<PAGE>
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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 MARCH 31, 1999
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 April 30, 1999, 100,560,300 shares of common stock, par value $.01
per share, of Transocean Offshore Inc. were outstanding.
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<PAGE>
TRANSOCEAN OFFSHORE INC.
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998.................... 2
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998.......................... 3
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998.................... 4
Notes to Condensed Consolidated Financial Statements........... 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 22
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings............................................ 23
ITEM 6. Exhibits and Reports on Form 8-K............................. 24
</TABLE>
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, 1998.
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
-------- --------
(In thousands, except
per share data)
<S> <C> <C>
Operating Revenues $306,359 $258,313
-------- --------
Costs and Expenses
Operating and maintenance 146,591 131,948
Depreciation and amortization 32,001 28,078
General and administrative 6,669 6,968
-------- --------
185,261 166,994
-------- --------
Operating Income 121,098 91,319
-------- --------
Other Income (Expense), Net
Equity in earnings of joint ventures 3,224 2,333
Interest income 548 868
Interest expense, net of amounts capitalized (2,388) (7,107)
Gain on termination of cash flow sharing agreement - 21,386
Other, net (1,587) 1,215
-------- --------
(203) 18,695
-------- --------
Income Before Income Taxes 120,895 110,014
Income Taxes 35,664 32,454
-------- --------
Net Income $ 85,231 $ 77,560
======== ========
Earnings Per Share
Basic $ 0.85 $ 0.78
======== ========
Diluted $ 0.85 $ 0.77
======== ========
Weighted Average Shares Outstanding
Basic 100,329 99,673
-------- --------
Diluted 100,758 100,683
-------- --------
Dividends Paid Per Share $ 0.03 $ 0.03
======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ----------
(In thousands, except share data)
<S> <C> <C>
Cash and Cash Equivalents $ 45,938 $ 69,453
Accounts Receivable 198,055 217,494
Deferred Income Taxes 9,949 -
Materials and Supplies 34,214 33,928
Prepayments 7,089 9,596
Costs Incurred on Drilling Services Projects in Progress 2,249 31,161
---------- ----------
Total Current Assets 297,494 361,632
---------- ----------
Property and Equipment 2,761,728 2,659,020
Less Accumulated Depreciation 560,275 530,949
---------- ----------
Property and Equipment, net 2,201,453 2,128,071
---------- ----------
Goodwill, net 670,761 675,243
Investments in and Advances to Joint Ventures 38,311 55,544
Other Assets 28,039 30,453
---------- ----------
Total Assets $3,236,058 $3,250,943
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable $ 36,864 $ 40,939
Accrued Income Taxes 90,621 58,711
Current Portion of Long-Term Debt 23,294 18,672
Deferred Income Taxes - 1,420
Other Current Liabilities 68,598 72,679
---------- ----------
Total Current Liabilities 219,377 192,421
---------- ----------
Long-Term Debt 681,946 813,953
Deferred Income Taxes 241,359 229,979
Other Long-Term Liabilities 32,058 35,947
---------- ----------
Total Long-Term Liabilities 955,363 1,079,879
---------- ----------
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,
104,344,300 shares issued, including shares in treasury, and
100,560,300 shares outstanding at March 31, 1999, and
104,335,127 shares issued, including shares in treasury,
and 100,551,127 shares outstanding at December 31, 1998 1,043 1,043
Less Common Stock in Treasury, at cost; 3,784,000 shares
at March 31, 1999 and December 31, 1998 (144,297) (144,297)
Additional Paid-in Capital 1,535,661 1,535,201
Retained Earnings 668,911 586,696
---------- ----------
Total Stockholders' Equity 2,061,318 1,978,643
---------- ----------
Total Liabilities and Stockholders' Equity $3,236,058 $3,250,943
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 85,231 $ 77,560
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 32,001 28,078
Deferred income taxes 11 9,757
Equity in earnings of joint ventures (3,224) (2,333)
(Gain) loss on disposal of assets 551 (2,048)
Deferred income, net (2,466) (2,858)
Deferred expenses, net 1,974 1,348
Other, net 1,194 (4,185)
Changes in operating assets and liabilities
Accounts receivable 17,563 (42,972)
Accounts payable (3,494) (15,808)
Income taxes receivable/payable, net 31,910 21,850
Other current assets 30,452 6,990
Other current liabilities (4,692) (7,460)
--------- ---------
Net Cash Provided by Operating Activities 187,011 67,919
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (100,982) (114,833)
Proceeds from disposal of assets, net 212 601
Joint ventures and other investments 20,450 4,144
--------- ---------
Net Cash Used in Investing Activities (80,320) (110,088)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving line of credit (125,000) 50,600
Dividends paid (3,016) (2,998)
Repayment of notes payable (2,307) (2,308)
Proceeds from issuance of common stock under
stock-based compensation plans 727 654
Other, net (610) (385)
--------- ---------
Net Cash Provided by (Used in) Financing Activities (130,206) 45,563
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (23,515) 3,394
--------- ---------
Cash and Cash Equivalents at Beginning of Period 69,453 54,225
--------- ---------
Cash and Cash Equivalents at End of Period $ 45,938 $ 57,619
========= =========
</TABLE>
See accompanying notes.
4
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. 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, 1998.
SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income
taxes, net were $9.1 million and $3.7 million, respectively, for the three
months ended March 31, 1999 and $8.2 million and $2.0 million, respectively, for
the three months ended March 31, 1998.
