<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 June 30, 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 July 20, 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 JUNE 30, 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 . . . . . . . 17
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . . . . . 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . 18
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
2
<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>
JUNE 30, DECEMBER 31,
----------- ------------
1998 1997
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 57,481 $ 102,958
Short-term investments ........................................... 326,789 363,137
Accounts receivable .............................................. 272,787 205,589
Rig inventory and supplies ....................................... 34,997 33,714
Prepaid expenses and other ....................................... 28,911 13,377
----------- -----------
Total current assets ............................ 720,965 718,775
DRILLING AND OTHER PROPERTY AND EQUIPMENT, LESS
ACCUMULATED DEPRECIATION ........................................ 1,463,063 1,451,741
GOODWILL, NET OF ACCUMULATED AMORTIZATION ............................ 115,388 118,623
LONG-TERM INVESTMENTS ................................................ 203,435 --
OTHER ASSETS ......................................................... 10,190 9,422
----------- -----------
Total assets .................................... $ 2,513,041 $ 2,298,561
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $ 55,885 $ 57,557
Accrued liabilities .............................................. 56,056 48,935
Taxes payable .................................................... 32,041 24,653
----------- -----------
Total current liabilities ....................... 143,982 131,145
LONG-TERM DEBT ....................................................... 400,000 400,000
DEFERRED TAX LIABILITY ............................................... 248,322 209,513
OTHER LIABILITIES .................................................... 28,685 22,376
----------- -----------
Total liabilities ............................... 820,989 763,034
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock (par value $0.01, 25,000,000 shares authorized,
none issued and outstanding) ................................... -- --
Common stock (par value $0.01, 500,000,000 shares authorized,
139,328,160 and 139,309,948 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively) .......... 1,393 1,393
Additional paid-in capital ....................................... 1,302,784 1,302,712
Retained earnings ................................................ 390,905 233,350
Accumulated other comprehensive losses ........................... (3,030) (1,928)
----------- -----------
Total stockholders' equity ...................... 1,692,052 1,535,527
----------- -----------
Total liabilities and stockholders' equity ...... $ 2,513,041 $ 2,298,561
=========== ===========
</TABLE>
3
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE> 4
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES ........................................... $ 323,517 $ 228,534 $ 609,586 $ 433,267
OPERATING EXPENSES:
Contract drilling ............................ 116,103 98,221 241,436 187,960
Depreciation and amortization ................ 32,747 27,230 64,746 53,042
General and administrative ................... 6,219 4,859 12,991 9,800
Gain on sale of assets ....................... (4) (5) (82) (70)
--------- --------- --------- ---------
Total operating expenses ................ 155,065 130,305 319,091 250,732
--------- --------- --------- ---------
OPERATING INCOME ................................... 168,452 98,229 290,495 182,535
OTHER INCOME (EXPENSE):
Interest income .............................. 7,442 5,499 14,027 8,392
Interest expense ............................. (3,781) (3,349) (7,624) (3,349)
Other, net .............................. 317 10 180 (175)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE ................... 172,430 100,389 297,078 187,403
INCOME TAX EXPENSE ................................. (60,765) (35,155) (104,691) (65,939)
--------- --------- --------- ---------
NET INCOME ......................................... $ 111,665 $ 65,234 $ 192,387 $ 121,464
========= ========= ========= =========
EARNINGS PER SHARE:
Basic ........................................ $ 0.80 $ 0.47 $ 1.38 $ 0.88
========= ========= ========= =========
Diluted ...................................... $ 0.76 $ 0.45 $ 1.32 $ 0.85
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares ................................ 139,328 138,826 139,326 137,802
Dilutive potential common shares ............. 9,876 9,876 9,876 7,967
--------- --------- --------- ---------
Total weighted average shares outstanding 149,204 148,702 149,202 145,769
========= ========= ========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................................... $ 192,387 $ 121,464
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................. 64,746 53,042
Gain on sale of assets ........................................ (82) (70)
Gain on sale of investment securities ......................... (78) (10)
Deferred tax provision ........................................ 42,570 20,638
Accretion of discounts on investment securities ............... (6,232) (5,318)
Amortization of debt issuance costs ........................... 258 201
Changes in operating assets and liabilities:
Accounts receivable ........................................... (66,481) (24,462)
Rig inventory and supplies and other current assets ........... (16,817) (4,694)
Other assets, non-current ..................................... (1,026) 357
Accounts payable and accrued liabilities ...................... 5,310 10,979
Taxes payable ................................................. 7,485 (15,779)
Other liabilities, non-current ................................ 2,709 3,018
Other, net ...................................................... (622) 290
--------- ---------
Net cash provided by operating activities .................. 224,127 159,656
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures ............................................ (73,333) (156,002)
Acquisition of drilling rigs and related equipment .............. -- (80,776)
Proceeds from sale of assets .................................... 582 1,888
Net change in short-term investment securities .................. (307,357) (191,234)
Net change in investments through repurchase agreements ......... 350,000 --
Purchases of long-term investment securities .................... (204,875) (124,242)
--------- ---------
Net cash used in investing activities ...................... (234,983) (550,366)
--------- ---------
FINANCING ACTIVITIES:
Payment of dividends ............................................ (34,832) --
Issuance of common stock ........................................ -- 82,282
Debt repayments ................................................. -- (73,000)
Issuance of convertible subordinated notes ...................... -- 400,000
Debt issuance costs ............................................. -- (6,062)
Proceeds from stock options exercised ........................... 211 455
--------- ---------
Net cash (used in) provided by financing activities ........ (34,621) 403,675
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS .............................. (45,477) 12,965
Cash and cash equivalents, beginning of period .................. 102,958 28,180
--------- ---------
Cash and cash equivalents, end of period ........................ $ 57,481 $ 41,145
========= =========
</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 reported in the Consolidated Balance Sheets in "Accumulated other
comprehensive losses" 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 six months ended June 30, 1998 and 1997 totaled
$7.5 million and $0.6 million, respectively. Cash payments made for income
taxes during the six months ended June 30, 1998 and 1997 totaled $54.5 million
and $60.2 million, respectively.
Capitalized Interest
Interest cost for construction and upgrade of qualifying assets is
capitalized. During the quarter and six months ended June 30, 1998, the
Company incurred interest cost, including amortization of debt issuance costs,
of $3.9 million and $7.8 million, respectively. Interest cost capitalized
during the quarter and six months ended June 30, 1998 was not material.
Interest cost of $4.0 million and $6.8 million was incurred during the quarter
and six months ended June 30, 1997. Interest cost capitalized during the
quarter and six months ended June 30, 1997 was $0.7 million and $3.5 million,
respectively.
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 $3.2 million for the quarter and six months
ended June 30, 1998, respectively. For the quarter and six months ended June
30, 1997, amortization expense totaled $1.7 million and $3.3 million,
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 quarter and six months ended June 30, 1998
comprehensive income totaled $111.5 million and $191.2 million, respectively.
For the quarter and six months ended June 30, 1997 comprehensive income totaled
$66.2 million and $121.7 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 June 30, 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 .................... $ 315,876 $ (337) $ 315,539
Due after one year through five years .. 204,242 (807) 203,435
Equity securities ........................... 11,007 243 11,250
---------- ---------- ----------
Total .................................. $ 531,125 $ (901) $ 530,224
========== ========== ==========
</TABLE>
During the six months ended June 30, 1998, certain equity and debt
securities due within one year were sold for proceeds of $2.4 million and $95.4
million, respectively. The resulting realized loss was not material. Also
during the six months ended June 30, 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 is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------------
1998 1997
----------------------------
(IN THOUSANDS)
<S> <C> <C>
Drilling rigs and equipment ........... $ 1,857,772 $ 1,781,107
Construction work in progress ......... 11,968 17,696
Land and buildings .................... 12,753 12,552
Office equipment and other ............ 12,245 10,551
----------- -----------
Cost ............................. 1,894,738 1,821,906
Less accumulated depreciation ......... (431,675) (370,165)
----------- -----------
Total ....................... $ 1,463,063 $ 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>
JUNE 30, DECEMBER 31,
------------------------
1998 1997
------------------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill .............................. $ 129,746 $ 129,746
Less accumulated amortization ......... (14,358) (11,123)
--------- ---------
Total ....................... $ 115,388 $ 118,623
========= =========
</TABLE>
8
<PAGE> 9
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------------
1998 1997
---------------------------
(IN THOUSANDS)
<S> <C> <C>
Personal injury and other claims ............... $ 23,033 $ 23,960
Payroll and benefits ........................... 18,285 15,951
Interest payable ............................... 5,666 5,684
Other .......................................... 9,072 3,340
----------- -----------
Total ................................ $ 56,056 $ 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 appealed the judgment. In July 1998, the Texas Fourth Court of Appeals
in San Antonio reversed the judgment of the trial court and rendered that the
plaintiffs take nothing. No provision for any liability had been established
by the Company for this claim.
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 and the case has been referred to mediation, which is
expected to occur in the third quarter of 1998. 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 and operates in the waters of six of the world's seven
continents.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Comparative data relating to the Company's revenues and operating
expenses by equipment type are listed below (eliminations offset (i) dayrate
revenues earned when the Company's rigs are utilized in its integrated services
and (ii) 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 and July 1997, the Company completed its major
upgrades of the Ocean Victory and the Ocean Clipper I, 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 the rigs in Other
Semisubmersibles).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------------ INCREASE/
1998 1997 (DECREASE)
--------------------------------------
<S> <C> <C> <C>
(in thousands)
REVENUES
Fourth-Generation Semisubmersibles.. $ 68,030 $ 49,215 $ 18,815
Other Semisubmersibles ............. 191,378 130,916 60,462
Jack-ups ........................... 63,236 46,824 16,412
Integrated Services ................ 5,438 1,284 4,154
Other .............................. -- 682 (682)
Eliminations ....................... (4,565) (387) (4,178)
--------- --------- --------
Total Revenues ............. $ 323,517 $ 228,534 $ 94,983
========= ========= ========
CONTRACT DRILLING EXPENSE
Fourth-Generation Semisubmersibles.. $ 19,961 $ 13,696 $ 6,265
Other Semisubmersibles ............. 65,622 57,188 8,434
Jack-ups ........................... 27,880 24,713 3,167
Integrated Services ................ 5,451 1,417 4,034
Other .............................. 1,754 1,825 (71)
Eliminations ....................... (4,565) (618) (3,947)
--------- --------- --------
Total Contract Drilling Expense $ 116,103 $ 98,221 $ 17,882
========= ========= ========
OPERATING INCOME
Fourth-Generation Semisubmersibles.. $ 48,069 $ 35,519 $ 12,550
Other Semisubmersibles ............. 125,756 73,728 52,028
Jack-ups ........................... 35,356 22,111 13,245
Integrated Services ................ (13) (133) 120
Other .............................. (1,754) (1,143) (611)
Eliminations ....................... -- 231 (231)
Depreciation and Amortization
Expense .......................... (32,747) (27,230) (5,517)
General and Administrative Expense.. (6,219) (4,859) (1,360)
Gain on Sale of Assets ............. 4 5 (1)
--------- --------- --------
Total Operating Income ..... $ 168,452 $ 98,229 $ 70,223
========= ========= ========
</TABLE>
Fourth-Generation Semisubmersibles. The $18.8 million increase in
revenues for fourth-generation rigs resulted primarily from $11.4 million in
revenues generated by increased operating dayrates and from $8.4 million
10
<PAGE> 11
in revenues generated by the Ocean Victory and the Ocean Clipper I, which
completed their upgrade projects in November 1997 and July 1997, respectively.
The $6.3 million increase in contract drilling expense resulted primarily from
operating costs generated by the Ocean Victory and the Ocean Clipper I and
costs associated with the mandatory inspection of the Ocean Valiant, which was
completed during the quarter ended June 30, 1998.
Other Semisubmersibles. The $60.5 million increase in revenues from
other semisubmersibles resulted, in part, from $57.8 million in revenues
generated by increased operating dayrates and $7.4 million in revenues from the
Ocean Century, which returned to work after reactivation in the fourth quarter
of 1997. The $8.4 million increase in contract drilling expense as compared to
the quarter ended June 30, 1997 was primarily due to an overall increase in
operating costs, including labor and drilling supplies. Also contributing to
this increase were costs associated with the mandatory inspection and repairs
on the Ocean Liberator.
Jack-Ups. The $16.4 million increase in revenues from jack-ups
resulted primarily from $17.9 million of additional revenues generated by
increased operating dayrates and $5.7 million in revenues generated by the
Ocean Warwick, which returned to work in March 1998 upon completion of its
cantilever conversion project. These increases were partially offset by
reductions in revenues due to the relinquishment of the Miss Kitty (a bareboat
chartered rig) to the owner in late 1997 and from the Ocean Tower, which was in
the shipyard for upgrades and repairs during the quarter ended June 30, 1998.
The $3.2 million increase in contract drilling expense resulted primarily from
costs associated with the mandatory inspection and repairs of the Ocean Drake,
which was completed during the quarter ended June 30, 1998. In addition,
operating costs for the Ocean Warwick and the overall increase in operating
costs, including labor and drilling supplies, also contributed to the increase
in contract drilling expense as compared to the same period in 1997.
Integrated Services and Other. Revenues and contract drilling
expenses for integrated services increased primarily from additional projects
and increased rates as compared to the same period in 1997.
Depreciation and Amortization Expense. Depreciation and amortization
expense for the three months ended June 30, 1998 of $32.7 million increased
$5.5 million from $27.2 million for the three months ended June 30, 1997
primarily due to 1998 budgeted capital additions. Additional depreciation
expense for the Ocean Victory and the Ocean Clipper I upon completion of their
upgrades also contributed to this increase.
General and Administrative Expense. General and administrative
expense for the three months ended June 30, 1998 of $6.2 million increased $1.3
million from $4.9 million for the three months ended June 30, 1997 primarily
due to additional personnel and increased accruals for the Company's management
bonus and retention plan. Other increases resulted from costs associated with
ongoing litigation.
Interest Income. Interest income of $7.4 million for the three months
ended June 30, 1998 increased $1.9 million from $5.5 million for the same
period in 1997. This increase resulted primarily from the investment of
additional excess cash in 1998. See "-Liquidity."
Interest Expense. Interest expense of $3.8 million for the three
months ended June 30, 1998 consists of interest accrued on the $400.0 million
of convertible subordinated notes (the "Notes"). The Notes were issued in
February 1997 resulting in increased interest expense for the three months
ended June 30, 1998 as compared to the same period in 1997.
Income Tax Expense. Income tax expense of $60.8 million for the three
months ended June 30, 1998 increased $25.6 million from $35.2 million for the
three months ended June 30, 1997. This increase resulted primarily from the
$72.0 million increase in income before income tax expense as compared to the
three months ended June 30, 1997.
11
<PAGE> 12
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Comparative data relating to the Company's revenues and operating
expenses by equipment type are listed below (eliminations offset (i) dayrate
revenues earned when the Company's rigs are utilized in its integrated services
and (ii) 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 the rigs in Other Semisubmersibles).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------ INCREASE/
1998 1997 (DECREASE)
---------------------------------------
(in thousands)
<S> <C> <C> <C>
REVENUES
Fourth-Generation Semisubmersibles ... $ 138,975 $ 91,857 $ 47,118
Other Semisubmersibles ............... 344,652 247,749 96,903
Jack-ups ............................. 123,322 90,379 32,943
Integrated Services .................. 21,149 5,595 15,554
Other ................................ -- 682 (682)
Eliminations ......................... (18,512) (2,995) (15,517)
--------- --------- ---------
Total Revenues .............. $ 609,586 $ 433,267 $ 176,319
========= ========= =========
CONTRACT DRILLING EXPENSE
Fourth-Generation Semisubmersibles ... $ 40,576 $ 25,169 $ 15,407
Other Semisubmersibles ............... 144,898 112,523 32,375
Jack-ups ............................. 49,040 45,974 3,066
Integrated Services .................. 20,956 5,676 15,280
Other ................................ 4,478 2,186 2,292
Eliminations ......................... (18,512) (3,568) (14,944)
--------- --------- ---------
Total Contract Drilling Expense . $ 241,436 $ 187,960 $ 53,476
========= ========= =========
OPERATING INCOME
Fourth-Generation Semisubmersibles ... $ 98,399 $ 66,688 $ 31,711
Other Semisubmersibles ............... 199,754 135,226 64,528
Jack-ups ............................. 74,282 44,405 29,877
Integrated Services .................. 193 (81) 274
Other ................................ (4,478) (1,504) (2,974)
Eliminations ......................... -- 573 (573)
Depreciation and Amortization ........ (64,746) (53,042) (11,704)
Expense
General and Administrative Expense ... (12,991) (9,800) (3,191)
Gain on Sale of Assets ............... 82 70 12
--------- --------- ---------
Total Operating Income....... $ 290,495 $ 182,535 $ 107,960
========= ========= =========
</TABLE>
Fourth-Generation Semisubmersibles. The $47.1 million increase in
revenues for fourth-generation rigs resulted primarily from $22.7 million in
revenues generated by increased operating dayrates and from $25.4 million in
revenues generated by the Ocean Victory, the Ocean Clipper I, and the Ocean
Star, which completed their upgrade projects in November 1997, July 1997, and
March 1997, respectively. The $15.4 million increase in contract drilling
expense resulted primarily from operating costs generated by the Ocean Victory,
the Ocean Clipper I, and the Ocean Star and costs associated with the mandatory
inspection of the Ocean Valiant, which was completed during the six months
ended June 30, 1998.
Other Semisubmersibles. The $96.9 million increase in revenues from
other semisubmersibles resulted, in part, from $103.7 million in revenues
generated by increased operating dayrates and $14.3 million in revenues from
the Ocean Century, which returned to work after reactivation in the fourth
quarter of 1997. The $32.4 million increase in contract drilling expense as
compared to the six months ended June 30, 1997 was primarily due to an
12
<PAGE> 13
overall increase in operating costs, including labor and drilling supplies.
Also contributing to this increase were costs associated with six mandatory
inspections and repairs completed during the six months ended June 30, 1998.
Jack-Ups. The $32.9 million increase in revenues from jack-ups
resulted primarily from $38.6 million of additional revenues generated by
increased operating dayrates and $6.5 million in revenues generated by the Ocean
Warwick, which returned to work in March 1998 upon completion of its cantilever
conversion project. These increases were partially offset by reductions in
revenues due to the relinquishment of the Miss Kitty (a bareboat chartered rig)
to the owner in late 1997 and from the Ocean Tower, which was in the shipyard
for upgrades and repairs during the six months ended June 30, 1998. The $3.1
million increase in contract drilling expense resulted primarily from costs
associated with the mandatory inspection and repairs of the Ocean Drake, which
was completed during the six months ended June 30, 1998. In addition, operating
costs for the Ocean Warwick and the overall increase in operating costs,
including labor and drilling supplies, also contributed to the increase in
contract drilling expense as compared to the same period in 1997.
Integrated Services and Other. Revenues and contract drilling
expenses for integrated services increased primarily from additional projects
and increased rates as compared to the same period in 1997. Other contract
drilling expense increased primarily due to additional expenses for maintenance
and repairs on spare equipment and crew training programs for new employees.
Depreciation and Amortization Expense. Depreciation and amortization
expense of $64.7 million for the six months ended June 30, 1998 increased
primarily due to 1998 budgeted capital additions and additional depreciation
expense for the Ocean Victory, the Ocean Clipper I, and the Ocean Star, which
completed their upgrades in November 1997, July 1997, and March 1997,
respectively.
General and Administrative Expense. General and administrative
expense of $13.0 million for the six months ended June 30, 1998 increased
primarily due to accruals for the Company's bonus and retention plan, 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 $14.0 million for the six months
ended June 30, 1998 increased $5.6 million from $8.4 million for the same
period in 1997. This increase resulted primarily from the investment of
additional excess cash in 1998. See "-Liquidity."
Interest Expense. Interest expense of $7.6 million for the six months
ended June 30, 1998 consists of interest accrued on the $400.0 million of
convertible subordinated notes. The Notes were issued in February 1997
resulting in increased interest expense for the six months ended June 30, 1998
as compared to the same period of the prior year. Also, interest cost
capitalized during the six months ended June 30, 1998 was not material.
Income Tax Expense. Income tax expense for the six months ended June
30, 1998 was $104.7 million as compared to $65.9 million for the comparable
period of the prior year. This change resulted primarily from the increase of
$109.7 million in the Company's income before income tax expense.
13
<PAGE> 14
OUTLOOK
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 conversion of the Ocean Confidence from an
accommodation vessel to a semisubmersible drilling unit capable of operating in
harsh environments and ultra-deep water is proceeding as scheduled. The
upgrade is anticipated to be completed in late 1999, when the rig will begin a
five-year commitment in the Gulf of Mexico. See "-Capital Resources."
Increased rig construction and enhancement programs are also ongoing
by the Company's competitors. Because the new construction of drilling units
to date has been largely in conjunction with term contracts, the Company does
not believe the resulting increase in supply will have a material adverse
effect on the average operating dayrates and the overall utilization level of
the Company's existing rigs in the short term. However, this increase in
capacity has caused a shortage of qualified rig personnel and upward pressure
on the cost of equipment and supplies necessary for drilling operations. For
example, effective July 1, 1998, the Company adjusted the compensation levels
for most offshore positions in order to maintain competitive pay rates. These
increases in expenses are not expected to have a material effect on the
Company's current results of operations, however, significant increases in
costs, including compensation and training, may occur in the future depending
upon industry conditions.
The Company's results of operations have also been impacted by the
loss of revenues and associated costs incurred during required regulatory
inspections of its drilling rigs. During 1998 it was anticipated that 15 of
the Company's rigs would incur some downtime associated with scheduled
regulatory inspections. At June 30, 1998, eight of these 15 inspections had
been completed. 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, as a result of the recent decline in product prices, the
contract drilling industry has begun to experience declining dayrates and
decreased utilization, primarily in the shallow waters of the Gulf of Mexico.
The impact of these changing market conditions could have an adverse effect on
the Company's future results of operations, although the extent of such change
cannot be accurately predicted.
LIQUIDITY
As of June 30, 1998, cash and investments totaled $587.7 million, up
from $466.1 million at December 31, 1997. Cash provided by operating
activities for the six months ended June 30, 1998 increased by $64.4 million to
$224.1 million, as compared to $159.7 million for the comparable period of the
prior year. This increase in operating cash flow was primarily attributable to
a $70.9 million increase in net income for the first half of 1998, an $11.7
million increase in depreciation and amortization expense, and various changes
in operating assets and liabilities.
Investing activities used $235.0 million in cash during the six months
ended June 30, 1998, compared to $550.4 million during the comparable period of
1997. The decrease resulted primarily from the initial investment in 1997 of
excess cash generated by the issuance of $400.0 million of convertible
subordinated notes.
Cash used in financing activities for the six months ended June 30,
1998 of $34.6 million resulted primarily from dividends to stockholders. Cash
provided by financing activities for the six months ended June 30, 1997 of
$403.7 million resulted primarily from 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, in connection with one or more
acquisitions by the Company of securities or assets of other businesses.
The Company believes 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.
14
<PAGE> 15
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 water depth and drilling capability upgrades.
It is management's opinion that operating cash flows and the Company's cash
reserves will be sufficient to meet these capital commitments; however,
periodic assessments will be made based on industry conditions. 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 revised its budgeted capital expenditures for rig
upgrades during 1998 to $125.2 million from $108.5 million. During the six
months ended June 30, 1998, the Company expended $35.3 million, including
capitalized interest expense, for significant rig upgrades. Such upgrade
projects include the conversion of the Ocean Confidence from an accommodation
vessel to a semisubmersible drilling unit capable of operating in harsh
environments and ultra-deep waters. The conversion includes the following
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. The Company has revised the estimated cost of
conversion to approximately $210.0 million from $190.0 million due to
additional steel requirements and mechanical and electrical system costs. 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 included 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, were completed in May 1998.
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 six months ended June 30, 1998, the Company expended $38.0 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. 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 believed to be material, the Company is continuing to monitor, on an
ongoing basis, the problems and uncertainties associated with these issues and
their consequences.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
revises employers' disclosures about pension and other postretirement benefit
plans in annual financial statements. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997.
15
<PAGE> 16
OTHER
The Company has received notification that the Internal Revenue
Service will conduct an audit of the Company's 1996 federal income tax return
beginning in August 1998. The Company believes that adequate tax payments and
accruals have been made and that any amounts possibly assessed will not have a
material adverse effect on the financial position, results of operations, or
cash flows of the Company.
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.
16
<PAGE> 17
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 June 30, 1998, the fair value of the Company's investment in debt securities
issued by the U.S. Treasury was approximately $519.0 million, which includes an
unrealized holding loss of $1.1 million. The fair value of the Company's
investment in equity securities at June 30, 1998 was approximately $11.3
million, which includes an unrealized holding gain of $0.2 million. Based on
the nature of these financial instruments and in 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.
17
<PAGE> 18
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 (Off-Shore) Limited, 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 and the case
has been referred to mediation, which is expected to occur in the third quarter
of 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. 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 AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders (the "Meeting") of Diamond Offshore
Drilling, Inc. was held on May 13, 1998 in New York, New York. At the Meeting,
the holders of 128,845,210 shares out of 139,328,160 shares entitled to vote as
of the record date were represented in person or by proxy, constituting a
quorum. The following matters were voted on and adopted by the margins
indicated:
a. To elect a six member Board of Directors, each to serve until
the next annual meeting of stockholders and until their
successors are elected and qualified.
<TABLE>
<CAPTION>
Number of Shares
----------------
For Withheld Broker Non-Vote
--- -------- ---------------
<S> <C> <C> <C>
James S. Tisch 128,218,662 626,548 0
Lawrence R. Dickerson 128,046,279 798,931 0
Herbert C. Hofmann 128,217,328 627,882 0
Arthur L. Rebell 128,402,769 442,441 0
Michael H. Steinhardt 128,239,732 605,478 0
Raymond S. Troubh 128,408,110 437,100 0
</TABLE>
b. To ratify the appointment of Deloitte & Touche LLP as
independent accountants and auditors for the Company for fiscal
year 1998.
<TABLE>
<S> <C>
For 128,498,127
Against or Withheld 304,899
Abstain 42,184
Broker Non-Vote 0
</TABLE>
18
<PAGE> 19
c. To amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock to
500,000,000.
<TABLE>
<S> <C>
For 104,092,234
Against or Withheld 24,684,457
Abstain 68,519
Broker Non-Vote 0
</TABLE>
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 second quarter of
1998.
19
<PAGE> 20
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 30-Jul-1998 By: \s\ Gary T. Krenek
----------------- -------------------------------------------
Gary T. Krenek
Vice President and Chief Financial Officer
Date 30-Jul-1998 \s\ Leslie C. Knowlton
----------------- -------------------------------------------
Leslie C. Knowlton
Controller and Principal Accounting Officer
20
<PAGE> 21
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2 Amended By-laws of the Company (incorporated by reference to
Exhibits 3.2, 3.2.1, 3.2.2 and 3.2.3 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1998).
4.1 Indenture, dated as of February 4, 1997, between the Company and
The 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 The 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.
</TABLE>
- --------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIAMOND OFFSHORE DRILLING, INC.
DIAMOND OFFSHORE DRILLING, INC., a corporation duly incorporated by the
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware on April 12, 1989 under the name Majestic Offshore,
Inc. (the "Company"), desiring to integrate into a single instrument all the
provisions of its Restated Certificate of Incorporation now in effect and
operative, and desiring further to amend said Restated Certificate of
Incorporation, such restated Certificate of Incorporation having been duly
adopted in accordance with Section 245 of the General Corporation Law of the
State of Delaware, hereby certifies as follows:
1. Said Restated Certificate of Incorporation is hereby restated,
integrated and further amended to read in its entirety as follows:
FIRST: The name of the corporation is DIAMOND OFFSHORE DRILLING, INC.
(the "Company").
SECOND: Its registered office in the State of Delaware is located at
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The registered agent for the Company is The Corporation Trust
Company, whose address is as stated above.
THIRD: The nature of business and purpose of the Company is to engage
in any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law, as amended (the "DGCL").
FOURTH: The total number of shares of all classes of capital stock
which the Company shall have authority to issue is 525,000,000 shares,
consisting of
(i) 25,000,000 shares of Preferred Stock, $.01 par value per
share, and
(ii) 500,000,000 shares of Common Stock, $.01 par value per share.
Except as otherwise provided by law, the shares of capital stock of the
Company, regardless of class, may be issued by the Company from time to time in
such amounts, for such lawful consideration and for such corporate purpose(s) as
the Board of Directors may from time to time determine.
<PAGE> 2
Shares of Preferred Stock may be issued from time to time in one or
more series of any number of shares as may be determined from time to time by
the Board of Directors; provided that the aggregate number of shares issued and
not cancelled of any and all such series shall not exceed the total number of
shares of Preferred Stock authorized by this paragraph FOURTH. Each series of
Preferred Stock shall be distinctly designated. The Board of Directors is hereby
expressly granted authority to fix, in the resolution or resolutions providing
for the issuance of a particular series of Preferred Stock, the voting powers,
if any, of each such series, and the designations, preferences and relative,
participating, optional and other special rights of each such series, and the
qualifications, limitations and restrictions thereof to the fullest extent now
or hereafter permitted by this Restated Certificate of Incorporation and the
laws of the State of Delaware.
Subject to the provisions of applicable law or of the Company's By-Laws
with respect to the closing of the transfer books or the fixing of a record date
for the determination of stockholders entitled to vote, and except as otherwise
provided by law, by this Restated Certificate of Incorporation or by the
resolution or resolutions of the Board of Directors providing for the issuance
of any series of Preferred Stock as aforesaid, the holders of outstanding shares
of Common Stock shall exclusively possess the voting power for the election of
directors of the Company and for all other purposes as prescribed by applicable
law, with each holder of record of shares of Common Stock having voting power
being entitled to one vote for each share of Common Stock registered in his or
its name on the books, registers and/or accounts of the Company.
FIFTH: A director of the Company shall not be personally liable either
to the Company or to any stockholder for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, or (ii) for acts or omissions
which are not taken or omitted to be taken in good faith or which involve
intentional misconduct or knowing violation of the law, or (iii) for any matter
in respect of which such director would be liable under Section 174 of Title 8
of the DGCL or any amendment or successor provision thereto, or (iv) for any
transaction from which the director shall have derived an improper personal
benefit. Neither the amendment nor the repeal of this paragraph FIFTH nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this paragraph FIFTH shall eliminate or reduce the effect of
this paragraph FIFTH in respect of any matter occurring, or any cause of action,
suit or claim that, but for this paragraph FIFTH, would accrue or arise prior to
such amendment, repeal or adoption of an inconsistent provision.
2
<PAGE> 3
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director or an officer of the Company
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the fullest extent and in the manner set forth in
and permitted by the DGCL, and any other applicable law, as from time to time in
effect. Such right of indemnification shall not be deemed exclusive of any other
rights to which such director or officer may be entitled apart from the
foregoing provisions. The foregoing provisions shall be deemed to be a contract
between the Company and each director and officer who serves in such capacity at
any time while this paragraph FIFTH and the relevant provisions of the DGCL and
other applicable law, if any, are in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore brought or threatened based in whole or
in part upon any such state of facts.
The Company may indemnify any person who was or is threatened to be
made a party to any threatened pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was an employee or agent of the Company, or is or was serving at
the request of the Company, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding to the extent and in the manner set forth in and
permitted by the DGCL, and any other applicable law, as from time to time in
effect. Such right of indemnification shall not be deemed exclusive of any other
rights to which any such person may be entitled apart from the foregoing
provisions.
SIXTH: The Board of Directors is expressly authorized to amend, alter,
change, adopt or repeal the By-Laws of the Company.
* * * *
2. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of sections 242 and 245 of the DGCL, and has been
duly adopted by the stockholders of the Company at a meeting called and held in
accordance with the provisions of Section 222 of the DGCL.
3
<PAGE> 4
IN WITNESS WHEREOF, Diamond Offshore Drilling, Inc. has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Lawrence R. Dickerson, its President and Chief Operating Officer, and attested
to by Richard L. Lionberger, its Vice President, General Counsel and Secretary,
on this 27th day of May, 1998.
DIAMOND OFFSHORE DRILLING, INC.
By: /s/ Lawrence R. Dickerson
--------------------------------
Lawrence R. Dickerson
President and Chief Operating Officer
Attest:
/s/ Richard L. Lionberger
- --------------------------------
Richard L. Lionberger
Vice President, General Counsel and Secretary
4
<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 JUNE 30,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED (1)
AVERAGE PER SHARE AVERAGE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
--------------------------------------- --------------------------------------
BASIC EPS
Net income.................................. $111,665 139,328 $ 0.80 $ 65,234 138,826 $ 0.47
EFFECT OF DILUTIVE POTENTIAL SHARES
Convertible notes issued 2/4/97 ............ 2,458 9,876 2,112 9,876
DILUTED EPS
--------------------------------------- ---------------------------------------
Net income + assumed conversions ........... $114,123 149,204 $ 0.76 $ 67,346 148,702 $ 0.45
======================================= =======================================
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
1998 1997
--------------------------------------- --------------------------------------
WEIGHTED WEIGHTED (1)
AVERAGE PER SHARE AVERAGE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
--------------------------------------- --------------------------------------
BASIC EPS
Net income................................. $ 192,387 139,326 $ 1.38 $ 121,464 137,802 $ 0.88
EFFECT OF DILUTIVE POTENTIAL SHARES
Convertible notes issued 2/4/97 ........... 4,956 9,876 2,112 7,967
DILUTED EPS
--------------------------------------- --------------------------------------
Net income + assumed conversions .......... $ 197,343 149,202 $ 1.32 $ 123,576 145,769 $ 0.85
======================================= ======================================
</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.
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 57,481
<SECURITIES> 326,789
<RECEIVABLES> 272,787
<ALLOWANCES> 0
<INVENTORY> 34,997
<CURRENT-ASSETS> 720,965
<PP&E> 1,894,738
<DEPRECIATION> 431,675
<TOTAL-ASSETS> 2,513,041
<CURRENT-LIABILITIES> 143,982
<BONDS> 400,000
0
0
<COMMON> 1,393
<OTHER-SE> 1,690,659
<TOTAL-LIABILITY-AND-EQUITY> 2,513,041
<SALES> 0
<TOTAL-REVENUES> 609,586
<CGS> 0
<TOTAL-COSTS> 241,436<F1>
<OTHER-EXPENSES> 77,655<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,624
<INCOME-PRETAX> 297,078
<INCOME-TAX> 104,691
<INCOME-CONTINUING> 192,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192,387
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.32
<FN>
<F1>Includes contract drilling expenses only.
<F2>Includes other operating expenses.
</FN>
</TABLE>
