stockholders.
Facsimiles of the Acceptance Form, properly completed and duly signed, will
be accepted. The Acceptance Form and any other required documents should be
sent or delivered by each stockholder or such stockholder's broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of
its addresses set forth on the back page of this Prospectus/Offer to
Purchase/Proxy Statement.
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SONAT OFFSHORE
Report of Ernst & Young LLP............................................. F-2
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (unaudited).............................. F-25
Condensed Consolidated Balance Sheets as of March 31, 1996 and December
31, 1995 (unaudited)................................................... F-26
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and March 31, 1995 (unaudited).................... F-27
Notes to Condensed Consolidated Financial Statements (unaudited)........ F-28
TRANSOCEAN
Report of Coopers & Lybrand ANS......................................... F-29
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... F-30
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-31
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... F-32
Notes to the Consolidated Financial Statements.......................... F-33
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 (unaudited).............................. F-71
Condensed Consolidated Balance Sheets as of March 31, 1996 and December
31, 1995 (unaudited)................................................... F-72
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and March 31, 1995 (unaudited).................... F-73
Notes to the Unaudited Condensed Consolidated Financial Statements...... F-74
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Sonat Offshore Drilling Inc.
We have audited the accompanying consolidated balance sheets of Sonat
Offshore Drilling Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Sonat Offshore Drilling Inc. and Subsidiaries at December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, in 1993
the Company changed its method of accounting for postretirement benefits other
than pensions.
We also previously have audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1993,
1992 and 1991 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1992 and
1991 (none of which are presented separately herein); and we expressed
unqualified opinions on those consolidated financial statements. In our
opinion, the information set forth in the selected consolidated financial data
for each of the five years in the period ended December 31, 1995, appearing on
pages 19 and 84, is fairly stated in all material respects in relation to the
consolidated financial statements from which it has been derived.
Ernst & Young LLP
Houston, Texas
January 17, 1996
F-2
<PAGE>
SONAT OFFSHORE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER-
SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES.............................. $322,658 $242,953 $271,276
-------- -------- --------
COSTS AND EXPENSES
Operating and maintenance..................... 222,367 179,279 210,661
Depreciation.................................. 26,995 24,506 20,985
General and administrative.................... 21,208 18,271 15,386
-------- -------- --------
270,570 222,056 247,032
-------- -------- --------
OPERATING INCOME................................ 52,088 20,897 24,244
-------- -------- --------
OTHER INCOME (EXPENSE), NET
Equity in earnings (losses) of joint ven-
tures........................................ 1,892 (193) 405
Interest income............................... 4,392 1,594 2,429
Interest expense
On indebtedness to affiliate................ -- -- (7,753)
Other....................................... (2,519) (2,027) (761)
Interest adjustment related to settlement of
tax case..................................... 1,824 -- 24,030
Other, net.................................... 17,472 (32) (1,520)
-------- -------- --------
23,061 (658) 16,830
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE........................... 75,149 20,239 41,074
Income Taxes.................................... 28,201 7,524 17,027
-------- -------- --------
Income Before Cumulative Effect of Accounting
Change......................................... 46,948 12,715 24,047
Cumulative Effect of Change in Method of
Accounting for Postretirement Benefits, Net of
Tax............................................ -- -- (6,688)
-------- -------- --------
NET INCOME...................................... $ 46,948 $ 12,715 $ 17,359
======== ======== ========
Earnings Per Share of Common Stock
Earnings Before Cumulative Effect of Accounting
Change......................................... $ 1.65 $ 0.45 $ 1.00
Cumulative Effect of Change in Accounting for
Postretirement Benefits, Net of Tax............ -- -- (0.28)
-------- -------- --------
EARNINGS PER SHARE.............................. $ 1.65 $ 0.45 $ 0.72
======== ======== ========
Weighted Average Shares Outstanding............. 28,374 28,324 24,067
Dividends Paid Per Share........................ $ 0.24 $ 0.24 $ 0.06
</TABLE>
See accompanying notes.
F-3
<PAGE>
SONAT OFFSHORE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents.................................... $112,972 $ 46,991
Accounts Receivable
Trade (net of allowance for doubtful accounts of $538 and
$690 in 1995 and 1994, respectively)...................... 50,450 38,706
Other...................................................... 2,383 3,813
Federal Income Taxes Receivable From Affiliate............... -- 5,428
Deferred Income Taxes........................................ 9,336 10,258
Costs Incurred on Turnkey Drilling Projects in Progress...... 1,002 5,299
Materials and Supplies....................................... 10,195 9,974
Prepayments.................................................. 8,693 7,214
-------- --------
Total Current Assets..................................... 195,031 127,683
-------- --------
Investments in and Advances to Joint Ventures................ 31,891 30,247
-------- --------
Property and Equipment....................................... 666,526 728,871
Less Accumulated Depreciation................................ 363,057 402,807
-------- --------
Property and Equipment, net.............................. 303,469 326,064
-------- --------
Other Assets................................................. 11,873 9,503
-------- --------
Total Assets................................................. $542,264 $493,497
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
SONAT OFFSHORE
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
--------- ---------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable
Trade.................................................... $ 14,213 $ 15,211
Affiliates............................................... 6,480 5,151
Accrued Income Taxes....................................... 11,272 3,026
Income Taxes Payable to Affiliate.......................... 3,028 --
Other Current Liabilities.................................. 27,151 25,099
--------- ---------
Total Current Liabilities.............................. 62,144 48,487
--------- ---------
Notes Payable.............................................. 30,000 30,000
Deferred Income Taxes...................................... 66,405 71,589
Other Long-Term Liabilities................................ 20,142 22,274
--------- ---------
Total Long-Term Liabilities............................ 116,547 123,863
--------- ---------
Commitments and Contingencies
Preferred Stock, $0.10 par value; 50,000,000 shares
authorized, none issued and outstanding................... -- --
Common Stock, $0.01 par value; 55,000,000 shares
authorized, 28,414,753 shares and 28,361,331 shares issued
and outstanding at December 31, 1995 and 1994,
respectively.............................................. 284 284
Additional Paid-in Capital................................. 307,093 304,807
Retained Earnings.......................................... 56,196 16,056
--------- ---------
Total Stockholders' Equity............................. 363,573 321,147
--------- ---------
Total Liabilities and Stockholders' Equity................. $ 542,264 $ 493,497
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
SONAT OFFSHORE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.. 12,700 $127 $ 48,976 $59,392 $108,495
Net income.................. -- -- -- 17,359 17,359
Non-cash capital
contribution from Sonat
Inc........................ -- -- 3,378 -- 3,378
Dividends to Sonat Inc.--
prior to initial public
offering................... -- -- (65,552) (64,915) (130,467)
Issuance of common shares--
initial public offering.... 15,500 155 316,850 -- 317,005
Restricted stock grants, net
of forfeitures............. 94 1 232 -- 233
Cash dividends ($0.06 per
share)..................... -- -- -- (1,697) (1,697)
------ ---- -------- ------- --------
Balance at December 31, 1993.. 28,294 283 303,884 10,139 314,306
Net income.................. -- -- -- 12,715 12,715
Restricted stock grants, net
of forfeitures............. 67 1 495 -- 496
Unrealized gain on
marketable security........ -- -- 428 -- 428
Cash dividends ($0.24 per
share)..................... -- -- -- (6,798) (6,798)
------ ---- -------- ------- --------
Balance at December 31, 1994.. 28,361 284 304,807 16,056 321,147
Net income.................. -- -- -- 46,948 46,948
Exercise of stock options... 59 -- 1,172 -- 1,172
Restricted stock grants,
including early vesting.... (5) -- 634 -- 634
Unrealized gain on
marketable security........ -- -- 141 -- 141
Tax benefit from exercise of
stock options.............. -- -- 689 -- 689
Cost of secondary offering.. -- -- (350) -- (350)
Cash dividends ($0.24 per
share)..................... -- -- (6,808) (6,808)
------ ---- -------- ------- --------
Balance at December 31, 1995.. 28,415 $284 $307,093 $56,196 $363,573
====== ==== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
SONAT OFFSHORE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 46,948 $ 12,715 $ 17,359
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation.................................. 26,995 24,506 20,985
Deferred income taxes......................... (4,337) 2,252 3,074
Equity in (earnings) losses of joint
ventures..................................... (1,892) 193 (405)
Cumulative effect of accounting change, net of
tax.......................................... -- -- 6,688
(Gain) loss on disposal of assets............. (16,106) 460 1,141
Other, net.................................... (3,857) (2,313) (2,762)
Changes in operating assets and liabilities
Accounts and notes receivable................ (10,315) 45,265 (67,378)
Turnkey work in progress..................... 4,297 (1,127) 2,987
Accounts payable............................. 330 (7,605) 10,039
Income taxes receivable/payable, net......... 17,391 (2,776) 4,918
Other current assets......................... (1,965) (2,443) (2,210)
Other current liabilities.................... 2,053 (5,262) (5,147)
-------- -------- ---------
Net cash provided by (used in) operating
activities................................... 59,542 63,865 (10,711)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... (18,905) (59,221) (9,690)
Proceeds from disposal of assets, net.......... 32,011 1,894 509
Joint ventures and other investments........... 220 (3,793) (3,002)
-------- -------- ---------
Net cash provided by (used in) investing
activities................................... 13,326 (61,120) (12,183)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in minority interest................... 64 (586) (3,257)
Net proceeds from issuance of common stock..... -- -- 317,005
Changes in note payable to affiliate........... -- -- (178,498)
Proceeds from issuance of long-term debt....... -- 30,000 --
Dividends paid................................. (6,808) (6,798) (108,147)
Other.......................................... (143) -- --
-------- -------- ---------
Net cash provided by (used in) financing
activities................................... (6,887) 22,616 27,103
-------- -------- ---------
Net Increase in Cash and Cash Equivalents....... 65,981 25,361 4,209
-------- -------- ---------
Cash and Cash Equivalents at Beginning of
Period......................................... 46,991 21,630 17,421
-------- -------- ---------
Cash and Cash Equivalents at End of Period...... $112,972 $ 46,991 $ 21,630
======== ======== =========
Supplemental Disclosures of Cash Flow
Information
Cash Paid for
Interest....................................... $ 2,472 $ 1,374 $ 10,897
Income taxes, net.............................. $ 15,341 $ 6,766 $ 11,044
-------- -------- ---------
</TABLE>
See accompanying notes.
F-7
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Sonat Offshore
Drilling Inc. and its majority owned subsidiaries. Intercompany transactions
and accounts have been eliminated in consolidation. The equity method of
accounting is used for investments in joint ventures owned 50 percent or less.
The term "Company" refers to Sonat Offshore Drilling Inc. and its consolidated
subsidiaries.
Basis of Presentation
In April 1993 the Board of Directors authorized an amendment to the
Certificate of Incorporation of the Company to increase the total shares of
authorized common stock from 1,000 to 55,000,000 shares. The number of issued
shares was increased from 1,000 to 12,700,000 and the par value of the common
stock was changed from $.25 per share to $.01 per share. The accompanying
consolidated financial statements have been adjusted to reflect this stock
split and change in par value. Certain reclassifications have been made to
prior year amounts to conform with the current year's presentation.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Earnings Per Share
Earnings per share is based on the weighted average number of common shares
outstanding for the years ending December 31, 1995, 1994 and 1993. The
weighted average share computation for 1993 includes an adjustment of
5,649,818 additional shares, which was required on a pro forma basis, to cover
dividends which were paid out of the proceeds of the Offerings (see Note 2)
and which were in excess of cumulative earnings for the interim period and
prior fiscal year taken together.
Cash and Cash Equivalents
Cash equivalents are stated at cost plus accrued interest, which
approximates fair value. Cash equivalents are highly liquid debt instruments
with an original maturity of three months or less and consist of time deposits
with a number of commercial banks with high credit ratings in the U.S. and
England. The Company may invest excess funds in a no-load, open-end,
management investment trust ("mutual fund"). The mutual fund invests
exclusively in high quality money market instruments. Generally, the maturity
date of the Company's investments is the next day of business. The Company
does not believe that it is exposed to any significant risk on its
investments. Also included is restricted cash totaling $0.9 million and $1.7
million at December 31, 1995 and 1994, respectively. Restrictions relate to
operating arrangements between a fully consolidated subsidiary and an
affiliate.
Materials and Supplies
Materials and supplies are carried at average cost less an allowance for
obsolete materials and supplies. This allowance was $2.7 million and $2.9
million at December 31, 1995 and 1994, respectively.
F-8
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Equipment, land and machinery are carried at cost. The Company generally
provides for depreciation on the straight-line method after allowing for
salvage values. The estimated useful life of drilling units ranges from 20 to
26 years and 5 to 12 years for other drilling equipment. In 1993 the Company
revised the estimated useful lives of its deep-water drillships and fourth-
generation semisubmersibles from a range of 16 to 20 years to 25 years. Major
renewals and upgrades to existing Company assets are capitalized. Maintenance,
repairs and minor renewals are expensed as incurred. When assets are retired
or otherwise disposed of, related costs and accumulated depreciation are
removed from the accounts.
Operating Revenues and Expenses
Operating revenues are recognized as earned, based on contractual daily
drilling rates or on a turnkey basis. Turnkey profits are recognized on
completion of the well and acceptance by the customer; however, provisions for
losses are made on contracts in progress when losses are anticipated. In
connection with drilling contracts, the Company may receive lump sum fees for
the mobilization of equipment and personnel or for capital improvements to
rigs. In connection with mobilization reimbursements, the net of mobilization
fees received and expenses incurred is deferred and amortized over the
appropriate periods of benefit. Costs of relocating drilling units without
contracts to more promising market areas are expensed as incurred. Upon
completion of drilling contracts, any demobilization fees received are
reflected in income, net of any related expense. Capital upgrade fees received
from the client are deferred and recognized as revenue over the period of the
drilling project. The actual cost incurred for the capital upgrade is
depreciated over the estimated useful life of the asset.
Foreign Currency Translation
The U.S. dollar is the functional currency for the Company's foreign
operations. Foreign currency exchange gains and losses are included in other
income as incurred. Net foreign currency losses amounted to $0.3 million, $1.0
million and $2.1 million in 1995, 1994 and 1993, respectively.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit
risk consist principally of trade receivables. At December 31, 1995, trade
receivables are predominantly from international oil companies and government-
owned and government-controlled oil companies.
Income Taxes
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board's (FASB) Statement of Financial Accounting Standard
(SFAS) No. 109, Accounting for Income Taxes. Taxable income (loss) of the
Company and its domestic subsidiaries for taxable periods ended prior to June
5, 1993 is included in the consolidated U.S. federal income tax return of
Sonat Inc. (see Note 9). Thereafter, the taxable income (loss) of the Company
and its domestic subsidiaries is included in the consolidated U.S. federal
income tax return of the Company and its affiliated group. The Company's
foreign income tax liabilities are based upon the results of operations of the
various companies in those foreign jurisdictions in which they are subject to
tax.
Postretirement Benefits
In December 1990 the FASB issued SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, which became effective January 1,
1993. The Company chose immediate recognition of its transition obligation of
$10.1 million ($6.7 million net of tax) at the date of adoption (see Note 12).
F-9
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncements
In March 1995 the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement
provides authoritative guidance on when an impairment loss should be
recognized and how the amount of that loss should be calculated. SFAS No. 121
is effective for fiscal years beginning after December 15, 1995. The Company
will adopt SFAS No. 121 in the first quarter of 1996. It is anticipated that
the impact of adopting this statement will not have a material effect on the
financial statements.
In October 1995 the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 establishes an alternative method of accounting for
stock-based compensation to the method outlined in the Accounting Principles
Board Opinion No. 25. This new computation is based on the fair value of the
stock options and similar instruments. SFAS No. 123 encourages, but does not
require, adoption of that method. SFAS No. 123 is effective for financial
statements with fiscal years beginning after December 15, 1995. The Company
will adopt the disclosure provisions of SFAS No. 123 in the first quarter of
1996. It is anticipated that the impact of adopting this statement will not
have a material effect on the financial statements.
NOTE 2--COMMON STOCK OFFERINGS
On June 4, 1993, the Company completed an initial public offering and sale
of 15,500,000 shares of its common stock (the "Offerings"): 12,400,000 shares
of which were offered in the United States and 3,100,000 of which were offered
in a concurrent international offering outside the United States. Prior to the
Offerings the Company was a wholly owned subsidiary of Sonat Inc. Net proceeds
of the Offerings totaling $317.0 million were used to retire the Company's
outstanding debt, all of which was owed to Sonat Inc., and to pay a dividend
of $16.4 million to Sonat Inc. Expenses of the Offerings amounted to $4.0
million and were netted against the proceeds. Subsequent to this offering
Sonat Inc. continued to own approximately 40 percent of the outstanding shares
of the Company. In July 1995 Sonat Inc. sold its remaining shares of the
Company through a secondary public offering. Costs to the Company for the
secondary public offering were $0.3 million.
NOTE 3--SALE OF DRILLING RIGS
In 1995 the Company sold six of its bottom-supported drilling rigs which
were not strategically aligned with the Company's long-term focus. Five of
these rigs were located in the U.S. Gulf of Mexico: the Offshore Taurus, the
Sonat D-F 77, the Sonat D-F 84, the Sonat D-F 85, and the Sonat D-F 86. In a
separate transaction, the Company sold the Offshore Aquarius which was located
in the Middle East. A net gain of $16.6 million ($10.8 million after tax) was
recorded relating to these transactions.
NOTE 4--ACQUISITION OF DRILLING RIG
In February 1994 the Company purchased the 52.5 percent interest in the
Polar Pioneer, a fourth-generation semisubmersible rig, which was previously
owned by the Company's Norwegian partners in Partrederiet Polar Frontier
Drilling ("Polar Frontier"), NNDC Polar as and Wilhelmsen Offshore Norway as
("Wilhelmsen"). The Company paid $47.5 million which was funded through the
proceeds from the issuance of the Notes (see Note 5) and existing cash
balances. The agreement with Wilhelmsen provides for payment of limited future
consideration contingent upon future operations of the Polar Pioneer (see Note
10).
As a result of the purchase, the Company owns 100 percent of the Polar
Pioneer, and the results of its operations from the date of purchase are
included in the Company's consolidated financial statements.
F-10
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--DEBT
Revolving Line of Credit
The Company has an agreement for a revolving line of credit with four banks
(the "Credit Facility") that provides for borrowing by the Company of up to
$100 million from time to time through December 2000. Loans under the Credit
Facility bear interest at SunTrust Bank, Atlanta's base rate or,
alternatively, at LIBOR plus a margin that varies depending on the Company's
fixed charge coverage ratio and funded debt to capitalization ratio. This
Credit Facility requires the Company to comply with certain restrictive
covenants which, among other things, limit the amount of the Company's total
indebtedness and require maintenance of certain financial ratios. In addition,
the Credit Facility limits the Company's ability to pay dividends to an
aggregate amount not greater than the sum of $55 million plus 50 percent of
the Company's cumulative net cash provided by (or minus net cash used in)
operating activities subsequent to December 31, 1995. Through December 31,
1995, there have been no borrowings under this line of credit.
Letters of Credit
The Company has letters of credit outstanding at December 31, 1995 totaling
$1.5 million, which guarantee various insurance and contract bidding
activities.
Private Placement Debt
In February 1994 the Company issued $30 million principal amount senior
notes (the "Notes") in a private placement. The Notes bear interest at 6.9
percent per annum, payable semiannually every February 15 and August 15. The
principal amount of the Notes is to be repaid in 13 semiannual installments of
$2.3 million from February 1998 through February 2004. The terms of the Notes
require the Company to comply with certain restrictive covenants, maintain
certain financial ratios and limit the Company's ability to pay dividends. The
proceeds from the issuance of the Notes were used to purchase 52.5 percent of
the Polar Pioneer (see Note 4). Maturities of long-term debt for the next five
years are as follows: 1996 and 1997--none, 1998--$4.6 million, 1999--$4.6
million and 2000--$4.6 million. The carrying value of the debt approximates
fair value.
NOTE 6--OTHER CURRENT LIABILITIES
Other current liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued Drydock............................................. $ 6,908 $ 7,733
Accrued Workers' Insurance.................................. 4,937 5,320
Incentive Compensation and Bonus Accruals................... 4,014 3,784
Accrued Personnel Taxes..................................... 3,949 4,012
Accrued Taxes, Other Than Income............................ 3,657 1,780
Accrued Interest............................................ 808 1,082
Other....................................................... 2,878 1,388
------- -------
$27,151 $25,099
======= =======
</TABLE>
F-11
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--OTHER LONG-TERM LIABILITIES
Other long-term liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued Retiree Life Insurance and Medical Benefits......... $11,237 $10,997
Long-Term Portion of Accrued Workers' Insurance............. 4,467 6,288
Minority Interest........................................... 1,194 1,131
Accrued Pension and Early Retirement........................ 1,047 1,045
Deferred Income............................................. 608 1,318
Other....................................................... 1,589 1,495
------- -------
$20,142 $22,274
======= =======
</TABLE>
NOTE 8--SUPPLEMENTAL CASH FLOW INFORMATION
Concurrent with the purchase of the 52.5 percent interest in the Polar
Pioneer in February 1994 (see Note 4), the Company received a non-cash
distribution from Polar Frontier of its 47.5 percent interest in the rig. The
adjusted distribution has been reflected in the consolidated balance sheets as
a decrease in investments in joint ventures of $38.7 million, with
corresponding increases in property and equipment of $37.0 million, materials
and supplies of $0.9 million and other assets of $0.8 million.
In April 1993 the Company declared a $24.0 million dividend to Sonat Inc. of
rights to certain tax-related receivables (see Note 9). Prior to the close of
the Offerings (See Note 2), Sonat Inc. made a non-cash capital contribution to
the Company through the assumption of $3.4 million of liabilities, including
certain deferred tax balances related to the Company's benefit plans.
NOTE 9--INCOME TAXES
The Company is subject to both U.S. and foreign income taxes. Provisions for
income taxes represent estimates of expense which will ultimately be paid.
An analysis of the Company's income taxes (excluding the tax effect on the
cumulative effect of change in accounting for postretirement benefits) is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT
Federal......................................... $ 24,548 $ 3,974 $ 7,378
Foreign......................................... 7,887 890 6,557
State........................................... 103 408 18
-------- ------- --------
32,538 5,272 13,953
-------- ------- --------
DEFERRED
Federal......................................... (4,337) 2,252 3,074
-------- ------- --------
(4,337) 2,252 3,074
-------- ------- --------
Income Taxes...................................... $ 28,201 $ 7,524 $ 17,027
======== ======= ========
</TABLE>
F-12
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS--CURRENT
Drydock accruals...................................... $ 2,418 $ 2,693
Accrued employee taxes................................ 1,382 1,404
Worker's compensation insurance accruals.............. 1,201 1,321
Other accruals........................................ 1,032 723
Retirement and benefit plan accruals.................. 737 404
Insurance accruals.................................... 537 418
Foreign tax credits................................... -- 2,487
Interest on income taxes.............................. -- 96
Other................................................. 2,066 2,023
-------- --------
Total Current Deferred Tax Assets................... 9,373 11,569
======== ========
DEFERRED TAX LIABILITIES--CURRENT
Deferred turnkey costs................................ (37) (1,311)
-------- --------
Total Current Deferred Tax Liabilities.............. (37) (1,311)
-------- --------
Net Current Deferred Tax Asset.......................... $ 9,336 $ 10,258
======== ========
DEFERRED TAX ASSETS--NONCURRENT
Retirement and benefit plan accruals.................. $ 4,304 $ 4,221
Other accruals........................................ 2,757 3,404
Deferred income....................................... 212 825
-------- --------
Total Noncurrent Deferred Tax Assets................ 7,273 8,450
-------- --------
DEFERRED TAX LIABILITIES--NONCURRENT
Depreciation.......................................... (72,768) (78,772)
Other accruals........................................ (910) (1,267)
-------- --------
Total Noncurrent Deferred Tax Liabilities........... $(73,678) $(80,039)
======== ========
Net Noncurrent Deferred Tax Liability................... $(66,405) $(71,589)
======== ========
</TABLE>
The Company has not provided a valuation allowance to offset the deferred tax
assets because, in the opinion of management, it is more likely than not that
all deferred tax assets will be realized.
F-13
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes differ from the amount computed by applying the U.S. federal
income tax rate to the income before income taxes and cumulative effect of
accounting change. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income Taxes at Statutory Federal Income Tax
Rate.......................................... $26,302 $7,084 $14,376
Increases (Decreases) in Tax Resulting From:
Effect of change in statutory rate on de-
ferred taxes................................ -- -- 1,703
Equity earnings (losses) in foreign
investments................................. (439) 323 500
Detriment (benefit) from losses of foreign
subsidiaries................................ 26 (445) 273
Nondeductible expenses....................... 386 438 52
Other........................................ 1,926 124 123
-------- ------- --------
Income Taxes................................... $28,201 $7,524 $17,027
======== ======= ========
</TABLE>
The Company carries out its operations through both domestic and foreign
corporations. Income (loss) before income taxes and cumulative effect of
accounting change for these corporations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic...................................... $73,705 $21,737 $31,719
Foreign....................................... 1,444 (1,498) (779)
-------- -------- --------
Income Before Income Taxes and Cumulative
Effect of Accounting Change.................. $75,149 $20,239 $30,940
======== ======== ========
</TABLE>
The Company has been and will be included in the consolidated federal income
tax returns filed by Sonat Inc. during all periods in which Sonat Inc.
ownership has been greater than 80 percent ("Affiliation Years"). The Company
and Sonat Inc. have entered into a Tax Sharing Agreement providing for the
manner of determining payments with respect to federal income tax liabilities
and benefits arising in Affiliation Years. Under the Tax Sharing Agreement,
the Company will pay to Sonat Inc. an amount equal to the Company's share of
the Sonat Inc. consolidated federal income tax liability, generally determined
on a separate return basis. In addition, Sonat Inc. will pay the Company for
utilization by Sonat Inc. of deductions, losses and credits which are
attributable to the Company and in excess of that which would be utilized on a
separate return basis.