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 March 31, 1999 and December 31, 1998 totaled $47.2 million and $42.7 million,
respectively.
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 $9.7 million and $6.6 million for the three
months ended March 31, 1999 and 1998, respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to prior period
amounts to conform with the current period's presentation.
INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for the interim periods. Such adjustments are considered to be of a
normal recurring nature unless otherwise identified.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in fiscal years beginning after June 15, 1999. Because of the
Company's limited use of derivatives to manage its exposure to fluctuations in
foreign exchange rates and interest rates, management does not anticipate that
the adoption of the new statement will have a material effect on the results of
operations or the financial position of the Company. The Company will adopt
SFAS No. 133 as of January 1, 2000.
5
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - UPGRADE AND EXPANSION OF DRILLING FLEET
The Company's investments in its existing fleet and previously announced fleet
additions continue to require significant capital expenditures. Capital
expenditures totaled $101.0 million during the three months ended March 31,
1999.
The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction projects.
<TABLE>
<CAPTION>
Discoverer Discoverer Discoverer
(Expenditures in millions) Enterprise Spirit Deep Seas
---------- -------------- ----------
<S> <C> <C> <C>
Cumulative at December 31, 1998 $ 302 $124 $ 106
Actual for the three months ended March 31, 1999 35 26 26
-------- ---- ----------
Cumulative at March 31, 1999 337 150 132
Projected - 1999 through completion 65 195 210
-------- ---- ----------
Projected Total Costs $ 402 $345 $ 342
======== ==== ==========
</TABLE>
NOTE 3 - DEBT
Debt is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- -----------
(In thousands)
<S> <C> <C>
Revolving Credit Facility $195,000 $320,000
Project Financing Agreement 186,990 186,990
8.00% Debentures, net of discount 199,249 199,243
7.45% Notes 100,000 100,000
6.90% Notes Payable 23,077 25,384
Other 924 1,008
-------- --------
Total Debt 705,240 832,625
Less Current Maturities 23,294 18,672
-------- --------
Total Long-Term Debt $681,946 $813,953
======== ========
</TABLE>
Project Financing Agreement - In connection with the ongoing construction of the
Discoverer Enterprise and the completed upgrade of the Transocean Amirante, the
Company's wholly owned subsidiary, Transocean Enterprise Inc., entered into a
project financing agreement effective December 27, 1996 with a group of banks
led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement").
Approximately $323 million is available in two tranches for drawdowns during the
construction period. The first tranche of approximately $62.9 million is to be
repaid upon completion of construction and acceptance of the two rigs by Amoco
Production Company ("Amoco"). It bears an interest rate of LIBOR plus 0.35
percent. The Company expects to lend Transocean Enterprise Inc. the necessary
funds to repay the $62.9 million through borrowings under the Revolving Credit
Facility; accordingly, the $62.9 million due in 1999 was not classified as
current because it is the intent of management to refinance on a long-term
basis. The second
6
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
tranche of approximately $259.9 million (of which $124.1 million in borrowings
were outstanding as of March 31, 1999) 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 rigs by Amoco. The term
financing, which is to be paid out of cash flows from the two rigs, matures over
a period of five years. Amoco has contracted the Transocean Amirante for a
period of up to five years and the Discoverer Enterprise for a period of five
years following their respective acceptance dates. The Company expects the term
financing to consist of borrowings under a lease securitization facility
provided by the agent at a floating interest rate (which has been converted to a
fixed rate by the interest rate swap transactions described below) plus a margin
of 0.36 percent for amounts fully amortized by cash flows from the Amoco
contracts and a margin of 0.62 percent for the remaining amounts, if any.
The Project Financing Agreement originally required acceptance of the two
drilling units by Amoco, repayment of the first tranche and conversion of the
second tranche to term financing no later than December 31, 1998. Although the
Transocean Amirante was accepted by Amoco and commenced operations in July 1997,
the Discoverer Enterprise is not expected to be completed until the second
quarter of 1999 due to construction delays. As a result, during December 1998,
Transocean Enterprise Inc. amended the Project Financing Agreement to extend the
outside date for acceptance of the Discoverer Enterprise, repayment of the first
tranche and conversion of the second tranche to term financing from December 31,
1998 to August 31, 1999.
During April 1999, Transocean Enterprise Inc. amended the terms of its interest
rate swap transactions, which effectively lock in a fixed interest rate for the
term financing under the Project Financing Agreement, to adjust the payment
schedule for the anticipated construction delays. In connection with the
amendment, the fixed rate Transocean Enterprise Inc. will pay increased from an
average of 6.545 percent to 6.583 percent. The estimated variable interest
rates Transocean Enterprise Inc. will receive in the swap transactions has
decreased slightly from December 31, 1998 to March 31, 1999. The net unrealized
loss on the interest rate swaps is $7.0 million as of March 31, 1999.
7
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - EARNINGS PER SHARE
The reconciliation of the numerator and denominator used for the computation of
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
------- ---------
(In thousands, except per share data)
<S> <C> <C>
Net Income for basic and diluted earnings per share $ 85,231 $ 77,560
======== ========
Weighted-average shares for basic earnings per share 100,329 99,673
Effect of dilutive securities
Employee stock options and unvested stock grants 429 1,010
-------- --------
Adjusted weighted-average shares and assumed conversions
for diluted earnings per share 100,758 100,683
======== ========
Basic earnings per share $ 0.85 $ 0.78
======== ========
Diluted earnings per share $ 0.85 $ 0.77
======== ========
</TABLE>
NOTE 5 - SEGMENTS
The Company has two reportable segments: Mobile Units and Drilling Services.
