Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
15415 KATY FREEWAY
HOUSTON, TEXAS 77094
(Address and zip code of principal executive offices)
(281) 492-5300
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $0.01 par value per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant.
As of February 26, 2001 $2,595,788,138
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of February 26, 2001 Common Stock, $0.01 par value per share 133,150,477
shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to the 2001 Annual
Meeting of Stockholders of Diamond Offshore Drilling, Inc., which will be filed
within 120 days of December 31, 2000, are incorporated by reference in Part III
of this form.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
DIAMOND OFFSHORE DRILLING, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE NO.
--------
Cover Page............................................................ 1
Document Table of Contents............................................ 2
Part I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
Item 8. Financial Statements and Supplementary Data................. 26
Consolidated Financial Statements........................... 27
Notes to Consolidated Financial Statements.................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 49
Part III
Information called for by Part III has been omitted as the
Registrant intends to file with the Securities and Exchange
Commission not later than 120 days after the close of its
fiscal year a definitive Proxy Statement pursuant to
Regulation 14A.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 49
Signatures............................................................ 52
2
3
PART I
ITEM 1. BUSINESS.
GENERAL
Diamond Offshore Drilling, Inc., incorporated in Delaware in 1989, engages
principally in the contract drilling of offshore oil and gas wells. Unless the
context otherwise requires, references herein to the "Company" mean Diamond
Offshore Drilling, Inc. and its consolidated subsidiaries. The Company is a
leader in deep water drilling with a fleet of 45 offshore rigs. The fleet
consists of 30 semisubmersibles, 14 jack-ups and one drillship.
RECENT DEVELOPMENTS
On March 7, 2001, the Company announced its decision to redeem, on April 6,
2001, all of its outstanding 3.75% convertible subordinated notes due 2007 at a
redemption price of 102.8% of the principal amount thereof, together with
interest accrued to (but not including) the redemption date. These notes are
convertible on or before the close of business on April 5, 2001 into shares of
the Company's common stock at a conversion price of $40.50 per share, subject to
adjustment in certain circumstances.
INDUSTRY CONDITIONS
The offshore contract drilling business is influenced by a number of
factors, including the current and anticipated prices of oil and natural gas,
the expenditures by oil and gas companies for exploration and development and
the availability of drilling rigs. In addition, demand for drilling services
remains dependent on a variety of political and economic factors beyond the
Company's control, including worldwide demand for oil and natural gas, the
ability of the Organization of Petroleum Exporting Countries ("OPEC") to set and
maintain production levels and pricing, the level of production of non-OPEC
countries and the policies of the various governments regarding exploration and
development of their oil and natural gas reserves.
Historically, the offshore contract drilling industry has been highly
competitive and cyclical, with periods of high demand, short rig supply and high
dayrates followed by periods of low demand, excess rig supply and low dayrates.
During 2000, oil and natural gas prices remained significantly above historical
averages. However, market recovery for various classes of equipment within the
offshore drilling industry remained inconsistent. The major oil companies moved
cautiously to invest in future production despite the environment of increasing
product prices. Management believes that if product prices remain elevated, oil
and gas companies will expand their search for reserves which would improve
market conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Outlook" in Item 7 of this report.
THE FLEET
The Company's large, diverse fleet, which includes some of the most
technologically advanced rigs in the world, enables it to offer a broad range of
services worldwide in various markets, including the deep water market, the
harsh environment market, the conventional semisubmersible market and the
jack-up market.
Semisubmersibles. The Company owns and operates 30 semisubmersibles.
Semisubmersible rigs consist of an upper working and living deck resting on
vertical columns connected to lower hull members. Such rigs operate in a
"semi-submerged" position, remaining afloat, off bottom, in a position in which
the lower hull is approximately 55 to 90 feet below the water line and the upper
deck protrudes well above the surface. Semisubmersibles are typically anchored
in position and remain stable for drilling in the semi-submerged floating
position due in part to their wave transparency characteristics at the water
line. Semisubmersibles can also be held in position through the use of a
computer controlled thruster (dynamic-positioning) system to maintain the rig's
position over a drillsite. The Company has four such semisubmersible rigs.
The Company owns and operates seven high specification semisubmersibles,
including the Ocean Confidence. These semisubmersibles are larger than many
other semisubmersibles, are capable of working in deep water or harsh
environments and have other advanced features. Currently, six of the seven high
specification semisubmersibles are working in the Gulf of Mexico, while the
Ocean Alliance is working offshore Brazil in South America.
In addition, the Company owns and operates 23 other semisubmersibles which
operate in maximum water depths up to 3,500 feet. The diverse capabilities of
many of these semisubmersibles enable them to
3
4
provide both shallow and deep water service in the U.S. and in other markets
outside the U.S. Currently, 11 of these semisubmersibles are located in the Gulf
of Mexico; four are located offshore Brazil; three are located in the North Sea;
two are located offshore Australia; two are in shipyards in Singapore; and one
is located offshore West Africa.
Jack-ups. The Company owns 14 jack-ups. Jack-up rigs are mobile,
self-elevating drilling platforms equipped with legs that are lowered to the
ocean floor until a foundation is established to support the drilling platform.
The rig hull includes the drilling rig, jacking system, crew quarters, loading
and unloading facilities, storage areas for bulk and liquid materials, heliport
and other related equipment. Jack-ups are used extensively for drilling in water
depths from 20 feet to 350 feet. The water depth limit of a particular rig is
principally determined by the length of the rig's legs. A jack-up rig is towed
by tugboats to the drillsite with its hull riding in the sea, as a vessel, with
its legs retracted. Once over a drillsite, the legs are lowered until they rest
on the seabed and jacking continues until the hull is elevated above the surface
of the water. After completion of drilling operations, the hull is lowered until
it rests in the water and then the legs are retracted for relocation to another
drillsite.
The principal market for the Company's jack-up rigs is currently the Gulf
of Mexico, where 12 of the Company's jack-up rigs are located. Of the Company's
jack-up rigs in the Gulf of Mexico, seven are independent-leg cantilevered rigs,
two are mat-supported cantilevered rigs, two are independent-leg slot rigs, and
one is a mat-supported slot rig. Both of the Company's internationally based
jack-ups are independent-leg cantilevered rigs. These rigs are currently located
in Southeast Asia.
Drillship. Drillships, which are typically self-propelled, are positioned
over a drillsite through the use of either an anchoring system or a
dynamic-positioning system similar to those used on certain semisubmersible
rigs. Deep water drillships compete in many of the same markets as do high
specification semisubmersible rigs. Currently, the Company's drillship, the
Ocean Clipper, is located offshore Brazil.
Fleet Enhancements. The Company's strategy is to maximize dayrates and
utilization by adapting to trends in its markets, including enhancing its fleet
to meet customer demand for diverse drilling capabilities. The average age of
the Company's fleet of offshore drilling rigs (calculated as of December 31,
2000 and measured from the year built) is 22.7 years. The Company has spent
approximately $1.5 billion on capital expenditures since 1996 for conversions,
upgrades and enhancements such as top-drive drilling systems,
dynamic-positioning system upgrades, crane and engine upgrades, additional water
depth capability, mud pump additions and increases in deckload capacity.
Notwithstanding the average age of its fleet, the Company intends to continue
evaluating rig upgrade opportunities. However, there can be no assurance whether
or to what extent upgrades will continue to be made to rigs in the Company's
fleet. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources" in Item 7 of this report.
The design of the Company's Victory-class semisubmersible rigs, including
their cruciform hull configurations, long fatigue-life and advantageous stress
characteristics, makes this class of rig particularly well-suited for
significant upgrade projects. Currently, one of the Company's Victory-class
rigs, the Ocean Baroness, is undergoing a significant upgrade to
fifth-generation (most recent evolution in semisubmersible drilling units)
capabilities in a Singapore shipyard. This upgrade will be an enhanced version
of the Company's previous Victory-class upgrades. The upgrade includes the
following enhancements: capability for operation in excess of 6,500 foot water
depths; approximately 5,590 metric tons variable deckload; a 15,000 psi blow-out
prevention system; and riser with a multiplex control system. Additional
features including a high capacity deck crane, significantly enlarged cellar
deck area and a 25 foot by 90 foot moon pool will provide enhanced subsea
completion and development capabilities. Water depths in excess of 6,500 feet
should be achievable utilizing preset taut-leg mooring systems on a case by case
basis. The initial estimated cost for the deepwater upgrade of the Ocean
Baroness is approximately $180.0 million with an expected delivery date of
February 2002. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Resources" in Item 7 of this report.
The conversion of the Ocean Confidence from an accommodation vessel to a
semisubmersible drilling unit was completed and the rig was accepted by the
customer on January 5, 2001 at which time it began a five-year drilling program
in the Gulf of Mexico. The following enhancements were made to the drilling
unit: capability for operation in 7,500 foot water depths; approximately 6,000
metric tons variable deckload; a
4
5
15,000 psi blow-out prevention system; and four mud pumps to complement the
existing Class III dynamic-positioning system. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital Resources"
in Item 7 of this report.
The Company has previously upgraded six of its nine Victory-class rigs with
three of these enhancements being significant enough to reclassify these rigs to
high specification units. These enhancements include increased efficiency in the
handling of subsea completion equipment, stability enhancements that allow
increased variable deckload, and increased water depth capabilities. Currently,
the Company's Victory-class rigs are rated for service in maximum water depths
of 1,200 to 5,500 feet.
More detailed information concerning the Company's fleet of mobile offshore
drilling rigs, as of January 29, 2001, is set forth in the table below.
WATER YEAR
DEPTH BUILT/ LATEST CURRENT
TYPE AND NAME RATING ATTRIBUTES ENHANCEMENT(A) LOCATION CUSTOMER(B)
- ------------- ------ ---------- -------------- -------- -----------
HIGH SPECIFICATION FLOATERS
SEMISUBMERSIBLES(7):
Ocean Confidence............. 7,500 TDS; DP; 15K; 4M 2001 Gulf of Mexico BP
Ocean America................ 5,500 TDS; SP; 15K; 3M 1988/1999 Gulf of Mexico BP
Ocean Valiant................ 5,500 TDS; SP; 15K; 3M 1988/1999 Gulf of Mexico Amerada Hess
Ocean Victory................ 5,500 TDS; VC; 15K; 3M 1972/1997 Gulf of Mexico BP
Ocean Star................... 5,500 TDS; VC; 15K; 3M 1974/1999 Gulf of Mexico Kerr McGee
Ocean Alliance............... 5,000 TDS; DP; 15K; 3M 1988/1999 Brazil Petrobras
Ocean Quest.................. 3,500 TDS; VC; 15K; 3M 1973/1996 Gulf of Mexico Kerr McGee
DRILLSHIP(1):
Ocean Clipper................ 7,500 TDS; DP; 15K; 3M 1976/1999 Brazil Petrobras
UNDER CONSTRUCTION(1):
Ocean Baroness............... 6,500 TDS; VC; 15K; 4M 1973/2002 Singapore Upgrade(c)
OTHER SEMISUBMERSIBLES(22):
Ocean Winner................. 3,500 TDS; 3M 1977/1996 Brazil Petrobras
Ocean Worker................. 3,500 TDS; 3M 1982/1992 Gulf of Mexico Shell
Ocean Yatzy.................. 3,300 TDS; DP 1989/1998 Brazil Petrobras
Ocean Voyager................ 3,300 TDS; VC 1973/1995 Gulf of Mexico Mariner
Ocean Yorktown............... 2,850 TDS 1976/1996 Brazil Petrobras
Ocean Concord................ 2,200 TDS; 3M 1975/1999 Gulf of Mexico Walter
Ocean Lexington.............. 2,200 TDS; 3M 1976/1995 Gulf of Mexico Kerr McGee
Ocean Saratoga............... 2,200 TDS; 3M 1976/1995 Gulf of Mexico Walter
Ocean Endeavor............... 2,000 TDS; VC 1975/1994 Gulf of Mexico Stacked
Ocean Rover.................. 2,000 TDS; VC; 15K 1973/1992 Gulf of Mexico Cold Stacked
Ocean Prospector............. 1,700 VC 1971/1981 Gulf of Mexico Cold Stacked
Ocean Epoch.................. 1,640 TDS 1977/2000 Singapore Stacked
Ocean General................ 1,640 TDS; 3M 1976/1999 Australia OMV
Ocean Bounty................. 1,500 TDS; VC; 3M 1977/1992 Australia Committed
Ocean Guardian............... 1,500 TDS; 3M 1985 North Sea Venture
Ocean New Era................ 1,500 TDS 1974/1990 Gulf of Mexico Committed
Ocean Princess............... 1,500 TDS; 15K; 3M 1977/1998 North Sea Talisman
Ocean Whittington............ 1,500 TDS; 3M 1974/1995 Brazil Petrobras
Ocean Nomad.................. 1,200 TDS; 3M 1975/1998 North Sea Shipyard/repair
Ocean Ambassador............. 1,100 TDS; 3M 1975/1995 Gulf of Mexico Committed
Ocean Century................ 800 1973 Gulf of Mexico Cold Stacked
Ocean Liberator.............. 600 TDS 1974/1998 Ghana Sante Fe(d)
JACK-UPS(14):
Ocean Titan.................. 350 TDS; IS; 15K; 3M 1974/1989 Gulf of Mexico Dominion
Ocean Tower.................. 350 TDS; IS; 3M 1972/1998 Gulf of Mexico Spinnaker
Ocean King................... 300 TDS; IC; 3M 1973/1999 Gulf of Mexico BP
Ocean Nugget................. 300 TDS; IC 1976/1995 Gulf of Mexico Shipyard/repair
Ocean Summit................. 300 SDS; IC 1972/1991 Gulf of Mexico Coastal
Ocean Warwick................ 300 TDS; IC 1971/1998 Gulf of Mexico BP
Ocean Champion............... 250 MS 1975/1985 Gulf of Mexico Dominion
Ocean Columbia............... 250 TDS; IC 1978/1990 Gulf of Mexico BP
Ocean Heritage............... 250 TDS; IC 1981/1995 Indonesia Maxus
Ocean Sovereign.............. 250 TDS; IC 1981/1994 Indonesia Maxus
Ocean Spartan................ 250 TDS; IC 1980/1994 Gulf of Mexico BP
Ocean Spur................... 250 TDS; IC 1981/1994 Gulf of Mexico BP
Ocean Crusader............... 200 TDS; MC 1982/1992 Gulf of Mexico Walter
Ocean Drake.................. 200 TDS; MC 1983/1986 Gulf of Mexico Chevron
5
6
ATTRIBUTES
----------
DP = Dynamically-Positioned/Self-Propelled MS = Mat-Supported Slot Rig TDS = Top-Drive Drilling System
IC = Independent-Leg Cantilevered Rig SDS = Side-Drive Drilling System 3M = Three Mud Pumps
IS = Independent-Leg Slot Rig VC = Victory-Class 4M = Four Mud Pumps
MC = Mat-Supported Cantilevered Rig SP = Self-Propelled 15K = 15,000 psi Blow-Out Preventer
- ---------------
(a) Such enhancements include the installation of top-drive drilling systems,
water depth upgrades, mud pump additions and increases in deckload
capacity.
(b) For ease of presentation in this table, customer names have been shortened
or abbreviated.
(c) In Singapore shipyard for upgrade to fifth-generation capabilities.
(d) Turnkey contract with Diamond Offshore Team Solutions, Inc.
MARKETS
The Company's principal markets for its offshore contract drilling services
are the Gulf of Mexico, Europe, including principally the U.K. sector of the
North Sea, South America, Africa, and Australia/ Southeast Asia. The Company
actively markets its rigs worldwide. In the past, rigs in the Company's fleet
have also operated in various other markets throughout the world. See Note 15 to
the Company's Consolidated Financial Statements in Item 8 of this report.