In 1995 Sonat Inc. and the Company reached an agreement with the IRS on
adjustments asserted in connection with the examination of Sonat Inc.'s
consolidated U.S. federal income tax returns for the years 1986 through 1988.
Pursuant to the Tax Sharing Agreement between Sonat Inc. and the Company, a
portion of this final tax settlement along with the associated interest was
allocated to the Company. Accordingly, the Company received a refund of
federal income tax and the associated interest from Sonat Inc. totaling $7.0
million. The accompanying consolidated financial statements for the year ended
December 31, 1995 reflect an increase in net interest income of $1.8 million
related to the settlement of this examination.
In 1993 Sonat Inc. received notification from the IRS that the Joint
Committee on Taxation, U.S. Congress accepted the settlement proposed in
connection with the examination of its consolidated U.S. federal income tax
returns of the years 1983 through 1985. Pursuant to the Tax Sharing Agreement
between Sonat Inc. and the Company, a portion this final tax settlement along
with the associated interest was allocated to the Company. Accordingly, the
accompanying consolidated financial statements for the year ended December 31,
1993 reflect
F-14
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
an increase in net interest income of $24.0 million ($15.6 million after-tax)
related to the settlement of this examination.
Sonat Inc. and the Company have been notified by the IRS that examination of
Sonat Inc.'s consolidated federal income tax return for the years 1989 through
1991 will commence in 1996. In addition, certain foreign tax authorities have
questioned the amounts of income and expense subject to tax in their
jurisdiction for prior periods. The Company is currently contesting additional
assessments which have been asserted and may contest any future assessments.
In the opinion of management, the ultimate resolution of these asserted income
tax liabilities will not have a material adverse effect on the Company's
consolidated financial statements.
NOTE 10--COMMITMENTS AND CONTINGENCIES
Leases
The Company has operating lease commitments expiring at various dates,
principally for office space and office equipment, including the lease of its
corporate offices from Sonat Inc. In addition to rental payments, some leases
provide that the Company pay a pro rata share of operating costs applicable to
the leased property. The Company has no significant capital leases.
At December 31, 1995, future minimum payments for noncancellable operating
leases are as follows:
<TABLE>
<CAPTION>
WITH SONAT INC. OTHER TOTAL
--------------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
1996.......................................... $ 1,045 $ 625 $ 1,670
1997.......................................... 1,045 265 1,310
1998.......................................... 1,045 201 1,246
1999.......................................... 1,045 185 1,230
2000.......................................... 1,045 136 1,181
Thereafter.................................... 6,127 65 6,192
------- ------ -------
Total......................................... $11,352 $1,477 $12,829
======= ====== =======
</TABLE>
Rental expense for all operating leases, including leases with terms of less
than one year, is as follows.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-Affiliated Operating Leases.................. $ 1,200 $ 2,007 $ 2,796
Operating Lease with Sonat Inc................... 1,246 1,148 1,146
-------- -------- --------
$ 2,446 $ 3,155 $ 3,942
======== ======== ========
</TABLE>
Purchase and Conversion of Drilling Rig
In November 1995 the Company signed a Letter Agreement ("Letter Agreement")
and paid $2.0 million for the exclusive right to market the MSV P. Portia as a
drilling rig and an option to purchase this multi-service vessel from its
owners, Far East Livingston Shipbuilding Limited, ("FELS") for a period of 90
days. All option fees are applicable to the final negotiated purchase price.
In February 1996 the Company entered into a definitive agreement with FELS for
the purchase of the vessel after certain hull modifications. The Company
intends to mobilize the vessel to a U.S. Gulf Coast facility to complete its
conversion to a deep-water drilling unit. Dependent on the finalized
conversion design, the Company anticipates spending approximately $100 million
in 1996 and $60 million in 1997. The Company expects to utilize existing cash
balances, cash generated from operations and available financing sources to
fund this possible capital expenditure.
F-15
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase of Capital Equipment
The Company has entered into agreements with various suppliers to purchase
$13.1 million in materials to upgrade existing assets. Delivery of these
materials is expected in 1996.
Contingency Payment
In connection with the acquisition of the Polar Pioneer (see Note 4), the
agreement with Wilhelmsen provides for payment of a conditional purchase price
adjustment (up $3.1 million) based upon future operations of the Polar
Pioneer. This contingent consideration, if any, is expected to be calculated
and paid in 1998.
Legal Proceedings
In 1990 and 1991, two of the Company's subsidiaries were served with
assessments totaling $12.8 million from the municipality of Rio de Janeiro,
Brazil to collect a municipal tax on services ("ISS"). The Company believes
that neither subsidiary is liable for the taxes and plans to continue to
contest the assessments in the Brazilian administrative and court system, as
necessary. In any event, the Company believes that the Brazilian government-
controlled oil company, Petrobras, has a contractual obligation to reimburse
the Company for ISS payments required to be paid by it. Accordingly, the
Company believes that the outcome of these assessments will not materially
impact the financial position or operational results of the Company.
Other
The Company has other contingent liabilities resulting from litigation,
claims and commitments incidental to the ordinary course of business.
Management believes that the probable resolution of such contingencies will
not materially affect the financial position or results of operations of the
Company.
NOTE 11--CAPITAL STOCK
In June 1993 the Company's common stock began trading on the New York Stock
Exchange under the symbol "RIG". Per share prices of the Company's common
stock, based on the New York Stock Exchange listing of composite transactions,
and dividends paid per common share are summarized below.
<TABLE>
<CAPTION>
QUARTER
----------------------------
1995 1994
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Price Range High-Low
First....................................... $23 1/4-17 3/4 $18 1/2-16
Second...................................... 33 3/8-22 3/4 20 1/8-16 1/2
Third....................................... 35 5/8-27 3/4 21 1/2-17 3/4
Fourth...................................... 49 -31 3/8 20 1/4-17 5/8
-------------- --------------
Dividends Paid
First....................................... $ 0.06 $ 0.06
Second...................................... 0.06 0.06
Third....................................... 0.06 0.06
Fourth...................................... 0.06 0.06
-------------- -------------
Approximate Shareholders of Record at Year-
End.......................................... 140 156
============== =============
</TABLE>
There are certain restrictions under the Company's Credit Facility and Notes
regarding the payment of dividends (see Note 5).
F-16
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Term Incentive Plan (the "Incentive Plan")
In 1993 the Company adopted an incentive plan for key employees and outside
directors in which it is authorized to grant up to 2,050,000 shares of common
stock. Under the plan, awards can be in the form of stock options, restricted
stock, stock appreciation rights (SARs) issued in tandem with such options,
and tax-offset supplemental payments in connection with the exercise of
options or SARs or the vesting of restricted stock. No SARs have been issued
since the adoption of the Incentive Plan.
The following table summarizes option activities of the Incentive Plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDER OPTION
----------------
<S> <C>
Outstanding at June 3, 1993................................. 0
Granted ($22.00 per share).................................. 193,800
---------
Outstanding at December 31, 1993............................ 193,800
Granted (average $17.64 per share).......................... 759,300
Forfeited................................................... (138,034)
---------
Outstanding at December 31, 1994............................ 815,066
Granted (average $21.14 per share).......................... 266,900
Exercised................................................... (58,363)
Forfeited................................................... (1,667)
---------
Outstanding at December 31, 1995............................ 1,021,936
=========
</TABLE>
Included in the option table above were 7,000 options, 8,000 options and
6,000 options granted to directors in 1995, 1994 and 1993, respectively. These
options have a ten-year term and become exercisable in three equal annual
installments.
As of December 31, 1995 and 1994, options covering 511,903 shares and 51,922
shares, respectively, are exercisable.
The following table summarizes restricted stock activities of the Incentive
Plan:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF RESTRICTED STOCK
-------------------
<S> <C>
Outstanding at June 3, 1993.............................. 0
Granted.................................................. 93,833
Forfeited................................................ (198)
-------
Outstanding at December 31, 1993......................... 93,635
Granted.................................................. 93,592
Vested................................................... (24,216)
Forfeited................................................ (20,419)
-------
Outstanding at December 31, 1994......................... 142,592
Granted.................................................. 26,170
Vested................................................... (88,592)
Forfeited................................................ --
-------
Outstanding at December 31, 1995......................... 80,170
=======
</TABLE>
F-17
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in the number of restricted shares vested are 31,111 and 5,497
shares in 1995 and 1994, respectively, that were canceled to satisfy
withholding tax requirements.
At December 31, 1995, there were 756,304 shares available for future grants
under the Incentive Plan.
NOTE 12--RETIREMENT PLANS AND OTHER POSTEMPLOYMENT BENEFITS
Retirement Plans
Prior to the Offerings, substantially all domestic employees of the Company
were covered by Sonat Inc.'s defined benefit retirement plan (the "Retirement
Plan") and the supplemental benefit plan (the "Supplemental Plan"), that
provided coverage in excess of the Retirement Plan.
Upon completion of the Offerings, the Company adopted a qualified defined
benefit pension plan (the "Offshore Retirement Plan") which covers
substantially all domestic employees of the Company. In November 1993 the
Retirement Plan transferred to the Offshore Retirement Plan liabilities of
$37.7 million with respect to Company employees, vested terminated employees
and retirees, and assets of $55.7 million. Annual retirement benefits under
the Offshore Retirement Plan are based on a combination of years of service
and compensation. The Company determines the amount of funding to the Offshore
Retirement Plan on a year-to-year basis, with amounts consistent with minimum
and maximum funding requirements established by various governmental bodies.
The Company also adopted a plan (the "Offshore Supplemental Benefit Plan")
to provide its eligible participants with benefits in excess of those allowed
under the Offshore Retirement Plan. Sonat Inc. retained all liabilities
accrued under the Supplemental Plan for retirees and a portion of the
liabilities accrued for certain eligible current employees of the Company and
a settlement gain of $2.0 million was recognized by the Company in 1993.
The components of net pension income, excluding the settlement gain
discussed above, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost Benefit Earned During the
Period....................................... $ 1,162 $ 1,474 $ 1,317
Interest Cost on Projected Benefit
Obligation................................... 3,284 3,228 3,326
(Gain) Loss on Assets--Actual................. (14,811) 1,325 (3,424)
Net Amortization and Deferral................. 8,380 (7,647) (2,478)
-------- ------- -------
$ (1,985) $(1,620) $(1,259)
======== ======= =======
</TABLE>
F-18
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
PLAN WITH OBLIGATIONS PLAN WITH OBLIGATIONS
LESS THAN ASSETS(1) IN EXCESS OF ASSETS(2)
---------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial Present Value of
Benefit Obligations
Vested benefit
obligations.............. $42,215 $37,560 $ 188 $ 113
Non-vested benefit
obligations.............. 1,116 994 103 86
---------- ---------- ------------ ----------
Accumulated benefit
obligations.............. 43,331 38,554 291 199
Effect of projected future
salary increases......... 4,191 2,761 421 408
---------- ---------- ------------ ----------
Projected benefit
obligations.............. 47,522 41,315 712 607
Plan Assets at Fair
Value(3)................... 63,926 52,093 -- --
---------- ---------- ------------ ----------
Projected Benefit
Obligations Less Than or
(In Excess of) Plan
Assets..................... 16,404 10,778 (712) (607)
Unrecognized Net (Assets) or
Obligations at
Transition(4).............. (8,303) (9,412) 34 40
Unrecognized Net (Gain)
Loss....................... (1,560) 3,402 343 365
Unrecognized Prior Service
Cost....................... (1,700) (1,810) (712) (792)
Net Unamortized Deferred
Asset (Liability) from
Early Retirement
Termination Benefits(5).... 11 (195) -- --
---------- ---------- ------------ ----------
Net Pension Asset
(Liability) Recognized in
the Consolidated Balance
Sheets..................... $ 4,852 $ 2,763 $ (1,047) $ (994)
========== ========== ============ ==========
</TABLE>
- --------
(1) The Offshore Retirement Plan.
(2) The Offshore Supplemental Plan.
(3) Plan assets consist of equity securities, commingled funds and debt
securities.
(4) Amortization periods for unrecognized net (asset) or obligation are 16.5
years for the Offshore Retirement Plan and 15 years for the Offshore
Supplemental Plan.
(5) Amortization period for early retirement termination benefits is 10 years
for the Offshore Retirement Plan.
The assumed rates used to measure the projected benefit obligations and the
expected earnings of plan assets are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted Average Discount Rate
Obligations for current retirees...................... 7.0% 8.0% 7.4%(1)
Obligations for non-retirees.......................... 7.0% 8.0% 7.0%
Long-Term Rate of Return
Assets for current retirees........................... 9.0% 9.0% 7.4%(1)
Assets for non-retirees............................... 9.0% 9.0% 9.0%
Increase in Future Compensation Levels.................. 5.5% 5.5% 6.0%(2)
</TABLE>
- --------
(1) Effective July 1, 1993, the discount rate and investment return assumptions
were revised to equal the non-retiree assumptions of 7.0 percent and 9.0
percent.
(2) Effective July 1, 1993, the salary scale assumption was reduced to 5.5
percent.
F-19
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company sponsors defined contribution pension plans covering senior non-
American field employees working outside the United States. Contributions and
costs are determined as 4.5 percent to 6.5 percent of each covered employee's
salary, based on years of service. Costs for the plans were not significant
for any of the periods presented.
Postretirement Benefits Other than Pensions
The Company provides non-contractual limited health care and life insurance
benefits to domestic office employees and certain other domestic field
employees when they retire from the Company. SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, was adopted by the
Company for all plans as of January 1, 1993, and the transition obligation at
the date of adoption of $10.1 million ($6.7 million after tax) was expensed at
that time. SFAS No. 106 requires companies to accrue the cost of
postretirement benefits during the employee's active service period. Prior to
adoption of SFAS No. 106, the Company expensed retiree medical benefits as
paid and expensed life insurance benefits as the retiree life insurance plan
was funded.
The components of net benefit cost for postretirement benefits are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service Cost..................................... $ 178 $ 206 $ 180
Interest Cost.................................... 744 858 876
Return on Plan Assets--Actual.................... (82) (70) 282
Net Amortization and Deferral.................... (218) 6 (387)
------- -------- -------
Net Annual Benefit Cost.......................... $ 622 $ 1,000 $ 951
======= ======== =======
</TABLE>
The following table sets forth the funded status for the Company's
postretirement benefit plans.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation
Retirees................................................. $ 7,876 $ 8,985
Fully eligible active plan participants.................. 469 579
Other active plan participants........................... 2,710 1,766
------- -------
11,055 11,330
Plan Assets at Fair Value(1)............................... 1,170 1,195
------- -------
Accumulated Postretirement Benefit Obligation in Excess of
Plan Assets............................................... 9,885 10,135
Unrecognized Prior Service Cost............................ 42 48
Unrecognized Net Gain (Loss)............................... 1,310 814
------- -------
Net Benefit Liability Recognized in the Consolidated
Balance Sheets............................................ $11,237 $10,997
======= =======
</TABLE>
- --------
(1) Plan assets are held in a life insurance reserve account and consist of
fixed income securities.
The Company does not intend to fund its postretirement benefit plans in the
future.
F-20
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The assumptions used to measure the projected benefit obligation and the
expected earnings of plan assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount Rate................................................ 7.0% 8.0% 7.0%
Return on Assets(1).......................................... 7.0% 7.0% 7.5%
Salary Increase(2)........................................... 5.5% 5.5% 5.5%
</TABLE>
- --------
(1) After-tax for life insurance benefit assets.
(2) For life insurance benefits.
The rate of increase in the per capita costs of covered health care benefits
is assumed to be 10.9 percent in 1996, decreasing gradually to 6.0 percent by
the year 2003. Increasing the assumed health care cost trend rate by 1
percentage point would increase the accumulated postretirement benefit
obligation as of January 1, 1995 by $711,000 and increase estimated net
periodic postretirement benefit cost by $55,000.
NOTE 13--RELATED PARTY TRANSACTIONS
Sonat Inc.
The Company has entered into a tax sharing agreement with Sonat Inc.
relating to all periods prior to the Offerings (see Note 9). Resulting from
this agreement Other Income (Expense), net for 1995 included $1.8 million of
net interest income relating to the settlement by Sonat Inc. of its
consolidated U.S. federal income taxes for the years 1986 through 1988. The
Company received cash of $7.0 million from Sonat Inc. for taxes and related
interest as a result of the settlement. For the year ended December 31, 1993,
net interest income included $24.0 million ($15.6 million after-tax) related
to the Company's share of the settlement of Sonat Inc.'s consolidated U.S.
federal income tax liability for the years 1983 through 1985.
In addition to interest and rent (see Note 10), a portion of general and
administrative expenses resulted from charges to the Company by Sonat Inc.
Prior to the Offerings, Sonat Inc. charged the Company a proportional share of
its general and administrative costs based on estimates of the percentage of
work the individual Sonat Inc. departments performed for the Company.
Subsequent to the Offerings, Sonat Inc. continued to provide certain
administrative services to the Company under the terms of the Transition
Agreement between Sonat Inc. and the Company. Amounts for these services were
$0.5 million for 1995 and 1994 and $3.7 million for 1993.
Additionally, in 1993 the Company reimbursed Sonat Inc. $1.7 million for
charges incurred by Sonat Inc. related to the Offerings. This reimbursement
was paid from the proceeds of the Offerings.
In the opinion of management, the Company was charged for all costs incurred
on its behalf by Sonat Inc. under a comprehensive and reasonable cost
allocation method.
The Chairman and Chief Executive Officer of Sonat Inc. as well as the
Chairman and Chief Executive Officer of one of Sonat Inc.'s subsidiaries are
members of the Company's Board of Directors.
Arcade Drilling as
The Company holds a 24.89 percent interest in Arcade Drilling as ("Arcade"),
a Norwegian offshore drilling company. Arcade owns two fourth-generation
semisubmersible rigs, the Henry Goodrich and the Paul B. Loyd, Jr. Through
December 31, 1995, the Company's cumulative equity in the losses of Arcade was
$3.0 million.
F-21
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1990 the Company contributed the Henry Goodrich to Arcade. The
Company received $70.0 million in cash and common stock representing a 21.75
percent interest in Arcade. This sale resulted in a pretax gain of $28.8
million of which $18.8 million was recognized as other income in 1990. The
remaining $10.0 million of the gain was deferred and is being amortized to
income over the remaining depreciable life of the Henry Goodrich. The deferred
income has been offset against the Company's investment in Arcade. The net
unamortized balance of the deferred gain was $7.4 million at December 31,
1995.
The Company had agreements to manage the two rigs owned by Arcade for an
initial period of five years (the "Management Agreements"). Under the
Management Agreements, the Company provides marketing, operating and technical
services and home office support for the rigs. Income from management fees was
$1.3 million in 1995 and $ 1.1 million per year in 1994 and 1993. The
Management Agreement for the Paul B. Loyd, Jr. expired in December 1995 and
the rig is now managed by the majority owner of Arcade. The Company continues
to operate the Henry Goodrich.
In connection with a drilling contract with Shell Exploration and Production
U.K. Limited ("Shell") for the use of the Henry Goodrich beginning in October
1992, Arcade has chartered the rig to the Company. The Management Agreement
with respect to the Henry Goodrich has been modified accordingly for the term
of the charter. The current drilling contract with Shell expires in September
1996 but this commitment may be extended, at Shell's election, through
September 1997. The Company recognized operating income of $1.4 million per
year in 1995, 1994 and 1993 from its operation under this charter.
NOTE 14--GEOGRAPHICAL ANALYSIS AND MAJOR CUSTOMERS
The Company is engaged in contract drilling for oil and gas in offshore
areas throughout the world and provides customers a wide range of integrated
services on either a dayrate or turnkey basis. Customers are primarily major
international oil companies, as well as government-owned and government-
controlled oil companies. The Company is not aware of any significant credit
risks relating to its customer base and does not have any significant
collateral requirements.
The following table summarizes by geographic area operating revenues,
operating income and identifiable assets.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING REVENUES
Dayrate Operations
U.S. Gulf of Mexico............................. $108,836 $ 90,325 $ 59,691
Europe.......................................... 99,800 83,305 63,864
Other Western Hemisphere........................ 24,364 21,207 46,441
Middle East/Africa.............................. 29,070 28,258 23,547
Other foreign areas............................. 1,500 1,700 1,882
-------- -------- --------
263,570 224,795 195,425
-------- -------- --------
Turnkey Operations
U.S. Gulf of Mexico............................. 20,230 3,726 2,981
Mexico.......................................... 36,711 23,438 96,263
Asia/Pacific.................................... 4,300 -- 384
-------- -------- --------
61,241 27,164 99,628
-------- -------- --------
Intersegment Eliminations(1)...................... (2,153) (9,006) (23,777)
-------- -------- --------
Total Revenues.................................... $322,658 $242,953 $271,276
======== ======== ========
</TABLE>
F-22
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING INCOME (LOSS)
Dayrate Operations
U.S. Gulf of Mexico............................ $ 32,678 $ 17,679 $ 14,384
Europe......................................... 23,312 10,335 3,870
Other Western Hemisphere....................... 3,908 (2,060) 10,690
Middle East/Africa............................. 8,244 10,425 4,959
Other foreign areas............................ (521) (1,141) (4,327)
-------- -------- --------
67,621 35,238 29,576
-------- -------- --------
Turnkey Operations
U.S. Gulf of Mexico............................ 1,511 292 674
Mexico......................................... 4,247 4,032 9,637
Asia/Pacific................................... 1,033 3 --
Middle East/Africa............................. (826) -- 138
-------- -------- --------
5,965 4,327 10,449
-------- -------- --------
Corporate Expenses............................... (21,498) (18,668) (15,781)
-------- -------- --------
Operating Income................................. $ 52,088 $ 20,897 $ 24,244
======== ======== ========
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Dayrate Operations
U.S. Gulf of Mexico............................ $178,834 $124,466 $136,053
Europe......................................... 137,550 202,329 112,165
Other Western Hemisphere....................... 22,112 20,735 31,058
Middle East/Africa............................. 27,259 34,807 39,202
Other foreign areas............................ (67) 37 64
-------- -------- --------
365,688 382,374 318,542
-------- -------- --------
Turnkey Operations
U.S. Gulf of Mexico............................ 2,556 1,901 (8)
Mexico......................................... 2,321 5,930 54,549
Middle East/Africa............................. 1,854 -- --
-------- -------- --------
6,731 7,831 54,541
-------- -------- --------
General Corporate................................ 137,954 73,045 34,589
Investment In and Advances To Joint Ventures..... 31,891 30,247 64,348
-------- -------- --------
Total Assets..................................... $542,264 $493,497 $472,020
======== ======== ========
</TABLE>
- --------
(1) Intersegment eliminations reflect the elimination of the dayrate revenues
earned when the Company's rigs are utilized in its turnkey operations.
Operating income consists of operating revenues less operating expenses,
including depreciation, and does not include interest income, other income,
interest expense, income taxes and equity in earnings of joint ventures. U.S.
Gulf of Mexico operating income does not include corporate expenses.
Depreciation for dayrate and turnkey
F-23
<PAGE>
SONAT OFFSHORE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
operations, respectively, was $26.4 million and $0.3 million in 1995, $24.0
million and $0.1 million in 1994 and $20.3 million and $0.3 million in 1993.
Depreciation on corporate assets is not material for 1995, 1994 and 1993.
Capital expenditures for dayrate and corporate operations, respectively, was
$17.5 million and $1.4 million in 1995 and $57.8 million and $1.4 million in
1994. Capital expenditures for turnkey operations were not material to the
Company in both 1995 and 1994.
A substantial portion of the Company's assets are mobile. Asset locations at
the end of the period are not necessarily indicative of the geographic
distribution of the earnings generated by such assets during the periods. The
Polar Frontier and Arcade joint ventures operate in Europe. General corporate
assets are principally cash and cash equivalents and other nonoperating
assets.
The Company's foreign operations are geographically dispersed and are
therefore subject to certain political and other uncertainties not encountered
in domestic operations, including risks of war, expropriation of equipment,
renegotiation or modification of existing contracts, taxation policies, and
the general hazards associated with foreign sovereignty over certain areas in
which operations are conducted.
The foreign assets include cash and cash equivalents of $5.7 million, $4.5
million and $4.0 million at December 31, 1995, 1994 and 1993, respectively.
The following table summarizes revenues from major unaffiliated customers of
the Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Royal Dutch Shell Group.......................... $ 74,072 $ 81,377 $ 71,448
Petroleos Mexicanos (Pemex)...................... 36,712 23,437 96,261
Norsk Hydro...................................... 35,260 24,808 --
BP Exploration................................... 27,325 8,276 --
Gulf of Suez Petroleum Company................... 26,540 28,257 20,387
</TABLE>
The loss of any significant customer could have a materially adverse effect
on the Company's results of operations.
NOTE 15--QUARTERLY RESULTS (UNAUDITED)
Shown below are selected unaudited quarterly data.