The Mobile Units segment primarily operates drilling rigs for customers,
principally at a contractually determined price per day (dayrate). Drilling
Services primarily involves providing personnel and equipment other than rigs
for oil and gas exploration and production on either a dayrate or fixed price
basis. For both segments, performance is evaluated based on operating income
before general and administrative expenses.
8
<PAGE>
TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
OPERATING REVENUES
Mobile Units
U.S. Gulf of Mexico $ 96,054 $ 71,455
Europe 113,778 110,479
Other Western Hemisphere 33,275 25,924
Other Eastern Hemisphere 7,761 15,240
-------- --------
Total Mobile Units 250,868 223,098
-------- --------
Drilling Services 55,491 35,215
-------- --------
TOTAL OPERATING REVENUES $306,359 $258,313
======== ========
OPERATING INCOME (LOSS) (A)
Mobile Units
U.S. Gulf of Mexico $ 60,996 $ 41,344
Europe 40,697 37,067
Other Western Hemisphere 20,572 16,086
Other Eastern Hemisphere 1,821 5,661
Other (b) (4,023) (1,451)
-------- --------
Total Mobile Units 120,063 98,707
-------- --------
Drilling Services 8,082 (105)
-------- --------
Total Operating Income for Reportable Segments 128,145 98,602
Corporate Expenses (7,047) (7,283)
-------- --------
TOTAL OPERATING INCOME 121,098 91,319
-------- --------
Equity in earnings of joint ventures 3,224 2,333
Interest income 548 868
Interest expense, net of amounts capitalized (2,388) (7,107)
Gain on termination of cash flow sharing agreement - 21,386
Other, net (1,587) 1,215
-------- --------
OTHER INCOME (EXPENSE), NET (203) 18,695
-------- --------
INCOME BEFORE INCOME TAXES $120,895 $110,014
======== ========
</TABLE>
(a) After depreciation and amortization expense.
(b) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.
9
<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, 1998.
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, including the Discoverer Enterprise which is currently in the final
stages of construction and testing, and six jackup rigs. The Company also has
under construction two additional Discoverer Enterprise-class drillships, to be
named Discoverer Spirit and Discoverer Deep Seas. The Company contracts these
drilling rigs, related equipment and work crews primarily on a dayrate basis to
drill offshore wells. The Company also provides additional drilling services,
including turnkey drilling, coiled tubing drilling and well intervention and
management of third-party drilling service activities.
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 primarily consists of the results
of operations for drilling rigs operated for customers, primarily at a
contractually determined price per day (dayrate). The "Drilling Services"
segment primarily includes results from providing personnel and equipment other
than rigs for oil and gas exploration and production on either a dayrate or
fixed price basis.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 1998
---------- --------------
(In thousands)
<S> <C> <C>
OPERATING REVENUES
Mobile Units
U.S. Gulf of Mexico $ 96,054 $ 71,455
Europe 113,778 110,479
Other Western Hemisphere 33,275 25,924
Other Eastern Hemisphere 7,761 15,240
-------- --------
Total Mobile Units 250,868 223,098
-------- --------
Drilling Services 55,491 35,215
-------- --------
TOTAL OPERATING REVENUES $306,359 $258,313
======== ========
OPERATING INCOME (LOSS) (a)
Mobile Units
U.S. Gulf of Mexico $ 60,996 $ 41,344
Europe 40,697 37,067
Other Western Hemisphere 20,572 16,086
Other Eastern Hemisphere 1,821 5,661
Other (b) (4,023) (1,451)
-------- --------
Total Mobile Units 120,063 98,707
-------- --------
Drilling Services 8,082 (105)
-------- --------
Total Operating Income for Reportable Segments 128,145 98,602
Corporate Expenses (7,047) (7,283)
-------- --------
TOTAL OPERATING INCOME 121,098 91,319
-------- --------
Equity in earnings of joint ventures 3,224 2,333
Interest income 548 868
Interest expense, net of amounts capitalized (2,388) (7,107)
Gain on termination of cash flow sharing agreement - 21,386
Other, net (1,587) 1,215
-------- --------
OTHER INCOME (EXPENSE), NET (203) 18,695
-------- --------
INCOME BEFORE INCOME TAXES $120,895 $110,014
======== ========
</TABLE>
(a) After depreciation and amortization expense.
(b) Other includes operations and engineering overhead expenses not allocated
to geographic areas of operations.
11
<PAGE>
QUARTER ENDED MARCH 31, 1999, COMPARED TO QUARTER ENDED MARCH 31, 1998
Net income for the three months ended March 31, 1999 was $85.2 million or $0.85
per share, diluted, compared to $77.6 million or $0.77 per share, diluted, for
the first quarter of 1998, an increase of $7.6 million or $0.08 per share,
diluted. The increase for 1999 as compared to 1998 resulted primarily from
increased dayrates and improved results from turnkey drilling services in
Mexico. The three months ended March 31, 1998 included a one-time $21.4 million
pre-tax gain ($13.9 million after tax or $0.14 per share, diluted) on the
termination of a cash flow sharing agreement with Global Marine Inc. ("Global
Marine").
