<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________.
COMMISSION FILE NUMBER 1-7746
-------------------------
TRANSOCEAN OFFSHORE INC.
(Exact name of registrant as specified in its charter)
-------------------------
DELAWARE 72-0464968
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4 GREENWAY PLAZA
HOUSTON, TEXAS 77046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 871-7500
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
As of October 31, 1997, 100,911,238 shares of common stock, par value $.01
per share, of Transocean Offshore Inc. were outstanding.
- -------------------------------------------------------------------------------
<PAGE>
TRANSOCEAN OFFSHORE INC.
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1997 and 1996..... 2
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996.................... 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996............... 4
Notes to Condensed Consolidated Financial Statements........... 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 19
ITEM 6. Exhibits and Reports on Form 8-K............................ 20
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of Transocean Offshore Inc. and
consolidated subsidiaries (the "Company") included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
audited consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------- -------------
1997 1996 1997 1996
---------- ---------- ---------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Revenues $223,201 $136,926 $650,910 $327,027
- --------------------------------------------------------------------------------------------------
Costs and Expenses
Operating and maintenance 129,670 89,724 407,401 216,526
Depreciation and amortization 26,001 10,587 76,246 22,945
General and administrative 6,591 4,014 19,635 10,770
- --------------------------------------------------------------------------------------------------
162,262 104,325 503,282 250,241
- --------------------------------------------------------------------------------------------------
Operating Income 60,939 32,601 147,628 76,786
- --------------------------------------------------------------------------------------------------
Other Income (Expense), Net
Equity in earnings of joint ventures 3,248 1,222 8,133 3,825
Interest income 743 1,492 1,593 5,186
Interest expense, net of amounts capitalized (5,671) (2,315) (16,502) (2,848)
Other, net (1,298) 148 (1,911) 7,605
- --------------------------------------------------------------------------------------------------
(2,978) 547 (8,687) 13,768
- --------------------------------------------------------------------------------------------------
Income Before Income Taxes 57,961 33,148 138,941 90,554
Income Taxes 18,842 11,605 44,197 31,709
- --------------------------------------------------------------------------------------------------
Net Income $ 39,119 $ 21,543 $ 94,744 $ 58,845
==================================================================================================
Earnings Per Share of Common Stock $ 0.39 $ 0.31 $ 0.93 $ 0.96
Weighted Average Shares Outstanding 101,531 70,419 101,782 61,445
- --------------------------------------------------------------------------------------------------
Dividends Paid Per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
==================================================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -----------
(In thousands, except share data)
ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 50,599 $ 24,154
Accounts Receivable 159,745 168,573
Deferred Income Taxes 18,641 17,207
Materials and Supplies 26,688 26,556
Prepayments 14,365 8,913
Other Current Assets 4,319 6,843
- --------------------------------------------------------------------------------------------------------
Total Current Assets 274,357 252,246
- --------------------------------------------------------------------------------------------------------
Investments in and Advances to Joint Ventures 44,322 35,608
Property and Equipment 2,036,191 1,751,863
Less Accumulated Depreciation 445,425 381,514
- --------------------------------------------------------------------------------------------------------
Property and Equipment, net 1,590,766 1,370,349
- --------------------------------------------------------------------------------------------------------
Goodwill, net 697,748 763,173
Other Assets 47,960 21,838
- --------------------------------------------------------------------------------------------------------
Total Assets $2,655,153 $2,443,214
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 62,489 $ 67,032
Accrued Income Taxes 52,527 57,666
Current Portion of Long-Term Debt 4,796 28,013
Other Current Liabilities 74,486 78,767
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities 194,298 231,478
- --------------------------------------------------------------------------------------------------------
Long-Term Debt 619,097 392,322
Deferred Income Taxes 166,195 151,980
Other Long-Term Liabilities 50,906 39,725
- --------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 836,198 584,027
- --------------------------------------------------------------------------------------------------------
Preferred Stock, $0.10 par value; 50,000,000 shares authorized,
none issued and outstanding - -
Common Stock, $0.01 par value; 150,000,000 shares authorized,
103,697,238 shares issued, including shares in treasury,
and 100,911,238 shares outstanding at September 30, 1997,
and 103,045,970 shares issued and outstanding at
December 31, 1996 1,037 515
Additional Paid-in Capital 1,508,792 1,501,159
Retained Earnings 211,136 126,035
Less Common Stock in Treasury, at cost;
2,786,000 shares at September 30, 1997 (96,308) -
- --------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,624,657 1,627,709
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,655,153 $2,443,214
========================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1997 1996
---------- ---------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 94,744 $ 58,845
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 76,246 22,945
Deferred income taxes 4,886 (4,135)
Equity in earnings of joint ventures (8,133) (3,825)
Gain on disposal of assets (295) (7,829)
Deferred income 17,670 -
Deferred expenses (14,980) (1,440)
Other, net (15,360) 2,167
Changes in operating assets and liabilities,
net of effects from divestiture
Accounts receivable (28,517) (21,769)
Accounts payable 11,013 2,180
Income taxes receivable/payable, net (5,091) 2,629
Other current assets (7,485) 4,692
Other current liabilities (3,428) (12,410)
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 121,270 42,050
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (307,243) (126,664)
Divestiture of non-core drilling services activities and assets 105,584 -
Cash balances of activities divested (6,109) -
Cash acquired in Transocean ASA combination, net - 49,411
Combination with Transocean ASA (756) (208,603)
Proceeds from disposal of assets 891 11,820
Distributions from (investment in) joint ventures, net (419) 3,738
Other (831) 276
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (208,883) (270,022)
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of public debt offering, net 299,209 -
Net borrowings (repayments) on revolving credit facility (88,761) 96,300
Proceeds from project financing facility 188,428 -
Repayments on term loan facility (193,250) -
Proceeds from term loan facility - 200,000
Repayment of debt assumed in Transocean ASA combination - (124,000)
Financing costs (5,210) (8,633)
Treasury shares purchased (96,308) -
Sale of note receivable 11,000 -
Exercise of stock options 7,101 2,067
Dividends paid (9,124) (5,116)
Other, net 973 (1,830)
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 114,058 158,788
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 26,445 (69,184)
- -----------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 24,154 112,972
- -----------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 50,599 $ 43,788
=========================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - GENERAL
BASIS OF CONSOLIDATION - The accompanying condensed consolidated financial
statements of Transocean Offshore Inc. and its consolidated subsidiaries (the
"Company") have been prepared without audit in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and
Exchange Commission. Accordingly, pursuant to such rules and regulations, these
financial statements do not include all disclosures required by generally
accepted accounting principles for complete financial statements. Operating
results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. In connection with the preparation of these financial
statements, management was required to make estimates and assumptions that
affect the reported amount of assets, liabilities, revenues, expenses and
disclosure of contingent liabilities. Actual results could differ from such
estimates. The accompanying condensed consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
STOCK SPLIT - In August 1997, the Board of Directors declared a two-for-one
stock split to be effected in the form of a 100% stock dividend. The dividend
was paid September 19, 1997 to stockholders of record on September 5, 1997. All
references in the financial statements to number of shares, per share amounts
and market prices of the Company's common stock have been retroactively restated
to reflect the increased number of shares of common stock issued and
outstanding as a result of the dividend.
SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income
taxes, net were $18.7 million and $44.5 million, respectively, for the nine
months ended September 30, 1997 and $4.6 million and $33.0 million,
respectively, for the nine months ended September 30, 1996. Non-cash financing
activities for the nine months ended September 30, 1996 included $1.198 billion
for the issuance of 45.8 million shares of common stock in connection with the
Company's combination with Transocean ASA. Non-cash investing activities for the
nine months ended September 30, 1996 included $1.349 billion of net assets
acquired in the combination with Transocean ASA (see Note 2).
GOODWILL - Goodwill is amortized on a straight-line basis over 40 years (the
period when benefits are expected to be derived). Accumulated amortization as
of September 30, 1997 totaled $20.6 million (see Note 2).
CAPITALIZED INTEREST - Interest costs for the construction and upgrade of
qualifying assets are capitalized. The Company capitalized interest costs on
construction work in progress of $5.2 million and $12.9 million for the three
and nine months ended September 30, 1997 and $0.9 million and $1.5 million in
the corresponding periods of 1996.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period
amounts to conform with the current period's presentation. Combining
adjustments were made to classify various statement of operations and balance
sheet items consistently upon combination with Transocean ASA (see Note 2).
INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered to be of a
normal recurring nature unless otherwise identified.
5
<PAGE>
TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - BUSINESS COMBINATION
The Company acquired over 99 percent of the outstanding capital shares of
Transocean ASA, a Norwegian company, pursuant to an exchange offer for the
Company's common stock and cash completed in September 1996 and subsequent
purchases of Transocean ASA shares in November and December 1996 (the
"Combination"). All remaining outstanding shares were purchased in July 1997.
The total purchase price was approximately $1.5 billion. The Combination was
deemed effective for accounting purposes as of September 1, 1996.
In May 1997, the Company divested certain activities and associated non-core
assets within its drilling services line of business originally acquired in the
Combination by selling the shares of a new corporate entity, Procon Offshore
ASA, to investors in Norway. The divestiture had no material effect on the
financial results of the Company. The net proceeds from the sale were
approximately $106 million, goodwill was reduced by approximately $68 million
and no gain or loss was recognized on the sale.
The accompanying Condensed Consolidated Statement of Operations reflects the
operating results of Transocean ASA since the effective date of the Combination.
Unaudited pro forma consolidated operating results of the Company and Transocean
ASA for the nine months ended September 30, 1996, assuming the acquisition had
been made as of January 1, 1996, are summarized as follows:
Nine Months Ended
September 30, 1996
------------------
(In millions, except per share data)
Operating revenues $583.4
Income from continuing operations 33.7
Income from discontinued operations 32.8
- ---------------------------------------------------------------
Net income $ 66.5
===============================================================
Earnings per share:
Income from continuing operations $ 0.33
Income from discontinued operations 0.32
- ---------------------------------------------------------------
Net income $ 0.65
===============================================================
Pro forma net income from discontinued operations for the nine months ended
September 30, 1996 includes a $51.0 million pre-tax gain on the sale of a
Transocean ASA discontinued business segment, which was disposed of in June 1996
prior to the Combination. The pro forma information is not necessarily
indicative of the results of operations had the transaction been effected on the
assumed date or the results of operations for any future periods.
NOTE 3 - CONSTRUCTION IN PROGRESS
The Company made significant capital additions during 1997 in connection with
its previously announced fleet additions and upgrades. During the first nine
months of 1997 the Company spent $76.7 million on the conversion of a multi-
service vessel to a semisubmersible drilling rig to be named "Transocean
Marianas", $71.1 million on the construction of a new deepwater drillship to be
named "Discoverer Enterprise", and
6
<PAGE>
TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
$47.2 million on the upgrade of the semisubmersible drilling rig Transocean
Amirante. In addition, the Company spent $27.0 million and $41.0 million on
capital upgrades to the drillship Discoverer Seven Seas and the semisubmersible
Transocean Leader (previously named the Transocean No. 8), respectively.
Note 4 - DEBT
Debt is comprised of the following:
September 30, December 31,
1997 1996
---------- ----------
(In thousands)
Debentures, net $ 199,209 $ -
Notes 100,000 -
Revolving Credit Facility 105,000 193,761
Term Loan Facility - 193,250
Project Financing Agreement 188,428 -
Notes Payable 30,000 30,000
Other 1,256 3,324
---------------------------------------------------------------
Total Debt 623,893 420,335
Less Current Maturities 4,796 28,013
---------------------------------------------------------------
Total Long-Term Debt $ 619,097 $ 392,322
===============================================================
PUBLIC DEBT OFFERING - In April 1997, the Company completed the public offering
and sale of $300 million aggregate principal amount of senior, unsecured debt
securities. The securities sold consisted of $100 million aggregate principal
amount of 7.45% Notes due April 15, 2027 (the "Notes") and $200 million
aggregate principal amount of 8.00% Debentures due April 15, 2027 (the
"Debentures"). Holders of Notes may elect to have all or any portion of the
Notes repaid on April 15, 2007 at 100% of the principal amount. The Notes, at
any time after April 15, 2007, and the Debentures, at any time, may be redeemed
at the option of the Company at 100% of the principal amount plus a make-whole
premium, if any, equal to the excess of the present value of future payments due
under the Notes and Debentures, using a discount rate equal to the then-
prevailing yield of U.S. treasury notes for a corresponding remaining term plus
20 basis points over the principal amount of the securities being redeemed.