The Company believes its presence in multiple markets is valuable in many
respects. For example, the Company believes that its experience with safety and
other regulatory matters in the U.K. has been beneficial in Australia and in the
Gulf of Mexico while production experience gained through Brazilian and North
Sea operations has potential application worldwide. Additionally, the Company
believes its performance for a customer in one market segment or area enables it
to better understand that customer's needs and better serve that customer in
different market segments or other geographic locations.
OFFSHORE CONTRACT DRILLING SERVICES
The Company's contracts to provide offshore drilling services vary in their
terms and provisions. The Company often obtains its contracts through
competitive bidding, although it is not unusual for the Company to be awarded
drilling contracts without competitive bidding. Drilling contracts generally
provide for a basic drilling rate on a fixed dayrate basis regardless of whether
such drilling results in a productive well. Drilling contracts may also provide
for lower rates during periods when the rig is being moved or when drilling
operations are interrupted or restricted by equipment breakdowns, adverse
weather conditions or other conditions beyond the control of the Company. Under
dayrate contracts, the Company generally pays the operating expenses of the rig,
including wages and the cost of incidental supplies. Dayrate contracts have
historically accounted for a substantial portion of the Company's revenues. In
addition, the Company has worked some of its rigs under dayrate contracts
pursuant to which the customer also agrees to pay an incentive bonus based upon
performance.
A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well, or a group of wells (a
"well-to-well contract") or a stated term (a "term contract") and may be
terminated by the customer in the event the drilling unit is destroyed or lost
or if drilling operations are suspended for a period of time as a result of a
breakdown of equipment or, in some cases, due to other events beyond the control
of either party. In addition, certain of the Company's contracts permit the
customer to terminate the contract early by giving notice and in some
circumstances may require the payment of an early termination fee by the
customer. The contract term in many instances may be extended by the customer
exercising options for the drilling of additional wells at fixed or mutually
agreed terms, including dayrates.
The duration of offshore drilling contracts is generally determined by
market demand and the respective management strategies of the offshore drilling
contractor and its customers. In periods of rising demand for offshore rigs,
contractors typically prefer well-to-well contracts that allow contractors to
profit from increasing
6
7
dayrates. In contrast, during these periods customers with reasonably definite
drilling programs typically prefer longer term contracts to maintain dayrate
prices at a consistent level. Conversely, in periods of decreasing demand for
offshore rigs, contractors generally prefer longer term contracts to preserve
dayrates at existing levels and ensure utilization, while customers prefer
well-to-well contracts that allow them to obtain the benefit of lower dayrates.
In general, the Company seeks to have a foundation of long-term contracts with a
reasonable balance of single-well, well-to-well and short-term contracts to
minimize the downside impact of a decline in the market while still
participating in the benefit of increasing dayrates in a rising market.
The Company, through its wholly owned subsidiary, Diamond Offshore Team
Solutions, Inc. ("DOTS"), offers a portfolio of drilling services to complement
the Company's offshore contract drilling business. These services include
overall project management, extended well tests, and drilling and completion
operations. From time to time, DOTS also selectively engages in drilling
services pursuant to turnkey or modified-turnkey contracts under which DOTS
agrees to drill a well to a specified depth for a fixed price. In such cases,
DOTS generally is not entitled to payment unless the well is drilled to the
specified depth and profitability of the contract depends upon its ability to
keep expenses within the estimates used by DOTS in determining the contract
price. Drilling a well under a turnkey contract therefore typically requires a
greater cash commitment by the Company and exposes the Company to risks of
potential financial losses that generally are substantially greater than those
that would ordinarily exist when drilling under a conventional dayrate contract.
During 2000, DOTS contributed operating income of $1.0 million to the Company's
consolidated results of operations primarily from the completion of four turnkey
projects in the Gulf of Mexico, one international turnkey project and integrated
services provided in Aberdeen, Scotland. During 1999, DOTS drilled four turnkey
wells and provided project management services on a dayrate basis in the Gulf of
Mexico in addition to integrated services provided in Aberdeen and contributed
operating income of $0.3 million to the Company's consolidated results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" and "-- Integrated Services" in
Item 7 of this report.
CUSTOMERS
The Company provides offshore drilling services to a customer base that
includes major and independent oil and gas companies and government-owned oil
companies. Several customers have accounted for 10.0% or more of the Company's
annual consolidated revenues, although the specific customers may vary from year
to year. During 2000, the Company performed services for approximately 50
different customers with Petrobraspetroleo Brasileiro S A ("Petrobras") and BP
accounting for 25.4% and 20.0% of the Company's annual total consolidated
revenues, respectively. During 1999, the Company performed services for
approximately 45 different customers with Petrobras and Shell companies
(including domestic and foreign affiliates) ("Shell") accounting for 15.5% and
14.5% of the Company's annual total consolidated revenues, respectively. During
1998, the Company performed services for approximately 40 different customers
with Shell accounting for 17.4% of the Company's annual total consolidated
revenues. During periods of low demand for offshore drilling rigs, the loss of a
single significant customer could have a material adverse effect on the
Company's results of operations.
The Company's services in North and South America are marketed principally
through its Houston office, with support for U.S. Gulf of Mexico activities
coming from its regional office in New Orleans, Louisiana. The Company's
services in other geographic locations are marketed principally from its
regional offices in Aberdeen, Scotland and Perth, Western Australia. Technical
and administrative support functions for the Company's operations are provided
by its Houston office.
COMPETITION
The contract drilling industry is highly competitive. Customers often award
contracts on a competitive bid basis, and although a customer selecting a rig
may consider, among other things, a contractor's safety record, crew quality,
rig location, and quality of service and equipment, the historical oversupply of
rigs has created an intensely competitive market in which price is the primary
factor in determining the selection of a drilling contractor. In periods of
increased drilling activity, rig availability has, in some cases, also become a
7
8
consideration, particularly with respect to technologically advanced units. The
Company believes competition for drilling contracts will continue to be intense
in the foreseeable future. Contractors are also able to adjust localized supply
and demand imbalances by moving rigs from areas of low utilization and dayrates
to areas of greater activity and relatively higher dayrates. Such movements,
reactivations or a decrease in drilling activity in any major market could
depress dayrates and could adversely affect utilization of the Company's rigs.
See "-- Offshore Contract Drilling Services."
GOVERNMENTAL REGULATION
The Company's operations are subject to numerous federal, state and local
laws and regulations that relate directly or indirectly to its operations,
including certain regulations controlling the discharge of materials into the
environment, requiring removal and clean-up under certain circumstances, or
otherwise relating to the protection of the environment. For example, the
Company may be liable for damages and costs incurred in connection with oil
spills for which it is held responsible. Laws and regulations protecting the
environment have become increasingly stringent in recent years and may in
certain circumstances impose "strict liability" rendering a company liable for
environmental damage without regard to negligence or fault on the part of such
company. Liability under such laws and regulations may result from either
governmental or citizen prosecution. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed. The application of these requirements or the adoption
of new requirements could have a material adverse effect on the Company.
The United States Oil Pollution Act of 1990 ("OPA '90") and similar
legislation enacted in Texas, Louisiana and other coastal states addresses oil
spill prevention and control and significantly expands liability exposure across
all segments of the oil and gas industry. OPA '90, such similar legislation and
related regulations impose a variety of obligations on the Company related to
the prevention of oil spills and liability for damages resulting from such
spills. OPA '90 imposes strict and, with limited exceptions, joint and several
liability upon each responsible party for oil removal costs and a variety of
public and private damages.
INDEMNIFICATION AND INSURANCE
The Company's operations are subject to hazards inherent in the drilling of
oil and gas wells such as blowouts, reservoir damage, loss of production, loss
of well control, cratering or fires, the occurrence of which could result in the
suspension of drilling operations, injury to or death of rig and other personnel
and damage to or destruction of the Company's, the Company's customer's or a
third party's property or equipment. Damage to the environment could also result
from the Company's operations, particularly through oil spillage or uncontrolled
fires. In addition, offshore drilling operations are subject to perils peculiar
to marine operations, including capsizing, grounding, collision and loss or
damage from severe weather. The Company has insurance coverage and contractual
indemnification for certain risks, but there can be no assurance that such
coverage or indemnification will adequately cover the Company's loss or
liability in many circumstances or that the Company will continue to carry such
insurance or receive such indemnification.
OPERATIONS OUTSIDE THE UNITED STATES
Operations outside the United States accounted for approximately 46.1%,
48.8%, and 42.7% of the Company's total consolidated revenues for the years
ended December 31, 2000, 1999, and 1998, respectively. The Company's non-U.S.
operations are subject to certain political, economic and other uncertainties
not encountered in U.S. operations, including risks of war and civil
disturbances (or other risks that may limit or disrupt markets), expropriation
and the general hazards associated with the assertion of national sovereignty
over certain areas in which operations are conducted. No prediction can be made
as to what governmental regulations may be enacted in the future that could
adversely affect the international drilling industry. The Company's operations
outside the United States may also face the additional risk of fluctuating
currency values, hard currency shortages, controls of currency exchange and
repatriation of income or capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Outlook" and
8
9
"-- Other -- Currency Risk" in Item 7 of this report and Note 15 to the
Company's Consolidated Financial Statements in Item 8 of this report.
EMPLOYEES
As of December 31, 2000, the Company had approximately 4,000 employees
(including international crews furnished through labor contractors),
approximately 100 of whom were union members. The Company has experienced
satisfactory labor relations and provides comprehensive benefit plans for its
employees. The Company does not currently consider the possibility of a shortage
of qualified personnel to be a material factor in its business.
ITEM 2. PROPERTIES.
The Company owns an eight-story office building containing approximately
182,000 net rentable square feet on approximately 6.2 acres of land located in
Houston, Texas, where the Company has its corporate headquarters, an 18,000
square foot building and 20 acres of land in New Iberia, Louisiana for its
offshore drilling warehouse and storage facility, and a 13,000 square foot
building and five acres of land in Aberdeen, Scotland for its North Sea
operations. Additionally, the Company currently leases various office, warehouse
and storage facilities in Louisiana, Australia, Brazil, Indonesia, Scotland, and
Singapore to support its offshore drilling operations.
ITEM 3. LEGAL PROCEEDINGS.
Raymond Verdin v. R&B Falcon Drilling USA, Inc., et al; No. G-00-488 in the
United States District Court for the Southern District of Texas, Galveston
Division, filed October 10, 2000. The Company was named as a defendant in a
proposed class action suit filed on behalf of offshore oil workers against all
of the major offshore drilling companies. The proposed class includes persons
hired in the United States by the companies to work in the Gulf of Mexico and
around the world. The allegation is that the companies, through trade groups,
shared wage information in order to fix and suppress the wages of the workers in
violation of the Sherman Antitrust Act and various state laws. Plaintiff Thomas
Bryant has replaced the named plaintiff as the proposed class representative. No
class has been certified at this time, however, a hearing on class certification
is scheduled for the second week of May 2001. The lawsuit is seeking damages as
well as attorney's fees and costs. The Company believes that the case is without
merit and is vigorously contesting liability.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
In reliance on General Instruction G(3) to Form 10-K, information on
executive officers of the Registrant is included in this Part I. The executive
officers of the Company are elected annually by the Board of Directors to serve
until the next annual meeting of the Board of Directors, or until their
successors are duly
9
10
elected and qualified, or until their earlier death, resignation,
disqualification or removal from office. Information with respect to the
executive officers of the Company is set forth below.
AGE AS OF
NAME JANUARY 31, 2001 POSITION
- ---- ---------------- --------
James S. Tisch............................... 48 Chairman of the Board of Directors and
Chief Executive Officer
Lawrence R. Dickerson........................ 48 President, Chief Operating Officer and Director
David W. Williams............................ 43 Executive Vice President
Rodney W. Eads............................... 49 Senior Vice President -- Worldwide Operations
John L. Gabriel, Jr. ........................ 47 Senior Vice President -- Contracts & Marketing
Gary T. Krenek............................... 42 Vice President and Chief Financial Officer
Beth G. Gordon............................... 45 Controller
William C. Long.............................. 34 Vice President, General Counsel & Secretary
James S. Tisch has served as Chief Executive Officer of the Company since
March 1998. Mr. Tisch has served as Chairman of the Board since 1995 and as a
director of the Company since June 1989. Mr. Tisch has served as Chief Executive
Officer of Loews Corporation ("Loews"), a diversified holding company and the
Company's controlling stockholder, since November 1998 and, prior thereto, as
President and Chief Operating Officer of Loews from 1994. Mr. Tisch, a director
of Loews since 1986, also serves as a director of CNA Financial Corporation, an
87 percent owned subsidiary of Loews, and serves as a director of Vail Resorts,
Inc.
Lawrence R. Dickerson has served as President, Chief Operating Officer and
Director of the Company since March 1998. Previously, Mr. Dickerson served as
Senior Vice President from April 1993.
David W. Williams has served as Executive Vice President of the Company
since March 1998. Previously, Mr. Williams served as Senior Vice President of
the Company from December 1994.
Rodney W. Eads has served as Senior Vice President of the Company since May
1997. Previously, Mr. Eads was employed by Exxon Company, International from
August 1994 through May 1997 as Field Drilling Manager.
John L. Gabriel, Jr. has served as Senior Vice President of the Company
since November 1999. Previously, Mr. Gabriel served as a Marketing Vice
President of the Company from April 1993.
Gary T. Krenek has served as Vice President and Chief Financial Officer of
the Company since March 1998. Previously, Mr. Krenek served as Controller of the
Company from February 1992.
Beth G. Gordon has served as Controller of the Company since April 2000.
Previously, Ms. Gordon was employed by Pool Energy Services Co. from December
1978 through March 2000 where her most recent position was Vice
President-Finance -- Pool Well Services Co.
William C. Long has served as Vice President, General Counsel and Secretary
of the Company since March 2001. Previously, Mr. Long served as General Counsel
and Secretary of the Company from March 1999, acting General Counsel and
Secretary of the Company from June 1998 through February 1999 and as a Staff
Attorney from January 1997 through May 1998. Mr. Long was in private practice as
an attorney from May 1996 through December 1996. From January 1995 through
December 1996, Mr. Long served first as a law clerk and subsequently was of
Counsel to Kuffner and Associates, P.C.
10
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's common stock is listed on the New York Stock Exchange
("NYSE") under the symbol "DO." The following table sets forth, for the calendar
quarters indicated, the high and low closing prices of common stock as reported
by the NYSE.
COMMON STOCK
-------------------
HIGH LOW
-------- --------
2000
First Quarter................................... $40.4375 $26.5000
Second Quarter.................................. 44.7500 35.1250
Third Quarter................................... 47.3125 32.8125
Fourth Quarter.................................. 41.9375 30.1875
1999
First Quarter................................... $33.3750 $20.5000
Second Quarter.................................. 34.0625 25.9375
Third Quarter................................... 40.4375 27.7500
Fourth Quarter.................................. 36.0625 27.4375
On February 26, 2001, the closing price of the Company's common stock, as
reported by the NYSE, was $41.17 per share. As of February 26, 2001, there were
approximately 402 holders of record of the Company's common stock. This number
does not include the stockholders for whom shares are held in a "nominee" or
"street" name.
DIVIDEND POLICY
In 2000, 1999 and 1998 the Company paid cash dividends of $0.125 per share
of the Company's common stock on March 1, June 1, September 1 and December 1
each respective year and has declared a dividend of $0.125 per share payable
March 1, 2001 to stockholders of record on February 1, 2001. Any future
determination as to payment of dividends will be made at the discretion of the
Board of Directors of the Company and will depend upon the Company's operating
results, financial condition, capital requirements, general business conditions
and such other factors that the Board of Directors deems relevant.
