<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-13926
DIAMOND OFFSHORE DRILLING, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0321760
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
15415 Katy Freeway
Houston, Texas
77094
(Address of principal executive offices)
(Zip Code)
(281) 492-5300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<S> <C> <C>
As of April 15, 1998 Common stock, $0.01 par value per share 139,328,160 shares
</TABLE>
<PAGE> 2
DIAMOND OFFSHORE DRILLING, INC.
TABLE OF CONTENTS FOR FORM 10-Q
QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
COVER PAGE.......................................................................................1
DOCUMENT TABLE OF CONTENTS.......................................................................2
PART I. FINANCIAL INFORMATION...................................................................3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets...................................................3
Consolidated Statements of Income.............................................4
Consolidated Statements of Cash Flows.........................................5
Notes to Consolidated Financial Statements....................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................15
PART II. OTHER INFORMATION......................................................................16
ITEM 1. LEGAL PROCEEDINGS..............................................................16
ITEM 2. CHANGES IN SECURITIES..........................................................16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................16
ITEM 5. OTHER INFORMATION..............................................................16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................16
SIGNATURES.......................................................................................17
INDEX OF EXHIBITS................................................................................18
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------
1998 1997
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 78,056 $ 102,958
Short-term investments ......................................................... 277,402 363,137
Accounts receivable ............................................................ 238,295 205,589
Rig inventory and supplies ..................................................... 34,363 33,714
Prepaid expenses and other ..................................................... 10,560 13,377
----------- -----------
Total current assets ......................................... 638,676 718,775
DRILLING AND OTHER PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION........................................................ 1,458,192 1,451,741
GOODWILL, NET OF ACCUMULATED AMORTIZATION ........................................... 117,005 118,623
LONG-TERM INVESTMENTS ............................................................... 177,486 --
OTHER ASSETS ........................................................................ 10,250 9,422
----------- -----------
Total assets ................................................. $ 2,401,609 $ 2,298,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 58,568 $ 57,557
Accrued liabilities ............................................................ 49,250 48,935
Taxes payable .................................................................. 47,095 24,653
----------- -----------
Total current liabilities .................................... 154,913 131,145
LONG-TERM DEBT....................................................................... 400,000 400,000
DEFERRED TAX LIABILITY............................................................... 225,210 209,513
OTHER LIABILITIES ................................................................... 23,607 22,376
----------- -----------
Total liabilities ............................................ 803,730 763,034
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock (par value $0.01, 25,000,000 shares authorized, none
issued or outstanding) ..................................................... -- --
Common stock (par value $0.01, 200,000,000 shares authorized, and
139,328,160 and 139,309,948 shares issued and outstanding at March 31,
1998 and December 31, 1997, respectively) .................................. 1,393 1,393
Additional paid-in capital...................................................... 1,302,784 1,302,712
Retained earnings .............................................................. 296,656 233,350
Accumulated other comprehensive losses ......................................... (2,954) (1,928)
----------- -----------
Total stockholders' equity ................................... 1,597,879 1,535,527
----------- -----------
Total liabilities and stockholders' equity ................... $ 2,401,609 $ 2,298,561
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 4
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
--------- --------
<S> <C> <C>
REVENUES ............................................ $ 286,069 $204,733
OPERATING EXPENSES:
Contract drilling ............................ 125,333 89,739
Depreciation and amortization ................ 31,999 25,812
General and administrative ................... 6,772 4,941
Gain on sale of assets ....................... (78) (65)
--------- --------
Total operating expenses ................ 164,026 120,427
--------- --------
OPERATING INCOME .................................... 122,043 84,306
OTHER INCOME (EXPENSE):
Interest income .............................. 6,585 2,893
Interest expense ............................. (3,843) --
Other, net ................................... (137) (185)
--------- --------
INCOME BEFORE INCOME TAX EXPENSE .................... 124,648 87,014
INCOME TAX EXPENSE .................................. (43,926) (30,784)
--------- --------
NET INCOME .......................................... $ 80,722 $ 56,230
========= ========
EARNINGS PER SHARE:
Basic ........................................ $ 0.58 $ 0.41
========= ========
Diluted ...................................... $ 0.56 $ 0.39
========= ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares ................................ 139,325 136,768
Dilutive potential common shares ............. 9,876 6,036
--------- --------
Total weighted average shares outstanding 149,201 142,804
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................... $ 80,722 $ 56,230
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................ 31,999 25,812
Gain on sale of assets ....................................... (78) (65)
Loss on sale of investment securities ........................ 69 3
Deferred tax provision ....................................... 17,862 13,870
Accretion of discounts on investment securities .............. (2,609) (2,331)
Amortization of debt issuance costs .......................... 129 72
Changes in operating assets and liabilities:
Accounts receivable .......................................... (32,161) (7,887)
Rig inventory and other current assets ....................... 2,168 (5,054)
Other assets, non-current .................................... (957) (176)
Accounts payable and accrued liabilities ..................... 1,187 (1,836)
Taxes payable ................................................ 22,442 (7,632)
Other liabilities, non-current ............................... (569) 2,520
Other, net ..................................................... (350) 129
--------- ---------
Net cash provided by operating activities ................ 119,854 73,655
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures ........................................... (37,089) (73,923)
Proceeds from sales of assets .................................. 335 440
Net change in short-term investment securities ................. (261,065) (211,203)
Net change in investments through repurchase agreements ........ 350,000 --
Purchases of long-term investment securities ................... (179,732) (99,474)
--------- ---------
Net cash used in investing activities .................... (127,551) (384,160)
--------- ---------
FINANCING ACTIVITIES:
Payment of dividends ........................................... (17,416) --
Debt repayments, net ........................................... -- (73,000)
Issuance of convertible subordinated notes ..................... -- 400,000
Debt issuance costs ............................................ -- (5,750)
Proceeds from stock options exercised .......................... 211 333
--------- ---------
Net cash (used in) provided by financing activities ...... (17,205) 321,583
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS .............................. (24,902) 11,078
Cash and cash equivalents, beginning of period ................. 102,958 28,180
--------- ---------
Cash and cash equivalents, end of period ....................... $ 78,056 $ 39,258
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated financial statements of Diamond Offshore Drilling,
Inc. and subsidiaries (the "Company") should be read in conjunction with the
Annual Report on Form 10-K for the year ended December 31, 1997 (File No.
1-13926).
Interim Financial Information
The accompanying consolidated financial statements have been prepared
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. Accordingly, they do not include all disclosures required by
generally accepted accounting principles for complete financial statements. The
consolidated financial information has not been audited but, in the opinion of
management, includes all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the consolidated balance sheets,
statements of income, and statements of cash flows at the dates and for the
periods indicated. Results of operations for interim periods are not necessarily
indicative of results of operations for the respective full years.
Cash and Cash Equivalents
Short-term, highly liquid investments that have an original maturity of
three months or less which are considered part of the Company's cash management
activities rather than part of its investing activities are considered cash
equivalents.
Investments
The Company's investments are classified as available for sale and
stated at fair value under the terms of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, any unrealized gains and losses, net of taxes,
are recorded as a separate component of stockholders' equity until realized. The
cost of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity and such adjustments are included in interest income.
The cost of debt securities sold is based on the specific identification method
and the cost of equity securities sold is based on the average cost method.
Realized gains or losses and declines in value, if any, judged to be other than
temporary are reported in the Consolidated Statements of Income in "Other income
(expense)."
Supplementary Cash Flow Information
Cash payments made for interest on long-term debt, including commitment
fees, during the three months ended March 31, 1998 and 1997 totaled $7.5 million
and $0.5 million, respectively. Cash payments made for income taxes during the
three months ended March 31, 1998 and 1997 totaled $4.2 million and $24.4
million, respectively.
Capitalized Interest
Interest cost for construction and upgrade of qualifying assets is
capitalized. During the three months ended March 31, 1998, the Company incurred
interest cost, including amortization of debt issuance costs, of $3.9 million.
Interest cost capitalized during the three months ended March 31, 1998 was not
material. Total interest cost incurred of $2.8 million was capitalized during
the three months ended March 31, 1997.
6
<PAGE> 7
Goodwill
Goodwill from the merger with Arethusa (Off-Shore) Limited ("Arethusa")
is amortized on a straight-line basis over 20 years. Amortization expense
totaled $1.6 million and $1.7 million for the three months ended March 31, 1998
and 1997, respectively.
Debt Issuance Costs
Debt issuance costs are included in the Consolidated Balance Sheets in
"Other assets" and are amortized over the term of the related debt.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. For the three months ended March 31, 1998 and 1997,
comprehensive income totaled $79.7 million and $55.5 million, respectively.
Comprehensive income includes net income, foreign currency translation losses
and unrealized holding losses on investments.
Net Income Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which requires dual presentation of basic and diluted earnings per share for
entities with complex capital structures. Basic earnings per share excludes
dilution and is computed by dividing net income by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. Diluted
earnings per share was calculated by dividing net income, adjusted to eliminate
the after-tax effect of interest expense, by the weighted average number of
common shares outstanding and the weighted average number of shares issuable
assuming full conversion of the convertible subordinated notes as of the
issuance date, February 4, 1997.
Weighted average shares outstanding and all per share amounts included
herein for all periods presented have been restated to include the retroactive
effect of the July 1997 two-for-one stock split in the form of a stock dividend.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimated.
