<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to_________
Commission file number 1-13926
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.
As of April 19, 1999 Common stock, $0.01 135,824,281 shares
par value per share
<PAGE> 2
DIAMOND OFFSHORE DRILLING, INC.
TABLE OF CONTENTS FOR FORM 10-Q
QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
COVER PAGE.......................................................................................1
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.....................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................18
PART II. OTHER INFORMATION......................................................................19
ITEM 1. LEGAL PROCEEDINGS..............................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................19
ITEM 5. OTHER INFORMATION..............................................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................19
SIGNATURES.......................................................................................20
EXHIBIT INDEX....................................................................................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>
MARCH 31, DECEMBER 31,
------------ ------------
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 69,946 $ 101,198
Marketable securities .............................................. 589,068 535,774
Accounts receivable ................................................ 200,153 233,719
Rig inventory and supplies ......................................... 36,093 35,794
Prepaid expenses and other ......................................... 36,014 31,939
------------ ------------
Total current assets ................... 931,274 938,424
DRILLING AND OTHER PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION ........................................... 1,612,762 1,551,820
GOODWILL, NET OF ACCUMULATED AMORTIZATION ............................ 108,241 109,825
OTHER ASSETS ......................................................... 9,351 9,647
------------ ------------
Total assets ........................... $ 2,661,628 $ 2,609,716
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 84,452 $ 93,938
Accrued liabilities ................................................ 47,476 53,283
Taxes payable ...................................................... 43,144 13,180
------------ ------------
Total current liabilities .............. 175,072 160,401
LONG-TERM DEBT ....................................................... 400,000 400,000
DEFERRED TAX LIABILITY ............................................... 270,472 263,797
OTHER LIABILITIES .................................................... 27,453 30,260
------------ ------------
Total liabilities ...................... 872,997 854,458
------------ ------------
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,
139,333,635 issued, 135,815,535 outstanding at March 31, 1999
and December 31, 1998) ............................................ 1,393 1,393
Additional paid-in capital ......................................... 1,302,806 1,302,806
Retained earnings .................................................. 582,624 547,783
Accumulated other comprehensive losses ............................. (9,466) (7,998)
Treasury stock, at cost (3,518,100 shares) ......................... (88,726) (88,726)
------------ ------------
Total stockholders' equity .................... 1,788,631 1,755,258
------------ ------------
Total liabilities and stockholders' equity .... $ 2,661,628 $ 2,609,716
============ ============
</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,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES ................................................ $ 228,037 $ 286,069
OPERATING EXPENSES:
Contract drilling ................................ 110,718 125,333
Depreciation and amortization .................... 35,657 31,999
General and administrative ....................... 6,001 6,772
Gain on sale of assets ........................... (125) (78)
------------ ------------
Total operating expenses .................... 152,251 164,026
------------ ------------
OPERATING INCOME ........................................ 75,786 122,043
OTHER INCOME (EXPENSE):
Interest income .................................. 8,351 6,585
Interest expense ................................. (3,332) (3,843)
Other, net ....................................... (1,093) (137)
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE ........................ 79,712 124,648
INCOME TAX EXPENSE ...................................... (27,894) (43,926)
------------ ------------
NET INCOME .............................................. $ 51,818 $ 80,722
============ ============
EARNINGS PER SHARE:
Basic ............................................ $ 0.38 $ 0.58
============ ============
Diluted .......................................... $ 0.37 $ 0.56
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares .................................... 135,816 139,325
Dilutive potential common shares ................. 9,876 9,876
------------ ------------
Total weighted average shares outstanding ... 145,692 149,201
============ ============
</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,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................ $ 51,818 $ 80,722
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ........................... 35,657 31,999
Gain on sale of assets .................................. (125) (78)
(Gain) loss on sale of investment securities ............ (6) 69
Deferred tax provision .................................. 8,291 17,862
Accretion of discounts on investment securities ......... (3,229) (2,609)
Amortization of debt issuance costs ..................... 134 129
Changes in operating assets and liabilities:
Accounts receivable ..................................... 33,566 (32,161)
Rig inventory and supplies and other current assets ..... (4,374) 2,168
Other assets, non-current ............................... 162 (957)
Accounts payable and accrued liabilities ................ (15,293) 1,187
Taxes payable ........................................... 29,147 22,442
Other liabilities, non-current .......................... (2,807) (569)
Other, net .............................................. (820) (350)
------------ ------------
Net cash provided by operating activities ........... 132,121 119,854
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures ...................................... (95,019) (37,089)
Proceeds from sale of assets .............................. 129 335
Net change in marketable securities ....................... (51,506) (90,797)
------------ ------------
Net cash used in investing activities ............... (146,396) (127,551)
------------ ------------
FINANCING ACTIVITIES:
Payment of dividends ...................................... (16,977) (17,416)
Proceeds from stock options exercised ..................... -- 211
------------ ------------
Net cash used in financing activities ............... (16,977) (17,205)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ......................... (31,252) (24,902)
Cash and cash equivalents, beginning of period ............ 101,198 102,958
------------ ------------
Cash and cash equivalents, end of period .................. $ 69,946 $ 78,056
============ ============
</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, 1998 (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.