11
12
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain historical consolidated financial
data relating to the Company. The selected consolidated financial data are
derived from the financial statements of the Company as of and for the periods
presented. The selected consolidated financial data below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 and the Company's Consolidated Financial
Statements (including the Notes thereto) in Item 8 of this report.
2000 1999 1998 1997 1996(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
INCOME STATEMENT DATA:
Total revenues........................ $ 659,436 $ 821,024 $1,208,801 $ 956,093 $ 611,430
Operating income...................... 56,946 223,661 568,581 418,859 178,369
Net income............................ 72,281 156,071 383,659 278,605 146,388
Net income per share(2):
Basic............................... 0.53 1.15 2.78 2.01 1.18
Diluted............................. 0.53 1.11 2.66 1.93 1.18
BALANCE SHEET DATA:
Drilling and other property and
equipment, net...................... 1,902,415 1,737,905 1,551,820 1,451,741 1,198,160
Total assets.......................... 3,079,506 2,681,029 2,609,716 2,298,561 1,574,500
Long-term debt........................ 856,559 400,000 400,000 400,000 63,000
OTHER FINANCIAL DATA:
Capital expenditures(3)............... 323,924 324,133 224,474 281,572 267,000
Cash dividends declared per share..... 0.50 0.50 0.50 0.14 --
Ratio of earnings to fixed
charges(4).......................... 4.97x 15.64x 37.57x 28.94x 31.56x
- ---------------
(1) The Company acquired all of the common stock of Arethusa (Off-Shore) Limited
in consideration of 35.8 million shares of common stock on April 29, 1996.
(2) All per share amounts give retroactive effect to the Company's July 1997
two-for-one stock split in the form of a stock dividend.
(3) In addition to these capital expenditures, the Company expended $81.0
million for rig acquisitions during the year ended December 31, 1997.
(4) For all periods presented, the ratio of earnings to fixed charges has been
computed on a total enterprise basis. Earnings represent income from
continuing operations plus income taxes and fixed charges. Fixed charges
include (i) interest, whether expensed or capitalized, (ii) amortization of
debt issuance costs, whether expensed or capitalized, and (iii) one-third of
rent expense, which the Company believes represents the interest factor
attributable to rent.
12
13
ITEM 7. 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) in Item 8 of
this report.
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,
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 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 turnkey offshore drilling 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 generally are not affected by changes in dayrates and may not
be significantly affected by fluctuations in utilization. For instance, if a rig
is to be idle for a short period of time, the Company may realize few decreases
in operating expenses since the rig is typically maintained in a prepared state
with a full crew. In addition, when a rig is idle, the Company is responsible
for certain operating expenses such as rig fuel and supply boat costs, which are
typically charged to the operator under drilling contracts. 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. The Company recognizes as
operating expenses activities such as inspections, painting projects and routine
overhauls, which meet certain criteria, 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.
13
14
YEARS ENDED DECEMBER 31, 2000 AND 1999
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 periods have been reclassified to conform to the classifications
currently followed. Such reclassifications do not affect earnings.
YEAR ENDED
DECEMBER 31,
--------------------- INCREASE/
2000 1999 (DECREASE)
--------- --------- ----------
(IN THOUSANDS)
REVENUES
High Specification Floaters............................. $ 212,000 $ 262,571 $ (50,571)
Other Semisubmersibles.................................. 313,287 463,168 (149,881)
Jack-ups................................................ 118,885 74,484 44,401
Integrated Services..................................... 23,298 32,769 (9,471)
Other................................................... 140 -- 140
Eliminations............................................ (8,174) (11,968) 3,794
--------- --------- ---------
Total Revenues.................................. $ 659,436 $ 821,024 $(161,588)
========= ========= =========
CONTRACT DRILLING EXPENSE
High Specification Floaters............................. $ 99,707 $ 100,003 $ (296)
Other Semisubmersibles.................................. 213,259 223,084 (9,825)
Jack-ups................................................ 98,880 84,830 14,050
Integrated Services..................................... 22,328 32,486 (10,158)
Other................................................... 7,091 3,088 4,003
Eliminations............................................ (8,174) (11,968) 3,794
--------- --------- ---------
Total Contract Drilling Expense................. $ 433,091 $ 431,523 $ 1,568
========= ========= =========
OPERATING INCOME
High Specification Floaters............................. $ 112,293 $ 162,568 $ (50,275)
Other Semisubmersibles.................................. 100,028 240,084 (140,056)
Jack-ups................................................ 20,005 (10,346) 30,351
Integrated Services..................................... 970 283 687
Other................................................... (6,951) (3,088) (3,863)
Depreciation and Amortization Expense................... (145,596) (142,963) (2,633)
General and Administrative Expense...................... (23,803) (22,877) (926)
--------- --------- ---------
Total Operating Income.......................... $ 56,946 $ 223,661 $(166,715)
========= ========= =========
High Specification Floaters.
Revenues. Revenues from high specification floaters during the year ended
December 31, 2000 decreased $50.6 million from 1999. Approximately $65.3 million
of the decline in revenues resulted from lower operating dayrates compared to
1999. The average operating dayrate for high specification floaters during the
year ended December 31, 2000 was $94,100 per day compared to $122,700 per day
during the year ended December 31, 1999. Revenues from high specification
floaters were also lower in 2000 by approximately $6.0 million due to the 1999
mobilizations of the Ocean Alliance from the North Sea to West Africa and the
Ocean Clipper from the Gulf of Mexico to Brazil. The decline in revenues was
partially offset by approximately $20.7 million resulting from improved
utilization during 2000. Utilization for the Company's high specification
floaters was 88% during 2000 compared to 84% during 1999. The Company's
drillship, the Ocean Clipper, operated for most of 2000 under its three-year
contract offshore Brazil. During most of 1999, this rig was in a shipyard for
upgrades and repairs associated with this contract. Also contributing to the
improved utilization in 2000 was the operation of the Ocean Valiant, which was
in the shipyard during part of
14
15
1999 for stability enhancements and other repairs. The Ocean Quest, which was
stacked during part of 2000, but worked all of 1999, partially offset these
utilization improvements in 2000.
Contract Drilling Expense. Contract drilling expense for high
specification floaters during the year ended December 31, 2000 decreased $0.3
million from 1999. Costs for the Ocean Valiant in 2000 were $6.7 million lower
than in 1999 primarily due to expenses of $5.3 million incurred for repairs of
the rig while it was in the shipyard during part of 1999. Costs of $1.7 million
for the 1999 mobilization of the Ocean Alliance from the North Sea to Angola
also contributed to the decrease. The decline in 2000 costs was partially offset
by higher contract drilling expenses of $7.0 million incurred by the Ocean
Clipper which began operating in 2000 under a three-year contract offshore
Brazil. During most of 1999, the Ocean Clipper was in a shipyard for upgrades
and repairs which were capitalized. Also offsetting the decrease in costs were
expenses of $1.3 million associated with the 2000 mobilization of the Ocean
Alliance from Angola to Brazil.
Other Semisubmersibles.
Revenues. Revenues from other semisubmersibles during the year ended
December 31, 2000 decreased $149.9 million from 1999. Approximately $78.6
million of the decline in revenues resulted from lower operating dayrates
compared to 1999. The average operating dayrate for the Company's other semisub-
mersibles was $61,300 per day during the year ended December 31, 2000 compared
to $82,400 per day during the year ended December 31, 1999. In addition,
revenues decreased by approximately $71.3 million resulting from lower
utilization compared to 1999. Utilization for the Company's other
semisubmersibles during the year ended December 31, 2000 was 61% compared to 67%
during the year ended December 31, 1999. The Ocean Epoch underwent an upgrade of
its water depth capabilities and variable deckload and was idle during most of
2000 but worked for most of 1999. The Ocean Rover, Ocean Endeavor, Ocean
Guardian and Ocean Voyager were idle during most of 2000 but worked during most
of 1999. The Ocean Baroness, which was cold stacked during the first half of
2000 and then mobilized to Singapore for an upgrade to high specification
capabilities, worked for most of the first half of 1999. See "-- Capital
Resources." The decline in utilization was partially offset by the Ocean General
and Ocean Winner, which worked all of 2000, but were idle most of 1999.
Contract Drilling Expense. Contract drilling expense for other
semisubmersibles during the year ended December 31, 2000 decreased $9.8 million
from 1999. This decline resulted partially from a $6.8 million reduction of cost
as a result of the Ocean Baroness, which was cold stacked during the first half
of 2000 and then mobilized to Singapore for an upgrade, but worked for most of
the first half of 1999. See "-- Capital Resources." Contract drilling expense
was further reduced by $5.3 million as a result of stacking the Ocean Epoch in
late 1999 and $4.2 million associated with mandatory inspections and repairs of
the Ocean New Era in 1999. Costs in 2000 also decreased by $3.6 million from
1999 due to the inspection and repair of the Ocean Winner and its mobilization
from the Gulf of Mexico to Brazil in 1999. Cost increases in 2000 which were
partially offsetting included higher operating costs of $7.5 million in 2000 for
the Ocean General, which was stacked throughout 1999, and $2.4 million
associated with the mandatory inspection and repairs of the Ocean Lexington in
2000.
Jack-Ups.
Revenues. Revenues from jack-ups during the year ended December 31, 2000
increased $44.4 million from 1999. Approximately $35.1 million of the increase
in revenues resulted from improvements in utilization compared to 1999.
Utilization of the Company's jack-ups during the year ended December 31, 2000
was 89% compared to 61% during the year ended December 31, 1999. In addition,
revenues increased approximately $26.4 million due to higher operating dayrates
compared to 1999. The average operating dayrate for the Company's jack-ups was
$26,000 per day during the year ended December 31, 2000 compared to $22,400 per
day during the year ended December 31, 1999. The revenue improvement in 2000 was
partially offset by a decrease in revenues of $17.1 million from the Ocean
Scotian, which was sold in January 2000 but worked for most of 1999.
15
16
Contract Drilling Expense. Contract drilling expense for jack-ups during
the year ended December 31, 2000 was $14.0 million higher than for the same
period in 1999. An increase of $18.4 million was due to rigs returning to work
in 2000, which were idle for all or part of 1999. In addition, contract drilling
expense was $4.0 million higher in 2000 due to major repairs to the Ocean
Heritage. Higher contract drilling expense in 2000 was partially offset by a
decrease of $8.4 million due to the January 2000 sale of the Ocean Scotian.
Integrated Services.
Revenues and contract drilling expense for integrated services decreased as
a result of the differences in number, type and magnitude of projects during the
year ended December 31, 2000 as compared to the same period in 1999.
Other.
Other contract drilling expense of $7.0 million for the year ended December
31, 2000 increased $3.9 million from the same period in 1999. This increase
resulted primarily from higher expenditures during 2000 for crew training
programs and various other non-recurring charges.
Depreciation and Amortization Expense.
Depreciation and amortization expense of $145.6 million for the year ended
December 31, 2000 increased $2.6 million from $143.0 million for the year ended
December 31, 1999. This increase resulted primarily from higher depreciation for
the Ocean Clipper, Ocean General, Ocean Concord and Ocean King, which completed
various upgrades in the third and fourth quarters of 1999. In addition,
depreciation expense was up due to expenditures associated with the Company's
continuing rig enhancement program. This increase was partially offset by
reduced depreciation in 2000 due to the January 2000 sale of the Ocean Scotian
and a decrease in goodwill amortization resulting from adjustments to goodwill
related to tax benefits not previously recognized for the excess of tax
deductible goodwill over the book amount. See Note 5 to the Company's
Consolidated Financial Statements in Item 8 of this report.
General and Administrative Expense.
General and administrative expense of $23.8 million for the year ended
December 31, 2000 increased $0.9 million from $22.9 million for the year ended
December 31, 1999. Higher expenses in 2000 were primarily due to an increase in
legal and personnel costs. Expenses in 2000 also included costs associated with
the Company's participation in the Subsea Mudlift Drilling Joint Industry
Project.
Gain on Sale of Assets
Gain on sale of assets for the year ended December 31, 2000 was $14.3
million compared to $0.2 million for the year ended December 31, 1999. Gain on
sale of assets in 2000 included the sale of the Company's jack-up drilling rig,
Ocean Scotian, for $32.0 million in cash resulting in a gain of $13.9 million
($9.0 million after tax). The rig had been cold stacked offshore The Netherlands
prior to the sale.
Interest Income.
Interest income of $49.5 million for the year ended December 31, 2000
increased $14.5 million from $35.0 million for the year ended December 31, 1999.
This increase resulted primarily from the investment of excess cash generated by
the sale of 20-year zero coupon convertible debentures (the "Debentures") on
June 6, 2000. See "-- Liquidity."
Interest Expense.
Interest expense of $10.3 million for the year ended December 31, 2000
increased $1.1 million from $9.2 million for 1999. Interest costs in 2000 were
$8.6 million higher than in 1999 primarily as a result of the issuance of the
Debentures on June 6, 2000. This amount was partially offset by a $7.5 million
increase in
16
17
interest capitalized for the conversion of the Ocean Confidence and the
deepwater upgrade of the Ocean Baroness. Interest cost capitalized in 2000 was
$13.8 million compared to $6.3 million in 1999. See "-- Liquidity" and
"-- Capital Resources."
Other Income.
Other income of $0.3 million for the year ended December 31, 2000 increased
$9.6 million from other expense of $9.3 million for the year ended December 31,
1999. In 1999, a pre-tax impairment loss of $10.7 million was recorded as the
result of the decline in fair market value, judged to be other than temporary,
in the Company's investment in equity securities.
Income Tax Expense.
Income tax expense for the year ended December 31, 2000 was $38.6 million
as compared to $84.3 million for 1999. This change resulted primarily from a
decrease of $129.5 million in the Company's income before income tax expense.
YEARS ENDED DECEMBER 31, 1999 AND 1998
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 periods have been reclassified to conform to the classifications
currently followed. Such reclassifications do not affect earnings.
YEAR ENDED
DECEMBER 31,
---------------------- INCREASE/
1999 1998 (DECREASE)
--------- ---------- ----------
(IN THOUSANDS)
REVENUES
High Specification Floaters............................. $ 262,571 $ 286,875 $ (24,304)
Other Semisubmersibles.................................. 463,168 707,227 (244,059)
Jack-ups................................................ 74,484 209,134 (134,650)
Integrated Services..................................... 32,769 26,876 5,893
Eliminations............................................ (11,968) (21,311) 9,343
--------- ---------- ---------
Total Revenues.................................. $ 821,024 $1,208,801 $(387,777)
========= ========== =========
CONTRACT DRILLING EXPENSE
High Specification Floaters............................. $ 100,003 $ 88,293 $ 11,710
Other Semisubmersibles.................................. 223,084 276,633 (53,549)
Jack-ups................................................ 84,830 104,490 (19,660)
Integrated Services..................................... 32,486 26,472 6,014
Other................................................... 3,088 10,048 (6,960)
Eliminations............................................ (11,968) (21,311) 9,343
--------- ---------- ---------
Total Contract Drilling Expense................. $ 431,523 $ 484,625 $ (53,102)
========= ========== =========
OPERATING INCOME
High Specification Floaters............................. $ 162,568 $ 198,582 $ (36,014)
Other Semisubmersibles.................................. 240,084 430,594 (190,510)
Jack-ups................................................ (10,346) 104,644 (114,990)
Integrated Services..................................... 283 404 (121)
Other................................................... (3,088) (10,048) 6,960
Depreciation and Amortization Expense................... (142,963) (130,271) (12,692)
General and Administrative Expense...................... (22,877) (25,324) 2,447
--------- ---------- ---------
Total Operating Income.......................... $ 223,661 $ 568,581 $(344,920)
========= ========== =========
17
18
High Specification Floaters.