Interest is payable on April 15 and October 15 of each year, commencing October
15, 1997. The indenture and supplemental indenture relating to the Notes and
the Debentures place limitations on the Company's ability to (i) incur
indebtedness secured by certain liens, (ii) engage in certain sale/leaseback
transactions and (iii) engage in certain merger, consolidation or reorganization
transactions. The net proceeds were used to repay amounts outstanding under the
Company's term loan and revolving credit facilities.
TERM LOAN AND REVOLVING CREDIT FACILITIES - In connection with the Combination,
the Company entered into a secured credit agreement dated as of July 30, 1996
with a group of banks led by ABN AMRO Bank N.V. (the "Credit Agreement"). The
Credit Agreement initially provided for borrowing by the Company under (i) a
six-year term loan facility in the amount of $200 million (the "Term Loan
Facility") and (ii) a six-year revolving credit facility in the amount of $400
million (the "Revolving Credit Facility"). In connection with the public
offering of the Notes and Debentures, the Credit Agreement was amended to, among
other things, release all security, convert $140 million of the term loans into
revolving loans, and renegotiate the applicable margins over LIBOR and the
applicable commitment fees. Following the amendment, the Credit Agreement
provides for a $540 million Revolving Credit Facility, with no Term Loan
Facility. Loans under the Credit
7
<PAGE>
TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Agreement bear interest, at the option of the Company, at a base rate or LIBOR
plus a specified margin that varies depending on the Company's funded debt to
total capital ratio or its public senior unsecured debt rating.
PROJECT FINANCING AGREEMENT - In connection with the construction of the
Discoverer Enterprise and upgrade of the Transocean Amirante, Transocean
Enterprise Inc., a wholly owned subsidiary of the Company, entered into a bank
financing agreement dated as of December 27, 1996 with a group of banks led by
ABN AMRO Bank N.V. (the "Project Financing Agreement"). Approximately $340.5
million is available for drawdowns during the construction period. Amounts
outstanding bear interest at LIBOR plus a specified margin.
NOTE 5 - CAPITAL STOCK
In February 1997, pursuant to previously granted authority, the Company
repurchased 1,786,000 shares of its common stock for a total of $49.9 million.
On May 8, 1997, the Company's Board of Directors authorized the repurchase of up
to $200 million of the Company's common stock from time to time on the open
market or in privately negotiated transactions. In September 1997, the Company
repurchased 1,000,000 shares of its common stock for a total of $46.4 million.
Borrowings from the Revolving Credit Facility were used to fund the repurchases.
The Board of Directors regularly reviews the possibility of repurchasing common
stock in light of prevailing stock prices and the financial position of the
Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in connection with the information
contained in the Company's consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
OVERVIEW
Transocean Offshore Inc. is a leading international provider of deepwater and
harsh environment contract drilling services for oil and gas wells. The Company
currently owns, has ownership interests in or operates 30 mobile offshore
drilling rigs. Transocean's fleet consists of seven fourth-generation
semisubmersibles, fourteen second- and third-generation semisubmersibles, three
drillships and six jackup rigs. In addition, the Company has under construction
a new technologically advanced, ultra-deepwater drillship, to be called the
"Discoverer Enterprise". The Company contracts these drilling rigs, related
equipment and work crews at a contractually determined price per day (dayrate)
to drill offshore wells. The Company also provides other drilling services on a
dayrate, cost plus, footage or lump sum basis, including the drilling of wells
to a specified depth for a fixed price.
During 1996, the Company acquired over 99 percent of the outstanding capital
shares of Transocean ASA, a Norwegian company, pursuant to an exchange offer for
Company common stock and cash completed in September 1996 and subsequent
purchases of Transocean ASA shares in November and December 1996 (the
"Combination"). All remaining outstanding shares were purchased in July 1997.
The total purchase price was approximately $1.5 billion. The Combination was
deemed effective for accounting purposes as of September 1, 1996. In May 1997,
the Company divested certain activities and non-core assets within its drilling
services line of business originally acquired in the Combination. The
divestiture had no material effect on the financial results of the Company.
In August 1997, the Board of Directors declared a two-for-one stock split to be
effected in the form of a 100% stock dividend. The dividend was paid on
September 19, 1997 to stockholders of record on September 5, 1997. All
references in this quarterly report to number of shares, per share amounts and
market prices of the Company's common stock have been retroactively restated to
reflect the increased number of shares of common stock issued and outstanding as
a result of the dividend.
9
<PAGE>
OPERATING RESULTS
Comparative data relating to the Company's operating revenues and operating
income by segment and geographic area follows. In the table and related
discussion below, the "Mobile Units" segment consists of the results of
operations for drilling rigs contracted to customers on a dayrate basis. The
"Drilling Services" segment includes results of all other drilling services
provided by the Company, including turnkey operations. The operating results of
Transocean ASA are included from September 1, 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------- --------------
1997 1996 1997 1996
---------- ---------- ---------- --------------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES (a)
Mobile Units
U.S. Gulf of Mexico $ 61,106 $ 38,177 $147,083 $102,488
North Sea and Europe 86,757 45,221 254,548 91,956
Other Western Hemisphere 2,844 6,715 12,549 19,024
Other Eastern Hemisphere 21,514 5,540 59,493 17,008
- -----------------------------------------------------------------------------------------------------
172,221 95,653 473,673 230,476
- -----------------------------------------------------------------------------------------------------
Drilling Services
U.S. Gulf of Mexico 6,907 12,656 44,168 30,714
North Sea and Europe 12,189 15,107 99,635 21,490
Other Western Hemisphere 31,884 13,167 32,996 27,570
Other Eastern Hemisphere - 343 438 16,777
- -----------------------------------------------------------------------------------------------------
50,980 41,273 177,237 96,551
- -----------------------------------------------------------------------------------------------------
Total Revenues $223,201 $136,926 $650,910 $327,027
=====================================================================================================
OPERATING INCOME (LOSS) (b)
Mobile Units
U.S. Gulf of Mexico $ 36,479 $ 22,367 $ 85,560 $ 51,234
North Sea and Europe 22,127 9,574 47,463 20,516
Other Western Hemisphere 638 1,184 4,053 3,590
Other Eastern Hemisphere 10,091 695 28,345 4,764
Other (3,045) (2,420) (8,322) (6,133)
- -----------------------------------------------------------------------------------------------------
66,290 31,400 157,099 73,971
- -----------------------------------------------------------------------------------------------------
Drilling Services
U.S. Gulf of Mexico (2,919) 950 (2,134) 3,426
North Sea and Europe (11) 1,671 9,937 3,394
Other Western Hemisphere 4,684 2,735 3,941 5,771
Other Eastern Hemisphere 38 288 278 2,370
Other (300) (200) (972) (815)
- -----------------------------------------------------------------------------------------------------
1,492 5,444 11,050 14,146
- -----------------------------------------------------------------------------------------------------
Corporate Expenses (6,843) (4,243) (20,521) (11,331)
- -----------------------------------------------------------------------------------------------------
Operating Income $ 60,939 $ 32,601 $147,628 $ 76,786
=====================================================================================================
(a) Intersegment eliminations are not material.