Marketable Securities
The Company's investments are classified as available for sale and
stated at fair value. 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 the Consolidated Statements of Income 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 totaled $7.5 million
during each quarter ended March 31, 1999 and 1998. Cash payments made, net of
refunds, for income taxes during the quarters ended March 31, 1999 and 1998
totaled $8.9 million and $4.2 million, respectively.
Capitalized Interest
Interest cost for construction and upgrade of qualifying assets is
capitalized. The Company incurred interest cost, including amortization of debt
issuance costs, of $3.9 million during each quarter ended March 31, 1999 and
1998. Interest cost capitalized during each quarter ended March 31, 1999 and
1998 was not material.
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 for each quarter ended March 31, 1999 and 1998.
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.
Treasury Stock
In July 1998, the Board of Directors authorized the purchase of shares
of the Company's common stock in the open market, from time to time, depending
on market conditions. The purchase of treasury stock is accounted for using the
cost method, which reports the cost of the shares acquired in "Treasury stock"
as a deduction from stockholders' equity in the Consolidated Balance Sheets.
Comprehensive Income
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner 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, 1999 and 1998, comprehensive income totaled $50.6
million and $79.7 million, respectively. Comprehensive income includes net
income, foreign currency translation gains and losses, and unrealized holding
gains and losses on investments.
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing
net income by the weighted average number of shares of common stock 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 shares of common stock
outstanding and the weighted average number of shares of common stock issuable
assuming full conversion of the convertible subordinated notes as of the
beginning of the periods presented.
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. MARKETABLE SECURITIES
Investments classified as available for sale are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------------------------
UNREALIZED MARKET
COST GAIN (LOSS) VALUE
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities issued by the U.S. Treasury
Due within one year ..................... $ 185,269 $ 75 $ 185,344
Due after one year through five years ... 198,697 413 199,110
Collateralized mortgage obligations .......... 203,483 (1,269) 202,214
Equity securities ............................ 12,117 (9,717) 2,400
------------ ------------ ------------
Total ................................... $ 599,566 $ (10,498) $ 589,068
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
UNREALIZED MARKET
COST GAIN (LOSS) VALUE
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities issued by the U.S. Treasury
Due within one year...................... $ 304,224 (21) $ 304,203
Due after one year through five years 24,982 91 25,073
Collateralized mortgage obligations........... 203,504 (452) 203,052
Equity securities............................. 12,117 (8,671) 3,446
------------ ------------ ------------
Total.................................... $ 544,827 $ (9,053) $ 535,774
============ ============ ============
</TABLE>
All of the Company's investments are included as current assets in the
Consolidated Balance Sheets in "Marketable securities," representing the
investment of cash available for current operations.
During the three months ended March 31, 1999 and 1998, certain debt
securities due within one year were sold or matured for proceeds of $269.2
million and $95.4 million, respectively. The resulting after-tax realized gain
and loss for the quarters ended March 31, 1999 and 1998 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,
------------ ------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Drilling rigs and equipment ........................... $ 1,960,899 $ 1,929,540
Construction work in progress ......................... 150,936 88,266
Land and buildings .................................... 13,878 13,874
Office equipment and other ............................ 15,072 14,100
------------ ------------
Cost ............................................... 2,140,785 2,045,780
Less accumulated depreciation ......................... (528,023) (493,960)
------------ ------------
Drilling and other property and equipment, net .... $ 1,612,762 $ 1,551,820
============ ============
</TABLE>
8
<PAGE> 9
4. GOODWILL
The merger with Arethusa in 1996 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,
------------ ------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill ............................... $ 127,418 $ 127,418
Less accumulated amortization .......... (19,177) (17,593)
------------ ------------
Total ........................ $ 108,241 $ 109,825
============ ============
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ ------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Personal injury and other claims ....... $ 17,987 $ 20,676
Payroll and benefits ................... 19,251 18,701
Interest payable ....................... 1,916 5,667
Other .................................. 8,322 8,239
------------ ------------
Total ........................ $ 47,476 $ 53,283
============ ============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
In 1996, 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. A motion for a new trial filed by the plaintiffs was
denied by the Texas Fourth Court of Appeals in December 1998. The plaintiffs
then filed a petition for review with the Supreme Court of Texas which was
denied in March 1999. The deadline for filing a motion for rehearing by the
plaintiffs has expired. The Company had not established a provision for any
liability for this case, therefore, there is no effect on the Company's
consolidated financial position, results of operations, or cash flows.