Revenues. Revenues from high specification floaters during the year ended
December 31, 1999 decreased $24.3 million from 1998. This decrease resulted
primarily from (i) a $13.4 million reduction in revenues from the Ocean Valiant
due to lower utilization while the rig was in the shipyard for stability
enhancements and other repairs performed during 1999 and (ii) a $14.9 million
decrease due to rig downtime associated with the upgrade of and repairs
performed in 1999 on the Ocean Clipper. Revenues were also reduced by
approximately $10.9 million due to lower operating dayrates in 1999 compared to
1998 and reduced by $6.8 million due to rig downtime associated with the 1999
mandatory inspection and repairs of the Ocean America. The average operating
dayrate for high specification floaters was $122,700 per day during 1999,
compared to $130,500 per day during 1998. These decreases were partially offset
by higher revenues of approximately $14.2 million from the Ocean Victory, which
was in the shipyard during part of 1998 for repairs required as a result of the
February 1998 engine room fire. The decrease in revenue was also partially
offset by an increase of approximately $4.6 million from mobilization revenues
for the Ocean Alliance to locations offshore West Africa during 1999 and $2.0
million from mobilization revenues for the Ocean Clipper from the Gulf of Mexico
to Brazil in 1999.
Contract Drilling Expense. Contract drilling expense for high
specification floaters during the year ended December 31, 1999 increased $11.7
million from 1998. This increase resulted in part from an increase of $5.3
million for repairs performed on the Ocean Valiant, which was in the shipyard
for part of 1999. Also contributing to this increase was $3.0 million associated
with costs for the 1999 mandatory inspection and repairs of the Ocean America
and $3.1 million due to the capitalization of costs associated with 1998
shipyard repairs on the Ocean Victory.
Other Semisubmersibles.
Revenues. Revenues from other semisubmersibles during the year ended
December 31, 1999 decreased $244.1 million from 1998. In part, revenues
decreased $124.3 million due to a decline in utilization in 1999 compared to
1998 and $39.3 million due to rigs removed from service in late 1998 and 1999.
In addition, revenues were reduced by $37.0 million due to rig downtime during
1999 for mandatory inspections and repairs of the Ocean New Era, the Ocean
Yatzy, the Ocean Concord, the Ocean Winner, and the Ocean Guardian. Also
contributing to the decrease in revenues was a $73.8 million decline from lower
operating dayrates in 1999 compared to 1998. The average operating dayrate for
other semisubmersibles was $82,400 per day in 1999, compared to $93,500 per day
in 1998. These decreases were partially offset by revenue improvements in 1999
of approximately $29.1 million from nine other rigs which were undergoing
mandatory inspections during 1998.
Contract Drilling Expense. Contract drilling expense for other
semisubmersibles during the year ended December 31, 1999 decreased $53.5 million
from 1998. This decrease resulted primarily from expense reductions of
approximately $38.7 million due to a 1999 decline in utilization and from rigs
that were idle for all or part of 1999. Contract drilling expense also decreased
by approximately $19.9 million due to fewer mandatory inspections and repairs
performed during 1999 compared to 1998. Partially offsetting these decreases was
an increase in 1999 costs of $3.2 million associated with the mobilization of
the Ocean Winner from the Gulf of Mexico to Brazil during the first half of
1999.
Jack-Ups.
Revenues. Revenues from jack-ups during the year ended December 31, 1999
decreased $134.7 million from 1998. This decrease was primarily due to
reductions in revenues of $81.8 million from lower 1999 operating dayrates and
$52.9 million from 1999 decreased utilization as well as the removal of rigs
from service in late 1998 and the first quarter of 1999. The average operating
dayrate for jack-ups was $22,400 per day during 1999 compared to $46,300 per day
in 1998.
Contract Drilling Expense. Contract drilling expense for jack-ups during
the twelve months ended December 31, 1999 decreased $19.7 million for the same
period in 1998. This decrease resulted primarily from expense reductions for
rigs that were removed from service in late 1998 and the first quarter of 1999.
18
19
Integrated Services.
Revenues and contract drilling expense for integrated services increased
primarily due to four turnkey wells completed during 1999. In 1998, the Company
performed primarily project management services on a dayrate basis.
Other.
Other contract drilling expense of $3.1 million during 1999 decreased $7.0
million from $10.1 million during 1998. This decrease resulted primarily from
higher expenditures during 1998 for crew training programs and various other
non-recurring charges.
Depreciation and Amortization Expense.
Depreciation and amortization expense of $143.0 million for the year ended
December 31, 1999 increased $12.7 million from $130.3 million for the year ended
December 31, 1998. This increase resulted primarily from depreciation expense
associated with expenditures for the Company's continuing rig enhancement
program in 1999. Partially offsetting this increase was a 1999 $1.2 million
decline in amortization expense as compared to 1998 resulting from a 1999
adjustment to goodwill related to tax benefits not previously recognized for the
excess of tax deductible goodwill over the book amount. See Note 5 to the
Company's Consolidated Financial Statements in Item 8 of this report.
General and Administrative Expense.
General and administrative expense of $22.9 million for the year ended
December 31, 1999 decreased $2.4 million from $25.3 million for the year ended
December 31, 1998 primarily due to a decrease in legal and personnel costs.
Interest Income.
Interest income of $35.0 million for the year ended December 31, 1999
increased $4.4 million from $30.6 million for the year ended December 31, 1998.
This increase resulted primarily from an increase in average cash invested
throughout 1999. See "-- Liquidity."
Interest Expense.
Interest expense of $9.2 million for the year ended December 31, 1999
decreased $5.3 million from $14.5 million for 1998. Interest expense for 1999
consisted of $15.5 million interest associated with the Company's convertible
subordinated notes, partially offset by $6.3 million of interest capitalized for
the conversion of the Ocean Confidence. The decrease of $5.3 million resulted
primarily from a 1999 increase in capitalized interest cost based on the average
amount of accumulated expenditures for the Ocean Confidence. See "-- Capital
Resources."
Other Expense.
Other expense of $9.3 million for the year ended December 31, 1999
increased $14.5 million from other income of $5.2 million for the year ended
December 31, 1998. This increase resulted primarily from an impairment loss
recorded in 1999 as the result of the decline in fair market value, judged to be
other than temporary, in the Company's investment in equity securities. See Note
3 to the Company's Consolidated Financial Statements in Item 8 of this report.
Income Tax Expense.
Income tax expense for the year ended December 31, 1999 was $84.3 million
as compared to $206.6 million for 1998. This change resulted primarily from a
decrease of $349.9 million in the Company's 1999 income before income tax
expense.
19
20
OUTLOOK
During 2000, oil and natural gas prices remained significantly above
historical averages. However, market recovery for various classes of equipment
within the offshore drilling industry was inconsistent as oil producers waited
to see if the high level of product prices would continue. The Company believes
that current expectations are for higher than average product prices to persist
as world energy demand is increasing and short-term oil supplies are below
historical averages. The growth in the offshore drilling industry, anticipated
because of these favorable market fundamentals, is dependent on confidence by
the Company's customers that current levels of oil and gas prices will be
sustained.
Utilization and dayrates for the Company's domestic jack-up market improved
significantly in 2000 as independent producers acted quickly to take advantage
of the high natural gas prices which prevailed throughout the year. Although the
improvement in the jack-up market leveled off during the fourth quarter of 2000,
it remains strong. The Company's outlook for this market is for continued
strength, especially if the recovery of the international jack-up market creates
a tighter supply of jack-ups in the Gulf of Mexico.
During 2000, there was increased interest in the Company's deepwater high
specification rig fleet with both utilization and dayrates increasing. The
Company believes that prospects are good for further improvement in this market,
as most recent dayrates are greater than rates under current contracts. Most of
the existing contracts are for short-term, well-to-well work and the Company
anticipates upward pressure on rates as these existing contracts are renewed or
replaced.
For the Company's domestic other semisubmersible rig fleet, the market
began to experience growth in the latter half of 2000 with both dayrates and
utilization increasing. Currently, all of the domestic marketed rigs in this
class are working or have commitments. If the backlog for these rigs continues
to build, the Company expects further increases in dayrates.
The Company believes that the international markets are also strengthening
for all classes of equipment. Dayrates are increasing and that trend is expected
to continue into the second half of the year. All three of the Company's rigs
located in the North Sea have recently committed for work at dayrates that are
well above their previously contracted dayrates. Five of the Company's six rigs
operating in Brazil are committed under long-term contracts ranging from 18
months to approximately three years.
Historically, the offshore drilling industry has been highly competitive
and cyclical, and the Company cannot predict the extent to which the current
favorable conditions may continue. However, many oil and gas companies have
increased planned expenditures for 2001 and other current indicators appear to
be positive. The Company is currently cautiously optimistic about the near-term
future of the offshore drilling industry and its place in it.
LIQUIDITY
At December 31, 2000, the Company's cash and marketable securities totaled
$862.1 million, up from $641.4 million at December 31, 1999. Cash provided by
operating activities for the year ended December 31, 2000 decreased by $197.1
million to $201.0 million, as compared to $398.1 million for the prior year.
This decrease was primarily attributable to a $166.7 million reduction in
operating income and various other related changes, primarily in accounts
receivable and taxes payable.
Investing activities used $459.7 million of cash during the year ended
December 31, 2000, compared to $319.1 million in 1999. Cash usage for capital
expenditures during 2000 of $323.9 million was primarily due to the conversion
of the Ocean Confidence, and to a lesser extent, upgrades of the Ocean Baroness
and Ocean Epoch. See "-- Capital Resources." Cash usage increased $173.4 million
primarily due to the Company's investment in marketable securities purchased
with a portion of the proceeds from the issuance of the Debentures. A $33.3
million increase in cash was provided by proceeds from the sale of assets,
primarily the sale of the Ocean Scotian in January 2000.
Cash provided by financing activities for the year ended December 31, 2000
increased $358.7 million to $290.8 million, compared to $67.9 million cash used
in financing activities in 1999. Sources of financing during
20
21
2000 consisted primarily of the Company's issuance of the Debentures, which
resulted in net proceeds of approximately $392.6 million. The Company intends to
use the net proceeds generated by the issuance of the Debentures for general
corporate purposes. The Debentures were issued in June 2000 at a discount from
their value at maturity on June 6, 2020. The Debentures are convertible at the
option of the holder at any time prior to maturity, unless previously redeemed,
into the Company's common stock at a fixed conversion rate of 8.6075 shares of
common stock per Debentures, subject to adjustments in certain events. The
Company will not pay interest on the Debentures prior to maturity unless it
elects to convert the Debentures to interest-bearing debentures upon the
occurrence of certain tax events. The Company has the right to redeem the
Debentures, in whole or in part, after June 6, 2005 for a price equal to the
issuance price plus accrued original issue discount through the date of
redemption. Holders have the right to require the Company to repurchase the
Debentures on the fifth, tenth and fifteenth anniversaries of issuance at the
accreted value through the date of repurchase. The Company may pay such
repurchase price with either cash or shares of the Company's common stock or a
combination of cash and shares of common stock.
On March 7, 2001, the Company announced its decision to redeem, on April 6,
2001, all of its outstanding 3.75% convertible subordinated notes due 2007 (the
"Notes") at a redemption price of 102.08% of the principal amount thereof,
together with interest accrued to (but not including) the redemption date. These
Notes are convertible on or before the close of business on April 5, 2001 into
shares of the Company's common stock at a conversion price of $40.50 per share,
subject to adjustment in certain circumstances. If none of the Notes outstanding
are converted into common stock prior to April 6, 2001, the redemption of all of
the outstanding Notes would result in a charge of $7.9 million after-tax and
reported as an extraordinary loss in the second quarter of 2001.
Additional sources of financing during 2000 included a lease-leaseback
agreement (the "Agreement"), which resulted in net proceeds of approximately
$54.7 million. The Agreement between the Company and a European bank was entered
into in December 2000. The Agreement provided for the Company to lease the Ocean
Alliance, one of the Company's high specification semisubmersible drilling rigs,
to the bank for a lump-sum payment of $55.0 million plus an origination fee of
$1.1 million and for the bank to then sub-lease the rig back to the Company.
Under the Agreement, which has a five-year term, the Company is to make five
annual payments of $13.7 million. This financing arrangement has an effective
interest rate of 7.13% and is an unsecured subordinated obligation of the
Company.
Also contributing to cash provided by financing activities in 2000 were
premiums received of $3.9 million for the August 2000 sale of put options
covering 750,000 common shares. The options gave the holders the right to
require the Company to repurchase shares of its common stock at an exercise
price of $37.85 per share at anytime prior to expiration through February 2001.
The Company had the option to settle in cash or shares of its common stock. All
of these options were unexercised and expired by the end of February 2001. On
February 27, 2001, the Company received premiums of $3.1 million for the sale of
put options covering 500,000 common shares. The options give the holders the
right to require the Company to repurchase shares of its common stock at an
exercise price of $40.00 per share at anytime prior to expiration in February
2002. The Company has the option to settle in cash or shares of common stock.
Cash used in financing activities for the year ended December 31, 2000 of
$160.5 million resulted primarily from the purchase of treasury stock and from
dividends paid to stockholders. Depending on market conditions, the Company may,
from time to time, purchase shares of its common stock in the open market or
otherwise. During 2000, the Company purchased 2.7 million shares of its common
stock at an aggregate cost of $93.0 million, or at an average cost of $34.36 per
share. The Company did not purchase any of its common stock during 1999.
Effective December 31, 2000, the Company retired all 6,223,200 shares of its
treasury stock at an aggregate cost of $181.7 million. See Note 1 to the
Company's Consolidated Financial Statements in Item 8 of this report.
Other sources of liquidity include the Company's $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. In April 2000, the credit agreement was amended to revise
these interest rates and commitment fees. 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
21
22
world. The agreement contains certain financial and other covenants and
provisions that must be maintained by the Company for compliance. As of December
31, 2000, there were no outstanding borrowings under this agreement and the
Company was in compliance with each of the covenants and provisions.
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.
During the year ended December 31, 2000, the Company expended $250.9
million, including capitalized interest expense, for rig upgrades, primarily for
the conversion of the Ocean Confidence. Also included in this amount was
approximately $16.0 million expended for variable deckload and water depth
capability upgrades on the Ocean Epoch. The Company expects to spend
approximately $144.8 million for rig upgrade capital expenditures during 2001
which are primarily costs associated with the deepwater upgrade of the Ocean
Baroness. Included in this amount is approximately $20.0 million for
accommodations and stability enhancement upgrades on the Ocean Nomad.
The significant upgrade of the Company's semisubmersible, the Ocean
Baroness, to high specification capabilities will be an enhanced version of the
Company's previous Victory-class upgrades. The upgrade includes the following
enhancements: capability for operation in 6,500 foot water depths; approximately
5,590 metric tons variable deckload; a 15,000 psi blow-out prevention system;
and riser with a multiplex control system. Additional features including a high
capacity deck crane, significantly enlarged cellar deck area and a 25 foot by 90
foot moon pool will provide enhanced subsea completion and development
capabilities. Water depths in excess of 6,500 feet should be achievable
utilizing preset taut-leg mooring systems on a case by case basis. The initial
estimated cost for the deepwater upgrade of the Ocean Baroness is approximately
$180.0 million with an expected delivery date of February 2002. During the year
ended December 31, 2000, the Company expended $21.9 million for the deepwater
upgrade of the Ocean Baroness.
The conversion of the Ocean Confidence from an accommodation vessel to a
semisubmersible drilling unit was completed and the rig was accepted by the
customer on January 5, 2001 at which time it began a five-year drilling program
in the Gulf of Mexico. The following enhancements were made to the drilling
unit: the capability for operation in 7,500 foot water depths; approximately
6,000 metric tons variable deckload; a 15,000 psi blow-out prevention system;
and four mud pumps to complement the existing Class III dynamic-positioning
system. The net cost of conversion for this rig was approximately $450.0
million. Future revenues to be generated by the Ocean Confidence under its
five-year contract are estimated to be $311.5 million including the effect of
the $8.1 million reduction that resulted from the late delivery of the rig.