(b) Amounts shown are after applicable depreciation and amortization.
</TABLE>
10
<PAGE>
Quarter ended September 30, 1997, compared to Quarter ended September 30, 1996
Revenues increased to $223.2 million for the quarter ended September 30, 1997 up
from $136.9 million for the prior year quarter, an increase of $86.3 million or
63 percent. Operating income increased by $28.3 million or 87 percent, up from
$32.6 million in the third quarter of 1996 to $60.9 million in the current year
quarter. Net income for the third quarter of 1997 was $39.1 million, up from
$21.5 million for the third quarter of 1996, an increase of $17.6 million or 82
percent. The increases in 1997 resulted primarily from increased dayrates and
the inclusion of the Transocean ASA results for the entire 1997 quarter,
partially offset by higher interest costs. The weighted-average number of
shares of common stock was 101.5 million and 70.4 million for the quarters ended
September 30, 1997 and 1996, respectively. The increase was primarily due to the
shares issued in the Combination.
Revenues and operating income from Mobile Units increased significantly in the
third quarter of 1997 compared to the prior year quarter. In the U.S. Gulf of
Mexico, the increases resulted primarily from higher dayrates earned during the
current quarter and the operations of a drillship that operated in Other Western
Hemisphere during the previous year. In the North Sea and Europe, the increases
in revenues and operating income resulted primarily from inclusion of the
Transocean ASA results following the Combination, partially offset by the impact
of a work stoppage in September 1997 by offshore workers affecting three rigs
operating in Norway. Work resumed on the affected rigs in October, and the
dispute, which affects all offshore drilling companies in the Norwegian sector
of the North Sea, is expected to be arbitrated pending action by the Norwegian
Parliament later this year. The decreases in Other Western Hemisphere are due to
a drillship moving to the U.S. Gulf of Mexico, partially offset by operations
added through the Combination. The increases in Other Eastern Hemisphere are due
primarily to the results of a rig added through the Combination, higher dayrates
earned during the current year quarter and full utilization of one jackup rig
that was stacked during the 1996 quarter.
Revenues from Drilling Services increased during the third quarter of 1997
compared to the same period in 1996, while operating income decreased during the
same period. In the U.S. Gulf of Mexico, the decrease in revenues resulted
primarily from fewer turnkey wells completed during the current quarter over the
prior year quarter. Operating income in the U.S. Gulf of Mexico decreased in
the third quarter of 1997 over the prior year quarter primarily due to a $4.1
million estimated loss from a turnkey well in progress at the end of the 1997
quarter. In the North Sea and Europe, the decreases in revenues and operating
income resulted primarily from the divestiture of non-core activities in the
second quarter of 1997, offset by a higher level of services provided by
remaining activities. Revenues and operating income increased in Other Western
Hemisphere during the third quarter of 1997, primarily due to the completion of
the first well of a $124 million three-well turnkey drilling package offshore
Mexico, while the Company completed the final well of a $64 million five-well
turnkey drilling package offshore Mexico during the prior year quarter.
Corporate expenses increased $2.6 million, from $4.2 million in the third
quarter of 1996 to $6.8 million in the current year quarter primarily due to
increased costs to integrate and manage a larger organization. The corporate
organization expanded to accommodate the overall growth of the Company as a
result of the Combination and the increased activity in the industry, including
major new construction programs, increased recruiting and training activity and
upgrade and expansion of communication and data processing systems.
Depreciation and amortization expense increased in the 1997 period over 1996
primarily due to additional depreciation on property and equipment acquired in
the Combination and $4.4 million of amortization of goodwill relating to the
Combination.
Other income (expense) decreased from income of $0.5 million in the third
quarter of 1996 to expense of $3.0 million in the current year quarter.
Interest income decreased in the third quarter of 1997 as a result of lower
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average cash balances and net interest expense increased due primarily to debt
incurred relating to the Combination. Partially offsetting these decreases was
higher equity in earnings of joint ventures, resulting primarily from higher
dayrates earned on two rigs owned by a corporation in which the Company has a 25
percent interest.
Nine Months ended September 30, 1997, compared to Nine Months ended September
30, 1996
Revenues increased to $650.9 million for the nine months ended September 30,
1997 up from $327.0 million for the prior year period, an increase of $323.9
million or 99 percent. Operating income increased by $70.8 million or 92
percent, up from $76.8 million in the first nine months of 1996 to $147.6
million in the current year period. Net income for the first nine months of
1997 was $94.7 million, up from $58.8 million for the same period of 1996, an
increase of $35.9 million or 61 percent. The increases in 1997 resulted
primarily from increased dayrates and the inclusion of the Transocean ASA
results for the entire period partially offset by a decrease in other income
(expense). The weighted-average number of shares of common stock was 101.8
million and 61.4 million for the nine months ended September 30, 1997 and 1996,
respectively. The increase was primarily due to the shares issued in the
Combination.
Revenues and operating income from Mobile Units increased significantly in the
first nine months of 1997 compared to the prior year period. In the U.S. Gulf
of Mexico, the increases resulted primarily from higher dayrates earned and the
inclusion of operations of a drillship during the third quarter that operated in
Other Western Hemisphere in the prior year. In the North Sea and Europe, the
increases in revenues and operating income resulted primarily from the inclusion
of the Transocean ASA results following the Combination. The decrease in
revenues for Other Western Hemisphere is due to a drillship moving to the U.S.
Gulf of Mexico in early 1997 for an upgrade and operations, partially offset by
operations added through the Combination. The increases in Other Eastern
Hemisphere are due primarily to the results of a rig added through the
Combination, higher dayrates earned during the current period and full
utilization of one jackup rig that was stacked during the 1996 period.