Revenues were $306.4 million for the three months ended March 31, 1999, compared
to $258.3 million for the prior year quarter, an increase of $48.1 million or
18.6 percent. Operating income was $121.1 million in the first quarter of 1999
compared to $91.3 million in the first quarter of 1998, an increase of $29.8
million or 32.6 percent. The increase in revenues and operating income for 1999
resulted primarily from increased dayrates from the prior year quarter and
higher revenue and operating income from the turnkey drilling services operation
in Mexico.
Revenues and operating income from Mobile Units increased in the first quarter
of 1999 compared to the prior year quarter. The average dayrate for the
Company's semisubmersible drilling rigs and drillships was approximately
$132,100 in the first quarter of 1999, compared to approximately $112,800 in the
first quarter of 1998, an increase of 17 percent. The Company's jackup drilling
rigs experienced a 12 percent increase in average dayrates for the first quarter
of 1999 as compared to the prior year quarter. Fleetwide rig utilization
decreased to 90 percent in the first quarter of 1999 from 98 percent in the
first quarter of 1998, reflecting the fact that one semisubmersible was idle
since January 11, 1999 and that one jackup rig was idle during the entire first
quarter.
In the U.S. Gulf of Mexico, the increases in revenues and operating income
resulted from higher dayrates earned during the current quarter as well as from
the results of one rig working in the region that had been in the shipyard in
the first quarter of 1998 undergoing an upgrade. In Europe, the increases in
revenues and operating income resulted from higher dayrates. Utilization
decreased from the prior year quarter due to the fact that one rig that was
working during the corresponding period in 1998 was idle since January 11, 1999.
Revenues and operating income in Other Western Hemisphere benefited from the
inclusion of results from one rig for the entire quarter of 1999 that operated
in the U.S. Gulf of Mexico for a portion of the corresponding period in 1998.
The dayrate for this rig also experienced a significant increase over the prior
year period. Other Eastern Hemisphere experienced a decrease in revenues and
operating income primarily due to lower dayrates and utilization. One jackup
rig that was working the entire period in 1998 was idle the entire period in
1999.
Revenues and operating income from Drilling Services increased in the first
three months of 1999 compared to the first quarter of 1998. This increase
primarily reflects higher revenues and operating income from turnkey and
subsequent daywork operations associated with the turnkey drilling project in
Mexico.
Depreciation and amortization expense increased by $3.9 million in the three
month period ending March 31, 1999 over the same period in 1998. The increase
was due primarily to additional depreciation resulting from the capitalization
of property and equipment associated with the Company's completed major upgrade
and construction projects.
12
<PAGE>
Other expense, net increased to $0.2 million in the first quarter of 1999
compared to other income, net of $18.7 million in the prior year period. In the
first quarter of 1998, the Company recognized a $21.4 million pre-tax gain on
the termination of a cash flow sharing agreement with Global Marine. Interest
expense decreased in the first quarter of 1999 primarily due to lower average
debt balances.
Income tax expense increased by $3.2 million due primarily to higher pre-tax
earnings in the first quarter of 1999 over the same period in 1998. The
Company's effective tax rate remained the same in the first quarter of 1999
compared to the same period in 1998 and was lower than the U.S. statutory rate
due primarily to the permanent reinvestment of earnings of certain foreign
operations.
MARKET OUTLOOK
Rig utilization averaged 90 percent (versus 95 percent, fourth quarter 1998)
fleetwide and 93 percent (versus 99 percent, fourth quarter 1998) for the
Company's 20 fully owned and active floating drilling units. The decrease in
fleetwide utilization was primarily due to the Transocean Explorer becoming idle
upon the expiration of its contract in the first quarter. Average dayrates
during the first quarter of 1999 improved to $117,500 (versus $114,100, fourth
quarter 1998) fleetwide and $132,100 (versus $125,100, fourth quarter 1998) for
the Company's floaters, due primarily to the Transocean Arctic and the
Discoverer 534 commencing new higher-rate contracts during the first quarter and
to the Discoverer Seven Seas receiving a premium dayrate while drilling in over
7,000 feet of water. As of April 30, 1999, the Company had 67% of its fleet
days committed for the remainder of 1999 (including the Discoverer Enterprise,
which is expected to be placed in service during the second quarter of 1999) and
42% for the year 2000.
The significant decreases in oil prices that began in late 1997 and continued
throughout 1998 resulted in oil and gas companies reducing their exploration and
development activity in line with reduced price expectations. During 1998 and
the first quarter of 1999, a number of oil and gas companies also completed or
announced consolidation transactions that have resulted in or are likely to
result in additional reductions in exploration and development activity. In
addition, rig availability has increased as a result of expiring contracts and
construction by drilling contractors of new rigs that are capable of competing
with the Company's deepwater and harsh-environment rigs. Although most of these
new rigs are being built pursuant to long-term contract commitments, there can
be no assurance that such contracts will not be cancelled or terminated or that
the customers for the new rigs will not seek to "farm-out" such rigs. This
decline in exploration and development activity and increased rig availability
has created a highly competitive market for contract drilling services, with
corresponding reductions in utilization and dayrates for all classes of offshore
rigs.
Oil prices have recently recovered to the level of early 1998, suggesting there
could be an improving long-term fundamental outlook for the offshore drilling
business. However, despite the commodity price improvement, the Company expects
that in the near term its customers will continue a cautious approach to
exploration and development spending until these commodity price gains prove to
be sustainable.