Reclassifications
Certain amounts applicable to the prior periods have been reclassified
to conform to the classifications currently followed. Such reclassifications do
not affect earnings.
7
<PAGE> 8
2. INVESTMENTS
Investments classified as available for sale at March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
------------------------------------
UNREALIZED MARKET
COST GAIN (LOSS) VALUE
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities issued by the U.S. Treasury
Due within one year ......................... $ 263,575 $ (492) $ 263,083
Due after one year through five years ....... 179,217 (1,731) 177,486
Equity securities ................................ 13,300 1,019 14,319
--------- --------- ---------
Total ....................................... $ 456,092 $ (1,204) $ 454,888
========= ========= =========
</TABLE>
During the three months ended March 31, 1998, certain debt securities
due within one year were sold for proceeds of $95.4 million. The resulting
realized loss was not material. Also during the three months ended March 31,
1998, investments through repurchase agreements with third parties were sold for
their contracted amounts totaling $350.0 million.
3. DRILLING AND OTHER PROPERTY AND EQUIPMENT
Cost and accumulated depreciation of drilling and other property and
equipment are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Drilling rigs and equipment ....... $ 1,818,014 $ 1,781,107
Construction work in progress ..... 16,444 17,696
Land and buildings ................ 12,615 12,552
Office equipment and other ........ 11,665 10,551
----------- -----------
Cost ......................... 1,858,738 1,821,906
Less accumulated depreciation ..... (400,546) (370,165)
----------- -----------
Total ................... $ 1,458,192 $ 1,451,741
=========== ===========
</TABLE>
4. GOODWILL
The merger with Arethusa generated an excess of the purchase price over
the estimated fair value of the net assets acquired. Cost and accumulated
amortization of such goodwill are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ---------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Goodwill .......................... $ 129,746 $ 129,746
Less accumulated amortization ..... (12,741) (11,123)
--------- ---------
Total ................... $ 117,005 $ 118,623
========= =========
</TABLE>
8
<PAGE> 9
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------- -------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Personal injury and other claims ................................ $23,851 $23,960
Payroll and benefits ............................................ 17,443 15,951
Interest payable ................................................ 1,917 5,684
Other ........................................................... 6,039 3,340
------- -------
Total ................................................. $49,250 $48,935
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The survivors of a deceased employee of a subsidiary of the Company,
Diamond M Onshore, Inc., sued such subsidiary in Duval County, Texas, for
damages as a result of the death of the employee. The plaintiffs obtained a
judgment in the trial court for $15.7 million plus post-judgment interest. The
Company has appealed the judgment and is currently awaiting the opinion of the
appellate court. The Company has received notices from certain of its insurance
underwriters reserving their rights to deny coverage on the Company's insurance
policies in excess of $2.0 million for damages resulting from such lawsuit.
Management believes the Company has complied with all conditions of coverage for
final unappealable damages, if any, in the case. While the ultimate liability in
this matter is difficult to assess, it is management's belief that the final
outcome is not reasonably likely to have a material adverse effect on the
Company's consolidated financial position, results of operations, or cash flows.
The Company has not established a liability for such claim at this time.
A former subsidiary of Arethusa, which is now a subsidiary of the
Company, defended and indemnified Zapata Off-Shore Company and Zapata
Corporation (the "Zapata Defendants"), pursuant to a contractual defense and
indemnification agreement, in a suit for tortious interference with contract and
conspiracy to tortiously interfere with contract. The plaintiffs sought $14.0
million in actual damages and unspecified punitive damages, plus costs of court,
interest and attorneys' fees. In November 1997, the jury awarded a take nothing
judgment in favor of the Zapata Defendants. The plaintiffs have appealed the
judgment. No provision for any liability has been established at this time.
Various other claims have been filed against the Company in the
ordinary course of business, particularly claims alleging personal injuries.
Management believes the Company has established adequate reserves for any
liabilities that may reasonably be expected to result from these claims. In the
opinion of management, no pending or threatened claims, actions or proceedings
against the Company are expected to have a material adverse effect on the
Company's consolidated financial position, results of operations, or cash flows.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements (including the Notes thereto)
included elsewhere herein.
The Company is a leader in deep water drilling with a fleet of 46
offshore drilling rigs. The fleet consists of 30 semisubmersibles, 15 jack-ups
and one drillship which operate in the waters of six of the world's seven
continents.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Comparative data relating to the Company's revenues and operating
expenses by equipment type are listed below (eliminations offset dayrate
revenues earned when the Company's rigs are utilized in its integrated services
operations and intercompany expenses charged to rig operations). Certain amounts
applicable to the prior period have been reclassified to conform to the
classifications currently followed. Such reclassifications do not affect
earnings.
During November 1997, July 1997, and March 1997, the Company completed
its major upgrades of the Ocean Victory, the Ocean Clipper I, and the Ocean
Star, respectively, expanding those rigs to have fourth-generation capabilities.
Upon completion, these rigs were included in Fourth-Generation Semisubmersibles
for discussion purposes (prior period information will continue to include these
rigs in Other Semisubmersibles).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------- INCREASE/
1998 1997 (DECREASE)
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
REVENUES
Fourth-Generation Semisubmersibles ......... $ 70,945 $ 42,643 $ 28,302
Other Semisubmersibles ..................... 153,274 116,833 36,441
Jack-ups ................................... 60,086 43,554 16,532
Integrated Services ........................ 15,711 4,311 11,400
Other ...................................... -- -- --
Eliminations ............................... (13,947) (2,608) (11,339)
--------- --------- ---------
Total Revenues ..................... $ 286,069 $ 204,733 $ 81,336
========= ========= =========
CONTRACT DRILLING EXPENSE
Fourth-Generation Semisubmersibles ......... $ 20,615 $ 11,473 $ 9,142
Other Semisubmersibles ..................... 79,276 55,336 23,940
Jack-ups ................................... 21,160 21,260 (100)
Integrated Services ........................ 15,505 4,259 11,246
Other ...................................... 2,724 361 2,363
Eliminations ............................... (13,947) (2,950) (10,997)
--------- --------- ---------
Total Contract Drilling Expense .... $ 125,333 $ 89,739 $ 35,594
========= ========= =========
OPERATING INCOME
Fourth-Generation Semisubmersibles ......... $ 50,330 $ 31,170 $ 19,160
Other Semisubmersibles ..................... 73,998 61,497 12,501
Jack-ups ................................... 38,926 22,294 16,632
Integrated Services ........................ 206 52 154
Other ...................................... (2,724) (361) (2,363)
Eliminations ............................... -- 342 (342)
Depreciation and Amortization Expense ...... (31,999) (25,812) (6,187)
General and Administrative Expense ......... (6,772) (4,941) (1,831)
Gain on Sale of Assets ..................... 78 65 13
--------- --------- ---------
Total Operating Income ............. $ 122,043 $ 84,306 $ 37,737
========= ========= =========
</TABLE>
10
<PAGE> 11
Revenues. The $28.3 million increase in revenues from fourth-generation
rigs resulted primarily from $16.9 million in revenues generated during the
three months ended March 31, 1998 by the Ocean Victory, the Ocean Clipper I and
the Ocean Star upon completion of their upgrade projects and $11.4 million in
revenues generated during the same period by increased operating dayrates. The
$36.4 million increase in revenues from other semisubmersibles resulted
primarily from $45.7 million in revenues generated during the three months ended
March 31, 1998 by increased operating dayrates and $6.9 million in revenues
generated by the Ocean Century, which returned to work after reactivation in the
fourth quarter of 1997. Partially offsetting the increases in revenues were
decreases in the first quarter of 1998 of $14.6 million primarily due to
revenues foregone during mandatory inspections and a $1.6 million decrease in
revenues due to the sale of the Ocean Zephyr in 1997. The $16.5 million increase
in revenues from jack-ups resulted primarily from $20.5 million in revenues
contributed by increased operating dayrates, primarily in the Gulf of Mexico. In
addition, a decrease of $5.5 million in revenues from the first quarter of 1997
resulted from the Ocean Tower being in the shipyard for upgrades and the
relinquishment of the Miss Kitty (a bareboat chartered rig) to the owner in late
1997. The $11.4 million increase in revenues from integrated services resulted
from additional projects and increased rates as compared to the same period in
1997.
Contract Drilling Expense. The $9.1 million increase in contract
drilling expense for fourth-generation rigs resulted primarily from operating
costs generated by the Ocean Victory, the Ocean Clipper I and the Ocean Star
upon completion of their upgrade projects. The $23.9 million increase in
contract drilling expense for other semisubmersibles was primarily due to costs
for mandatory inspections and associated repairs during the three months ended
March 31, 1998. Contract drilling expense for jack-ups was relatively unchanged
from the three months ended March 31, 1997. The $11.2 million increase in
expenses from integrated services resulted from additional projects and
increased rates as compared to the same period in 1997. Other contract drilling
expense increased $2.4 million primarily due to crew training programs,
maintenance and repairs on spare equipment, and various other non-recurring
charges.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the three months ended March 31, 1998 of $32.0 million increased
$6.2 million from $25.8 million for the three months ended March 31, 1997
primarily due to an increase in the 1998 budgeted capital additions as compared
to those budgeted in 1997 and additional expense for the Ocean Victory, the
Ocean Clipper I, and the Ocean Star upon completion of their upgrades.