Revenues from Drilling Services increased during the first nine months of 1997
compared to the same period in 1996, while operating income decreased during the
same period. In the U.S. Gulf of Mexico, the increase in revenues resulted
primarily from a higher number of turnkey wells completed during the current
period compared to the prior year. Operating income in the U.S. Gulf of Mexico
decreased in the first nine months of 1997 over the prior year period primarily
due to losses from turnkey operations, including an estimated loss on one well
in progress at the end of the period. In the North Sea and Europe, the increases
in revenues and operating income resulted primarily from the inclusion of the
Transocean ASA results following the Combination. The decreases in Other Eastern
Hemisphere resulted primarily from services provided in Qatar and Senegal during
1996 that were not performed in the current year period. Revenues increased and
operating income decreased slightly in Other Western Hemisphere in the first
nine months of 1997. During the 1997 period, the Company completed the first
well of a $124 million three-well turnkey drilling package offshore Mexico,
while the Company completed the final two wells of a $64 million five-well
turnkey drilling package offshore Mexico during the prior year period.
Corporate expenses increased $9.2 million, from $11.3 million in the first nine
months of 1996 to $20.5 million in the current year period primarily due to
increased costs to integrate and manage a larger organization. The corporate
organization expanded to accommodate the overall growth of the Company as a
result of the Combination and the increased activity in the industry, including
major new construction programs, increased recruiting and training activity and
upgrade and expansion of communication and data processing systems.
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Depreciation and amortization expense increased in the 1997 period over 1996
primarily due to additional depreciation on property and equipment acquired in
the Combination and $13.9 million of amortization of goodwill relating to the
Combination.
Other income (expense) decreased from income of $13.8 million in the first nine
months of 1996 to expense of $8.7 million in the current year period. The
decrease resulted from several factors. During 1997, the Company recognized
lower interest income due to lower average cash balances and higher net interest
expense due primarily to debt incurred relating to the Combination. Other
expense in 1997 included $1.5 million in losses on the mark-to-market adjustment
of open foreign exchange derivative instruments while 1996 included a $6.6
million pre-tax gain on the disposal of a jackup rig. Higher equity in earnings
of joint ventures resulted primarily from higher dayrates earned on two rigs
owned by a corporation in which the Company has a 25 percent interest.
Income tax expense increased by $12.5 million due primarily to higher pre-tax
earnings in the first nine months of 1997 over the same period in 1996,
partially offset by a decrease in earnings of foreign subsidiaries subject to
tax. The decrease in the Company's effective tax rate below the U.S. statutory
rate is primarily due to the permanent reinvestment of earnings of certain
foreign subsidiaries.
MARKET OUTLOOK
The increased demand and higher dayrates for rigs in the deepwater and harsh-
environment markets that began in 1995 continued throughout the third quarter of
1997. The improvements in these markets are due in part to technological
advances that improved the economics of offshore exploration and development, as
well as the greater availability of attractive concessions in markets throughout
the world. Operators are showing more interest in deepwater areas worldwide,
including the U.S. Gulf of Mexico, and in some of the North Sea's more demanding
locations, particularly the harsh-environment areas west of Shetlands and
northern areas offshore Norway. As a result of the improved market conditions,
rigs are being contracted under longer term agreements at higher dayrates, with
customers often paying for upgrades to the rigs to operate in more challenging
conditions. In response to the demands of its customers, the Company is also
providing a variety of drilling services, including well planning, engineering
and management through integrated service teams.
Historically, the contract drilling market has been highly competitive and
cyclical; thus, the Company cannot predict the extent to which the current
market conditions will continue. In addition, as a result of improved market
conditions, a number of drilling contractors are upgrading existing rigs or
constructing new rigs that will be capable of competing with the Company's
deepwater and harsh-environment rigs. Although most of these rigs are being
built pursuant to long-term contract commitments, there can be no assurance
that, upon the expiration of such contracts and the contracts for the Company's
rigs, then-current market conditions will be favorable and that current high
utilization rates will continue.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash flows provided by operations for the nine months ended September 30, 1997
increased to $121.3 million, up from $42.1 million for the nine months ended
September 30, 1996, an increase of $79.2 million. The increase was primarily due
to a $35.9 million increase in net income and a $53.3 million increase in
depreciation and amortization due to the Combination and rig upgrades.
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Cash flows used in investing activities decreased by $61.1 million from $270.0
million in the first nine months of 1996 to $208.9 million in the current year
period. During the current year, the Company significantly increased its
capital expenditures relating to its rig construction and upgrades. The Company
also received cash proceeds from the divestiture of certain non-core drilling
services activities and assets, while in the prior year the Company used cash in
the Combination with Transocean ASA.
Cash flows provided by financing activities decreased $44.7 million from $158.8
million in the first nine months of 1996 to $114.1 million in the current year
period. During 1997, the Company increased its borrowings through a $300 million
public debt offering and the project financing agreement for the Discoverer
Enterprise and the Transocean Amirante, both of which are discussed below. This
was partially offset by repayments on its Term Loan Facility and Revolving
Credit Facility (both of which are defined below) and from cash used to
reacquire 2,786,000 shares of the Company's common stock. During the prior year,
the Company increased its borrowings under the Term Loan Facility and Revolving
Credit Facility and repaid debt assumed in the Combination with Transocean ASA.
CAPITAL EXPENDITURES
The Company's investments in its existing fleet and fleet additions announced
during 1996 continue to require significant capital expenditures. The Company
spent approximately $307 million in the first nine months of 1997 on capital
expenditures. Expenditures for upgrades and improvements to the rigs currently
operating are expected to be approximately $50 million during the remainder of
1997. The Discoverer Enterprise construction project is expected to require
capital expenditures of approximately $80 million during the remainder of 1997
and $100 million during 1998.
One of the Company's semisubmersible rigs, to be named the "Transocean
Marianas", was damaged by a fire during the third quarter 1997 while it was in
the shipyard undergoing conversion. The fire damaged the rig's electrical system
but resulted in no major structural damage to the rig and no injury to
personnel. The Transocean Marianas conversion project was expected to have been
completed during the fourth quarter of 1997, and the rig was to then commence a
five-year contract with Shell Offshore Inc. As a result of the fire, it is
expected that completion of the project will be delayed until the second half of
1998. The Company believes that the costs to repair the damage caused by the
fire are fully insured. The Company expects to spend $45 million during the
remainder of 1997 and $25 million in 1998 to complete conversion of the rig
excluding amounts related to the fire damage.