The Company anticipates that its ability to secure contracts for its 10 fully
owned drilling units that become available due to contract expirations during
the remainder of 1999, and for the three
13
<PAGE>
units that are currently idle, will be adversely affected by continuing market
weakness. Depending on market conditions at the time the units become available,
the Company may be required to sign lower-rate follow-on contracts or stack some
of these units during 1999. In addition to the loss of revenues associated with
stacking rigs, the Company may be required to incur additional expenses
associated with severance and related payments to rig operating personnel. As of
April 30, 1999, two of the Company's jackups and one second-generation
semisubmersible were stacked with no contract.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash flows provided by operations were $187.0 million for the three months ended
March 31, 1999, compared to $67.9 million for the three months ended March 31,
1998, an increase of $119.1 million. The increase in cash provided by
operations was primarily due to increases provided by net working capital
components in the 1999 quarter over the 1998 quarter.
Cash flows used in investing activities in the first quarter of 1999 were $80.3
million, compared to $110.1 million in the first quarter of 1998. The decrease
resulted primarily from a $20.5 million capital distribution received in respect
of an equity investment in the first quarter of 1999 compared to a $3.3 million
capital distribution received in the first quarter of 1998. Capital
expenditures decreased by $13.9 million in the first quarter of 1999 as compared
to the first quarter of 1998.
Cash flows used in financing activities were $130.2 million in the first three
months of 1999, compared to cash flows provided by financing activities of $45.6
million in the first three months of 1998. The increase in cash used in
financing activities was primarily due to repayments on the revolving line of
credit during the first quarter of 1999 compared to borrowings during the first
quarter of 1998.
CAPITAL EXPENDITURES
The Company's investments in its existing fleet and previously announced fleet
additions continue to require significant capital expenditures. Capital
expenditures totaled $101 million during the three months ending March 31, 1999
and are expected to be approximately $440 million during the remainder of the
year, including amounts that will be spent on the construction of the deepwater
drillships Discoverer Enterprise, Discoverer Spirit and Discoverer Deep Seas.
14
<PAGE>
The following table summarizes actual and projected expenditures (including
capitalized interest) for the Company's major construction projects.
<TABLE>
<CAPTION>
Discoverer Discoverer Discoverer
(Expenditures in millions) Enterprise Spirit Deep Seas
---------- ---------- ---------
<S> <C> <C> <C>
Cumulative at December 31, 1998 $302 $124 $106
Actual for the three months ended
March 31, 1999 35 26 26
---- ---- ----
Cumulative at March 31, 1999 337 150 132
Projected - April 1, 1999 through December 31, 1999 65 180 140
Projected - 2000 - 15 70
---- ---- ----
Projected Total Costs $402 $345 $342
==== ==== ====
</TABLE>
The amounts shown for the Discoverer Enterprise include certain costs not
expected to be incurred in connection with the construction of the Discoverer
Spirit and Discoverer Deep Seas, including: engineering design costs that will
not be repeated because the Discoverer Spirit and Discoverer Deep Seas are the
same design as the Discoverer Enterprise; lifting and other construction costs
that will be contracted on a lump sum basis rather than time and materials; and
incremental capitalized interest and administrative costs attributable to
project delays, some of which were due to weather and other factors beyond the
control of the Company. The Discoverer Enterprise is expected to be completed
during the second quarter of 1999; the Discoverer Spirit and the Discoverer Deep
Seas are expected to be completed in the first and third quarters of 2000,
respectively.
As with any major construction project that takes place over an extended period
of time, the actual costs, the timing of expenditures, and the project
completion date may vary from estimates based on numerous factors, including
modification of the design, actual terms of awarded contracts, weather, exchange
rates, shipyard labor conditions and the market demand for components and
resources required for drilling unit construction. The Company intends to fund
the cash requirements relating to these capital commitments through available
cash balances, borrowings under the Credit Agreement referred to below and other
commercial bank or capital market financings, including potential public
offerings under the Company's shelf registration statement (discussed below)
and, in the case of the Discoverer Enterprise, financing under the Project
Financing Agreement referred to below.
ACQUISITIONS
The Company, from time to time, reviews possible acquisitions of businesses and
drilling units, and may 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.
AUTHORIZED STOCK REPURCHASE
In May 1997, the Company's Board of Directors authorized the repurchase of up to
$200 million worth of shares of its common stock from time to time on the open
market or in privately
15
<PAGE>
negotiated transactions. After purchases made during 1997, approximately $105
million remains available under this authority. The Board of Directors, from
time to time, reviews the possibility of repurchasing common stock in light of
prevailing stock prices and the financial position of the Company.
DEBT
Project Financing Agreement - In connection with the ongoing construction of the
Discoverer Enterprise and the completed upgrade of the Transocean Amirante, the
Company's wholly owned subsidiary, Transocean Enterprise Inc., entered into a
project financing agreement effective December 27, 1996 with a group of banks
led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement").
Approximately $323 million is available in two tranches for drawdowns during the
construction period. The first tranche of approximately $62.9 million is to be
repaid upon completion of construction and acceptance of the two rigs by Amoco
Production Company ("Amoco"). It bears an interest rate of LIBOR plus 0.35
percent. The Company expects to lend Transocean Enterprise Inc. the necessary
funds to repay the $62.9 million through borrowings under the Revolving Credit
Facility. The second tranche of approximately $259.9 million (of which $124.1
million in borrowings were outstanding as of March 31, 1999) 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 rigs by Amoco. The term financing, which is to be paid out of cash flows
from the two rigs, matures over a period of five years. Amoco has contracted
the Transocean Amirante for a period of up to five years and the Discoverer
Enterprise for a period of five years following their respective acceptance
dates. The Company expects the term financing to consist of borrowings under a
lease securitization facility provided by the agent at a floating interest rate
(which has been converted to a fixed rate by the interest rate swap transactions
described below) plus a margin of 0.36 percent for amounts fully amortized by
cash flows from the Amoco contracts and a margin of 0.62 percent for the
remaining amounts, if any.
