-----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, FqHVRehcwMOzcdyme2vPCJNLtZs6D2n76sCX3lMbQ452DP9IcRGoygLX6fGPUnvb EMu1sEhPEA/JYHiguvLX5Q== 0000950129-98-003199.txt : 19980803 0000950129-98-003199.hdr.sgml : 19980803 ACCESSION NUMBER: 0000950129-98-003199 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980730 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND OFFSHORE DRILLING INC CENTRAL INDEX KEY: 0000949039 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 760321760 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13926 FILM NUMBER: 98673770 BUSINESS ADDRESS: STREET 1: 15415 KATY FREEWAY CITY: HOUSTON STATE: TX ZIP: 77094 BUSINESS PHONE: 7134925300 MAIL ADDRESS: STREET 1: 15415 KATY FREEWAY CITY: HOUSTON STATE: TX ZIP: 77094 10-Q 1 DIAMOND OFFSHORE DRILLING, INC. - 06/30/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------ ------ Commission file number 1-13926 DIAMOND OFFSHORE DRILLING, INC. (Exact name of registrant as specified in its charter) Delaware 76-0321760 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 15415 Katy Freeway Houston, Texas 77094 (Address of principal executive offices) (Zip Code) (281) 492-5300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 20, 1998 Common stock, $0.01 par value per share 139,328,160 shares
2 DIAMOND OFFSHORE DRILLING, INC. TABLE OF CONTENTS FOR FORM 10-Q QUARTER ENDED JUNE 30, 1998
PAGE NO. COVER PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 DOCUMENT TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . 17 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . . . . . 18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . 18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . 18 ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
JUNE 30, DECEMBER 31, ----------- ------------ 1998 1997 ----------- ----------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents ........................................ $ 57,481 $ 102,958 Short-term investments ........................................... 326,789 363,137 Accounts receivable .............................................. 272,787 205,589 Rig inventory and supplies ....................................... 34,997 33,714 Prepaid expenses and other ....................................... 28,911 13,377 ----------- ----------- Total current assets ............................ 720,965 718,775 DRILLING AND OTHER PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION ........................................ 1,463,063 1,451,741 GOODWILL, NET OF ACCUMULATED AMORTIZATION ............................ 115,388 118,623 LONG-TERM INVESTMENTS ................................................ 203,435 -- OTHER ASSETS ......................................................... 10,190 9,422 ----------- ----------- Total assets .................................... $ 2,513,041 $ 2,298,561 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ................................................. $ 55,885 $ 57,557 Accrued liabilities .............................................. 56,056 48,935 Taxes payable .................................................... 32,041 24,653 ----------- ----------- Total current liabilities ....................... 143,982 131,145 LONG-TERM DEBT ....................................................... 400,000 400,000 DEFERRED TAX LIABILITY ............................................... 248,322 209,513 OTHER LIABILITIES .................................................... 28,685 22,376 ----------- ----------- Total liabilities ............................... 820,989 763,034 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock (par value $0.01, 25,000,000 shares authorized, none issued and outstanding) ................................... -- -- Common stock (par value $0.01, 500,000,000 shares authorized, 139,328,160 and 139,309,948 shares issued and outstanding at June 30, 1998 and December 31, 1997, respectively) .......... 1,393 1,393 Additional paid-in capital ....................................... 1,302,784 1,302,712 Retained earnings ................................................ 390,905 233,350 Accumulated other comprehensive losses ........................... (3,030) (1,928) ----------- ----------- Total stockholders' equity ...................... 1,692,052 1,535,527 ----------- ----------- Total liabilities and stockholders' equity ...... $ 2,513,041 $ 2,298,561 =========== ===========
3 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- REVENUES ........................................... $ 323,517 $ 228,534 $ 609,586 $ 433,267 OPERATING EXPENSES: Contract drilling ............................ 116,103 98,221 241,436 187,960 Depreciation and amortization ................ 32,747 27,230 64,746 53,042 General and administrative ................... 6,219 4,859 12,991 9,800 Gain on sale of assets ....................... (4) (5) (82) (70) --------- --------- --------- --------- Total operating expenses ................ 155,065 130,305 319,091 250,732 --------- --------- --------- --------- OPERATING INCOME ................................... 168,452 98,229 290,495 182,535 OTHER INCOME (EXPENSE): Interest income .............................. 7,442 5,499 14,027 8,392 Interest expense ............................. (3,781) (3,349) (7,624) (3,349) Other, net .............................. 317 10 180 (175) --------- --------- --------- --------- INCOME BEFORE INCOME TAX EXPENSE ................... 172,430 100,389 297,078 187,403 INCOME TAX EXPENSE ................................. (60,765) (35,155) (104,691) (65,939) --------- --------- --------- --------- NET INCOME ......................................... $ 111,665 $ 65,234 $ 192,387 $ 121,464 ========= ========= ========= ========= EARNINGS PER SHARE: Basic ........................................ $ 0.80 $ 0.47 $ 1.38 $ 0.88 ========= ========= ========= ========= Diluted ...................................... $ 0.76 $ 0.45 $ 1.32 $ 0.85 ========= ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING: Common shares ................................ 139,328 138,826 139,326 137,802 Dilutive potential common shares ............. 9,876 9,876 9,876 7,967 --------- --------- --------- --------- Total weighted average shares outstanding 149,204 148,702 149,202 145,769 ========= ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