Additional revenue reductions could occur during the first two wells under the
drilling contract based on the nature of any downtime. The rig was evaluated for
impairment in accordance with Statement of Financial Accounting
22
23
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of," and no instance of impairment was
noted.
During the year ended December 31, 2000, the Company expended $73.0 million
in association with its continuing rig enhancement program and to meet other
corporate requirements. These expenditures included purchases of king-post
cranes, anchor chain, riser, and other drilling equipment. The Company has
budgeted $106.0 million for 2001 capital expenditures associated with its
continuing rig enhancement program and other corporate requirements.
The Company continues to consider transactions, which include, but are not
limited to, 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 its 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
an agreement in the future and such acquisition could result in a material
expansion of its existing operations or result in the Company 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.
INTEGRATED SERVICES
The Company's wholly owned subsidiary, DOTS, from time to time, selectively
engages in drilling services pursuant to turnkey or modified-turnkey contracts
under which DOTS agrees to drill a well to a specified depth for a fixed price.
In such cases, DOTS generally is not entitled to payment unless the well is
drilled to the specified depth. Profitability of the contract is dependent upon
its ability to keep expenses within the estimates used in determining the
contract price. Drilling a well under a turnkey contract therefore typically
requires a greater cash commitment by the Company and exposes the Company to
risks of potential financial losses that generally are substantially greater
than those that would ordinarily exist when drilling under a conventional
dayrate contract. DOTS also offers a portfolio of drilling services including
overall project management, extended well tests, and completion operations.
During 2000, DOTS contributed operating income of $1.0 million to the Company's
consolidated results of operations primarily from the completion of four turnkey
projects in the Gulf of Mexico, one international turnkey project and integrated
services provided in Aberdeen, Scotland. During 1999, DOTS contributed operating
income of $0.3 million to the Company's consolidated results of operations
primarily from four turnkey wells completed in the Gulf of Mexico and integrated
services in Aberdeen, Scotland.
OTHER
Currency Risk. Certain of the Company's subsidiaries use the local
currency in the country where they conduct operations as their functional
currency. Currency environments in which the Company has material business
operations include the U.K., Australia, Brazil and Indonesia. The Company
generally attempts to minimize its currency exchange risk by seeking
international contracts payable in local currency in amounts equal to the
Company's estimated operating costs payable in local currency and in U.S.
dollars for the balance of the contract. Because of this strategy, the Company
has minimized its unhedged net asset or liability positions denominated in local
currencies and has not experienced significant gains or losses associated with
changes in currency exchange rates. At present, only contracts covering the
Company's six rigs currently operating in Brazil are payable both in U.S.
dollars and the local currency. The Company has not hedged its exposure to
changes in the exchange rate between U.S. dollars and the local currencies in
the U.K., Australia or Indonesia for operating costs payable in these
currencies, although it may seek to do so in the future.
Currency translation adjustments are accumulated in a separate section of
stockholders' equity. When the Company ceases its operations in a currency
environment, the accumulated adjustments are recognized currently in results of
operations. The effect on results of operations from these translation gains and
losses has not been material and they are not expected to have a significant
effect in the future.
23
24
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
2000, the FASB issued SFAS No. 138, which amended certain provisions of SFAS No.
133 to clarify four areas causing difficulties in implementation. The amendment
included expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency derivatives
and thus reducing the number of third party derivatives, permitting hedge
accounting for foreign currency denominated assets and liabilities, and
redefining interest rate risk to reduce sources of ineffectiveness. The Company
adopted SFAS No. 133 and the corresponding amendments under SFAS No. 138 on
January 1, 2001. Adoption of SFAS No. 133, as amended by SFAS No. 138, has not
had nor is it expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The bulletin summarizes certain of the SEC Staff's view in applying
generally accepted accounting principles to revenue recognition in financial
statements. This bulletin through its subsequent revised releases SAB No. 101A
and SAB No. 101B was effective for registrants no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The implementation of
this bulletin did not have any impact on the results of operations or equity 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 future market conditions and the effect of such conditions on the
Company's future results of operations (see "-- Outlook"), future uses of and
requirements for financial resources, including but not limited to, expenditures
related to the deepwater upgrade of the Ocean Baroness (see "-- Liquidity" and
"-- Capital Resources"), and the impact of currency risk to the Company's future
results of operations (see "-- Other"). 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, 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 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 SEC 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information included in this Item 7A 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 7 of this report.
24
25
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,
the Debentures and investments in debt securities, including U.S. Treasury
securities, treasury inflation-indexed protective bonds ("TIP's"), 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% and an effective interest rate of
3.93%. At December 31, 2000, the fair value of these notes, based on quoted
market prices, was approximately $440.2 million, compared to a carrying amount
of approximately $400.0 million. At December 31, 2000, the fair value of the
Company's Debentures, based on quoted market prices, was approximately $406.2
million, compared to a carrying amount of $410.2 million.
At December 31, 2000, the fair market value of the Company's investment in
debt securities issued by the U.S. Treasury, excluding TIP's and CMO's, was
approximately $149.1 million, which includes an unrealized holding gain of $0.1
million. These securities bear interest rates ranging from 6.0% to 6.5% and are
U.S. government-backed, generally short-term, and readily marketable.
The fair market value of the Company's investment in TIP's at December 31,
2000 was approximately $267.0 million, which includes an unrealized holding gain
of $1.0 million. These securities bear a fixed interest rate of 3.625% and have
an inflation-adjusted principal. The amount of each semiannual interest payment
is based on the securities' inflation-adjusted principal amount on an interest
payment date and, at maturity, the securities will be redeemed at the greater of
their inflation-adjusted principal or par amount at original issue. The TIP's
are short-term and readily marketable.
The fair market value of the Company's investment in CMO's at December 31,
2000 was approximately $301.2 million, which includes an unrealized holding gain
of $3.8 million. These securities bear interest rates ranging from 7.0% to 8.0%.
The CMO's are also short-term and readily marketable with an implied AAA rating
backed by U.S. government guaranteed mortgages.
At December 31, 2000, the fair value of the Company's investment in equity
securities was approximately $0.4 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 gains and/or 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.
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Diamond Offshore Drilling, Inc. and subsidiaries
Houston, Texas
We have audited the accompanying consolidated balance sheets of Diamond
Offshore Drilling, Inc. and subsidiaries (the "Company") as of December 31, 2000
and 1999, and the related consolidated statements of income, stockholders'
equity, comprehensive income and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Diamond Offshore Drilling, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Houston, Texas
January 23, 2001
(except for paragraph 3 of Note 7
to the Consolidated Financial
Statements which is dated
March 7, 2001)
26
27
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Current assets:
Cash and cash equivalents................................. $ 144,456 $ 112,316
Marketable securities..................................... 717,678 529,042
Accounts receivable....................................... 153,452 143,569
Rig inventory and supplies................................ 40,698 38,760
Prepaid expenses and other................................ 44,673 36,605
---------- ----------
Total current assets.............................. 1,100,957 860,292
Drilling and other property and equipment, net of
accumulated depreciation.................................. 1,902,415 1,737,905
Goodwill, net of accumulated amortization................... 55,205 73,174
Other assets................................................ 20,929 9,658
---------- ----------
Total assets...................................... $3,079,506 $2,681,029
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 9,732 $ --
Accounts payable.......................................... 59,021 72,630
Accrued liabilities....................................... 53,923 44,051
Taxes payable............................................. 337 18,720
---------- ----------
Total current liabilities......................... 123,013 135,401
Long-term debt.............................................. 856,559 400,000
Deferred tax liability...................................... 316,627 291,213
Other liabilities........................................... 15,454 12,193
---------- ----------
Total liabilities................................. 1,311,653 838,807
---------- ----------
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, 133,150,477 issued and outstanding at
December 31, 2000 and 139,342,381 shares issued and
135,824,281 outstanding at December 31, 1999).......... 1,332 1,393
Additional paid-in capital................................ 1,248,665 1,302,841
Retained earnings......................................... 517,186 635,943
Accumulated other comprehensive gains (losses)............ 670 (9,229)
Treasury stock, at cost................................... -- (88,726)
---------- ----------
Total stockholders' equity........................ 1,767,853 1,842,222
---------- ----------
Total liabilities and stockholders' equity........ $3,079,506 $2,681,029
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
27
28
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- ----------
Revenues.................................................... $659,436 $821,024 $1,208,801
Operating expenses:
Contract drilling......................................... 433,091 431,523 484,625
Depreciation and amortization............................. 145,596 142,963 130,271
General and administrative................................ 23,803 22,877 25,324
-------- -------- ----------
Total operating expenses.......................... 602,490 597,363 640,220
-------- -------- ----------
Operating income............................................ 56,946 223,661 568,581
Other income (expense):
Gain on sale of assets.................................... 14,324 231 418
Interest income........................................... 49,525 34,985 30,565
Interest expense.......................................... (10,272) (9,212) (14,487)
Other, net................................................ 344 (9,302) 5,154
-------- -------- ----------
Income before income tax expense............................ 110,867 240,363 590,231
Income tax expense.......................................... (38,586) (84,292) (206,572)
-------- -------- ----------
Net income.................................................. $ 72,281 $156,071 $ 383,659
======== ======== ==========
Net income per share:
Basic..................................................... $ 0.53 $ 1.15 $ 2.78
======== ======== ==========
Diluted................................................... $ 0.53 $ 1.11 $ 2.66
======== ======== ==========
Weighted average shares outstanding:
Shares of common stock.................................... 135,164 135,822 138,020
Dilutive potential shares of common stock................. 9,876 9,876 9,876
-------- -------- ----------
Total weighted average shares of common stock
outstanding..................................... 145,040 145,698 147,896
======== ======== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
28
29
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ACCUMULATED
RETAINED OTHER
COMMON STOCK ADDITIONAL EARNINGS COMPREHENSIVE TREASURY STOCK
-------------------- PAID-IN (ACCUMULATED GAINS ---------------------
SHARES AMOUNT CAPITAL DEFICIT) (LOSSES) SHARES AMOUNT
----------- ------ ---------- ------------ ------------- ---------- --------
December 31, 1997............ 139,309,948 $1,393 $1,302,712 $ 233,350 $(1,928) -- --
Net income................... -- -- -- 383,659 -- -- --
Treasury stock purchases..... -- -- -- -- -- 3,518,100 $(88,726)
Dividends to stockholders.... -- -- -- (69,226) -- -- --
Stock options exercised...... 23,687 -- 94 -- -- -- --
Exchange rate changes, net... -- -- -- -- (291) -- --
Loss on investments, net..... -- -- -- -- (5,779) -- --
----------- ------ ---------- --------- ------- ---------- --------
December 31, 1998............ 139,333,635 1,393 1,302,806 547,783 (7,998) 3,518,100 (88,726)
----------- ------ ---------- --------- ------- ---------- --------
Net income................... -- -- -- 156,071 -- -- --
Dividends to stockholders.... -- -- -- (67,911) -- -- --
Stock options exercised...... 8,746 -- 35 -- -- -- --
Exchange rate changes, net... -- -- -- -- (983) -- --
Loss on investments, net..... -- -- -- -- (248) -- --
----------- ------ ---------- --------- ------- ---------- --------
December 31, 1999............ 139,342,381 1,393 1,302,841 635,943 (9,229) 3,518,100 (88,726)
----------- ------ ---------- --------- ------- ---------- --------
Net income................... -- -- -- 72,281 -- -- --
Treasury stock
Purchase................... -- -- -- -- -- 2,705,100 (92,959)
Retirement................. (6,223,200) (62) (58,193) (123,430) -- (6,223,200) 181,685
Dividends to stockholders.... -- -- -- (67,608) -- -- --
Stock options exercised...... 30,803 1 122 -- -- -- --
Put option premiums.......... -- -- 3,875 -- -- -- --
Conversion of long-term
debt....................... 493 -- 20 -- -- -- --
Exchange rate changes, net... -- -- -- -- 506 -- --
Gain on investments, net..... -- -- -- -- 9,393 -- --
----------- ------ ---------- --------- ------- ---------- --------
December 31, 2000............ 133,150,477 $1,332 $1,248,665 $ 517,186 $ 670 -- $ --
=========== ====== ========== ========= ======= ========== ========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
December 31, 1997............ $1,535,527
Net income................... 383,659
Treasury stock purchases..... (88,726)
Dividends to stockholders.... (69,226)
Stock options exercised...... 94
Exchange rate changes, net... (291)
Loss on investments, net..... (5,779)
----------
December 31, 1998............ 1,755,258
----------
Net income................... 156,071
Dividends to stockholders.... (67,911)
Stock options exercised...... 35
Exchange rate changes, net... (983)
Loss on investments, net..... (248)
----------
December 31, 1999............ 1,842,222
----------
Net income................... 72,281
Treasury stock
Purchase................... (92,959)
Retirement................. --
Dividends to stockholders.... (67,608)
Stock options exercised...... 123
Put option premiums.......... 3,875
Conversion of long-term
debt....................... 20
Exchange rate changes, net... 506
Gain on investments, net..... 9,393
----------
December 31, 2000............ $1,767,853
==========
The accompanying notes are an integral part of the consolidated financial
statements.
29
30
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- -------- --------
Net income.................................................. $72,281 $156,071 $383,659
Other comprehensive gains (losses), net of tax:
Foreign currency translation gain (loss).................. 506 (983) (291)
Unrealized holding gain (loss) on investments............. 3,259 (5,903) (5,797)
Reclassification adjustment for losses included in net
income............................................... 6,134 5,655 18
------- -------- --------
Total other comprehensive gain (loss)............. 9,899 (1,231) (6,070)
------- -------- --------
Comprehensive income........................................ $82,180 $154,840 $377,589
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
30
31
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
Operating activities:
Net income.............................................. $ 72,281 $ 156,071 $ 383,659
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 145,596 142,963 130,271
Gain on sale of assets............................... (14,324) (231) (418)
(Gain) loss on sale of investment securities......... 2,397 522 (1,116)
Impairment write-down of investment securities....... -- 10,671 --
Deferred tax provision............................... 26,155 38,529 61,403
Accretion of discount on investment securities....... (7,535) (9,316) (14,568)
Amortization of debt issuance costs.................. 864 541 521
Amortization of discount on zero coupon convertible
debentures......................................... 8,033 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (9,883) 90,279 (26,153)
Rig inventory and supplies and other current
assets............................................. (9,190) (7,527) (21,911)
Other assets, non-current............................ (604) (2,639) (705)
Accounts payable and accrued liabilities............. (4,592) (30,540) 40,534
Taxes payable........................................ (12,658) 11,193 (3,867)
Other liabilities, non-current....................... 3,261 (881) 835
Other, net.............................................. 1,234 (1,513) (1,301)
--------- --------- ---------
Net cash provided by operating activities....... 201,035 398,122 547,184
--------- --------- ---------
Investing activities:
Capital expenditures.................................... (323,924) (324,133) (224,474)
Proceeds from sale of assets............................ 33,279 662 1,011
Net change in marketable securities..................... (169,048) 4,343 (167,818)
--------- --------- ---------
Net cash used in investing activities........... (459,693) (319,128) (391,281)
--------- --------- ---------
Financing activities:
Acquisition of treasury stock........................... (92,959) -- (88,726)
Proceeds from sale of put options....................... 3,875 -- --
Payment of dividends.................................... (67,608) (67,911) (69,226)
Proceeds from stock options exercised................... 123 35 289
Issuance of zero coupon convertible debentures.......... 402,178 -- --
Debt issuance costs-zero coupon convertible
debentures........................................... (9,556) -- --
Lease-leaseback agreement............................... 55,000 -- --
Arrangement fees-lease-leaseback agreement.............. (255) -- --
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................... 290,798 (67,876) (157,663)
--------- --------- ---------
Net change in cash and cash equivalents................... 32,140 11,118 (1,760)
Cash and cash equivalents, beginning of year............ 112,316 101,198 102,958
--------- --------- ---------
Cash and cash equivalents, end of year.................. $ 144,456 $ 112,316 $ 101,198
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
31
32
DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Diamond Offshore Drilling, Inc. (the "Company") was incorporated in
Delaware on April 13, 1989. Loews Corporation ("Loews"), a Delaware corporation
of which the Company had been a wholly owned subsidiary prior to the initial
public offering in October 1995 (the "Common Stock Offering"), owns 52.6 percent
of the outstanding common stock of the Company.