As with any major construction project that takes place over an extended period
of time, actual costs and the timing of such expenditures may vary from initial
estimates based on finalization of the design and actual terms of awarded
contracts. The Company intends to fund the cash requirements relating to these
capital commitments through available cash balances, borrowings under the Credit
Agreement (defined below) and, in the case of the Discoverer Enterprise,
financing under the Project Financing Agreement (defined below).
DEBT
CREDIT AGREEMENT AND PROJECT FINANCING AGREEMENT - In connection with the
Combination, the Company entered into a secured credit agreement dated as of
July 30, 1996 with a group of banks led by ABN AMRO Bank N.V. (the "Credit
Agreement"). Prior to the amendment discussed below, the Credit Agreement
provided for borrowing by the Company under a six-year term loan facility in the
amount of $200 million (the "Term Loan Facility") and a six-year revolving
credit facility in the amount of $400 million (the "Revolving Credit Facility").
Loans under the Credit Agreement bear interest, at the option of the Company, at
a base rate or LIBOR plus a margin (0.25 percent at September 30, 1997) that
varies depending on the Company's
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funded debt to total capital ratio or its public senior unsecured debt rating.
The Credit Agreement requires compliance with various restrictive covenants and
effectively limits the Company's ability to pay dividends based on a specified
net worth requirement and an interest coverage ratio. Quarterly principal
payments began on the Term Loan Facility on December 31, 1996. The Credit
Agreement has a maturity date of July 2002.
In connection with the public offering of the debt securities discussed below,
the Credit Agreement was amended to, among other things, release all security,
convert $140 million of the term loans into revolving loans, and change the
applicable margins over LIBOR and the applicable commitment fees. Following the
amendment, the Credit Agreement provides for a $540 million Revolving Credit
Facility, with no Term Loan Facility.
In connection with the construction of the Discoverer Enterprise and upgrade of
the Transocean Amirante, the Company's wholly owned subsidiary Transocean
Enterprise Inc. entered into a bank financing agreement dated as of December 27,
1996 with a group of banks led by ABN AMRO Bank N.V. ("Project Financing
Agreement"). Approximately $340 million is available for drawdowns during the
construction period and is available in two tranches. The first tranche of $66
million is to be repaid by December 31, 1998 or when construction on both
vessels is completed. It bears an interest rate of LIBOR plus a margin of 0.35
percent. The second tranche of $274.5 million bears an interest rate of LIBOR
plus 0.85 percent during the construction period and is convertible to term
financing upon completion of construction and acceptance of the two vessels (no
later than December 31, 1998) by Amoco Exploration and Production Company
("Amoco"), which is contracting the rigs for a period of five years following
completion. The term financing would mature over a period of five years. The
term financing would also be divided into two tranches, the relative amounts of
which would depend on various factors. One tranche of the term financing would
be sized based upon and repaid from the net cash flows generated from the Amoco
contracts (the "Amoco Cash Flows"). The Company has the option to accept bank
financing for the Amoco Cash Flows at LIBOR plus 0.65 percent or to enter into
an uncommitted lease securitization program at commercial paper rates plus
approximately 0.28 percent. The second tranche of the term facility would be
repaid from Company cash flows to the extent the Amoco Cash Flows do not cover
scheduled repayments. The Company has the option to accept bank financing for
the Company cash flows at LIBOR plus 1.125 percent for a period of three years
and LIBOR plus 1.25 percent thereafter or to enter into a lease securitization
at commercial paper rates plus approximately 0.58 percent (as long as the
Company's credit rating is BBB- or Baa3 or better).
PUBLIC DEBT OFFERING - In April 1997, the Company completed the public offering
and sale of $300 million aggregate principal amount of senior, unsecured debt
securities. The securities sold consisted of $100 million aggregate principal
amount of 7.45% Notes due April 15, 2027 (the "Notes") and $200 million
aggregate principal amount of 8.00% Debentures due April 15, 2027 (the
"Debentures"). Holders of Notes may elect to have all or any portion of the
Notes repaid on April 15, 2007 at 100% of the principal amount. The Notes, at
any time after April 15, 2007, and the Debentures, at any time, may be redeemed
at the option of the Company at 100% of the principal amount plus a make-whole
premium, if any, equal to the excess of the present value of future payments due
under the Notes and Debentures using a discount rate equal to the then-
prevailing yield of U.S. treasury notes for a corresponding remaining term plus
20 basis points over the principal amount of the security being redeemed.
Interest is payable on April 15 and October 15 of each year, commencing October
15, 1997. The indenture and supplemental indenture relating to the Notes and
the Debentures place limitations on the Company's ability to (i) incur
indebtedness secured by certain liens, (ii) engage in certain sale/leaseback
transactions and (iii) engage in certain merger, consolidation or reorganization
transactions. The net proceeds were used to repay amounts outstanding under the
Credit Agreement.
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The Company has letters of credit outstanding at September 30, 1997 totaling
$34.5 million, including $29.7 million relating to the legal dispute with
Kvaerner Installasjon as (see Part II. Item 1. Legal Proceedings). The
remaining $4.8 million guarantees various insurance and contract bidding
activities.
SHELF REGISTRATION
In April 1997, the Company filed with the Securities and Exchange Commission
(the "SEC") a $750 million shelf registration statement on Form S-3 for the
proposed offering from time to time of debt securities, preferred stock, common
stock and warrants to purchase preferred stock or debt securities. The
registration statement was declared effective by the SEC on April 11, 1997. The
Company sold the Notes and Debentures under this registration statement.
AUTHORIZED STOCK REPURCHASE
In February 1997, the Company repurchased 1,786,000 shares of its common stock
for $49.9 million pursuant to authority previously granted by the Board of
Directors. In May 1997, the Company's Board of Directors authorized the
repurchase of up to $200 million shares of its common stock from time to time on
the open market or in privately negotiated transactions. In September 1997, the
Company repurchased 1,000,000 shares of its common stock for a total of $46.4
million. Borrowings under the Revolving Credit Facility were used to fund the
repurchase. The Board of Directors regularly reviews the possibility of
repurchasing common stock in light of prevailing stock prices and the financial
position of the Company.
