-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fj5uN5Pd+8X+/jUOfC13TmgyZ1WIo3NoUrOz8hRuYHItTVQt9pfLzoKfCEKgUC/0 lJ76P8ShY8DsgSdpS1SPtg== 0000899243-97-002124.txt : 19971114 0000899243-97-002124.hdr.sgml : 19971114 ACCESSION NUMBER: 0000899243-97-002124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSOCEAN OFFSHORE INC CENTRAL INDEX KEY: 0000314047 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 720464968 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07746 FILM NUMBER: 97712485 BUSINESS ADDRESS: STREET 1: 4 GREENWAY PLAZA CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7138717500 MAIL ADDRESS: STREET 1: 4 GREENWAY PLAZA CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: SONAT OFFSHORE DRILLING INC DATE OF NAME CHANGE: 19930415 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO _____________. COMMISSION FILE NUMBER 1-7746 ------------------------- TRANSOCEAN OFFSHORE INC. (Exact name of registrant as specified in its charter) ------------------------- DELAWARE 72-0464968 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4 GREENWAY PLAZA HOUSTON, TEXAS 77046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 871-7500 ------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of October 31, 1997, 100,911,238 shares of common stock, par value $.01 per share, of Transocean Offshore Inc. were outstanding. - ------------------------------------------------------------------------------- TRANSOCEAN OFFSHORE INC. INDEX TO FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1997 Page PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 1997 and 1996..... 2 Condensed Consolidated Balance Sheets September 30, 1997 and December 31, 1996.................... 3 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996............... 4 Notes to Condensed Consolidated Financial Statements........... 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 9 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings........................................... 19 ITEM 6. Exhibits and Reports on Form 8-K............................ 20 1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The condensed consolidated financial statements of Transocean Offshore Inc. and consolidated subsidiaries (the "Company") included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------- ------------- 1997 1996 1997 1996 ---------- ---------- ---------- ------------- (In thousands, except per share data) Operating Revenues $223,201 $136,926 $650,910 $327,027 - -------------------------------------------------------------------------------------------------- Costs and Expenses Operating and maintenance 129,670 89,724 407,401 216,526 Depreciation and amortization 26,001 10,587 76,246 22,945 General and administrative 6,591 4,014 19,635 10,770 - -------------------------------------------------------------------------------------------------- 162,262 104,325 503,282 250,241 - -------------------------------------------------------------------------------------------------- Operating Income 60,939 32,601 147,628 76,786 - -------------------------------------------------------------------------------------------------- Other Income (Expense), Net Equity in earnings of joint ventures 3,248 1,222 8,133 3,825 Interest income 743 1,492 1,593 5,186 Interest expense, net of amounts capitalized (5,671) (2,315) (16,502) (2,848) Other, net (1,298) 148 (1,911) 7,605 - -------------------------------------------------------------------------------------------------- (2,978) 547 (8,687) 13,768 - -------------------------------------------------------------------------------------------------- Income Before Income Taxes 57,961 33,148 138,941 90,554 Income Taxes 18,842 11,605 44,197 31,709 - -------------------------------------------------------------------------------------------------- Net Income $ 39,119 $ 21,543 $ 94,744 $ 58,845 ================================================================================================== Earnings Per Share of Common Stock $ 0.39 $ 0.31 $ 0.93 $ 0.96 Weighted Average Shares Outstanding 101,531 70,419 101,782 61,445 - -------------------------------------------------------------------------------------------------- Dividends Paid Per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09 ==================================================================================================
See accompanying notes. 2 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1997 1996 ----------- ----------- (In thousands, except share data) ASSETS Cash and Cash Equivalents $ 50,599 $ 24,154 Accounts Receivable 159,745 168,573 Deferred Income Taxes 18,641 17,207 Materials and Supplies 26,688 26,556 Prepayments 14,365 8,913 Other Current Assets 4,319 6,843 - -------------------------------------------------------------------------------------------------------- Total Current Assets 274,357 252,246 - -------------------------------------------------------------------------------------------------------- Investments in and Advances to Joint Ventures 44,322 35,608 Property and Equipment 2,036,191 1,751,863 Less Accumulated Depreciation 445,425 381,514 - -------------------------------------------------------------------------------------------------------- Property and Equipment, net 1,590,766 1,370,349 - -------------------------------------------------------------------------------------------------------- Goodwill, net 697,748 763,173 Other Assets 47,960 21,838 - -------------------------------------------------------------------------------------------------------- Total Assets $2,655,153 $2,443,214 ======================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable $ 62,489 $ 67,032 Accrued Income Taxes 52,527 57,666 Current Portion of Long-Term Debt 4,796 28,013 Other Current Liabilities 74,486 78,767 - -------------------------------------------------------------------------------------------------------- Total Current Liabilities 194,298 231,478 - -------------------------------------------------------------------------------------------------------- Long-Term Debt 619,097 392,322 Deferred Income Taxes 166,195 151,980 Other Long-Term Liabilities 50,906 39,725 - -------------------------------------------------------------------------------------------------------- Total Long-Term Liabilities 836,198 584,027 - -------------------------------------------------------------------------------------------------------- Preferred Stock, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding - - Common Stock, $0.01 par value; 150,000,000 shares authorized, 103,697,238 shares issued, including shares in treasury, and 100,911,238 shares outstanding at September 30, 1997, and 103,045,970 shares issued and outstanding at December 31, 1996 1,037 515 Additional Paid-in Capital 1,508,792 1,501,159 Retained Earnings 211,136 126,035 Less Common Stock in Treasury, at cost; 2,786,000 shares at September 30, 1997 (96,308) - - -------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,624,657 1,627,709 - -------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $2,655,153 $2,443,214 ========================================================================================================