<TABLE>
<CAPTION>
QUARTER
-------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER-
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Operating Revenues........................... $70,726 $85,510 $83,284 $83,138
Operating Income............................. 10,708 11,913 14,357 15,110
Net Income................................... 7,276 8,190 20,381 11,101
Net Income Per Share......................... $ 0.26 $ 0.29 $ 0.72 $ 0.39
1994
Operating Revenues........................... $66,107 $58,922 $54,546 $63,378
Operating Income............................. 6,574 3,991 3,695 6,637
Net Income................................... 4,247 2,170 2,061 4,237
Net Income Per Share......................... $ 0.15 $ 0.08 $ 0.07 $ 0.15
</TABLE>
F-24
<PAGE>
SONAT OFFSHORE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating Revenues........................................ $ 81,220 $ 70,726
--------- ---------
Costs and Expenses
Operating and maintenance............................... 56,155 48,652
Depreciation............................................ 6,058 6,278
General and administrative.............................. 5,056 5,088
--------- ---------
67,269 60,018
--------- ---------
Operating Income.......................................... 13,951 10,708
--------- ---------
Other Income (Expense), Net
Equity in earnings of joint ventures.................... 1,180 259
Interest income......................................... 1,522 658
Interest expense........................................ (442) (573)
Interest income related to settlement of tax case....... 983 --
Other, net.............................................. 969 289
--------- ---------
4,212 633
--------- ---------
Income Before Income Taxes................................ 18,163 11,341
Income Taxes.............................................. 6,338 4,065
--------- ---------
Net Income................................................ $ 11,825 $ 7,276
========= =========
Earnings Per Share of Common Stock........................ $ 0.42 $ 0.26
========= =========
Weighted Average Shares Outstanding....................... 28,435 28,372
--------- ---------
Dividends Paid Per Share.................................. $ 0.06 $ 0.06
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-25
<PAGE>
SONAT OFFSHORE
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents............................... $106,385 $112,972
Accounts Receivable..................................... 58,364 52,833
Deferred Income Taxes................................... 6,643 9,336
Costs Incurred on Turnkey Drilling Projects in
Progress............................................... 9,684 1,002
Materials and Supplies.................................. 9,924 10,195
Prepayments............................................. 6,070 8,693
-------- --------
Total Current Assets................................ 197,070 195,031
-------- --------
Investments in and Advances to Joint Ventures........... 29,508 31,891
Property and Equipment.................................. 694,374 666,526
Less Accumulated Depreciation........................... 368,798 363,057
-------- --------
Property and Equipment, net......................... 325,576 303,469
-------- --------
Other Assets............................................ 9,628 11,873
-------- --------
Total Assets............................................ $561,782 $542,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable
Trade................................................. $ 19,748 $ 14,213
Affiliates............................................ 6,608 6,480
Accrued Income Taxes.................................... 17,325 11,272
Income Taxes Payable to Affiliate....................... 3,028 3,028
Other Current Liabilities............................... 21,656 27,151
-------- --------
Total Current Liabilities........................... 68,365 62,144
-------- --------
Notes Payable........................................... 30,000 30,000
Deferred Income Taxes................................... 63,483 66,405
Other Long-Term Liabilities............................. 26,283 20,142
-------- --------
Total Long-Term Liabilities......................... 119,766 116,547
-------- --------
Preferred Stock, $0.10 par value; 50,000,000 shares
authorized, none issued and outstanding................ -- --
Common Stock, $0.01 par value; 55,000,000 shares
authorized, 28,466,489 and 28,414,753 shares issued and
outstanding at March 31, 1996 and December 31, 1995,
respectively........................................... 285 284
Additional Paid-in Capital.............................. 307,051 307,093
Retained Earnings....................................... 66,315 56,196
-------- --------
Total Stockholders' Equity.......................... 373,651 363,573
-------- --------
Total Liabilities and Stockholders' Equity.............. $561,782 $542,264
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-26
<PAGE>
SONAT OFFSHORE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 11,825 $ 7,276
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation............................................ 6,058 6,278
Deferred income taxes................................... 78 3,027
Equity in earnings of joint ventures.................... (1,180) (259)
Gain on disposal of assets.............................. (1,061) (179)
Other, net.............................................. 6,442 (581)
Changes in operating assets and liabilities
Accounts receivable................................... (5,531) (4,043)
Turnkey work in progress.............................. (8,682) (5,923)
Accounts payable...................................... 5,663 (1,548)
Income taxes receivable/payable, net.................. 6,053 1,245
Other current assets.................................. 1,895 34
Other current liabilities............................. (5,495) 421
--------- --------
Net cash provided by operating activities................ 16,065 5,748
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................... (26,230) (1,597)
Proceeds from disposal of assets........................ 1,247 287
Joint ventures and other investments.................... 3,563 (9)
--------- --------
Net cash used in investing activities.................... (21,420) (1,319)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in minority interest............................ 27 (573)
Exercise of stock options............................... 458 --
Other................................................... (11) --
Dividends paid.......................................... (1,706) (1,702)
--------- --------
Net cash used in financing activities.................... (1,232) (2,275)
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents...... (6,587) 2,154
--------- --------
Cash and Cash Equivalents at Beginning of Period.......... 112,972 46,830
--------- --------
Cash and Cash Equivalents at End of Period................ $ 106,385 $ 48,984
========= ========
Supplemental Disclosures of Cash Flow Information
Cash paid for
Interest................................................ $ 1,068 $ 1,066
Income taxes, net....................................... $ 208 $ 46
--------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-27
<PAGE>
SONAT OFFSHORE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1--GENERAL
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions Article 10 of
Regulation S-X. Accordingly, they do not include all disclosures required by
generally accepted accounting principles for complete financial statements.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements of the Company and footnotes thereto included elsewhere
in this Prospectus/Offer to Purchase/Proxy Statement.
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.
NOTE 2--PURCHASE AND CONVERSION OF DRILLING RIG
In February 1996 the Company entered into an agreement with Far East
Levingston Shipbuilding Limited ("FELS") for the purchase of a multi service
vessel, the MSV P. Portia, and its conversion to a deep-water drilling unit.
The Company anticipates spending approximately $100 million in 1996 and $58
million in 1997 in connection with the purchase and conversion of this vessel.
The Company spent $21 million in the first quarter of 1996, with a total of
$23 million spent cumulatively in connection with this purchase and
conversion.
NOTE 3--SUBSEQUENT EVENT
On July 26, 1996, the Board of Directors of Sonat Offshore approved a
"combination of equals" transaction under which the businesses of Sonat
Offshore and Transocean ASA would be combined under the ownership of one
company to be known as "Transocean Offshore Inc." In order to effect such
transaction, Sonat Offshore has offered to exchange for the outstanding shares
of Transocean (i) .53 of a share of common stock of Sonat Offshore for each of
43,248,358 shares of Transocean and (ii) US$27.25 for each remaining share of
Transocean.
F-28
<PAGE>
TRANSOCEAN ASA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF TRANSOCEAN ASA:
We have audited the accompanying consolidated balance sheets of Transocean
ASA (a Norwegian corporation) and Subsidiaries as of December 31, 1995 and
1994 and the related statements of income and cash flows for each of the three
years in the period ended December 31, 1995 (all expressed in Norwegian
kroner). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Norway, which do not differ substantially from those followed in
the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transocean ASA and
Subsidiaries as of December, 1995 and 1994 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with accounting principles generally accepted in
Norway.
Accounting principles generally accepted in Norway vary in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net income
for each of the three years in the period ended December 31, 1995 and the
determination of shareholders' equity at December 31, 1995 and 1994 to the
extent summarized in Note 34 to the financial statements.
As explained in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for pensions, effective January 1, 1994, and
for loan fees, effective January 1, 1995, in accordance with generally
accepted accounting principles in Norway.
COOPERS & LYBRAND ANS
Oslo, Norway
June 15, 1996, except as to the information in Note 33, for which the date is
July 26, 1996
F-29
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1995 1995 1994 1993
------------ ------------- ------------- -------------
(IN US$'000) (IN NKR '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C> <C>
Revenues from:
Rig contracts........... 247,649 1,565,391 1,474,111 1,800,294
Services................ 252,942 1,598,845 1,570,232 1,491,799
------- --------- --------- ---------
Total revenues.......... 500,591 3,164,236 3,044,343 3,292,093
------- --------- --------- ---------
Salaries and other per-
sonnel expenses........ 195,496 1,235,732 1,216,139 1,308,331
Cost of goods sold...... 93,166 588,901 617,141 567,865
Other operating and ad-
ministrative expenses.. 143,956 909,945 794,162 869,114
Depreciation and amorti-
zation................. 56,009 354,032 387,332 454,394
Loss (gain) on sale of
fixed assets........... (13,601) (85,971) 648 (17,184)
Expenses related to
mergers................ 5,537 35,000 66,000
Write-down(s) of
rig(s)................. 45,000 283,051
------- --------- --------- ---------
Operating income
(loss)................. 20,028 126,597 (16,079) (239,478)
------- --------- --------- ---------
Interest and other fi-
nancial income......... 8,122 51,338 46,568 40,896
Interest and other fi-
nancial expenses....... (38,184) (241,358) (242,227) (234,769)
Net realized currency
gains.................. 15,402 97,355 74,263 37,193
Unrealized currency
gains (losses)......... (472) (2,982) 15,262 (157,874)
Share of net income
(loss) of affiliated
companies and limited
partnership............ 332 2,097 7,936 (6,346)
------- --------- --------- ---------
Income (loss) before
minority interests and
taxes.................. 5,228 33,047 (114,277) (560,378)
Minority interests...... (244) (1,543) (1,902) (3,713)
Taxes payable........... (2,003) (12,664) (11,561) (14,040)
Deferred taxes.......... (16) (99) (246) (1,968)
------- --------- --------- ---------
Net income (loss)....... 2,965 18,741 (127,986) (580,099)
======= ========= ========= =========
Net income (loss) per
share.................. 0.06 0.36 (2.61) (12.95)
======= ========= ========= =========
Average number of shares
outstanding............ 52,550 52,550 49,125 44,809
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on December 29, 1995 of
US$1.00 = Nkr 6.321.
F-30
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1995 1994
------------- ------------- -------------
(IN US $'000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........... 66,624 421,129 460,183
Blocked cash deposit................ 8,544 54,004 54,241
Accounts receivable, net............ 92,784 586,496 526,879
Inventories......................... 24,555 155,210 163,413
Other current assets................ 35,397 223,742 235,510
------- --------- ---------
Total current assets............ 227,904 1,440,581 1,440,226
------- --------- ---------
Shares and joint venture............ 1,426 9,012 8,473
Long-term receivables............... 12,434 78,596 8,666
Prepaid pensions.................... 3,480 21,999 22,068
Rigs................................ 492,252 3,111,524 3,525,081
Other fixed assets.................. 40,615 256,729 239,426
Goodwill and other intangibles...... 18,427 116,477 143,502
------- --------- ---------
Total non-current assets........ 568,634 3,594,337 3,947,216
------- --------- ---------
Total assets........................ 796,538 5,034,918 5,387,442
======= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable.................... 34,771 219,790 228,000
Accrued expenses and other current
liabilities........................ 72,805 460,199 403,645
Taxes payable....................... 1,204 7,611 5,663
Current portion of long-term debt... 38,662 244,381 183,236
Current portion of contract
advance............................ 70,758
------- --------- ---------
Total current liabilities....... 147,442 931,981 891,302
------- --------- ---------
Convertible bonds................... 13,679 86,468 86,468
Senior secured notes................ 93,063 588,251 792,504
Other long-term debt................ 157,839 997,700 1,171,373
Accrued pensions.................... 10,742 67,899 66,519
Other long-term liabilities......... 8,112 51,278 90,263
Deferred taxes...................... 1,102 6,963 6,860
------- --------- ---------
Total long term liabilities..... 284,537 1,798,559 2,213,987
------- --------- ---------
Commitments and contingencies
Minority interests.................. 2,223 14,049 13,546
------- --------- ---------
Shareholders' equity:
Share capital....................... 41,657 263,317 262,186
Other shareholders' equity.......... 320,679 2,027,012 2,006,421
------- --------- ---------
Total shareholders' equity...... 362,336 2,290,329 2,268,607
------- --------- ---------
Total liabilities & shareholders'
equity............................. 796,538 5,034,918 5,387,442
======= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on December 29, 1995 of
US$1.00 = Nkr 6.321.
F-31
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1995 1994 1993
------------ ------------ ------------ ------------
(IN US$'000) (IN NKR'000) (IN NKR'000) (IN NKR'000)
<S> <C> <C> <C> <C>
Cash flows from
operations:
Net income (loss)......... 2,965 18,741 (127,986) (580,099)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization............. 56,009 354,032 387,332 454,394
Write-down(s) of rig(s)... 45,000 283,050
(Gain) loss on sales of
fixed assets............. (13,601) (85,971) 648 (17,184)
Unrealized currency
(gains) losses........... 472 2,982 (15,262) 157,874
Share of net (income) loss
of affiliated companies.. (332) (2,097) (7,936) 6,346
Change in classification,
demobilization and other
accrued expenses......... 2,880 18,208 13,026 40,270
Minority interests........ 244 1,543 1,902 3,713
Other..................... (3,943) (24,922) 150 30,829
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable.... (9,431) (59,617) 35,775 (51,829)
(Increase) decrease in
inventories............ 1,298 8,203 (19,726) (19,103)
(Increase) decrease in
other assets(1)........ 15,847 100,170 2,310 (9,312)
Increase (decrease) in
accounts payable....... (1,299) (8,210) 1,170 42,420
Increase (decrease) in
taxes payable.......... 308 1,948 (216) (1,262)
Increase (decrease) in
contract advance....... (11,194) (70,758) (62,794) (55,727)
Increase (decrease) in
deferred taxes......... 16 99 246 1,968
Increase (decrease) in
other liabilities...... 7,128 45,056 (63,542) 79,280
-------- ---------- ---------- --------
Net cash flows provided by
operating activities..... 47,367 299,407 190,097 365,628
-------- ---------- ---------- --------
Cash flows from investing
activities:
Purchases of fixed
assets................... (38,694) (244,582) (427,573) (179,357)
Proceeds from sales of
fixed assets(1).......... 50,127 316,850 53,825 40,998
Gross change in long-term
receivables, shares and
joint venture............ (10,849) (68,576) (50,207) 64,072
-------- ---------- ---------- --------
Net cash flows provided by
(used in) investing
activities............... 584 3,692 (423,955) (74,287)
-------- ---------- ---------- --------
Cash flows from financing
activities:
Proceeds from issuance of
debt..................... 173,417 1,096,169 1,869,673 173,178
Repayments of principal
debt balance............. (228,350) (1,443,400) (2,137,353) (400,037)
Proceeds from issuance of
shares................... 1,479 9,346 257,032 123,178
-------- ---------- ---------- --------
Net cash flows used in
financing activities..... (53,454) (337,885) (10,648) (103,681)
-------- ---------- ---------- --------
Effect of exchange rate
changes on cash.......... (675) (4,268) (16,901) 6,844
-------- ---------- ---------- --------
Net (decrease) increase in
cash..................... (6,178) (39,054) (261,407) 194,505
Cash and cash equivalents
at beginning of year..... 72,802 460,183 721,590 527,085
-------- ---------- ---------- --------
Cash and cash equivalents
at end of year........... 66,624 421,129 460,183 721,590
======== ========== ========== ========
</TABLE>
(1) Nkr 80.6 million of proceeds from sales of fixed assets was not collected
as of December 31, 1995, and was therefore included in other current
assets.
The accompanying notes are an integral part of the consolidated financial
statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the
convenience of the reader has been made at the Noon Buying Rate on December
29, 1995 of US$1.00 = Nkr 6.321.
F-32
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING PRINCIPLES
General
Transocean ASA and its consolidated subsidiaries (together "the Company",
"Transocean" or "the Group") operates in the offshore drilling industry. The
Company owns rigs and provides offshore drilling services on a worldwide
basis.
The financial statements have been prepared in accordance with Norwegian
generally accepted accounting principles ("Norwegian GAAP"). Norwegian GAAP
differs in certain significant respects from accounting principles generally
accepted in the US ("US GAAP"). The significant differences and the
approximate related effects on the consolidated net income (loss) and
shareholders' equity are set forth in Note 34.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidation Principles
The consolidated financial statements include the accounts of Transocean
ASA, majority owned subsidiaries and proportionate share of affiliated
companies. All intercompany transactions and balances have been eliminated.
Companies in which Transocean owns or controls, directly or indirectly, more
than 50% of the shares and has a controlling influence, are included as
subsidiaries in the consolidated financial statements. Affiliated companies
are companies in which Transocean has a significant (20-50%) and strategic,
but not controlling, interest. Affiliated companies are included in the
consolidated financial statements using the equity method. Transocean's share
in joint ventures in which it has a controlling interest is included in the
consolidated financial statements using the proportional consolidation method.
Under this method a proportionate share of the joint venture's corresponding
statement of operations, balance sheet and cash flows items are included in
the Company's consolidated financial statements. Anchor Vietnam Joint Venture
is included in the consolidated financial statements using the equity method
as Transocean does not have a controlling interest.
In consolidating foreign companies, the statement of operations is converted
to Norwegian Kroner (Nkr) using the average exchange rate for the year, while
assets and liabilities are converted at the exchange rate at the balance sheet
date. Translation differences are recorded directly against the Company's
equity.
Businesses acquired are consolidated in accordance with the purchase method.
The excess of the cost over the book value of the net assets acquired is
accounted for by adjusting the carrying value of the identifiable assets and
liabilities to their estimated fair value, with any remaining amounts recorded
as goodwill.
For the Brazilian Joint Venture, Odebrecht-Transocean J/V, all local
currency transactions are remeasured on a daily basis to the equivalent US
dollar (US$) amount, since US$ is the functional currency.
Wilrig Merger
In October 1995, Transocean ASA merged with Wilrig AS. The merger qualified
for the pooling-of-interest method of accounting under Norwegian GAAP. The
related merger and reorganization costs were expensed in 1995.
F-33
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Ross Merger
In April 1994, the Company and Ross Offshore AS merged. Transocean Drilling
AS, the surviving company, thereafter changed its name to Transocean ASA. The
merger was accounted for using the pooling-of-interests method under Norwegian
GAAP and the related reorganization costs were expensed in 1993.
Revenue and Expense Recognition
Income is recorded when earned. Expenses are recorded when incurred.
Expenses relating to the winding-up of activities are charged in the period
the decision is made.
Capital upgrade fees received are deferred and recognized as revenue over
the period of the drilling project. The actual cost incurred for the capital
upgrade is depreciated over the estimated useful life of the asset.
Upon completion of drilling contracts, any demobilization fees received are
reflected in income, net of any related expense.
The Global Agreement
Transocean and Global Marine entered into a Cooperation Agreement (the
"Cooperation Agreement") in 1993 under which Transocean receives 43.41% of
operating income, as defined, prior to depreciation for the rigs Transocean
Nordic (formerly Transocean No. 9), Glomar Adriatic V (formerly Transocean No.
5), Glomar Adriatic VI and Glomar Adriatic VII through 2003. Transocean
Nordic, which was bought from Global Marine in 1993 and is 100% owned by
Transocean, is included in Rigs in the Company's balance sheet. The remaining
rigs included in the Cooperation Agreement were sold by Transocean to Global
Marine in 1993. The parties have full rights over their respective rigs.
Revenues and expenses related to the operation of Transocean Nordic are
recorded gross as ordinary operating revenues and operating expenses,
respectively. Global Marine's share of the result from Transocean Nordic is
netted against Transocean's 43.41% share of the result from the remaining rigs
included in the Cooperation Agreement.
Extraordinary Items
Under Norwegian GAAP, to be considered extraordinary, an item must be
irregular, related to transactions or decisions outside the normal course of
business, unusual in nature and not expected to occur often or regularly. The
accumulated effect of a change in accounting principle which has a material
impact on the financial statements shall be classified as an extraordinary
item.
Income Taxes
Deferred taxes are computed in accordance with the liability method, which
bases the estimated amount of future taxes to be refunded or paid on the
temporary differences between financial and tax reporting basis of assets and
liabilities using the prevailing tax laws as of the most recent balance sheet
date. Deferred tax assets may only be recognized to the extent that it is
highly probable that such assets will be realized in future periods. In
addition, deferred tax assets in excess of deferred tax liabilities cannot be
recorded under Norwegian GAAP.
Net Income/Loss Per Share
Net income/loss per share amounts are computed based on the net income/loss
divided by the average number of shares outstanding.
Classification of Balance Sheet Items
Receivables and liabilities are classified as current assets or current
liabilities if maturity is within one year of the balance sheet date. Cash,
inventories and next year's installments on long-term loans are classified as
current. Other assets are classified as non-current and other liabilities as
long-term liabilities.
F-34
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Currency
Transactions denominated in foreign currencies are translated into Norwegian
kroner at the exchange rate prevailing when the transaction occurred.
Cash, current receivables and current liabilities in foreign currency are
converted using the exchange rate at the balance sheet date. The related net
realized currency exchange gain or loss is recorded as financial income or
expense, respectively.
Long-term receivables in foreign currency are converted at the lower of the
exchange rate at the balance sheet date and the historical rate. Long-term
debt in foreign currency is converted at the higher of the exchange rate at
the balance sheet date and the historical rate. Unrealized gains and losses on
long-term assets and liabilities denominated in the same currency are treated
on a portfolio basis. Net unrealized currency translation losses are recorded
as financial expenses. Net unrealized currency translation gains on non
current assets and liabilities are recorded only to the extent they reverse
unrealized losses recognized in prior periods.
Cash and Cash Equivalents
Cash and cash equivalents include cash, bank deposits, demand deposits and
highly liquid financial instruments purchased with an original maturity of
three months or less.
Inventories
Inventories consist of drilling fluids held for resale and chemicals used in
well intervention and are stated at the lower of cost or market, using the
first in, first out method. Provision is made for obsolete items and for the
environmentally safe destruction of unsalable products.
Fixed Assets and Depreciation
Rigs and other fixed assets are included in the balance sheet at acquisition
cost less accumulated depreciation and write-downs. Depreciation is calculated
on a straight line basis over the asset's estimated economic and useful life.
If the market value of an asset is less than the book value, and the decline
in value is not considered to be a temporary decline in market value, a write-
down is recorded in the current period. To support the assessment of the
market value of the rigs, the Company obtains independent third party rig-
appraisals.
The economic lifes for the rigs are estimated to be 25 years, with residual
values which vary from Nkr 2 million to Nkr 18 million, depending on the type
of rig.
When fixed assets are retired or disposed of, the cost of the asset and the
accumulated depreciation is removed from the balance sheet and included in the
calculation of gains and losses from sale of assets. The gains and losses from
such sales are adjusted within the reversal of any accruals for classification
and demobilization expenses.
Goodwill and Other Intangibles
The amortization period of goodwill is based on the expected economic life.
Fair values are assessed in connection with the year-end reporting, and a
write-down is recorded if the fair value is considered to be lower than the
net book value and the decline in value is not considered to be temporary.
At December 31, 1994, intangible assets included fees and charges incurred
in connection with the refinancing of Transocean ASA's fleet loan. These
charges were capitalized and are amortized over the term of
F-35
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the loan. In 1995 the Company changed it's principle for accounting for such
charges. See "Change of Accounting Principle for Treatment of Loan Fees".
Bond Loan
The repurchase of notes is recorded as a reduction of debt. Realized
premiums and discounts are recognized in income at the time of repurchase.
Leasing
Leasing agreements, which transfer to the lessee the majority of the risks
and rewards generally associated with the ownership of an asset, are
classified as financial leases. Assets acquired under financial leases are
capitalized and depreciated over the asset's economic life. The corresponding
lease obligation is recorded as a liability. The interest element is recorded
as a financial expense, while the capital paydown is treated as an installment
on the lease obligation.
Leasing agreements which do not satisfy the above mentioned criteria are
considered to be operating leases. Costs associated with operating leases are
recorded as operating expenses when incurred.
Classification and Demobilization Expenses
The Company incurs periodic survey costs in connection with obtaining
permission to operate its rigs on an ongoing basis. Costs associated with the
surveys of rigs are systematically expensed and accrued as a liability prior
to the actual survey. The classification provision for rigs subject to survey
during the current year is classified as a current liability. Upon the
disposal of the rig, the provision will be reversed and included in the
calculation of the gain/loss on sale.
Estimated classification expenses are dependent on the technical
specifications, age and geographic area of operation for each rig. Certain
maintenance costs are not performed during operation, but deferred until the
rig is dry-docked in connection with a survey. These costs are included in the
classification provision.
The Company provides for demobilization costs, net of any expected
demobilization fees to be received, to cover payroll expenses incurred after
the expiration of a long-term drilling contract within Platform Drilling and
Mobile Units segments. The provision is accumulated over the period of the
drilling contract, and classified as a long-term liability.
Pensions
Effective January 1, 1994, Transocean implemented the new Norwegian pension
accounting standard. Pension obligations and pension costs for group pension
schemes funded through insurance companies and for individual pensions
financed from operations have been calculated in accordance with this new
accounting standard.
The projected benefit obligation for funded and unfunded defined benefit
pension plans is calculated as the actuarial present value of benefits based
upon the pension benefit formula considering years of service rendered and
assumptions about future compensation level. Pension plan assets are measured
at market value, and differences between the actual return on assets and the
expected return are deferred. Net periodic pension cost (gross pension cost
less estimated return on plan assets) is classified as salaries expense in the
statement of operations. The gross pension cost includes service cost,
interest cost on the projected benefit obligation, and amortization of
unrecognized gain or loss. For pension plans where plan assets exceed the
projected benefits and pension plans where projected benefits exceed plan
assets, the aggregate net asset or net obligation is recorded as a long-term
receivable or as a long-term liability, respectively.
F-36
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Foreign Exchange Contracts
Realized and unrealized losses on forward contracts are calculated and
provided for in the accounts as other current liabilities. Gains are recorded
as income when realized. Premiums related to foreign currency options with a
duration of less than 3 months are expensed on settlement while premiums in
connection with options for longer durations are amortized over the contract
period. Gains and losses on foreign currency contracts appropriately
designated to hedge specific foreign currency commitments are deferred and
recognized in net income in the period of the commitment transaction, to the
extent effective.