SIX MONTHS ENDED JUNE 30, ------------------------ 1998 1997 --------- --------- OPERATING ACTIVITIES: Net income ...................................................... $ 192,387 $ 121,464 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................. 64,746 53,042 Gain on sale of assets ........................................ (82) (70) Gain on sale of investment securities ......................... (78) (10) Deferred tax provision ........................................ 42,570 20,638 Accretion of discounts on investment securities ............... (6,232) (5,318) Amortization of debt issuance costs ........................... 258 201 Changes in operating assets and liabilities: Accounts receivable ........................................... (66,481) (24,462) Rig inventory and supplies and other current assets ........... (16,817) (4,694) Other assets, non-current ..................................... (1,026) 357 Accounts payable and accrued liabilities ...................... 5,310 10,979 Taxes payable ................................................. 7,485 (15,779) Other liabilities, non-current ................................ 2,709 3,018 Other, net ...................................................... (622) 290 --------- --------- Net cash provided by operating activities .................. 224,127 159,656 --------- --------- INVESTING ACTIVITIES: Capital expenditures ............................................ (73,333) (156,002) Acquisition of drilling rigs and related equipment .............. -- (80,776) Proceeds from sale of assets .................................... 582 1,888 Net change in short-term investment securities .................. (307,357) (191,234) Net change in investments through repurchase agreements ......... 350,000 -- Purchases of long-term investment securities .................... (204,875) (124,242) --------- --------- Net cash used in investing activities ...................... (234,983) (550,366) --------- --------- FINANCING ACTIVITIES: Payment of dividends ............................................ (34,832) -- Issuance of common stock ........................................ -- 82,282 Debt repayments ................................................. -- (73,000) Issuance of convertible subordinated notes ...................... -- 400,000 Debt issuance costs ............................................. -- (6,062) Proceeds from stock options exercised ........................... 211 455 --------- --------- Net cash (used in) provided by financing activities ........ (34,621) 403,675 --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS .............................. (45,477) 12,965 Cash and cash equivalents, beginning of period .................. 102,958 28,180 --------- --------- Cash and cash equivalents, end of period ........................ $ 57,481 $ 41,145 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The consolidated financial statements of Diamond Offshore Drilling, Inc. and subsidiaries (the "Company") should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1- 13926). Interim Financial Information The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required by generally accepted accounting principles for complete financial statements. The consolidated financial information has not been audited but, in the opinion of management, includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the consolidated balance sheets, statements of income, and statements of cash flows at the dates and for the periods indicated. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. Cash and Cash Equivalents Short-term, highly liquid investments that have an original maturity of three months or less which are considered part of the Company's cash management activities, rather than part of its investing activities, are considered cash equivalents. Investments The Company's investments are classified as available for sale and stated at fair value under the terms of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, any unrealized gains and losses, net of taxes, are reported in the Consolidated Balance Sheets in "Accumulated other comprehensive losses" until realized. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and such adjustments are included in interest income. The cost of debt securities sold is based on the specific identification method and the cost of equity securities sold is based on the average cost method. Realized gains or losses and declines in value, if any, judged to be other than temporary are reported in the Consolidated Statements of Income in "Other income (expense)." Supplementary Cash Flow Information Cash payments made for interest on long-term debt, including commitment fees, during the six months ended June 30, 1998 and 1997 totaled $7.5 million and $0.6 million, respectively. Cash payments made for income taxes during the six months ended June 30, 1998 and 1997 totaled $54.5 million and $60.2 million, respectively. Capitalized Interest Interest cost for construction and upgrade of qualifying assets is capitalized. During the quarter and six months ended June 30, 1998, the Company incurred interest cost, including amortization of debt issuance costs, of $3.9 million and $7.8 million, respectively. Interest cost capitalized during the quarter and six months ended June 30, 1998 was not material. Interest cost of $4.0 million and $6.8 million was incurred during the quarter and six months ended June 30, 1997. Interest cost capitalized during the quarter and six months ended June 30, 1997 was $0.7 million and $3.5 million, respectively. 6 7 Goodwill Goodwill from the merger with Arethusa (Off-Shore) Limited ("Arethusa") is amortized on a straight-line basis over 20 years. Amortization expense totaled $1.6 million and $3.2 million for the quarter and six months ended June 30, 1998, respectively. For the quarter and six months ended June 30, 1997, amortization expense totaled $1.7 million and $3.3 million, respectively. Debt Issuance Costs Debt issuance costs are included in the Consolidated Balance Sheets in "Other assets" and are amortized over the term of the related debt. Comprehensive Income In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For the quarter and six months ended June 30, 1998 comprehensive income totaled $111.5 million and $191.2 million, respectively. For the quarter and six months ended June 30, 1997 comprehensive income totaled $66.2 million and $121.7 million, respectively. Comprehensive income includes net income, foreign currency translation losses, and unrealized holding losses on investments. Net Income Per Share In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which requires dual presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share was calculated by dividing net income, adjusted to eliminate the after-tax effect of interest expense, by the weighted average number of common shares outstanding and the weighted average number of shares issuable assuming full conversion of the convertible subordinated notes as of the issuance date, February 4, 1997. Weighted average shares outstanding and all per share amounts included herein for all periods presented have been restated to include the retroactive effect of the July 1997 two-for-one stock split in the form of a stock dividend. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Reclassifications Certain amounts applicable to the prior periods have been reclassified to conform to the classifications currently followed. Such reclassifications do not affect earnings. 7 8 2. INVESTMENTS Investments classified as available for sale at June 30, 1998 were as follows:
----------------------------------------- Unrealized Market Cost Gain (Loss) Value ----------------------------------------- (in thousands) Debt securities issued by the U.S. Treasury Due within one year .................... $ 315,876 $ (337) $ 315,539 Due after one year through five years .. 204,242 (807) 203,435 Equity securities ........................... 11,007 243 11,250 ---------- ---------- ---------- Total .................................. $ 531,125 $ (901) $ 530,224 ========== ========== ==========
During the six months ended June 30, 1998, certain equity and debt securities due within one year were sold for proceeds of $2.4 million and $95.4 million, respectively. The resulting realized loss was not material. Also during the six months ended June 30, 1998, investments through repurchase agreements with third parties were sold for their contracted amounts totaling $350.0 million. 3. DRILLING AND OTHER PROPERTY AND EQUIPMENT Cost and accumulated depreciation of drilling and other property and equipment is summarized as follows:
JUNE 30, DECEMBER 31, ---------------------------- 1998 1997 ---------------------------- (IN THOUSANDS) Drilling rigs and equipment ........... $ 1,857,772 $ 1,781,107 Construction work in progress ......... 11,968 17,696 Land and buildings .................... 12,753 12,552 Office equipment and other ............ 12,245 10,551 ----------- ----------- Cost ............................. 1,894,738 1,821,906 Less accumulated depreciation ......... (431,675) (370,165) ----------- ----------- Total ....................... $ 1,463,063 $ 1,451,741 =========== ===========
4. GOODWILL The merger with Arethusa generated an excess of the purchase price over the estimated fair value of the net assets acquired. Cost and accumulated amortization of such goodwill are summarized as follows:
JUNE 30, DECEMBER 31, ------------------------ 1998 1997 ------------------------ (IN THOUSANDS) Goodwill .............................. $ 129,746 $ 129,746 Less accumulated amortization ......... (14,358) (11,123) --------- --------- Total ....................... $ 115,388 $ 118,623 ========= =========
8 9 5. ACCRUED LIABILITIES Accrued liabilities consist of the following:
JUNE 30, DECEMBER 31, --------------------------- 1998 1997 --------------------------- (IN THOUSANDS) Personal injury and other claims ............... $ 23,033 $ 23,960 Payroll and benefits ........................... 18,285 15,951 Interest payable ............................... 5,666 5,684 Other .......................................... 9,072 3,340 ----------- ----------- Total ................................ $ 56,056 $ 48,935 =========== ===========
6. COMMITMENTS AND CONTINGENCIES The survivors of a deceased employee of a subsidiary of the Company, Diamond M Onshore, Inc., sued such subsidiary in Duval County, Texas, for damages as a result of the death of the employee. The plaintiffs obtained a judgment in the trial court for $15.7 million plus post-judgment interest. The Company appealed the judgment. In July 1998, the Texas Fourth Court of Appeals in San Antonio reversed the judgment of the trial court and rendered that the plaintiffs take nothing. No provision for any liability had been established by the Company for this claim. A former subsidiary of Arethusa, which is now a subsidiary of the Company, defended and indemnified Zapata Off- Shore Company and Zapata Corporation (the "Zapata Defendants"), pursuant to a contractual defense and indemnification agreement, in a suit for tortious interference with contract and conspiracy to tortiously interfere with contract. The plaintiffs sought $14.0 million in actual damages and unspecified punitive damages, plus costs of court, interest and attorneys' fees. In November 1997, the jury awarded a take-nothing judgment in favor of the Zapata Defendants. The plaintiffs have appealed the judgment and the case has been referred to mediation, which is expected to occur in the third quarter of 1998. No provision for any liability has been established at this time. Various other claims have been filed against the Company in the ordinary course of business, particularly claims alleging personal injuries. Management believes the Company has established adequate reserves for any liabilities that may reasonably be expected to result from these claims. In the opinion of management, no pending or threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the Company's Consolidated Financial Statements (including the Notes thereto) included elsewhere herein. The Company is a leader in deep water drilling with a fleet of 46 offshore drilling rigs. The fleet consists of 30 semisubmersibles, 15 jack-ups and one drillship and operates in the waters of six of the world's seven continents. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 AND 1997 Comparative data relating to the Company's revenues and operating expenses by equipment type are listed below (eliminations offset (i) dayrate revenues earned when the Company's rigs are utilized in its integrated services and (ii) intercompany expenses charged to rig operations). Certain amounts applicable to the prior period have been reclassified to conform to the classifications currently followed. Such reclassifications do not affect earnings. During November 1997 and July 1997, the Company completed its major upgrades of the Ocean Victory and the Ocean Clipper I, respectively, expanding those rigs to have fourth-generation capabilities. Upon completion, these rigs were included in Fourth-Generation Semisubmersibles for discussion purposes (prior period information will continue to include the rigs in Other Semisubmersibles).