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 appealed the
judgment and the appellate court ordered the parties to mediation. The case
went to mediation in July 1998 with no resolution. In April 1999, the Texas
First Court of Appeals, Houston, set the case for submission in May 1999. No
provision for any liability has been made in the financial statements.
Various other claims have been filed against the Company in the
ordinary course of business, particularly claims alleging personal injuries.
Management believes that 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
7. SEGMENTS AND GEOGRAPHIC AREA ANALYSIS
The Company reports its operations as one reportable segment, contract
drilling of offshore oil and gas wells. Although the Company provides contract
drilling services from different types of offshore drilling rigs and provides
such services in many geographic locations, these operations have been
aggregated into one reportable segment based on the similarity of economic
characteristics among all divisions and locations, including the nature of
services provided and the type of customers of such services. The data below is
presented in accordance with Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which the Company has retroactively adopted for all periods presented.
Similar Services
Revenues from external customers for contract drilling and similar
services by equipment-type are listed below (eliminations offset dayrate
revenues earned when the Company's rigs are utilized in its integrated
services):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Fourth-Generation Semisubmersibles ................... $ 63,960 $ 70,945
Other Semisubmersibles ............................... 139,453 153,274
Jack-ups ............................................. 24,069 60,086
Integrated Services .................................. 3,469 15,711
Eliminations ......................................... (2,914) (13,947)
------------ ------------
Total revenues ............................... $ 228,037 $ 286,069
============ ============
</TABLE>
Geographic Areas
At March 31, 1999, the Company had operations offshore seven countries
other than the United States. As a result, the Company is exposed to the risk
of changes in social, political and economic conditions inherent in foreign
operations and the Company's results of operations and the value of its foreign
assets are affected by fluctuations in foreign currency exchange rates.
Revenues by geographic area are presented by attributing revenues to the
individual country where the services were performed.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues from unaffiliated customers:
United States ........................................ $ 111,208 $ 175,035
Foreign:
Europe/Africa ...................................... 64,455 69,663
Australia/Southeast Asia ........................... 28,267 28,446
South America ...................................... 24,107 12,925
------------ ------------
Total Revenues ................................. $ 228,037 $ 286,069
============ ============
</TABLE>
10
<PAGE> 11
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.
RESULTS OF OPERATIONS
General
Revenues. The Company's revenues vary based upon demand, which affects
the number of days the fleet is utilized and the dayrates earned. Revenues can
also increase or decrease as a result of the acquisition or disposal of rigs.
In order to improve utilization or realize higher dayrates, the Company may
mobilize its rigs from one market to another. During periods of mobilization,
however, revenues may be adversely affected. As a response to changes in
demand, the Company may withdraw a rig from the market by stacking it or may
reactivate a rig which was previously stacked, which may decrease or increase
revenues, respectively.
Revenues from dayrate drilling contracts are recognized currently. The
Company may receive lump-sum payments in connection with specific contracts.
Such payments are recognized as revenues over the term of the related drilling
contract. Mobilization revenues less costs incurred to mobilize an offshore rig
from one market to another are recognized over the term of the related drilling
contract.
Revenues from offshore turnkey contracts are accrued to the extent of
costs until the specified turnkey depth and other contract requirements are
met. Income is recognized on the completed contract method. Provisions for
future losses on turnkey contracts are recognized when it becomes apparent that
expenses to be incurred on a specific contract will exceed the revenue from
that contract.
Operating Income. Operating income is primarily affected by revenue
factors, but is also a function of varying levels of operating expenses.
Operating expenses are not affected by changes in dayrates, nor are they
necessarily significantly affected by fluctuations in utilization. For
instance, if a rig is to be idle for a short period of time, the Company
realizes few decreases in operating expenses since the rig is typically
maintained in a prepared state with a full crew. However, if the rig is to be
idle for an extended period of time, the Company may reduce the size of a rig's
crew and take steps to "cold stack" the rig, which lowers expenses and
partially offsets the impact on operating income associated with the loss of
revenues. The Company recognizes as operating expenses activities such as
painting, inspections and routine overhauls that maintain rather than upgrade
its rigs. These expenses vary from period to period. Costs of rig enhancements
are capitalized and depreciated over the expected useful lives of the
enhancements. Increased depreciation expense decreases operating income in
periods subsequent to capital upgrades. From time to time, the Company sells
assets in the ordinary course of its business and gains or losses associated
with such sales are included in operating income.