Interest Rate Agreements
Gains and losses on interest rate agreements are recognized as a component
of interest expense over the period relevant to the agreement if the
underlying hedged debt remains outstanding.
Change of Accounting Principle for Treatment of Loan Fees
On the date of the merger between Transocean and Wilrig, the entities
followed different accounting principles with respect to loan fees. Wilrig has
historically charged loan fees to the income statement in the period incurred,
while Transocean has capitalized and amortized such fees over the life of the
related loan(s).
In connection with the merger of the two companies, Transocean changed its
accounting principle to conform to that of Wilrig. This change of accounting
principle has been given effect from January 1, 1995, the effective date of
the merger. As of January 1, 1995, the cumulative effect of the change has
been charged to income as financial expense. Prior period financial
information for Transocean for all periods up to and including December 31,
1994 has not been restated.
NOTE 2--CASH AND CASH EQUIVALENTS AND BLOCKED CASH DEPOSIT
Cash and cash equivalents include restricted funds related to Norwegian
employee withholding taxes of Nkr 44.2 million at December 31, 1995 and Nkr
32.7 million at December 31, 1994. In addition, cash and cash equivalents
include a US$ 14.5 million deposit related to the sale of Treasure Searcher.
Usage of this deposit is restricted to rig purchases and rig upgrades.
The blocked cash deposit of Nkr 54 million relates to a cash deposit of US$
8 million provided as collateral for a bond loan of US$ 110 million. Both the
blocked cash deposit and the US$ 14.5 million cash deposit, which related to
the sale of Treasure Searcher, were released in January 1996 when the bond
loan was repurchased.
NOTE 3--ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Gross receivables from customers................... 593,494 530,024
Provision for bad debts............................ (6,998) (3,145)
----------- -----------
Net receivable from customers...................... 586,496 526,879
=========== ===========
</TABLE>
The Company's main customers are Statoil, Norsk Hydro and Saga Petroleum
which at December 31, 1995 accounted for 22.8% (Nkr 133.7 million), 9.6% (Nkr
56.0 million) and 8.6% (Nkr 50.4 million) of total accounts receivables,
respectively.
F-37
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Receivable from sale of Ross Explorer.............. 82,134
Receivables, other................................. 58,103 72,686
Prepaid expenses................................... 38,472 22,196
Unbilled revenues.................................. 23,894 22,287
VAT receivables.................................... 10,811 5,457
Receivables from joint venture and affiliated
companies......................................... 7,294 36,041
Receivables from employees......................... 3,034 4,133
Promissory notes (see Note 5)...................... 72,710
----------- -----------
Total other current assets......................... 223,742 235,510
=========== ===========
</TABLE>
The jack-up rig, Ross Explorer, was sold on March 23, 1995 to Ensco Offshore
Company for US$ 25.8 million. The rig was subsequently chartered from Ensco on
a bareboat charter which expired in the first quarter of 1996. The sale sum
was paid in two installments, US$ 12.8 million was paid on delivery, and US$
13.0 million (Nkr 82.1 million) was paid upon termination of the bareboat
charter in February 1996.
NOTE 5--PROMISSORY NOTES
The second generation semisubmersible drilling rig, Treasure Driller, was
sold in November 1994 to DeepTech International, Inc. ("Deep Tech") for US$ 11
million. As settlement, the Company received a US$ 11 million promissory note
with three years maturity carrying 10% interest per year from DeepTech
International, Inc. (85% of the amount) and from a subsidiary of DeepTech, FPS
II, Inc. (15% of the amount). On November 8, 1995, DeepTech International,
Inc. exercised their option to purchase the 2nd generation semi-submersible
drilling rig Treasure Searcher for US$ 14.5 million in cash. As a result of
these two transactions, the Company has the right to exchange principal and
interest outstanding under the promissory note for common stock of DeepTech
International, Inc. which is listed on NASDAQ. The option price is a rate of
US$ 10 per share.
The promissory notes were recorded as current assets at December 31, 1994 at
Nkr 72.7 million, as a result of the Company's intentions to sell such notes.
In late 1995, the Company changed it's intentions and decided to hold the
notes which are recorded as a non-current asset of Nkr 69.5 million in the
December 31, 1995 balance sheet.
F-38
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CONSOLIDATED SUBSIDIARIES
The table below summarizes the Company's consolidated subsidiaries as of
December 31, 1995:
<TABLE>
<CAPTION>
OWNERSHIP
COMPANY NAME %
------------ ---------
<S> <C>
Anchor Drilling Fluids AS...... 100
Transocean Drilling Inc........ 100
Transocean Drilling GmbH....... 100
Transocean Drilling AS (DK).... 100
Transocean Drilling Netherlands
Ltd........................... 100
Transnor Rig Ltd............... 100
Transnor Rig AS................ 100
North Sea Drilling Service AS.. 100
Transocean Petroleum Technology
AS............................ 100
Transocean Management AS....... 100
Wilrig Offshore Ltd. UK........ 100
Wilrig Drilling Inc. Canada.... 100
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
COMPANY NAME %
------------ ---------
<S> <C>
Wilrig International AS....... 100
Wilrig Holdings Ltd. UK....... 100
Wilrig USA Inc. .............. 100
SDS Offshore Ltd.............. 100
Pelerin Drilling AS........... 100
SDS Offshore AS............... 100
Ross Drilling & Co AS......... 100
Treasure Nymphea AS........... 100
Transocean Drilling (Nigeria
AS).......................... 100
Ross Offshore AS.............. 100
Target Drilling Services AS... 100
</TABLE>
Shares in Transocean Drilling (Nigeria) Ltd. have been issued, but not paid.
NOTE 7--SHARES AND JOINT VENTURE
All share holdings of Transocean and subsidiaries are considered as
strategic and/or long-term and have been classified as non-current assets.
The table below summarizes the Company's shares and investments as of
December 31, 1995:
<TABLE>
<CAPTION>
OWNER SHARE CARRYING VALUE
-SHIP NO. OF NOMINAL CAPITAL AT DEC. 31, 1995
COMPANY % SHARES VALUE (1,000) NKR (1,000)
------- ------ ------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Anchor Vietnam Joint
Venture................ 50 7,899
ITC AS(a)............... 36 64,736 Nkr 10.- Nkr 647 120
Deutag Transocean
AS(b).................. 50 1,000 Nkr 1,000.- Nkr 1,000 500
Transocean Welltrain
AS(b).................. 50 50 Nkr 1,000.- Nkr 50 0
Vestfold Flyplassinvest
AS..................... 3 3,324 Nkr 1,000.- Nkr 3,324 84
Integrated Well
Services(a)............ 33 1/3 4,000 GBP 1.- GBP 4 40
Anchor Italia SRL(b).... 99 100 Lire 200,000 Lire 20,000 350
AS Barytt Transport(a).. 30 30 Nkr 500 Nkr 15 15
Other................... 4
-----
Total................... 9,012
=====
</TABLE>
- --------
(a) ITC AS and Integrated Well Services are not accounted for using the equity
method as the Company does not have the ability to exercise significant
influence over operating and financial policies of the investees. AS
Barytt Transport is not accounted for using the equity method due to
immateriality.
(b) Anchor Italia SRL is an immaterial dormant company, which is not
consolidated. Deutag Transocean and Transocean Welltrain AS are under
liquidation and considered to be immaterial, and are therefore not
accounted for using the equity method.
NOTE 8--LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Loans to employees.................................... 3,495 3,324
Promissory notes, see Note 5.......................... 69,509 0
Other long-term receivable............................ 5,592 5,342
----------- ----------
Total long-term receivables........................... 78,596 8,666
=========== ==========
</TABLE>
F-39
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--FIXED ASSETS, GOODWILL AND OTHER INTANGIBLES
The following table summarizes the changes in the historical cost and
respective accumulated depreciation account balances of fixed assets, goodwill
and other intangibles for the 3 year period ending December 31, 1995.
<TABLE>
<CAPTION>
VEHICLES,
MACHINERY GOODWILL
AND BUILDINGS & OTHER
RIGS FITTINGS AND LAND INTANGIBLES TOTAL
--------- --------- --------- ----------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... 5,284,181 365,386 116,847 201,196 5,967,610
Additions............... 485,091 94,220 5,446 2,535 587,292
Disposals............... (573,343) (27,044) (889) (601,276)
Currency exchange
difference............. 550 550
Write down.............. (283,051) (4,237) (287,288)
--------- ------- ------- ------- ---------
Balance at December 31,
1993................... 4,912,878 433,112 121,404 199,494 5,666,888
Accumulated depreciation
and amortization
January 1, 1993........ 1,021,913 223,052 36,925 28,209 1,310,099
Currency exchange
difference............. 387 387
Accumulated depreciation
disposals.............. (154,652) (11,685) (166,337)
Depreciations and
amortization........... 374,865 56,928 3,467 19,134 454,394
Amortization of
capitalized loan
expense................ 959 959
--------- ------- ------- ------- ---------
Net Book Value, December
31, 1993............... 3,670,752 164,430 81,012 151,192 4,067,386
--------- ------- ------- ------- ---------
Balance at January 1,
1994................... 4,912,878 433,112 121,404 199,494 5,666,888
Additions............... 340,263 71,386 6,900 9,024 427,573
Disposals............... (285,779) (40,438) (2,668) 27 (328,858)
Currency exchange
difference............. 4,465 1,302 (27) 5,740
Write down.............. (45,000) (45,000)
--------- ------- ------- ------- ---------
Balance at December 31,
1994................... 4,922,362 468,525 126,938 208,518 5,726,343
Accumulated depreciation
and amortization
January 1, 1994........ 1,242,126 268,682 40,392 48,302 1,599,502
Currency exchange
difference............. (3,910) (1,213) 37 (5,086)
Accumulated depreciation
disposals.............. (153,058) (11,620) 1,149 (37) (163,566)
Depreciations and
amortization........... 308,211 58,912 3,645 16,564 387,332
Amortization of
capitalized loan
expense................ 150 150
--------- ------- ------- ------- ---------
Net Book Value, December
31, 1994............... 3,525,083 156,461 82,965 143,502 3,908,011
--------- ------- ------- ------- ---------
Balance at January 1,
1995................... 4,922,362 468,526 126,938 208,518 5,726,344
Currency exchange
difference............. (624) 2,975 1,215 29 3,595
Additions............... 186,948 85,066 8,748 280,762
Reclassification........ 18,117 (18,117)
Disposals............... (720,240) (29,641) (3,903) (17,098) (770,882)
--------- ------- ------- ------- ---------
Balance at December 31,
1995................... 4,406,563 508,809 132,998 191,449 5,239,819
Accumulated depreciation
and amortization
January 1, 1995........ 1,397,406 312,065 43,973 65,016 1,818,460
Currency exchange
difference............. (378) 2,563 (454) (60) 1,671
Reclassification........ 17,734 (17,734)
Accumulated depreciation
disposals.............. (392,336) (17,715) 197 (9,220) (419,074)
Depreciations and
amortization........... 272,613 58,100 4,083 19,236 354,032
--------- ------- ------- ------- ---------
Net Book Value, December
31, 1995............... 3,111,524 171,530 85,199 116,477 3,484,730
========= ======= ======= ======= =========
</TABLE>
The total of the average appraised values of all of the Company's rigs as of
December 31, 1995 was US$847.5 million (approximately Nkr 5.357 million).
F-40
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gross investments in, and disposal of fixed assets and intangibles during
the last five years are as follows:
<TABLE>
<CAPTION>
VEHICLES
MACHINERY AND
RIGS FITTINGS BUILDINGS AND LAND INTANGIBLE ASSETS
---------------- --------------- ------------------- ------------------
YEAR ACQUIRED SOLD ACQUIRED SOLD ACQUIRED SOLD ACQUIRED SOLD
- ---- -------- ------- -------- ------ ------------------- ---------- ------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995... 186,948 388,404 85,066 8,867 8,748 192
1994... 340,263 120,016 71,386 6,519 6,900 9,024
1993... 485,091 418,691 79,965 15,098 5,446 889 2,535
1992... 322,475 37,647 117,028 11,464 38,222 1,454 176,936
1991... 792,892 257 51,737 2,460 16,915 4,145
</TABLE>
Goodwill and other intangibles
Goodwill relates primarily to Anchor Drilling Fluids AS and subsidiaries.
The net book value of such amounts aggregated Nkr 110 million and Nkr 128
million at December 31, 1995 and 1994, respectively.
Other intangibles also included costs incurred in connection with the
refinancing of the Company's fleet loan of Nkr 8.9 million at December 31,
1994. This amount was expensed during 1995 in connection with a change in
accounting principles. See "Change of accounting principles for treatment of
loan fees".
NOTE 10--ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Accrued operations and administration expenses..... 117,271 92,962
Accrued holiday pay, taxes etc..................... 106,318 95,763
Provision for classification expenses.............. 69,565 58,741
Short-term demobilization and payroll accruals..... 46,430 20,739
Overdraft facility................................. 41,671 37,524
Accrued interest expenses.......................... 33,942 39,553
Payables to joint venture and affiliated
companies......................................... 11,410
Accruals relating to rig upgrades.................. 9,819 7,500
Merger costs....................................... 8,535 8,064
Other short term liabilities....................... 8,519 37,663
Other interest bearing short term liabilities...... 4,626 2,886
Savings scheme for employees....................... 2,093 2,250
----------- -----------
Total accrued expenses and other current
liabilities....................................... 460,199 403,645
=========== ===========
</TABLE>
F-41
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--TAXES
The components of income (loss) before minority interest and taxes are as
follows:
INCOME (LOSS) BEFORE MINORITY INTEREST AND TAXES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Norway............................................ (18,868) (89,389)
United Kingdom.................................... (16,717) (5,286)
North America..................................... (29,096) (8,077)
Africa............................................ 98,972 (15,547)
Holland/Germany/Denmark........................... (9,212) 498
Asia.............................................. 7,968 3,524
---------- -----------
Total income (loss) before minority interest and
taxes............................................ 33,047 (114,277)
========== ===========
</TABLE>
Tax expense consists of the following amounts by country:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
CURRENT TAXES
Norway.............................................. 1,330 1,623
United Kingdom...................................... 2,671 853
Africa.............................................. 4,330 2,910
Asia................................................ 2,084 5,235
South America....................................... 1,504
Other countries..................................... 746 940
----------- -----------
Current income tax expense.......................... 12,665 11,561
----------- -----------
DEFERRED TAXES
Norway.............................................. (1,282) (2,009)
Africa.............................................. 1,291 1,336
Asia................................................ 1,116
Other countries..................................... 90 (197)
----------- -----------
Deferred income tax expense......................... 99 246
----------- -----------
Total income tax expense............................ 12,764 11,807
=========== ===========
</TABLE>
F-42
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
RECONCILIATION OF NORWEGIAN NOMINAL STATUTORY TAX RATE TO EFFECTIVE TAX RATE:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Expected income taxes at statutory rate(1)........ 9,253 (31,998)
Limitation on recognition of deferred tax asset... (9,253) 31,998
Tax payable Norway................................ 1,330 1,623
Tax payable International......................... 11,335 9,938
Change in deferred taxes.......................... 99 246
---------- -----------
Income tax expense................................ 12,764 11,807
========== ===========
Effective tax rate................................ 38.6% (10.3%)
========== ===========
</TABLE>
- --------
(1) Norwegian nominal statutory tax rate is 28 percent for 1995 and 1994.
At the end of 1995, the Company had tax loss carryforwards of approximately
Nkr 2.5 billion. The most significant amounts, Nkr 1,850 million, and Nkr 526
million relate to Norway and the United Kingdom respectively. The loss
carryforwards expire as follows:
<TABLE>
<CAPTION>
UNITED OTHER
NORWAY KINGDOM COUNTRIES
--------- -------- ----------
(AMOUNTS IN NKR MILLIONS)
<S> <C> <C> <C>
1996.......................................
1997....................................... 2
1998.......................................
1999....................................... 40
2000....................................... 472
Thereafter................................. 1,338 526 93
--------- ------- -------
Total...................................... 1,850 526 95
========= ======= =======
</TABLE>
F-43
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences giving rise to deferred tax assets and liabilities and
carry forwards as of December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
(AMOUNTS IN NKR 1,000'S)
<S> <C> <C> <C> <C>
Current:
Inventory obsolescence
reserves...................... 2,963 1,450
Debtors........................ 12,616 (432) 3,008 (138)
Other accruals................. 57,963 (194) 51,308 (137)
--------- -------- --------- --------
Total Current.................. 73,542 (626) 55,766 (275)
--------- -------- --------- --------
Non current:
Depreciation................... 6,955 (619,029) 44,305 (456,533)
Pensions....................... 35,891 37,284
Guarantee and classification
provisions.................... 56,123 74,437
Gains and loss account......... (146,307) 12,982 (188,368)
Receivables and debt in foreign
currency...................... 5,733 (460) 4,613 (889)
Other.......................... 14,212 (2,551) 14,643 (9,695)
Total tax loss carry forward... 2,470,575 2,380,963
--------- -------- --------- --------
Total Non Current.............. 2,589,489 (768,347) 2,569,227 (655,485)
--------- -------- --------- --------
Gross temporary differences and
tax loss carry forwards....... 2,663,031 (768,973) 2,624,993 (655,760)
========= ======== ========= ========
</TABLE>
F-44
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences giving rise to deferred tax assets
and liabilities and carry forwards as of December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C>
Current:
Inventory obsolescence reserves... 788 406
Debtors........................... 3,530 (119) 840 (37)
Other accruals.................... 16,723 (53) 14,364 (37)
-------- -------- -------- --------
Total Current..................... 21,041 (172) 15,610 (74)
-------- -------- -------- --------
Non Current:
Depreciation...................... 1,946 (173,328) 12,405 (127,834)
Pensions.......................... 10,049 10,440
Guarantee and classification
provisions....................... 15,714 20,843
Gains and loss account............ (41,432) 3,635 (52,743)
Receivables and debt in foreign
currency......................... 1,605 1,292 (249)
Other............................. 3,979 (1,092) 4,099 (2,714)
Tax loss carry forward............ 723,999 698,623
-------- -------- -------- --------
Total Non Current................. 757,292 (215,852) 751,337 (183,540)
-------- -------- -------- --------
Total............................. 778,333 (216,024) 766,947 (183,614)
-------- -------- -------- --------
Amounts netted.................... (209,061) 209,061 (176,754) 176,754
-------- -------- -------- --------
Net deferred tax liabilities on
the balance sheet................ (6,963) (6,860)
======== ========
</TABLE>
Tax rates applied: Norway 28%, UK 33%, Singapore and Malaysia 27%, Canada
38%, USA 35%, Denmark 34%, Indonesia 30%.
NOTE 12--CURRENT PORTION OF LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Leasing contracts.................................... 11,414 13,945
Long-term loans in US$............................... 231,378 163,650
Long-term loans in Nkr............................... 753 3,918
Long-term loans in other currencies.................. 836 1,723
----------- -----------
Total current portion of long-term debt.............. 244,381 183,236
=========== ===========
</TABLE>
See Note 16 for details of each loan included in the above table.
NOTE 13--CONTRACT ADVANCE
In connection with the award of a long term contract for the rig Treasure
Prospect in the Norwegian sector of the North Sea, Statoil paid an up-front
fee of Nkr 222.2 million. The fee was intended to cover the necessary
F-45
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
investments that had to be made in order to comply with Norwegian rules and
regulations, specific contract requirements for the rig and certain
mobilization costs. The amount of the prepayment related to the reimbursement
of mobilization costs incurred (Nkr 15.8 million) was credited to income in
the same period as the respective mobilization costs were charged to expense.
The remaining amount of the prepayment, Nkr 206.4 million, has been credited
to income over a period of 40 months, which ended December 31, 1995 (Nkr 75.4
million was recorded as income in 1995, 1994 and 1993). The advance payment
has been recorded in the statement of operations on an annuity basis, using a
12% interest factor. As a result, operating revenues have been increased for
the annuity portion of the cash advance plus an interest factor. Financial
expenses have been increased for a hypothetical interest factor (Nkr 4.7
million, Nkr 12.6 million and Nkr 19.7 million was recorded as interest in
1995, 1994 and 1993, respectively).
NOTE 14--CONVERTIBLE BONDS
The Company has a convertible bond loan of Nkr 86.5 million which includes
the right to subscribe for shares of Nkr 5 par value at a price of Nkr 79. The
loan matures on December 31, 1996 and bears interest at 10% per year. No
interest is payable in the year in which conversion takes place. As of June
15, 1996, all of the loan balance except Nkr 46,000 had been converted to
shares.
NOTE 15--SENIOR SECURED NOTES
In March 1994, a US$ 110 million offering of Senior Secured Notes was issued
in the United States. The Senior Secured Notes have a coupon of 11.25% and are
due in 2004. Five of the Company's rigs were pledged as collateral for the
Senior Secured Notes.
In 1995, Transocean repurchased US$ 29.5 million (for US$ 27.8 million at
par value) of the Senior Secured Notes. The repurchase was recorded as a
payment of debt. The net realized premium on the purchases, Nkr 12.8 million,
has been charged as a financial expense. At December 31, 1995, the balance of
the Notes was recorded at US$ 80.2 million, which amounts to Nkr 588.3 million
when applying the drawdown exchange rate of 7.338. In January 1996, the
remaining balance of the Notes was repurchased.
NOTE 16--OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Loans in US$....................................... 1,176,785 1,287,841
Loans in Nkr....................................... 2,720 16,638
Loans in other currencies.......................... 836 6,872
Capital lease obligations.......................... 61,740 43,258
----------- -----------
Total.............................................. 1,242,081 1,354,609
Less: Current portion of long-term debt............ (244,381) (183,236)
----------- -----------
Total long-term debt............................... 997,700 1,171,373
=========== ===========
</TABLE>
In December 1995, a seven year revolving credit facility totalling US$ 275
million was established. At December 31, 1995, US$ 137.2 (Nkr 872 million) was
drawn at the US$/Nkr exchange rate of 6.356. As of December 31, 1995, seven of
the Company's rigs along with their respective revenues and insurance policies
were pledged as collateral for the loan. During January 1996, the Company
pledged an additional three rigs as collateral for the loan. The Company's
contractual cash flow from the mobile rigs, as defined, determines the
repayment schedule, credit line available and the margin to be paid. The most
significant portion of the debt outstanding bears an interest rate of LIBOR
plus 0.60% as of December 31, 1995.
Under the terms of the revolving facility, the Company must maintain a
minimum balance of cash and cash equivalents of US$35 million. Additionally,
the facility requires the Company to comply with certain other restrictive
covenants which, among other things, limits the total amount of priority
indebtedness and requires maintenance of certain financial ratios.
F-46
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As part of the fleet loan, a separate facility of US$ 7.5 million (Nkr 47.4
million) which is due in 1996 is outstanding at year-end. The interest rate is
fixed at 9.5%. The fleet is pledged as collateral for the fleet loan.
An unsecured loan of US$ 25 million (Nkr 157.7 million) was obtained in
connection with the repurchase of portions of the Senior Secured Notes in
November 1995. This loan was repaid in January 1996.
A floating rate loan of US$ 26.8 million was assumed in connection with the
acquisition of the Treasure Saga rig in June 1989. The loan is repayable in
semiannual installments of US$ 1.6 million, with the final payment due in July
1997. The loan bears interest at 0.25% over LIBOR.
The Company has a revolving credit facility of US$ 25.0 million, of which
US$ 5.0 million is available for the issuance of performance bonds and
guarantees. US$ 23.3 million and US$ 23.8 million, of the facility was
available at December 31, 1995 and 1994, respectively. At December 31, 1995,
the Company had utilized US$ 1 million (Nkr 6.3 million) and issued bid bonds
amounting to US$ 0.7 million under the facility. At December 31, 1994, the
Company had issued bid bonds amounting to US$ 1.2 million. The interest rate
under the facility is LIBOR plus 1.75%. The rig Treasure Saga was pledged as
collateral for the facility.
Anchor Drilling Fluids has a LIBOR-based loan of US$ 8 million (Nkr 50.5
million) at December 31, 1995. This loan matures in 1997.
For information regarding rigs collateralized for the Company's debt, see
Note 19.
See Note 33 for details on debt refinancing subsequent to December 31, 1995.
The long-term debt as of December 31, 1995 is payable as follows:
<TABLE>
<CAPTION>
TOTAL
---------------------
(AMOUNTS IN NKR 1,000)
<S> <C>
1996.............................................. 232,966
1997.............................................. 72,718
1998.............................................. 753
1999.............................................. 286,020
2000.............................................. 0
Thereafter........................................ 1,176,135
-----------
1,768,592
===========
</TABLE>
Capital lease obligations included in long-term debt as of December 31, 1995
are payable as follows:
<TABLE>
<CAPTION>
TOTAL
----------------------
(AMOUNTS IN NKR 1,000)
<S> <C>
1996.............................................. 11,414
1997.............................................. 26,624
1998.............................................. 11,975
1999.............................................. 5,639
2000.............................................. 1,793
Thereafter........................................ 4,295
---------
61,740
=========
</TABLE>
F-47
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--PENSION OBLIGATIONS
Transocean has established group pension schemes with life insurance
companies for its employees. In Norway, these consist of six defined benefit
plans in the parent company and six defined benefit plans in subsidiaries. The
number of people covered by these schemes were 815 and 977, respectively, at
December 31, 1995. Outside Norway, Transocean has one benefit plan and several
contribution plans for employees. The benefit plan covers 72 people. Certain
of the pension schemes are financed partly by members' contributions from
employees. In addition to pension obligations covered through the insurance
schemes, the Company has pension obligations to 18 employees and former
employees, which are financed directly from operations. The Company
participates in an industry wide scheme for early retirement, partly sponsored
by the National Insurance Scheme. The accounting effect of this scheme is
considered to be insignificant and is not included in the pension obligations.