THREE MONTHS ENDED JUNE 30, ------------------------ INCREASE/ 1998 1997 (DECREASE) -------------------------------------- (in thousands) REVENUES Fourth-Generation Semisubmersibles.. $ 68,030 $ 49,215 $ 18,815 Other Semisubmersibles ............. 191,378 130,916 60,462 Jack-ups ........................... 63,236 46,824 16,412 Integrated Services ................ 5,438 1,284 4,154 Other .............................. -- 682 (682) Eliminations ....................... (4,565) (387) (4,178) --------- --------- -------- Total Revenues ............. $ 323,517 $ 228,534 $ 94,983 ========= ========= ======== CONTRACT DRILLING EXPENSE Fourth-Generation Semisubmersibles.. $ 19,961 $ 13,696 $ 6,265 Other Semisubmersibles ............. 65,622 57,188 8,434 Jack-ups ........................... 27,880 24,713 3,167 Integrated Services ................ 5,451 1,417 4,034 Other .............................. 1,754 1,825 (71) Eliminations ....................... (4,565) (618) (3,947) --------- --------- -------- Total Contract Drilling Expense $ 116,103 $ 98,221 $ 17,882 ========= ========= ======== OPERATING INCOME Fourth-Generation Semisubmersibles.. $ 48,069 $ 35,519 $ 12,550 Other Semisubmersibles ............. 125,756 73,728 52,028 Jack-ups ........................... 35,356 22,111 13,245 Integrated Services ................ (13) (133) 120 Other .............................. (1,754) (1,143) (611) Eliminations ....................... -- 231 (231) Depreciation and Amortization Expense .......................... (32,747) (27,230) (5,517) General and Administrative Expense.. (6,219) (4,859) (1,360) Gain on Sale of Assets ............. 4 5 (1) --------- --------- -------- Total Operating Income ..... $ 168,452 $ 98,229 $ 70,223 ========= ========= ========
Fourth-Generation Semisubmersibles. The $18.8 million increase in revenues for fourth-generation rigs resulted primarily from $11.4 million in revenues generated by increased operating dayrates and from $8.4 million 10 11 in revenues generated by the Ocean Victory and the Ocean Clipper I, which completed their upgrade projects in November 1997 and July 1997, respectively. The $6.3 million increase in contract drilling expense resulted primarily from operating costs generated by the Ocean Victory and the Ocean Clipper I and costs associated with the mandatory inspection of the Ocean Valiant, which was completed during the quarter ended June 30, 1998. Other Semisubmersibles. The $60.5 million increase in revenues from other semisubmersibles resulted, in part, from $57.8 million in revenues generated by increased operating dayrates and $7.4 million in revenues from the Ocean Century, which returned to work after reactivation in the fourth quarter of 1997. The $8.4 million increase in contract drilling expense as compared to the quarter ended June 30, 1997 was primarily due to an overall increase in operating costs, including labor and drilling supplies. Also contributing to this increase were costs associated with the mandatory inspection and repairs on the Ocean Liberator. Jack-Ups. The $16.4 million increase in revenues from jack-ups resulted primarily from $17.9 million of additional revenues generated by increased operating dayrates and $5.7 million in revenues generated by the Ocean Warwick, which returned to work in March 1998 upon completion of its cantilever conversion project. These increases were partially offset by reductions in revenues due to the relinquishment of the Miss Kitty (a bareboat chartered rig) to the owner in late 1997 and from the Ocean Tower, which was in the shipyard for upgrades and repairs during the quarter ended June 30, 1998. The $3.2 million increase in contract drilling expense resulted primarily from costs associated with the mandatory inspection and repairs of the Ocean Drake, which was completed during the quarter ended June 30, 1998. In addition, operating costs for the Ocean Warwick and the overall increase in operating costs, including labor and drilling supplies, also contributed to the increase in contract drilling expense as compared to the same period in 1997. Integrated Services and Other. Revenues and contract drilling expenses for integrated services increased primarily from additional projects and increased rates as compared to the same period in 1997. Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 1998 of $32.7 million increased $5.5 million from $27.2 million for the three months ended June 30, 1997 primarily due to 1998 budgeted capital additions. Additional depreciation expense for the Ocean Victory and the Ocean Clipper I upon completion of their upgrades also contributed to this increase. General and Administrative Expense. General and administrative expense for the three months ended June 30, 1998 of $6.2 million increased $1.3 million from $4.9 million for the three months ended June 30, 1997 primarily due to additional personnel and increased accruals for the Company's management bonus and retention plan. Other increases resulted from costs associated with ongoing litigation. Interest Income. Interest income of $7.4 million for the three months ended June 30, 1998 increased $1.9 million from $5.5 million for the same period in 1997. This increase resulted primarily from the investment of additional excess cash in 1998. See "-Liquidity." Interest Expense. Interest expense of $3.8 million for the three months ended June 30, 1998 consists of interest accrued on the $400.0 million of convertible subordinated notes (the "Notes"). The Notes were issued in February 1997 resulting in increased interest expense for the three months ended June 30, 1998 as compared to the same period in 1997. Income Tax Expense. Income tax expense of $60.8 million for the three months ended June 30, 1998 increased $25.6 million from $35.2 million for the three months ended June 30, 1997. This increase resulted primarily from the $72.0 million increase in income before income tax expense as compared to the three months ended June 30, 1997. 11 12 SIX MONTHS ENDED JUNE 30, 1998 AND 1997 Comparative data relating to the Company's revenues and operating expenses by equipment type are listed below (eliminations offset (i) dayrate revenues earned when the Company's rigs are utilized in its integrated services and (ii) intercompany expenses charged to rig operations). Certain amounts applicable to the prior period have been reclassified to conform to the classifications currently followed. Such reclassifications do not affect earnings. During November 1997, July 1997 and March 1997, the Company completed its major upgrades of the Ocean Victory, the Ocean Clipper I, and the Ocean Star, respectively, expanding those rigs to have fourth-generation capabilities. Upon completion, these rigs were included in Fourth-Generation Semisubmersibles for discussion purposes (prior period information will continue to include the rigs in Other Semisubmersibles).