11
<PAGE> 12
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
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). Certain amounts applicable to the prior period have been
reclassified to conform to the classifications currently followed. Such
reclassifications do not affect earnings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------- INCREASE/
1999 1998 (DECREASE)
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Fourth-Generation Semisubmersibles ......... $ 63,960 $ 70,945 $ (6,985)
Other Semisubmersibles ..................... 139,453 153,274 (13,821)
Jack-ups ................................... 24,069 60,086 (36,017)
Integrated Services ........................ 3,469 15,711 (12,242)
Eliminations ............................... (2,914) (13,947) 11,033
------------ ------------ ------------
Total Revenues ..................... $ 228,037 $ 286,069 $ (58,032)
============ ============ ============
CONTRACT DRILLING EXPENSE
Fourth-Generation Semisubmersibles ......... $ 24,390 $ 20,615 $ 3,775
Other Semisubmersibles ..................... 62,251 79,276 (17,025)
Jack-ups ................................... 22,708 21,160 1,548
Integrated Services ........................ 3,438 15,505 (12,067)
Other ...................................... 845 2,724 (1,879)
Eliminations ............................... (2,914) (13,947) 11,033
------------ ------------ ------------
Total Contract Drilling Expense .... $ 110,718 $ 125,333 $ (14,615)
============ ============ ============
OPERATING INCOME
Fourth-Generation Semisubmersibles ......... $ 39,570 $ 50,330 $ (10,760)
Other Semisubmersibles ..................... 77,202 73,998 3,204
Jack-ups ................................... 1,361 38,926 (37,565)
Integrated Services ........................ 31 206 (175)
Other ...................................... (845) (2,724) 1,879
Depreciation and Amortization Expense ...... (35,657) (31,999) (3,658)
General and Administrative Expense ......... (6,001) (6,772) 771
Gain on Sale of Assets ..................... 125 78 47
------------ ------------ ------------
Total Operating Income ............. $ 75,786 $ 122,043 $ (46,257)
============ ============ ============
</TABLE>
Fourth-Generation Semisubmersibles.
Revenues. Revenues from fourth-generation semisubmersibles decreased
by $7.0 million from the same period in 1998. This decrease resulted primarily
from reduced revenues of $6.8 million from the Ocean America due to rig
downtime for a mandatory inspection and repairs completed in the first quarter
of 1999. In addition, revenues were reduced by $3.9 million due to upgrades and
repairs performed on the Ocean Clipper during the first quarter of 1999. These
decreases were partially offset by an increase in revenues of approximately
$4.6 million from the Ocean Victory, which worked during the first quarter of
1999. During the first quarter of 1998, the Ocean Victory was in the shipyard
for repairs required as a result of a fire in the engine room, which occurred
in February 1998.
Contract Drilling Expense. Contract drilling expense for
fourth-generation semisubmersibles increased $3.8 million from the same period
in 1998. This increase resulted primarily from approximately $2.7 million in
costs incurred for the mobilization of the Ocean Alliance from the North Sea to
Angola and $2.8 million in costs associated with the mandatory inspection and
repairs of the Ocean America. In addition, contract drilling expense for the
Ocean Victory increased approximately $0.8 million due to increased utilization
during the first quarter of 1999 as compared to the same quarter in 1998 when
the rig was undergoing repairs required as a result of a fire in the engine
room. These increases were partially offset by a $3.0 million decrease in
contract drilling expense for
12
<PAGE> 13
the Ocean Clipper due to rig downtime for upgrades and repairs performed during
the first quarter of 1999. See "-- Outlook."
Other Semisubmersibles.
Revenues. Revenues from other semisubmersibles decreased $13.8 million
from the same quarter in 1998. This decrease resulted primarily from reduced
revenues of $13.8 million attributable to a decline in utilization as compared
to 1998 and $15.0 million due to rigs removed from service in 1998. See
"--Outlook." In addition, revenues were reduced by $15.9 million due to rig
downtime for mandatory inspections and repairs of the Ocean New Era, the Ocean
Yatzy, and the Ocean Winner and the mobilization of the Ocean Winner from the
Gulf of Mexico to Brazil during the first quarter of 1999. Offsetting these
decreases in revenues were increases of $24.8 million from five rigs which were
undergoing mandatory inspections in the first quarter of 1998 and $6.0 million
from revenues generated by increased operating dayrates as compared to the
three months ended March 31, 1998.