General and Administrative Expense. General and administrative expense
for the three months ended March 31, 1998 of $6.8 million increased $1.9 million
from $4.9 million for the three months ended March 31, 1997 primarily due to
increased accruals associated with the Company's management bonus and retention
plan. Other increases resulted from costs associated with ongoing litigation and
additional personnel. Also, general and administrative costs capitalized to
fourth-generation upgrade projects decreased as compared to the same period in
the prior year.
Interest Income. Interest income of $6.6 million for the three months
ended March 31, 1998 increased $3.7 million from $2.9 million for the same
period in 1997. This increase resulted primarily from the investment of
additional excess cash in 1998. See " - Liquidity."
Income Tax Expense. Income tax expense of $43.9 million for the three
months ended March 31, 1998 increased $13.1 million from $30.8 million for the
three months ended March 31, 1997. This increase resulted primarily from the
$37.6 million increase in income before income tax expense as compared to the
three months ended March 31, 1997.
11
<PAGE> 12
OUTLOOK
The Company continues to benefit from increased demand and from the
tight supply of major offshore drilling rigs worldwide. These conditions are
due, in part, to the impact of technological advances, including 3-D seismic,
horizontal drilling, and subsea completion procedures, on oil and gas
exploration and development economics. To address the current tight supply
situation, customers seek to contract rigs for term commitments (as opposed to
contracts for the drilling of a single well or a group of wells) in many cases,
and often will pay for upgrades and modifications necessary for more challenging
drilling locations in order to assure rig availability. The Company seeks to
have a foundation of long-term contracts with a reasonable balance of short-term
or well-to-well contracts to minimize risk while participating in the benefit of
increasing dayrates.
The Company continues to enhance its fleet to meet customer demand for
diverse drilling capabilities, including those required for deep water and harsh
environment operations. The Company has begun the conversion of the Ocean
Confidence (formerly named Polyconfidence) from an accommodation vessel to a
semisubmersible drilling unit capable of operating in harsh environments and
ultra-deep waters. See " - Capital Resources." The upgrade is anticipated to be
completed in late 1999, when the rig will begin a five-year commitment in the
Gulf of Mexico.
The Company completed the upgrade of the Ocean Clipper I in July 1997,
however, the drillship has experienced certain subsea system difficulties
primarily associated with new technology for operations in deep water as well as
difficulties with the vessel's thrusters. While the drillship is operating under
its drilling contract in the Gulf of Mexico, the Company continues to
participate in developing design revisions that will provide long-term benefits
to the affected systems. Results of operations are likely to be adversely
impacted by additional downtime from such difficulties, however, the Company
cannot predict the extent of such adverse impact.
In February 1998, a fire was detected in the engine room of the Ocean
Victory, which was operating in the Gulf of Mexico. Although the fire was
contained and extinguished, damage was done to the power and electrical systems
aboard the rig. The rig is currently in the shipyard for necessary repairs,
which are expected to be completed by mid-1998. The Company expects that its
insurance will cover most of the cost of such repairs, however the loss of
revenue during the repair period is not covered by insurance. As a result, the
loss of revenues will reduce the Company's results of operations for 1998.
The ability to minimize costs and downtime is critical to the Company's
results of operations. The improved opportunities for the offshore contract
drilling industry worldwide have resulted in increased demand for and a shortage
of experienced personnel and equipment, including drill pipe and riser,
necessary on offshore drilling rigs. The Company does not consider the shortage
of such personnel and equipment currently to be a material factor in its
business. However, because of the increased demand for oil field services, a
significant increase in costs, including compensation and training, may occur if
present trends continue for an extended period. In addition, because of periodic
inspections required by certain regulatory agencies, 15 of the Company's rigs
will be in the shipyard for a portion of 1998. At March 31, 1998, five of these
15 inspections were completed and one was in progress. The Company intends to
focus on returning these rigs to operations as soon as reasonably possible, in
order to minimize the downtime and associated loss of revenues.
In addition, the improvement in the current results of operations and
prospects for the offshore contract drilling industry as a whole has led to
increased rig construction and enhancement programs by the Company's
competitors. A significant increase in the supply of technologically advanced
rigs capable of drilling in deep water may have an adverse effect on the average
operating dayrates for the Company's rigs, particularly its more advanced
semisubmersible units, and on the overall utilization level of the Company's
fleet. In such case, the Company's results of operations would be adversely
affected.
The offshore contract drilling industry historically has been highly
competitive and cyclical and, although not currently a material factor in the
Company's markets, weak commodity prices, economic problems in countries outside
the United States, or a number of other influencing factors could curtail
spending by oil and gas companies and possibly depress the offshore drilling
industry. Therefore, the Company cannot predict whether and, if so, to what
extent, current market conditions will continue.
12
<PAGE> 13
LIQUIDITY
As of March 31, 1998, cash and investments totaled $532.9 million, up
from $466.1 million at December 31, 1997. Cash provided by operating activities
for the three months ended March 31, 1998 increased by $46.2 million to $119.9
million, as compared to $73.7 million for the comparable period of the prior
year. This increase in operating cash flow was primarily attributable to a $24.5
million increase in net income for the first quarter of 1998, a $6.2 million
increase in depreciation and amortization expense, and various changes in
operating assets and liabilities.
Investing activities used $127.6 million in cash during the three
months ended March 31, 1998, compared to $384.2 million during the comparable
period of 1997. The decrease resulted primarily from the initial investment of
excess cash generated primarily by the issuance of $400.0 million of convertible
subordinated notes (the "Notes") in February 1997.
The payment of a dividend to stockholders resulted in cash used by
financing activities for the three months ended March 31, 1998 of $17.4 million.
Cash provided by financing activities for the three months ended March 31, 1997
totaled $321.6 million. Sources of financing during the first quarter of 1997
consisted primarily of the issuance of the Notes.
The Company has the ability to issue an aggregate of approximately
$117.5 million in debt, equity and other securities under a "shelf" registration
statement. In addition, the Company may issue, from time to time, up to eight
million shares of common stock, which shares are registered under an
"acquisition shelf" registration statement (upon effectiveness of an amendment
thereto reflecting the effect of the two-for-one stock split declared in July
1997), in connection with one or more acquisitions by the Company of securities
or assets of other businesses.
The Company believes that it has the financial resources needed to meet
its business requirements in the foreseeable future, including capital
expenditures for major upgrades, continuing rig enhancements as well as working
capital requirements.
CAPITAL RESOURCES
Cash requirements for capital commitments result from rig upgrades to
meet specific customer requirements and from the Company's continuing rig
enhancement program, including top-drive drilling system installations and water
depth and drilling capability upgrades. It is management's opinion that
operating cash flow resulting from current conditions of improved dayrates and
high utilization, in conjunction with proceeds from the Notes, will be
sufficient to meet these capital commitments. In addition, the Company may, from
time to time, issue debt or equity securities, or a combination thereof, to
finance capital expenditures, the acquisition of assets and businesses, or for
general corporate purposes. The Company's ability to effect any such issuance
will be dependent on the Company's results of operations, its current financial
condition and other factors beyond its control.
The Company has budgeted $108.5 million for rig upgrade capital
expenditures during 1998. During the three months ended March 31, 1998, the
Company expended $20.3 million, including capitalized interest expense, for
significant rig upgrades. Such upgrade projects include the conversion of the
Ocean Confidence (formerly named Polyconfidence), from an accommodation vessel
to a semisubmersible drilling unit capable of operating in harsh environments
and ultra-deep waters. The conversion includes enhancements which will provide
capabilities greater than existing fourth-generation equipment: capability for
operation in 7,500 foot water depths, approximately 6,000 tons variable deck
load, a 15,000 psi blow-out prevention system and four mud pumps to complement
the existing Class III dynamic-positioning system. Upon completion of the
conversion, the rig will begin a five-year drilling program in the Gulf of
Mexico, which is anticipated to commence in late 1999.
Other upgrade projects include the cantilever conversion project on the
Ocean Warwick, a jack-up drilling rig located in the Gulf of Mexico, which was
completed in March 1998. In addition, leg strengthening and other modifications
on the Ocean Tower, a jack-up drilling rig operating in the Gulf of Mexico, are
anticipated to be completed in the first half of 1998.
13
<PAGE> 14
The Company has also budgeted $126.7 million for 1998 capital
expenditures associated with its continuing rig enhancement program, spare
equipment and other corporate requirements. These expenditures include purchases
of anchor chain, drill pipe, riser, and other drilling equipment. During the
three months ended March 31, 1998, the Company expended $16.8 million on this
program.
The Company is continually considering potential transactions
including, but not limited to, enhancement of existing rigs, the purchase of
existing rigs, construction of new rigs and the acquisition of other companies
engaged in contract drilling. Certain of the potential transactions reviewed by
the Company would, if completed, result in its entering new lines of business,
although, in general, these opportunities have been related in some manner to
the Company's existing operations. For example, the Company has explored the
possibility of acquiring certain floating production systems, crew accommodation
units similar to the Ocean Confidence (formerly named Polyconfidence), oil
service companies providing subsea products, technology and services, oil and
gas exploration companies, and shipping assets such as oil tankers, through the
acquisition of existing businesses or assets or new construction. Although the
Company does not, as of the date hereof, have any commitment with respect to a
material acquisition, it could enter into such an agreement in the future and
such acquisition could result in a material expansion of its existing operations
or result in its entering a new line of business. Some of the potential
acquisitions considered by the Company could, if completed, result in the
expenditure of a material amount of funds or the issuance of a material amount
of debt or equity securities.