DERIVATIVE INSTRUMENTS
The Company enters into a variety of derivative financial instruments in
connection with the management of its exposure to fluctuations in foreign
exchange rates and interest rates. The Company does not enter into derivative
transactions for speculative purposes; however, for accounting purposes certain
transactions may not meet the criteria for hedge accounting.
Gains and losses on foreign exchange derivative instruments, which qualify as
accounting hedges, are deferred and recognized when the underlying foreign
exchange exposure is realized. Gains and losses on foreign exchange derivative
instruments, which do not qualify as hedges for accounting purposes, are
recognized currently based on the change in market value of the derivative
instruments. As of September 30, 1997, all foreign exchange derivative
instruments, not qualifying as accounting hedges had expired. The Company
recognized a net pre-tax loss of $1.5 million on such instruments for the nine
months ended September 30, 1997.
The Company uses interest rate swap agreements to effectively convert a portion
of its floating rate debt to a fixed rate basis, reducing the impact of interest
rate changes on future income. Interest rate swaps are designated as a hedge of
underlying future payments. The interest rate differential to be received or
paid on the swaps is recognized over the lives of the swaps as an adjustment to
interest expense. At September 30, 1997, the net unrealized loss on open
interest rate swaps was $1.8 million, which has been deferred because the
Company intends to maintain these contracts through their maturities. During
the second quarter of 1997 the Company closed out certain interest rate options
and swaps when they ceased to be an effective hedge, recognizing a loss of
approximately $0.4 million.
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ACQUISITIONS
The Company 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 the payment
by the Company of a substantial amount of cash and the issuance of a substantial
number of shares of common stock. The Company 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 common stock, or a combination thereof.
SOURCES OF LIQUIDITY
The Company believes that its cash and cash equivalents, cash generated from
operations, borrowings available under its Credit Agreement, Project Financing
Agreement and access to other financing sources will be adequate to meet its
anticipated short-term and long-term liquidity requirements, including scheduled
debt repayments.
ASSET DIVESTITURE
In May 1997, the Company divested certain non-core activities and associated
assets within its drilling services line of business originally acquired in the
Combination by selling the shares of a new corporate entity, Procon Offshore
ASA, to investors in Norway. The net proceeds from the sale were approximately
$106 million, goodwill was reduced by approximately $68 million and no gain or
loss was recognized on the sale.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings per Share.
This statement establishes standards for computing and presenting earnings per
share ("EPS") and simplifies the standards for computing EPS previously outlined
in the Accounting Principles Board Opinion No. 15. The Company plans to adopt
this standard in the fourth quarter of 1997. Its adoption is not expected to
have a material effect on the Company's financial statements.
In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The Company plans to adopt this standard in the first quarter of 1998. Its
adoption is not expected to have a material effect on the Company's financial
statements.
Also in September 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This statement establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. The Company plans to adopt this standard in the
fourth quarter of 1998. Its adoption is not expected to have a material effect
on the Company's financial statements.
FORWARD-LOOKING INFORMATION
The statements included in this quarterly report regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of
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1934. Statements to the effect that the Company or management "anticipates,"
"believes," "estimates," "expects," "predicts," or "projects" a particular
result or course of events, or that such result or course of events "should"
occur, and similar expressions, are also intended to identify forward-looking
statements.
Such statements are subject to numerous risks, uncertainties and assumptions,
including but not limited to, uncertainties relating to industry and market
conditions, prices of crude oil and natural gas, foreign exchange and currency
fluctuations, political instability in foreign jurisdictions, ability of the
Company to integrate newly acquired operations and other factors discussed in
this quarterly report and in the Company's other filings with the SEC. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
indicated.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and Global Marine Inc. ("Global Marine") are parties to an agreement
pursuant to which the Company participates in the cash flow from three jackup
drilling rigs owned and operated by Global Marine and Global Marine participates
in the cash flow from one of the Company's jackup drilling rigs, the Transocean
Nordic. Global Marine has initiated arbitration proceedings against the Company
in the United Kingdom with respect to various disputed matters under the
agreement, including the distribution of revenues from the rigs and whether the
Company's acquisition of Transocean ASA may have given rise to a right of first
refusal on the part of Global Marine to purchase the Transocean Nordic. The
Company believes that Global Marine's claims are without merit and that the
outcome of the arbitration process will have no material adverse effect on the
Company's operations or financial position.
The Company is party to a contract with Kvaerner Installasjon as ("Kvaerner") in
Norway pursuant to which Kvaerner performed modification and refurbishment work
on one of the Company's fourth-generation semisubmersible drilling rigs, the
Transocean Leader. Disputes have arisen with respect to the work performed and
the amount owed with respect to such work. The amount in dispute is
approximately $29 million. The Company has posted a letter of credit for
approximately $30 million pending the resolution of the dispute by agreement
between the parties or by final judgment under the Norwegian judicial process.
The parties are continuing to discuss the matter, and the Company is unable to
predict at this time the ultimate outcome of such discussions or any resulting
judicial process; however, the Company believes Kvaerner's claims are without
merit and that the outcome of the dispute will have no material adverse effect
on the Company's operations or financial position.
In 1990 and 1991, two of the Company's subsidiaries were served with assessments
totaling approximately $11 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 has contested the assessments in
the Brazilian administrative and court systems. The proceedings with respect to
the 1991 assessment, which was for approximately $9 million, have reached the
first level Brazilian state court, which rejected the Company's arguments. The
Company has appealed that decision to the second level court. The legal and
administrative decisions as to the 1990 assessments are still pending. If the
Company's defenses are ultimately unsuccessful, the Company believes that the
Brazilian government-controlled oil company, Petrobras, has a contractual
obligation to reimburse the Company's subsidiaries for ISS payments required to
be paid by them. The Company believes the outcome of these assessments will have
no material adverse affect on the Company's operations or financial position.
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ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
The following exhibits are filed in connection with this Report:
NUMBER DESCRIPTION
- ------ -----------
10.1 Employment Agreement dated as of August 14, 1997 between Dennis R.
Long and Transocean Offshore Inc. (compensatory plan or arrangement)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports of Form 8-K filed during the quarter ending
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 12, 1997.
TRANSOCEAN OFFSHORE INC.