Contract Drilling Expense. Contract drilling expense for other
semisubmersibles decreased $17.0 million from the same quarter in 1998. This
decrease resulted primarily from expense reductions of approximately $11.1
million from rigs that were idle for all or part of the current quarter and
rigs removed from service in 1998. In addition, expenses decreased by $16.9
million due to costs associated with mandatory inspections performed on five
rigs in the first quarter of 1998. Partially offsetting these decreases were
increases in costs of approximately $11.0 million associated with mandatory
inspections and repairs of the Ocean New Era, the Ocean Yatzy, and the Ocean
Winner and mobilization of the Ocean Winner from the Gulf of Mexico to Brazil
during the first quarter of 1999.
Jack-Ups.
Revenues. Revenues from jack-ups decreased $36.0 million from the same
quarter in 1998. This decrease was primarily due to reductions in revenues of
$16.0 million as a result of decreased operating dayrates and $14.6 million as
a result of declining utilization and rigs removed from service in 1998 and
1999. See "--Outlook." In addition, revenues decreased by $5.4 million from the
first quarter of 1998 due to rig downtime for the installation of new engines
and other equipment on the Ocean King, which was completed in March 1999.
Contract Drilling Expense. Contract drilling expense for jack-ups
increased $1.5 million over the same quarter in 1998. This increase resulted
primarily from operating costs associated with the Ocean Warwick and the Ocean
Tower during the current year prior to these rigs being removed from service.
Minimal costs were expensed on these rigs in the first quarter of 1998 while
they were undergoing upgrades.
Integrated Services.
Revenues and contract drilling expense for integrated services
decreased as a result of fewer projects during the first quarter of 1999 as
compared to the first quarter of 1998.
Other.
Other contract drilling expense of $0.8 million during first quarter
of 1999 decreased $1.9 million from $2.7 million during the first quarter of
1998. This decrease resulted primarily from a reduction in expenditures during
the first quarter of 1999 for crew training programs and various other
non-recurring charges.
Depreciation and Amortization Expense.
Depreciation and amortization expense for the three months ended March
31, 1999 of $35.7 million increased $3.7 million from $32.0 million for the
three months ended March 31, 1998. This increase resulted primarily due to an
increase in the 1999 budgeted capital additions as compared to those budgeted in
1998. Also, depreciation expense increased for the Ocean Warwick and the Ocean
Tower upon completion of their upgrades in March and May 1998, respectively.
13
<PAGE> 14
Interest Income.
Interest income of $8.4 million for the three months ended March 31,
1999 increased $1.8 million from $6.6 million for the same period in 1998. This
increase resulted primarily from the investment of additional excess cash in
1999. See " -- Liquidity."
Income Tax Expense.
Income tax expense of $27.9 million for the three months ended March
31, 1999 decreased $16.0 million from $43.9 million for the three months ended
March 31, 1998. This decrease resulted primarily from the $44.9 million
decrease in income before income tax expense as compared to the three months
ended March 31, 1998.
OUTLOOK
Despite improvements in product prices and a recent agreement by major
OPEC and non-OPEC producers to cut production and support world oil prices,
dayrates and utilization have continued to decline. The Company has removed
five additional jack-up rigs located in the Gulf of Mexico from service in the
first quarter of 1999. The removal of these rigs from service is in addition to
the removal of two low-end specification semisubmersible rigs and one jack-up
rig located in the Gulf of Mexico, which were previously cold stacked. In
addition, due to diminished demand, several of the Company's other rigs are
idle in various markets. The Company will continue to assess the need to cold
stack additional rigs depending on market conditions. Also, many contracts
expiring during 1999 will have renewal rates significantly lower than those
previously expected. These trends in market conditions are expected to
adversely affect the Company's future results of operations, although the
extent and duration of such effect cannot be accurately predicted.
The depressed conditions in the oil and gas industry have also
increased the susceptibility of term contracts previously committed at dayrates
in excess of current market rates to be terminated or renegotiated by the
customer. Some drilling contracts allow for termination if drilling operations
are suspended for a period of time as a result of a breakdown of equipment or
by giving notice in connection with payment of an early termination fee by the
customer. The Company continuously focuses on maintaining its rigs to contract
specifications and its relationships with its customers in order to mitigate
exposure to termination of its term contracts.