YEAR 2000 ISSUES
The Company has addressed the impact of the upcoming change in the
century on the Company's business, operations, and financial condition. The
impact is dependent upon many factors, including the Company's software and
hardware, as well as that of the Company's suppliers, customers, creditors, and
financial service organizations. While the cost of addressing Year 2000 issues
is not anticipated to be material, the Company is continuing to monitor, on an
ongoing basis, the problems and uncertainties associated with these issues and
their consequences.
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made or incorporated by reference
from time to time by the Company or its representatives are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, without limitation, any statement
that may project, indicate or imply future results, performance or achievements,
and may contain the words "expect," "intend," "plan," "anticipate," "estimate,"
"believe," "will be," "will continue," "will likely result," and similar
expressions. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, operating difficulties arising from shortages of
equipment or qualified personnel or as a result of other causes, casualty
losses, industry fleet capacity, changes in foreign and domestic oil and gas
exploration and production activity, competition, changes in foreign political,
social and economic conditions, regulatory initiatives and compliance with
governmental regulations, the ability to attract and retain qualified personnel,
customer preferences and various other matters, many of which are beyond the
Company's control. The risks included here are not exhaustive. Other sections of
this Report and the Company's other filings with the Securities and Exchange
Commission include additional factors that could adversely impact the Company's
business and financial performance. Given these risks and uncertainties,
investors should not place undue reliance on forward-looking statements. The
Company expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement to reflect any change
in the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any forward-looking statement is based.
14
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Equity Price Sensitivity
The Company's financial instruments that are potentially sensitive to
changes in interest rates include the Notes and investments in debt securities.
In addition, the Company's investment in equity securities is sensitive to
equity price risk. The Notes, which are due February 15, 2007, have a stated
interest rate of 3.75 percent and an effective interest rate of 3.93 percent. At
March 31, 1998, the fair value of the Company's investment in debt securities
issued by the U.S. Treasury was approximately $440.6 million, which includes an
unrealized holding loss of $2.2 million. The fair value of the Company's
investment in equity securities at March 31, 1998 was approximately $14.3
million, which includes an unrealized holding gain of $1.0 million. Based on the
nature of these financial instruments and consideration of past market movements
and reasonably possible near-term market movements, the Company does not
believe that potential near-term losses in future earnings, fair values, or
cash flows are likely to be material.
Exchange Rate Sensitivity
Other than trade accounts receivable and trade accounts payable, the
Company does not currently have financial instruments that are sensitive to
foreign currency exchange rates.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Brown Services, Inc. and KOS Industries, Inc. v. Michael D. Brown, BSI
International, Inc., Robert Brown, Robert Furlough, Power House International,
Inc., Zapata Off-Shore Company and Zapata Corporation; No. 92-05691 in the 334th
Judicial District Court of Harris County, Texas, filed February 7, 1992.
Plaintiffs sued Zapata Off-Shore Company and Zapata Corporation (the "Zapata
Defendants") for tortious interference with contract and conspiracy to
tortiously interfere with contract seeking $14.0 million in actual damages and
unspecified punitive damages, plus costs of court, interest and attorneys' fees.
A former subsidiary of Arethusa, which is now a subsidiary of the Company,
defended and indemnified the Zapata Defendants pursuant to a contractual defense
and indemnification agreement. In November 1997, the jury awarded a take nothing
judgment in favor of the Zapata Defendants. The plaintiffs appealed the judgment
in March 1998.
The Company and its subsidiaries are named defendants in certain other
lawsuits and are involved from time to time as parties to governmental
proceedings, all arising in the ordinary course of business. For a description
of one such lawsuit, see Note 6 to the Company's Consolidated Financial
Statements in Part I of this Report. Although the outcome of lawsuits or other
proceedings involving the Company and its subsidiaries cannot be predicted with
certainty and the amount of any liability that could arise with respect to such
lawsuits or other proceedings cannot be predicted accurately, management does
not expect these matters to have a material adverse effect on the financial
position, results of operations, or cash flows of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Index of Exhibits for a list of those exhibits filed herewith.
(b) There were no reports on Form 8-K filed during the first quarter of
1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAMOND OFFSHORE DRILLING, INC.
(Registrant)
Date 29-Apr-1998 By: \s\ Gary T. Krenek
--------------------------- ---------------------------
Gary T. Krenek
Vice President and Chief
Financial Officer
Date 29-Apr-1998 \s\ Leslie C. Knowlton
--------------------------- ---------------------------
Leslie C. Knowlton
Controller and Principal
Accounting Officer
17
<PAGE> 18
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
3.2* Amended By-laws of the Company.
3.2.1* Amendment of the Company's By-laws on November 8, 1995.
3.2.2* Amendment of the Company's By-laws on April 3, 1996.
3.2.3* Amendment of the Company's By-laws on March 31, 1998.
4.1 Indenture, dated as of February 4, 1997, between the Company
and Chase Manhattan Bank, as Trustee (incorporated by reference
to Exhibit 4.1 of the Company's Current Report on Form 8-K filed
February 11, 1997).
4.2 Supplemental Indenture, dated as of February 4, 1997,
between the Company and Chase Manhattan Bank, as Trustee
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K filed February 11, 1997).
11.1* Statement Re Computation of Per Share Earnings.
27.1* Financial Data Schedule for the interim year to date period ended
March 31, 1998.
27.2* Financial Data Schedule, as restated for the interim year
to date periods ended March 31, 1997, June 30, 1997, and
September 30, 1997 and the year ended December 31, 1997.
27.3* Financial Data Schedule, as restated for the interim year to date
periods ended March 31, 1996, June 30, 1996, and September 30,
1996 and the year ended December 31, 1996.
27.4* Financial Data Schedule, as restated for the year ended December
31, 1995.
</TABLE>
- ----------
* Filed herewith.
18
<PAGE> 1
EXHIBIT 3.2
AMENDED BY-LAWS
OF
DIAMOND OFFSHORE DRILLING, INC.
(a Delaware corporation)
ARTICLE I
Stockholders
SECTION 1. Annual Meetings. The annual meeting (the "Annual Meeting of
Stockholders") of the holders of such classes or series of capital stock as are
entitled to notice thereof and to vote thereat pursuant to the provisions of the
Restated Certificate of Incorporation (the "Certificate of Incorporation") of
Diamond Offshore Drilling, Inc. (the "Company") for the election of directors
and for the transaction of such other business as may properly come before the
meeting shall be held on such date as may be designated by resolution of the
Board of Directors or, in the event that no such date is so designated, on the
second Tuesday in May of each year, at such hour (within ordinary business
hours) as shall be stated in the notice of the meeting. If the day so designated
shall be a legal holiday, then such meeting shall be held on the next succeeding
business day. Each such annual meeting shall be held at such place, within or
without the State of Delaware, as shall be determined by the Board of Directors.
The Annual Meeting of Stockholders may be adjourned by the presiding
officer of the meeting for any reason (including, if the presiding officer
determines that it would be in the best interests of the Company, to extend the
period of time for the solicitation of proxies) from time to time and place to
place until such presiding officer shall determine that the business to be
conducted at the meeting is completed, which determination shall be conclusive.
At the Annual Meeting of Stockholders, the only business which shall be
conducted thereat shall be that which shall have been properly brought before
the meeting. To be properly brought before the annual meeting, business must be
(a) specified in the notice of meeting (or any supplement or addendum thereto)
given by or at the direction of the Board of Directors, (b) brought before the
meeting by or at the direction of the Board of Directors or (c) otherwise
brought before the meeting by a stockholder in the manner prescribed immediately
below. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have delivered timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's notice
must be delivered to or mailed and received by the Secretary at the principal
executive offices of the Company, not less than 90 calendar days in advance of
the anniversary date of the previous year's annual meeting of stockholders (or
if there was no such prior annual meeting, not less than 90 calendar days prior
to the date which represents the second Tuesday in May of the current year);
provided, however, that in the event that the date of the annual meeting is
advanced by more than 20 days, or delayed by more than 60 days, from such
anniversary date, then, to be considered timely, notice by the stockholders must
be received not later than the close of business on the later of (x) the 90th
day prior to such
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<PAGE> 2
annual meeting or (y) the seventh day following the date on which notice of the
date of the annual meeting was mailed to stockholders or public disclosure
thereof was otherwise made.
A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be transacted, (b) the name and address,
as they appear on the Company's most recent stockholder lists, of the
stockholder proposing such proposal, (c) the class and number of shares of
capital stock of the Company that are beneficially owned by the stockholder,
and (d) any material interest of the stockholder in such business. Any
stockholder who desires to propose any matter at an annual meeting shall, in
addition to the aforementioned requirements described in clauses (a) through
(d), comply in all material respects with the content and procedural
requirements of Rule 14a-8 of Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), irrespective of whether the Company
is then subject to such Rule or said Exchange Act. In addition, if the
stockholder's ownership of shares of the Company, as set forth in the notice,
is solely beneficial (and not of record) documentary evidence satisfactory to
the Company of such ownership must accompany the notice in order for such
notice to be considered validly and timely received.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 1. The presiding officer at an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
any business which was not properly brought before the meeting is out of order
and shall not be transacted at the meeting.