SIX MONTHS ENDED JUNE 30, ------------------------ INCREASE/ 1998 1997 (DECREASE) --------------------------------------- (in thousands) REVENUES Fourth-Generation Semisubmersibles ... $ 138,975 $ 91,857 $ 47,118 Other Semisubmersibles ............... 344,652 247,749 96,903 Jack-ups ............................. 123,322 90,379 32,943 Integrated Services .................. 21,149 5,595 15,554 Other ................................ -- 682 (682) Eliminations ......................... (18,512) (2,995) (15,517) --------- --------- --------- Total Revenues .............. $ 609,586 $ 433,267 $ 176,319 ========= ========= ========= CONTRACT DRILLING EXPENSE Fourth-Generation Semisubmersibles ... $ 40,576 $ 25,169 $ 15,407 Other Semisubmersibles ............... 144,898 112,523 32,375 Jack-ups ............................. 49,040 45,974 3,066 Integrated Services .................. 20,956 5,676 15,280 Other ................................ 4,478 2,186 2,292 Eliminations ......................... (18,512) (3,568) (14,944) --------- --------- --------- Total Contract Drilling Expense . $ 241,436 $ 187,960 $ 53,476 ========= ========= ========= OPERATING INCOME Fourth-Generation Semisubmersibles ... $ 98,399 $ 66,688 $ 31,711 Other Semisubmersibles ............... 199,754 135,226 64,528 Jack-ups ............................. 74,282 44,405 29,877 Integrated Services .................. 193 (81) 274 Other ................................ (4,478) (1,504) (2,974) Eliminations ......................... -- 573 (573) Depreciation and Amortization ........ (64,746) (53,042) (11,704) Expense General and Administrative Expense ... (12,991) (9,800) (3,191) Gain on Sale of Assets ............... 82 70 12 --------- --------- --------- Total Operating Income....... $ 290,495 $ 182,535 $ 107,960 ========= ========= =========
Fourth-Generation Semisubmersibles. The $47.1 million increase in revenues for fourth-generation rigs resulted primarily from $22.7 million in revenues generated by increased operating dayrates and from $25.4 million in revenues generated by the Ocean Victory, the Ocean Clipper I, and the Ocean Star, which completed their upgrade projects in November 1997, July 1997, and March 1997, respectively. The $15.4 million increase in contract drilling expense resulted primarily from operating costs generated by the Ocean Victory, the Ocean Clipper I, and the Ocean Star and costs associated with the mandatory inspection of the Ocean Valiant, which was completed during the six months ended June 30, 1998. Other Semisubmersibles. The $96.9 million increase in revenues from other semisubmersibles resulted, in part, from $103.7 million in revenues generated by increased operating dayrates and $14.3 million in revenues from the Ocean Century, which returned to work after reactivation in the fourth quarter of 1997. The $32.4 million increase in contract drilling expense as compared to the six months ended June 30, 1997 was primarily due to an 12 13 overall increase in operating costs, including labor and drilling supplies. Also contributing to this increase were costs associated with six mandatory inspections and repairs completed during the six months ended June 30, 1998. Jack-Ups. The $32.9 million increase in revenues from jack-ups resulted primarily from $38.6 million of additional revenues generated by increased operating dayrates and $6.5 million in revenues generated by the Ocean Warwick, which returned to work in March 1998 upon completion of its cantilever conversion project. These increases were partially offset by reductions in revenues due to the relinquishment of the Miss Kitty (a bareboat chartered rig) to the owner in late 1997 and from the Ocean Tower, which was in the shipyard for upgrades and repairs during the six months ended June 30, 1998. The $3.1 million increase in contract drilling expense resulted primarily from costs associated with the mandatory inspection and repairs of the Ocean Drake, which was completed during the six months ended June 30, 1998. In addition, operating costs for the Ocean Warwick and the overall increase in operating costs, including labor and drilling supplies, also contributed to the increase in contract drilling expense as compared to the same period in 1997. Integrated Services and Other. Revenues and contract drilling expenses for integrated services increased primarily from additional projects and increased rates as compared to the same period in 1997. Other contract drilling expense increased primarily due to additional expenses for maintenance and repairs on spare equipment and crew training programs for new employees. Depreciation and Amortization Expense. Depreciation and amortization expense of $64.7 million for the six months ended June 30, 1998 increased primarily due to 1998 budgeted capital additions and additional depreciation expense for the Ocean Victory, the Ocean Clipper I, and the Ocean Star, which completed their upgrades in November 1997, July 1997, and March 1997, respectively. General and Administrative Expense. General and administrative expense of $13.0 million for the six months ended June 30, 1998 increased primarily due to accruals for the Company's bonus and retention plan, costs associated with ongoing litigation, and additional personnel. Also, general and administrative costs capitalized to fourth-generation upgrade projects decreased as compared to the same period in the prior year. Interest Income. Interest income of $14.0 million for the six months ended June 30, 1998 increased $5.6 million from $8.4 million for the same period in 1997. This increase resulted primarily from the investment of additional excess cash in 1998. See "-Liquidity." Interest Expense. Interest expense of $7.6 million for the six months ended June 30, 1998 consists of interest accrued on the $400.0 million of convertible subordinated notes. The Notes were issued in February 1997 resulting in increased interest expense for the six months ended June 30, 1998 as compared to the same period of the prior year. Also, interest cost capitalized during the six months ended June 30, 1998 was not material. Income Tax Expense. Income tax expense for the six months ended June 30, 1998 was $104.7 million as compared to $65.9 million for the comparable period of the prior year. This change resulted primarily from the increase of $109.7 million in the Company's income before income tax expense. 