Employer's social security tax is included in the obligation for unfunded
schemes. For funded schemes annual premium payments are considered to
represent a reasonable approximation of the present value of the period's
pension earnings, and the employer's social security tax is expensed in the
period of payment.
In valuing the pension funds and calculating accrued obligations, estimated
values have been used. These estimates are adjusted annually in accordance
with the pension funds' transfer values and actuarial calculations of the
obligations.
ASSUMPTIONS MADE IN CALCULATING FUTURE PENSIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
---- ---------
<S> <C> <C>
Discount rate................................................. 7.0% 6.0%-7.0%
Expected rate of return on plan assets........................ 8.0% 7.0%-8.0%
Average rate of compensations increase........................ 3.5% 3.0%
Average rate of pension increase.............................. 3.0% 2.5%-3.0%
Voluntary departure (employees under 40)...................... 2.0% 2.0%
</TABLE>
PENSION COSTS RELATED TO BENEFIT PLANS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Service cost....................................... 29,028 17,905
Interest cost...................................... 14,787 16,268
Expected return on plan assets..................... (21,953) (14,728)
Net amortization and deferrals..................... 5,712 0
----------- -----------
Periodic pension cost.............................. 27,574 19,445
Employee contribution.............................. (4,916) (2,142)
----------- -----------
Net periodic pension cost.......................... 22,658 17,303
=========== ===========
</TABLE>
F-48
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status of the plans and the
amounts recognized in the Company's consolidated Balance Sheet as of December
31:
<TABLE>
<CAPTION>
PLANS WITH ASSETS IN EXCESS PLANS WITH ACCUMULATED
OF ACCUMULATED BENEFIT BENEFIT OBLIGATIONS IN
OBLIGATIONS EXCESS OF ASSETS
---------------------------- -----------------------
1995 1994 1995 1994
------------- ------------- ----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C>
Actuarial present value
of accumulated benefit
obligation............. (142,504) (102,355) (53,366) (117,870)
Effect of projected
compensation
increases.............. (24,326) (37,723) (37,629) (7,285)
------------- ------------- ---------- -----------
Projected benefit
obligation............. (166,830) (140,078) (90,995) (125,155)
Estimated fair value of
plan assets............ 187,657 150,163 42,022 64,022
------------- ------------- ---------- -----------
Net pension
funds/(obligations).... 20,827 10,085 (48,973) (61,133)
Unrecognized net (gain)
loss from past
experience different
from that assumed...... 1,172 11,983 (18,926) (5,386)
------------- ------------- ---------- -----------
Prepaid
pensions/(accrued
pension liabilities)... 21,999 22,068 (67,899) (66,519)
============= ============= ========== ===========
</TABLE>
Plans with assets in excess of accumulated benefits obligations are recorded
as assets in the balance sheet, since the prepaid pension is expected to be
used to pay future premiums. The pension plan assets are managed by the
insurance companies based on the general guidelines for life insurance
companies and are principally invested in fixed income securities, marketable
equity securities and real estate. The effect of changes in estimates and
deviations between estimates and actual returns is charged to the profit and
loss account over the average remaining service period when the accumulated
effect exceeds 10% of the larger of the pension assets or liabilities.
NOTE 18--OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Provision for classification costs.................. 44,865 81,175
Demobilization provision............................ 5,080 8,199
Other non-interest bearing long-term liabilities.... 1,333 889
----------- -----------
51,278 90,263
=========== ===========
</TABLE>
NOTE 19--COMMITMENTS AND CONTINGENCIES
Guarantees and mortgages
Guarantees issued by the Company total Nkr 81.5 million and Nkr 52.5 million
at December 31, 1995 and 1994, respectively. As collateral for the Company's
long-term loans, the Company has mortgaged ten of the rigs and made a
collateral assignment of such rigs' revenues and such rigs' insurance
policies.
Leasing
The Company leases certain premises and facilities under operating lease
agreements. Rent expenses related to lease agreements were Nkr 3.78 million,
Nkr 4.38 million and Nkr 2.55 million in 1995, 1994 and 1993 respectively.
F-49
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under non-cancellable operating leases (in
which the initial lease terms are in excess of one year) as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
----------------------
(AMOUNTS IN NKR 1,000)
<S> <C>
1996.................................................. 3,943
1997.................................................. 2,356
1998.................................................. 1,661
1999.................................................. 1,489
2000.................................................. 1,489
Thereafter............................................ 19,351
------
Total operating lease commitments..................... 30,289
======
</TABLE>
The Company has entered into an operating lease contract to rent Anchor
Drilling Fluids' office building. This contract expires in 2011. Anchor
Drilling Fluids holds an option to cancel the contract every fifth year
starting in 1996. The Anchor operating lease commitment comprises the only
lease payment due after the year 2000.
Capital leases include leases of the main office building in Tananger,
Norway and various drilling equipment for the Mobile Units and for Platform
Drilling & Well Intervention. The lease on the building is a 20 year lease,
while the leases on drilling equipment are 3-5 year leases.
Future lease commitments
The Company has entered into a lease agreement with respect to the financing
of Rubicon 2000, a new drilling and work-over unit which is being constructed
by Stewart & Stevenson Inc., in accordance with the Company's design. The
lease agreement is for Nkr 44 million, and is expected to commence upon
delivery of the Rubicon 2000 in early 1997. The lease term is seven years.
Other
A contingent liability existed as of December 31, 1995 in the form of a
share issue agreement with respect to the utilization of net operating losses
available to Wilrig Holdings (U.K.) Ltd. The agreement between the Company and
Wilh. Wilhelmsen Limited AS ("WWL") provides WWL with an option to receive a
maximum of 148,279 shares at no cost or a cash payment of up to GBP 1.25
million if certain U.K. tax loss carry forwards are utilized by Wilrig
Holdings (U.K.) Ltd. In January 1996. This matter was settled without a
material expense to the Company.
NOTE 20--MINORITY INTERESTS
Minority interests relate to the Company's investment in the Moroccan mining
company Comabar, which is owned by the Anchor Drilling Fluids AS Subsidiary.
F-50
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 21--CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF CUMULATIVE
SHARES SHARE RESTRICTED UNRESTRICTED TRANSLATION
OUTSTANDING CAPITAL RESERVES RESERVES ADJUSTMENTS TOTAL
----------- ------- ---------- ------------ ----------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 21,929,511 109,647 563,527 274,667 (955) 946,886
Merger with Ross
Offshore............... 11,915,808 59,580 436,912 497,977 994,469
---------- ------- --------- -------- ------- ---------
Restated balance at
December 31, 1992 after
Transocean-Ross
merger................. 33,845,319 169,227 1,000,439 772,644 (955) 1,941,355
New equity Ross
Offshore............... 3,000,000 15,000 108,178 123,178
Net income Transocean... 119,868 119,868
Net loss Ross Offshore.. (519,729) (519,729)
Translation difference.. (533) (533)
---------- ------- --------- -------- ------- ---------
Balance at December 31,
1993................... 36,845,319 184,227 1,108,617 372,783 (1,488) 1,664,139
Net loss................ (7,804) (7,804)
Implementation of new
pension accounting
standard............... (5,565) (44,892) (50,457)
Translation difference.. 1,610 1,610
Other................... (4,012) (4,012)
---------- ------- --------- -------- ------- ---------
Balance at December 31,
1994................... 36,845,319 184,227 1,103,052 316,075 122 1,603,476
Merger with Wilrig...... 15,591,760 77,959 868,304 (274,061) (7,071) 665,131
---------- ------- --------- -------- ------- ---------
Restated balance at
December 31, 1993 after
Transocean-Wilrig
merger................. 52,437,079 262,186 1,971,356 42,014 (6,949) 2,268,607
New equity.............. 226,338 1,131 8,215 9,346
Net income.............. 18,741 18,741
Translation difference.. (6,365) (6,365)
---------- ------- --------- -------- ------- ---------
Balance at December 31,
1995................... 52,663,417 263,317 1,979,571 60,755 (13,314) 2,290,329
========== ======= ========= ======== ======= =========
</TABLE>
The Company's share capital consists of 52.7 million shares of Nkr 5 par
value. Holders of the convertible bonds have the right to convert the loan to
shares in the Company at a price of Nkr 79. As of May 29, 1996, 1,094,429
shares had been converted. New equity 1993 relates to Ross Offshore's issuance
of shares in April 1993. In 1995, shares have been issued under the Stock
Option Plans as detailed below.
Restricted reserves
Restricted reserves represent equity unavailable for dividend distribution.
The level of these reserves is regulated by Norwegian law and must aggregate
at least 20% of total share capital of the Company, assuming the sum of share
capital and unrestricted reserves equals or exceeds the total liabilities of
the parent company.
Temporary restricted reserves
Temporary restricted reserves represent equity which first becomes available
for dividend distribution in 1996. The amounts in this category are Nkr 18.3
million, Nkr 36.6 million and Nkr 54.9 million for the years 1995, 1994 and
1993 respectively. For presentation purposes temporary restricted reserves
have been included in restricted reserves. From January 1, 1997 this separate
category of equity will not be required, as it relates to tax regulations no
longer in effect.
Unrestricted reserves
Unrestricted reserves represent equity which is available for dividend
distribution, as long as the Company has contributed sufficient funds to
restricted reserves based on Norwegian law.
F-51
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock options have been awarded to and exercised by present and previous
senior management and Board members as detailed below.
<TABLE>
<CAPTION>
EXERCISED
NUMBER YEAR EXERCISE EXERCISE EXERCISED IN 1996 REMAINING
STOCK OPTION PLANS GRANTED GRANTED PRICE DEADLINE IN 1995 (AS OF JUNE 15) OPTIONS
------------------ ------- ------- -------- --------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ross Offshore plan...... 205,200(1) 1993 41.5 April 29, 1996 90,400 110,000
Wilrig plan............. 128,438 1994/95 40.0 1996-1999 90,938 37,500
Transocean plan......... 200,000 1994 43.5 August 31, 1997 45,000 155,000
------- ------- ------- ------
533,638 226,338 265,000 37,500
======= ======= ======= ======
</TABLE>
- --------
(1) 4,800 shares were forfeited.
Shares and options owned by Management and the Board:
<TABLE>
<CAPTION>
SHARES OPTIONS SHARES OPTIONS
DEC. 31, DEC. 31, JUNE 15, JUNE 15,
1995 1995 1996 1996
--------- -------- --------- --------
<S> <C> <C> <C> <C>
MANAGEMENT
Reidar Lund, President and CEO.......... 1,087 70,000 71,124
Erik Gloersen, Executive Vice
President.............................. 4 48,000 48,037
Arne Austreid, Vice President Group
Services............................... 20 20,000 20,057
Stein Giljarhus, President Transocean
Petroleum Technology(5)................ 20 35,000 35,057
Hakon Skretting, Vice President
Engineering & Construction............. 500 10,000 10,537
Jan Erik Tveteraas, Chief Financial
Officer................................ 30 20,000 20,067
THE BOARD
Kristian Siem, Chairman(1).............. 14 14
Ole Lund, Deputy Chairman(2)............
Geir Aune, Board Member................. 36,675 37,500 55,425 37,500
Fridtjof Lorentzen, Board Member(3)..... 2,520,569 12,000 2,532,569
Jon-Aksel Torgersen, Board Member(4).... 27,309 9,600 0
Einar Kloster, Vice Chairman(2)......... 1,000
Per Inge Grimsmo, Board Member.......... 37
Jon M. Fjose, Board Member.............. 20 57
Jostein Rasmussen, Board Member......... 37
</TABLE>
- --------
(1) Does not include 2,908,233 shares owned of record by the Norex America,
Inc. and affiliated companies of where Mr. Siem is the Chairman of the
Board.
(2) Ole Lund resigned from the Board on March 28, 1996. Einar Kloster was at
the same time appointed to the Boards of Directors.
(3) Includes shares owned by companies of which Mr. Lorentzen is a director or
officer.
(4) Jon-Aksel Torgersen withdrew from the Board on May 10, 1996.
(5) Stein Giljarhus resigned from Transocean in June 1996.
F-52
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 22--SEGMENT INFORMATION
The Company and its subsidiaries are engaged in the following business
segments: Mobile Units, Platform Drilling and Well Intervention, Fluid
Services and Engineering & Construction. The following tables set forth a
summary of the operations in each segment:
MOBILE UNITS
The Company's Mobile Units business segment is engaged in contract drilling
of both production and exploration wells and well completion services in
offshore locations on a worldwide basis.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Operating revenues..................... 1,565,391 1,474,111 1,800,294
Operating expenses..................... (1,183,924) (1,147,566) (1,341,000)
Classification expenses................ (59,595) (61,773) (59,252)
Merger and reorganization expenses..... (35,000) (66,000)
Gain/(loss) on sale of rigs............ 84,846 (648) 17,184
Allocated overhead..................... (16,569) (29,000) (35,000)
---------- ---------- ----------
Operating income before write-downs,
depreciation and amortization......... 355,149 235,124 316,226
Write-downs of rigs.................... (45,000) (283,051)
Depreciation and amortization.......... (277,416) (315,258) (382,540)
---------- ---------- ----------
Operating income (loss)................ 77,733 (125,134) (349,365)
========== ========== ==========
Identifiable assets (at end of
period)............................... 4,000,721 4,055,836 4,296,487
========== ========== ==========
PLATFORM DRILLING AND WELL INTERVENTION
The Company's Platform Drilling and Well Intervention business segment is
conducted through Transocean Petroleum Technology AS ("TPT") a wholly owned
subsidiary of the Company, which is involved in production drilling and
maintenance on fixed installations primarily in the Norwegian sector of the
North Sea.
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Operating revenues..................... 646,308 563,605 516,218
Operating expenses..................... (575,778) (484,094) (431,923)
Gain/(loss) on sale of fixed assets.... (398)
Allocated overhead..................... (9,924) (14,000) (16,000)
---------- ---------- ----------
Operating income before depreciation
and amortization...................... 60,208 65,511 68,295
Depreciation and amortization.......... (32,542) (35,455) (31,654)
---------- ---------- ----------
Operating income....................... 27,666 30,056 36,641
========== ========== ==========
Identifiable assets (at end of
period)............................... 327,718 329,389 344,999
========== ========== ==========
</TABLE>
F-53
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FLUID SERVICES
The Company's Engineering and Construction business segment offers
engineering services and studies, as well as upgrading, modification and
construction of drilling facilities and drilling equipment.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Operating revenues........................... 906,636 974,385 891,938
Operating expenses........................... (832,425) (851,043) (785,580)
Gain (loss) on sale of fixed assets.......... 1,523
Allocated overhead........................... (2,148)
-------- -------- --------
Operating income before depreciation and
amortization................................ 73,586 123,342 106,358
Depreciation and amortization................ (39,227) (30,903) (29,682)
-------- -------- --------
Operating income............................. 34,359 92,439 76,676
======== ======== ========
Identifiable assets (at end of period)....... 527,964 492,325 510,108
======== ======== ========
See Note 33 for details on the planned sale of the Fluid Services segment
subsequent to December 31, 1995. Liabilities pertaining to the Fluid Services
segment totalled Nkr 439.5 million, Nkr 421.0 million and Nkr 450.5 million as
of December 31, 1995, 1994 and 1993, respectively.
ENGINEERING & CONSTRUCTION
The Company's Fluid Services business segment, through Anchor Drilling
Fluids, a wholly owned subsidiary of the Company, offers drilling fluid
systems and associated services to its customers.
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Operating revenues........................... 71,279 49,699 95,860
Operating expenses........................... (66,178) (52,568) (84,335)
Allocated overhead........................... (4,000) (5,000) (8,000)
-------- -------- --------
Operating income (loss) before depreciation
and amortization............................ 1,101 (7,869) 3,525
Depreciation and amortization................ (592) (1,046) (1,963)
-------- -------- --------
Operating income (loss)...................... 509 (8,915) 1,562
======== ======== ========
Identifiable assets (at end of period)....... 28,515 11,509 17,995
======== ======== ========
</TABLE>
F-54
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
CORPORATE/ELIMINATIONS
Operating revenues-eliminations............. (25,378) (17,457) (12,217)
--------- --------- ---------
Operating income (loss)-eliminations........ (13,670) (4,525) (4,992)
========= ========= =========
Identifiable Assets (at end of period)...... 150,000 498,383 534,879
========= ========= =========
TOTAL
Operating revenues.......................... 3,164,236 3,044,343 3,292,093
--------- --------- ---------
Operating income (loss)..................... 126,597 (16,079) (239,478)
========= ========= =========
Identifiable assets (at end of period)...... 5,034,918 5,387,442 5,704,468
========= ========= =========
</TABLE>
NOTE 23--GEOGRAPHIC AND EXPORT SALES INFORMATION
A summary of operations by geographical areas follows:
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS
-------------------------------------------------
REST
OF
NORWAY UK DENMARK BRAZIL US VIETNAM WORLD TOTAL
------ --- ------- ------ --- ------- ----- -----
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At and for the year
ended
December 31, 1994
</TABLE>
- --------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... 1,882,589 237,676 83,600 170,249 247,450 198,835 223,944 3,044,343
Operating income
(loss)................. 102,948 (104,486) (3,900) 51,673 (16,354) 3,370 (49,330) (16,079)
Identifiable assets
(rigs)................. 1,738,959 713,758 223,724 213,473 43,450 591,717 3,525,081
Goodwill................ 143,502
Other Assets............ 1,718,859
Total Assets............ 5,387,442
At and for the year
ended
December 31, 1995
</TABLE>
- --------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... 1,820,010 504,976 74,903 111,602 255,884 130,340 266,521 3,164,236
Operating income
(loss)................. 26,179 30,434 (8,582) 43,602 (20,928) (20,292) 76,184 126,597
Identifiable assets
(rigs)................. 1,384,274 915,733 210,481 198,646 38,596 363,794 3,111,524
Goodwill................ 116,477
Other Assets............ 1,806,917
Total assets............ 5,034,918
</TABLE>
Other countries included in the Rest of World column consist mainly of
Holland, Spain, Angola, Nigeria, Namibia and Equatorial Guinea.
The geographic classification of amounts related to rig-operations listed on
the table above are based on the location of each rig at the time the revenue
was earned.
During the year ended December 31, 1995, two customers accounted for 29.6%
(Nkr 938 million) and 10.7% (Nkr 338 million) of consolidated revenues, which
were earned through all of the business segments.
During the year ended December 31, 1994, one customer in Norway accounted
for 21.5% (Nkr 653 million) of consolidated revenues, which were earned
through all of the business segments except for Platform Drilling and Well
Intervention.
F-55
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 24--OTHER OPERATING AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Repairs and maintenance.............................. 338,730 356,869 358,064
Classification expenses.............................. 59,595 61,773 59,252
Insurance............................................ 46,580 46,571 64,993
Professional Fees.................................... 26,585 27,340 47,595
Travel expenses...................................... 100,851 67,942 69,684
Charter rental....................................... 14,674 39,345 42,638
Office and administration............................ 190,159 119,532 95,621
Other operating expenses............................. 132,771 74,790 131,267
------- ------- -------
Total................................................ 909,945 794,162 869,114
======= ======= =======
</TABLE>
NOTE 25--CLASSIFICATION COSTS
The table below presents the periodic survey costs for each of the Company's
rigs together with the next scheduled survey.
<TABLE>
<CAPTION>
DECEMBER 31,
1994 FOR THE YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1995
-------------- ----------------------------------------- -----------------------------
ACCUMULATED ACCUMULATED ACCUMULATED
TOTAL REVERSAL OF CLASSIFICATION CLASSIFICATION SHORT-TERM LONG-TERM PLANNED SURVEY
CLASSIFICATION ACCRUAL FOR COSTS COSTS CLASSIFICATION CLASSIFICATION (M-MAIN CLASS
RIG ACCRUALS RIGS SOLD INCURRED ACCRUED ACCRUALS ACCRUALS I-INTERIM CLASS)
--- -------------- ----------- -------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Transocean Arctic... 14,178 7,356 21,534 M-May 1996
Transocean No 8..... 14,065 8,200 5,388 11,253 M-March 2000
Transocean Wildcat.. 2,074 4,728 6,802 I-March 1996
Transocean
Searcher........... 2,959 207 16,772 19,524 I-January 1996
Transocean
Explorer........... 18,856 22,958 5,000 898 I-June 1998
Treasure Saga....... 6,387 2,100 3,878 8,165 M-September 1997
Treasure Prospect... 8,478 3,872 12,350 M-August 1997
Treasure
Discoverer......... 5,838 3,693 9,531 M-January 1996
Transocean Driller.. 1,059 347 6,266 6,978 M-April 1996
Treasure Legend..... 1,412 1,266 441 2,237 I-January 1996
Shelf Explorer...... 5,992 4,400 3,480 5,072 M-May 1997
Transocean No 4..... 2,193 1,222 2,184 3,155 M-March 1996
Transocean No 5..... 2,691 (1,928) 763 M-May 1997
Transocean Nordic... 3,398 311 2,640 1,600 4,127 I-August 1996
Rigs sold in 1995... 50,336 (50,336)
------- ------- ------ ------ ------ ------
Sub-Total........... 139,916 (50,336) 39,745 64,595 69,565 44,865
Less portion
recorded as cost to
combine
operations......... (5,000)
------- ------- ------ ------ ------ ------
Total............... 139,916 (50,336) 39,745 59,595 69,565 44,865
======= ======= ====== ====== ====== ======
</TABLE>
F-56
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 26--MERGER COSTS
Merger costs related to the merger between Transocean and Wilrig amounted to
Nkr 35 million. Merger costs include, among other things, fees paid to
consultants and lawyers in connection with the merger and in connection with
the repurchase of Wilrig's bond issue, closure of offices and harmonization of
estimates for classification provisions.
For the merger between Transocean and Ross Offshore, merger costs of Nkr 66
million were expensed in 1993. In addition to various fees and costs related
to closure of offices, the expense during 1994 included a provision of Nkr 33
million related to redundancy agreements. Nkr 12 million in final payments
were made in connection with the final renegotiations of the redundancy
agreements. As a result, the remaining portion of the redundancy provision was
reversed in 1994.
NOTE 27--INTEREST AND OTHER FINANCIAL INCOME AND EXPENSES
INTEREST INCOME AND OTHER FINANCIAL INCOME
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Interest income...................................... 51,000 42,521 40,896
Gain on repurchase of own bonds...................... 1,348
Other financial income............................... 338 2,699
------- ------- -------
Total financial income............................... 51,338 46,568 40,896
======= ======= =======
</TABLE>
INTEREST EXPENSE AND OTHER FINANCIAL EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Interest expense..................................... 198,785 196,553 210,715
Refinancing costs.................................... 18,075 27,829
Premium on repurchase of own bonds................... 12,826
Imputed interest relating to prepaid income.......... 4,684 12,647 19,715
Other financial expenses............................. 6,988 5,198 4,339
------- ------- -------
Total financial expenses............................. 241,358 242,227 234,769
======= ======= =======
</TABLE>
Refinancing costs incurred in 1995 amounted to Nkr 9 million. The accounting
treatment for recording loan fees has been changed from capitalization and
amortization to expense when incurred. The new principle is consistent with
the principle followed by Wilrig prior to the merger. The change in accounting
principle has been made effective from January 1, 1995, and the accumulated
effect of the change was Nkr 9 million and is included in refinancing costs.
Net realized foreign currency exchange gains of Nkr 97.4 million in 1995,
primarily related to the repayment of debt including the repurchase of the
bonds.
In 1994, Nkr 74.3 million of realized currency gains primarily related to
the refinancing of Transocean's fleet loans in December 1994. The unrealized
currency gain of Nkr 15 million in 1994 mainly represents a reversal of
previously recorded foreign exchange losses on the non-refinanced portion of
long-term debt.
Unrealized currency loss of Nkr 158 million in 1993 mainly represents
translation losses on long-term loans.
F-57
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 28--SHARE OF NET INCOME (LOSS) OF AFFILIATED COMPANIES AND LIMITED
PARTNERSHIPS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
SHARE % 1995 1994 1993
------- ------- ----------------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C> <C>
Target Drilling Services AS................ 50 (6,211)
Anchor Drilling Fluids, Vietnam............ 50 2,097 3,336 1,723
Stadrill KS 4.............................. 1,706 (7,610)
Stadrill KS 5.............................. 2,894 5,752
------- ------- --------
2,097 7,936 (6,346)
======= ======= ========
</TABLE>
Since October 1, 1993, the date that Transocean acquired the remaining 50%
of the shares in Target Drilling Services AS, its successor, Transocean
Petroleum Technology AS, has been consolidated.
The Company owned 20% in each of Stadrill KS 4 and Stadrill KS 5 until both
were liquidated in 1994.
Transocean, through its subsidiary Pelerin Drilling AS, owns 80% and the
French company ITM 20% of Dynamic Drilling Partnership which is a jointly
controlled business that is included in the financial statements using the
proportional consolidation method. Transocean's share of the results was an
income of Nkr 98.5 million for 1995 and losses of Nkr 26.3 million and Nkr
32.1 million in 1994 and 1993 respectively. The drilling vessel Pelerin, which
was sold in 1995, was operated by Dynamic Drilling Partnership.
NOTE 29--FINANCIAL INSTRUMENTS
The Company, having Nkr as its base currency, operates internationally,
giving rise to significant exposure to market risks from changes in interest
rates and foreign exchange rates. The Company actively manages its portfolio
of financial assets, liabilities and derivatives in order to manage those
risks. The Company does not issue or hold financial instruments for trading
purposes.
Currency forward and option contracts are used to hedge the future value of
income and expenses denominated in foreign currencies and the foreign exchange
risk of the Company's assets and liabilities. The Company generally hedges a
defined portion of anticipated one year cash flows in all material currencies.
Interest rate agreements are used to hedge interest rate risks and to change
the structure of debt denominated in foreign currencies. All interest rate
agreements are related to underlying long term debt.
The Company is exposed to credit-related losses in the event of non-
performance by counterparties to all financial instruments, but expects the
counterparty risk to be minimal. The market for the Company's services and
products is the offshore oil and gas industry, and the Company's customers
consist primarily of major integrated international oil companies and
independent oil and gas producers. Accordingly, the Company does not believe a
significant risk of credit loss exists with respect to accounts receivable. At
December 31, 1995, and 1994, the Company had cash deposits primarily in major
banks. The Company believes that the credit risk for such deposits is minimal.
The credit exposure of interest rate agreements and foreign exchange contracts
is represented by those contracts with individual counter parties that result
in a net positive fair value at the reporting date.
F-58
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The notional amounts of derivatives summarised below do not represent
amounts exchanged by the parties and thus are not a measure of the exposure of
the Company through the use of derivatives. Actual amounts exchanged are
calculated on the basis of the notional amounts and the other terms of the
derivatives.
FOREIGN EXCHANGE CONTRACTS (FORWARDS AND OPTIONS)
The tables below summarises by currency the contractual amounts of the
Company's currency forward and option contracts. The "bought" and "sold"
amounts represents the net Nkr equivalent of commitments to buy and sell
foreign currencies. Foreign currency amounts are translated at rates current
at the reporting date.
The following forward contracts are outstanding at 31 December 1995:
<TABLE>
<CAPTION>
SOLD NKR SOLD US$ SOLD US$
EXPIRATION BOUGHT $US RATE BOUGHT NKR AVG. RATE BOUGHT GBP AVG. RATE
---------- ----------- ---- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1. Quarter 1996... Nkr 28 mill 6.22 US$ 18 mill 6.26 US$ 9 mill 1.55
2. Quarter 1996... US$ 9 mill 6.22 US$ 9 mill 1.55
3. Quarter 1996... US$ 6 mill 6.28 US$ 7 mill 1.53
4. Quarter 1996... US$ 4 mill 6.34 US$ 2 mill 1.53
----------- ---- ----------- ---- ----------- ----
Total............. Nkr 28 mill 6.22 US$ 37 mill 6.26 US$ 27 mill 1.54
=========== ==== =========== ==== =========== ====
</TABLE>
The following option contracts are outstanding at 31 December 1995:
<TABLE>
<CAPTION>
AVERAGE
STRIKE
EXPIRATION NOTIONAL AMOUNT PRICE INSTRUMENTS
---------- --------------- ------- -----------------------
<S> <C> <C> <C>
1. Quarter 1996................. US$ 6 million 5.900 Sold put US$/call Nkr
1. Quarter 1996................. US$ 6 million 6.130 Bought put US$/call Nkr
1. Quarter 1996................. US$ 12 million 6.5066 Sold call US$/put Nkr
1. Quarter 1996................. US$ 1 million 1.5300 Sold put GBP/call US$
2. Quarter 1996................. US$ 4 million 6.125 Sold put US$/call Nkr
2. Quarter 1996................. US$ 4 million 6.175 Bought put US$/call Nkr
2. Quarter 1996................. US$ 8 million 6.7555 Sold call US$/put Nkr
2. Quarter 1996................. US$ 2 million 1.5700 Sold put GBP/call US$
3. Quarter 1996................. US$ 2 million 5.9500 Sold put US$/call Nkr
3. Quarter 1996................. US$ 2 million 6.3500 Bought put US$/call Nkr
3. Quarter 1996................. US$ 2.6 million 6.6000 Sold call US$/put Nkr
</TABLE>
INTEREST RATE AGREEMENTS (SWAPS, FRAS, CAPS AND FLOORS)
The table below summarises the outstanding contractual amounts of the
Company's interest rate swaps and FRAs as of December 31, 1995:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT INSTRUMENT TO RECEIVES TO PAYS AVERAGE INTEREST RATE MATURITY
- --------------- ---------- ----------- ------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
US$ 20 mill.... Swap LIBOR Fixed 8.04% 09.01.2000
US$ 40 mill.... Swap LIBOR Fixed 7.54% 09.01.1997
US$ 40 mill.... FRA LIBOR Fixed 5.58% 09.04.1996
US$ 50 mill.... FRA LIBOR Fixed 5.69% 09.07.1996
US$ 20 mill.... FRA LIBOR Fixed 5.62% 09.10.1996
Nkr10 mill..... Swap NIBOR Fixed 7.4% 01.12.1997
</TABLE>
F-59
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The table below summarizes the outstanding contractual amounts of the
Company's interest rate caps and floors as of December 31, 1995:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT INSTRUMENT PERIOD STRIKE
- --------------- ------------------- ----------------- ------
<S> <C> <C> <C>
US$ 20 mill........................ Bought interest cap 09.04.95-09.04.98 7.80%
US$ 20 mill........................ Sold interest cap 09.04.95-09.04.98 9.00%
US$ 20 mill........................ Sold interest floor 09.04.95-09.04.98 6.30%
US$ 10 mill........................ Bought interest cap 10.04.95-10.04.97 7.00%
US$ 10 mill........................ Sold interest cap 10.04.95-10.04.97 8.50%
US$ 10 mill........................ Sold interest floor 10.04.95-10.04.97 6.25%
US$ 20 mill........................ Sold interest floor 09.01.96-09.04.96 5.50%
Nkr 15 mill........................ Bought interest cap 01.03.95-01.03.98 7.00%
Nkr 15 mill........................ Sold interest cap 01.03.95-01.03.98 8.50%
Nkr 15 mill........................ Sold interest floor 01.03.95-01.03.98 5.00%
Nkr 20 mill........................ Bought interest cap 01.06.95-01.12.97 6.50%
Nkr 20 mill........................ Sold interest cap 01.06.95-01.12.97 7.50%
Nkr 20 mill........................ Sold interest floor 01.06.95-01.12.97 5.25%
</TABLE>
NOTE 30--FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of estimated fair value of financial instruments is based on the
requirements of Statements of Financial Accounting Standards (SFAS) No. 105,
107 and 119, as issued by the U.S. Financial Accounting Standards Board and
upon the assumptions and methods described below. Different estimates may have
been obtained had other assumptions or methods been applied. The estimates are
not necessarily indicative of amounts that would be realised in a market
exchange.
Cash and cash equivalents and blocked cash deposit.
The carrying amounts approximate fair value.
Shares and investments
Fair value or market value is not readily available or estimatable as there
are no markets for the Company's shares and investments.
Promissory Notes
The fair value of promissory notes represents balances translated from US$
to Nkr at the year end exchange rate.
Debt, short-term and long-term
The fair value of the debt represents an estimated liquidation value that
was translated, if necessary, from US$ to Nkr at the year end exchange rate.
Senior secured notes with a carrying amount of Nkr 588.3 million were included
in long-term debt at the end of 1995. The January 1996 repurchase price of the
senior secured notes approximates its fair value as of December 31, 1995.
Derivatives
The fair value of the foreign exchange contracts and interest rate
agreements listed below is the estimated amount that the company would receive
or pay to terminate the contract or agreement at the balance sheet date based
upon estimates obtained from external counterparties.
F-60
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the Company's financial instruments in Nkr
1,000 are as follows:
<TABLE>
<CAPTION>
1995
---------------------------------
CARRYING AMOUNT FAIR VALUE AMOUNT
--------------- -----------------
<S> <C> <C>
Promissory Notes.............................. 69,509 69,509
Debt, short-term and long-term................ 1,916,800 1,922,200
Foreign exchange contracts.................... (2,166) (1,595)
Interest rate agreements...................... 0 (23,210)
</TABLE>
NOTE 31--CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
(AMOUNTS IN NKR 1,000)
<S> <C> <C> <C>
Cash paid during the year for:
Interest........................................... 178,305 194,325 214,709
Income taxes....................................... 11,502 9,026 14,085
</TABLE>
Non-cash transactions:
The semisubmersible 2nd-generation rig Treasure Driller was sold in October
1994 for US$ 11 million, or approximately Nkr 72.7 million, in promissory
notes.
In 1993, Transocean sold three of its rigs to Global Marine, Inc. ("Global")
in exchange for one Global rig and an additional amount in cash. The non-cash
portion of the transaction was Nkr 393.7 million.
Purchases of fixed assets that were financed through capital lease
obligations amounted to Nkr 36.2 million, zero and Nkr 14.3 million in 1995,
1994 and 1993, respectively.
Proceeds from sales of fixed assets in the amount of US$13.0 million (Nkr 80.6
million) were received in 1996 from a disposal that was recorded in 1995.
NOTE 32--RELATED PARTIES TRANSACTIONS
The Global Agreement
Transocean and Global Marine entered into a cooperation agreement in 1993
under which Transocean receives 43.41% of operating income prior to
depreciation for the rigs Transocean Nordic (formerly Transocean No. 9),
Glomar Adriatic V (formerly Transocean No. 5), Glomar Adriatic VI and Glomar
Adriatic VII. Transocean Nordic which was bought from Global Marine in 1993
and is 100% owned by Transocean is included in the item Rigs in the company's
balance sheet. The remaining rigs included in the cooperation agreement were
sold by Transocean to Global Marine in 1993. The parties have full rights over
their respective rigs. Expenses and revenues related to the operation of
Transocean Nordic are entered gross as ordinary operating revenues and
operating expenses. Global Marine's share of the result from Transocean Nordic
is netted against Transocean's 43.41% share of the result from the remaining
rigs that are included in the cooperation agreement. Transocean's share of the
result is Nkr 15.7 million, Nkr 8.7 million and Nkr 1.1 million for 1995, 1994
and 1993, respectively. The net receivable was Nkr 3.1 million, Nkr 7.1
million and Nkr 1.1 million as of December 31, 1995, 1994 and 1993,
respectively.
F-61
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stadrill KS 4
Until 1994, the Company (then Wilrig AS) held a 20% ownership interest in
the limited partnerships Stadrill KS 4, which owned the third generation
semisubmersible drilling rig Treasure Staworker.
Since it was initially placed in service during the late fall of 1990, the
rig has operated in the US Gulf under a bareboat agreement between Stadrill KS
4 and the subsidiary company Wilrig (USA) Inc. In addition, the Company and
Stadrill KS 4 had a management agreement. Under the management agreement, the
Company was engaged as an independent contractor to provide Stadrill KS 4 with
marketing, contracting and operating services. In performing these services,
the Company employed all operating personnel and substantially all
administrative personnel and was responsible for marketing the rigs, providing
repair and maintenance services, furnishing insurance coverage, maintaining
operating and financial records and performing other duties as deemed
appropriate. The Company was reimbursed by Stadrill KS 4, at cost, for all
related expenditures, to the extent the rigs' operating revenues did not cover
such costs. In addition, the Company received a fee for the management
contract.
In August 1993, the Treasure Staworker rig was sold to an American drilling
contractor and both the management agreement and the bareboat agreement were
subsequently terminated. Transocean's share of the result was Nkr 1.7 million
and Nkr -7.6 million for 1994 and 1993, respectively. The net receivable was
zero and Nkr 0.2 million as of December 31, 1994 and 1993, respectively.
Stadrill KS 4 was liquidated in 1994.
Stadrill KS 5
Until 1994, the Company (then Wilrig AS) held a 20% ownership interest in
the limited partnerships Stadrill KS 5, which owned the third generation
semisubmersible drilling rig Treasure Stawinner.
Since it was initially placed in service during the late fall of 1990
through March 1992, the rig operated in the US Gulf under a bareboat agreement
between Stadrill KS 5 and Wilrig (USA) Inc. In addition, the Company and
Stadrill KS 5 had a management agreement. In connection with the mobilization
of the rig from the US Gulf to the coast of Brazil in April 1992, the bareboat
agreement and the management agreement were terminated and replaced by a
substitutional management agreement. Under all three agreements, the Company
was engaged as an independent contractor to provide Stadrill KS 5 with
marketing, management and operating services. In performing these services,
the Company employed all operating personnel and substantially all
administrative personnel and was responsible for marketing the rigs, providing
repair and maintenance services, furnishing insurance coverage, maintaining
operating and financial records and performing other duties as deemed
appropriate. The Company was reimbursed by Stadrill KS 5, at cost, for all
related expenditures, to the extent the rigs' operating revenues did not cover
such costs. In addition, the Company received a fee for the management
contract.
In August 1993, the Treasure Stawinner rig was sold to an American drilling
contractor. The substitutional management agreement was subsequently
terminated.
Transocean's share of result was Nkr 2.9 million and Nkr 5.8 million for
1994 and 1993, respectively. The net payable was zero and Nkr 0.9 million as
of December 31, 1994 and 1993, respectively.
Stadrill KS 5 was liquidated in 1994.
F-62
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Dynamic Drilling Partnership
The drilling vessel Pelerin which was sold in 1995 was operated by the
company Dynamic Drilling Partnership, of which Transocean, through its
subsidiary Pelerin Drilling AS, owned 80% and the French company ITM 20%.
Dynamic Drilling Partnership is defined as a jointly controlled business and
is included in the accounts using the proportional consolidation method.
Transocean's share of the result is Nkr 98.5 million for 1995 and a loss of
Nkr 26.3 million and 32.1 million in 1994 and 1993, respectively.
Odebrecht--Transocean Joint Venture
The Company (then Wilrig AS) and the Brazilian drilling contractor Odebrecht
Perfuraoes Ltda. have entered into a joint venture agreement (the "agreement")
in Brazil. The objective of the agreement is to manage and operate the third
generation semisubmersible drilling rig Treasure Legend (previously the third
generation semisubmersible drilling rig Treasure Stawinner which was sold in
1993) under a drilling contract between Transocean and Petroleo Brasileiro SA
(Petrobras) and a service contract between Odebrecht Perfuraoes Ltda. and
Petrobras. Transocean and Odebrecht each own a 50% interest. The profits and
losses of the joint venture are shared equally between the two partners.
Under the agreement, the joint venture shall provide management and
operating services. In performing these services, the joint venture employs
all operating personnel and substantially all administrative personnel and is
responsible for providing repair and maintenance services, furnishing
insurance coverage, maintaining operating and financial records and performing
other duties as deemed appropriate. Transocean's share of the income is Nkr
2.7 million, Nkr 7.5 million and Nkr 5.3 million for 1995, 1994 and 1993,
respectively.
Transactions with shareholders
In February 1994, the Company (then Wilrig AS) entered into an agreement
with Norex Drillco AS to acquire the third generation semisubmersible drilling
rig, Transocean Driller (formerly Drillmar I), for a purchase price of $37.65
million. Norex Drillco AS is a subsidiary of Norex Holding ASA. Norex Holding
ASA, as of March 31, 1996, held 5.38% of the Company's outstanding shares. In
addition, Mr. Kristian Siem, Chairman of Transocean, is chairman of the Norex
America, Inc. and a Director of Norex Holding ASA. Mr. Siem excused himself
from all proceedings and deliberations relating to the negotiation of the
terms and conditions of the purchase of the Transocean Driller by the Company
(then Wilrig AS) from Norex Drillco AS. Transocean believes that the terms and
conditions of the purchase of the Transocean Driller were negotiated on an
arm's length basis.
During the period that Norex Drillco AS owned the Transocean Driller, a
management agreement between Norex Holding ASA and the Company existed for the
operation of Transocean Driller. In accordance with the latter agreement, the
Company was entitled to receive a management fee.
Insurance
Kristian Siem, Chairman of Transocean, is a non-executive director of
Lowndes Lambert Group Holding Plc which owns the insurance broker Lowndes
Lambert Holding Limited. Norex American, Inc., of which Mr. Siem is the
Chairman, owns approximately 1.75% of Lowndes Lambert Group Holding Plc. As of
March 31, 1995, Lowndes Lambert Holding Limited was placing about 65% of
Transocean's hull & machinery insurance policies. Premium paid for 1995 was
Nkr 7.4 million.
NOTE 33--SUBSEQUENT EVENTS
Refinancing
During January 1996, the Company refinanced its long-term debt. The
outstanding US$80.2 million 11 1/4% Senior Secured Notes were repurchased, and
the unsecured loan of US$25 million was repaid in addition to the
F-63
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
remaining US$6.3 million of the Treasure Saga loan and the US$1 million
utilized on the revolving credit facility. The repayment was financed from the
utilization of a US$110 million revolving credit facility and available
operating cash of US$2.5 million. In addition, the premium on repurchase of
the bonds for US$11.5 million was financed from operating cash. As of June 15,
1996, the Company's outstanding loan, totalled US$129 million of which
US$124 million was utilized under the credit facility. Ten of the company's
rigs, in addition to the assignment of the Company's earnings and insurance
policies, were pledged as collateral. U.S. $3.8 million was outstanding under
a separate facility which is part of the revolving credit facility agreement.
This amount is payable in full in the third quarter of 1996. Nkr 5.2 million
was outstanding under credit facilities entered into by Engineering &
Construction.
Sale of Anchor
In April 1996, Transocean finalized an agreement with M-I Drilling Fluids
regarding the sale of Anchor Drilling Fluids ("Anchor"), thereby planning the
disposal of the Fluid Services business segment. The agreed upon sales price
was Nkr 695.75 million, subject to certain adjustments not yet completed to be
paid in cash. The sale of Anchor was finalized on June 11, 1996. As a result
of this transaction, Transocean will record a gain of approximately Nkr 360
million in the second quarter.
Combination with Sonat Offshore
On July 26, 1996, the Board of Directors of Transocean approved a
"combination-of-equals" transaction under which the businesses of Sonat
Offshore Drilling Inc. ("Sonat Offshore") and Transocean would be combined
under the ownership of one company to be known as "Transocean Offshore Inc."
In order to effect such transaction, Sonat Offshore has offered to exchange
for the outstanding shares of Transocean (i) .53 of a share of common stock of
Sonat Offshore for each of 43,248,358 shares of Transocean and (ii) US$27.25
for each remaining share of Transocean.
NOTE 34--SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN NORWAY AND THE UNITED STATES
The consolidated financial statements are prepared in accordance with the
generally accepted accounting principles in Norway (N.GAAP), which differ in
certain respects from accounting principles generally accepted in the United
States (US GAAP).
Following is a summary of the estimated adjustments under US GAAP that would
affect the net income and total shareholders' equity, in addition to a
discussion of the principal differences between N.GAAP and US GAAP that are
significant to the Transocean consolidated financial statements.
Pensions
Transocean implemented the new Norwegian accounting standard for pensions as
of January 1, 1994. The cumulative effect, net of deferred tax, has been
charged directly to shareholders' equity and amounted to Nkr 53.1 million.
In accordance with US GAAP, the Company has implemented Statement of
Financial Accounting Standards No. 87 as of January 1, 1989. The net
differences between the Norwegian and US GAAP net income/loss and
shareholders' equity related to pension accounting have been included in the
reconciliation presented.
Translation of Foreign Currency Balances
The Company follows a policy of translating non-current assets denominated
in a foreign currency using the lower of the exchange rate on the transaction
date or the balance sheet date. Non-current liabilities
F-64
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
denominated in a foreign currency are translated using the higher of the
exchange rate on the transaction date or the balance sheet date. Net
unrealized gains on non-current assets and liabilities denominated in foreign
currencies are not recognized while net unrealized losses by currency are
charged to income when incurred.
Under US GAAP, all assets and liabilities denominated in a foreign currency
are translated using the exchange rate at the balance sheet date. Both net
unrealized gains and losses related to unhedged positions are recognized
currently and included in the statement of operations.
Exchange of Assets
In 1993, Transocean sold three of its rigs to Global Marine, Inc. (Global)
in exchange for one Global rig and an additional amount in cash. This
transaction has been treated as a monetary transaction and the calculated gain
from the sale recorded as income.
In accordance with US GAAP, this transaction would have been treated as a
non-monetary transaction with only the pro rata portion of the calculated gain
on the cash received being recognized as income.
Loans Fees
Transocean has historically capitalized and amortized initial direct costs
of borrowing (loan fees) over the life of the related loans(s), while Wilrig
has charged these fees to income in the period incurred, (see Note 1). The
combined entities have elected to charge such expenses to income in the period
incurred.
According to US GAAP, direct costs of borrowing should be amortized over the
life of the related loans.
When accounting for business combinations using the pooling of interests
method in Norway, a change in accounting principle necessary to conform the
combining entities accounting policies is made as of the effective date of the
pooling and followed prospectively. The cumulative effect of the change has
been charged to income as financial expenses at January 1, 1995.
For US GAAP a change in accounting principles is not recognized for
conforming the accounting policies of combining entities in a pooling of
interests transaction.
Accounting for Business Combinations
Change of accounting principle--survey costs
Transocean accrues, both for Norwegian and US GAAP purposes, expected survey
costs over a five year period prior to planned surveys.
For Wilrig, this results in a change in accounting principle for US GAAP
purposes in connection with the merger. The change was necessary to align the
accounting principles of the combining entities. Prior to the merger, for US
GAAP purposes, Wilrig charged survey costs to income as incurred. Accordingly,
Wilrig's net loss and shareholders' equity under US GAAP have been restated
for all periods presented.
Pooling-of-interests versus purchase method
The Company has accounted for certain business combinations using the
pooling-of-interest method.
F-65
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED STATEMENTS--(CONTINUED)
The Norwegian GAAP criteria for applying the pooling-of-interests method
are, in general, less restrictive than those under US GAAP. As a result,
certain business combinations accounted for by the Company using the pooling-
of-interests method would have required the application of the purchase method
under US GAAP.
Contract Advances
The Company has accounted for the income related to certain advance payments
on contracts using an annuity basis of amortization. This method includes the
recording of hypothetical operating revenues and interest expenses based upon
the assumption that the advance payment is a finance transaction.
Under US GAAP, amounts received in advance representing reimbursements of
expenses to be incurred in connection with performance under a contract
should, in general, be recognized in income on a straight line basis over the
life of the respective contract.
Deferred Taxes on Partnerships
The combined entities have computed their share of deferred taxes related to
investments in limited partnerships and reduced such investments for the
resulting deferred tax liabilities.
According to US GAAP, the limited partners' share of partnership results
should be included in the consolidated result on a gross basis with deferred
taxes computed and stated separately.
Compensation Costs
The Company has granted options to employees that have been exercised during
1995. As options are granted and new stock is issued in connection with the
exercise of such options, no expense is recorded under Norwegian GAAP. Under
US GAAP, expense is recorded for employee stock options when the exercise
price is lower than the market price on the measurement date.
Deferred taxes, asset recognition and classification
In accordance with Norwegian GAAP, the Company recognizes and records all
deferred tax liabilities resulting from temporary differences in financial and
tax reporting. Deferred tax assets resulting from temporary differences in
financial and tax reporting are only recognized to the extent deferred tax
liabilities have been recognized. If the net total of all deferred tax
liabilities and assets results in a net deferred tax liability, it is recorded
as a net long-term deferred tax liability.
Under US GAAP, all deferred tax liabilities and assets resulting from
temporary differences in financial and tax reporting are recognized. Deferred
tax assets are reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax liabilities and assets
are separated into a net current amount and a net non-current amount,
classified as current or non-current based on the classification of the
respective related asset or liability for financial reporting. A deferred tax
liability or asset that is not related to an asset or liability for financial
reporting should be classified according to the expected reversal date of the
temporary difference.
Deferred Taxes on US GAAP Adjustments
Deferred taxes have been recorded with respect to the US GAAP adjustments
described above, where appropriate.
F-66
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Discontinued Operations
Norwegian accounting principles do not require separate disclosure of the
results, net of tax, of discontinued operations on the face of the income
statement.
Under US GAAP, separate disclosure of the results of continuing and
discontinued operations, net of tax, is required to be retroactively presented
on the face of the income statement. Thus, the individual line items that
comprise income (loss) before minority interests are restated to reflect only
the activity from continuing operations. The US GAAP adjustments applicable to
discontinued operations, have been separately stated and specified in the
reconciliations of consolidated net income and shareholder's equity. These
adjustments relate primarily to pensions.
Joint Ventures
Under Norwegian GAAP joint ventures are included in the consolidated
financial statements using the proportionate consolidation method. While this
accounting has no impact on the consolidated net loss or total shareholder's
equity, the Company has reflected the investment in the joint venture using
the equity method according to US GAAP. This difference has been adjusted for
in the consolidated statements of operations and the consolidated balance
sheets prepared in accordance with US GAAP and included in this Note.
Consolidated Statement of Cash Flows
The consolidated statement of cash flows prepared in accordance with
Norwegian GAAP presents substantially the same information as that required
under US GAAP. Under US GAAP however, there are certain differences from
Norwegian GAAP with regard to the presentation of items within the cash flow
statement.
These differences, which include the presentation of net realized currency
gains on debt repayments, non-cash reclassification of promissory notes from
current to long-term receivables and the gross changes in overdraft facilities
will not exist in 1996 as US and Norwegian GAAP will require cash flow
information to be presented in the same format.
Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under US GAAP.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1995 1994 1993
------------- ------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C> <C>
Net cash provided by
operating activities... 19,806 125,195 95,180 325,637
Net cash provided by
(used in) investing
activities............. 12,087 76,402 (423,955) (74,287)
Net cash provided by
(used in) financing
activities............. (37,396) (236,383) 84,269 (63,690)
Effect of exchange rate
changes on cash........ (675) (4,268) (16,901) 6,844
------- -------- -------- -------
Net increase/(decrease)
in cash and cash
equivalents............ (6,178) (39,054) (261,407) 194,504
======= ======== ======== =======
</TABLE>
Recent Accounting Pronouncements
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be disposed of
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of" was issued. SFAS No. 121
requires that long-lived assets and identifiable intangibles to be held and
used by the entity shall be reviewed for impairment whenever events or
circumstances indicate that the carrying amount of the assets may not be
recoverable. The accounting standard is effective for fiscal years beginning
after December 15, 1995. The implementation of this standard is believed to
have no effect on the Company's financial statement.
F-67
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounting for Stock Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock Based Compensation" was
issued, effective for fiscal years beginning after December 15, 1995. SFAS No.
123 requires compensation expense to be recorded based on the fair value of
options issued, or based on the pre-existing rules outlined in APB Opinion 25.
The compensation costs recorded for US GAAP purposes, as described above, are
calculated using the rules as outlined in APB Opinion 25, thus compensation
expense is based on the excess of the underlying security's quoted market
price over the exercise price of the option at the measurement date, as
defined.
The Company has not decided which measurement approach it will follow for
future periods.
RECONCILIATION OF NET INCOME IN ACCORDANCE WITH NORWEGIAN GAAP TO US GAAP
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994 1993
-------- --------- ---------
(AMOUNTS IN NKR 1,000,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income/(loss) in accordance with Norwe-
gian GAAP................................. 18,741 (127,986) (580,099)
Pensions................................... (4,429) (1,570) (2,130)
Translation of foreign currency balances... 7,490 82,518 (4,804)
Exchange of assets......................... 834 834 (13,145)
Loan fees.................................. (156) 19,283 (1,632)
Pooling-of-interests versus purchase meth-
od........................................ 11,322 15,387 519,700
Contract advances.......................... (8,830) (868) 6,201
Deferred taxes on partnerships............. (4,676)
Compensation costs......................... (4,699) (200)
Adjustments related to discontinued opera-
tions..................................... (28) 119 (92)
------- --------- ---------
Net income/(loss) in accordance with US
GAAP...................................... 20,245 (17,159) (76,001)
======= ========= =========
</TABLE>
RECONCILIATION OF SHAREHOLDERS' EQUITY IN ACCORDANCE WITH NORWEGIAN GAAP TO US
GAAP
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Shareholders' equity in accordance with
Norwegian GAAP................................. 2,290,329 2,268,607
Pensions........................................ 21,029 25,458
Translation of foreign currency balances........ 90,008 82,518
Exchange of assets.............................. (11,477) (12,311)
Loan fees....................................... 21,405 21,561
Pooling-of-interests versus purchase method..... (11,322)
Contract advances............................... 8,830
Adjustments related to discontinued operations.. 324 352
----------- -----------
Shareholders' equity in accordance with US
GAAP........................................... 2,411,618 2,383,693
=========== ===========
</TABLE>
F-68
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS (US GAAP)
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
-------------------------------------------------------
1995 1995 1994 1993
------------- ------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C> <C>
Revenues from rig
contracts.............. 239,043 1,510,989 1,208,232 974,507
Revenues from services.. 109,509 692,209 596,989 582,229
------- --------- --------- ---------
Total revenues.......... 348,552 2,203,198 1,805,221 1,556,736
------- --------- --------- ---------
Cost of revenues from
mobile rigs............ 175,838 1,111,474 908,413 586,803
Cost of product and
service revenues....... 88,863 561,706 484,788 483,151
Selling, general and
administrative
expenses............... 36,971 233,695 155,598 162,846
Depreciation and
amortization........... 49,671 313,970 328,466 261,681
Loss (gain) on sale of
fixed assets........... (18,547) (117,238) (1,147) (3,830)
Write-down(s) of
rig(s)................. -- -- 45,000 49,381
------- --------- --------- ---------
Operating income
(loss)................. 15,756 99,591 (115,897) 16,704
------- --------- --------- ---------
Interest and other
financial income....... 6,840 43,233 37,632 23,794
Interest and other
financial expenses..... (34,919) (220,721) (170,364) (107,754)
Exchange gains (losses),
net.................... 16,457 104,027 155,460 (62,098)
Share of net income
(loss) of affiliated
companies and limited
partnership............ 421 2,664 (76) (2,798)
------- --------- --------- ---------
Net financial income
(expenses) ............ (11,201) (70,797) 22,652 (148,856)
------- --------- --------- ---------
Income (loss) before
minority interests and
taxes.................. 4,555 28,794 (93,245) (132,152)
Minority interests...... (3,896) (24,629) 6,514
Taxes payable........... (578) (3,655) (4,468) (898)
Deferred taxes.......... 173 1,092
------- --------- --------- ---------
Income (loss) from
continuing operations.. 254 1,602 (91,199) (133,050)
------- --------- --------- ---------
Discontinued operations
(Note 33):
Income from operations
of discontinued fluid
services business
segment (Net of income
taxes of Nkr 8,719, Nkr
6,911 and Nkr 7,710 for
1995, 1994 and 1993,
respectively).......... 2,949 18,643 74,041 57,049
------- --------- --------- ---------
Net income (loss)....... 3,203 20,245 (17,158) (76,001)
======= ========= ========= =========
Income (loss) per share
Income (loss) from
continuing operations.. 0.01 0.03 (1.86) (2.97)
Income (loss) from
discontinued
operations............. 0.05 0.36 1.51 1.27
------- --------- --------- ---------
Net income (loss)....... 0.06 0.39 (0.35) (1.70)
======= ========= ========= =========
Average number of shares
outstanding............ 52,550 52,550 49,125 44,809
</TABLE>
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on December 29, 1995 of
US$1.00 = Nkr 6.321.
F-69
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (US GAAP)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1995 1994
------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........... 60,844 384,596 443,373
Blocked cash deposit................ 8,544 54,004 54,241
Accounts receivable, net............ 58,774 371,511 339,765
Inventories......................... 31,820 201,134 122,799
Other current assets................ 3,126 19,762 104,416
Net assets of discontinued opera-
tions.............................. 56,752 358,732 349,004
------- --------- ---------
Total current assets............ 219,860 1,389,739 1,413,598
------- --------- ---------
Investment in affiliated companies.. 118 744 746
Long-term receivables............... 15,030 95,004 25,007
Prepaid pensions.................... 6,397 40,435 54,199
Rigs................................ 490,436 3,100,047 3,507,187
Other fixed assets.................. 23,724 149,962 130,447
Goodwill and intangible assets...... 969 6,123 26,287
------- --------- ---------
Total non-current assets........ 536,674 3,392,315 3,743,873
------- --------- ---------
Total assets.................... 756,534 4,782,054 5,157,471
======= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable.................... 14,389 90,954 120,841
Accrued expenses and other current
liabilities........................ 52,870 334,189 392,592
Taxes payable....................... 25 160 1,870
Current portion of long-term debt... 46,198 292,018 178,926
------- --------- ---------
Total current liabilities....... 113,482 717,321 694,229
------- --------- ---------
Convertible bonds................... 13,679 86,468 86,468
Senior secured notes................ 80,140 506,563 730,296
Other long term debt................ 148,684 939,829 1,160,342
Accrued pensions.................... 9,406 59,454 69,155
Other long-term liabilities......... 7,598 48,030 29,059
Deferred taxes...................... 257 1,625 2,641
------- --------- ---------
Total long-term liabilities..... 259,764 1,641,969 2,077,961
------- --------- ---------
Minority Interests.................. 1,763 11,146 1,588
------- --------- ---------
Shareholders' equity:
Share capital....................... 41,658 263,317 262,186
Other shareholders' equity.......... 339,867 2,148,301 2,121,507
------- --------- ---------
Total shareholders' equity...... 381,525 2,411,618 2,383,693
------- --------- ---------
Total liabilities & sharehold-
ers' equity.................... 756,534 4,782,054 5,157,471
======= ========= =========
</TABLE>
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on December 29, 1995 of
US$1.00 = Nkr 6.321.
F-70
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------
1996 1996 1995
------------ ------------ ------------
(IN US$'000) (IN NKR'000) (IN NKR'000)
<S> <C> <C> <C>
Revenues from:
Rig contracts.......................... 57,917 371,537 365,990
Services............................... 70,282 450,857 332,758
------- -------- --------
Total revenues..................... 128,199 822,394 698,748
------- -------- --------
Operating expenses..................... 112,767 723,398 652,241
Depreciation and amortization.......... 12,819 82,233 90,534
(Gain) loss on sale of fixed assets.... 43 278 (2,239)
------- -------- --------
Operating income (loss)............ 2,570 16,485 (41,788)
------- -------- --------
Interest and other financial income.... 1,677 10,758 11,338
Interest and other financial expenses.. (17,439) (111,869) (63,991)
Exchange gains (losses), net........... 9,827 63,042 (10,476)
Share of net income of affiliated
companies and limited partnership..... 28 180 391
------- -------- --------
Loss before minority interests and
taxes............................. (3,337) (21,404) (104,526)
Minority interests..................... (75) (483) (423)
Taxes payable.......................... (364) (2,334) (4,668)
------- -------- --------
Net loss............................... (3,776) (24,221) (109,617)
======= ======== ========
Net loss per share..................... (0.07) (0.45) (2.09)
======= ======== ========
Average number of shares outstanding... 53,434 53,434 52,550
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on March 29, 1996 of
US$1.00 = Nkr 6.415.
F-71
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------- -------------
1996 1996 1995
------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............ 56,556 362,804 421,129
Blocked cash deposit................. 54,004
Accounts receivable, net............. 103,382 663,199 586,496
Inventories.......................... 26,618 170,754 155,210
Other current assets................. 24,285 155,791 223,742
------- --------- ---------
Total current assets............. 210,841 1,352,548 1,440,581
------- --------- ---------
Rigs................................. 479,778 3,077,773 3,111,524
Other fixed assets................... 78,453 503,277 482,813
------- --------- ---------
Total non-current assets......... 558,231 3,581,050 3,594,337
------- --------- ---------
Total assets......................... 769,072 4,933,598 5,034,918
======= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-free current liabilities.... 89,423 573,649 639,210
Interest-bearing current liabili-
ties................................ 21,928 140,666 292,771
------- --------- ---------
Total current liabilities........ 111,351 714,315 931,981
------- --------- ---------
Convertible bonds.................... 40 259 86,468
Senior secured notes................. 588,251
Other long-term debt................. 257,809 1,653,845 997,700
Other long-term liabilities.......... 29,445 188,885 126,140
------- --------- ---------
Total long-term liabilities...... 287,294 1,842,989 1,798,559
------- --------- ---------
Commitments and contingencies
Minority interests................... 2,265 14,532 14,049
------- --------- ---------
Shareholders' equity:
Share capital........................ 42,088 269,996 263,317
Other shareholders' equity........... 326,074 2,091,766 2,027,012
------- --------- ---------
Total shareholders' equity....... 368,162 2,361,762 2,290,329
------- --------- ---------
Total liabilities & shareholders'
equity.......................... 769,072 4,933,598 5,034,918
======= ========= =========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on March 29, 1996 of
US$1.00 = Nkr 6.415.
F-72
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1996 1996 1995
------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
Cash flows from operations:
Net loss............................ (3,776) (24,221) (109,617)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization....... 12,819 82,233 90,534
(Gain)loss on sales of fixed
assets............................. (2,241)
Net unrealized foreign exchange
gains on long-term items........... (9,468) (60,739) (4,404)
Share of net income/(loss) of
affiliated companies............... (134) (857) (2,403)
Change in classification,
demobilization and other accrued
expenses........................... 1,686 10,816 (1,125)
Minority interests.................. 75 483 (418)
Contract advance.................... (17,557)
Deferred taxes...................... 273
Other............................... (650) (4,167) 5,611
Change in current assets and
liabilities:
(Increase) decrease in
inventories...................... (2,423) (15,544) 888
(Increase) decrease in other
current assets................... (5,379) (34,505) 60,032
Increase (decrease) in interest-
free current liabilities......... (8,952) (57,430) (43,984)
Increase (decrease) in interest-
bearing current liabilities...... 4,970 31,880 (12,278)
-------- -------- --------
Net cash flows provided by operating
activities......................... (11,232) (72,051) (36,689)
-------- -------- --------
Cash flows from investing
activities:
Investments in fixed assets......... (10,880) (69,797) (36,093)
Proceeds from sales of fixed
assets............................. 12,566 80,613 135,292
Change in long-term receivables and
investments........................ 132 851 (53,768)
-------- -------- --------
Net cash flows provided by investing
activities......................... 1,818 11,667 45,431
-------- -------- --------
Cash flows from financing
activities:
Proceeds from new debts issued...... 109,910 705,075 43,890
Repayment of debts.................. (125,150) (802,838) (58,327)
Issuance of shares.................. 14,911 95,655 3,379
-------- -------- --------
Net cash flows (used in) financing
activities......................... (329) (2,108) (11,058)
-------- -------- --------
Effect of exchange rate changes on
cash............................... 651 4,167 (7,273)
-------- -------- --------
Net (decrease)increase in cash...... (9,092) (58,325) (9,589)
Cash and cash equivalents at
beginning of period................ 65,648 421,129 460,183
-------- -------- --------
Cash and cash equivalents at end of
period............................. 56,556 362,804 450,594
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on March 29, 1996 of
US$1.00 = Nkr 6.415.
F-73
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Norway, (N GAAP).
These accounting principles differ in certain respects from accounting
principles generally accepted in the United States, (US GAAP). See Note 5 for
a reconciliation of the principal differences between N GAAP and US GAAP
effecting Transocean's net income and shareholders' equity.
In these Notes to the Condensed Consolidated Financial Statements,
references to the "Company" and "Transocean" are to Transocean ASA and
Subsidiaries.
The information included in the interim condensed consolidated financial
statements is unaudited. In the opinion of the management, the interim
financial statements reflect all adjustments which are 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.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the December 31, 1995
consolidated financial statements and footnotes thereto.
NOTE 2--DISCONTINUED OPERATIONS
On June 11, 1996, Transocean sold substantially all of the assets of Anchor
Drilling Fluids which is a wholly owned subsidiary of Transocean to M-I
Drilling Fluids L.L.C., resulting in a gain of approximately Nkr 360 million.
The agreed upon sales price was Nkr 695.75 million to be paid in cash. Upon
the sale of Anchor Drilling Fluids, Transocean has disposed of the Fluid
Services business segment. Transocean has no current plans to pursue further
activity in this segment. However, M-I and Transocean have established a
strategic alliance in order to provide integrated contracts to customers. The
Fluids Services business segment has been accounted for as a discontinued
operations under US GAAP. See Note 5 to these statements.
NOTE 3--REFINANCING AND FINANCIAL EXPENSE
Transocean completed the refinancing of its debt, which at year end included
Senior Secured Notes of US$80.2 million, an unsecured loan of US$25 million, a
mortgage loan of US$4.8 million and a revolving credit facility of US$1.7
million as detailed in Note 16 to the December 31, 1995 consolidated financial
statements in addition to the new revolving credit facility which constitutes
the refinancing. A premium of Nkr 11.5 million was paid on the repurchase of
the Senior Secured Notes.
At June 15, 1996, following a repayment of US$110 million made on June 12,
1996, US$124 million in borrowings were outstanding under the credit facility.
The funds used for the June 12, 1996 repayment represents primarily the
proceeds from the sale of Anchor Drilling Fluids to M-I Drilling Fluids L.L.C.
which was consummated on June 11, 1996.
US$3.8 million were outstanding under a separate facility which is part of
the revolving credit facility agreement. This is payable in full in the third
quarter of 1996. Nkr 5.2 million were outstanding related to the credit
facilities entered into by Engineering & Construction.
NOTE 4--SUBSEQUENT EVENTS
On July 26, 1996, the Board of Directors of Transocean approved a
"combination-of-equals" transaction under which the businesses of Sonat
Offshore Drilling Inc. ("Sonat Offshore") and Transocean would be combined
under the ownership of one company to be known as "Transocean Offshore Inc."
In order to effect such transaction, Sonat Offshore has offered to exchange
for the outstanding shares of Transocean (i) .53 of a share of common stock of
Sonat Offshore for each of 43,248,358 shares of Transocean and (ii) US$27.25
for each remaining share of Transocean.
F-74
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--
(CONTINUED)
NOTE 5--US GAAP
Application of US GAAP would have the following effect on the consolidated
net income (loss) and shareholders' equity of Transocean.
RECONCILIATION OF NET INCOME (LOSS) IN ACCORDANCE WITH NORWEGIAN GAAP TO US
GAAP
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1996 1995
--------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Net loss in accordance with Norwegian GAAP.......... (24,221) (109,617)
Pensions............................................ 385 23
Translation of foreign currency balances............ (82,752) 142,921
Exchange of assets.................................. 209 209
Loan fees........................................... (12,602) 7,685
Contract advances................................... (1,424)
Compensation costs.................................. (263)
--------- ---------
Net income (loss) in accordance with US GAAP........ (119,244) 39,797
========= =========
</TABLE>
RECONCILIATION OF SHAREHOLDERS' EQUITY IN ACCORDANCE WITH NORWEGIAN GAAP TO US
GAAP
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- --------------
1996 1995
--------- ---------
(AMOUNTS IN NKR 1,000)
<S> <C> <C>
Shareholders' equity in accordance with Norwegian
GAAP............................................. 2,361,763 2,290,329
Pensions.......................................... 21,414 21,029
Translation of foreign currency balances.......... 7,256 90,008
Exchange of assets................................ (11,268) (11,477)
Loan fees......................................... 8,804 21,405
Adjustments related to discontinued operations.... 324 324
--------- ---------
Shareholders' equity in accordance with US GAAP... 2,388,293 2,411,618
========= =========
</TABLE>
F-75
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS (US GAAP)
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------
1996 1996 1995
------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
Revenues from:
Rig contracts........................ 58,443 374,910 330,984
Services............................. 30,506 195,701 145,007
------- -------- -------
Total revenues....................... 88,949 570,611 475,991
------- -------- -------
Operating expenses................... 75,771 486,071 457,862
Depreciation and amortization........ 11,687 74,976 82,945
Loss (gain) on sale of fixed assets.. 43 278
------- -------- -------
Operating income (loss).............. 1,448 9,286 (64,816)
------- -------- -------
Interest and other financial income.. 1,186 7,608 9,563
Interest and other financial ex-
penses.............................. (18,766) (120,383) (38,941)
Exchange gains (losses).............. (3,215) (20,626) 134,588
Share of net income (loss) of
affiliated companies and limited
partnership......................... (33) (208) --
------- -------- -------
Income (loss) before minority inter-
ests and taxes...................... (19,380) (124,323) 40,394
Minority interests................... 42 269 (1,033)
Taxes................................ (85) (544) (615)
------- -------- -------
Income (loss) from continuing opera-
tions............................... (19,423) (124,598) 38,746
Discontinued operations (Note 2):
Income from operations of
discontinued fluid services business
segment (Net of income taxes of Nkr
7,540, Nkr 4,070 for the periods
ending March 31, 1996 and 1995,
respectively)....................... 835 5,354 1,051
------- -------- -------
Net income (loss).................... (18,588) (119,244) 39,797
======= ======== =======
Income (loss) per share
Income (loss) from continuing opera-
tions............................... (0.37) (2.33) 0.74
Income (loss) from discontinued oper-
ations.............................. 0.02 0.10 0.02
------- -------- -------
Net income (loss).................... (0.35) (2.23) 0.76
======= ======== =======
Average number of shares outstand-
ing................................. 53,434 53,434 52,550
</TABLE>
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on March 29, 1996 of
US$1.00 = Nkr 6.415.
F-76
<PAGE>
TRANSOCEAN ASA AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATED BALANCE SHEETS (US GAAP)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------- -------------
1996 1996 1995
------------- ------------- -------------
(IN US$ '000) (IN NKR '000) (IN NKR '000)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........... 52,449 336,458 384,596
Blocked cash deposit................ 54,004
Accounts receivable................. 68,910 442,055 371,511
Inventories......................... 4,142 26,569 201,134
Other current assets................ 19,920 127,789 19,762
Net assets of discontinued
operations ........................ 56,755 364,087 358,732
------- --------- ---------
Total current assets............ 202,176 1,296,958 1,389,739
------- --------- ---------
Rigs................................ 478,021 3,066,506 3,100,047
Other fixed assets.................. 46,615 299,038 292,268
------- --------- ---------
Total non-current assets........ 524,636 3,365,544 3,392,315
------- --------- ---------
Total assets........................ 726,812 4,662,502 4,782,054
======= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-free current liabilities... 66,270 425,123 425,303
Interest-bearing current
liabilities........................ 11,200 71,849 292,018
------- --------- ---------
Total current liabilities....... 77,470 496,972 717,321
------- --------- ---------
Convertible bonds................... 40 259 86,468
Senior secured notes................ 506,563
Long-term debt...................... 248,374 1,593,318 939,829
Other long-term liabilities......... 26,849 172,237 109,109
------- --------- ---------
Total long-term liabilities..... 275,263 1,765,814 1,641,969
------- --------- ---------
Commitments and contingencies
Minority interests.................. 1,781 11,423 11,146
------- --------- ---------
Shareholders' equity:
Share capital....................... 42,088 269,996 263,317
Other shareholders' equity.......... 330,210 2,118,297 2,148,301
------- --------- ---------
Total shareholders' equity...... 372,298 2,388,293 2,411,618
------- --------- ---------
Total liabilities & shareholders'
equity............................. 726,812 4,662,502 4,782,054
======= ========= =========
</TABLE>
Translation of amounts from Norwegian kroner (Nkr) into US$ for the convenience
of the reader has been made at the Noon Buying Rate on March 29, 1996 of
US$1.00 = Nkr 6.415.
F-77
<PAGE>
ANNEX A
GOLDMAN, SACHS & CO.
July 26, 1996
Board of Directors
Sonat Offshore Drilling Inc.
4 Greenway Plaza
Houston, Texas 77046
Gentlemen:
You have requested our opinion as to the fairness to Sonat Offshore Drilling
Inc. (the "Company") of the Aggregate Consideration (as defined below),
proposed to be paid to the existing holders of common stock, par value NOK
5.00 (the "Transocean Shares"), of Transocean ASA ("Transocean") pursuant to
the Company's exchange offer (the "Exchange Offer") for 100% of the Transocean
Shares. Pursuant to the terms of the Exchange Offer, the consideration
proposed to be paid for each Transocean Share consists of either (i) the right
to receive 0.53 shares of Common Stock, par value $0.01 per share (the
"Shares"), of the Company (the "Stock Consideration") or (ii) the right to
receive $27.25 in cash (the "Cash Consideration"). Subject to the terms and
conditions of the Exchange Offer, as set forth in Amendment No. 1 to the Proxy
Statement of the Company, filed with the Securities and Exchange Commission on
July 18, 1996 ("Amendment No. 1"), holders of 80% of the outstanding
Transocean Shares on a fully diluted basis will be entitled to receive the
Stock Consideration and holders of 20% of the outstanding Transocean Shares on
a fully diluted basis will be entitled to receive the Cash Consideration. The
amount of the Stock Consideration or the Cash Consideration that any
particular holder of Transocean Shares will receive will be determined in
accordance with certain election procedures set forth in the Offer to
Purchase, as to which procedures we are expressing no opinion. As used herein,
the term "Aggregate Consideration" means the aggregate of the Stock
Consideration and the Cash Consideration proposed to be paid in the Exchange
Offer for 100% of the Transocean Shares.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having provided certain investment
banking services to the Company from time to time, including having acted as
managing underwriter of public offerings of Shares in May 1993 and July 1995,
and having acted as its financial advisor in connection with, and having
participated in certain negotiations leading to, the Exchange Offer.
In connection with this opinion, we have reviewed, among other things,
Amendment No. 1; the Company's Annual Reports to Stockholders and Annual
Reports on Form 10-K of the Company for the three years ended December 31,
1995; the Company's Registration Statements on Form S-1, including the
prospectus, dated May 27, 1993, relating to the initial public offering of the
Shares; the Company's Registration Statement on Form S-3, including the
prospectus, dated July 20, 1995 relating to a secondary offering of the
Shares; certain interim reports to stockholders of the Company and the
Company's Quarterly Reports on Form 10-Q; Transocean's Annual Reports to
Stockholders for the three years ended December 31, 1995; certain interim
reports to stockholders to Transocean; the prospectus dated May 12, 1995
related to the merger between Transocean and Wilrig AS; certain other
communications from the Company and Transocean to their respective
stockholders;
<PAGE>
and certain internal financial analyses and forecasts for the Company and
Transocean prepared by management of the Company (the "Management Forecasts").
We also have held discussions with members of the senior management of the
Company and Transocean regarding the strategic rationale for, and benefits of,
the combination and the past and current business operations, financial
condition and future prospectus of their respective companies. In addition, we
have reviewed the reported price and trading activity for the Shares and the
Transocean Shares, compared certain financial and stock market information for
the Company and Transocean with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the oil drilling industry and performed
such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. As you are aware, forecasts for Transocean prepared
by its management were not made available to us but were provided to Simmons &
Company International ("Simmons"). You have informed us that the Management
Forecasts were developed in consultation with Simmons based, in part, on their
review of such forecasts for Transocean. In that regard we have assumed, with
your consent, that the Management Forecasts, including, without limitation
projected cost savings and operations synergies resulting from the acquisition
of 100% of the Transocean Shares have been reasonably prepared on a basis
reflecting the best currently available judgments and estimates of the Company
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. In addition, we have not made an independent evaluation
or appraisal of the assets and liabilities of the Company or Transocean or any
of their subsidiaries and we have not been furnished with any such evaluation
or appraisal. Our advisory services and the opinion expressed herein are
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated
hereby. Our opinion is necessarily based on economic, market and other
conditions, including foreign exchange rates, as in effect on, and the
information made available to us as of, the date hereof.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Aggregate
Consideration proposed to be paid for 100% of the Transocean Shares pursuant to
the Exchange Offer is fair to the Company.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ----------------------------------------
GOLDMAN, SACHS & CO.