SECTION 2. Special Meetings. Special meetings of stockholders for the
transaction of such business as may properly come before the meeting shall only
be called by order of a majority of the entire Board of Directors or by the
Chairman of the Board of Directors or by the President of the Company, and
shall be held at such date and time, within or without the State of Delaware,
as may be specified by such order.
SECTION 3. Notice of Meetings. Written notice of all meetings of the
stockholders, stating the place, date and hour of the meeting and the place
within the city or other municipality or community at which the list of
stockholders may be examined, shall be mailed or delivered to each stockholder
not less than 10 nor more than 60 days prior to the meeting. Notice of any
special meeting shall state with reasonable specificity the purpose or purposes
for which the meeting is to be held and the business proposed to be transacted
thereat.
SECTION 4. Stockholder Lists. The Secretary shall prepare and make, or
cause to be prepared and made, at least 10 calendar days before every meeting
of stockholders, a true and complete list of the stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 calendar days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
- 2 -
<PAGE> 3
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present in person thereat.
SECTION 5. Quorum. Except as otherwise provided by law or the Certificate
of Incorporation, a quorum for the transaction of business at any meeting of
stockholders shall consist of the holders of record of a majority in voting
power of the then issued and outstanding shares of all classes and series of
stock of the Company entitled to vote at the meeting, present in person or by
proxy. At all meetings of the stockholders at which a quorum is present, all
matters, except as otherwise provided by law, the Certificate of Incorporation
or these By-laws, shall be decided by the vote of the holders of a majority in
voting power of the shares entitled to vote thereat present in person or by
proxy. If there be no such quorum, the holders of a majority in voting power of
such shares so present or represented may adjourn the meeting from time to
time, without further notice, until a quorum shall have been obtained. When a
quorum is once present it is not broken by the subsequent withdrawal from the
meeting by any stockholder.
SECTION 6. Organization. Meetings of stockholders shall be presided over
by the Chairman, if any, or if none or in the Chairman's absence the
Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence any Vice President,
or, if none of the foregoing is present, by a chairman to be chosen by the
holders of a majority in voting power of the shares entitled to vote thereat
present in person or by proxy at the meeting. The Secretary of the Company, or
in the Secretary's absence an Assistant Secretary, shall act as secretary of
every meeting, but if neither the Secretary nor an Assistant Secretary is
present, the presiding officer of the meeting shall appoint an appropriate
person present at the meeting to act as secretary.
SECTION 7. Voting; Proxies; Required Vote. Except as otherwise provided in
the Certificate of Incorporation, at each meeting of stockholders, every
stockholder shall be entitled to vote in person or by proxy (but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period), and shall have one vote for each share of stock
entitled to vote registered in the name of such stockholder on the books of
the Company on the applicable record date fixed by applicable law or pursuant
to these By-laws in respect of each matter properly presented to the meeting. At
all elections of directors the voting may (but need not) be by ballot and a
plurality of the votes cast there shall be sufficient to elect directors.
Except as otherwise required by law or the Certificate of Incorporation, any
other action shall be authorized by the vote of the holders of a majority in
voting power of the shares entitled to vote thereat present in person or by
proxy.
SECTION 8. Inspectors. The Board of Directors shall, in advance of any
meeting of stockholders, appoint one or more inspectors of election to act at
the meeting and make a written report thereof. If an inspector or inspectors
are not so appointed, the person presiding at the meeting shall appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors shall (i) ascertain the number of shares
- 3 -
<PAGE> 4
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Company shall be managed by, or under the direction of, the Board of Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be no
less than three nor more than eleven, as may be fixed from time to time by
action of a majority of the entire Board of Directors. The use of the phrase
"entire Board" herein refers to the total number of directors which the Company
would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders, and
directors who are elected to fill vacancies and newly created directorships,
shall hold office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal.
(c) Directors who are not officers or other employees of the Company may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Company in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 3. Nomination of Directors. Nominations for the election of
directors may be made by the Board of Directors or a committee appointed by the
Board of Directors or, to the extent permitted by this Section 3, by any holder
of record of capital stock of the Company entitled to vote generally in the
election of directors. Any stockholder entitled to vote generally in the
election of directors may nominate one or more persons for election as
directors only in accordance with the procedures specified in the next
sentence, and only if written notice of such stockholder's intent to make such
nomination or nominations has been received, either by hand delivery or by
United States mail, postage prepaid, by the Secretary of the Company not later
than (i) with respect to an election to be held at the Annual Meeting of
Stockholders, not less than 90 calendar days prior to the anniversary date of
the date of the immediately preceding annual meeting (or if there was no such
prior annual meeting, not less than 90 calendar days prior to the date which
represents the second Tuesday in May of the current year),
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<PAGE> 5
and (ii) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the
fifth calendar day following the date on which notice of such meeting is first
delivered to stockholders. Each such notice from a stockholder shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of capital stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all contracts, arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or persons)
pursuant to which nomination or nominations are to be made by the stockholder;
(d) such other information regarding each nominee proposed by such stockholder
as would be required to be included in a proxy or information statement filed
pursuant to the Exchange Act and the rules and regulations promulgated
thereunder (or any subsequent provisions replacing such Act, rules or
regulations); and (e) the consent of each nominee to serve as a director of the
Company if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
SECTION 4. Quorum and Manner of Voting. Except as otherwise provided
by law or the Certificate of Incorporation, a majority of the entire Board of
Directors shall constitute a quorum. A majority of the directors present,
whether or not a quorum is present, may adjourn a meeting from time to time to
another time and place without notice. The vote of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 5. Places of Meetings. Meetings of the Board of Directors may
be held at any place within or without the State of Delaware, as may from time
to time be fixed by resolution of the Board of Directors, or as may be specified
in the notice of meeting.
SECTION 6. Annual Meetings. Following the Annual Meeting of
Stockholders, the newly elected Board of Directors shall meet for the purpose
of the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the Annual Meeting of Stockholders at the same place at which
such stockholders' meeting is held.
SECTION 7. Regular Meetings. Regular meetings of the Board of
Directors shall be held on the third Tuesday of each January, April, July and
October at such place and time as the Board of Directors shall from time to
time by resolution determine. Notice need not be given of regular meetings of
the Board of Directors held at times and places fixed by resolution of the
Board of Directors.
SECTION 8. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board,
President, or by a majority of the directors then in office.
SECTION 9. Notice of Meetings. A notice of the place, date and time
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director
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<PAGE> 6
by mailing the same at least five days before the meeting, or by telefaxing or
telephoning the same or by delivering the same personally not later than the
day before the day of the meeting.
SECTION 10. Organization. At all meetings of the Board of Directors, the
Chairman, if any, or if none or in the Chairman's absence or inability to act
the President, or in the President's absence or inability to act any Vice
President who is a member of the Board of Directors, or in such Vice-President's
absence or inability to act a chairman chosen by the directors, shall preside.
The Secretary of the Company shall act as secretary at all meetings of the Board
of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as secretary.
SECTION 11. Resignation and Removal. Any director may voluntarily
resign at any time upon written notice to the Company and such resignation
shall take effect upon receipt thereof by the President or Secretary, unless
otherwise specified in the resignation. Subject to the rights of the holders of
any series of Preferred Stock or any other class of capital stock of the Company
(other than the Common Stock) then outstanding, any director may be removed
from office at any time, with or without cause, by the affirmative vote of a
majority in voting power of the outstanding shares entitled to vote at an
election of directors.
SECTION 12. Vacancies. Vacancies on the Board of Directors, whether
caused by resignation, death, disqualification, removal, an increase in the
authorized number of directors or otherwise, may be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and any directors so chosen
shall hold office until their successors are elected and qualified.
SECTION 13. Board Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
ARTICLE III
Indemnification
SECTION 1. Indemnification. (a) The Company shall indemnify, to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, all persons who it may indemnify
pursuant thereto and in the manner prescribed thereby.
(b) The Company shall pay the expenses (including attorneys' fees)
incurred by an indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that the payment of expenses incurred by a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under this Article or otherwise.
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ARTICLE IV
Committees
SECTION 1. Appointment. From time to time the Board of Directors by a
resolution adopted by a majority of the entire Board may appoint any committee
or committees which, to the extent lawful, shall have powers as shall be
determined and specified by the Board of Directors in the resolution of
appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of
a majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Committee Action by Written Consent. Any action required
or permitted to be taken at any meeting of any committee of the Board of
Directors may be taken without a meeting if all the members of the committee
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the committee.
SECTION 4. Executive Committee. (a) The Board of Directors, by
resolution, shall appoint from its members an Executive Committee consisting of
the Chairman of the Board and the President and such other directors as it may
choose to appoint. Each member of the Executive Committee shall continue to be
a member thereof only so long as he remains a director and at the pleasure of
the Board of Directors. Any vacancies on the Executive Committee may be filled
by the Board of Directors.
(b) The Executive Committee, between meetings of the Board of Directors,
shall have and may exercise, except as otherwise provided by law, all the
powers of the Board of Directors in the management of the property, business
and affairs of the Company and may authorize the seal of the Company to be
affixed to all papers which may require it. Without limiting the foregoing,
the Executive Committee shall have the express power and authority to declare a
dividend, to authorize the issuance of stock and to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware, as amended.
(c) At each meeting of the Executive Committee, one of the following
shall act as chairman of the meeting and preside thereat in the following order
of precedence:
(i) the Chairman of the Executive Committee, who shall be
appointed from the members of the Executive Committee by the Board of
Directors;
(ii) the Chairman of the Board; or
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<PAGE> 8
(iii) the President.