See accompanying notes. 3 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, --------------------- 1997 1996 ---------- --------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 94,744 $ 58,845 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 76,246 22,945 Deferred income taxes 4,886 (4,135) Equity in earnings of joint ventures (8,133) (3,825) Gain on disposal of assets (295) (7,829) Deferred income 17,670 - Deferred expenses (14,980) (1,440) Other, net (15,360) 2,167 Changes in operating assets and liabilities, net of effects from divestiture Accounts receivable (28,517) (21,769) Accounts payable 11,013 2,180 Income taxes receivable/payable, net (5,091) 2,629 Other current assets (7,485) 4,692 Other current liabilities (3,428) (12,410) - ----------------------------------------------------------------------------------------- Net cash provided by operating activities 121,270 42,050 - ----------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (307,243) (126,664) Divestiture of non-core drilling services activities and assets 105,584 - Cash balances of activities divested (6,109) - Cash acquired in Transocean ASA combination, net - 49,411 Combination with Transocean ASA (756) (208,603) Proceeds from disposal of assets 891 11,820 Distributions from (investment in) joint ventures, net (419) 3,738 Other (831) 276 - ----------------------------------------------------------------------------------------- Net cash used in investing activities (208,883) (270,022) - ----------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of public debt offering, net 299,209 - Net borrowings (repayments) on revolving credit facility (88,761) 96,300 Proceeds from project financing facility 188,428 - Repayments on term loan facility (193,250) - Proceeds from term loan facility - 200,000 Repayment of debt assumed in Transocean ASA combination - (124,000) Financing costs (5,210) (8,633) Treasury shares purchased (96,308) - Sale of note receivable 11,000 - Exercise of stock options 7,101 2,067 Dividends paid (9,124) (5,116) Other, net 973 (1,830) - ----------------------------------------------------------------------------------------- Net cash provided by financing activities 114,058 158,788 - ----------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 26,445 (69,184) - ----------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Period 24,154 112,972 - ----------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 50,599 $ 43,788 =========================================================================================
See accompanying notes. 4 TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - GENERAL BASIS OF CONSOLIDATION - The accompanying condensed consolidated financial statements of Transocean Offshore Inc. and its consolidated subsidiaries (the "Company") have been prepared without audit in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, pursuant to such rules and regulations, these financial statements do not include all disclosures required by generally accepted accounting principles for complete financial statements. Operating results for the three and nine month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. In connection with the preparation of these financial statements, management was required to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues, expenses and disclosure of contingent liabilities. Actual results could differ from such estimates. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. STOCK SPLIT - In August 1997, the Board of Directors declared a two-for-one stock split to be effected in the form of a 100% stock dividend. The dividend was paid September 19, 1997 to stockholders of record on September 5, 1997. All references in the financial statements to number of shares, per share amounts and market prices of the Company's common stock have been retroactively restated to reflect the increased number of shares of common stock issued and outstanding as a result of the dividend. SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income taxes, net were $18.7 million and $44.5 million, respectively, for the nine months ended September 30, 1997 and $4.6 million and $33.0 million, respectively, for the nine months ended September 30, 1996. Non-cash financing activities for the nine months ended September 30, 1996 included $1.198 billion for the issuance of 45.8 million shares of common stock in connection with the Company's combination with Transocean ASA. Non-cash investing activities for the nine months ended September 30, 1996 included $1.349 billion of net assets acquired in the combination with Transocean ASA (see Note 2). GOODWILL - Goodwill is amortized on a straight-line basis over 40 years (the period when benefits are expected to be derived). Accumulated amortization as of September 30, 1997 totaled $20.6 million (see Note 2). CAPITALIZED INTEREST - Interest costs for the construction and upgrade of qualifying assets are capitalized. The Company capitalized interest costs on construction work in progress of $5.2 million and $12.9 million for the three and nine months ended September 30, 1997 and $0.9 million and $1.5 million in the corresponding periods of 1996. RECLASSIFICATIONS - Certain reclassifications have been made to prior period amounts to conform with the current period's presentation. Combining adjustments were made to classify various statement of operations and balance sheet items consistently upon combination with Transocean ASA (see Note 2). INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. 5 TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - BUSINESS COMBINATION The Company acquired over 99 percent of the outstanding capital shares of Transocean ASA, a Norwegian company, pursuant to an exchange offer for the Company's common stock and cash completed in September 1996 and subsequent purchases of Transocean ASA shares in November and December 1996 (the "Combination"). All remaining outstanding shares were purchased in July 1997. The total purchase price was approximately $1.5 billion. The Combination was deemed effective for accounting purposes as of September 1, 1996. In May 1997, the Company divested certain activities and associated non-core assets within its drilling services line of business originally acquired in the Combination by selling the shares of a new corporate entity, Procon Offshore ASA, to investors in Norway. The divestiture had no material effect on the financial results of the Company. The net proceeds from the sale were approximately $106 million, goodwill was reduced by approximately $68 million and no gain or loss was recognized on the sale. The accompanying Condensed Consolidated Statement of Operations reflects the operating results of Transocean ASA since the effective date of the Combination. Unaudited pro forma consolidated operating results of the Company and Transocean ASA for the nine months ended September 30, 1996, assuming the acquisition had been made as of January 1, 1996, are summarized as follows: Nine Months Ended September 30, 1996 ------------------ (In millions, except per share data) Operating revenues $583.4 Income from continuing operations 33.7 Income from discontinued operations 32.8 - --------------------------------------------------------------- Net income $ 66.5 =============================================================== Earnings per share: Income from continuing operations $ 0.33 Income from discontinued operations 0.32 - --------------------------------------------------------------- Net income $ 0.65 =============================================================== Pro forma net income from discontinued operations for the nine months ended September 30, 1996 includes a $51.0 million pre-tax gain on the sale of a Transocean ASA discontinued business segment, which was disposed of in June 1996 prior to the Combination. The pro forma information is not necessarily indicative of the results