The devaluation of Brazil's currency, which occurred in January 1999,
could make it more expensive for Brazilian borrowers to repay U.S.
dollar-denominated debts, increasing the likelihood of defaults on such
obligations. The Company's operations in Brazil have historically represented a
material portion of its total consolidated revenues and the Company currently
has five of its semisubmersibles committed to the Brazilian
government-controlled oil company for term periods, four of which are
anticipated to be completed in 2001 and 2003. The Company has not received any
indications that the obligations associated with these contracts will not be
honored and has not experienced any unusual delay in the receipt of payments.
However, the Company cannot predict whether it will continue to receive timely
payment of all amounts owed to the Company.
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 in progress. The upgrade is anticipated to be completed in
early 2000, when the rig is scheduled to begin a five-year contract in the Gulf
of Mexico. See "--Capital Resources." Increased rig construction and enhancement
programs are also ongoing by the Company's competitors. This increase in the
supply of technologically advanced rigs capable of drilling in deep water has
produced a marginal oversupply of such equipment in the current market and, in
turn, adversely affected the utilization level and average operating dayrates
available for the Company's rigs, particularly its higher specification
semisubmersible units.
The Company's drillship, the Ocean Clipper, is undergoing testing in
the Gulf of Mexico in connection with modifications, upgrades, and the
replacement of the blow-out preventer control system. The rig will be available
for work once all systems are tested and fully operational, which is expected
to be in the second quarter of 1999.
The Company's results of operations have also been adversely affected
by the loss of revenues and associated costs incurred during required
regulatory inspections of its drilling rigs. Four of these inspections were
completed during the quarter ended March 31, 1999. While only one inspection is
scheduled for the remainder of 1999, the
14
<PAGE> 15
Company may schedule additional inspections to take advantage of rig downtime.
The Company intends to focus on returning these rigs to operation as soon as
reasonably possible, in order to minimize downtime and associated loss of
revenues, but the extent of such downtime cannot be accurately predicted.
LIQUIDITY
At March 31, 1999, cash and marketable securities totaled $659.0
million, up from $637.0 million at December 31, 1998. Cash provided by
operating activities for the quarter ended March 31, 1999 increased by $12.3
million to $132.1 million, as compared to $119.8 million for the prior year.
This increase was primarily attributable to a $65.7 million increase in cash
resulting from decreases in accounts receivable, offset by a $28.9 million
decrease in net income, and various changes in operating assets and
liabilities.
Investing activities used $146.4 million of cash during the quarter
ended March 31, 1999, as compared to $127.6 million during the same quarter of
the prior year. This increase resulted primarily from a $57.9 million increase
in capital expenditures primarily attributable to the Ocean Confidence,
partially offset by a $39.3 million decrease in cash used for investments in
marketable securities.
In April 1999, the Company entered into a $20.0 million short-term
revolving credit agreement with a U.S. bank. The agreement provides for
borrowings at various interest rates and varying commitment fees dependent upon
public credit ratings. The Company intends to use the facility primarily for
letters of credit that the Company must post, from time to time, for bid and
performance guarantees required in certain parts of the world. The agreement
contains certain financial and other covenants and provisions that must be
maintained by the Company for compliance.
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 it has the financial resources needed to meet its
business requirements in the foreseeable future, including capital expenditures
for rig upgrades and continuing rig enhancements, and working capital
requirements.
CAPITAL RESOURCES
Cash required to meet the Company's capital commitments is determined
by evaluating rig upgrades to meet specific customer requirements and by
evaluating 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, current market conditions, and other factors beyond its control.
The Company has budgeted $173.7 million for rig upgrade capital
expenditures during 1999. Included in this amount is approximately $138.7
million for 1999 expenditures associated with the conversion of the Ocean
Confidence. During the period ended March 31, 1999, the Company expended $62.6
million, including capitalized interest expense, for rig upgrades, primarily
for 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 Company's estimated cost of conversion for this rig is
approximately $210.0 million. The Company anticipates that the project will be
completed within this budget, although, as with any major rig conversion, the
possibility of unforeseen cost overruns exists. Upon completion of the
conversion, the rig is scheduled to begin a five-year drilling program in the
Gulf of Mexico, which is anticipated to commence in early 2000. Other upgrade
projects include the installation of new engines and other equipment on the
Ocean King, which was completed in March 1999.
15
<PAGE> 16
During the period ended March 31, 1999, the Company expended $32.4
million in association with its continuing rig enhancement program to maintain
spare equipment inventory levels and meet other corporate requirements. These
expenditures included purchases of riser, drill pipe, and other drilling
equipment. The Company has budgeted $134.1 million for 1999 capital
expenditures associated with its continuing rig enhancement program, spare
equipment inventory, and other corporate requirements.
The Company continues to consider transactions which include, but are
not limited to, the enhancement of existing rigs, the purchase of existing
rigs, construction of new rigs and the acquisition of other companies engaged
in contract drilling or related businesses. Certain of these potential
transactions reviewed by the Company would, if completed, result in it entering
new lines of business. In general, however, 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 agreement in the future and such
acquisition could result in a material expansion of its existing operations or
result in it 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
Introduction.
The Company began to address Year 2000 ("Y2K") compliance issues in
1997 when it formed a committee (the "Y2K Committee") to develop the Company's
Y2K compliance initiative. The Company is continuing to take steps to determine
the potential effect of the change to calendar Year 2000 on its computer
hardware, software and embedded technology systems and any impact it may have
on the Company's business.
State of Readiness.
The Company manages its Y2K compliance initiative through the Y2K
Committee. The Y2K Committee has focused its efforts on both information
technology ("IT") systems (e.g., computer software and hardware) and
non-information technology ("Non-IT") systems (e.g., embedded technology such
as micro-controllers) in the Company's domestic and international onshore
locations, aboard the Company's drilling rigs and among its key suppliers. The
Y2K Committee is focusing on critical safety, production, and operational
systems on-board the Company's fleet of drilling rigs. The Company's Y2K
initiative consists of the following five phases:
Phase 1 Awareness of Y2K Issues (appointment of the Y2K Committee,
initial research on Y2K compliance issues);
Phase 2 Identification and Investigation of the Company's Systems
(inventory of systems and investigation of readiness);
Phase 3 Communications with Suppliers (discussions and requests for
information regarding Y2K initiatives and compliance status);
Phase 4 Development and Implementation of Corrective Measures
(coordination with the Company's software and hardware vendors); and
Phase 5 Risk Assessment and Contingency Planning (evaluation of risk
of business interruptions and development of contingency plans).
The Company has completed Phases 1 and 2 for IT and Non-IT systems
utilized in the Company's onshore and offshore operations and expects
substantial completion of the final three phases of its Y2K initiative to occur
by mid-1999. As of the date of this Report, the Company has completed over half
of Phase 3, communications with key suppliers, and Phase 4, development and
implementation of corrective measures. Phase 5, risk assessment and contingency
planning for worst-case business interruptions, is in progress.
16
<PAGE> 17
Cost to Address the Company's Y2K Issues.
The total cost associated with required modifications to become Y2K
compliant is not expected to be material to the Company's financial position
primarily because the Company has utilized existing personnel resources to
assist in the implementation of its Y2K compliance initiative. The Company is
in the process of implementing certain business and financial systems apart
from the Y2K compliance initiative, the cost of which is not expected to exceed
$5.0 million. However, because the replaced systems were not Y2K compliant, the
Y2K initiative also benefited from their replacement. The estimated total cost
does not include the Company's internal costs to be incurred which are not
separately tracked. Such internal costs are principally the related payroll
costs for its information systems group. The total amount of outside costs
expended through March 31, 1999 was approximately $4.0 million, of which
approximately $3.3 million was incurred and capitalized prior to 1999.
Y2K Risks and Contingency Planning.
The Company is continuing to monitor, on an ongoing basis, the
problems and uncertainties associated with its Y2K issues and their potential
consequences on the Company's onshore locations, drilling operations and
suppliers as well as the legal risks associated with interruption in the
provision of drilling services and/or the delivery of supplies and equipment.
The Company is in the process of developing contingency plans which are
intended to address worst-case business interruptions, such as the interruption
of drilling services aboard the Company's drilling rigs or interruptions in the
delivery of equipment and materials utilized in the Company's drilling
operations. Such a contingency plan would take into account the existence of
certain redundant systems on some of the Company's drilling rigs and may, in
part, involve manual operation of certain systems for a period of time in the
event of Y2K related disruptions. The Company anticipates its contingency
planning phase will be substantially complete by mid-1999.