13 14 OUTLOOK The Company continues to enhance its fleet to meet customer demand for diverse drilling capabilities, including those required for deep water and harsh environment operations. The conversion of the Ocean Confidence from an accommodation vessel to a semisubmersible drilling unit capable of operating in harsh environments and ultra-deep water is proceeding as scheduled. The upgrade is anticipated to be completed in late 1999, when the rig will begin a five-year commitment in the Gulf of Mexico. See "-Capital Resources." Increased rig construction and enhancement programs are also ongoing by the Company's competitors. Because the new construction of drilling units to date has been largely in conjunction with term contracts, the Company does not believe the resulting increase in supply will have a material adverse effect on the average operating dayrates and the overall utilization level of the Company's existing rigs in the short term. However, this increase in capacity has caused a shortage of qualified rig personnel and upward pressure on the cost of equipment and supplies necessary for drilling operations. For example, effective July 1, 1998, the Company adjusted the compensation levels for most offshore positions in order to maintain competitive pay rates. These increases in expenses are not expected to have a material effect on the Company's current results of operations, however, significant increases in costs, including compensation and training, may occur in the future depending upon industry conditions. The Company's results of operations have also been impacted by the loss of revenues and associated costs incurred during required regulatory inspections of its drilling rigs. During 1998 it was anticipated that 15 of the Company's rigs would incur some downtime associated with scheduled regulatory inspections. At June 30, 1998, eight of these 15 inspections had been completed. The Company intends to focus on returning these rigs to operations as soon as reasonably possible, in order to minimize the downtime and associated loss of revenues. In addition, as a result of the recent decline in product prices, the contract drilling industry has begun to experience declining dayrates and decreased utilization, primarily in the shallow waters of the Gulf of Mexico. The impact of these changing market conditions could have an adverse effect on the Company's future results of operations, although the extent of such change cannot be accurately predicted. LIQUIDITY As of June 30, 1998, cash and investments totaled $587.7 million, up from $466.1 million at December 31, 1997. Cash provided by operating activities for the six months ended June 30, 1998 increased by $64.4 million to $224.1 million, as compared to $159.7 million for the comparable period of the prior year. This increase in operating cash flow was primarily attributable to a $70.9 million increase in net income for the first half of 1998, an $11.7 million increase in depreciation and amortization expense, and various changes in operating assets and liabilities. Investing activities used $235.0 million in cash during the six months ended June 30, 1998, compared to $550.4 million during the comparable period of 1997. The decrease resulted primarily from the initial investment in 1997 of excess cash generated by the issuance of $400.0 million of convertible subordinated notes. Cash used in financing activities for the six months ended June 30, 1998 of $34.6 million resulted primarily from dividends to stockholders. Cash provided by financing activities for the six months ended June 30, 1997 of $403.7 million resulted primarily from the issuance of the Notes. The Company has the ability to issue an aggregate of approximately $117.5 million in debt, equity and other securities under a "shelf" registration statement. In addition, the Company may issue, from time to time, up to eight million shares of common stock, which shares are registered under an "acquisition shelf" registration statement, in connection with one or more acquisitions by the Company of securities or assets of other businesses. The Company believes it has the financial resources needed to meet its business requirements in the foreseeable future, including capital expenditures for major upgrades, continuing rig enhancements, as well as working capital requirements. 14 15 CAPITAL RESOURCES Cash requirements for capital commitments result from rig upgrades to meet specific customer requirements and from the Company's continuing rig enhancement program, including water depth and drilling capability upgrades. It is management's opinion that operating cash flows and the Company's cash reserves will be sufficient to meet these capital commitments; however, periodic assessments will be made based on industry conditions. In addition, the Company may, from time to time, issue debt or equity securities, or a combination thereof, to finance capital expenditures, the acquisition of assets and businesses, or for general corporate purposes. The Company's ability to effect any such issuance will be dependent on the Company's results of operations, its current financial condition and other factors beyond its control. The Company has revised its budgeted capital expenditures for rig upgrades during 1998 to $125.2 million from $108.5 million. During the six months ended June 30, 1998, the Company expended $35.3 million, including capitalized interest expense, for significant rig upgrades. Such upgrade projects include the conversion of the Ocean Confidence from an accommodation vessel to a semisubmersible drilling unit capable of operating in harsh environments and ultra-deep waters. The conversion includes the following enhancements, which will provide capabilities greater than existing fourth-generation equipment: capability for operation in 7,500 foot water depths; approximately 6,000 tons variable deck load; a 15,000 psi blow-out prevention system; and four mud pumps to complement the existing Class III dynamic-positioning system. The Company has revised the estimated cost of conversion to approximately $210.0 million from $190.0 million due to additional steel requirements and mechanical and electrical system costs. Upon completion of the conversion, the rig will begin a five-year drilling program in the Gulf of Mexico, which is anticipated to commence in late 1999. Other upgrade projects included the cantilever conversion project on the Ocean Warwick, a jack-up drilling rig located in the Gulf of Mexico, which was completed in March 1998. In addition, leg strengthening and other modifications on the Ocean Tower, a jack-up drilling rig operating in the Gulf of Mexico, were completed in May 1998. The Company has also budgeted $126.7 million for 1998 capital expenditures associated with its continuing rig enhancement program, spare equipment and other corporate requirements. These expenditures include purchases of anchor chain, drill pipe, riser, and other drilling equipment. During the six months ended June 30, 1998, the Company expended $38.0 million on this program. The Company is continually considering potential transactions including, but not limited to, enhancement of existing rigs, the purchase of existing rigs, construction of new rigs and the acquisition of other companies engaged in contract drilling. Certain of the potential transactions reviewed by the Company would, if completed, result in its entering new lines of business, although, in general, these opportunities have been related in some manner to the Company's existing operations. Although the Company does not, as of the date hereof, have any commitment with respect to a material acquisition, it could enter into such an agreement in the future and such acquisition could result in a material expansion of its existing operations or result in its entering a new line of business. Some of the potential acquisitions considered by the Company could, if completed, result in the expenditure of a material amount of funds or the issuance of a material amount of debt or equity securities. YEAR 2000 ISSUES The Company has addressed the impact of the upcoming change in the century on the Company's business, operations, and financial condition. The impact is dependent upon many factors, including the Company's software and hardware, as well as that of the Company's suppliers, customers, creditors, and financial service organizations. While the cost of addressing Year 2000 issues is not believed to be material, the Company is continuing to monitor, on an ongoing basis, the problems and uncertainties associated with these issues and their consequences. NEW ACCOUNTING PRONOUNCEMENTS In February 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement revises employers' disclosures about pension and other postretirement benefit plans in annual financial statements. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. 15 16 OTHER The Company has received notification that the Internal Revenue Service will conduct an audit of the Company's 1996 federal income tax return beginning in August 1998. The Company believes that adequate tax payments and accruals have been made and that any amounts possibly assessed will not have a material adverse effect on the financial position, results of operations, or cash flows of the Company. FORWARD-LOOKING STATEMENTS Certain written and oral statements made or incorporated by reference from time to time by the Company or its representatives are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, performance or achievements, and may contain the words "expect," "intend," "plan," "anticipate," "estimate," "believe," "will be," "will continue," "will likely result," and similar expressions. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, operating difficulties arising from shortages of equipment or qualified personnel or as a result of other causes, casualty losses, industry fleet capacity, changes in foreign and domestic oil and gas exploration and production activity, competition, changes in foreign political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to attract and retain qualified personnel, customer preferences and various other matters, many of which are beyond the Company's control. The risks included here are not exhaustive. Other sections of this Report and the Company's other filings with the Securities and Exchange Commission include additional factors that could adversely impact the Company's business and financial performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based. 16 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate and Equity Price Sensitivity The Company's financial instruments that are potentially sensitive to changes in interest rates include the Notes and investments in debt securities. In addition, the Company's investment in equity securities is sensitive to equity price risk. The Notes, which are due February 15, 2007, have a stated interest rate of 3.75 percent and an effective interest rate of 3.93 percent. At June 30, 1998, the fair value of the Company's investment in debt securities issued by the U.S. Treasury was approximately $519.0 million, which includes an unrealized holding loss of $1.1 million. The fair value of the Company's investment in equity securities at June 30, 1998 was approximately $11.3 million, which includes an unrealized holding gain of $0.2 million. Based on the nature of these financial instruments and in consideration of past market movements and reasonably possible near-term market movements, the Company does not believe that potential near-term losses in future earnings, fair values, or cash flows are likely to be material. Exchange Rate Sensitivity Other than trade accounts receivable and trade accounts payable, the Company does not currently have financial instruments that are sensitive to foreign currency exchange rates. 17 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Brown Services, Inc. and KOS Industries, Inc. v. Michael D. Brown, BSI International, Inc., Robert Brown, Robert Furlough, Power House International, Inc., Zapata Off-Shore Company and Zapata Corporation; No. 92-05691 in the 334th Judicial District Court of Harris County, Texas, filed February 7, 1992. Plaintiffs sued Zapata Off-Shore Company and Zapata Corporation (the "Zapata Defendants") for tortious interference with contract and conspiracy to tortiously interfere with contract seeking $14.0 million in actual damages and unspecified punitive damages, plus costs of court, interest and attorneys' fees. A former subsidiary of Arethusa (Off-Shore) Limited, which is now a subsidiary of the Company, defended and indemnified the Zapata Defendants pursuant to a contractual defense and indemnification agreement. In November 1997, the jury awarded a take-nothing judgment in favor of the Zapata Defendants. The plaintiffs appealed the judgment in March 1998 and the case has been referred to mediation, which is expected to occur in the third quarter of 1998. The Company and its subsidiaries are named defendants in certain other lawsuits and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders (the "Meeting") of Diamond Offshore Drilling, Inc. was held on May 13, 1998 in New York, New York. At the Meeting, the holders of 128,845,210 shares out of 139,328,160 shares entitled to vote as of the record date were represented in person or by proxy, constituting a quorum. The following matters were voted on and adopted by the margins indicated: a. To elect a six member Board of Directors, each to serve until the next annual meeting of stockholders and until their successors are elected and qualified.
Number of Shares ---------------- For Withheld Broker Non-Vote --- -------- --------------- James S. Tisch 128,218,662 626,548 0 Lawrence R. Dickerson 128,046,279 798,931 0 Herbert C. Hofmann 128,217,328 627,882 0 Arthur L. Rebell 128,402,769 442,441 0 Michael H. Steinhardt 128,239,732 605,478 0 Raymond S. Troubh 128,408,110 437,100 0
b. To ratify the appointment of Deloitte & Touche LLP as independent accountants and auditors for the Company for fiscal year 1998. For 128,498,127 Against or Withheld 304,899 Abstain 42,184 Broker Non-Vote 0
18 19 c. To amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock to 500,000,000. For 104,092,234 Against or Withheld 24,684,457 Abstain 68,519 Broker Non-Vote 0
ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index of Exhibits for a list of those exhibits filed herewith. (b) There were no reports on Form 8-K filed during the second quarter of 1998. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIAMOND OFFSHORE DRILLING, INC. (Registrant) Date 30-Jul-1998 By: \s\ Gary T. Krenek ----------------- ------------------------------------------- Gary T. Krenek Vice President and Chief Financial Officer Date 30-Jul-1998 \s\ Leslie C. Knowlton ----------------- ------------------------------------------- Leslie C. Knowlton Controller and Principal Accounting Officer 20 21 INDEX OF EXHIBITS
Exhibit No. Description - ----------- ----------- 3.1* Amended and Restated Certificate of Incorporation of the Company 3.2 Amended By-laws of the Company (incorporated by reference to Exhibits 3.2, 3.2.1, 3.2.2 and 3.2.3 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998). 4.1 Indenture, dated as of February 4, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed February 11, 1997). 4.2 Supplemental Indenture, dated as of February 4, 1997, between the Company and The Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed February 11, 1997). 11.1* Statement Re Computation of Per Share Earnings. 27.1* Financial Data Schedule.
- -------------------- * Filed herewith. EX-3.1 2 AMENDED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF DIAMOND OFFSHORE DRILLING, INC. DIAMOND OFFSHORE DRILLING, INC., a corporation duly incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on April 12, 1989 under the name Majestic Offshore, Inc. (the "Company"), desiring to integrate into a single instrument all the provisions of its Restated Certificate of Incorporation now in effect and operative, and desiring further to amend said Restated Certificate of Incorporation, such restated Certificate of Incorporation having been duly adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware, hereby certifies as follows: 1. Said Restated Certificate of Incorporation is hereby restated, integrated and further amended to read in its entirety as follows: FIRST: The name of the corporation is DIAMOND OFFSHORE DRILLING, INC. (the "Company"). SECOND: Its registered office in the State of Delaware is located at Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The registered agent for the Company is The Corporation Trust Company, whose address is as stated above. THIRD: The nature of business and purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as amended (the "DGCL"). FOURTH: The total number of shares of all classes of capital stock which the Company shall have authority to issue is 525,000,000 shares, consisting of (i) 25,000,000 shares of Preferred Stock, $.01 par value per share, and (ii) 500,000,000 shares of Common Stock, $.01 par value per share. Except as otherwise provided by law, the shares of capital stock of the Company, regardless of class, may be issued by the Company from time to time in such amounts, for such lawful consideration and for such corporate purpose(s) as the Board of Directors may from time to time determine. 2 Shares of Preferred Stock may be issued from time to time in one or more series of any number of shares as may be determined from time to time by the Board of Directors; provided that the aggregate number of shares issued and not cancelled of any and all such series shall not exceed the total number of shares of Preferred Stock authorized by this paragraph FOURTH. Each series of Preferred Stock shall be distinctly designated. The Board of Directors is hereby expressly granted authority to fix, in the resolution or resolutions providing for the issuance of a particular series of Preferred Stock, the voting powers, if any, of each such series, and the designations, preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent now or hereafter permitted by this Restated Certificate of Incorporation and the laws of the State of Delaware. Subject to the provisions of applicable law or of the Company's By-Laws with respect to the closing of the transfer books or the fixing of a record date for the determination of stockholders entitled to vote, and except as otherwise provided by law, by this Restated Certificate of Incorporation or by the resolution or resolutions of the Board of Directors providing for the issuance of any series of Preferred Stock as aforesaid, the holders of outstanding shares of Common Stock shall exclusively possess the voting power for the election of directors of the Company and for all other purposes as prescribed by applicable law, with each holder of record of shares of Common Stock having voting power being entitled to one vote for each share of Common Stock registered in his or its name on the books, registers and/or accounts of the Company. FIFTH: A director of the Company shall not be personally liable either to the Company or to any stockholder for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the director's duty of loyalty to the Company or its stockholders, or (ii) for acts or omissions which are not taken or omitted to be taken in good faith or which involve intentional misconduct or knowing violation of the law, or (iii) for any matter in respect of which such director would be liable under Section 174 of Title 8 of the DGCL or any amendment or successor provision thereto, or (iv) for any transaction from which the director shall have derived an improper personal benefit. Neither the amendment nor the repeal of this paragraph FIFTH nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this paragraph FIFTH shall eliminate or reduce the effect of this paragraph FIFTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this paragraph FIFTH, would accrue or arise prior to such amendment, repeal or adoption of an inconsistent provision. 2 3 The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or an officer of the Company against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the fullest extent and in the manner set forth in and permitted by the DGCL, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which such director or officer may be entitled apart from the foregoing provisions. The foregoing provisions shall be deemed to be a contract between the Company and each director and officer who serves in such capacity at any time while this paragraph FIFTH and the relevant provisions of the DGCL and other applicable law, if any, are in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore brought or threatened based in whole or in part upon any such state of facts. The Company may indemnify any person who was or is threatened to be made a party to any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was an employee or agent of the Company, or is or was serving at the request of the Company, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding to the extent and in the manner set forth in and permitted by the DGCL, and any other applicable law, as from time to time in effect. Such right of indemnification shall not be deemed exclusive of any other rights to which any such person may be entitled apart from the foregoing provisions. SIXTH: The Board of Directors is expressly authorized to amend, alter, change, adopt or repeal the By-Laws of the Company. * * * * 2. This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of sections 242 and 245 of the DGCL, and has been duly adopted by the stockholders of the Company at a meeting called and held in accordance with the provisions of Section 222 of the DGCL. 3 4 IN WITNESS WHEREOF, Diamond Offshore Drilling, Inc. has caused its corporate seal to be hereunto affixed and this certificate to be signed by Lawrence R. Dickerson, its President and Chief Operating Officer, and attested to by Richard L. Lionberger, its Vice President, General Counsel and Secretary, on this 27th day of May, 1998. DIAMOND OFFSHORE DRILLING, INC. By: /s/ Lawrence R. Dickerson -------------------------------- Lawrence R. Dickerson President and Chief Operating Officer Attest: /s/ Richard L. Lionberger - -------------------------------- Richard L. Lionberger Vice President, General Counsel and Secretary 4 EX-11.1 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 DIAMOND OFFSHORE DRILLING, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, -------------------------------------------------------------------------------- 1998 1997 --------------------------------------- -------------------------------------- WEIGHTED WEIGHTED (1) AVERAGE PER SHARE AVERAGE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) --------------------------------------- -------------------------------------- BASIC EPS Net income.................................. $111,665 139,328 $ 0.80 $ 65,234 138,826 $ 0.47 EFFECT OF DILUTIVE POTENTIAL SHARES Convertible notes issued 2/4/97 ............ 2,458 9,876 2,112 9,876 DILUTED EPS --------------------------------------- --------------------------------------- Net income + assumed conversions ........... $114,123 149,204 $ 0.76 $ 67,346 148,702 $ 0.45 ======================================= ======================================= SIX MONTHS ENDED JUNE 30, -------------------------------------------------------------------------------- 1998 1997 --------------------------------------- -------------------------------------- WEIGHTED WEIGHTED (1) AVERAGE PER SHARE AVERAGE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) --------------------------------------- -------------------------------------- BASIC EPS Net income................................. $ 192,387 139,326 $ 1.38 $ 121,464 137,802 $ 0.88 EFFECT OF DILUTIVE POTENTIAL SHARES Convertible notes issued 2/4/97 ........... 4,956 9,876 2,112 7,967 DILUTED EPS --------------------------------------- -------------------------------------- Net income + assumed conversions .......... $ 197,343 149,202 $ 1.32 $ 123,576 145,769 $ 0.85 ======================================= ======================================
- ------- (1) Weighted average shares outstanding have been restated to include the retroactive effect of the July 1997 two-for-one stock split in the form of a stock dividend. EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's financial statements and is qualified in its entirety by reference to such financial statements. 6-MOS DEC-31-1997 JUN-30-1998 57,481 326,789 272,787 0 34,997 720,965 1,894,738 431,675 2,513,041 143,982 400,000 0 0 1,393 1,690,659 2,513,041 0 609,586 0 241,436 77,655 0 7,624 297,078 104,691 192,387 0 0 0 192,387 1.38 1.32 Includes contract drilling expenses only. Includes other operating expenses.
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