The Secretary of the Company shall act as secretary at all meetings
of the Executive Committee when present, and, in the Secretary's absence, the
presiding officer may appoint any person to act as secretary.
(d) Regular meetings of the Executive Committee, of which no notice
shall be necessary, shall be held on such days and at such places, within or
without the State of Delaware, as shall be fixed by resolution adopted by a
majority of the Executive Committee. Special meetings of the Executive Committee
shall be held whenever called by the Chairman of the Board, the President or the
Chairman of the Executive Committee and shall be called by the Secretary of the
Corporation on the request of a majority of the Executive Committee. Notice of
each special meeting of the Executive Committee shall be given to each member
thereof by depositing such notice in the United States mail, in a postage
prepaid envelope, directed to him at his residence or usual place of business at
least two days before the day on which such meeting is to be held or shall be
sent addressed to him at such place by telecopy, telegraph, cable, wireless or
other form of recorded communication or be delivered personally or by telephone
a reasonable time in advance of the time at which such meeting is to be held.
Notice of any such meeting need not, however, be given to any member of the
Executive Committee if he shall be present at such meeting. Any meeting of the
Executive Committee shall be a legal meeting without any notice thereof having
been given if all the members of the Executive Committee shall be present
thereat. Such notice shall specify the time and place of the meeting, but,
except as otherwise expressly provided by law, the purposes thereof need not be
stated in such notice. Subject to the provisions of these By-laws, the Executive
Committee may fix its own rules of procedure, and it shall keep a record of its
proceedings and report them to the Board at the next regular or special meeting
thereof after such proceedings shall have been taken. All such proceedings shall
be subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by any such revision or alteration.
(e) Except as otherwise provided by law, a majority of the Executive
Committee then in office shall constitute a quorum for the transaction of
business, and the act of a majority of those present at a meeting thereof shall
be the act of the Executive Committee. In the absence of a quorum, a majority
of the members of the Executive Committee present thereat may adjourn such
meeting from time to time until a quorum shall be present thereat. Notice of any
adjourned meeting need not be given. The Executive Committee shall act only as a
committee and the individual members shall have no power as such.
(f) Any member of the Executive Committee may resign therefrom at any
time by giving written notice of his resignation to the Chairman of the Board,
the President or the Secretary. Any such resignation shall take effect at the
time specified therein or, if the time when it shall become effective shall not
be specified therein, it shall take effect immediately upon its receipt; and,
except as specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
(g) In addition to the foregoing, in the absence or disqualification
of a member of the Executive Committee, the member or members present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another
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<PAGE> 9
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
SECTION 5. Audit Committee. The Board of Directors, by resolution, shall
appoint from its members an Audit Committee consisting of at least two
directors, each of which shall be independent of management and free from any
relationship that, in the opinion of the Board of Directors, would interfere
with the exercise of independent judgment as a committee member. The Audit
Committee shall:
(a) Prior to each Annual Meeting of Stockholders, submit a recommendation
in writing to the Board of Directors for the selection of independent public
accountants to be appointed by the Board of Directors in advance of the Annual
Meeting of Stockholders, subject to ratification or rejection by the
stockholders at such meeting;
(b) Consult, at least annually, with the independent public accountants
with regard to the proposed plan of audit and from time to time consult
privately with them and also with the internal auditor and the Controller with
regard to the adequacy of internal controls;
(c) Upon completion of the report of audit by the independent public
accountants and before the date of the Annual Meeting of Stockholders; (i)
review the financial statements of the Company, and (ii) meet with the
independent public accountants and review with them the results of their audit
and any recommendations made to the management; and
(d) Periodically, but at least annually, review the terms of all material
transactions and arrangements entered into between the Company and its
affiliates and subsidiaries.
SECTION 6. Term; Termination. In the event any person shall cease to be a
director of the Company, such person shall simultaneously therewith cease to be
a member of any committee appointed by the Board of Directors.
ARTICLE V
Officers
SECTION 1. Election and Qualifications. The Board of Directors shall elect
the officers of the Company, which shall include a Chairman of the Board of
Directors, Chief Executive Officer, a Chief Financial Officer, a President and
a Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
or rank or function), a Controller, a Treasurer and such Assistant Treasurers,
Assistant Controllers, Assistant Secretaries, and such other officers as the
Board may from time to time deem proper. Each officer shall have such powers
and duties as may be prescribed by these By-laws and as may be assigned by the
Board of Directors or the President. Any two or more offices may be held by
the same person except the offices of President and Secretary.
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<PAGE> 10
SECTION 2. Term of Office and Remuneration. The term of office of all
officers shall be one year and until their respective successors have been
elected and qualified or until their earlier resignation or removal. Any
vacancy in any office arising from any cause may be filled for the unexpired
portion of the term by the Board of Directors. The remuneration of all officers
of the Company may be fixed by the Board of Directors or in such manner as the
Board of Directors shall otherwise provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time upon
written notice to the Company and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in
the resignation. Any officer shall be subject to removal, with or without
cause, at any time by an affirmative vote of a majority of the Board of
Directors.
SECTION 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders and at all meetings
of the directors, shall have general management and supervision of the business
and affairs of the Company, and shall see that all orders and resolutions of the
Board of Directors are carried into effect.
SECTION 5. President and Chief Executive Officer. The President shall be
the Chief Executive Officer of the Company and shall have general management
and supervision of the property, business and affairs of the Company and over
its other officers; may appoint and remove assistant officers and other agents
and employees, other than officers referred to in Section 1 of this Article V;
and may execute and deliver in the name of the Company powers of attorney,
contracts, bonds and other obligations and instruments.
SECTION 6. Chief Financial Officer. The Chief Financial Officer shall in
general have all duties incident to such position, including, without
limitation, the organization and review of all accounting, tax and related
financial matters involving the Company, the implementation of appropriate
Company financial controls and procedures, and the supervision and assignment
of the duties of all other financial officers and personnel employed by the
Company, and shall have such other duties as may be assigned by the Board of
Directors or the President.
SECTION 7. Vice-President. A Vice-President may execute and deliver in the
name of the Company contracts and other obligations and instruments pertaining
to the regular course of the duties of said office, and shall have such other
authority as from time to time may be assigned by the Board of Directors or the
President.
SECTION 8. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the Chief Financial Officer.
SECTION 9. Secretary. The Secretary shall in general have all the duties
incident to the office of Secretary and such other duties as may be assigned by
the Board of Directors, the President or any Vice President.
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<PAGE> 11
SECTION 10. Controller. The Controller shall in general have all the
duties incident to the office of Controller and such other duties as may be
assigned by the Board of Directors or the Chief Financial Officer.
SECTION 11. Assistant Officers. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
ARTICLE VI
Books and Records
SECTION 1. Location. The books and records of the Company may be kept
at such place or places within or outside the State of Delaware as the Board of
Directors or the respective officers in charge thereof may from time to time
determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the
dates when they respectively became the owners of record thereof shall be kept
by the Secretary or by the transfer agent or registrar as shall be designated
by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Company.
SECTION 3. Fixing Date for Determination of Stockholders of Record. In
order that the Company may determine the stockholders entitled to notice of or
to vote at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date: (1) in the case of determination of stockholders entitled to
notice of or to vote at any meeting of stockholders or adjournment thereof,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall not be more than ten days from the date upon which the
resolution fixing the record date is adopted by the Board of Directors; and (3)
in the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed: (1) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company in accordance with applicable law, or, if prior
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<PAGE> 12
action by the Board of Directors is required by law, shall be at the close of
business on the day on which the Board of Directors adopts the resolution
taking such prior action; and (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
ARTICLE VII
Certificates Representing Stock
SECTION 1. Certificates; Signatures. The shares of the Company shall be
represented by certificates, and every holder of stock shall be entitled to have
a certificate, signed by or in the name of the Company by the Chairman or
Vice-Chairman of the Board of Directors, or the President or Vice-President, and
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Company, representing the number of shares registered in
certificate form. Any and all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Company with the same effect as if he were such
officer, transfer agent or registrar at the date of issue. The name of the
holder of record of the shares represented thereby, with the number of such
shares and the date of issue, shall be entered on the books of the Company.
SECTION 2. Transfers of Stock. Upon compliance with any provisions
restricting the transfer or registration of transfer of shares of stock,
including, without limitation, the restrictions set forth in the Certificate of
Incorporation, shares of capital stock shall be transferable on the books of the
Company only by the holder of record thereof in person, or by duly authorized
attorney or legal representative, upon surrender and cancellation of
certificates for a like number of shares (or upon compliance with the provisions
of Section 5 of this Article VII, if applicable), properly endorsed, and the
payment of all taxes due thereon. Upon such surrender to the Company or a
transfer agent of the Company of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer (or upon compliance with the provisions of Section 5 of this Article
VII, if applicable) and of compliance with any transfer restrictions applicable
thereto contained in an agreement to which the Company is a party or of which
the Company had knowledge by reason of legend with respect thereto placed on any
such surrendered stock certificate, it shall be the duty of the Company to issue
a new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
SECTION 3. Ownership of Shares. The Company shall be entitled to treat
the holder of record of any shares or shares of capital stock of the Company as
the holder in fact thereof and, accordingly, shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
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<PAGE> 13
SECTION 4. Fractional Shares. The Company may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Company may pay in cash the fair value of
fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Company or its
agent, exchangeable as therein provided for full shares, but such scrip shall
not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates representing shares of capital stock of the
Company.