The Project Financing Agreement originally required acceptance of the two
drilling units by Amoco, repayment of the first tranche and conversion of the
second tranche to term financing no later than December 31, 1998. Although the
Transocean Amirante was accepted by Amoco and commenced operations in July 1997,
the Discoverer Enterprise is not expected to be completed until the second
quarter of 1999 due to construction delays. As a result, during December 1998,
Transocean Enterprise Inc. amended the Project Financing Agreement to extend the
outside date for acceptance of the Discoverer Enterprise, repayment of the first
tranche and conversion of the second tranche to term financing from December 31,
1998 to August 31, 1999.
During April 1999, Transocean Enterprise Inc. amended the terms of its interest
rate swap transactions, which effectively lock in a fixed interest rate for the
term financing under the Project Financing Agreement, to adjust the payment
schedule for the anticipated construction delays. In connection with the
amendment, the fixed rate Transocean Enterprise Inc. will pay increased from an
average of 6.545 percent to 6.583 percent. The estimated variable interest
rates Transocean Enterprise Inc. will receive in the swap transactions has
decreased slightly from December 31, 1998 to March 31, 1999. The net unrealized
loss on the interest rate swaps is $7.0 million as of March 31, 1999.
Credit Agreement - In connection with the 1996 combination with Transocean ASA,
the Company entered into a credit agreement dated as of July 30, 1996 with a
group of banks led by
16
<PAGE>
ABN AMRO Bank, N.V. (the "Credit Agreement"). The Credit Agreement, as
subsequently amended, provides for borrowing by the Company under a revolving
credit facility in the amount of $540 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 March 31, 1999) that varies
depending on the Company's funded debt to total capital ratio or its public
senior unsecured debt rating. The Credit Agreement requires compliance with
various restrictive covenants, including an interest coverage ratio, which could
limit the Company's ability to pay dividends in the future. The Credit Agreement
has a maturity date of July 2002.
LETTERS OF CREDIT
The Company had letters of credit outstanding at March 31, 1999 totaling $35.6
million, including $28.6 million relating to a legal dispute with Kvaerner
Installasjon a.s (see Part II. Item 1. Legal Proceedings). The remaining $7.0
million guarantees various insurance and contract bidding activities.
SHELF REGISTRATION
In July 1998, the Company filed with the Securities and Exchange Commission
(the "SEC") a $450 million shelf registration statement on Form S-3 for the
proposed offering from time to time of senior or subordinated debt securities,
preferred stock, common stock and warrants to purchase debt securities,
preferred stock, common stock or other securities. The registration statement
was declared effective by the SEC on July 20, 1998. This registration statement
effectively amends and carries forward the unused portion of the Company's prior
registration statement on Form S-3 without registering any additional amount of
securities.
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 current 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. At March 31, 1999 and 1998, the Company did not have any foreign
exchange derivative instruments not qualifying as hedges.
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 interest 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 March 31, 1999, the net unrealized loss on
open interest rate swaps was $7.0 million.
17
<PAGE>
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 and capital expenditures for new rig construction and upgrade
projects.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. Because of the Company's limited use of
derivatives to manage its exposure to fluctuations in foreign exchange rates and
interest rates, management does not anticipate that the adoption of the new
statement will have a significant effect on the results of operations or the
financial position of the Company. The Company will adopt SFAS 133 as of
January 1, 2000.
PROPOSED CORPORATE REORGANIZATION
On March 11, 1999, the Company's board of directors approved a corporate
reorganization that will result in the Company becoming a Cayman Islands
corporation ("Transocean-Cayman") rather than a Delaware corporation. In April
1999, the Company filed with the SEC a registration statement on Form S-4 for
the exchange of shares in connection with the corporate reorganization. The
registration statement was declared effective on April 12, 1999. The Company
believes the reorganization will give it greater flexibility in seeking to lower
its worldwide effective corporate income tax rate and allow it to restructure
its business to improve operational efficiencies, including improved worldwide
cash management. In addition, the Company anticipates that the reorganization
may increase its access to international capital markets, broaden its investor
base by making its securities more attractive to non-U.S. investors and may
result in a more favorable corporate structure for expansion of its current
business through creation of foreign joint ventures and future acquisition
opportunities. In the reorganization, each share of the Company's common stock
will be converted into one ordinary share of Transocean-Cayman. The Company
expects the shares of Transocean-Cayman to be listed on the New York Stock
Exchange under "RIG," the same symbol under which the Company's common stock is
currently listed. The proposed reorganization is subject to certain conditions
to closing, including approval by the Company's shareholders at their annual
meeting on May 13, 1999. Closing is expected to occur promptly following the
annual meeting, if the shareholders vote affirmatively for the reorganization.
Following the reorganization, the name of Transocean-Cayman will be "Transocean
Offshore Inc."
YEAR 2000 ISSUE
The Company has instituted a plan to address the Year 2000 issue for its
computer systems, microprocessors, operational and control systems and other
significant computer-based devices and applications. It is possible that
certain of these systems will not be able to process dates beginning in the year
2000, as many such systems are based on storing two digits to identify a
particular year rather than a full four digits and are not designed to take into
account the start of a new century. In addition, like every other business
enterprise, the Company is at risk from year
18
<PAGE>
2000 failures on the part of its major business counterparts, including
suppliers and service providers, as well as potential failures in public and
private infrastructure services, including electricity, water, gas,
transportation and communications.
The Company's Year 2000 plan focuses on Year 2000 compliance in two distinct
areas--(i) rig-based operational systems and control devices and (ii) all other
business, financial and engineering systems, including third-party systems upon
which the Company may rely. The Company's efforts are directed towards areas
that are reasonably within its control. The plan is being implemented under the
direction of senior management by the Company's information systems and
technology personnel and operations personnel with appropriate expertise. The
five phases of the Company's plan--inventory, assessment, remediation, testing
and verification, and contingency planning--are in varying stages of completion,
and ultimate completion of the plan is expected by December 31, 1999.
Inventory - The Company conducted a survey of computer systems, computer-
controlled equipment, control systems, and electronic devices, including
equipment with embedded microprocessors, onboard each rig to identify those
systems and devices to be reviewed for Year 2000 compliance. With respect to
business, financial and engineering systems, the Company surveyed all of its
internal hardware and software systems worldwide. Key third-party businesses
whose year 2000 failures would most significantly impact the Company were
identified. The inventory phase is substantially complete.
Assessment - Once each at-risk system or device is identified, users are asked
to assess how critical the system or device is to the safety and operations of
the Company. For rig-based systems, the Company has requested letters of
compliance from its third-party vendors and suppliers for all at-risk items
identified in the survey and, in addition, is conducting its own tests where
possible to verify compliance. The assessment phase for rig-based systems,
applications and devices is approximately 80 percent complete. With respect to
business, financial and engineering systems, letters of compliance are being
sought from all vendors of standard systems, and the Company plans to conduct
tests of selected systems to provide an enhanced degree of confidence for Year
2000 compliance. The assessment phase for these systems is approximately 95
percent complete. The Company's assessment phase is expected to be
substantially completed in the third quarter 1999.
Remediation - Critical systems and devices identified by the survey that are
likely to be affected by the Year 2000 issue are in the process of being
modified or replaced. A number of these systems and devices had already been
identified for renewal or replacement in connection with the Company's ongoing
maintenance programs. In some cases, systems or equipment may be covered by
warranties, while other vendors are providing software upgrades at minimal
costs. The Company believes its Year 2000 compliance plan has adequately
identified and addressed Year 2000 issues with respect to critical operational
and safety systems and devices. With respect to business, financial and
engineering systems, replacement or modification of known non-compliant systems
has commenced. The remediation phase is approximately 60 percent complete with
respect to rig-based systems, applications and devices and is more than 50
percent complete with respect to business, financial and engineering systems.
The Company's remediation phase is expected to be substantially completed by
October 31, 1999 except for the replacement of the maintenance/purchasing/
inventory system on certain European rigs, which are scheduled for installation
in the fourth quarter of 1999. To the extent that certain of these rigs are not
operating in the fourth quarter of 1999, or are not anticipated to operate in
the first quarter of 2000, the
19
<PAGE>
Company may choose to delay the replacement of this system. Such delay is not
expected to have a material impact on the results of operations of the Company.
The replacement of this system on such rigs would be finalized as part of
preparing them for their next contract.
Testing and Verification - The testing and verification phase includes
establishing a test environment, performing systems testing (with third parties
if necessary) and verifying the results. The verification process entails
having experienced personnel review test results, computer screens and printouts
against pre-established criteria to ensure system or device compliance. In the
case of program logic chips, access to internal programs is frequently not
possible; however, a review of program diagrams is completed to determine if any
date or time dependency exists. All internal systems and devices identified as
critical operational and safety systems and devices, along with critical
business hardware and software systems will be tested. With respect to rig-based
systems, the Company has instituted an ongoing compliance procedure that starts
with the results of the initial survey followed by analysis, vendor
participation, corrective action, testing and continuous reappraisal. Testing
and verification is currently underway and is expected to continue throughout
1999. The Company has initiated written and telephonic communications with key
third-party businesses as well as public and private providers of infrastructure
services, to ascertain and evaluate their efforts in addressing Year 2000
compliance.
Contingency Planning - The Company is in the process of developing specific
contingency plans for critical operational and business systems and devices in
the event of Year 2000-related disruptions. The Company's rig-based operations
manuals also include documented policies and procedures in the event of an
emergency or equipment failure. The effect of significant Year 2000 disruptions
with direct suppliers of materials and supplies needed for ongoing rig
operations is being considered. An overall corporate contingency plan will be
compiled with input from both operations personnel and information systems and
technology personnel.
The Company believes that the reasonably likely worst case scenario is that
there will be some localized disruptions of systems that will affect individual
business and operations processes, facilities or suppliers for a short time
rather than systemic or long-term problems affecting its business operations as
a whole. The Company's drilling units are composed of many stand-alone systems
provided by a wide diversity of manufacturers. As such, the Company believes
the risk of a failure that would affect the functionality or safety of the fleet
is minimal, and the Company does not believe that the Year 2000 issue will have
a significant effect on the operations of its drilling units.
The Company's contingency planning efforts are being designed to identify
systems or other aspects of its business or that of its suppliers that it
believes would be most likely to experience Year 2000 problems, as well as those
business operations in which a localized disruption could have the potential for
causing a wider problem by interrupting the flow of materials or data. Because
there is uncertainty as to which activities may be affected and the exact nature
of the problems that may arise, the contingency planning efforts will focus on
minimizing the scope and duration of any disruptions by having sufficient
personnel and other resources in place to permit a flexible response to specific
problems as they may arise. The Company estimates that its contingency plans
will be in place by October 31, 1999.
Costs - The Company has expended approximately $0.7 million through March 31,
1999 and expects additional expenditures of approximately $3 million to complete
implementation of its
20
<PAGE>
Year 2000 plan, some of which will be capitalized. The Company does not
separately track the internal costs of employees who are not working full-time
on the Company's Year 2000 plan.
Although the Company's failure to implement fully its Year 2000 compliance plan
or the occurrence of an unexpected Year 2000 problem could result in the
disruption of normal business activities or operations and have a material
adverse effect on the Company's results of operations, liquidity or financial
condition, based upon the work performed to date and the anticipated completion
of the plan during December 1999, the Company does not believe that such matters
will have a material adverse effect. During 1999, the Company will continue and
expand its efforts to address potential disruptions in areas where the Company's
operations rely on third parties. In addition, the Company's international
operations may be adversely affected by failures of businesses in other parts of
the world to take adequate steps to address the Year 2000 problem. While such
failures could affect the operations of the Company, either directly or
indirectly, in a significant manner, the Company cannot estimate either the
likelihood or the potential cost of such failures.
The nature and focus of the Company's efforts to address the Year 2000 problem
may be revised periodically as interim goals are achieved or new issues are
identified.
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 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 "may" or
"should" occur, and similar expressions, are also intended to identify forward-
looking statements. Forward-looking statements in this quarterly report
include, but are not limited to, statements involving expected capital
expenditures, liquidity requirements, the timing of completion of capital
projects, the Company's plans and expectations with regard to Year 2000 issues,
the Company's expectations with regard to market outlook, and the proposed
reorganization of the Company as a Cayman Island corporation. Such statements
are subject to numerous risks, uncertainties and assumptions, including but not
limited to uncertainties relating to the level of activity in offshore oil and
gas exploration, development and production (particularly in deepwater and
harsh-environment regions), exploration success by producers, oil and gas
prices, work stoppages by Spanish shipyard workers, competition and market
conditions in the contract drilling industry, delays or cost overruns on
construction projects, the ability to enter into and the terms of future
contracts, risks inherent in turnkey contracts, the availability of qualified
personnel, the outcome of periodic wage negotiations with unions representing
certain Norwegian offshore workers, operating hazards, political and other
uncertainties inherent in foreign operations (including exchange and currency
fluctuations), the impact of governmental laws and regulations, the adequacy of
sources of liquidity, the effect of litigation and contingencies, the success of
the Company in implementing its Year 2000 compliance plan, the failure of
financial and other service providers to be Year 2000 compliant on a timely
basis, and other factors discussed in this quarterly report and in the Company's
other filings with the Securities and Exchange Commission. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources--Debt--Project Financing
Agreement" and "--Liquidity and Capital Resources--Derivative Instruments."
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has certain claims pending involving a dispute of work performance
by and amounts owed to the Kvaerner shipyard in Norway and contested tax
assessments by the municipality of Rio de Janeiro, Brazil. These matters have
been previously discussed and reported in the Company's Annual Report on Form
10-K for the year ended December 31, 1998. There have been no material
developments in these previously reported matters.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed in connection with this Report:
NUMBER DESCRIPTION
- ------ -----------
*2.1 Agreement and Plan of Merger and Conversion dated as of March 12, 1999
between the Company and Transocean Offshore (Texas) Inc., a Texas
corporation (filed as Exhibit 2.1 to the Registration Statement on
Form S-4 Registration No. 333-75899 of Transocean Offshore (Texas)
Inc. filed April 8, 1999)
27.1 Financial Data Schedule.
- ---------
* Incorporated by reference.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on March 15, 1999 reporting
under Item 5. thereof a proposed corporate reorganization of the Company and
including as an exhibit the press release relating thereto.
24
<PAGE>
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 May 11, 1999.
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)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 45,938 57,619
<SECURITIES> 0 0
<RECEIVABLES> 198,055 241,168
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 297,494 350,536
<PP&E> 2,761,728 2,226,971
<DEPRECIATION> 560,275 468,791
<TOTAL-ASSETS> 3,236,058 2,883,958
<CURRENT-LIABILITIES> 219,377 173,232
<BONDS> 681,946 776,483
0 0
0 0
<COMMON> 1,043 1,037
<OTHER-SE> 2,060,275 1,704,208
<TOTAL-LIABILITY-AND-EQUITY> 3,236,058 2,883,958
<SALES> 0 0
<TOTAL-REVENUES> 306,359 258,313
<CGS> 0 0
<TOTAL-COSTS> 185,261 166,994
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,388 7,107
<INCOME-PRETAX> 120,895 110,014
<INCOME-TAX> 35,664 32,454
<INCOME-CONTINUING> 85,231 77,560
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 85,231 77,560
<EPS-PRIMARY> 0.85 0.78
<EPS-DILUTED> 0.85 0.77
</TABLE>