The Company, through wholly owned subsidiaries, engages in the worldwide
contract drilling of offshore oil and gas wells and is a leader in deep water
drilling. Currently, the fleet is comprised of 30 semisubmersible rigs, 14
jack-up rigs, and one drillship.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
after elimination of significant intercompany transactions and balances.
Cash and Cash Equivalents
Short-term, highly liquid investments that have an original maturity of
three months or less and deposits in money market mutual funds that are readily
convertible into cash are considered cash equivalents.
Marketable Securities
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
gains (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 judged to be
other than temporary, if any, 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, were $15.0 million during each of the years ended December 31, 2000, 1999
and 1998. Cash payments made for income taxes, net of refunds, during the years
ended December 31, 2000, 1999, and 1998 were $25.8 million, $35.0 million, and
$151.3 million, respectively.
Rig Inventory and Supplies
Inventories primarily consist of replacement parts and supplies held for
use in the operations of the Company. Inventories are stated at the lower of
cost or estimated value.
Drilling and Other Property and Equipment
Drilling and other property and equipment is carried at cost. Maintenance
and repairs are charged to income currently while replacements and betterments
are capitalized. Costs incurred for major rig upgrades are accumulated in
construction work in progress, with no depreciation recorded on the additions,
until the month the upgrade is completed and the rig is placed in service. Upon
retirement or other disposal of fixed assets, the cost and related accumulated
depreciation are removed from the respective accounts and any gains
32
33
or losses are included in the results of operations. Depreciation is provided on
the straight-line method over the remaining estimated useful lives from the date
the asset is placed in service.
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 $24.1 million during the year ended December 31, 2000, and
$15.5 million during each of the years ended December 31, 1999 and 1998.
Interest cost capitalized during the years ended December 31, 2000, 1999, and
1998 was $13.8 million, $6.3 million, and $1.0 million, respectively.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company evaluated its high-specification semisubmersible, the
Ocean Confidence, for impairment in accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of," and no instance of impairment was noted.
Goodwill
Goodwill from the merger with Arethusa (Off-Shore) Limited ("Arethusa") is
amortized on a straight-line basis over 20 years. Amortization charged to
operating expense during the years ended December 31, 2000, 1999, and 1998
totaled $4.5 million, $5.3 million, and $6.5 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.
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company's non-U.S.
income tax liabilities are based upon the results of operations of the various
subsidiaries and foreign branches in those jurisdictions in which they are
subject to taxation.
Treasury Stock
Depending on market conditions, the Company may, from time to time,
purchase shares of its common stock in the open market or otherwise. 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. During the year ended
December 31, 2000, the Company purchased 2.7 million shares of its common stock
at an aggregate cost of $93.0 million, or at an average cost of $34.36 per
share. The Company did not repurchase any of its common stock during the year
ended December 31, 1999. Effective December 31, 2000, the Company retired all
6,223,200 shares of its treasury stock at an aggregate cost of $181.7 million.
Common Equity Put Options
In August 2000, in connection with its ongoing stock repurchase program,
the Company sold put options covering 750,000 common shares. The options gave
the holders the right to require the Company to repurchase shares of its common
stock at an exercise price of $37.85 at anytime prior to expiration through
February 2001. The Company had the option to settle in cash or shares of common
stock. Premiums received for these options of $3.9 million are recorded in
"Additional paid-in capital" in the Consolidated Balance Sheets. All of these
options were unexercised and expired by the end of February 2001.
33
34
On February 27, 2001, the Company received premiums of $3.1 million for the
sale of put options covering 500,000 common shares. The options give the holders
the right to require the Company to repurchase shares of its common stock at an
exercise price of $40.00 at anytime prior to expiration in February 2002. The
Company has the option to settle in cash or shares of common stock.
Revenue Recognition
Income from dayrate drilling contracts is recognized currently. In
connection with such drilling contracts, the Company may receive lump-sum fees
for the mobilization of equipment and personnel. The net of mobilization fees
received and costs incurred to mobilize an offshore rig from one market to
another is recognized over the term of the related drilling contract unless
there is a net mobilization cost in which case the cost is recognized currently.
Absent a contract, mobilization costs are also recognized currently. Lump-sum
payments received from customers relating to specific contracts are deferred and
amortized to income over the term of the drilling contract.
Income from offshore turnkey drilling contracts is recognized on the
completed contract method, with revenues accrued to the extent of costs until
the specified turnkey depth and other contract requirements are met. Provisions
for future losses on turnkey drilling contracts are recognized when it becomes
apparent that expenses to be incurred on a specific contract will exceed the
revenue from that contract.
Currency Translation
The Company's primary functional currency is the U.S. dollar. Certain of
the Company's subsidiaries use the local currency in the country where they
conduct operations as their functional currency. These subsidiaries translate
assets and liabilities at year-end exchange rates while income and expense
accounts are translated at average exchange rates. Translation adjustments are
reflected in the Consolidated Balance Sheets in "Accumulated other comprehensive
gains/(losses)." Currency transaction gains and losses are included in the
Consolidated Statements of Income in "Other income (expense)." Additionally,
translation gains and losses of subsidiaries operating in hyperinflationary
economies are included in operating results currently.
Comprehensive Income
Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances except
those transactions resulting from investments by owners and distributions to
owners. Comprehensive income includes net income, foreign currency translation
gains and losses, and unrealized holding gains and losses on investments.
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.
34
35
2. EARNINGS PER SHARE
A reconciliation of the numerators and the denominators of the basic and
diluted per-share computations for net income follows:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income -- basic (numerator):
Net income......................................... $ 72,281 $156,071 $383,659
Effect of dilutive potential shares
Convertible notes.......................... 4,249 5,988 9,419
-------- -------- --------
Net income including conversions..................... $ 76,530 $162,059 $393,078
======== ======== ========
Weighted average shares -- basic (denominator):
Weighted average shares............................ 135,164 135,822 138,020
Effect of dilutive potential shares
Convertible notes.......................... 9,876 9,876 9,876
-------- -------- --------
Weighted average shares including conversions........ 145,040 145,698 147,896
======== ======== ========
Earnings per share:
Basic.............................................. $ 0.53 $ 1.15 $ 2.78
======== ======== ========
Diluted............................................ $ 0.53 $ 1.11 $ 2.66
======== ======== ========
On February 4, 1997, the Company issued $400.0 million of 3.75% convertible
subordinated notes (the "Notes") due February 15, 2007. The Notes are
convertible into approximately 9.8 million shares of the Company's common stock
at any time prior to February 15, 2007 at a conversion price of $40.50 per
share. The number of shares outstanding for the periods presented were increased
to include the weighted average number of shares issuable assuming full
conversion of the notes.
On June 6, 2000, the Company issued 20-year zero coupon convertible
debentures (the "Debentures"). The Debentures were issued at a discount with a
yield to maturity of 3.50% per year. The Debentures are convertible into
approximately 6.9 million shares of the Company's common stock at any time prior
to June 6, 2020 at a fixed conversion rate of 8.6075 shares per Debenture. The
computation of diluted earnings per share ("EPS") does not assume conversion of
the Debentures for the year ended December 31, 2000 since there would be an
antidilutive effect on EPS.
At the 2000 Annual Meeting of Stockholders on May 16, 2000, the Diamond
Offshore Drilling, Inc. 2000 Stock Option Plan (the "Stock Option Plan") was
approved. There were 109,000 non-qualified stock options outstanding at December
31, 2000. Non-qualified stock options granted in July 2000 to purchase 2,500
shares of common stock at an exercise price of $35.72 per share were included in
the computation of diluted EPS for the periods presented since the options'
exercise price was less than the average market price of the common stock.
However, the incremental shares calculated were immaterial for presentation
purposes.
The options to originally purchase up to 1.0 million shares of common stock
assumed in the merger with Arethusa (the "Arethusa Options") have not been
included as dilutive potential shares. The effect on the computation of EPS, had
the Arethusa Options been included, was not material. All unexercised Arethusa
Options had expired as of August 31, 2000. At December 31, 1999 and 1998, there
were Arethusa Options outstanding for the purchase of approximately 39,000 and
48,000 shares of common stock, respectively.
In August 2000, the Company sold put options covering 750,000 common shares
at an exercise price of $37.85 per share. The options were outstanding through
December 31, 2000 but were not included in the computation of diluted EPS for
2000 because the options' exercise price was less than the average market price
of the common stock.
35
36
3. MARKETABLE SECURITIES
Investments classified as available for sale are summarized as follows:
DECEMBER 31, 2000
--------------------------------
UNREALIZED
GAIN MARKET
COST (LOSS) VALUE
-------- ---------- --------
(IN THOUSANDS)
Debt securities issued by the U.S. Treasury
Due within one year................................ $149,005 $ 60 $149,065
Due after one year through five years.............. 265,981 1,045 267,026
Collateralized mortgage obligations.................. 297,446 3,757 301,203
Equity securities.................................... 231 153 384
-------- ------ --------
Total...................................... $712,663 $5,015 $717,678
======== ====== ========
DECEMBER 31, 1999
--------------------------------
UNREALIZED
GAIN MARKET
COST (LOSS) VALUE
-------- ---------- --------
(IN THOUSANDS)
Debt securities issued by the U.S. Treasury
Due within one year................................ $259,090 $(1,123) $257,967
Due after one year through five years.............. 124,935 (2,180) 122,755
Collateralized mortgage obligations.................. 153,004 (6,130) 146,874
Equity securities.................................... 1,446 -- 1,446
-------- ------- --------
Total...................................... $538,475 $(9,433) $529,042
======== ======= ========
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 year ended December 31, 2000, certain debt securities due within
one year were sold or matured for proceeds of $757.6 million, resulting in an
after-tax realized loss of $0.8 million. Certain debt securities due after one
year were sold for proceeds of $222.3 million during the year ended December 31,
2000, with a resulting after-tax realized gain of $0.5 million. Collateralized
mortgage obligations were sold for proceeds of $348.7 million during the year
ended December 31, 2000, with a resulting after-tax realized gain of $1.1
million. Collateralized mortgage obligation principals were reduced by $14.5
million during the year. The after-tax realized losses were immaterial. Also
during the year ended December 31, 2000, certain equity securities were sold for
proceeds of $2.1 million, with a resulting after-tax realized gain of $0.6
million.
At December 31, 1999, the market value of the Company's investment in
equity securities was $1.4 million, which included an unrealized loss of $10.7
million. Because this decline in value was judged to be other than temporary,
the cost of the securities was written down from $12.1 million to $1.4 million
at December 31, 1999 and a corresponding after-tax impairment loss of $6.9
million was charged against net income for the year ended December 31, 1999.
During the year ended December 31, 1999, certain debt securities due within
one year were sold or matured for proceeds of $640.9 million, resulting in
after-tax realized gains that were immaterial. Certain debt securities due after
one year were sold for proceeds of $99.8 million during the year ended December
31, 1999, with a resulting after-tax realized loss of $0.3 million.
36
37
4. DRILLING AND OTHER PROPERTY AND EQUIPMENT
Cost and accumulated depreciation of drilling and other property and
equipment are summarized as follows:
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Drilling rigs and equipment................................. $2,155,924 $2,095,613
Construction work in progress............................... 474,154 241,102
Land and buildings.......................................... 14,224 13,992
Office equipment and other.................................. 18,480 17,552
---------- ----------
Cost.............................................. 2,662,782 2,368,259
Less accumulated depreciation............................... (760,367) (630,354)
---------- ----------
Drilling and other property and equipment, net.... $1,902,415 $1,737,905
========== ==========
Construction work in progress in 2000 included approximately $450.0 million
for the conversion of the Ocean Confidence. In January 2001, this amount was
reclassed from construction work in progress to drilling rigs and equipment due
to the completion of the conversion of the rig from an accommodation vessel to a
semisubmersible drilling unit. The customer accepted the rig on January 5, 2001
at which time it began a five-year drilling program in the Gulf of Mexico.
In January 2000, the Company sold a jack-up drilling rig, the Ocean
Scotian, for $32.0 million in cash resulting in a gain of $13.9 million ($9.0
million after-tax). The rig had been cold stacked offshore The Netherlands prior
to the sale.
5. 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 is summarized as follows:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Goodwill.................................................... $ 82,628 $ 96,112
Less accumulated amortization............................... (27,423) (22,938)
-------- --------
Total............................................. $ 55,205 $ 73,174
======== ========
During the years ended December 31, 2000 and 1999, adjustments of $13.5
million and $31.3 million, respectively, were recorded to reduce goodwill before
accumulated amortization. The adjustments represent tax benefits not previously
recognized for the excess of tax deductible goodwill over the book goodwill
amount.
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
-----------------
2000 1999
------- -------
(IN THOUSANDS)
Personal injury and other claims............................ $21,565 $18,219
Payroll and benefits........................................ 22,688 16,281
Interest payable............................................ 5,870 5,667
Other....................................................... 3,800 3,884
------- -------
Total............................................. $53,923 $44,051
======= =======
37
38
7. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Convertible subordinated notes -- 3.75%..................... $399,980 $400,000
Zero coupon convertible debentures -- 3.50%................. 410,211 --
Lease-leaseback agreement................................... 56,100 --
-------- --------
866,291 400,000
Less: Current maturities.................................... 9,732 --
-------- --------
Total............................................. $856,559 $400,000
======== ========
Convertible Subordinated Notes
In February 1997, the Company issued $400.0 million of convertible
subordinated notes due February 15, 2007. The Notes are convertible into shares
of the Company's common stock, at a conversion price of $40.50 per share,
subject to adjustment in certain circumstances. The Notes have a stated interest
rate of 3.75% and an effective interest rate of 3.93%. Interest is payable
semi-annually on each February 15 and August 15. In August 2000, $20,000 in
Notes were converted into 493 shares of the Company's common stock.
The Notes are redeemable, in whole or, from time to time, in part, at the
option of the Company, at any time on or after February 22, 2001, at specified
redemption prices, plus accrued and unpaid interest to the date of redemption.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to the prior payment in full of the principal and premium, if
any, and interest on all indebtedness of the Company for borrowed money, other
than the Notes, with certain exceptions, and effectively subordinated in right
of payment to the prior payment in full of all indebtedness of the Company's
subsidiaries. The Notes do not restrict the Company's ability to incur other
indebtedness or additional indebtedness of the Company's subsidiaries.
On March 7, 2001, the Company announced its decision to redeem, on April 6,
2001, all of its outstanding Notes at a redemption price of 102.08% of the
principal amount thereof, together with interest accrued to (but not including)
the redemption date. These Notes are convertible on or before the close of
business on April 5, 2001 into shares of the Company's common stock at a
conversion price of $40.50 per share, subject to adjustment in certain
circumstances. If none of the Notes outstanding are converted into common stock
prior to April 6, 2001, the redemption of all of the outstanding Notes would
result in a charge of $7.9 million after-tax and reported as an extraordinary
loss in the second quarter of 2001.