The Company's failure to fully implement its Y2K initiative or the
occurrence of an unexpected Y2K problem could result in the disruption of
normal business activities or operations and have a material adverse effect on
the Company's results of operations, liquidity or financial condition. However,
based upon the work performed to date and the anticipated completion of the
Company's Y2K initiative by mid-1999, the Company does not believe that such
matters will have a material adverse effect on its results of operations. With
respect to third parties, there can be no assurance that their systems will be
rendered Y2K compliant on a timely basis or that any resulting Y2K issues would
not have a material adverse effect on the results of operations 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. Statements by the Company in this Report that
contain forward-looking statements include, but are not limited to, discussions
regarding the effect of market conditions on the Company's future results of
operations (see "-- Outlook"), the effect of currency changes on the Company's
ability to timely collect its receivables (see "-- Outlook"), future uses of and
requirements for financial resources, including but not limited to,
expenditures related to the upgrade of the Ocean Confidence (see "-- Liquidity"
and "-- Capital Resources"), and the impact of the Y2K issues on the Company's
business (see "-- Year 2000 Issues").
Forward-looking 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, 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, customer preferences, Y2K issues 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 affect 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.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information included in this Item is considered to constitute
"forward-looking statements" for purposes of the statutory safe harbor provided
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations --
Forward-Looking Statements" in Item 2 of this Report.
INTEREST RATE AND EQUITY PRICE SENSITIVITY
The Company's financial instruments that are potentially sensitive to
changes in interest rates include the Company's convertible subordinated notes
and investments in debt securities, including U.S. Treasury securities and
collateralized mortgage obligations ("CMO's"). The Company's convertible
subordinated 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. The fair
value of these notes at March 31, 1999, based on quoted market prices, was
approximately $414.5 million, as compared to a carrying amount of $400.0
million. At March 31, 1999, the fair market value of the Company's investment
in debt securities issued by the U.S. Treasury was approximately $384.5
million, which includes an unrealized holding gain of $0.5 million. These
securities bear interest rates ranging from 4.00 percent to 5.00 percent and do
not impose a significant market risk to the Company as they are U.S.
government-backed and generally short-term and readily marketable. The fair
value of the Company's investment in CMO's at March 31, 1999 was approximately
$202.2 million, which includes an unrealized holding loss of $1.3 million. The
CMO's consist of high quality mortgage-backed principal-only securities that
are not considered high-risk.
In addition, the Company's investment in equity securities is
sensitive to equity price risk. At March 31, 1999, the fair value of the
Company's investment in equity securities was approximately $2.4 million, which
includes an unrealized holding loss of $9.7 million. Based on 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.
18
<PAGE> 19
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 and the appellate court
ordered the parties to mediation. The case went to mediation in July 1998 with
no resolution. In April 1999 the Texas First Court of Appeals, Houston, set the
case for submission in May 1999.
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. 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 Exhibit Index for a list of those exhibits filed herewith.
(b) There were no reports on Form 8-K filed during the first quarter of
1999.
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 29-Apr-1999 By: /s/ Gary T. Krenek
----------------------------------------
Gary T. Krenek
Vice President and Chief Financial Officer
Date 29-Apr-1999 /s/ Leslie C. Knowlton
----------------------------------------
Leslie C. Knowlton
Controller (Chief Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998).
11.1* Statement Re Computation of Per Share Earnings.
27.1* Financial Data Schedule.
</TABLE>
* Filed herewith.
<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,
--------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
(Numerator) (Denominator) (Numerator) (Denominator)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Net income ........................ $ 51,818 135,816 $ 0.38 $ 80,722 139,325 $ 0.58
EFFECT OF DILUTIVE POTENTIAL SHARES
Convertible notes issued 2/4/97 ... 2,166 9,876 2,498 9,876
DILUTED EPS
---------- ---------- ---------- ---------- ---------- ----------
Net income + assumed conversions .. $ 53,984 145,692 $ 0.37 $ 83,220 149,201 $ 0.56
========== ========== ========== ========== ========== ==========
</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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 69,946
<SECURITIES> 589,068
<RECEIVABLES> 200,153
<ALLOWANCES> 0
<INVENTORY> 36,093
<CURRENT-ASSETS> 931,274
<PP&E> 2,140,785
<DEPRECIATION> 528,023
<TOTAL-ASSETS> 2,661,628
<CURRENT-LIABILITIES> 175,072
<BONDS> 400,000
0
0
<COMMON> 1,393
<OTHER-SE> 1,787,238
<TOTAL-LIABILITY-AND-EQUITY> 2,661,628
<SALES> 0
<TOTAL-REVENUES> 228,037
<CGS> 0
<TOTAL-COSTS> 110,718<F1>
<OTHER-EXPENSES> 41,533<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,332
<INCOME-PRETAX> 79,712
<INCOME-TAX> 27,894
<INCOME-CONTINUING> 51,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,818
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<FN>
<F1>Includes contract drilling expenses only.
<F2>Includes other operating expenses.
</FN>
</TABLE>