of operations had the transaction been effected on the assumed date or the results of operations for any future periods. NOTE 3 - CONSTRUCTION IN PROGRESS The Company made significant capital additions during 1997 in connection with its previously announced fleet additions and upgrades. During the first nine months of 1997 the Company spent $76.7 million on the conversion of a multi- service vessel to a semisubmersible drilling rig to be named "Transocean Marianas", $71.1 million on the construction of a new deepwater drillship to be named "Discoverer Enterprise", and 6 TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS $47.2 million on the upgrade of the semisubmersible drilling rig Transocean Amirante. In addition, the Company spent $27.0 million and $41.0 million on capital upgrades to the drillship Discoverer Seven Seas and the semisubmersible Transocean Leader (previously named the Transocean No. 8), respectively. Note 4 - DEBT Debt is comprised of the following: September 30, December 31, 1997 1996 ---------- ---------- (In thousands) Debentures, net $ 199,209 $ - Notes 100,000 - Revolving Credit Facility 105,000 193,761 Term Loan Facility - 193,250 Project Financing Agreement 188,428 - Notes Payable 30,000 30,000 Other 1,256 3,324 --------------------------------------------------------------- Total Debt 623,893 420,335 Less Current Maturities 4,796 28,013 --------------------------------------------------------------- Total Long-Term Debt $ 619,097 $ 392,322 =============================================================== PUBLIC DEBT OFFERING - In April 1997, the Company completed the public offering and sale of $300 million aggregate principal amount of senior, unsecured debt securities. The securities sold consisted of $100 million aggregate principal amount of 7.45% Notes due April 15, 2027 (the "Notes") and $200 million aggregate principal amount of 8.00% Debentures due April 15, 2027 (the "Debentures"). Holders of Notes may elect to have all or any portion of the Notes repaid on April 15, 2007 at 100% of the principal amount. The Notes, at any time after April 15, 2007, and the Debentures, at any time, may be redeemed at the option of the Company at 100% of the principal amount plus a make-whole premium, if any, equal to the excess of the present value of future payments due under the Notes and Debentures, using a discount rate equal to the then- prevailing yield of U.S. treasury notes for a corresponding remaining term plus 20 basis points over the principal amount of the securities being redeemed. Interest is payable on April 15 and October 15 of each year, commencing October 15, 1997. The indenture and supplemental indenture relating to the Notes and the Debentures place limitations on the Company's ability to (i) incur indebtedness secured by certain liens, (ii) engage in certain sale/leaseback transactions and (iii) engage in certain merger, consolidation or reorganization transactions. The net proceeds were used to repay amounts outstanding under the Company's term loan and revolving credit facilities. TERM LOAN AND REVOLVING CREDIT FACILITIES - In connection with the Combination, the Company entered into a secured credit agreement dated as of July 30, 1996 with a group of banks led by ABN AMRO Bank N.V. (the "Credit Agreement"). The Credit Agreement initially provided for borrowing by the Company under (i) a six-year term loan facility in the amount of $200 million (the "Term Loan Facility") and (ii) a six-year revolving credit facility in the amount of $400 million (the "Revolving Credit Facility"). In connection with the public offering of the Notes and Debentures, the Credit Agreement was amended to, among other things, release all security, convert $140 million of the term loans into revolving loans, and renegotiate the applicable margins over LIBOR and the applicable commitment fees. Following the amendment, the Credit Agreement provides for a $540 million Revolving Credit Facility, with no Term Loan Facility. Loans under the Credit 7 TRANOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Agreement bear interest, at the option of the Company, at a base rate or LIBOR plus a specified margin that varies depending on the Company's funded debt to total capital ratio or its public senior unsecured debt rating. PROJECT FINANCING AGREEMENT - In connection with the construction of the Discoverer Enterprise and upgrade of the Transocean Amirante, Transocean Enterprise Inc., a wholly owned subsidiary of the Company, entered into a bank financing agreement dated as of December 27, 1996 with a group of banks led by ABN AMRO Bank N.V. (the "Project Financing Agreement"). Approximately $340.5 million is available for drawdowns during the construction period. Amounts outstanding bear interest at LIBOR plus a specified margin. NOTE 5 - CAPITAL STOCK In February 1997, pursuant to previously granted authority, the Company repurchased 1,786,000 shares of its common stock for a total of $49.9 million. On May 8, 1997, the Company's Board of Directors authorized the repurchase of up to $200 million of the Company's common stock from time to time on the open market or in privately negotiated transactions. In September 1997, the Company repurchased 1,000,000 shares of its common stock for a total of $46.4 million. Borrowings from the Revolving Credit Facility were used to fund the repurchases. The Board of Directors regularly reviews the possibility of repurchasing common stock in light of prevailing stock prices and the financial position of the Company. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in connection with the information contained in the Company's consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. OVERVIEW Transocean Offshore Inc. is a leading international provider of deepwater and harsh environment contract drilling services for oil and gas wells. The Company currently owns, has ownership interests in or operates 30 mobile offshore drilling rigs. Transocean's fleet consists of seven fourth-generation semisubmersibles, fourteen second- and third-generation semisubmersibles, three drillships and six jackup rigs. In addition, the Company has under construction a new technologically advanced, ultra-deepwater drillship, to be called the "Discoverer Enterprise". The Company contracts these drilling rigs, related equipment and work crews at a contractually determined price per day (dayrate) to drill offshore wells. The Company also provides other drilling services on a dayrate, cost plus, footage or lump sum basis, including the drilling of wells to a specified depth for a fixed price. During 1996, the Company acquired over 99 percent of the outstanding capital shares of Transocean ASA, a Norwegian company, pursuant to an exchange offer for Company common stock and cash completed in September 1996 and subsequent purchases of Transocean ASA shares in November and December 1996 (the "Combination"). All remaining outstanding shares were purchased in July 1997. The total purchase price was approximately $1.5 billion. The Combination was deemed effective for accounting purposes as of September 1, 1996. In May 1997, the Company divested certain activities and non-core assets within its drilling services line of business originally acquired in the Combination. The divestiture had no material effect on the financial results of the Company. In August 1997, the Board of Directors declared a two-for-one stock split to be effected in the form of a 100% stock dividend. The dividend was paid on September 19, 1997 to stockholders of record on September 5, 1997. All references in this quarterly report to number of shares, per share amounts and market prices of the Company's common stock have been retroactively restated to reflect the increased number of shares of common stock issued and outstanding as a result of the dividend. 9 OPERATING RESULTS Comparative data relating to the Company's operating revenues and operating income by segment and geographic area follows. In the table and related discussion below, the "Mobile Units" segment consists of the results of operations for drilling rigs contracted to customers on a dayrate basis. The "Drilling Services" segment includes results of all other drilling services provided by the Company, including turnkey operations. The operating results of Transocean ASA are included from September 1, 1996.
Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------- -------------- 1997 1996 1997 1996 ---------- ---------- ---------- -------------- (In thousands) OPERATING REVENUES (a) Mobile Units U.S. Gulf of Mexico $ 61,106 $ 38,177 $147,083 $102,488 North Sea and Europe 86,757 45,221 254,548 91,956 Other Western Hemisphere 2,844 6,715 12,549 19,024 Other Eastern Hemisphere 21,514 5,540 59,493 17,008 - ----------------------------------------------------------------------------------------------------- 172,221 95,653 473,673 230,476 - ----------------------------------------------------------------------------------------------------- Drilling Services U.S. Gulf of Mexico 6,907 12,656 44,168 30,714 North Sea and Europe 12,189 15,107 99,635 21,490 Other Western Hemisphere 31,884 13,167 32,996 27,570 Other Eastern Hemisphere - 343 438 16,777 - ----------------------------------------------------------------------------------------------------- 50,980 41,273 177,237 96,551 - ----------------------------------------------------------------------------------------------------- Total Revenues $223,201 $136,926 $650,910 $327,027 ===================================================================================================== OPERATING INCOME (LOSS) (b) Mobile Units U.S. Gulf of Mexico $ 36,479 $ 22,367 $ 85,560 $ 51,234 North Sea and Europe 22,127 9,574 47,463 20,516 Other Western Hemisphere 638 1,184 4,053 3,590 Other Eastern Hemisphere 10,091 695 28,345 4,764 Other (3,045) (2,420) (8,322) (6,133) - ----------------------------------------------------------------------------------------------------- 66,290 31,400 157,099 73,971 - ----------------------------------------------------------------------------------------------------- Drilling Services U.S. Gulf of Mexico (2,919) 950 (2,134) 3,426 North Sea and Europe (11) 1,671 9,937 3,394 Other Western Hemisphere 4,684 2,735 3,941 5,771 Other Eastern Hemisphere 38 288 278 2,370 Other (300) (200) (972) (815) - ----------------------------------------------------------------------------------------------------- 1,492 5,444 11,050 14,146 - ----------------------------------------------------------------------------------------------------- Corporate Expenses (6,843) (4,243) (20,521) (11,331) - ----------------------------------------------------------------------------------------------------- Operating Income $ 60,939 $ 32,601 $147,628 $ 76,786 ===================================================================================================== (a) Intersegment eliminations are not material. (b) Amounts shown are after applicable depreciation and amortization.
10 Quarter ended September 30, 1997, compared to Quarter ended September 30, 1996 Revenues increased to $223.2 million for the quarter ended September 30, 1997 up from $136.9 million for the prior year quarter, an increase of $86.3 million or 63 percent. Operating income increased by $28.3 million or 87 percent, up from $32.6 million in the third quarter of 1996 to $60.9 million in the current year quarter. Net income for the third quarter of 1997 was $39.1 million, up from $21.5 million for the third quarter of 1996, an increase of $17.6 million or 82 percent. The increases in 1997 resulted primarily from increased dayrates and the inclusion of the Transocean ASA results for the entire 1997 quarter, partially offset by higher interest costs. The weighted-average number of shares of common stock was 101.5 million and 70.4 million for the quarters ended September 30, 1997 and 1996, respectively. The increase was primarily due to the shares issued in the Combination. Revenues and operating income from Mobile Units increased significantly in the third quarter of 1997 compared to the prior year quarter. In the U.S. Gulf of Mexico, the increases resulted primarily from higher dayrates earned during the current quarter and the operations of a drillship that operated in Other Western Hemisphere during the previous year. In the North Sea and Europe, the increases in revenues and operating income resulted primarily from inclusion of the Transocean ASA results following the Combination, partially offset by the impact of a work stoppage in September 1997 by offshore workers affecting three rigs operating in Norway. Work resumed on the affected rigs in October, and the dispute, which affects all offshore drilling companies in the Norwegian sector of the North Sea, is expected to be arbitrated pending action by the Norwegian Parliament later this year. The decreases in Other Western Hemisphere are due to a drillship moving to the U.S. Gulf of Mexico, partially offset by operations added through the Combination. The increases in Other Eastern Hemisphere are due primarily to the results of a rig added through the Combination, higher dayrates earned during the current year quarter and full utilization of one jackup rig that was stacked during the 1996 quarter. Revenues from Drilling Services increased during the third quarter of 1997 compared to the same period in 1996, while operating income decreased during the same period. In the U.S. Gulf of Mexico, the decrease in revenues resulted primarily from fewer turnkey wells completed during the current quarter over the prior year quarter. Operating income in the U.S. Gulf of Mexico decreased in the third quarter of 1997 over the prior year quarter primarily due to a $4.1 million estimated loss from a turnkey well in progress at the end of the 1997 quarter. In the North Sea and Europe, the decreases in revenues and operating income resulted primarily from the divestiture of non-core activities in the second quarter of 1997, offset by a higher level of services provided by remaining activities. Revenues and operating income increased in Other Western Hemisphere during the third quarter of 1997, primarily due to the completion of the first well of a $124 million three-well turnkey drilling package offshore Mexico, while the Company completed the final well of a $64 million five-well turnkey drilling package offshore Mexico during the prior year quarter. Corporate expenses increased $2.6 million, from $4.2 million in the third quarter of 1996 to $6.8 million in the current year quarter primarily due to increased costs to integrate and manage a larger organization. The corporate organization expanded to accommodate the overall growth of the Company as a result of the Combination and the increased activity in the industry, including major new construction programs, increased recruiting and training activity and upgrade and expansion of communication and data processing systems. Depreciation and amortization expense increased in the 1997 period over 1996 primarily due to additional depreciation on property and equipment acquired in the Combination and $4.4 million of amortization of goodwill relating to the Combination. Other income (expense) decreased from income of $0.5 million in the third quarter of 1996 to expense of $3.0 million in the current year quarter. Interest income decreased in the third quarter of 1997 as a result of lower 11 average cash balances and net interest expense increased due primarily to debt incurred relating to the Combination. Partially offsetting these decreases was higher equity in earnings of joint ventures, resulting primarily from higher dayrates earned on two rigs owned by a corporation in which the Company has a 25 percent interest. Nine Months ended September 30, 1997, compared to Nine Months ended September 30, 1996 Revenues increased to $650.9 million for the nine months ended September 30, 1997 up from $327.0 million for the prior year period, an increase of $323.9 million or 99 percent. Operating income increased by $70.8 million or 92 percent, up from $76.8 million in the first nine months of 1996 to $147.6 million in the current year period. Net income for the first nine months of 1997 was $94.7 million, up from $58.8 million for the same period of 1996, an increase of $35.9 million or 61 percent. The increases in 1997 resulted primarily from increased dayrates and the inclusion of the Transocean ASA results for the entire period partially offset by a decrease in other income (expense). The weighted-average number of shares of common stock was 101.8 million and 61.4 million for the nine months ended September 30, 1997 and 1996, respectively. The increase was primarily due to the shares issued in the Combination. Revenues and operating income from Mobile Units increased significantly in the first nine months of 1997 compared to the prior year period. In the U.S. Gulf of Mexico, the increases resulted primarily from higher dayrates earned and the inclusion of operations of a drillship during the third quarter that operated in Other Western Hemisphere in the prior year. In the North Sea and Europe, the increases in revenues and operating income resulted primarily from the inclusion of the Transocean ASA results following the Combination. The decrease in revenues for Other Western Hemisphere is due to a drillship moving to the U.S. Gulf of Mexico in early 1997 for an upgrade and operations, partially offset by operations added through the Combination. The increases in Other Eastern Hemisphere are due primarily to the results of a rig added through the Combination, higher dayrates earned during the current period and full utilization of one jackup rig that was stacked during the 1996 period. Revenues from Drilling Services increased during the first nine months of 1997 compared to the same period in 1996, while operating income decreased during the same period. In the U.S. Gulf of Mexico, the increase in revenues resulted primarily from a higher number of turnkey wells completed during the current period compared to the prior year. Operating income in the U.S. Gulf of Mexico decreased in the first nine months of 1997 over the prior year period primarily due to losses from turnkey operations, including an estimated loss on one well in progress at the end of the period. In the North Sea and Europe, the increases in revenues and operating income resulted primarily from the inclusion of the Transocean ASA results following the Combination. The decreases in Other Eastern Hemisphere resulted primarily from services provided in Qatar and Senegal during 1996 that were not performed in the current year period. Revenues increased and operating income decreased slightly in Other Western Hemisphere in the first nine months of 1997. During the 1997 period, the Company completed the first well of a $124 million three-well turnkey drilling package offshore Mexico, while the Company completed the final two wells of a $64 million five-well turnkey drilling package offshore Mexico during the prior year period. Corporate expenses increased $9.2 million, from $11.3 million in the first nine months of 1996 to $20.5 million in the current year period primarily due to increased costs to integrate and manage a larger organization. The corporate organization expanded to accommodate the overall growth of the Company as a result of the Combination and the increased activity in the industry, including major new construction programs, increased recruiting and training activity and upgrade and expansion of communication and data processing systems. 12 Depreciation and amortization expense increased in the 1997 period over 1996 primarily due to additional depreciation on property and equipment acquired in the Combination and $13.9 million of amortization of goodwill relating to the Combination. Other income (expense) decreased from income of $13.8 million in the first nine months of 1996 to expense of $8.7 million in the current year period. The decrease resulted from several factors. During 1997, the Company recognized lower interest income due to lower average cash balances and higher net interest expense due primarily to debt incurred relating to the Combination. Other expense in 1997 included $1.5 million in losses on the mark-to-market adjustment of open foreign exchange derivative instruments while 1996 included a $6.6 million pre-tax gain on the disposal of a jackup rig. Higher equity in earnings of joint ventures resulted primarily from higher dayrates earned on two rigs owned by a corporation in which the Company has a 25 percent interest. Income tax expense increased by $12.5 million due primarily to higher pre-tax earnings in the first nine months of 1997 over the same period in 1996, partially offset by a decrease in earnings of foreign subsidiaries subject to tax. The decrease in the Company's effective tax rate below the U.S. statutory rate is primarily due to the permanent reinvestment of earnings of certain foreign subsidiaries. MARKET OUTLOOK The increased demand and higher dayrates for rigs in the deepwater and harsh- environment markets that began in 1995 continued throughout the third quarter of 1997. The improvements in these markets are due in part to technological advances that improved the economics of offshore exploration and development, as well as the greater availability of attractive concessions in markets throughout the world. Operators are showing more interest in deepwater areas worldwide, including the U.S. Gulf of Mexico, and in some of the North Sea's more demanding locations, particularly the harsh-environment areas west of Shetlands and northern areas offshore Norway. As a result of the improved market conditions, rigs are being contracted under longer term agreements at higher dayrates, with customers often paying for upgrades to the rigs to operate in more challenging conditions. In response to the demands of its customers, the Company is also providing a variety of drilling services, including well planning, engineering and management through integrated service teams. Historically, the contract drilling market has been highly competitive and cyclical; thus, the Company cannot predict the extent to which the current market conditions will continue. In addition, as a result of improved market conditions, a number of drilling contractors are upgrading existing rigs or constructing new rigs that will be capable of competing with the Company's deepwater and harsh-environment rigs. Although most of these rigs are being built pursuant to long-term contract commitments, there can be no assurance that, upon the expiration of such contracts and the contracts for the Company's rigs, then-current market conditions will be favorable and that current high utilization rates will continue. LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES OF CASH Cash flows provided by operations for the nine months ended September 30, 1997 increased to $121.3 million, up from $42.1 million for the nine months ended September 30, 1996, an increase of $79.2 million. The increase was primarily due to a $35.9 million increase in net income and a $53.3 million increase in depreciation and amortization due to the Combination and rig upgrades. 13 Cash flows used in investing activities decreased by $61.1 million from $270.0 million in the first nine months of 1996 to $208.9 million in the current year period. During the current year, the Company significantly increased its capital expenditures relating to its rig construction and upgrades. The Company also received cash proceeds from the divestiture of certain non-core drilling services activities and assets, while in the prior year the Company used cash in the Combination with Transocean ASA. Cash flows provided by financing activities decreased $44.7 million from $158.8 million in the first nine months of 1996 to $114.1 million in the current year period. During 1997, the Company increased its borrowings through a $300 million public debt offering and the project financing agreement for the Discoverer Enterprise and the Transocean Amirante, both of which are discussed below. This was partially offset by repayments on its Term Loan Facility and Revolving Credit Facility (both of which are defined below) and from cash used to reacquire 2,786,000 shares of the Company's common stock. During the prior year, the Company increased its borrowings under the Term Loan Facility and Revolving Credit Facility and repaid debt assumed in the Combination with Transocean ASA. CAPITAL EXPENDITURES The Company's investments in its existing fleet and fleet additions announced during 1996 continue to require significant capital expenditures. The Company spent approximately $307 million in the first nine months of 1997 on capital expenditures. Expenditures for upgrades and improvements to the rigs currently operating are expected to be approximately $50 million during the remainder of 1997. The Discoverer Enterprise construction project is expected to require capital expenditures of approximately $80 million during the remainder of 1997 and $100 million during 1998. One of the Company's semisubmersible rigs, to be named the "Transocean Marianas", was damaged by a fire during the third quarter 1997 while it was in the shipyard undergoing conversion. The fire damaged the rig's electrical system but resulted in no major structural damage to the rig and no injury to personnel. The Transocean Marianas conversion project was expected to have been completed during the fourth quarter of 1997, and the rig was to then commence a five-year contract with Shell Offshore Inc. As a result of the fire, it is expected that completion of the project will be delayed until the second half of 1998. The Company believes that the costs to repair the damage caused by the fire are fully insured. The Company expects to spend $45 million during the remainder of 1997 and $25 million in 1998 to complete conversion of the rig excluding amounts related to the fire damage. As with any major construction project that takes place over an extended period of time, actual costs and the timing of such expenditures may vary from initial estimates based on finalization of the design and actual terms of awarded contracts. The Company intends to fund the cash requirements relating to these capital commitments through available cash balances, borrowings under the Credit Agreement (defined below) and, in the case of the Discoverer Enterprise, financing under the Project Financing Agreement (defined below). DEBT CREDIT AGREEMENT AND PROJECT FINANCING AGREEMENT - In connection with the Combination, the Company entered into a secured credit agreement dated as of July 30, 1996 with a group of banks led by ABN AMRO Bank N.V. (the "Credit Agreement"). Prior to the amendment discussed below, the Credit Agreement provided for borrowing by the Company under a six-year term loan facility in the amount of $200 million (the "Term Loan Facility") and a six-year revolving credit facility in the amount of $400 million (the "Revolving Credit Facility"). Loans under the Credit Agreement bear interest, at the option of the Company, at a base rate or LIBOR plus a margin (0.25 percent at September 30, 1997) that varies depending on the Company's 14 funded debt to total capital ratio or its public senior unsecured debt rating. The Credit Agreement requires compliance with various restrictive covenants and effectively limits the Company's ability to pay dividends based on a specified net worth requirement and an interest coverage ratio. Quarterly principal payments began on the Term Loan Facility on December 31, 1996. The Credit Agreement has a maturity date of July 2002. In connection with the public offering of the debt securities discussed below, the Credit Agreement was amended to, among other things, release all security, convert $140 million of the term loans into revolving loans, and change the applicable margins over LIBOR and the applicable commitment fees. Following the amendment, the Credit Agreement provides for a $540 million Revolving Credit Facility, with no Term Loan Facility. In connection with the construction of the Discoverer Enterprise and upgrade of the Transocean Amirante, the Company's wholly owned subsidiary Transocean Enterprise Inc. entered into a bank financing agreement dated as of December 27, 1996 with a group of banks led by ABN AMRO Bank N.V. ("Project Financing Agreement"). Approximately $340 million is available for drawdowns during the construction period and is available in two tranches. The first tranche of $66 million is to be repaid by December 31, 1998 or when construction on both vessels is completed. It bears an interest rate of LIBOR plus a margin of 0.35 percent. The second tranche of $274.5 million bears an interest rate of LIBOR plus 0.85 percent during the construction period and is convertible to term financing upon completion of construction and acceptance of the two vessels (no later than December 31, 1998) by Amoco Exploration and Production Company ("Amoco"), which is contracting the rigs for a period of five years following completion. The term financing would mature over a period of five years. The term financing would also be divided into two tranches, the relative amounts of which would depend on various factors. One tranche of the term financing would be sized based upon and repaid from the net cash flows generated from the Amoco contracts (the "Amoco Cash Flows"). The Company has the option to accept bank financing for the Amoco Cash Flows at LIBOR plus 0.65 percent or to enter into an uncommitted lease securitization program at commercial paper rates plus approximately 0.28 percent. The second tranche of the term facility would be repaid from Company cash flows to the extent the Amoco Cash Flows do not cover scheduled repayments. The Company has the option to accept bank financing for the Company cash flows at LIBOR plus 1.125 percent for a period of three years and LIBOR plus 1.25 percent thereafter or to enter into a lease securitization at commercial paper rates plus approximately 0.58 percent (as long as the Company's credit rating is BBB- or Baa3 or better). PUBLIC DEBT OFFERING - In April 1997, the Company completed the public offering and sale of $300 million aggregate principal amount of senior, unsecured debt securities. The securities sold consisted of $100 million aggregate principal amount of 7.45% Notes due April 15, 2027 (the "Notes") and $200 million aggregate principal amount of 8.00% Debentures due April 15, 2027 (the "Debentures"). Holders of Notes may elect to have all or any portion of the Notes repaid on April 15, 2007 at 100% of the principal amount. The Notes, at any time after April 15, 2007, and the Debentures, at any time, may be redeemed at the option of the Company at 100% of the principal amount plus a make-whole premium, if any, equal to the excess of the present value of future payments due under the Notes and Debentures using a discount rate equal to the then- prevailing yield of U.S. treasury notes for a corresponding remaining term plus 20 basis points over the principal amount of the security being redeemed. Interest is payable on April 15 and October 15 of each year, commencing October 15, 1997. The indenture and supplemental indenture relating to the Notes and the Debentures place limitations on the Company's ability to (i) incur indebtedness secured by certain liens, (ii) engage in certain sale/leaseback transactions and (iii) engage in certain merger, consolidation or reorganization transactions. The net proceeds were used to repay amounts outstanding under the Credit Agreement. 15 The Company has letters of credit outstanding at September 30, 1997 totaling $34.5 million, including $29.7 million relating to the legal dispute with Kvaerner Installasjon as (see Part II. Item 1. Legal Proceedings). The remaining $4.8 million guarantees various insurance and contract bidding activities. SHELF REGISTRATION In April 1997, the Company filed with the Securities and Exchange Commission (the "SEC") a $750 million shelf registration statement on Form S-3 for the proposed offering from time to time of debt securities, preferred stock, common stock and warrants to purchase preferred stock or debt securities. The registration statement was declared effective by the SEC on April 11, 1997. The Company sold the Notes and Debentures under this registration statement. AUTHORIZED STOCK REPURCHASE In February 1997, the Company repurchased 1,786,000 shares of its common stock for $49.9 million pursuant to authority previously granted by the Board of Directors. In May 1997, the Company's Board of Directors authorized the repurchase of up to $200 million shares of its common stock from time to time on the open market or in privately negotiated transactions. In September 1997, the Company repurchased 1,000,000 shares of its common stock for a total of $46.4 million. Borrowings under the Revolving Credit Facility were used to fund the repurchase. The Board of Directors regularly reviews the possibility of repurchasing common stock in light of prevailing stock prices and the financial position of the Company. DERIVATIVE INSTRUMENTS The Company enters into a variety of derivative financial instruments in connection with the management of its exposure to fluctuations in foreign exchange rates and interest rates. The Company does not enter into derivative transactions for speculative purposes; however, for accounting purposes certain transactions may not meet the criteria for hedge accounting. Gains and losses on foreign exchange derivative instruments, which qualify as accounting hedges, are deferred and recognized when the underlying foreign exchange exposure is realized. Gains and losses on foreign exchange derivative instruments, which do not qualify as hedges for accounting purposes, are recognized currently based on the change in market value of the derivative instruments. As of September 30, 1997, all foreign exchange derivative instruments, not qualifying as accounting hedges had expired. The Company recognized a net pre-tax loss of $1.5 million on such instruments for the nine months ended September 30, 1997. The Company uses interest rate swap agreements to effectively convert a portion of its floating rate debt to a fixed rate basis, reducing the impact of interest rate changes on future income. Interest rate swaps are designated as a hedge of underlying future payments. The interest rate differential to be received or paid on the swaps is recognized over the lives of the swaps as an adjustment to interest expense. At September 30, 1997, the net unrealized loss on open interest rate swaps was $1.8 million, which has been deferred because the Company intends to maintain these contracts through their maturities. During the second quarter of 1997 the Company closed out certain interest rate options and swaps when they ceased to be an effective hedge, recognizing a loss of approximately $0.4 million. 16 ACQUISITIONS The Company regularly reviews possible acquisitions of businesses and drilling units, and may from time to time in the future make significant capital commitments for such purposes. Any such acquisition could involve the payment by the Company of a substantial amount of cash and the issuance of a substantial number of shares of common stock. The Company would expect to fund the cash portion of any such acquisition through cash balances on hand, the incurrence of additional debt, sales of assets or common stock, or a combination thereof. SOURCES OF LIQUIDITY The Company believes that its cash and cash equivalents, cash generated from operations, borrowings available under its Credit Agreement, Project Financing Agreement and access to other financing sources will be adequate to meet its anticipated short-term and long-term liquidity requirements, including scheduled debt repayments. ASSET DIVESTITURE In May 1997, the Company divested certain non-core activities and associated assets within its drilling services line of business originally acquired in the Combination by selling the shares of a new corporate entity, Procon Offshore ASA, to investors in Norway. The net proceeds from the sale were approximately $106 million, goodwill was reduced by approximately $68 million and no gain or loss was recognized on the sale. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings per Share. This statement establishes standards for computing and presenting earnings per share ("EPS") and simplifies the standards for computing EPS previously outlined in the Accounting Principles Board Opinion No. 15. The Company plans to adopt this standard in the fourth quarter of 1997. Its adoption is not expected to have a material effect on the Company's financial statements. In September 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The Company plans to adopt this standard in the first quarter of 1998. Its adoption is not expected to have a material effect on the Company's financial statements. Also in September 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company plans to adopt this standard in the fourth quarter of 1998. Its adoption is not expected to have a material effect on the Company's financial statements. FORWARD-LOOKING INFORMATION The statements included in this quarterly report regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 17 1934. Statements to the effect that the Company or management "anticipates," "believes," "estimates," "expects," "predicts," or "projects" a particular result or course of events, or that such result or course of events "should" occur, and similar expressions, are also intended to identify forward-looking statements. Such statements are subject to numerous risks, uncertainties and assumptions, including but not limited to, uncertainties relating to industry and market conditions, prices of crude oil and natural gas, foreign exchange and currency fluctuations, political instability in foreign jurisdictions, ability of the Company to integrate newly acquired operations and other factors discussed in this quarterly report and in the Company's other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and Global Marine Inc. ("Global Marine") are parties to an agreement pursuant to which the Company participates in the cash flow from three jackup drilling rigs owned and operated by Global Marine and Global Marine participates in the cash flow from one of the Company's jackup drilling rigs, the Transocean Nordic. Global Marine has initiated arbitration proceedings against the Company in the United Kingdom with respect to various disputed matters under the agreement, including the distribution of revenues from the rigs and whether the Company's acquisition of Transocean ASA may have given rise to a right of first refusal on the part of Global Marine to purchase the Transocean Nordic. The Company believes that Global Marine's claims are without merit and that the outcome of the arbitration process will have no material adverse effect on the Company's operations or financial position. The Company is party to a contract with Kvaerner Installasjon as ("Kvaerner") in Norway pursuant to which Kvaerner performed modification and refurbishment work on one of the Company's fourth-generation semisubmersible drilling rigs, the Transocean Leader. Disputes have arisen with respect to the work performed and the amount owed with respect to such work. The amount in dispute is approximately $29 million. The Company has posted a letter of credit for approximately $30 million pending the resolution of the dispute by agreement between the parties or by final judgment under the Norwegian judicial process. The parties are continuing to discuss the matter, and the Company is unable to predict at this time the ultimate outcome of such discussions or any resulting judicial process; however, the Company believes Kvaerner's claims are without merit and that the outcome of the dispute will have no material adverse effect on the Company's operations or financial position. In 1990 and 1991, two of the Company's subsidiaries were served with assessments totaling approximately $11 million from the municipality of Rio de Janeiro, Brazil to collect a municipal tax on services ("ISS"). The Company believes that neither subsidiary is liable for the taxes and has contested the assessments in the Brazilian administrative and court systems. The proceedings with respect to the 1991 assessment, which was for approximately $9 million, have reached the first level Brazilian state court, which rejected the Company's arguments. The Company has appealed that decision to the second level court. The legal and administrative decisions as to the 1990 assessments are still pending. If the Company's defenses are ultimately unsuccessful, the Company believes that the Brazilian government-controlled oil company, Petrobras, has a contractual obligation to reimburse the Company's subsidiaries for ISS payments required to be paid by them. The Company believes the outcome of these assessments will have no material adverse affect on the Company's operations or financial position. 19 ITEM 6. EXHIBITS AND REPORTS (a) Exhibits The following exhibits are filed in connection with this Report: NUMBER DESCRIPTION - ------ ----------- 10.1 Employment Agreement dated as of August 14, 1997 between Dennis R. Long and Transocean Offshore Inc. (compensatory plan or arrangement) 27.1 Financial Data Schedule. (b) Reports on Form 8-K There were no reports of Form 8-K filed during the quarter ending September 30, 1997. 20 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 November 12, 1997. TRANSOCEAN OFFSHORE INC. By: /s/ Robert L. Long ----------------------------------- Robert L. Long Senior Vice President (Principal Financial Officer) By: /s/ Barbara S. Koucouthakis ---------------------------------- Barbara S. Koucouthakis Vice President and Controller (Principal Accounting Officer) 21 EX-10.1 2 EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT by and between Transocean Offshore Inc., a Delaware corporation (the "Company") and Dennis R. Long (the "Executive"), dated as of the 14th day of August, 1997. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who 2 were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any 3 time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this 4 Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Performance Award and Cash Bonus Plan, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent 5 applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, 6 policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or 7 (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; 8 (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of 9 Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Supplemental Retirement Plan immediately prior to the 10 Effective Date and assuming benefits commence at age 65), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) Should Executive move his residence in order to pursue other business opportunities within three years of the Date of Termination (or until his normal retirement date, whichever is sooner), the Company shall reimburse him for any expenses incurred in that relocation (including taxes payable on the reimbursement) which are not reimbursed by another employer; provided, however, that Executive shall be entitled to such reimbursement with respect to only one such relocation, Executive shall be entitled to specify the relocation for which reimbursement hereunder is to be made. Benefits under this provision will include the assistance, at no cost to Executive, in selling his home and other assistance which was customarily provided to executives transferred within the Company or between the Company and its subsidiaries prior to the Effective Date; (iii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be 11 considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iv) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability 12 Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, 13 to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young, L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the 14 Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, 15 (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive 16 in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 17 12. Miscellaneous. (a) AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Dennis R. Long River Oaks Apartments 3435 Westheimer, #1700 Houston, Texas 77027 If to the Company: Transocean Offshore Inc. 4 Greeenway Plaza Houston, Texas 77046 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. 18 (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ Dennis R. Long ------------------------------------ Dennis R. Long TRANSOCEAN OFFSHORE INC. By: /s/ J. Michael Talbert --------------------------------- J. Michael Talbert 19 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 50,599 0 159,745 0 0 274,357 2,036,191 445,425 2,655,153 194,298 619,097 0 0 1,037 1,623,620 2,655,153 0 650,910 0 503,282 0 0 16,502 138,941 44,197 94,744 0 0 0 94,744 0.93 0.93 PER SHARE AMOUNTS REFLECT THE RETROACTIVE EFFECT OF THE TWO-FOR-ONE STOCK SPLIT EFFECTED IN THE FORM OF A STOCK DIVIDEND, PAID ON SEPTEMBER 19, 1997 TO STOCKHOLDERS OF RECORD ON SEPTEMBER 5, 1997.
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