SECTION 5. Lost, Stolen, or Destroyed Certificates. The Company may
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to furnish an affidavit as to such loss, theft, or
destruction and to give the Company a bond sufficient to indemnify the Company
and each transfer agent and registrar against any and all claims that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
ARTICLE VIII
Dividends
Subject always to provisions of applicable law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine
whether any, and, if any, what part of any, funds or other property legally
available for the payment of dividends shall be declared as dividends and paid
to holders of the capital stock of the Company; the division of the whole or
any part of such funds or other property of the Company shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of
such funds or other property among or to the stockholders as dividends or
otherwise; and before payment of any dividend, there may be set aside out of
any funds of the Company available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Company, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Company, and the Board of Directors may modify or abolish any such reserve in
the manner in which it was created.
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ARTICLE IX
Corporate Seal
The corporate seal shall have inscribed thereon the name of the Company and
the year of its incorporation, and shall be in such form and contain such other
words and/or figures as the Board of Directors shall determine. The corporate
seal may be used by printing, engraving, lithographing, stamping or otherwise
making, placing or affixing, or causing to be printed, engraved, lithographed,
stamped or otherwise made, placed or affixed, upon any paper or document, by
any process whatsoever, an impression, facsimile or other reproduction of said
corporate seal.
ARTICLE X
Fiscal Year
The fiscal year of the Company shall be fixed, and shall be subject to
change, by the Board of Directors. Unless otherwise fixed by the Board of
Directors, the fiscal year of the Company shall commence on January 1, and end
on December 31, of each and every calendar year.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by the Certificate of Incorporation
or by these By-laws, a written waiver thereof, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as
may be authorized by the Board of Directors, the Chief Financial Officer, the
Treasurer or any other person designated by said Chief Financial Officer,
whether or not an employee of the Company, may authorize such bank accounts to
be opened or maintained in the name and on behalf of the Company as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Company in accordance with the written
instructions of said Chief Financial Officer, Treasurer, or other person so
designated by said Chief Financial Officer.
SECTION 2. Contracts. The Board of Directors may authorize any person or
persons in the name and on behalf of the Company to enter into or execute and
deliver any and
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<PAGE> 15
all deeds, bonds, mortgages, contracts and other obligations or instruments,
and such authority may be general or confined to specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman,
the President or any other person designated by either of them shall have the
power and authority to execute and deliver proxies, powers of attorney and
other instruments in the name and on behalf of the Company in connection with
the rights and powers incident to the ownership of stock by the Company. The
Chairman, the President or any other person authorized by proxy or power of
attorney executed and delivered by either of them on behalf of the Company may
attend and vote at any meeting of stockholders of any company in which the
Company may hold stock, and may exercise on behalf of the Company any and all
of the rights and powers incident to the ownership of such stock at any such
meeting, or otherwise as specified in the proxy or power of attorney so
authorizing any such person. The Board of Directors, from time to time, may
confer like powers upon any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case
may be, which may be required by any provision of law.
ARTICLE XIII
Amendments
SECTION 1. Except as otherwise set forth in Section 2 of this Article
XIII, these By-laws may be altered or repealed at the Annual Meeting of
Stockholders or at any special meeting of the stockholders, in each case, at
which a quorum is present or represented, provided in the case of a special
meeting that notice of the proposed alteration or repeal is contained in the
notice of such special meeting, by the affirmative vote of the holders of a
majority in voting power of the outstanding capital stock entitled to vote at
such meeting and present or represented thereat (in person or by proxy), or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting or any special meeting of the board.
SECTION 2. Notwithstanding any other provisions of these By-laws
(including Section 1 of this Article XIII), the adoption by stockholders of any
alteration, amendment, change, addition to or repeal of all or any part of
Sections 1, 2, 3, 5, and 7 of Article I, Sections 2, 3, 4, 11 and 12 of Article
II or Section 2 of this Article XIII of these By-laws, or the adoption by
stockholders of any other provision of these By-laws which is inconsistent with
or in addition to such Sections of these By-laws shall require the affirmative
vote of the holders of not less than 66 2/3% of the votes entitled to be cast by
the holders of all then outstanding capital stock of the Company entitled to
vote thereon.
THIS IS TO CERTIFY that I am the duly elected and qualified Secretary of Diamond
Offshore Drilling, Inc., and that the foregoing By-Laws were adopted as the
By-Laws of said Corporation
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<PAGE> 16
on the 10th day of October, 1995, by the Board of Directors of such Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of October, 1995.
/s/ RICHARD L. LIONBERGER
--------------------------------
Richard L. Lionberger, Secretary
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EXHIBIT 3.2.1
CERTIFICATE OF SECRETARY
I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the
"Company") do certify that at a duly called meeting of the Board of Directors
of the Company held on November 8, 1995, at which a quorum was present, the
following resolutions were adopted:
WHEREAS, the Company desires to amend its Bylaws to remove the
provisions thereof that provide that the Chairman of the Board shall be
an officer of the Company and to change the duties of the Chairman of
the Board, and;
WHEREAS, the Board of Directors is expressly authorized by the
Company's Restated Certificate of Incorporation to amend, alter,
change, adopt or repeal the Bylaws of the Company.
NOW THEREFORE be it
RESOLVED, that the Bylaws of the Company be, and they hereby are,
amended to delete the position of Chairman of the Board of Directors
from the list of officers contained in Article V, Section 1, and to
change Article V, Section 4 of the Bylaws to read in its entirety as
follows:
SECTION 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors shall preside at all meetings of the
stockholders and at all meetings of the directors and shall have
such other authority as from time to time may be assigned by the
Board of Directors. The Chairman of the Board of Directors shall
not be an officer of the Company.
and be it further
RESOLVED, that except as amended herein the Bylaws of the Company
adopted 10 October 1995 remain in full force and effect.
I do further certify that the above resolutions have not been amended,
rescinded or repealed and are in full force and effect as of the date hereof.
WITNESS, my hand and the seal of the Company, this 10th day of November, 1995.
/s/ RICHARD L. LIONBERGER
---------------------------------------
Richard L. Lionberger, Secretary
<PAGE> 1
EXHIBIT 3.2.2
CERTIFICATE OF SECRETARY
I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the
"Company") do certify that the following resolution was adopted by unanimous
written consent of the Board of Directors of the Company, dated April 3, 1996:
RESOLVED, that Article IV, Section 2 of the Amended By-laws of the
Company be, and the same hereby is, amended to read in its entirety as
follows:
"SECTION 2. Procedures, Quorum and Manner of Acting. Each
committee shall fix its own rules of procedure, and shall meet where
and as provided by such rules or by resolution of the Board of
Directors. Except as otherwise provided by law, the presence of a
majority of the then appointed members of a committee shall
constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative
vote of a majority of the members of the committee present shall be
the act of the committee; provided, however, that in the event a
committee is comprised of two members, the presence of any one of the
then appointed members of such committee shall constitute a quorum
for the transaction of business by that committee. Each committee
shall keep minutes of its proceedings, and actions taken by a
committee shall be reported to the Board of Directors."
I do further certify that the above resolution has not been amended, rescinded
or repealed and is in full force and effect as of the date hereof.
WITNESS, my hand and the Seal of the Company this 4th day of April, 1996.
/s/ RICHARD L. LIONBERGER
--------------------------------
Richard L. Lionberger, Secretary
<PAGE> 1
EXHIBIT 3.2.3
CERTIFICATE OF SECRETARY
I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the
"Company") do certify that at a duly called meeting of the Board of Directors of
the Company held on 31 March 1998 at which a quorum was present, the following
resolutions were adopted:
WHEREAS, it has been proposed that the By-Laws of the Company be amended as
hereinafter set forth; and
WHEREAS, the Board of Directors is expressly authorized by the Company's
Restated Certificate of Incorporation to amend, alter, change, adopt or
repeal the By-Laws of the Company;
NOW THEREFORE, BE IT
RESOLVED, that Article V, Section 1 of the By-Laws be, and the same hereby
is, amended to read in its entirety as follows:
"Section 1. Election and Qualifications. The Board of Directors shall
elect the officers of the Company, which shall include a Chief
Executive Officer, a Chief Financial Officer, a President and a
Secretary, and may include, by election or appointment, a Chief
Operating Officer, one or more Vice Presidents (any one or more of whom
may be given an additional designation of rank or function), a
Controller, a Treasurer and such Assistant Treasurers, Assistant
Controllers, Assistant Secretaries, and such other officers as the
Board may from time to time deem proper. Each officer shall have such
powers and duties as may be prescribed by these By-laws and as may be
assigned by the Board of Directors or (except in the case of the Chief
Executive Officer) the President. Any two or more offices may be held
by the same person except the offices of President and Secretary.";
and further
RESOLVED, that Article V, Section 5 of the By-Laws be, and the same hereby
is, amended to read in its entirety as follows:
"Section 5. (a) Chief Executive Officer. The Chief Executive Officer of
the Company shall have such duties as customarily pertain to that
office; may appoint and remove assistant officers and other agents and
employees, other than officers referred to in Section 1 of this Article
V; and may execute and deliver in the name of the Company powers of
attorney, contracts, bonds and other obligations and instruments.
<PAGE> 2
(b) President. The President of the Company shall have general
management and supervision of the property, business and affairs of
the Company and over its other officers (other than the Chief
Executive Officer); may appoint and remove assistant officers and
other agents and employees, other than officers referred to in Section
1 of this Article V; and may execute and deliver in the name of the
Company powers of attorney, contracts, bonds and other obligations and
instruments.
(c) Chief Operating Officer. The Chief Operating Officer of the
Company shall in general have all duties incident to such position,
including, without limitation, general management and supervision of
the operational affairs of the Company and the supervision and
assignment of the duties of all other operational officers and
personnel employed by the Company, and shall have such other duties as
may be assigned by the Board of Directors or the President.";
and further
RESOLVED, that except as amended herein, the By-Laws shall remain in full
force and effect.
I do further certify that the above resolutions have not been amended,
rescinded or repealed and are in full force and effect as of the date hereof.
WITNESS, my hand and the seal of the Company, this 31st day of March, 1998.
/s/ RICHARD L. LIONBERGER
--------------------------------
Richard L. Lionberger, Secretary
<PAGE> 1
EXHIBIT 11.1
DIAMOND OFFSHORE DRILLING, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1998
-------------------------------------------
WEIGHTED AVERAGE PER SHARE
INCOME SHARES AMOUNT
(NUMERATOR) (DENOMINATOR)
-------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Net income .......................... $ 80,722 139,325 $ 0.58
EFFECT OF DILUTIVE POTENTIAL SHARES
Convertible notes issued 2/4/97 ..... 2,498 9,876
DILUTED EPS
--------- --------- ---------
Net income + assumed conversions .... $ 83,220 149,201 $ 0.56
========= ========= =========
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------
1997
-------------------------------------------
WEIGHTED (1)
AVERAGE PER SHARE
INCOME SHARES AMOUNT
(NUMERATOR) (DENOMINATOR)
-------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Net income .......................... $ 56,230 136,768 $ 0.41
EFFECT OF DILUTIVE POTENTIAL SHARES
Convertible notes issued 2/4/97 ..... -- (2) 6,036
DILUTED EPS
--------- --------- ---------
Net income + assumed conversions .... $ 56,230 142,804 $ 0.39
========= ========= =========
</TABLE>
- ----------
(1) Weighted average shares outstanding have been restated to include the
retroactive effect of the July 1997 two-for-one stock split in the form of
a stock dividend.
(2) There was no adjustment needed to eliminate the interest on the convertible
notes due to the capitalization of all interest cost incurred.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 78,056
<SECURITIES> 277,402
<RECEIVABLES> 238,295
<ALLOWANCES> 0
<INVENTORY> 34,363
<CURRENT-ASSETS> 638,676
<PP&E> 1,858,738
<DEPRECIATION> 400,546
<TOTAL-ASSETS> 2,401,609
<CURRENT-LIABILITIES> 154,913
<BONDS> 400,000
0
0
<COMMON> 1,393
<OTHER-SE> 1,596,486
<TOTAL-LIABILITY-AND-EQUITY> 2,401,609
<SALES> 0
<TOTAL-REVENUES> 286,069
<CGS> 0
<TOTAL-COSTS> 125,333<F1>
<OTHER-EXPENSES> 38,693<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,843
<INCOME-PRETAX> 124,648
<INCOME-TAX> 43,926
<INCOME-CONTINUING> 80,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,722
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.56
<FN>
<F1>INCLUDES CONTRACT DRILLING EXPENSES ONLY.
<F2>INCLUDES OTHER OPERATING EXPENSES.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 39,258 41,145 70,860 102,958
<SECURITIES> 213,465 196,624 312,305 363,137
<RECEIVABLES> 180,318 197,092 217,236 205,589
<ALLOWANCES> 0 0 0 0
<INVENTORY> 30,754 31,282 32,314 33,714
<CURRENT-ASSETS> 480,668 482,128 654,435 718,775
<PP&E> 1,544,633 1,705,878 1,764,091 1,821,906
<DEPRECIATION> 297,072 322,485 349,381 370,165
<TOTAL-ASSETS> 1,963,759 2,124,664 2,201,527 2,298,561
<CURRENT-LIABILITIES> 108,532 115,672 113,123 131,145
<BONDS> 400,000 400,000 400,000 400,000
0 0 0 0
0 0 0 0
<COMMON> 684 696 1,393 1,393
<OTHER-SE> 1,249,900 1,398,374 1,464,198 1,534,134
<TOTAL-LIABILITY-AND-EQUITY> 1,963,759 2,124,664 2,201,527 2,298,561
<SALES> 0 0 0 0
<TOTAL-REVENUES> 204,733 433,267 683,764 956,093
<CGS> 0 0 0 0
<TOTAL-COSTS> 89,739<F1> 187,960<F1> 287,867<F1> 406,343<F1>
<OTHER-EXPENSES> 30,688<F2> 62,772<F2> 96,349<F2> 129,877<F2>
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 3,349 6,940 10,270
<INCOME-PRETAX> 87,014 187,403 306,741 430,061
<INCOME-TAX> 30,784 65,939 107,446 151,456
<INCOME-CONTINUING> 56,230 121,464 199,295 278,605
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 56,230 121,464 199,295 278,605
<EPS-PRIMARY> 0.41<F3> 0.88<F3> 1.44<F3> 2.01<F3>
<EPS-DILUTED> 0.39<F3> 0.85<F3> 1.39<F3> 1.93<F3>
<FN>
<F1>Includes contract drilling expenses only.
<F2>Includes other operating expenses.
<F3>Per share amounts reflect the retroactive effect of the two-for-one stock
split in the form of a stock dividend to stockholders of record on July 24,
1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 3,867 5,051 11,357 28,180
<SECURITIES> 5,110 5,202 6,827 0
<RECEIVABLES> 87,624 144,812 135,008 172,214
<ALLOWANCES> 0 0 0 0
<INVENTORY> 15,746 31,085 30,678 30,407
<CURRENT-ASSETS> 120,556 201,355 195,330 242,967
<PP&E> 761,834 1,320,319 1,390,839 1,471,085
<DEPRECIATION> 228,189 243,426 262,186 272,925
<TOTAL-ASSETS> 658,185 1,367,329 1,414,019 1,574,500
<CURRENT-LIABILITIES> 50,076 74,807 81,547 128,000
<BONDS> 15,000 70,000 55,000 63,000
0 0 0 0
0 0 0 0
<COMMON> 500 683 683 684
<OTHER-SE> 511,132 1,098,237 1,136,651 1,194,048
<TOTAL-LIABILITY-AND-EQUITY> 658,185 1,367,329 1,414,019 1,574,500
<SALES> 0 0 0 0
<TOTAL-REVENUES> 106,868 253,851 424,473 611,430
<CGS> 0 0 0 0
<TOTAL-COSTS> 66,157<F1> 147,754<F1> 242,109<F1> 341,654<F1>
<OTHER-EXPENSES> 15,015<F2> 33,787<F2> 52,534<F2> 56,285<F2>
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 104 104 2,326
<INCOME-PRETAX> 26,130 72,914 130,843 212,705
<INCOME-TAX> 7,398 21,160 40,609 66,317
<INCOME-CONTINUING> 18,732 51,754 90,234 146,388
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 18,732 51,754 90,234 146,388
<EPS-PRIMARY> 0.19<F3> 0.46<F3> 0.75<F3> 1.18<F3>
<EPS-DILUTED> 0.19<F3> 0.46<F3> 0.75<F3> 1.18<F3>
<FN>
<F1>Includes contract drilling expenses only.
<F2>Includes other operating expenses.
<F3>Per share amounts reflect the retroactive effect of the two-for-one stock split
in the form of a stock dividend to stockholders of record on July 24, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,306
<SECURITIES> 5,041
<RECEIVABLES> 74,496
<ALLOWANCES> 0
<INVENTORY> 15,330
<CURRENT-ASSETS> 115,774
<PP&E> 718,409
<DEPRECIATION> 216,131
<TOTAL-ASSETS> 618,052
<CURRENT-LIABILITIES> 52,251
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 492,394
<TOTAL-LIABILITY-AND-EQUITY> 618,052
<SALES> 0
<TOTAL-REVENUES> 336,584
<CGS> 0
<TOTAL-COSTS> 259,560<F1>
<OTHER-EXPENSES> 65,373<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,052
<INCOME-PRETAX> (13,803)
<INCOME-TAX> (6,777)
<INCOME-CONTINUING> (7,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,026)
<EPS-PRIMARY> 0.10<F3><F4>
<EPS-DILUTED> 0.10<F3><F4>
<FN>
<F1>INCLUDES CONTRACT DRILLING EXPENSES ONLY.
<F2>INCLUDES OTHER OPERATING EXPENSES.
<F3>PER SHARE AMOUNTS REFLECT THE RETROACTIVE EFFECT OF THE TWO-FOR-ONE STOCK
SPLIT IN THE FORM OF A STOCK DIVIDEND TO STOCKHOLDERS OF RECORD ON JULY 24,
1997.
<F4>EARNINGS PER SHARE IS PRESENTED ON A PRO FORMA BASIS ASSUMING THE COMPANY'S
INITIAL PUBLIC OFFERING HAD OCCURRED AT THE BEGINNING OF THE PERIOD. NET LOSS
WAS ADJUSTED FOR THE AFTER-TAX EFFECTS OF A REDUCTION IN INTEREST EXPENSE.
</FN>
</TABLE>