Zero Coupon Convertible Debentures
On June 6, 2000, the Company issued zero coupon convertible Debentures due
June 6, 2020. The Debentures were issued at a price of $499.60 per $1,000
debenture, which represents a yield to maturity of 3.50% per year. The Company
will not pay interest prior to maturity unless it elects to convert the
Debentures to interest-bearing debentures upon the occurrence of certain tax
events. The Debentures are convertible at the option of the holder at any time
prior to maturity, unless previously redeemed, into the Company's common stock
at a fixed conversion rate of 8.6075 shares of common stock per Debenture,
subject to adjustments in certain events. The Debentures are senior unsecured
obligations of the Company.
The Company has the right to redeem the Debentures, in whole or in part,
after June 6, 2005 for a price equal to the issuance price plus accrued original
issue discount through the date of redemption. Holders have the right to require
the Company to repurchase the Debentures on the fifth, tenth and fifteenth
anniversaries of issuance at the accreted value through the date of repurchase.
The Company may pay such repurchase price with either cash or shares of the
Company's common stock or a combination of cash and shares of common stock.
Lease-Leaseback Agreement
In December 2000, the Company entered into a lease-leaseback agreement (the
"Agreement") with a European bank. The Agreement provides for the Company to
lease the Ocean Alliance, one of the Company's
38
39
high specification semisubmersible drilling rigs, to the bank for a lump-sum
payment of $55.0 million plus an origination fee of $1.1 million and for the
bank to then sub-lease the rig back to the Company. Under the Agreement, which
has a five-year term, the Company is to make five annual payments of $13.7
million. This financing arrangement has an effective interest rate of 7.13% and
is an unsecured subordinated obligation of the Company.
Credit Agreement
In April 1999, the Company entered into a $20.0 million short-term
revolving credit agreement with a U.S. bank. The credit agreement provides for
borrowings at various interest rates and varying commitment fees dependent upon
public credit ratings. In April 2000, the credit agreement was amended to revise
these interest rates and commitment fees. 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 credit agreement contains certain financial and other covenants and
provisions that must be maintained by the Company for compliance. As of December
31, 2000, there were no outstanding borrowings under this credit agreement and
the Company was in compliance with each of the covenants and provisions.
8. COMPREHENSIVE INCOME
The income tax effects allocated to the components of other comprehensive
income are as follows:
YEAR ENDED DECEMBER 31, 2000
------------------------------------
BEFORE TAX TAX EFFECT NET-OF-TAX
---------- ---------- ----------
(IN THOUSANDS)
Foreign currency translation gain (loss)............. $ 778 $ (272) $ 506
Unrealized gain (loss) on investments:
Gain (loss) arising during 2000.................... 5,014 (1,755) 3,259
Reclassification adjustment........................ 9,437 (3,303) 6,134
------- ------- ------
Net unrealized gain (loss)......................... 14,451 (5,058) 9,393
------- ------- ------
Other comprehensive income (loss).................... $15,229 $(5,330) $9,899
======= ======= ======
YEAR ENDED DECEMBER 31, 1999
------------------------------------
BEFORE TAX TAX EFFECT NET-OF-TAX
---------- ---------- ----------
(IN THOUSANDS)
Foreign currency translation gain (loss)............. $(1,512) $ 529 $ (983)
Unrealized gain (loss) on investments:
Gain (loss) arising during 1999.................... (9,081) 3,178 (5,903)
Reclassification adjustment........................ 8,700 (3,045) 5,655
------- ------- -------
Net unrealized gain (loss)......................... (381) 133 (248)
------- ------- -------
Other comprehensive income (loss).................... $(1,893) $ 662 $(1,231)
======= ======= =======
YEAR ENDED DECEMBER 31, 1998
------------------------------------
BEFORE TAX TAX EFFECT NET-OF-TAX
---------- ---------- ----------
(IN THOUSANDS)
Foreign currency translation gain (loss)............. $ (1,430) $1,139 $ (291)
Unrealized gain (loss) on investments:
Gain (loss) arising during 1998.................... (8,918) 3,121 (5,797)
Reclassification adjustment........................ 28 (10) 18
-------- ------ -------
Net unrealized gain (loss)......................... (8,890) 3,111 (5,779)
-------- ------ -------
Other comprehensive income (loss).................... $(10,320) $4,250 $(6,070)
======== ====== =======
39
40
9. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases, which expire
through the year 2005. Total rent expense amounted to $1.2 million, $1.4
million, and $1.8 million for the years ended December 31, 2000, 1999, and 1998,
respectively. Minimum future rental payments under leases are approximately $0.6
million, $0.3 million, $30,000, $22,000 and $14,000 for the years 2001 to 2005,
respectively. There are no minimum future rental payments under leases after the
year 2005.
The Company is contingently liable as of December 31, 2000 in the amount of
$32.0 million under certain performance, bid, customs and export bonds. On the
Company's behalf, banks have issued letters of credit securing certain of these
bonds.
Raymond Verdin v. R&B Falcon Drilling USA, Inc., et al; No. G-00-488 in the
United States District Court for the Southern District of Texas, Galveston
Division, filed October 10, 2000. The Company was named as a defendant in a
proposed class action suit filed on behalf of offshore oil workers against all
of the major offshore drilling companies. The proposed class includes persons
hired in the United States by the companies to work in the Gulf of Mexico and
around the world. The allegation is that the companies, through trade groups,
shared wage information in order to fix and suppress the wages of the workers in
violation of the Sherman Antitrust Act and various state laws. Plaintiff Thomas
Bryant has replaced the named plaintiff as the proposed class representative. No
class has been certified at this time, however, a hearing on class certification
is scheduled for the second week of May 2001. The lawsuit is seeking damages as
well as attorney's fees and costs. The Company believes that the case is without
merit and is vigorously contesting liability.
In August 1999, a customer terminated a contract for use of one of the
Company's drilling rigs located offshore Australia. The termination was made in
accordance with the terms of the contract and was not the result of performance
failures by the Company or its equipment. The Company believed that the contract
required the customer to pay approximately $16.5 million in remaining revenue
through the end of the contract period, which was previously scheduled to end in
early January 2000. However, the customer believed that there was no further
obligation under the contract and refused to pay the $16.5 million early
termination fee. The Company filed suit in Australia in August 1999 requesting
reconstruction of the contract and a declaratory judgment requiring the customer
to pay such early termination fee. In January 2001, the Company and the customer
entered into an out-of-court settlement of the claim. The Company received $7.3
million from the customer which will be included in the Company's Consolidated
Statements of Income in the first quarter of 2001. Separately, the Company
entered into contracts with the customer to work two of its rigs at favorable
dayrates; both of which are scheduled to begin work during the first quarter of
2001.
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.
10. FINANCIAL INSTRUMENTS
Concentrations of Credit and Market Risk
Financial instruments which potentially subject the Company to significant
concentrations of credit or market risk consist primarily of periodic temporary
investments of excess cash and trade accounts receivable, and investments in
debt and equity securities, including treasury inflation-indexed protective
bonds ("TIP's") and collateralized mortgage obligations ("CMO's"). The Company
places its temporary excess cash investments in high quality short-term money
market instruments through several financial institutions. At times, such
investments may be in excess of the insurable limit. The Company's periodic
evaluations of the relative credit standing of these financial institutions are
considered in the Company's investment strategy.
Concentrations of credit risk with respect to trade accounts receivable are
limited primarily due to the entities comprising the Company's customer base.
Since the market for the Company's services is the offshore oil and gas
industry, this customer base consists primarily of major oil companies and
independent oil and gas
40
41
producers. The Company provides allowances for potential credit losses when
necessary. No such allowances were deemed necessary for the years presented and,
historically, the Company has not experienced significant losses on trade
receivables. The Company's investments in debt securities, which are primarily
U.S. government securities, do not impose a significant market risk on the
Company as they are generally short-term with ready marketability. TIP's are not
considered high-risk investments. While the amount of each semiannual interest
payment is based on the security's inflation-adjusted principal amount on an
interest payment date, if at maturity the inflation-adjusted principal is less
than the security's par amount, the U.S. government pays an additional amount so
that the inflation-adjusted principal equals the par amount. Investments in
CMO's are not considered high-risk as they consist of high quality
mortgage-backed securities and are principal-only certificates, which eliminates
the risk of potential loss related to prepayment.
Fair Values
The amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, marketable securities, accounts receivable, and accounts payable
approximate fair value. At December 31, 2000 and 1999, the fair value of the
Notes was approximately $440.2 million and $403.9 million, respectively,
compared to a carrying amount of approximately $400.0 million. At December 31,
2000, the fair value of the Debentures was approximately $406.2 million compared
to a carrying amount of approximately $410.2 million.
The estimated fair value amounts have been determined by the Company using
appropriate valuation methodologies and information available to management as
of December 31, 2000 and 1999. Considerable judgment is required in developing
these estimates, and accordingly, no assurance can be given that the estimated
values are indicative of the amounts that would be realized in a free market
exchange. The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it was practicable to
estimate that value:
Cash and cash equivalents -- The carrying amounts approximate fair value
because of the short maturity of these instruments.
Marketable securities -- The fair values of the debt and equity securities,
including TIP's and CMO's, available for sale were based on quoted market prices
as of December 31, 2000 and 1999.
Accounts receivable and accounts payable -- The carrying amounts
approximate fair value based on the nature of the instruments.
Long-term debt -- The fair value was based on the quoted market price from
brokers of the Notes and Debentures.
11. RELATED PARTY TRANSACTIONS
The Company and Loews have entered into a services agreement which was
effective upon consummation of the Common Stock Offering (the "Services
Agreement") pursuant to which Loews agreed to continue to perform certain
administrative and technical services on behalf of the Company. Such services
include personnel, telecommunications, purchasing, internal auditing,
accounting, data processing and cash management services, in addition to advice
and assistance with respect to preparation of tax returns and obtaining
insurance. Under the Services Agreement, the Company is required to reimburse
Loews for (i) allocated personnel costs (such as salaries, employee benefits and
payroll taxes) of the Loews personnel actually providing such services and (ii)
all out-of-pocket expenses related to the provision of such services. The
Services Agreement may be terminated at the Company's option upon 30 days'
notice to Loews and at the option of Loews upon six months' notice to the
Company. In addition, the Company has agreed to indemnify Loews for all claims
and damages arising from the provision of services by Loews under the Services
Agreement, unless due to the gross negligence or willful misconduct of Loews.
The Company was charged $0.4 million, $0.3 million, and $0.4 million by Loews
for these support functions during the years ended December 31, 2000, 1999, and
1998, respectively.
41
42
12. STOCK OPTION PLAN
On March 28, 2000, the Company adopted the Stock Option Plan, which was
approved by its stockholders on May 16, 2000. Under the terms of the plan,
certain of the Company's employees, consultants and non-employee directors may
be granted options to purchase stock at no less than 100% of the fair market
value of the stock on the date the option is granted. Such plan reserved for
issuance up to 750,000 shares of the Company's common stock, none of which had
been issued as of December 31, 2000. Unless otherwise specified by the Board of
Directors at the time of the grant, stock options have a maximum term of ten
years, subject to earlier termination under certain conditions and vest over
four years.
The following table summarizes the stock option activity related to the
Stock Option Plan:
2000
--------------------------
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
Outstanding, January 1...................................... -- $ --
Granted..................................................... 113,000 42.84
Forfeited................................................... (4,000) 43.03
------- ------
Outstanding, December 31.................................... 109,000 $42.83
======= ======
The following table summarizes information for options outstanding and
exercisable at December 31, 2000:
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ---------------------------
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------- ------ ---------------- ---------------- ------ ----------------
$35.72-$43.03 109,000 9.4 years $42.83 5,000 $38.75
The Company accounts for the Stock Option Plan in accordance with
Accounting Principle Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense has been recognized for the
options granted under the plan. Had compensation expense for the Company's stock
options been recognized based on the fair value of the options at the grant
dates, using the methodology prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2000
--------------------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Net Income:
As reported............................................ $72,281
Pro forma.............................................. $71,918
Earnings Per Share of Common Stock:
As reported............................................ $ 0.53
Pro forma.............................................. $ 0.53
Earnings Per Share of Common Stock -- assuming dilution:
As reported............................................ $ 0.53
Pro forma.............................................. $ 0.53
The per share weighted-average fair value of stock options granted during
2000 was $26.71. The fair value of each stock option granted was estimated on
the date of grant using the Binomial Option Pricing Model. Assumptions used in
the model included a weighted average risk-free interest rate of 6.71%, an
expected life of options of six years, expected volatility of the Company's
stock price of 69% and an expected dividend yield on the Company's stock of
1.25%.
42
43
13. INCOME TAXES
An analysis of the Company's income tax expense is as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- --------
(IN THOUSANDS)
U.S. -- current........................................ $ 7,981 $15,830 $110,379
U.S. -- deferred....................................... 26,155 38,529 61,403
Non-U.S. -- current.................................... 4,450 29,933 34,790
------- ------- --------
Total........................................ $38,586 $84,292 $206,572
======= ======= ========
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
DECEMBER 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.......................... $ 8,990 $ 12,061
Worker's compensation accruals(1)......................... 4,635 2,978
Foreign tax credits....................................... 30,214 24,121
Other(2).................................................. 4,227 14,849
--------- ---------
Total deferred tax assets......................... 48,066 54,009
--------- ---------
Deferred tax liabilities:
Depreciation and amortization............................. (300,969) (284,264)
Undistributed earnings of non-U.S. subsidiaries........... (37,193) (32,546)
Non-U.S. deferred taxes................................... (14,684) (15,402)
Other..................................................... (7,076) (10,032)
--------- ---------
Total deferred tax liabilities.................... (359,922) (342,244)
--------- ---------
Net deferred tax liability........................ $(311,856) $(288,235)
========= =========
- ---------------
(1) Reflected in "Prepaid expenses and other" in the Company's Consolidated
Balance Sheets.
(2) In 2000, approximately $136,000 reflected in "Prepaid expenses and other" in
the Company's Consolidated Balance Sheets.
Except for selective dividends, the Company's practice prior to 1997 was to
reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their
remittance indefinitely. Thus, no additional U.S. taxes were provided on such
earnings. Undistributed earnings of non-U.S. subsidiaries generated prior to
1997 for which no U.S. deferred income tax provision has been made for possible
future remittances totaled approximately $46.6 million at December 31, 2000. In
addition, the Company has negative undistributed earnings of non-U.S.
subsidiaries generated prior to 1997 of $66.8 million at December 31, 2000 for
which no deferred tax benefit has been recognized. It is not practicable to
estimate the amount of unrecognized U.S. deferred taxes, if any, that might be
payable on the actual or deemed remittance of such earnings. On actual
remittance, certain countries impose withholding taxes that, subject to certain
limitations, are then available for use as tax credits against a U.S. tax
liability, if any.
The Company believes it is probable that its deferred tax assets of $48.1
million will be realized on future tax returns, primarily from the generation of
future taxable income through both profitable operations and future reversals of
existing taxable temporary differences. However, if the Company is unable to
generate sufficient taxable income in the future through operating results, a
valuation allowance will be required as a charge to expense.
Deferred income taxes are not recorded on differences between financial
reporting and tax bases of investments in stock of the Company's subsidiaries,
unless realization of the effect is probable in the
43
44
foreseeable future. The Company also has certain income tax loss carryforwards
in non-U.S. tax jurisdictions to which it has assigned no value because of the
uncertainty of utilization of these carryforwards.
In connection with the merger with Arethusa, the Company acquired net
operating loss ("NOL") carryforwards available to offset future taxable income.