By: /s/ Robert L. Long
-----------------------------------
Robert L. Long
Senior Vice President
(Principal Financial Officer)
By: /s/ Barbara S. Koucouthakis
----------------------------------
Barbara S. Koucouthakis
Vice President and Controller
(Principal Accounting Officer)
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between Transocean Offshore Inc., a Delaware corporation
(the "Company") and Dennis R. Long (the "Executive"), dated as of the 14th day
of August, 1997.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of Control
(as defined in Section 2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of
a third party who has taken steps reasonably calculated to effect a Change
of Control or (ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination
of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each
annual
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anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal
Date, unless at least 60 days prior to the Renewal Date the Company shall
give notice to the Executive that the Change of Control Period shall not be
so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities
who
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were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary
of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any
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time during the 120-day period immediately preceding the Effective Date and
(B) the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any
office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall
not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which
the Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this
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Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Company's Performance Award and Cash
Bonus Plan, or any comparable bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the Effective Date
(annualized in the event that the Executive was not employed by the Company
for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company and its
affiliated companies for the Executive under such plans, practices,
policies and programs as in effect at any time during the 120-day period
immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
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applicable generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices, policies
and programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax
and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with
the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its affiliated
companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at
any time during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
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policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
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(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable belief that
the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant
to a resolution duly adopted by the Board or upon the instructions of the
Chief Executive Officer or a senior officer of the Company or based upon
the advice of counsel for the Company shall be conclusively presumed to be
done, or omitted to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the Executive
shall not be deemed to be for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated, insubstantial
and inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
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(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive
for any reason during the 30-day period immediately following the first
anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after
the giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of
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Termination shall be the date on which the Company notifies the Executive
of such termination and (iii) if the Executive's employment is terminated
by reason of death or Disability, the Date of Termination shall be the date
of death of the Executive or the Disability Effective Date, as the case may
be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus
paid or payable, including any bonus or portion thereof which has been
earned but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for less
than twelve full months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount being referred to
as the "Highest Annual Bonus") and (y) a fraction, the numerator of which
is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described in clauses (1), (2),
and (3) shall be hereinafter referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus;
and
C. an amount equal to the excess of (a) the actuarial equivalent
of the benefit under the Company's qualified defined benefit retirement
plan (the "Retirement Plan") (utilizing actuarial assumptions no less
favorable to the Executive than those in effect under the Company's
Supplemental Retirement Plan immediately prior to the
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Effective Date and assuming benefits commence at age 65), and any excess or
supplemental retirement plan in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's employment
continued for three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming that the
Executive's compensation in each of the three years is that required by
Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of
the Executive's actual benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the Date of Termination;
(ii) Should Executive move his residence in order to pursue other
business opportunities within three years of the Date of Termination (or
until his normal retirement date, whichever is sooner), the Company shall
reimburse him for any expenses incurred in that relocation (including taxes
payable on the reimbursement) which are not reimbursed by another employer;
provided, however, that Executive shall be entitled to such reimbursement
with respect to only one such relocation, Executive shall be entitled to
specify the relocation for which reimbursement hereunder is to be made.
Benefits under this provision will include the assistance, at no cost to
Executive, in selling his home and other assistance which was customarily
provided to executives transferred within the Company or between the
Company and its subsidiaries prior to the Effective Date;
(iii) for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
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considered to have remained employed until three years after the Date of
Termination and to have retired on the last day of such period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(v) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of Other Benefits, the term
Other Benefits as utilized in this Section 6(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies relating to
death benefits, if any, as in effect with respect to other peer executives
and their beneficiaries at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive's
estate and/or the Executive's beneficiaries, as in effect on the date of
the Executive's death with respect to other peer executives of the Company
and its affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to the Executive, other than
for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination. With respect
to the provision of Other Benefits, the term Other Benefits as utilized in
this Section 6(c) shall include, and the Executive shall be entitled after
the Disability
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Effective Date to receive, disability and other benefits at least equal to
the most favorable of those generally provided by the Company and its
affiliated companies to disabled executives and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, as in effect generally with respect to other peer
executives and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment
during the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive,
other than for Accrued Obligations and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify, nor, subject
to Section 12(f), shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice
or program or contract or agreement except as explicitly modified by this
Agreement.
8. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay as incurred,
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to the full extent permitted by law, all legal fees and expenses which the
Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others of the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any payment pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that
the Executive is entitled to a Gross-Up Payment, but that the Payments do
not exceed 110% of the greatest amount (the "Reduced Amount") that could be
paid to the Executive such that the receipt of Payments would not give rise
to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young, L.L.P. or such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
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Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting the
Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 9, shall be paid by the Company to the Executive within five
days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the Company
shall control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect
of such claim and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section
9(c), a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive
16
<PAGE>
in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained
by the Executive during the Executive's employment by the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive
in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
17
<PAGE>
12. Miscellaneous.
(a) AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT
OF LAWS. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Dennis R. Long
River Oaks Apartments
3435 Westheimer, #1700
Houston, Texas 77027
If to the Company:
Transocean Offshore Inc.
4 Greeenway Plaza
Houston, Texas 77046
Attention: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
18
<PAGE>
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for
Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either
the Executive or the Company at any time prior to the Effective Date, in
which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Dennis R. Long
------------------------------------
Dennis R. Long
TRANSOCEAN OFFSHORE INC.
By: /s/ J. Michael Talbert
---------------------------------
J. Michael Talbert
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 50,599
<SECURITIES> 0
<RECEIVABLES> 159,745
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 274,357
<PP&E> 2,036,191
<DEPRECIATION> 445,425
<TOTAL-ASSETS> 2,655,153
<CURRENT-LIABILITIES> 194,298
<BONDS> 619,097
0
0
<COMMON> 1,037
<OTHER-SE> 1,623,620
<TOTAL-LIABILITY-AND-EQUITY> 2,655,153
<SALES> 0
<TOTAL-REVENUES> 650,910
<CGS> 0
<TOTAL-COSTS> 503,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,502
<INCOME-PRETAX> 138,941
<INCOME-TAX> 44,197
<INCOME-CONTINUING> 94,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,744
<EPS-PRIMARY> 0.93<F1>
<EPS-DILUTED> 0.93<F1>
<FN>
<F1>PER SHARE AMOUNTS REFLECT THE RETROACTIVE EFFECT OF THE TWO-FOR-ONE STOCK
SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND, PAID ON SEPTEMBER 19, 1997 TO
STOCKHOLDERS OF RECORD ON SEPTEMBER 5, 1997.
</FN>
</TABLE>