<PAGE>
CS FIRST BOSTON CORPORATION
ANNEX B
July 17, 1996
Board of Directors
Transocean ASA
Plattformveien 2-4
P.O. Box 65
N. -4056 Tananger Norway
Dear Sirs:
You have asked us to advise you with respect to the fairness to the
stockholders of Transocean ASA ("Transocean" or the "Company") from a
financial point of view of the Exchange Ratio (as defined below) as set forth
in the Prospectus/Offer to Purchase/Proxy Statement filed by Sonat Offshore
Drilling, Inc. ("Sonat Offshore") with the U.S. Securities and Exchange
Commission on June 7, 1996 (the "Exchange Offer"). The Exchange Offer
provides, among other things, for the combination of the Company and Sonat
Offshore pursuant to which Sonat Offshore will exchange .53 of a share of
Sonat Offshore stock per share for 80% of the outstanding shares of Transocean
and will pay $27.25 per share for the remaining 20% of the outstanding shares
of Transocean, subject to certain adjustments that may be made at Sonat
Offshore's election as more fully described in the Exchange Offer (the
"Exchange Ratio"). Upon consummation of the transactions contemplated by the
Exchange Offer, Sonat Offshore will change its name to Transocean Offshore
Inc.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and Sonat Offshore,
as well as the Exchange Offer. We have also reviewed certain other
information, including financial forecasts, provided to us by the Company and
Sonat Offshore and have met with the Company's and Sonat Offshore's management
to discuss the business and prospects of the Company and Sonat Offshore.
We have also considered certain financial and stock market data of the Company
and Sonat Offshore, and we have compared that data with similar data for other
publicly held companies in businesses similar to those of the Company and
Sonat Offshore and we have considered the financial terms of certain other
business combinations and other transactions which have recently been
effected. We are also aware of, and have taken into consideration, a business
combination proposal and a revised version of that proposal made to the
Company by Reading & Bates Corporation, proposals which we understand were
suspended by Reading & Bates Corporation on June 5, 1996. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information, including the
information contained in the Exchange Offer, and have relied on its being
complete and accurate in all material respects. With respect to the financial
forecasts, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
Company's and Sonat Offshore's management as to the future financial
performance of the Company and Sonat Offshore. In addition, we have not made
an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company or Sonat Offshore, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof. We are not expressing any opinion as to
what the value of the Sonat Offshore common stock actually will be when issued
to the Company's stockholders pursuant to the Exchange Offer or the prices at
which Transocean Offshore Inc. common stock will trade after consummation of
the transactions contemplated by the Exchange Offer.
<PAGE>
We have acted as financial advisor to Transocean in connection with the
Exchange Offer and will receive a fee for our services, a significant portion
of which is contingent upon the consummation of the Exchange Offer. As part of
our overall advisory fees, we will also receive a fee for rendering this
opinion.
In the ordinary course of our business, CS First Boston and its affiliates may
actively trade the debt and equity securities of both the Company and Sonat
Offshore for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Transocean
Board of Directors in connection with its consideration of the Exchange Offer;
that it does not constitute a recommendation to any stockholder as to whether
or not such stockholder should tender shares pursuant to the Exchange Offer;
that it is not to be quoted or referred to, in whole or in part, in any
registration statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of securities, and that
this letter shall not be used for any other purposes, without CS First
Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the Company's stockholders from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
By: /s/ Rome G. Arnold
-------------------------
Rome G. Arnold
Managing Director
<PAGE>
ANNEX C
THE CHARTER AMENDMENTS*
SHARE INCREASE AMENDMENT
The Share Increase Amendment will be effected by amending the first sentence
of section (A) of Article FOURTH of the Company Charter to read as follows:
"FOURTH: (A) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is [one hundred and five million
(105,000,000)] two hundred million (200,000,000) shares, consisting of fifty
--------------------------------
million (50,000,000) shares of Preferred Stock, par value $.10 per share
("Preferred Stock"), and [fifty five million (55,000,000)] one hundred fifty
-----------------
million (150,000,000) shares of Common Stock, par value $.01 per share
---------------------
("Common Stock")."
NAME CHANGE AMENDMENT
The Name Change Amendment will be effected by amending Article FIRST of the
Company Charter to read as follows:
"FIRST: The name of the Corporation is [Sonat] Transocean Offshore
----------
[Drilling] Inc."
- --------
* The underscored material represents additions to the Company Charter and the
material in brackets represents deletions from the Company Charter.
<PAGE>
THE DEPOSITARY FOR THE EXCHANGE OFFER IS:
SUNDAL COLLIER & CO A.S
By Mail: By Facsimile Transmission By Hand or Overnight
Courier:
P.O. Box 1444 Vika 47-22-01-60-60 Munkedamsveien 45D
N -0115 Oslo Oslo, Norway
Confirm by Telephone
(+47) 22-01-60-00
By Telex: 74490 SuncoN
----------------
Questions or requests for assistance may be directed to the Information Agent
at its addresses and telephone numbers listed below. Additional copies of this
Prospectus or the Acceptance Form enclosed herewith may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Exchange Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
United States Europe
909 Third Avenue 1 Northumberland Avenue
20th Floor Suite 211
New York, NY 10022 Trafalgar Square
(212) 754-8000 London WC2N 5BW
Toll Free (800) 566-9061 (+44) 171-872-5443
Banks and Brokerage Firms, please
call:
(800) 662-5200
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in
another corporation or business association against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Article TENTH of the Restated Certificate of Incorporation of the Company
contains the following provisions:
"TENTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after the date of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
"The Corporation shall indemnify to the fullest extent permitted by the
laws of the State of Delaware as from time to time in effect any person who
was or is a party or is threatened to be made a party to, or otherwise
requires representation by counsel in connection with, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether or not an action by or in the
right of the Corporation), by reason of the fact that he is or was a
director or officer of the Corporation, is or was serving at the request of
the Corporation, as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise, or by
reason of any action alleged to have been taken or omitted in such
capacity. The right to indemnification conferred by this Article TENTH also
shall include the right of such persons to be paid in advance by the
Corporation for their expenses to the fullest extent permitted by the laws
of the State of Delaware as from time to time in effect. The right to
indemnification conferred on such persons by this Article TENTH shall be a
contract right.
"Unless otherwise determined by the Board of Directors of the
Corporation, the Corporation shall indemnify to the fullest extent
permitted by the laws of the State of Delaware as from time to time in
effect any person who was or is a party or is threatened to be made a party
to, or otherwise requires representation by counsel in connection with, any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (whether or not an action by or
in the right of the Corporation), by reason of the fact that he is or was
an employee (other than an officer) or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken
or omitted in such capacity
"The rights and authority conferred in this Article TENTH shall not be
exclusive of any other right that any person may have or hereafter acquire
under any statute, provision of this Certificate of Incorporation or the
By-Laws of the Corporation, agreement, vote of stockholders or
disinterested directors or otherwise.
II-1
<PAGE>
"Neither the amendment nor repeal of this Article TENTH, nor the adoption
of any provision of the Certificate of Incorporation or By-Laws or of any
statute inconsistent with this Article TENTH, shall eliminate or reduce the
effect of this Article TENTH in respect of any acts or omissions occurring
prior to such amendment, repeal or adoption of an inconsistent provision."
The Company has purchased directors and officers liability insurance which
would indemnify the directors and officers of the Company against damages
arising out of certain kinds of claims which might be made against them based
on their negligent acts or omissions while acting in their capacity as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
2-(1) Drilling Purchase and Sale Agreement dated August Filed as Exhibit 2.1 to Form
14, 1995 among Sonat Offshore Drilling Inc., Sonat 8-K of Sonat Offshore
Offshore Ventures Inc., and Falcon Drilling Company, Drilling Inc. dated
Inc. September 15, 1995
2-(2) Sales Agreement Amendment dated September 21, 1995 Filed as Exhibit 2.2 to Form
among Sonat Offshore Drilling Inc., Sonat Offshore 8-K of Sonat Offshore
Ventures Inc., Falcon Drilling Company, Inc. and Drilling Inc. dated
FALRIG Offshore, Inc. September 15, 1995
5 Opinion of Hughes Hubbard & Reed LLP Filed herewith
23-(1) Consent of Ernst & Young LLP Filed herewith
23-(2) Consent of Coopers & Lybrand ANS Filed herewith
23-(3) Consent of Hughes Hubbard & Reed LLP (included in Filed herewith
Exhibit 5).
23-(4) Consent of Goldman, Sachs & Co. Filed herewith
23-(5) Consent of CS First Boston Corporation Filed herewith
24 Powers of Attorney Filed herewith
99-(1) Consents of Persons Named as About to Become Filed herewith
Directors.
99-(2) Form of proxy card of Sonat Offshore Filed herewith
</TABLE>
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions and Appraisals
Omitted because they are included as annexes to the Prospectus/Offer to
Purchase/Proxy Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes
II-2
<PAGE>
that such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the applicable form.
(c) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (b) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(d) Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON THIS 29TH DAY OF JULY, 1996.
Sonat Offshore Drilling Inc.
/s/ J. Michael Talbert
By_________________________________
J. MICHAEL TALBERT
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON THIS 29TH DAY OF JULY, 1996.
SIGNATURE TITLE
/s/ J. Michael Talbert Chairman of the Board and
- ------------------------------------- Chief Executive Officer
J. MICHAEL TALBERT
Robert L. Long* Senior Vice President and
- ------------------------------------- Chief Financial Officer
ROBERT L. LONG
Barbara S. Koucouthakis* Vice President and Controller
- -------------------------------------
BARBARA S. KOUCOUTHAKIS
Richard D. Kinder* Director
- -------------------------------------
RICHARD D. KINDER
Ronald L. Kuehn* Director
- -------------------------------------
RONALD L. KUEHN
Director
- -------------------------------------
ROBERT J. LANIGAN
II-5
<PAGE>
SIGNATURE TITLE
Max L. Lukens* Director
- -------------------------------------
MAX L. LUKENS
Martin B. McNamara* Director
- -------------------------------------
MARTIN B. MCNAMARA
Gilbert M.A. Portal* Director
- -------------------------------------
GILBERT M.A. PORTAL
Donald G. Russell* Director
- -------------------------------------
DONALD G. RUSSELL
*By /s/ J. Michael Talbert
----------------------------------
Name J. Michael Talbert
(Attorney-in-fact)
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
<S> <C> <C>
2-(1) Drilling Purchase and Sale Agreement dated August Filed as Exhibit 2.1 to Form
14, 1995 among Sonat Offshore Drilling Inc., Sonat 8-K of Sonat Offshore
Offshore Ventures Inc., and Falcon Drilling Company, Drilling Inc. dated
Inc. September 15, 1995
2-(2) Sales Agreement Amendment dated September 21, 1995 Filed as Exhibit 2.2 to Form
among Sonat Offshore Drilling Inc., Sonat Offshore 8-K of Sonat Offshore
Ventures Inc., Falcon Drilling Company, Inc. and Drilling Inc. dated
FALRIG Offshore, Inc. September 15, 1995
5 Opinion of Hughes Hubbard & Reed LLP Filed herewith
23-(1) Consent of Ernst & Young LLP Filed herewith
23-(2) Consent of Coopers & Lybrand ANS Filed herewith
23-(3) Consent of Hughes Hubbard & Reed LLP (included in Filed herewith
Exhibit 5).
23-(4) Consent of Goldman, Sachs & Co. Filed herewith
23-(5) Consent of CS First Boston Corporation Filed herewith
24 Powers of Attorney Filed herewith
99-(1) Consents of Persons Named as About to Become Filed herewith
Directors.
99-(2) Form of proxy card of Sonat Offshore Filed herewith
</TABLE>
<PAGE>
EXHIBIT 5
[LETTHERHEAD OF HUGHES HUBBARD & REED LLP]
- ------------------------------------------
July 29, 1996
Sonat Offshore Drilling Inc.
4 Greenway Plaza
Houston, TX 77046
Gentlemen:
We have acted as counsel for Sonat Offshore Drilling Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the offering and sale of not more than 28,652,037 shares of the Company's Common
Stock, par value $.01 per share (the "Shares"), in connection with the offer by
the Company to exchange for each share of Transocean ASA .53 of a share of
Common Stock or $27.25 in cash. Terms defined in the Registration Statement and
used herein have such respective defined meanings.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such certificates, records, instruments and
other documents, have made such inquiries as to questions of fact of officers
and representatives of the Company and have made such examinations of law as we
have deemed appropriate for purposes of giving the opinion hereinafter
expressed.
We are members of the bar of the State of New York, and the opinion
set forth below is restricted to matters controlled by federal laws, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
Based on the foregoing, it is our opinion that, when (i) the
applicable provisions of the Act and such "Blue Sky" or other state securities
laws as may be applicable shall have been complied with, (ii) the Exchange Offer
Proposal shall have been duly approved by the requisite vote of the Sonat
Offshore Stockholders, (iii) if the Exchange Offer is amended to provide for an
increase in the number of shares of Company Common Stock to be issued in the
<PAGE>
HUGHES HUBBARD & REED LLP
- -------------------------
Page 2
Exchange Offer above the number of shares of Company Common Stock authorized but
unissued and not otherwise reserved, the Share Increase Amendment shall have
been duly approved and effected, and (iv) certificates evidencing the Shares
shall have been duly executed and delivered against due conveyance to the
Company of Transocean Stock in accordance with the Exchange Offer, the Shares
will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Hughes Hubbard & Reed LLP
<PAGE>
EXHIBIT 23-(1)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 17, 1996 in the Registration Statement (Form S-4
No. 333-__________ ) and related Prospectus of Sonat Offshore Drilling Inc. for
the registration of 28,652,037 shares of its common stock and to the
incorporation by reference therein of our report dated January 17, 1996, with
respect to the financial statement schedule of Sonat Offshore Drilling Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Houston, Texas
July 26, 1996
<PAGE>
EXHIBIT 23-(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-4 (File No.
_______) of our report dated June 15, 1996, on our audits of the financial
statements of Transocean ASA and Subsidiaries, as of December 31, 1995, 1994 and
1993. We also consent to the reference to our firm under the caption "Experts".
Oslo, Norway Coopers & Lybrand ANS
July 29, 1996
<PAGE>
EXHIBIT 23-(4)
CONSENT OF GOLDMAN, SACHS & CO.
July 29, 1996
Board of Directors
Sonat Offshore Drilling Inc.
4 Greenway Plaza
Houston, TX 77046
Re: Registration Statement on Form S-4 of Sonat Offshore Drilling Inc. relating
to the Common Stock, par value $0.01 per share, being registered in
connection with the Exchange Offer (as defined below.)
Gentlemen:
Reference is made to our opinion letter dated July 26, 1996 with respect to the
fairness to Sonat Offshore Drilling Inc. (the "Company") of the Aggregate
Consideration (as defined below), proposed to be paid to the existing holders of
common stock, par value NOK 5.00 (the "Transocean Shares"), of Transocean ASA
("Transocean") pursuant to the Company's exchange offer (the "Exchange Offer")
for 100% of the Transocean Shares. Pursuant to the terms of the Exchange Offer,
the consideration proposed to be paid for each Transocean Share consists of
either (i) the right to receive 0.53 shares of Common Stock, par value $0.01 per
share, of the Company (the "Stock Consideration") or (ii) the right to receive
$27.25 in cash (the "Cash Consideration"). Subject to the terms and conditions
of the Exchange Offer, as set forth in Amendment No. 1 to the Proxy Statement of
the Company, which was filed with the Securities and Exchange Commission on July
18, 1996, holders of 80% of the outstanding Transocean Shares, on a fully
diluted basis will be entitled to receive the Stock Consideration and holders of
20% of the outstanding Transocean Shares on a fully diluted basis will be
entitled to receive the Cash Consideration. The term "Aggregate Consideration"
means the aggregate of the Stock Consideration and the Cash Consideration
proposed to be paid in the Exchange Offer for 100% of the Transocean Shares.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of Sonat Offshore Drilling Inc. in connection with its
consideration of the transaction contemplated therein and is not to be used,
circulated, quoted or otherwise referred to for any other purpose, nor is it to
be filed with, included in or referred to in whole or in part in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent. We understand that the Company has
determined to include our opinion in the above-referenced Registration
Statement.
<PAGE>
2
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "Summary - The Proposed Combination - Reasons for the
Proposed Combination," "Boards' Recommendations - Fairness Opinions", "The
Combination - Reasons for the Combinations; Boards' Recommendations" and "The
Combination - Fairness Opinions - Sonat Offshore Financial Advisor," and to the
inclusion of the foregoing opinion in the Prospectus/Offer to Purchase/Proxy
Statement contained in the above-mentioned Registration Statement. We are
providing such consent in order to comply with requirements under the federal
securities laws. In providing such consent, except as may be required by the
federal securities laws, we do not intend that any person other than the Board
of Directors rely upon such opinion. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933 or the rules and regulations of
the Securities and Exchange Commission.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ------------------------
<PAGE>
EXHIBIT 23-(5)
CONSENT OF CS FIRST BOSTON CORPORATION
CS First Boston Corporation hereby consents to the references to its opinion
under the captions "Summary - The Proposed Combination - Reasons for the
Proposed Combination; Boards' Recommendations," "Summary - The Proposed
Combination Fairness Opinions, "The Combination - Reasons for the Combination;
Boards' Recommendations" and "The Combination - Fairness Opinions - Transocean
Financial Advisor" Prospectus/Offer to Purchase/Proxy Statement constituting a
part of this Registration Statement on Form S-4 and to the inclusion in the
Prospectus/Offer to Purchase/Proxy Statement, as Annex B, of its opinion dated
July 17, 1996 to the Board of Directors of Transocean ASA. By giving this
consent CS First Boston Corporation does not admit, and disclaims, that it is an
expert with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
CS First Boston Corporation
By /s/ Marc Granetz
--------------------------
New York, New York
July 29, 1996
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, J. Michael
Talbert, an officer and director of Sonat Offshore Drilling Inc. (the
"Company"), does hereby constitute and appoint J. Michael Talbert, Robert L.
Long, Barbara S. Koucouthakis and Eric B. Brown, and each of them, his true and
lawful attorneys to execute in his name (whether on behalf of the Company or as
an officer or director of the Company) the Registration Statement on Form S-4
and any and all amendments and supplements to be filed with the Securities and
Exchange Commission under the Securities Act of 1933 relating to the offer, sale
and resale of the common stock of the Company to be issued in exchange for
shares of Transocean ASA and all exhibits thereto, and any other documents in
connection therewith. The undersigned does hereby ratify and confirm all that
said attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof. Each of such attorneys shall have and may exercise all powers to
act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
July 29, 1996.
/s/ J. Michael Talbert
- ----------------------
J. Michael Talbert
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Robert L. Long,
an officer of Sonat Offshore Drilling Inc. (the "Company"), does hereby
constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as an officer of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
July 29, 1996.
/s/ Robert L. Long
- ------------------
Robert L. Long
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Barbara S.
Koucouthakis, an officer of Sonat Offshore Drilling Inc. (the "Company"), does
hereby constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, her true and lawful attorneys
to execute in her name (whether on behalf of the Company or as an officer of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed her name hereto as of
July 29, 1996.
/s/ Barbara S. Koucouthakis
- ---------------------------
Barbara S. Koucouthakis
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Richard D.
Kinder, a director of Sonat Offshore Drilling Inc. (the "Company"), does hereby
constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as a director of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 10, 1996.
/s/ Richard D. Kinder
- ---------------------
Richard D. Kinder
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Ronald L. Kuehn,
a director of Sonat Offshore Drilling Inc. (the "Company"), does hereby
constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as a director of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 10, 1996.
/s/ Ronald L. Kuehn
- -------------------
Ronald L. Kuehn
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Max L. Lukens, a
director of Sonat Offshore Drilling Inc. (the "Company"), does hereby constitute
and appoint J. Michael Talbert, Robert L. Long, Barbara S. Koucouthakis and Eric
B. Brown, and each of them, his true and lawful attorneys to execute in his name
(whether on behalf of the Company or as a director of the Company) the
Registration Statement on Form S-4 and any and all amendments and supplements to
be filed with the Securities and Exchange Commission under the Securities Act of
1933 relating to the offer, sale and resale of the common stock of the Company
to be issued in exchange for shares of Transocean ASA and all exhibits thereto,
and any other documents in connection therewith. The undersigned does hereby
ratify and confirm all that said attorneys and agents, and each of them, shall
do or cause to be done by virtue hereof. Each of such attorneys shall have and
may exercise all powers to act hereunder with or without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 10, 1996.
/s/ Max L. Lukens
- -----------------
Max L. Lukens
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Martin B.
McNamara, a director of Sonat Offshore Drilling Inc. (the "Company"), does
hereby constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as a director of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 10, 1996.
/s/ Martin B. McNamara
- ----------------------
Martin B. McNamara
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Gilbert M.A.
Portal, a director of Sonat Offshore Drilling Inc. (the "Company"), does hereby
constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as a director of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 10, 1996.
/s/ Gilbert M.A. Portal
- -----------------------
Gilbert M.A. Portal
<PAGE>
Exhibit 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Donald G.
Russell, a director of Sonat Offshore Drilling Inc. (the "Company"), does hereby
constitute and appoint J. Michael Talbert, Robert L. Long, Barbara S.
Koucouthakis and Eric B. Brown, and each of them, his true and lawful attorneys
to execute in his name (whether on behalf of the Company or as a director of the
Company) the Registration Statement on Form S-4 and any and all amendments and
supplements to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer, sale and resale of the common
stock of the Company to be issued in exchange for shares of Transocean ASA and
all exhibits thereto, and any other documents in connection therewith. The
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof. Each of such
attorneys shall have and may exercise all powers to act hereunder with or
without the others.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
June 11, 1996.
/s/ Donald G. Russell
- ---------------------
Donald G. Russell
<PAGE>
Exhibit 99-(1)
CONSENT
-------
I, Kristian Siem, consent to being named in the Registration Statement
on Form S-4 and related Prospectus of Sonat Offshore Drilling Inc. (the
"Company") providing for the registration of Company Common Stock to be issued
in exchange for shares of Transocean ASA as a person who is about to become a
director of the Company.
Dated: 25 June 1996 /s/ Kristian Siem
--------------- -------------------
Kristian Siem
<PAGE>
Exhibit 99-(1)
CONSENT
-------
I, Einar Kloster, consent to being named in the Registration Statement
on Form S-4 and related Prospectus of Sonat Offshore Drilling Inc. (the
"Company") providing for the registration of Company Common Stock to be issued
in exchange for shares of Transocean ASA as a person who is about to become a
director of the Company.
Dated: 25 June 1996 /s/ Einar Kloster
--------------- -------------------
Einar Kloster
<PAGE>
Exhibit 99-(1)
CONSENT
-------
I, Reidar Lund, consent to being named in the Registration Statement
on Form S-4 and related Prospectus of Sonat Offshore Drilling Inc. (the
"Company") providing for the registration of Company Common Stock to be issued
in exchange for shares of Transocean ASA as a person who is about to become a
director of the Company.
Dated: 28 June 1996 /s/ Reidar Lund
--------------- -----------------
Reidar Lund
<PAGE>
Exhibit 99-(1)
CONSENT
-------
I, Fridtjof Lorentzen, consent to being named in the Registration
Statement on Form S-4 and related Prospectus of Sonat Offshore Drilling Inc.
(the "Company") providing for the registration of Company Common Stock to be
issued in exchange for shares of Transocean ASA as a person who is about to
become a director of the Company.
Dated: 25 June 1996 /s/ Fridtjof Lorentzen
--------------- ------------------------
Fridtjof Lorentzen
<PAGE>
Exhibit 99-(2)
STOCKHOLDER'S PROXY
SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
SONAT OFFSHORE DRILLING INC.
The undersigned hereby appoints J. Michael Talbert, Robert L. Long, and Eric
B. Brown, or any one or more of them, each with full power of substitution,
the proxy or proxies of the undersigned to vote the shares of common stock,
par value $.01 per share, of Sonat Offshore Drilling Inc. (the "Company")
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Stockholders of the Company to be held on August 29, 1996
at 4 Greenway Plaza, Room C-100, Houston, Texas, at 8:00 A.M., and at any and
all adjournments or postponements thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
+ FOLD AND DETACH HERE +
<PAGE>
Please mark [X]
your votes
as indicated
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2 AND 3.
Item 1--Proposal to approve the issuance of up to 28,652,037 shares of common
stock, par value $.01 per share, of the Company ("Common Stock") in an offer to
the holders of shares of Transocean ASA, a Norwegian company, to exchange such
shares for Common Stock of the Company and cash.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 2--Proposal to approve an amendment to the Restated Certificate of
Incorporation of the Company to increase the number of shares of Common Stock
that the Company is authorized to issue from 55,000,000 to 150,000,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
Item 3--Proposal to approve an amendment to the Restated Certificate of
Incorporation of the Company to change the name of the Company to "Transocean
Offshore Inc."
FOR AGAINST ABSTAIN
[_] [_] [_]
If you plan to attend the Special Meeting, please check this box in order to
receive an admission ticket [_]
Signature(s) ___________________________ Date ______________________________
NOTE: Please mark, date and sign your name exactly as it appears at the left
and return promptly in the enclosed envelope. For joint accounts, each joint
owner should sign. When signing as attorney, executor, administrator, trustee,
guardian, or other officer of a corporation, please give your full title as
such. If stock is owned by a partnership or corporation, please indicate your
capacity in signing the proxy.
+ FOLD AND DETACH HERE +