The utilization of these NOL carryforwards is limited pursuant to Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"). For the year ended
December 31, 2000, the Company utilized $8.8 million of such carryforwards and
has previously recorded a deferred tax asset for the benefit of the remaining
NOL carryforwards available for future years. Such carryforwards expire as
follows:
TAX BENEFIT OF
NET OPERATING
YEAR LOSSES
- ---- --------------
(IN THOUSANDS)
2007................................................... $ 547
2008................................................... 3,676
2009................................................... 3,901
2010................................................... 866
------
Total........................................ $8,990
======
The difference between actual income tax expense and the tax provision
computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Income before income tax expense:
U.S. .............................................. $ 97,118 $212,331 $532,378
Non-U.S. .......................................... 13,749 28,032 57,853
-------- -------- --------
Worldwide.......................................... $110,867 $240,363 $590,231
======== ======== ========
Expected income tax expense at federal statutory
rate............................................... $ 38,803 $ 84,127 $206,581
Adjustment to prior year return...................... (69) (4) --
Other................................................ (148) 169 (9)
-------- -------- --------
Income tax expense......................... $ 38,586 $ 84,292 $206,572
======== ======== ========
14. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company maintains defined contribution retirement plans for its U.S.,
U.K. and third country national ("TCN") employees. The plan for U.S. employees
(the "401k Plan") is designed to qualify under Section 401k of the Code. Under
the 401k Plan, each participant may elect to defer taxation on a portion of his
or her eligible earnings, as defined by the 401k Plan, by directing the Company
to withhold a percentage of such earnings. A participating employee may also
elect to make after-tax contributions to the 401k Plan. The Company contributes
3.75% of a participant's defined compensation and matches 25% of the first 6% of
each employee's compensation contributed. Participants are fully vested
immediately upon enrollment in the plan. For the years ended December 31, 2000,
1999, and 1998, the Company's provision for contributions was $6.2 million, $6.4
million and $5.7 million, respectively.
The plan for U.K. employees provides that the Company contributes amounts
equivalent to the employee's contributions generally up to a maximum of 5.25% of
the employee's defined compensation per year. The Company's provision for
contributions was $0.4 million for the year ended December 31, 2000 and $0.5
million for each of the years ended December 31, 1999 and 1998.
44
45
The plan for the Company's TCN employees was effective April 1, 1998 and is
similar to the 401k Plan. The Company contributes 3.75% of a participant's
defined compensation and matches 25% of the first 6% of each employee's
compensation contributed. For the years ended December 31, 2000, 1999, and 1998,
the Company's provision for contributions was $0.5 million, $0.6 million and
$0.3 million, respectively.
Deferred Compensation and Supplemental Executive Retirement Plan
The Company established its Deferred Compensation and Supplemental
Executive Retirement Plan in December 1996. The Company contributes any portion
of the 3.75% of the base salary contribution and the matching contribution to
the 401k Plan that cannot be contributed because of the limitations within the
Code and because of elective deferrals that the participant makes under the
plan. Additionally, the plan provides that participants may defer up to 10% of
base compensation and/or up to 100% of any performance bonus. Participants in
this plan are a select group of management or highly compensated employees of
the Company and are fully vested in all amounts paid into the plan. The
Company's provision for contributions for the years ended December 31, 2000,
1999, and 1998 was not material.
Pension Plan
The defined benefit pension plan established by Arethusa effective October
1, 1992 was frozen on April 30, 1996. At that date, all participants were deemed
fully vested in the plan, which covered substantially all U.S. citizens and U.S.
permanent residents who were employed by Arethusa. Benefits are calculated and
paid based on an employee's years of credited service and average compensation
at the date the plan was frozen using an excess benefit formula integrated with
social security covered compensation.
Pension costs are determined actuarially and funded as required by the
Code. The plan's assets are invested in cash and cash equivalents, equity
securities, government and corporate debt securities. As a result of freezing
the plan, no service cost has been accrued for the years presented.
The data and significant actuarial assumptions as of the plan's year end
set forth in the following tables are presented in accordance with SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
the Company has retroactively adopted for all periods presented.
SEPTEMBER 30,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year............... $12,023 $10,597 $ 9,365
Interest cost......................................... 894 705 668
Actuarial gain........................................ 42 1,068 877
Benefits paid......................................... (378) (347) (313)
------- ------- -------
Benefit obligation at end of year..................... 12,581 12,023 10,597
------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year........ 14,427 12,571 12,971
Actual return on plan assets.......................... 641 2,203 (87)
Benefits paid......................................... (378) (347) (313)
------- ------- -------
Fair value of plan assets at end of year.............. 14,690 14,427 12,571
------- ------- -------
Funded status......................................... 2,109 2,404 1,974
Unrecognized loss/(gain).............................. 905 215 (394)
------- ------- -------
Prepaid benefit cost.................................. $ 3,014 $ 2,619 $ 1,580
======= ======= =======
45
46
SEPTEMBER 30,
--------------------------
2000 1999 1998
------- ------- ------
Weighted-average assumptions:
Discount rate.......................................... 7.50% 7.50% 6.75%
Expected long-term rate................................ 9.00% 9.00% 9.00%
SEPTEMBER 30,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Components of net periodic benefit cost:
Interest cost......................................... $ (894) $ (705) $ (668)
Expected return on plan assets........................ 1,289 1,118 1,154
Amortization of gain.................................. -- -- 63
------- ------- -------
Net periodic pension benefit income................... $ 395 $ 413 $ 549
======= ======= =======
15. SEGMENTS AND GEOGRAPHIC AREA ANALYSIS
The Company manages its business on the basis of 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 SFAS 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):
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- ----------
(IN THOUSANDS)
High specification floaters......................... $212,000 $262,571 $ 286,875
Other semisubmersibles.............................. 313,287 463,168 707,227
Jack-ups............................................ 118,885 74,484 209,134
Integrated services................................. 23,298 32,769 26,876
Other............................................... 140 -- --
Eliminations........................................ (8,174) (11,968) (21,311)
-------- -------- ----------
Total revenues............................ $659,436 $821,024 $1,208,801
======== ======== ==========
Geographic Areas
At December 31, 2000, the Company had drilling rigs located offshore six
countries outside of 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
46
47
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.
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
-------- --------- ----------
(IN THOUSANDS)
Revenues from unaffiliated customers:
United States............................................ $355,470 $ 420,123 $ 692,648
Foreign:
Europe/Africa......................................... 69,495 178,254 292,579
South America......................................... 177,891 133,528 84,518
Australia/Southeast Asia.............................. 56,580 89,119 139,056
-------- --------- ----------
303,966 400,901 516,153
Interarea revenues from affiliates:
United States............................................ 98,367 114,393 169,322
Other.................................................... -- -- 7,284
-------- --------- ----------
98,367 114,393 176,606
Eliminations............................................... (98,367) (114,393) (176,606)
-------- --------- ----------
Total............................................ $659,436 $ 821,024 $1,208,801
======== ========= ==========
An individual foreign country may, from time to time, contribute a material
percentage of the Company's total revenues from unaffiliated customers. For the
years ended December 31, 2000, 1999, and 1998, individual countries that
contributed 5% or more of the Company's total revenues from unaffiliated
customers are listed below.
YEAR ENDED
DECEMBER 31,
----------------------
2000 1999 1998
---- ---- ----
Brazil...................................................... 25.5% 15.5% 7.0%
United Kingdom.............................................. 5.9% 10.0% 11.0%
Australia................................................... 5.8% 5.7% 5.3%
Angola...................................................... 2.1% 7.5% 2.8%
Long-lived tangible assets located in the United States and all foreign
countries in which the Company holds assets as of December 31, 2000, 1999, and
1998 are listed below. A substantial portion of the Company's assets are mobile,
therefore asset locations at the end of the period are not necessarily
indicative of the geographic distribution of the earnings generated by such
assets during the periods.
DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
Drilling and other property and equipment, net:
United States.......................................... $1,312,031 $1,113,908 $1,073,862
Foreign:
South America....................................... 388,358 399,471 186,432
Europe/Africa....................................... 81,401 154,378 233,753
Australia/Southeast Asia............................ 120,625 70,148 57,773
---------- ---------- ----------
590,384 623,997 477,958
---------- ---------- ----------
Total.......................................... $1,902,415 $1,737,905 $1,551,820
========== ========== ==========
Brazil is currently the only individual country outside the United States
with a material concentration of the Company's assets. Approximately 20.4%,
20.2%, and 12.0% of the Company's total drilling and other property and
equipment were located in or offshore Brazil as of December 31, 2000, 1999, and
1998, respectively.
47
48
Major Customers
The Company's customer base includes major and independent oil and gas
companies and government-owned oil companies. During the year ended December 31,
2000, two customers contributed 25.4% and 20.0% of total revenues, respectively.
During the year ended December 31, 1999, two customers contributed 15.5% and
14.5% of total revenues, respectively. During the year ended December 31, 1998,
one customer contributed 17.4% of total revenues.
16. UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited summarized financial data by quarter for the years ended December
31, 2000 and 1999 is shown below.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Revenues................................... $167,828 $143,317 $157,348 $190,943
Operating income........................... 24,110 (2,098) 3,128 31,806
Income before income tax expense........... 45,426 5,675 16,068 43,698
Net income................................. 29,488 3,637 10,477 28,679
Net income per share:
Basic.................................... 0.22 0.03 0.08 0.21
Diluted.................................. 0.21 0.03 0.08 0.20
1999
Revenues................................... $228,037 $215,337 $206,740 $170,910
Operating income........................... 75,661 74,909 50,168 22,923
Income before income tax expense........... 79,712 81,863 58,213 20,575
Net income................................. 51,818 53,227 37,846 13,180
Net income per share:
Basic.................................... 0.38 0.39 0.28 0.10
Diluted.................................. 0.37 0.37 0.27 0.10
48
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information responsive to the Items comprising
this Part III that is contained in the Company's definitive proxy statement for
its 2001 Annual Meeting of Stockholders, which is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Index to Financial Statements, Financial Statement Schedules and
Exhibits
(1) Financial Statements
PAGE
----
Independent Auditors' Report................................ 26
Consolidated Balance Sheets................................. 27
Consolidated Statements of Income........................... 28
Consolidated Statements of Stockholders' Equity............. 29
Consolidated Statements of Comprehensive Income............. 30
Consolidated Statements of Cash Flows....................... 31
Notes to Consolidated Financial Statements.................. 32
(2) Financial Statement Schedules
No schedules have been included herein because the information
required to be submitted has been included in the Company's Consolidated
Financial Statements or the notes thereto, or the required information
is inapplicable.
(3) Index of Exhibits....................................... 50
See Index of Exhibits for a list of those exhibits filed herewith,
which index also includes and identifies management contracts or
compensatory plans or arrangements required to be filed as exhibits to
this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.
(b) Reports on Form 8-K
The Company made the following reports on Form 8-K during the fourth
quarter of fiscal year 2000:
DATE OF REPORT DESCRIPTION OF REPORT
- -------------- ---------------------
November 8, 2000......................... Item 9 Regulation FD disclosure
(Informational only)
November 28, 2000........................ Item 9 Regulation FD disclosure
(Informational only)
December 11, 2000........................ Item 9 Regulation FD disclosure
(Informational only)
49
50
(c) Index of Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
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).
4.3 -- Second Supplemental Indenture, dated as of June 6, 2000,
between the Company and The Chase Manhattan Bank, as
Trustee (incorporated by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 30, 2000).
10.1 -- Registration Rights Agreement (the "Registration Rights
Agreement") dated October 16, 1995 between Loews and the
Company (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed March 27, 1996).
10.2 -- Amendment to the Registration Rights Agreement, dated
September 16, 1997, between Loews and the Company
(incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.3 -- Services Agreement, dated October 16, 1995, between Loews
and the Company (incorporated by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 filed March 27,
1996).
10.4+ -- Diamond Offshore Deferred Compensation and Supplemental
Executive Retirement Plan effective December 17, 1996
(incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.5+ -- First Amendment to Diamond Offshore Deferred Compensation
and Supplemental Executive Retirement Plan dated March
18, 1998 (incorporated by reference to Exhibit 10.8 of
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).
10.6+ -- Diamond Offshore Management Bonus Program, as amended and
restated, and dated as of December 31, 1997 (incorporated
by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997).
10.7 -- Purchase Agreement, dated May 31, 2000, between the
Company and Credit Suisse First Boston Corporation
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 30, 2000).
50
51
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.8 -- Registration Rights Agreement, dated June 6, 2000,
between the Company and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 6, 2000).
12.1* -- Statement re Computation of Ratios.
21.1* -- List of Subsidiaries of the Company.
23.1* -- Consent of Deloitte & Touche LLP.
24.1* -- Powers of Attorney.
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements.
51
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 8, 2001.
DIAMOND OFFSHORE DRILLING, INC.
By: /s/ GARY T. KRENEK*
----------------------------------
Gary T. Krenek
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JAMES S. TISCH* Chairman of the Board and Chief March 8, 2001
- ----------------------------------------------------- Executive Officer
James S. Tisch
/s/ LAWRENCE R. DICKERSON* President, Chief Operating March 8, 2001
- ----------------------------------------------------- Officer and Director
Lawrence R. Dickerson
/s/ GARY T. KRENEK* Vice President and Chief March 8, 2001
- ----------------------------------------------------- Financial Officer (Principal
Gary T. Krenek Financial Officer)
/s/ BETH G. GORDON* Controller (Principal Accounting March 8, 2001
- ----------------------------------------------------- Officer)
Beth G. Gordon
/s/ ALAN R. BATKIN* Director March 8, 2001
- -----------------------------------------------------
Alan R. Batkin
/s/ HERBERT C. HOFMANN* Director March 8, 2001
- -----------------------------------------------------
Herbert C. Hofmann
/s/ ARTHUR L. REBELL* Director March 8, 2001
- -----------------------------------------------------
Arthur L. Rebell
/s/ MICHAEL H. STEINHARDT* Director March 8, 2001
- -----------------------------------------------------
Michael H. Steinhardt
/s/ RAYMOND S. TROUBH* Director March 8, 2001
- -----------------------------------------------------
Raymond S. Troubh
/s/ WILLIAM B. RICHARDSON* Director March 8, 2001
- -----------------------------------------------------
William B. Richardson
*By: /s/ WILLIAM C. LONG
-------------------------------
William C. Long
Attorney-in-Fact
52
53
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
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).
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).
4.3 -- Second Supplemental Indenture, dated as of June 6, 2000,
between the Company and The Chase Manhattan Bank, as
Trustee (incorporated by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 30, 2000).
10.1 -- Registration Rights Agreement (the "Registration Rights
Agreement") dated October 16, 1995 between Loews and the
Company (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 filed March 27, 1996).
10.2 -- Amendment to the Registration Rights Agreement, dated
September 16, 1997, between Loews and the Company
(incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.3 -- Services Agreement, dated October 16, 1995, between Loews
and the Company (incorporated by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 filed March 27,
1996).
10.4+ -- Diamond Offshore Deferred Compensation and Supplemental
Executive Retirement Plan effective December 17, 1996
(incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.5+ -- First Amendment to Diamond Offshore Deferred Compensation
and Supplemental Executive Retirement Plan dated March
18, 1998 (incorporated by reference to Exhibit 10.8 of
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997).
10.6+ -- Diamond Offshore Management Bonus Program, as amended and
restated, and dated as of December 31, 1997 (incorporated
by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1997).
10.7 -- Purchase Agreement, dated May 31, 2000, between the
Company and Credit Suisse First Boston Corporation
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 30, 2000).
10.8 -- Registration Rights Agreement, dated June 6, 2000,
between the Company and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 10.2 of
the Company's Quarterly Report on Form 10-Q/A for the
quarterly period ended June 6, 2000).
54
EXHIBIT
NUMBER DESCRIPTION
------- -----------
12.1* -- Statement re Computation of Ratios.
21.1* -- List of Subsidiaries of the Company.
23.1* -- Consent of Deloitte & Touche LLP.
24.1* -- Powers of Attorney.
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements.