Item 1. Business and Item 2.
Item 3. Legal Proceedings
In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of the Company, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of the Company's coal operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and the Company against any liability Reading & Bates Coal Co. might incur as the result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against the Company, Caymen Coal, Inc. (former owner of the Company's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill personally (former President of Reading & Bates Coal Co.), three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50.0 million and punitive damages of $50.0 million for alleged tortious interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. The Company intends to defend its interests vigorously and believes the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and that it will prevail in this litigation.
The Company is involved in various other legal actions arising in the normal course of business. The great majority of these actions involve claims arising out of injuries to employees of the Company who work on the Company's rigs and other vessels. After taking into consideration the evaluation of such actions by counsel for the Company and the Company's insurance coverage, management is of the opinion that outcome of all known and potential claims and litigation will not have a material adverse effect on the Company's business or consolidated financial position or results of operations. See Note D of Notes to Consolidated Financial Statements.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
On December 23, 1997, R&B held a special meeting of stockholders to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of July 10, 1997, among the Company, Falcon, and R&B. The proposal received 46,463,835 votes FOR, 85,120 votes AGAINST, and 129,081 ABSTENTIONS, and therefore, was adopted by the stockholders of R&B.
On December 23, 1997, Falcon held a special meeting of stockholders to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of July 10, 1997, among the Company, Falcon, and R&B. The proposal received 66,632,944 votes FOR, 14,640 votes AGAINST, and 78,131 ABSTENTIONS, and therefore, was adopted by the stockholders of Falcon.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The combination of Falcon and R&B became effective at 11:59 p.m. E.S.T. on December 31, 1997. The common stock of R&B Falcon began trading on the New York Stock Exchange ("NYSE") on January 2, 1998 under the symbol "FLC." During 1996 and 1997, the Falcon common stock was traded on the NYSE under the symbol "FLC" and the R&B common stock was traded on the NYSE and the Pacific Stock Exchange under the symbol "RB." The following table sets forth, for the calendar periods indicated, the high and low sales prices per share of Falcon common stock and R&B common stock as reported by the NYSE Composite Tape for the periods indicated. All share price information for Falcon common stock has been adjusted to reflect the two-for-one stock split effected on July 15, 1997. No adjustment to these prices has been made in respect of the share exchange ratio in the Merger (one share of Company common stock for each share of Falcon common stock; 1.18 shares of Company common stock for each share of R&B common stock). Neither Falcon nor R&B have declared any dividends on common stock for the periods indicated.
Falcon R&B Common Stock Common Stock ---------------- ---------------- High Low High Low ------- ------- ------- ------- First Quarter $ 12.81 $ 6.00 $ 20.38 $ 14.25 Second Quarter 14.25 11.13 26.13 19.75 Third Quarter 13.94 10.00 27.88 20.00 Fourth Quarter 21.63 12.88 31.13 25.00
First Quarter $ 21.50 $ 15.13 $ 32.25 $ 22.50 Second Quarter 28.81 15.56 28.25 20.13 Third Quarter 38.13 25.44 44.63 26.75 Fourth Quarter 42.81 28.19 49.81 33.38
There were approximately 3,300 holders of record of the Company's common stock as of March 18, 1998.
In December 1997, the Company adopted a preferred share Rights Agreement. See Note G of Notes to Consolidated Financial Statements.
During 1997, Falcon sold shares of its common stock that were not registered under the Securities Act of 1933. On May 21, 1997, Falcon issued 44,000 shares of its common stock, par value $.01, to Michael J. Smith as partial consideration for the acquisition by Falcon of all of the issued and outstanding stock of Sun Towing Co., Inc. ("SUN") and MNS Towing, Inc. ("MNS"). The agreed price for the shares issued to Mr. Smith was $18.75 per share (after giving effect for the two-for-one stock split effected by Falcon on July 15, 1997). Falcon relied upon Section 4(2) of the Securities Act of 1933, as amended, for exemption from registration. The shares were issued pursuant to a negotiated transaction wherein Falcon agreed to buy, and Mr. Smith agreed to sell, all of the shares of Sun and MNS, which companies were wholly owned by Mr. Smith.
Item 6.
Item 6. Selected Financial Data
R&B FALCON CORPORATION AND SUBSIDIARIES (in millions except per share amounts)
The following table includes the accounts of R&B and Falcon as a result of the Merger. See Note B of Notes to Consolidated Financial Statements.
Years Ended December 31, ------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- ------ ------- ------- Operating revenues $ 942.1 $ 609.6 $ 390.3 $ 307.6 $ 245.6 ========= ========= ======= ======= ======= Income (loss) from continuing operations $ 156.0 $ 106.4 $ 23.5 $ (12.7) $ 8.5
Income (loss) from discontinued operations (162.2) .3 - - -
Extraordinary gain (1) - - 3.4 - - --------- --------- ------- ------- ------- Net income (loss) (6.2) 106.7 26.9 (12.7) 8.5
Dividends and accretion on preferred stock (2) - 3.6 5.2 5.4 2.8 --------- --------- ------- ------- ------- Net income (loss) applicable To common stockholders $ (6.2) $ 103.1 $ 21.7 $ (18.1) $ 5.7 ========= ========= ======= ======= ======= Net income (loss) per common share: Basic: Continuing operations $ .95 $ .70 $ .16 $ (.18) $ .06 Discontinued operations (.99) - - - - Extraordinary gain - - .03 - - --------- --------- ------- ------- ------- Net income (loss) $ (.04) $ .70 $ .19 $ (.18) .06 ========= ========= ======= ======= ======= Diluted: Continuing operations $ .94 $ .67 $ .15 $ (.18) $ .05 Discontinued operations (.98) - - - - Extraordinary gain - - .03 - - --------- --------- ------- ------- ------- Net income (loss) $ (.04) $ .67 $ .18 $ (.18) $ .05 ========= ========= ======= ======= =======
Total assets $ 1,928.4 $ 1,455.8 $ 946.8 $ 810.9 $ 722.5 ========= ========= ======= ======= ======= Long-term obligations (including current portion) and redeemable stocks $ 827.4 $ 514.2 $ 296.7 $ 288.6 $ 166.3 ========= ========= ======= ======= ======= Dividends on Common Stock $ - $ - $ - $ - $ - ========= ========= ======= ======= ======= - -----------------
(1) Extraordinary gain for 1995 is due to the extinguishment of an R&B debt obligation. (2) In 1995, Falcon's Series A Convertible Preferred Stock was converted into approximately 15.6 million shares of common stock and in 1996, R&B's $1.625 Convertible Preferred Stock was converted into approximately 10.2 million shares of common stock.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Business Combination
On July 10, 1997, Falcon Drilling Company, Inc. ("Falcon") and Reading & Bates Corporation ("R&B") announced that they had agreed to combine their companies under a new company -- R&B Falcon Corporation ("R&B Falcon") (the "Merger"). On December 23, 1997, the Merger was approved by both companies' shareholders and on December 31, 1997 the Merger was consummated. Each outstanding share of common stock of Falcon was converted into one share of R&B Falcon and each outstanding share of common stock of R&B was converted into 1.18 shares of R&B Falcon. The Merger has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of R&B and Falcon.
Results of Operations
The Company reported a net loss for 1997 of $6.2 million ($.04 net loss per share) compared to net income of $106.7 million ($.70 earnings per share after preferred stock dividends of $3.6 million) for 1996 and net income of $26.9 million ($.19 earnings per share after preferred stock dividends of $5.2 million) for 1995. Included in the 1997 results are merger expenses of $66.4 million and losses related to discontinued operations of $162.2 million. Included in the 1995 results is an extraordinary gain of $3.4 million related to the extinguishment of a debt obligation.
Operating Revenues Years Ended December 31, --------------------------- Operating Revenues (in millions) 1997 1996 1995 ------- ------- ------- Deepwater $ 348.8 $ 211.8 $ 104.6 Shallow water 321.7 224.9 161.8 Inland water 271.6 172.9 123.9 ------- ------- ------- Total $ 942.1 $ 609.6 $ 390.3 ======= ======= =======
Operating revenues are primarily a function of dayrates and utilization. Operating revenues from 1996 to 1997 increased $332.5 million due to the following: The deepwater fleet increased $137.0 million primarily due to an increase in dayrates for the semisubmersibles and due to the addition of two drillships. The shallow water fleet increased $96.8 million primarily due to an increase in dayrates for the jack-up fleet. The inland water fleet increased $98.7 million primarily due to an increase in dayrates and utilization for the domestic and workover barges, and due to the purchase of 68 tugs and 44 utility barges during 1997. See "Purchases of Equipment".
Operating revenues from 1995 to 1996 increased $219.3 million due to the following: The deepwater fleet increased $107.2 million primarily due to an increase in dayrates for the semisubmersibles and due to the purchase of drillships in 1996. The shallow water fleet increased $63.1 million primarily due to an increase in dayrates for the jack-up fleet and due to the addition of four jack-ups in late 1995. The inland water fleet increased $49.0 million primarily due to an increase in dayrates and utilization for the domestic barges. See "Purchases of Equipment".
The Company earned revenues of $167.6 million, $69.6 million and $3.6 million for 1997, 1996 and 1995, respectively, as a result of equipment acquisitions. See "Purchases of Equipment".
Operating Expenses Years Ended December 31, --------------------------- Operating Expenses (in millions) 1997 1996 1995 ------- ------- ------- Deepwater $ 141.6 $ 91.1 $ 58.1 Shallow water 151.8 128.3 113.0 Inland water 154.2 110.2 78.2 ------- ------- ------- Total $ 447.6 $ 329.6 $ 249.3 ======= ======= =======
Operating expenses do not necessarily fluctuate in proportion to changes in operating revenues due to the continuation of personnel on board and equipment maintenance when the Company's units are stacked. It is only during prolonged stacked periods that the Company is able to significantly reduce labor costs and equipment maintenance expense. Additionally, labor costs fluctuate due to the geographic diversification of the Company's units and the mix of labor between expatriates and nationals as stipulated in the contracts. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance expenses fluctuate depending upon the type of activity the unit is performing and the age and condition of the equipment. Scheduled maintenance of equipment and overhauls are performed on a basis of number of hours operated in accordance with the Company's preventive maintenance program. Operating expenses for an offshore unit are typically deferred or capitalized as appropriate during periods of mobilization, contract preparation, major upgrades or conversions unless corresponding mobilization revenue is recognized, in which case such operating expenses are expensed as incurred.
Operating expenses from 1996 to 1997 increased $118.0 million due to the following: The deepwater fleet increased $50.5 million primarily due to the addition of two drillships and the purchase of an FPSS vessel. The shallow water fleet increased $23.5 million primarily due to the change in the geographic location of the jack-up fleet from one year to the next. The inland water fleet increased $44.0 million primarily due to the increased utilization of the domestic barges, and due to the purchase of 68 tugs and 44 utility barges during 1997. See "Purchases of Equipment".
Operating expenses from 1995 to 1996 increased $80.3 million due to the following: The deepwater fleet increased $33.0 million primarily due to the purchase of drillships in 1996. The shallow water fleet increased $15.3 million primarily due to the purchase of four jack-ups in late 1995. The inland water fleet increased $32.0 million primarily due to the increased utilization of the domestic barges. See "Purchases of Equipment".
Depreciation Years Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- Depreciation (in millions) $ 82.9 $ 62.3 $ 46.9 ======= ======= =======
The increase in depreciation expense in each of 1996 and 1997 is primarily due to the purchase and/or significant upgrades of rigs and inland marine vessels.
General and Administrative Expenses
Years Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- General and Administrative Expenses (in millions) $ 51.9 $ 37.0 $ 29.2 ======= ======= =======
General and administrative expenses increased $14.9 million in 1997 compared to 1996 primarily due to increases in payroll and related expenses associated with employee incentive plans.
General and administrative expenses increased $7.8 million in 1996 compared to 1995 primarily due to increases in payroll and related expenses associated with employee incentive plans and a $2.2 million charge related to severance benefits for two executives whose employment was terminated during 1996.
Merger Expenses
In connection with the Merger between R&B and Falcon, the Company recorded $66.4 million of merger expenses in the fourth quarter of 1997. Merger expenses consisted primarily of employment contract termination fees associated with executives of R&B, the acceleration of unearned compensation of certain stock grants previously awarded to certain R&B employees, fees for investment bankers, attorneys, and accountants, and printing and other related costs.
Interest Expense Years Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- Interest Expense, net of interest capitalized (in millions) $ 46.3 $ 43.0 $ 34.6 ======= ======= =======
Despite an increase in capitalized interest during 1997 as compared to 1996 primarily due to the capitalization of interest related to significant upgrade and new build projects, interest expense increased by $3.3 million. This increase is primarily attributable to increased borrowings under the Company's credit facilities. Noncash interest expense attributable to amortization of discount and deferrals associated with the 8% Senior Subordinated Convertible Debentures due 1998 for the year ended December 31, 1997 was $2.6 million.
The $8.4 million increase in interest expense in 1996 as compared to 1995 is primarily attributable to increased borrowings under the Company's revolving credit facilities and the issuance by Falcon of $120.0 million in senior notes in 1996. This was partially offset by the 1996 capitalization of interest related to the significant refurbishment and upgrade of a drillship. Noncash interest expense attributable to amortization of discount and deferrals associated with the 8% Senior Subordinated Convertible Debentures due 1998 for the year ended December 31, 1996 was $2.2 million.
Income Tax Expense Years Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- Income Tax Expense (in millions) $ 84.7 $ 27.0 $ 6.3 ======= ======= =======
The increases in income tax expense in each of 1996 and 1997 were primarily due to increases in the Company's pretax income.
Minority Interest Years Ended December 31, --------------------------- 1997 1996 1995 ------- ------- ------- Minority Interest (in millions) $ 9.4 $ 6.7 $ 2.8 ======= ======= =======
Minority interest relates primarily to the results of Arcade Drilling and the percentage attributable to stockholders other than the Company. Arcade Drilling reported income in 1997, 1996 and 1995 of $36.9, $26.3 and $5.6 million, respectively. The ownership percentage attributable to stockholders other than the Company was 25.6%, 25.6% and 25.7% for the years ending December 31, 1997, 1996 and 1995, respectively.
Purchases of Equipment
The following is a summary of significant equipment purchases by the Company during the last three years.
- In January 1997, the Company purchased the "PEREGRINE VI" (ex "COASTAL GOLDEN"), a bulk carrier, for approximately $7.5 million.
- In June 1997, the Company purchased the "PEREGRINE VII" (ex "DEEPSEA WORKER"), a purpose-built dynamically positioned drillship for approximately $33.8 million.
- In the third quarter of 1997, the Company purchased the semisubmersible accommodation unit "RIG 82" (ex "ALLEGHENY") for approximately $34.2 million.
- In October 1997, the Company purchased a cantilevered, mat-supported jack-up for $22.0 million.
- In November 1997, the Company purchased the "PEREGRINE VIII" (ex "KASSOS"), a bulk carrier, for $9.2 million.
- During the fourth quarter of 1997, the Company purchased three offshore supply vessels for an aggregate cost of $7.5 million.
- During 1997, the Company purchased 68 tugs and 44 utility barges for an aggregate cost of $49.0 million.
- In January 1996, the Company purchased a drilling barge for $6.0 million.
- In February 1996, the Company purchased the "PEREGRINE II", a dynamically positioned drillship, for $24.1 million.
- In May 1996, the Company purchased the "PEREGRINE III", a dynamically positioned drillship, for $34.5 million.
- In September 1996, the Company purchased the floating production storage and shuttle (FPSS) vessel, the "SEILLEAN", for $42.2 million.
- In December 1996, the Company purchased the "FALCON DUCHESS", a conventionally moored drillship, for $5.0 million in cash and $15.0 million in shares of the Company's common stock.
- In December 1996, the Company purchased a substantially completed drillship hull (the "PEREGRINE IV") for approximately $8.0 million.
- In September 1995, the Company purchased two cantilevered mat- supported jack-ups, two slot-type mat-supported jack-ups and one submersible all for $37.8 million.
- In September 1995, the Company purchased the "PEREGRINE I", a dynamically positioned drillship, for $9.8 million.
- In September 1995, the Company purchased the support vessel "IOLAIR".
- In September 1995, the Company purchased the second-generation semisubmersible drilling unit "J.W. McLEAN". In connection with the purchase of the "J.W. McLEAN" the Company issued 1.5 million shares of the Company's common stock.
- In the fourth quarter of 1995, the Company purchased three posted barge drilling rigs for an aggregate purchase price of $12.2 million.
Sale/Lease-back of Drilling Unit
In November 1995, the Company entered into a sale/lease-back of the "M. G. HULME, JR." and agreed to lease the drilling unit for ten years. The lease-back is accounted for as an operating lease and a deferred gain of $7.4 million was recorded and is being amortized over the life of the lease. In addition, the lease contains a provision which allows the Company to repurchase the drilling unit at the end of the lease for a fair market price, but not to exceed a pre-established maximum price.
Oil & Gas Activities
In October 1995, the Company purchased an approximate 20% working interest in the Green Canyon 254 Allegheny oil and gas development project in the U.S. Gulf of Mexico from Enserch Exploration, Inc. ("Enserch") who was the operator at that time. Mobil Exploration & Producing Inc., an affiliate of Mobil Corporation, had a 40% working interest in the project and Enserch had retained the remaining 40% working interest. In the third quarter of 1997, the Company acquired an additional 20% working interest in the Allegheny field and British-Borneo Petroleum, Inc., the new operator, acquired the remaining 60% working interest in the field. As of December 31, 1997, the Company had accumulated costs related to its ownership in such project of approximately $41.2 million which are included in Net Liabilities of Discontinued Operations.
In July 1996, the Company entered into an agreement with Shell Offshore Inc. to drill an appraisal well at the Company's expense in Shell's East Boomvang prospect in the U.S. Gulf of Mexico with terms that if the results were positive the Company would earn a working interest. The estimated cost to drill the appraisal well, which was drilled in the first quarter of 1997 and was suspended as a potential producer, was approximately $12.1 million. In February 1997, Shell Offshore Inc. waived its election to remain a working interest owner in the East Boomvang, North Boomvang and East Bequia prospects ("Boomvang"), but retained an overriding royalty interest in the three prospects. In July 1997, the Company entered into an agreement with Norcen Explorer, Inc. ("Norcen") whereby an appraisal well on the North Boomvang prospect would be drilled primarily at Norcen's expense (up to an agreed upon cap) in exchange for a working interest in Boomvang. In August 1997, drilling commenced on the North Boomvang prospect and the well was completed in the fourth quarter of 1997 and suspended as a potential producer pending a decision to proceed with commercial development. As of December 31, 1997, the Company had accumulated costs related to its ownership in East Boomvang and North Boomvang of approximately $21.5 million which are included in Net Liabilities of Discontinued Operations.
In March 1998, the Company decided to divest its oil and gas business, and expects such divestiture to occur by March 1999. The Company's oil and gas business has been accounted for as a discontinued operation in the financial statements included in this report. The Company recorded a charge of $78.8 million for losses on ultimate disposal and operations until disposal. See Note L of Notes to Consolidated Financial Statements.
Year 2000
The Company is currently in the process of evaluating its computer software programs and operating systems to ensure such programs and systems will be able to process transactions in the year 2000. However, the Company does not expect that such costs to modify its programs and systems will be material to its financial condition or results of operations. The Company does not currently have information concerning the year 2000 compliance of its suppliers and customers. In the event the Company's major suppliers or customers do not successfully and timely achieve year 2000 compliance, the Company's operations could be adversely affected.
Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121") was issued. SFAS 121, which became effective in 1996, requires that certain long-lived assets be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable, and that an impairment loss be recognized under certain circumstances in the amount by which the carrying value exceeds the fair value of the asset. In 1995, the Company adopted SFAS 121 which had no effect on the Company's consolidated results of operations or consolidated financial position.
In October 1995, Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123") was issued. SFAS 123 requires either recognition of compensation expense in the financial statements for those companies that adopt the fair value based accounting method or expanded disclosure of pro forma net income and earnings per share information for those companies that retain the current accounting method set forth in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. The Company follows the accounting method set forth in APB 25 and provides the expanded disclosure requirements. See Note H of Notes to Consolidated Financial Statements.
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") was issued. SFAS 128 establishes revised standards for computing and presenting earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997 and restated all prior periods presented.
In June 1997, Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. The Company is required to adopt SFAS 130 in the first quarter of fiscal 1998. Reclassification of comparative financial statements provided for earlier periods will be required. The Company believes that the display of comprehensive income will not differ materially from the currently reported net income (loss) attributable to common stockholders.
In June 1997, Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") was issued. SFAS 131 requires that companies report financial and descriptive information about their reportable operating segments. Segment information to be reported is to be based upon the way management organizes the segments for making operating decisions and assessing performance. The Company will adopt SFAS 131 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $342.8 million for 1997, compared to $167.3 million and $56.0 million for 1996 and 1995, respectively. The increases in each year were primarily the result of improved operating results from continuing operations.
Net cash used in investing activities was $611.0 million for 1997, compared to $365.1 million for 1996 and $101.3 million for 1995. The increases in each year were due to increasing levels of capital expenditures, primarily related to rig and vessel acquisitions and the expansion of the Company's deepwater drilling rig fleet.
Net cash provided in financing activities was $301.2 million for 1997, compared to $319.6 million for 1996 and $55.7 million for 1995. The decrease in net cash provided by financing activities in 1997 over 1996 was primarily the result of a decline in proceeds from the issuance of common stock more than offsetting increased borrowings under two credit facilities with two syndicates of commercial banks. The increase in net cash provided by financing activities for 1996 over 1995 was primarily the result of increased borrowings and increased issuance of common stock.
Net cash used in discontinued operations was $105.3 million for 1997, compared to $39.2 million for 1996 and $12.4 million for 1995. The increases in each year were due to increasing levels of purchases of oil and gas properties.
At December 31, 1997, the Company had approximately $233.9 million in the aggregate of cash, cash equivalents, short-term investments and borrowing capacity under its revolving credit facilities.
During 1998 and 1999, the Company expects to spend approximately $1.4 billion to expand and upgrade its operating rig fleet. Approximately $1.1 billion of this total will be expended in connection with the expansion of the Company's deepwater rig fleet. The remaining expected capital expenditures of approximately $300.0 million would be used to reactivate currently idle barge drilling rigs and upgrade the Company's existing rig fleet.
The following are the significant capital expenditure projects of the Company:
"DEEPWATER PATHFINDER". This is a dynamically positioned drillship being constructed for a joint venture in which the Company owns a 50% interest. The estimated cost is approximately $235.0 million plus capitalized interest, with delivery expected to be in 1998. The Company's portion of the project is expected to be funded through working capital and project financing which is expected to be provided by a third party on a limited recourse basis.
"DEEPWATER FRONTIER". This is a dynamically positioned drillship being constructed for a joint venture in which the Company owns a 60% interest. The estimated cost is approximately $240.0 million plus capitalized interest, with delivery expected to be in the first quarter of 1999. The Company's portion of the project is expected to be funded through working capital and project financing of the joint venture which is expected to be provided by a third party on a limited recourse basis. During 1997, the Company had advanced approximately $46.4 million to the joint venture which was reimbursed in November 1997, after financing was obtained by the joint venture. The Company has agreed to guarantee repayment of 60% of the $175.0 million financing which was obtained.
Drillship III. This is a dynamically positioned drillship being constructed by the Company at an estimated cost of approximately $245.0 million plus capitalized interest. Delivery of the drillship is expected to be in the third quarter of 1999. The cost of this drillship is expected to be funded through non-recourse project financing. As of December 31, 1997, the Company had spent approximately $40.5 million on this project which is included in "Property and Equipment: Drilling".
"RBS-6". The Company has entered into a letter of intent with Shell Deepwater Development Inc. ("Shell") to build a new generation ultra deepwater moored semisubmersible to be used by Shell under a five year drilling contract. The estimated cost of the unit is approximately $280.0 million plus capitalized interest and other non-hardware costs and delivery of the unit is scheduled for the first quarter of 2000. The drilling contract is being structured to facilitate non-recourse financing by the Company by using the five year contract with Shell as the primary financing collateral. As of December 31, 1997, the Company had spent approximately $15.2 million which is included in "Property and Equipment: Drilling".
"PEREGRINE IV". This is a dynamically positioned drillship being constructed by the Company at an estimated cost of approximately $160.0 million plus capitalized interest. Delivery is expected in the fourth quarter of 1998. As of December 31, 1997, the Company had spent approximately $52.8 million on this project which is included in "Property and Equipment: Drilling".
"PEREGRINE VI". This is a dynamically positioned drillship being constructed by the Company at an estimated cost of approximately $200.0 million plus capitalized interest. Delivery is expected in the first quarter of 1999. As of December 31, 1997, the Company had spent approximately $36.8 million on this project which is included in "Property and Equipment: Drilling".
"PEREGRINE VII". This is a dynamically positioned drillship that was purchased by the Company in 1997 for $33.8 million. It is currently undergoing an upgrade that is expected to cost approximately $120.0 million plus capitalized interest. Delivery of the drillship is expected in the fourth quarter of 1998. As of December 31, 1997, the Company had spent approximately $61.4 million on this project which is included in "Property and Equipment: Drilling".
"PEREGRINE VIII". This is a dynamically positioned drillship being constructed by the Company at an estimated cost of approximately $200.0 million plus capitalized interest. Delivery is expected in the third quarter of 1999. As of December 31, 1997, the Company had spent approximately $21.7 million on this project which is included in "Property and Equipment: Drilling".
"FALCON 100". This is a second-generation semisubmersible that was purchased by the Company in 1995 and is being upgraded to third-generation capability at an estimated cost of $65.0 million plus capitalized interest. Delivery is expected in the fourth quarter of 1998. As of December 31, 1997, the Company had spent approximately $14.2 million on this project which is included in "Property and Equipment-Drilling".
The Company's cash on hand and available borrowing capacity together with its expected future cash flows will likely be insufficient to fully fund its currently expected capital spending program. Accordingly, during the first half of 1998, the Company will initiate a debt refinancing program which is planned to retire substantially all of the Company's existing subsidiary debt obligations and provide the liquidity necessary to complete its capital spending plans. This debt refinancing program is intended to include a new $500.0 million revolving credit facility and an approximate $1.0 billion bond financing. The Company has received a $500.0 million revolving credit commitment from a financial institution, which commitment is subject to, among other things, successful completion of a bond offering and retirement of substantially all of the Company's existing subsidiary debt obligations.
Future cash flows and credit market conditions are subject to a number of uncertainties. Liquidity of the Company should be considered in light of the significant fluctuations in demand that may be experienced by drilling contractors as rapid changes in oil and gas producers' expectations and budgets occur. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinates of cash flow from the Company's operations. There can be no assurance that internally generated cash resources and externally provided capital will be sufficient to fund the Company's liquidity requirements. Should conditions occur that significantly delay or otherwise impede the Company's refinancing plan, management believes that the Company could delay capital spending programs or alternatively sell assets in order to maintain adequate liquidity to meet its needs.
At December 31, 1997, approximately $49.8 million of total consolidated cash, cash equivalents and short-term investments of $100.9 million were restricted from the Company's use outside of Drilling's activities. See Note A of Notes to Consolidated Financial Statements.
In 1998, the Company will begin recording income taxes at the full statutory rates as tax benefit carryforwards will no longer be reserved.
The impact of inflation on the Company's operations for the three years ended December 31, 1997 has not been material.
Public Equity Offerings
In December 1996, Falcon sold 6.4 million shares of its common stock in a public offering, resulting in net proceeds of approximately $108.5 million. Proceeds were used primarily for the purchase of drilling equipment. See Note G of Notes to Consolidated Financial Statements.
In August 1995, Falcon sold 8.5 million shares of its common stock in a public offering, resulting in net proceeds of approximately $34.4 million. Proceeds were used primarily for the purchase of drilling equipment. See Note G of Notes to Consolidated Financial Statements.
In November 1995, Falcon sold 6.4 million shares of its common stock in a public offering, resulting in net proceeds of approximately $30.9 million. Proceeds were used primarily for the purchase of drilling equipment. See Note G of Notes to Consolidated Financial Statements.
Debt Offerings
Pursuant to an offering in March 1996, Falcon issued $120.0 million principal amount of 8 7/8% Senior Notes resulting in net proceeds of approximately $116.0 million. See Note C of Notes to Consolidated Financial Statements.
Pursuant to an offering in March 1995, Falcon issued $50.0 million principal amount of Subordinated Notes resulting in net proceeds of approximately $48.0 million. See Note C of Notes to Consolidated Financial Statements.
Credit Facilities
CBK Facility. The Company has entered into a credit facility agreement with Christiania Bank og Kreditkasse (the "CBK Facility") as agent for a syndicate of banks (including itself). The CBK Facility consists of a $400.0 million reducing revolving credit facility to be utilized for revolving loans and/or issuance of standby letters of credit (subject to a maximum of $30.0 million). At December 31, 1997, there were no letters of credit outstanding under the CBK Facility, leaving $48.0 million available for revolving loans and/or issuance of standby letters of credit (maximum of $30.0 million). In addition, the Company has entered into a separate $20.0 million letter of credit agreement with Christiania Bank og Kreditkasse. At December 31, 1997, $9.2 million was available under such agreement. See Notes C and D of Notes to Consolidated Financial Statements.
Paribas Facility. The Company has entered into a revolving credit facility agreement with Banque Paribas (the "Paribas Facility") as agent for a syndicate of banks (including itself). The Paribas Facility consists of (i) a $25.0 million secured revolving loan facility, maturing in November 1999, (ii) a $60.0 million secured revolving loan facility maturing in November 1998 and (iii) a $130.0 million unsecured revolving loan facility maturing in October 1998. At December 31, 1997, there were available borrowings of $85.0 million under the Paribas Facility. See Note C of Notes to Consolidated Financial Statements.
Item 8.
Item 8. Financial Statements and Supplementary Data
R&B FALCON CORPORATION AND SUBSIDIARIES REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders R&B Falcon Corporation
We have audited the accompanying consolidated balance sheets of R&B Falcon Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of R&B Falcon Corporation and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Houston, Texas March 24, 1998
R&B FALCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET December 31, 1997 and 1996 (in millions except share amounts)
1997 1996 ASSETS --------- --------- ------ CURRENT ASSETS: Cash and cash equivalents $ 55.5 $ 127.8 Short-term investments 45.4 16.3 Accounts receivable: Trade, net 165.1 128.9 Other 22.3 14.8 Materials and supplies inventory 15.1 13.4 Other current assets 13.1 5.5 --------- --------- Total current assets 316.5 306.7 --------- --------- PROPERTY AND EQUIPMENT: Drilling 1,925.9 1,412.9 Other 81.1 14.1 --------- --------- Total property and equipment 2,007.0 1,427.0 Accumulated depreciation (426.3) (355.3) --------- --------- Net property and equipment 1,580.7 1,071.7 --------- --------- DEFERRED CHARGES AND OTHER ASSETS 31.2 26.3 --------- --------- NET ASSETS OF DISCONTINUED OPERATIONS - 51.1 --------- --------- TOTAL ASSETS $ 1,928.4 $ 1,455.8 ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Long-term obligations due within one year $ 135.2 $ 14.3 Accounts payable - trade 51.5 44.6 Accrued liabilities 144.7 52.5 --------- --------- Total current liabilities 331.4 111.4 LONG-TERM OBLIGATIONS 692.2 499.9 OTHER NONCURRENT LIABILITIES 38.6 52.1 DEFERRED INCOME TAXES 76.8 29.6 NET LIABILITIES OF DISCONTINUED OPERATIONS 5.8 - --------- --------- Total liabilities 1,144.8 693.0 --------- --------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST 55.6 46.1 --------- --------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 550,000,000 shares authorized, 164,312,224 shares and 163,398,663 shares issued and outstanding at December 31, 1997 and 1996, respectively 1.6 1.6 Capital in excess of par value 631.4 630.8 Retained earnings 96.3 102.5 Other (1.3) (18.2) --------- --------- Total stockholders' equity 728.0 716.7 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,928.4 $ 1,455.8 ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS (in millions except per share amounts)
Years Ended December 31, ---------------------------- 1997 1996 1995 -------- -------- -------- OPERATING REVENUES $ 942.1 $ 609.6 $ 390.3 -------- -------- -------- COSTS AND EXPENSES: Operating expenses 447.6 329.6 249.3 Depreciation 82.9 62.3 46.9 General and administrative 51.9 37.0 29.2 Merger expenses 66.4 - - -------- -------- -------- Total costs and expenses 648.8 428.9 325.4 -------- -------- -------- OPERATING INCOME 293.3 180.7 64.9 -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense, net of interest capitalized (46.3) (43.0) (34.6) Interest income 5.8 3.4 3.0 Other, net (2.7) (1.0) (.7) -------- -------- -------- Total other income (expense) (43.2) (40.6) (32.3) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE, MINORITY INTEREST AND EXTRAORDINARY GAIN 250.1 140.1 32.6 -------- -------- -------- INCOME TAX EXPENSE: Current 39.3 6.3 2.9 Deferred 45.4 20.7 3.4 -------- -------- -------- Total income tax expense 84.7 27.0 6.3 -------- -------- -------- MINORITY INTEREST (9.4) (6.7) (2.8) -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN 156.0 106.4 23.5 -------- -------- -------- DISCONTINUED OPERATIONS: Income (loss) from operations (83.4) .3 - Loss on disposal (78.8) - - -------- -------- -------- Total discontinued operations (162.2) .3 - -------- -------- -------- EXTRAORDINARY GAIN - - 3.4 -------- -------- -------- NET INCOME (LOSS) (6.2) 106.7 26.9 DIVIDENDS ON PREFERRED STOCK - 3.6 5.2 -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (6.2) $ 103.1 $ 21.7 ======== ======== ======== NET INCOME (LOSS) PER COMMON SHARE: Basic: Continuing operations $ .95 $ .70 $ .16 Discontinued operations (.99) - - Extraordinary gain - - .03 --------- --------- --------- Net income (loss) $ (.04)$ .70 $ .19 ========= ========= ========= Diluted: Continuing operations $ .94 $ .67 $ .15 Discontinued operations (.98) - - Extraordinary gain - - .03 --------- --------- --------- Net income (loss) $ (.04)$ .67 $ .18 ========= ========= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 164.1 147.4 115.7 ======== ======== ======== Diluted 166.2 157.7 121.8 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (in millions)
Years Ended December 31, ---------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (6.2) $ 106.7 $ 26.9 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 82.9 62.3 46.9 Gain on dispositions of property and equipment (6.9) (3.7) (0.3) Deferred income taxes 49.9 15.9 3.4 Recognition of deferred expenses 7.1 8.0 9.2 Deferred compensation 17.8 3.2 0.2 Minority interest in income of consolidated subsidiaries 9.4 6.7 2.8 Loss (income) from discontinued operations 162.2 (.3) - Extraordinary gain from extinguishment of debt - - (3.4) Changes in assets and liabilities: Accounts receivable, net (39.8) (56.1) (17.0) Materials and supplies inventory (1.4) (2.3) (0.5) Deferred charges and other assets (19.6) (8.2) (8.1) Accounts payable - trade 6.9 9.2 (14.7) Accrued interest 7.1 6.2 5.4 Accrued liabilities 74.6 13.5 10.5 Other, net (1.2) 6.2 (5.3) -------- -------- -------- Net cash provided by operating activities 342.8 167.3 56.0 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Dispositions of property and equipment 10.4 3.9 53.1 Purchases of property and equipment, exclusive of noncash items (593.2) (352.3) (155.9) Sale (purchase) of short-term investments (29.1) (15.5) 2.4 Other .9 (1.2) (.9) -------- -------- -------- Net cash used in investing activities (611.0) (365.1) (101.3) -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on short-term obligations - - (12.2) Net proceeds from revolving credit facilities 316.0 141.0 20.0 Proceeds from long-term obligations 38.0 120.0 80.0 Principal payments on long-term obligations (49.6) (45.8) (92.1) Dividends paid on preferred stock - (3.6) (5.2) Distribution to minority shareholders of consolidated subsidiaries - (5.1) (1.8) Issuance of common stock, net 2.7 110.7 70.4 Other (5.9) 2.4 (3.4) -------- -------- -------- Net cash provided by financing activities 301.2 319.6 55.7 -------- -------- --------
CASH USED IN DISCONTINUED OPERATIONS (105.3) (39.2) (12.4) -------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (72.3) 82.6 (2.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 127.8 45.2 47.2 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 55.5 $ 127.8 $ 45.2 ======== ======== ======== Supplemental Cash Flow Disclosures: Interest paid, net of capitalized interest $ 36.5 $ 35.2 $ 29.4 Income taxes paid $ 13.9 $ 5.7 $ 3.0 Noncash investing activities: Purchase of property and equipment in exchange for equity or debt $ 8.0 $ 30.9 $ 31.0 Purchase of property included in discontinued operations in exchange for debt $ - $ - $ 12.0
The accompanying notes are an integral part of the consolidated financial statements.
R&B FALCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 31, 1997 (in millions)
Common Stock ------------ Capital in Retained Amount Excess of Earnings Shares (1) Par Value (Deficit) Other ------ ------ --------- ------- -------
Balances at December 31, 1994 102.3 $ 1.0 $ 361.5 $(22.3) $ (1.1)
Net income 26.9 Dividends paid on preferred stock (5.2) Conversion of preferred stock 15.6 .2 14.2 Purchase of assets 2.9 21.0 Activity in Company stock plans 7.3 .1 8.2 .2 Restricted stock grant .6 7.5 (7.6) Issuance of common stock 14.8 .1 65.2 Additional minimum liability (.3) Other .2 (.2) ----- ----- ------- ------ ------- Balances at December 31, 1995 143.5 1.4 477.8 (.6) (9.0)
Net income 106.7 Dividends paid on peferred stock (3.6) Conversion of preferred stock 10.2 .1 2.9 Purchase of assets .8 15.0 Activity in Company stock plans 1.9 13.0 .1 Restricted stock grant .6 13.8 (10.6) Issuance of common stock 6.4 .1 108.4 Additional minimum liability 1.2 Other (.1) .1 ----- ----- ------- ------- ------ Balances at December 31, 1996 163.4 1.6 630.8 102.5 (18.2)
Net loss (6.2) Activity in Company stock plans 1.2 8.9 Restricted stock grant .9 6.8 Acceleration of stock grants (.3) (9.3) 10.1 Other .1 ----- ----- ------- ------- ------- Balances at December 31, 1997 164.3 $ 1.6 $ 631.4 $ 96.3 $ (1.3) ===== ===== ======= ======= =======
____________________ (1) Amounts less than one-tenth of a million are not shown.
The accompanying notes are an integral part of the consolidated financial statements.
R&B FALCON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ______________
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of R&B Falcon Corporation ("R&B Falcon") and its subsidiaries (collectively, the "Company"), including Reading & Bates Corporation ("R&B"), Falcon Drilling Company, Inc. ("Falcon"), and its majority-owned (approximately 74.4%) subsidiary Arcade Drilling AS ("Drilling"). Investments in unconsolidated investees are accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1997, $4.4 million of the cash and cash equivalents balance related to Drilling. Such cash and cash equivalents balance as well as the short-term investments discussed below, are available to Drilling for all purposes subject to restrictions under the Standstill Agreement dated as of August 31, 1991 among Drilling, Transocean Offshore Inc. (as successor to Sonat Offshore Drilling Inc.) and R&B which restrictions preclude R&B from borrowing any cash from Drilling unless (i) Transocean is offered a pro-rata loan (based on stock ownership in Drilling) on similar terms and (ii) any such loan(s) otherwise comply with applicable laws. Drilling declared a distribution of approximately $14.3 million in the first quarter of 1996, of which the Company received approximately $10.6 million.
SHORT-TERM INVESTMENTS - Short-term investments consist of interest- bearing deposits with a commercial bank with an original maturity greater than three months but less than one year from the date of the investment. At December 31, 1997, all of the short-term investments balance related to Drilling (see CASH AND CASH EQUIVALENTS above).
MATERIALS AND SUPPLIES INVENTORY - Materials and supplies are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Drilling units and marine equipment are depreciated under the straight-line method. Estimated useful lives range from three to twenty-five years. Gain (loss) on disposal of properties is credited (charged) to income. The amount of construction in progress included in drilling equipment at December 31, 1997 and 1996 was $255.0 million and $99.3 million, respectively. Certain barge drilling rigs and other related equipment are being held in non-operating status pending modification and decisions regarding their deployment. Management believes their market value exceeds their net book value of $14.4 million and $17.8 million at December 31, 1997 and 1996, respectively.
INCOME TAXES - Deferred income taxes are recognized for revenues and expenses reported in different years for financial statement purposes and income tax purposes.
REVENUE RECOGNITION - Revenues are recognized as they are earned. Proceeds associated with the early termination of a contract are recorded as deferred income and recognized as contract revenues over the remaining term of the contract or until such time as the mobile offshore unit begins a new contract. There were no such amounts deferred at December 31, 1997 or 1996. In addition, when a unit's mobilization revenue exceeds the cost of the mobilization by a significant amount, the Company recognizes the excess as contract revenue during the contract preparation and mobilization period on a dayrate basis. If there is revenue that has not been recognized by the time the unit has arrived on location, the remaining amount is recognized over the primary term of the contract.
CAPITALIZED INTEREST - The Company capitalizes interest applicable to the construction and significant upgrades of its marine equipment as a cost of such assets. Interest capitalized for the years ended December 31, 1997, 1996 and 1995 was $10.8 million, $4.9 million and $.4 million, respectively and is shown net of interest expense in the Consolidated Statement of Operations.
FOREIGN CURRENCY TRANSACTIONS - The net gains and losses resulting from foreign currency transactions included in determining net income amounted to a net loss of $.4 million in 1997 and a net gain of $.8 million and $.2 million in 1996 and 1995, respectively. The Company may enter into forward exchange contracts to hedge specific commitments and anticipated transactions but not for speculative or trading purposes. In the third quarter of 1996, the Company entered into a short-term foreign exchange forward contract to hedge a firm commitment relating to the purchase of equipment. This contract was intended to reduce currency risk from exchange rate movements. Insignificant gains and losses were deferred and accounted for as part of the underlying transaction. At December 31, 1997, the Company did not have any outstanding forward exchange contracts. During 1997 and 1995 the Company did not enter into any forward exchange contracts.
MINORITY INTEREST - Minority interest relates primarily to the results of Drilling, which owns the drilling units "HENRY GOODRICH" and "PAUL B. LOYD, JR." The ownership percentage of Drilling attributable to stockholders other than the Company was 25.6%, 25.6% and 25.7% for the years ending December 31, 1997, 1996 and 1995, respectively. Drilling reported income in 1997, 1996 and 1995 of $36.9 million, $26.3 million and $5.6 million, respectively.
EXTRAORDINARY GAIN - In December 1995, the Company recorded an extraordinary gain of $3.4 million for the extinguishment of a debt obligation.
CONCENTRATION OF CREDIT RISK - The Company maintains cash balances and short-term investments with commercial banks throughout the world. The Company's cash equivalents and short-term investments generally consist of commercial paper, money-market mutual funds and interest-bearing deposits with strong credit rated financial institutions, therefore, bearing minimal risk. No losses were incurred during 1997, 1996 and 1995.
The Company's revenues were generated primarily from its drilling rigs. Revenues can be generated from a relatively small number of customers, which are primarily major and independent foreign and domestic oil and gas companies, as well as foreign state-owned oil and gas companies. The Company performs ongoing credit evaluations of its customers' financial conditions and generally requires no collateral from its customers. The Company's allowance for doubtful accounts at December 31, 1997 and 1996 was $7.4 million and $3.4 million, respectively.
INDUSTRY CONDITIONS - Results of operations and financial condition of the Company should be considered in light of the fluctuations in demand experienced by drilling contractors as changes in exploration and production programs of oil and gas companies occur. These fluctuations can impact the Company's results of operations and financial condition as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations.
LIQUIDITY - The Company's cash on hand and available borrowing capacity together with its expected future cash flows will likely be insufficient to fully fund its currently expected capital spending program. Accordingly, during the first half of 1998, the Company will initiate a debt refinancing program which is planned to retire substantially all of the Company's existing subsidiary debt obligations and provide the liquidity necessary to complete its capital spending plans. This debt refinancing program is intended to include a new $500.0 million revolving credit facility and an approximate $1.0 billion bond financing. The Company has received a $500.0 million revolving credit commitment from a financial institution, which commitment is subject to, among other things, successful completion of a bond offering and retirement of substantially all of the Company's existing subsidiary debt obligations.
Future cash flows and credit market conditions are subject to a number of uncertainties. Liquidity of the Company should be considered in light of the significant fluctuations in demand that may be experienced by drilling contractors as rapid changes in oil and gas producers' expectations and budgets occur. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinates of cash flow from the Company's operations. There can be no assurance that internally generated cash resources and externally provided capital will be sufficient to fund the Company's liquidity requirements. Should conditions occur that significantly delay or otherwise impede the Company's refinancing plan, management believes that the Company could delay capital spending programs or alternatively sell assets in order to maintain adequate liquidity to meet its needs.
NEWLY ISSUED ACCOUNTING STANDARDS - In March 1995, Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121") was issued. SFAS 121, which became effective in 1996, requires that certain long-lived assets be reviewed for impairment whenever events indicate that the carrying amount of an asset may not be recoverable, and that an impairment loss be recognized under certain circumstances in the amount by which the carrying value exceeds the fair value of the asset. In 1995, the Company adopted SFAS 121 which had no effect on the Company's consolidated results of operations or financial position.
In October 1995, Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123") was issued. SFAS 123 requires either recognition of compensation expense in the financial statements for those companies that adopt the fair value based accounting method or expanded disclosure of pro forma net income and earnings per share information for those companies that retain the accounting method set forth in Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to Employees. The Company follows the accounting method set forth in APB 25 and provides the expanded disclosure requirements (See Note H).
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") was issued. SFAS 128 establishes revised standards for computing and presenting earnings per share. The Company adopted SFAS 128 in the fourth quarter of 1997 and restated all prior period earnings per share data presented.
In June 1997, Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130") was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity. The Company is required to adopt SFAS 130 in the first quarter of fiscal 1998. Reclassification of comparative financial statements provided for earlier periods will be required. The Company believes that the display of comprehensive income will not differ materially from the currently reported net income (loss) attributable to common stockholders.
In June 1997, Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") was issued. SFAS 131 requires that companies report financial and descriptive information about their reportable operating segments. Segment information to be reported is to be based upon the way management organizes the segments for making operating decisions and assessing performance. The Company will adopt SFAS 131 in 1998.
ESTIMATES - 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(B) BUSINESS COMBINATION
On December 31, 1997, R&B and Falcon completed a business combination (merger) whereby each outstanding share of common stock of Falcon was converted into one share of R&B Falcon common stock and each outstanding share of common stock of R&B was converted into 1.18 shares of R&B Falcon common stock. The merger qualified as a tax-free exchange and has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of R&B and Falcon.
There was one transaction between R&B and Falcon prior to the merger which resulted in an adjustment to the combined restated financial statements of R&B Falcon. In 1996, R&B sold the drilling unit, the "D.K. McINTOSH" to Falcon. The resulting gain of $3.8 million recorded by R&B has been eliminated from the accompanying financial statements.
The results of operations for the separate companies and the combined amounts presented in the consolidated financial statements for the years ended December 31, 1997, 1996 and 1995 are as follows (in millions):
1997 1996 1995 ------- ------- ------- Operating revenues R&B $ 424.2 $ 290.3 $ 212.8 Falcon 517.9 319.3 177.5 ------- ------- ------- Combined $ 942.1 $ 609.6 $ 390.3 ======= ======= ======= Extraordinary gain R&B $ - $ - $ 3.4 Falcon - - - ------- ------- ------- Combined $ - $ - $ 3.4 ======= ======= ======= Net income (loss) R&B $ (73.5) $ 74.1 $ 21.8 Falcon 67.3 32.6 5.1 ------- ------- ------- Combined $ (6.2) $ 106.7 $ 26.9 ======= ======= =======
In connection with the merger, the Company recorded $66.4 million of expenses in the fourth quarter of 1997. Such expenses consist primarily of employment contract termination fees associated with executives of R&B, the acceleration of unearned compensation of certain stock grants previously awarded to certain R&B employees, fees for investment bankers, attorneys, and accountants, and printing and other related costs.
(C) LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1997 and 1996 consisted of the following (in millions): 1997 1996 ------- ------- Christiania Bank (1) $ 352.0 $ 166.0 Banque Paribas (2) 130.0 - 8% Senior Subordinated Convertible Debentures, due December 1998 ("8% Debentures") (3) 15.6 13.1 8 7/8% Senior Notes, due March 2003 ("8 7/8% Notes") (4) 120.0 120.0 9 3/4% Senior Notes, due January 2001 ("9 3/4% Notes") (5) 110.0 110.0 12 1/2 % Subordinated Notes, due March 2005 ("12 1/2% Notes") (6) 50.0 50.0 Floating Rate Notes (7) 10.0 10.0 NIC (8) 25.3 - Deferred payment obligation (9) 7.5 7.5 Secured promissory note (10) 6.4 - Chase Manhattan (11) - 32.5 Other debt obligations .6 5.1 ------- ------- Total 827.4 514.2 Less long-term obligations due within one year (135.2) (14.3) ------- ------- Long-term obligations $ 692.2 $ 499.9 ======= ======= __________________________
(1) The Company has entered into a credit facility agreement with Christiania Bank og Kreditkasse (the "CBK Facility") as agent for a syndicate of banks (including itself). The CBK Facility consists of a $400.0 million reducing revolving credit facility to be utilized for revolving loans and/or issuance of standby letters of credit (subject to a maximum of $30.0 million) (see Note D). The CBK Facility shall be reduced/repaid by five semi-annual installments of $37.0 million commencing in May 1999 and one final reduction/repayment of $215.0 million in November 2001 and bears interest at the London Interbank Offered Rate ("LIBOR") (5.84375% at December 31, 1997) plus .85%. In addition, a fee of .85% per annum is paid on outstanding letters of credit and a commitment fee of .35% per annum is paid on the unused portion of the CBK Facility. At December 31, 1997, there were no letters of credit outstanding under the CBK Facility, leaving $48.0 million available for revolving loans and/or issuance of standby letters of credit (maximum of $30.0 million). The CBK Facility contains covenants which require R&B to meet certain ratios and working capital conditions, and is collateralized by vessel mortgages on fourteen of the drilling units owned by the Company, related assignments of insurance and earnings, and a pledge of the Company's shares of stock of Drilling. As of December 31, 1997, the Company was in compliance with the CBK Facility covenants, as amended.
(2) The Company has entered into a revolving credit facility agreement with Banque Paribas (the "Paribas Facility") as agent for a syndicate of banks (including itself). The Paribas Facility consists of (i) a $25.0 million tranche secured by accounts receivable, maturing in November 1999, (ii) a $60.0 million tranche secured by certain drilling rigs and receivables, maturing in November 1998 and (iii) a $130.0 million tranche that is unsecured, maturing in October 1998. At December 31, 1997, there were available borrowings of $85.0 million under the Paribas Facility. The facilities require Falcon to meet certain tests related to its net worth, interest coverage ratio, and current ratio, and places restrictions on dividends and investments by Falcon. The facility provides generally for interest at LIBOR plus 1% on the $25.0 million tranche, at LIBOR plus 1.5% on the $60.0 million tranche, and at LIBOR plus 1.75% on the $130.0 million tranche. The interest rate on the $130.0 million tranche increases by .50% during each calendar quarter commencing in the second quarter of 1998. The Company has paid fees to the banks in the aggregate amount of approximately $1.5 million in order to implement the facilities, and pays a commitment fee equal to (i) .375% per annum of the unused portion of the $25.0 million and $60.0 million tranches, and .20% per annum on the unused portion of the $130.0 million tranche.
(3) The 8% Debentures are convertible into the Company's common stock at $31.386 per share. Accrued interest associated with the 8% Debentures at December 31, 1997 and 1996, was $11.9 million and $11.9 million, respectively. The 8% Debentures were recorded at amounts equal to the net present value of their respective future cash payments required, discounted at 15%, which is the interest rate the Company believes it would have been required to pay to obtain financing of a similar nature from other sources during 1991. The face amount of the 8% Debentures and the related unamortized discount at December 31, 1997 totaled $18.6 million and $3.0 million, respectively. The face amount of the 8% Debentures and the related unamortized discount at December 31, 1996 totaled $18.6 million and $5.5 million, respectively.
(4) The 8 7/8% Notes were issued by Falcon pursuant to an offering in March 1996, resulting in net proceeds of approximately $116.0 million to the Company after deducting offering related expenses. The 8 7/8% Notes consist of $120.0 million principal amount and bear interest at a rate of 8 7/8%, payable semiannually on March 15 and September 15. The 8 7/8% Notes are unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon. The 8 7/8% Notes are not guaranteed by any of Falcon's subsidiaries, and thus are structurally subordinated to the 9 3/4% Notes (defined below) and other indebtedness of the subsidiaries. Further, they are effectively subordinated to any secured indebtedness of Falcon to the extent of the collateral securing such secured indebtedness.
(5) The 9 3/4% Notes were issued by Falcon pursuant to an offering in January 1994 resulting in net proceeds of approximately $104.9 million to the Company after deducting offering related expenses. The 9 3/4% Notes consist of $110.0 million principal amount and bear interest at a rate of 9 3/4%, payable semiannually on January 15 and July 15. The 9 3/4% Notes are guaranteed by certain of the Company's subsidiaries. The 9 3/4% Notes are unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon, but are effectively subordinated to any secured indebtedness of Falcon to the extent of the collateral securing such secured indebtedness.
(6) The 12 1/2% Notes were issued by Falcon pursuant to an offering in March 1995, resulting in net proceeds of approximately $48.0 million to the Company after deducting offering related expenses. The 12 1/2% Notes consist of $50.0 million principal amount and bear interest at a rate of 12 1/2%, payable semiannually on March 15 and September 15. The 12 1/2% Notes are subordinated to all other indebtedness of the Company except indebtedness that expressly provides it shall not be senior in right of payment to the 12 1/2% Notes.
(7) On February 23, 1994, Falcon issued $10.0 million of Floating Rate Notes which bear interest at LIBOR plus 3.5%. The principal amounts of the Floating Rate Notes are due in payments of $1.0 million, $2.0 million and $2.0 million on January 24 of 1998, 1999 and 2000, respectively, with the balance due January 24, 2001. The Floating Rate Notes are guaranteed by certain of the Company's subsidiaries. The Floating Rate Notes are unsecured obligations of Falcon, ranking pari passu in right of payment with all other senior indebtedness of Falcon, but are effectively subordinated to any secured indebtedness of Falcon to the extent of the collateral securing such secured indebtedness.
(8) In April 1997, a wholly owned subsidiary of the Company entered into a five year $38.0 million loan agreement with Nissho Iwai Europe PLC ("NIC"). The loan is collateralized by a vessel mortgage on the "SEILLEAN" without recourse to the Company and bears interest at LIBOR plus 2%. Principal repayments are monthly based on the greater of the excess cash flow of the "SEILLEAN" or the outstanding principal balance divided by the remaining monthly periods of the loan. In addition, NIC has the option to purchase up to 10% of the ownership in the "SEILLEAN", any time prior to April 25, 2000, at a minimum price of $4.2 million.
(9) In September 1995, the Company entered into a $10.0 million deferred payment obligation in connection with the purchase of the support vessel "IOLAIR". The deferred payment obligation bears interest at a fixed rate of 8%. A principal repayment of $2.5 million was paid in September 1996 and payments of $7.0 million and $.5 million are due in September 1998 and September 2000, respectively. The obligation is collateralized by a vessel mortgage on the support vessel "IOLAIR".
(10) In January 1997, the Company issued a $6.4 million secured promissory note, payable to Coastal Capital Corporation, in connection with the purchase of the "PEREGRINE VI". The note bears interest at 7.5%, payable monthly, and matures in January 1999. The note is collateralized by a vessel mortgage on the "PEREGRINE VI".
(11) In August 1997, Drilling's term loan payable to The Chase Manhattan Bank, N.A. was repaid in full with Drilling's cash on hand. The term loan bore interest at LIBOR plus .45%. The drilling units "HENRY GOODRICH" and "PAUL B. LOYD, JR." collateralized the loan.
The indentures pursuant to which the 8 7/8% Notes, 9 3/4% Notes, and the 12 1/2% Notes were issued (i) provide that Falcon may redeem such obligations at a premium at certain times prior to maturity, (ii) require Falcon to offer to redeem such obligations at a premium if there is a change of control of Falcon (see below), and (iii) impose restrictions on certain actions by Falcon, including payment of dividends, incurrence of debt, pledging of assets, sale of assets, and making investments.
The consummation of the merger between R&B and Falcon caused a "change of control" as defined in Falcon's note indentures representing outstanding principal indebtedness of $290.0 million at December 31, 1997. On January 28, 1998, Falcon made a purchase offer to each note holder at a price equal to 101% of the aggregate principal amount outstanding or approximately $293.0 million, plus accrued interest. The date for tender of notes by any electing bond holder is March 24, 1998, and the redemption date is March 27, 1998. As of March 24, 1998, none of the bonds were tendered for redemption.
The Company estimates the fair value of its debt obligations to be $846.0 million compared to a book value of $827.4 million, both as of December 31, 1997.
Aggregate annual maturities of long-term obligations, (including the current portion) for the next five years and thereafter are as follows (in millions):
1998 $ 138.2 1999 65.8 2000 82.7 2001 373.2 2002 .5 Thereafter 170.0 ------- 830.4 Less the unamortized discount on the 8% Debentures (3.0) ------- Total long-term obligations and long- term obligations due within one year at December 31, 1997 $ 827.4 =======
(D) COMMITMENTS AND CONTINGENCIES
GENERAL - In 1992, in connection with the acquisition of certain barge drilling rig operations, the Company entered into contingent profits interest agreements with the former rig owners and former mortgage holder. The periods for determination of these payments began in 1993 and continued through 1997.
Pursuant to certain of the Company's long-term drilling contracts, the operator may purchase three of the Company's barge drilling rigs for specified prices which decrease each year through 1999. Management of the Company estimates that the option price will be less than the carrying value for one of these rigs by approximately $.9 million in 1998, and that the aggregate option price for the three rigs will be below the aggregate carrying value for such rigs by approximately $1.2 million and $3.5 million in 1998 and 1999, respectively. Management does not expect the purchase option to be exercised and will continue to evaluate the net book value of these rigs for possible future impairment.
The Company has a contract with Petrobras that requires the Company to pay penalties, not to exceed $34.8 million in total, should the Company not deliver a drillship and should such drillship not pass inspection by certain dates.
CAPITAL EXPENDITURES - During 1998 and 1999, the Company expects to spend approximately $1.4 billion to expand and upgrade its operating rig fleet. Approximately $1.1 billion of this total will be expended in connection with the expansion of the Company's deepwater rig fleet. The remaining expected capital expenditures of approximately $300.0 million would be used to reactivate currently idle barge drilling rigs and upgrade the Company's existing rig fleet. These amounts exclude $475.0 million related to construction commitments of two joint ventures funded through working capital and project financing which is expected to be provided by a third party on a limited recourse basis.
OPERATING LEASES - The Company has operating leases covering premises and equipment. Certain operating leases contain renewal options and have options to purchase the asset at fair market value at the end of the lease term. Lease expense amounted to $40.2 million (1997), $22.7 million (1996) and $10.6 million (1995). As of December 31, 1997, future minimum rental payments relating to operating leases were as follows (in millions):
1998 1999 2000 2001 2002 Thereafter ------ ------ ------ ------ ------ ---------- Drilling units $ 21.8 $ 20.6 $ 12.6 $ 11.7 $ 11.7 $ 34.3 Other 2.2 .9 .6 .4 .4 - ------ ------ ------ ------ ------ ------ Total $ 24.0 $ 21.5 $ 13.2 $ 12.1 $ 12.1 $ 34.3 ====== ====== ====== ====== ====== ======
In November 1995, the Company entered into a sale/lease-back of the "M. G. HULME, JR." and agreed to lease the drilling unit for ten years. The lease-back is accounted for as an operating lease and a deferred gain of $7.4 million was recorded and is being amortized over the life of the lease (see Note E).
GUARANTY - In November 1997, the Company agreed to guarantee repayment of 60% of a loan in the principal amount of $175.0 million by a syndicate of banks led by Bank of America National Trust and Savings Association and National Westminster Plc to Deepwater Drilling II L. L. C., a limited liability company in which the Company has a 60% interest, and accounts for using the equity method.
LITIGATION - In November 1988, a lawsuit was filed in the U.S. District Court for the Southern District of West Virginia against Reading & Bates Coal Co., a wholly owned subsidiary of the Company, by SCW Associates, Inc. claiming breach of an alleged agreement to purchase the stock of Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia. When those coal properties were sold in July 1989 as part of the disposition of the Company's coal operations, the purchasing joint venture indemnified Reading & Bates Coal Co. and the Company against any liability Reading & Bates Coal Co. might incur as the result of this litigation. A judgment for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was indemnified by the purchasing joint venture. On October 31, 1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed a separate ancillary action in the Circuit Court, Kanawha County, West Virginia against the Company, Caymen Coal, Inc. (former owner of the Company's West Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill personally (former President of Reading & Bates Coal Co.), three other companies in which the Company believes Mr. Sturgill holds an equity interest, two employees of the joint venture, First National Bank of Chicago and First Capital Corporation. The lawsuit seeks to recover compensatory damages of $50.0 million and punitive damages of $50.0 million for alleged tortious interference with the contractual rights of the plaintiff and to impose a constructive trust on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. The Company intends to defend its interests vigorously and believes the damages alleged by the plaintiff in this action are highly exaggerated. In any event, the Company believes that it has valid defenses and that it will prevail in this litigation.
The Company is involved in various other legal actions arising in the normal course of business. The great majority of these actions involve claims arising out of injuries to employees of the Company who work on the Company's rigs and power vessels. After taking into consideration the evaluation of such actions by counsel for the Company and the Company's insurance coverage, management is of the opinion that the outcome of all known and potential claims and litigation will not have a material adverse effect on the Company's business or consolidated financial position or results of operations.
SELF INSURANCE - The Company is self-insured for the deductible portion of its insurance coverage. In the opinion of management, adequate accruals have been made based on known and estimated exposures up to the deductible portion of the Company's insurance coverages. Management believes that future claims and liabilities in excess of the amounts accrued are fully insured.
LETTERS OF CREDIT - At December 31, 1997, the Company had letters of credit outstanding and unused totalling $10.8 million and $9.2 million, respectively (see Note C).
(E) ACCRUED LIABILITIES AND OTHER NONCURRENT LIABILITIES
The components of "Accrued liabilities" at December 31, 1997 and 1996 were as follows (in millions):
1997 1996 ------- ------- Accrued expenses - general $ 64.8 $ 13.8 Accrued interest expense 28.6 12.9 Accrued payroll 6.2 2.6 Accrued worker compensation claims 8.4 3.7 Accrued income and sales tax 29.8 3.7 Other 6.9 15.8 ------- ------- Total $ 144.7 $ 52.5 ======= =======
The components of "OTHER NONCURRENT LIABILITIES" at December 31, 1997 and 1996 were as follows (in millions):
1997 1996 ------- ------- Postretirement benefit obligations $ 14.9 $ 15.7 Accrued interest expense related to the 8% Debentures - 10.4 Deferred gain on sale of drilling unit (see Note D) 5.6 6.5 Foreign income taxes 6.1 6.0 Pension obligations 3.5 4.0 Other 8.5 9.5 ------- ------- Total $ 38.6 $ 52.1 ======= =======
(F) INCOME TAXES
Income tax expense for the years ended December 31, 1997, 1996 and 1995 consisted of the following (in millions):
1997 1996 1995 ------- ------- ------- Current: Foreign $ 9.4 $ 5.8 $ 2.4 Federal 26.9 .4 .5 State 3.0 .1 - ------- ------- ------- Total current 39.3 6.3 2.9 ------- ------- ------- Deferred: Foreign 17.9 4.0 1.8 Federal 26.6 15.0 .9 State .9 1.7 .7 ------- ------- ------- Total deferred 45.4 20.7 3.4 ------- ------- ------- Total $ 84.7 $ 27.0 $ 6.3 ======= ======= =======
The domestic and foreign components of income from continuing operations before income taxes for the years ended December 31, 1997, 1996 and 1995 were as follows (in millions):
1997 1996 1995 ------- ------- ------- Domestic $ 31.2 $ 4.6 $ (23.3) Foreign 218.9 135.5 55.9 ------- ------- ------- Total $ 250.1 $ 140.1 $ 32.6 ======= ======= =======
The effective tax rate, as computed on income from continuing operations before income taxes, differs from the statutory U.S. income tax rate for the years ended December 31, 1997, 1996 and 1995 due to the following:
1997 1996 1995 ----- ----- ----- Statutory rate 35 % 35 % 35 % Use of previously reserved tax benefits (13) (11) (12) Foreign tax expense (net of federal benefit) 1 (6) (5) State tax expense (net of federal benefit) 1 1 1 Non-deductible merger expenses 8 - - Other 2 - - ----- ----- ----- Effective rate 34 % 19 % 19 % ===== ===== =====
Deferred income taxes result from those transactions which affect financial and taxable income in different years. The nature of these transactions (all of which were long-term) and the income tax effect of each as of December 31, 1997 and 1996 were as follows (in millions):
1997 1996 ------- ------- Deferred tax liabilities: Depreciation $ 208.0 $ 169.7 Discontinued operations, net - 5.4 Undistributed earnings 8.3 - Other - .5 ------- ------- Total deferred tax liabilities 216.3 175.6 ------- ------- Deferred tax assets: Rig leases - (6.3) Postretirement benefits (5.4) (5.6) Tax benefit carryforwards (169.8) (185.8) Discontinued operations, net (22.3) - Accrued expenses (3.5) (2.0) Valuation allowance 63.5 53.7 Other (2.0) - ------- ------- Total deferred tax assets (139.5) (146.0) ------- ------- Net deferred tax liability $ 76.8 $ 29.6 ======= =======
Valuation allowance reflects the possible expiration of tax benefits (primarily net operating loss carryforwards) prior to their utilization.
Recapitalizations of R&B in 1989 and 1991 resulted in ownership changes for federal income tax purposes. As a result of these ownership changes, the amount of tax benefit carryforwards generated prior to the ownership changes which may be utilized to offset federal taxable income is limited by the Internal Revenue Code to approximately $3.8 million annually plus certain built-in gains that existed as of the date of such changes. Net tax operating losses of approximately $114.9 million arising since the 1991 ownership change are not subject to this limitation.
(G) CAPITAL SHARES
RIGHTS - On December 31, 1997, the effective date of the merger between R&B and Falcon (see Note B), each share of the Company's common stock received one preferred share purchase right (a "Right"). Each Right entitles the registered holder to purchase from the Company one one- hundredth of a share of Series A Junior Participating Preferred Stock, (the "Preferred Shares") of the Company at a price of $150, subject to adjustment. The Rights will not become exercisable until 10 days after a public announcement that a person or group has acquired 15% or more of the Company's common stock (thereby becoming an "Acquiring Person") or the commencement of a tender or exchange offer upon consummation of which such person or group would own 15% or more of the Company's common stock (the earlier of such dates being called the "Distribution Date"). Until the Distribution Date, the Rights will be evidenced by the certificates representing the Company's common stock and will be transferrable only with the Company's common stock. In the event that any person or group becomes an Acquiring Person, each Right, other than Rights beneficially owned by the Acquiring Person (which will thereafter be void), will thereafter entitle its holder to purchase shares of the Company's common stock having a market value of two times the exercise price of the Right. If after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its assets or earning power are sold, each Right will entitle its holder to purchase, at the Right's then current exercise price, that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the exercise price of the Right. The board of directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right at any time prior to ten business days following a public announcement that a person or group becomes an Acquiring Person. The Rights expire on November 1, 2007. Preferred Shares purchasable upon exercise of the Rights will not be redeemable. Each Preferred Share will be entitled to a preferential quarterly dividend payment equal to the greater of $1 per share or 100 times the dividend declared per common share. Liquidation preference will be equal to 100 times the par value per share plus an amount equal to accrued and unpaid dividends and distributions to the date of such payment. Each Preferred Share will have 100 votes, voting together with the common stock, and certain rights to elect two directors during certain periods of default in the payment of dividends on the Preferred Shares.
PREFERRED STOCK - In January 1993, Falcon issued 25,989 shares of Series A Convertible Preferred Stock in association with the satisfaction of a debt obligation. In August 1995, such preferred stock was converted into approximately 15.6 million shares of Falcon's common stock in connection with a public offering.
In July 1993, R&B effected a public offering of approximately 3.0 million shares of $1.625 Convertible Preferred Stock, par value $1.00 per share. On August 5, 1996, R&B announced it would redeem all of the outstanding shares of such preferred stock on September 30, 1996. However, the majority of such preferred stock outstanding was converted into approximately 10.2 million shares of R&B's common stock on or before September 30, 1996.
COMMON STOCK - On July 28, 1995, Falcon, a participating stockholder and a group of underwriters entered into an agreement resulting in the initial public sale by Falcon of 8.5 million shares of common stock and the sale of 1.5 million shares of common stock by the participating shareholder. The initial public offering closed on August 2, 1995 and resulted in net proceeds to Falcon of $34.4 million after deducting offering related expenses of $3.9 million.
In September 1995, R&B issued 1.5 million shares of R&B's common stock in association with the purchase of the "J.W. McLEAN".
On November 15, 1995, Falcon, participating stockholders and a group of underwriters entered into an agreement resulting in the public sale of 6.4 million shares of common stock by Falcon and the sale of 4.0 million shares of common stock by selling shareholders. The public offering closed on November 21, 1995 and resulted in net proceeds to Falcon of $30.9 million after deducting offering related expenses of $2.4 million.
On December 9, 1996, Falcon, participating stockholders and a group of underwriters entered into an agreement resulting in the public sale of 6.4 million shares of common stock by Falcon and the sale of 9.4 million shares of common stock by selling shareholders. The public offering closed on December 13, 1996 and resulted in net proceeds to Falcon of $108.5 million after deducting offering related expenses of $5.5 million.
During June 1997, Falcon declared a two-for-one stock split effective on July 15, 1997. Accordingly, all share amounts for all periods presented have been restated to reflect this stock split.
WARRANTS - In 1992, Falcon issued (a) 2,800 Class A warrants, each of which represented the right to purchase 600 shares of Falcon's common stock for $1.665 per share, and (b) 2,600 Class B warrants, each of which represented the right to purchase 1,200 shares of Falcon's common stock at an exercise price of $1.665 per share. The exercise price of the Class A and B warrants was adjusted to $1.21 per share subsequent to their issuance. Two hundred Class A warrants were exercised on July 31, 1993, while 1,200 Class A warrants expired on such date. During 1995, the remaining 1,400 Class A warrants, and all of the 2,600 Class B warrants, were exercised.
In connection with the issuance of preferred stock in January 1993, Falcon issued a shadow warrant exercisable for up to an aggregate of 3.7 million shares of Falcon's common stock at a purchase price of $.005 per share of common stock. Such warrant is exercisable only to the extent that certain other warrants, options and convertible securities of Falcon are exercised or converted. The aggregate number of shares for which the shadow warrant was exercisable was reduced to 3.1 million shares upon the expiration of 1,200 of the Class A warrants and the exercise of 200 Class A warrants on July 31, 1993, as discussed above. On March 31, 1994, various convertible subordinated debtholders exercised options to convert $605,000 in convertible subordinated debt for .4 million shares of common stock and holders of bonus warrants (issued in connection with the prepayment of convertible subordinated debt) exercised such warrants. In connection therewith, .3 million shares of common stock were issued under the shadow warrant. Additionally, rights to acquire .2 million shares of common stock pursuant to the shadow warrant expired during 1994. As a result of the exercise of the Class A and Class B warrants in 1995, 2.6 million shares of common stock were issued pursuant to the shadow warrant. The shadow warrant expired on December 31, 1997.
As of December 31, 1997, authorized, unissued shares of common stock were reserved for issuance as follows:
Issuance under the Company's stock plans (net of forfeitures) 8,285,704 Conversion of 8% Debentures 969,532 --------- Total 9,255,236 =========
(H) EMPLOYEE BENEFIT PLANS
PENSION PLANS - The Company has three noncontributory pension plans. Substantially all of the R&B employees paid from a U.S. payroll are covered by one or more of these plans. Plan benefits are primarily based on years of service and average high thirty-six month compensation.
The Reading & Bates Pension Plan (the "Domestic Plan") is qualified under the Employee Retirement Income Security Act (ERISA). It is the Company's policy to fund this plan not less than the minimum required by ERISA. It is the Company's policy to contribute to the Reading & Bates Offshore Pension Plan (the "Offshore Plan") an amount equal to the normal cost plus amounts sufficient to amortize the initial unfunded actuarial liability and subsequent unfunded liability caused by plan or assumption changes over thirty years. The unfunded liability arising from actuarial gains and losses is funded over fifteen years. The Offshore Plan is a nonqualified plan and is not subject to ERISA funding requirements. The Domestic and Offshore Plans invest in cash equivalents, fixed income and equity securities.
The Reading & Bates Retirement Benefit Replacement Plan (the "Replacement Plan") is a self-administered unfunded excess benefit plan. All members of the Domestic Plan or the Reading & Bates Savings Plan are potential participants in the Replacement Plan.
Net pension costs for the years ended December 31, 1997, 1996 and 1995 included the following components (in millions):
1997 1996 1995 ------ ------ ------ Service cost - benefits earned during the year $ 1.6 $ 1.8 $ 1.3 Interest cost on projected benefit obligation 4.9 4.6 4.5 Actual gain on plan assets (10.2) (5.2) (10.0) Net amortization and deferral 4.1 (.2) 5.2 ------ ------ ------ Net pension costs $ .4 $ 1.0 $ 1.0 ====== ====== ======
The funded status of the plans at December 31, 1997 was as follows (in millions):
Domestic Offshore Replacement Plan Plan Plan -------- -------- ----------- Actuarial present value of benefit obligations: Vested benefit obligation $ 48.4 $ 13.5 $ 3.2 Nonvested benefit obligation 1.6 .5 .1 ------- ------- ------- Accumulated benefit obligation 50.0 14.0 3.3 Effect of projected future compensation levels 7.5 2.5 .2 ------- ------- -------
Projected benefit obligation 57.5 16.5 3.5 Plan assets at fair value 52.8 17.0 - ------- ------- ------- Projected benefit obligation in excess of plan assets 4.7 (.5) 3.5 Unrecognized cumulative net (loss) gain (12.7) (.5) 2.3 Prior service cost unrecognized in pension cost 1.7 .1 .2 Unrecognized net implementation asset (obligation) 1.4 - (2.1) ------- ------- ------- Accrued (prepaid) pension cost $ (4.9) $ (.9) $ 3.9 ======= ======= =======
The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was 7.4% and 4.5%, respectively. The weighted average expected long-term rate of return on assets was 10%.
POSTRETIREMENT BENEFITS - In addition to providing pension benefits, R&B provides certain health care and life insurance benefits for its retired employees. Employees may become eligible for these benefits if they reach normal or early retirement age while working for R&B and if they have accumulated 25 years of service (15 years prior to January 1, 1996). Health care costs are paid as they are incurred. Life insurance benefits are provided through an insurance company whose premiums are based on benefits paid during the year.
Postretirement benefit costs for the years ended December 31, 1997, 1996 and 1995 included the following (in millions):
1997 1996 1995 ------- ------- ------- Service cost - benefits earned during the year $ .1 $ .1 $ .2 Interest cost on projected benefit obligations .7 .8 1.0 Amortization benefit Accumulated Projected Benefit Obligation (.9) (.9) (.8) ------- ------- ------- Total postretirement benefit costs $ (.1) $ - $ .4 ======= ======= =======
The health care cost trend rates used to measure the expected cost in 1998 for medical, dental and vision benefits were 8%, 5.5% and 5.5%, respectively, each graded down to an ultimate trend rate of 5%, 4.5% and 4.5%, respectively, to be achieved in the year 2021. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.4% and 4.5%, respectively. The effect of a one-percentage-point increase in health care cost trend rates for future periods would increase the service cost and interest cost portion of net periodic postretirement benefit cost approximately 16.8%. The accumulated postretirement benefit obligation would increase by approximately 14.6%.
The amounts recognized in the Company's Consolidated Balance Sheet at December 31, 1997 and 1996 were as follows (in millions):
1997 1996 ------ ------ Plan assets at fair value $ - $ - Accumulated postretirement benefit obligation: Retirees 8.1 8.1 Fully eligible active plan participants .5 .5 Other active plan participants 1.9 1.7 Unrecognized prior service cost 1.7 2.7 Unrecognized cumulative net gain 3.4 3.5 Other (.1) (.4) ------ ------ Postretirement benefit liability recognized in the Consolidated Balance Sheet $ 15.5 $ 16.1 ====== ======
SAVINGS PLANS - The Company has three savings plans which allow an employee to contribute up to 16% of their base salary (subject to certain limitations) and the Company may make matching contributions at its discretion. Employees may direct the investment of their contributions and the contributions of the Company in various plan investment options.
The Company's matching contributions vest within five years of an employee's service with the Company. Compensation costs under the plans amounted to $2.7 million in 1997, $1.6 million in 1996, and $1.0 in 1995.
STOCK OPTION PLANS - The Company has six stock option plans which are intended to provide an incentive that will allow the Company to retain in its employ, persons of the training, experience and ability necessary for the development and financial success of the Company. Four of these plans were originally adopted by Falcon and two were originally adopted by R&B. All of these plans were assumed by R&B Falcon in the merger, and the options outstanding thereunder were converted to options to acquire common stock of R&B Falcon (with appropriate adjustments to reflect the exchange ratio for R&B stock in the merger).
The Company's Reading & Bates Corporation 1990 Stock Option Plan (the "1990 Stock Option Plan") authorized options with respect to approximately 2.3 million shares of common stock to be granted to certain employees of R&B at an adjusted option price of $6.25 per share. On September 25, 1991, options with respect to all 2.3 million shares were granted and vested over a four-year period. Such grant's option price was less than the market price on the date of grant and the difference was recorded as compensation expense during the vesting period. Such options will expire in 2001.
The Company's Falcon Drilling Company, Inc. 1992 Stock Option Plan (the "1992 Stock Option Plan") authorized options with respect to 1.0 million shares of common stock to be granted to certain employees and directors of Falcon. On November 10, 1992, options with respect to all 1.0 million shares were granted at adjusted option prices ranging from $1.665 to $1.85 per share and vested immediately. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. Such options will expire in 2002.
The Company's Falcon Drilling Company, Inc. 1994 Stock Option Plan (the "1994 Stock Option Plan") authorized options with respect to 570,000 shares of common stock to be granted to certain employees and directors of Falcon. On January 26, 1994, options with respect to all 570,000 shares were granted at an adjusted option price of $5.00 per share, vesting ratably over three years. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant. Such options will expire in 2004.
The Company's Falcon Drilling Company, Inc. 1995 Stock Option Plan (the "1995 Stock Option Plan") authorized options with respect to 1.0 million shares of common stock to be granted to certain employees and directors of Falcon. On February 16, 1995, options with respect to 250,000 shares were granted at an adjusted option price of $5.00 per share, vesting ratably over three years, and expiring in 2005. In January 1996, options with respect to 280,000 shares were granted at an adjusted option price of $6.065 per share, vesting over two years, and expiring in 2006. In April 1996, options with respect to 150,000 shares were granted at an adjusted option price of $9.72 per share, vesting ratably over five years, and expiring in 2006. In February 1997, options with respect to 258,000 shares were granted to certain employees and directors of Falcon at an adjusted option price of $12.50 per share. These option grants were rescinded by Falcon in November 1997. No compensation expense was recorded as a result of the option price being the estimated market price of Falcon's common stock on the date of grant.
The Company's Reading & Bates Corporation 1995 Director Stock Option Plan (the "1995 Director Plan") is intended to obtain and retain non- employee members of the board of directors by rewarding them for making major contributions to the success of the Company. The 1995 Director Plan authorized options with respect to 236,000 shares of common stock to be granted at an adjusted option price of $6.25 per share. In 1995, R&B granted 141,600 options. The market value of R&B's common stock at the date of grant was less than the option price, and no compensation expense was recorded.
The Company's Falcon Drilling Company, Inc. 1997 Stock Option Plan (the "1997 Stock Option Plan") authorized options with respect to 1.2 million shares of common stock to be granted to certain employees and directors of Falcon. In July 1997, options for 3,000 shares were granted at an exercise price of $12.50 per share, which options were rescinded by Falcon in November 1997. In July 1997, options for 40,000 shares were granted at an exercise price of $29.00 per share, vesting ratably over three years, and expiring in 2007. The market value of Falcon's common stock on the date of the grant was equal to the exercise price, and no compensation expense was recorded.
STOCK INCENTIVE PLANS - The Company has four stock incentive plans, which provide for grants of stock options, stock appreciation rights, stock awards and cash awards, which may be granted singly, in combination or in tandem. Such plans are intended to provide an incentive that will allow the Company to retain in its employ, persons of the training, experience and ability necessary for the development and financial success of the Company. These plans were originally adopted by R&B and assumed by R&B Falcon in the merger.
The Company's Reading & Bates Corporation 1992 Long-Term Incentive Plan (the "1992 Incentive Plan") authorized 1,180,000 shares of common stock to be available for awards. In 1992, restricted stock awards with respect to 354,000 shares were granted to certain officers of R&B. Such shares awarded were restricted as to transfer until vested pursuant to a schedule whereby 1/24th of the total number of shares vested per calendar quarter from June 30, 1992 through March 31, 1998 (subject to certain conditions). The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the periods during which the restrictions lapse or shares vest. In 1995, stock options with respect to the remaining 826,000 shares were granted to certain officers and employees of R&B at adjusted option prices ranging from $7.627 to $11.759 per share (the market price on the date of grants). Such options become exercisable either over a one or four year period from the date of grant. All stock awards under the 1992 Incentive Plan vested on December 31, 1997 as a result of the merger of R&B and Falcon (see Note B).
The Company's Reading & Bates Corporation 1995 Long-Term Incentive Plan ("1995 Incentive Plan") authorized 2,950,000 shares of common stock to be available for awards. In 1995, stock options with respect to 708,000 shares were granted to an officer of R&B at an adjusted option price of $11.759 per share (the market price on the date of grants). Such options became exercisable one year from the date of grant. Also in 1995, restricted stock awards with respect to 642,156 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. In 1996, stock options with respect to 177,000 shares were granted to an officer of R&B at an adjusted option price of $23.729 per share (the market price on the date of the grant). Such options became exercisable over a three-year period from the date of grant. Also in 1996, restricted stock awards with respect to 489,228 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. In 1997, stock options with respect to 902,582 shares were granted to officers of R&B at an adjusted option price of $20.127 per share, which options were rescinded in August 1997. Under the 1995 Incentive Plan, stock options and restricted stock awards with respect to 868,700 shares vested on December 31, 1997 as a result of the merger of R&B and Falcon (See Note B).
The Company's Reading & Bates Corporation 1996 Director Restricted Stock Award Plan (the "1996 Director Plan") authorized 63,720 shares of common stock to be available for awards. In 1996, restricted stock awards with respect to all 63,720 shares were granted to non-employee directors of R&B. Such shares awarded were restricted as to transfer in one-third increments over three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. All stock awards under the 1996 Director Plan vested on December 31, 1997 as a result of the merger of R&B and Falcon (see Note B).
The Company's Reading & Bates Corporation 1997 Long-Term Incentive Plan (the "1997 Incentive Plan") authorized 2,950,000 shares of common stock to be available for awards. In 1997, restricted stock awards with respect to 33,866 shares were granted to certain employees of R&B. Such shares awarded were restricted as to transfer until fully vested three years from the date of grant. The market value at the date of grant of the common stock granted was recorded as unearned compensation and was amortized to expense over the period during which the shares vest. Also in 1997, stock options with respect to 6,018 shares were granted to an officer of R&B at an adjusted option price of $20.127 per share, which options were rescinded by R&B in August 1997. Under the 1997 Incentive Plan, restricted stock awards with respect to 33,866 shares vested on December 31, 1997 as a result of the merger of R&B and Falcon (see Note B).
Unearned compensation relating to the Company's stock incentive plans is shown as a reduction of stockholders' equity. Compensation recognized under the stock incentive plans for the years ending December 31, 1997, 1996 and 1995 totaled approximately $17.8 million, $3.2 million and $.2 million, respectively.
Stock option transactions under the plans were as follows:
1997 1996 1995 ------------------ ------------------ ------------------ Weighted Weighted Weighted Number Average Number Average Number Average of options Price of options Price of options Price ---------- ------- ---------- ------- ---------- ------- Outstanding at beginning of year 3,836,159 $ 8.20 5,009,071 $ 6.52 3,646,594 $ 4.83 Granted 40,000 29.00 607,000 12.12 1,925,600 9.46 Exercised (997,731) 5.04 (1,771,888) 4.79 (554,863) 5.63 Forfeited (8,496) 7.63 (8,024) 7.22 (8,260) 7.23 --------- --------- --------- Outstanding at end of year 2,869,932 9.59 3,836,159 8.20 5,009,071 6.52 ========= ========= ========= Exercisable at end of year 2,377,433 9.95 2,776,413 7.84 3,213,271 4.75 Available for grant at end of year 5,415,772 - 1,338,694 - 2,450,144 -
The fair value of each grant since January 1, 1995 was estimated as of the date of the grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used for the options granted pursuant to the 1997 Stock Option Plan: risk-free interest rate of 6.4%, an expected life of 10 years and expected volatility of 50%. The resulting fair value of such options granted was $20.38.
The Company accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with SFAS 123, the Company's net income and earnings per share would have been reduced to the following pro forma amounts (in millions except per share amounts):
1997 1996 1995 ------ ------ ------ Net income (loss) applicable to common stockholders: As reported $ (6.2) $ 103.1 $ 21.7 Pro forma $(10.0) $ 98.4 $ 20.7 Basic EPS: As reported $ (.04) $ .70 $ .19 Pro forma $ (.06) $ .67 $ .18 Diluted EPS: As reported $ (.04) $ .67 $ .18 Pro forma $ (.06) $ .64 $ .17
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.
(I) RELATED PARTY TRANSACTIONS
Drilling had rig management agreements with Transocean Offshore Inc. (as successor to Sonat Offshore Drilling Inc.), a major shareholder of Drilling, for the operation and marketing of both of its drilling units. The management agreement for one of Drilling's drilling units expired in December 1995 and the other expired in October 1996, and a subsidiary of the Company now manages both drilling units. For each of the years ending December 31, 1996 and 1995, Drilling paid to Transocean Offshore Inc. approximately $1.2 million and $2.6 million, respectively, for such management services. Additionally, for the years ended December 31, 1996 and 1995, Drilling received from Transocean Offshore Inc. approximately $15.1 million and $11.8 million, respectively, pursuant to a bareboat charter agreement on one of the rigs. At December 31, 1996, Drilling had a net receivable from Transocean Offshore Inc. of $.8 million.
The former owners of a company acquired by the Company in 1992, who are also officers of Falcon, lease crewboats, tugboats and supply barges and other vessels to Falcon at a contracted bareboat rate of $100 per day for crewboats and tugboats and $60 per day for other vessels, with Falcon responsible for drydocking, painting and repairs. The former owners received revenues of $.9 million for each of the years ended December 31, 1997, 1996 and 1995.
A director and stockholder of the Company is a partner in a law firm which provided legal services to the Company and certain of its affiliated entities. Fees paid by the Company to this law firm were $.2 million, $.6 million and $1.1 million for the years ended December 31, 1997, 1996, and 1995, respectively.
A director of the Company who performs financial consulting services for the Company from time to time and is also an officer of Raptor Exploration Company, Inc., a wholly-owned subsidiary of the Company, received $.1 million for such services in the year ended December 31, 1995. In addition, during 1996, Raptor paid such officer $.1 million for services rendered in connection with the sale of certain assets of Raptor.
In June 1994, the Company entered into an agreement with Eilert-Olsen Investments, Inc. (Eilert-Olsen), to buy the equity interest of Eilert- Olsen for a nominal purchase price. In June of 1994, Eilert-Olsen acquired three barge drilling rigs for a cost of approximately $2.8 million consisting of cash of approximately $.9 million and the assumption of debt of approximately $1.9 million secured by the three barge drilling rigs. The Company advanced $.9 million to Eilert-Olsen in June of 1994 and has subsequently advanced approximately $.5 million, $.5 million and $.8 million to pay principal and interest due on this debt for the years ended December 31, 1997, 1996 and 1995, respectively. Due to the Company's affiliation with Eilert-Olsen, the financial statements of Eilert-Olsen and the option to purchase Eilert-Olsen from inception have been consolidated with the financial statements of the Company and, accordingly, the accounts and transactions between the Company and Eilert-Olsen have been eliminated in consolidation.
In 1995, the Company paid $.1 million in fees to a privately held company controlled by a stockholder, for financial advisory services.
In 1997, 1996, and 1995, the Company paid $.4 million, $.9 million, and $.5 million respectively, to Bantam Services, Inc. under a contract pursuant to which Bantam is to supply, at cost, groceries and supplies to be used on certain of the Company's rigs. Bantam is entitled under the contract to bill third parties for meals and lodging supplied to their personnel on such rigs. In the absence of such contract, the Company would be entitled to bill the third parties for the food and lodging provided. Bantam is owned by an officer of Falcon Workover Company, Inc., a wholly- owned subsidiary of the Company.
(J) MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
For the year ended December 31, 1997, there were no customers that individually accounted for 10.0% or more of the Company's total operating revenues. For the year ended December 31, 1996, revenues from one customer of $70.6 million accounted for 11.6% of the Company's total operating revenues. For the year ended December 31, 1995, revenues from two customers of $42.6 million and $39.3 million accounted for 10.9 % and 10.1%, respectively, of the Company's total operating revenues.
Geographic information about the Company's operations for the three years ended December 31, 1997 is as follows (in millions):
1997 1996 1995 --------- --------- ------- Operating revenues: United States $ 460.3 $ 276.7 $ 170.7 Southeast Asia 82.4 59.0 63.6 Mediterranean- Middle East 7.9 8.7 31.4 Europe 247.3 146.9 63.6 Australia 23.4 39.6 20.9 West Africa 69.9 25.5 8.5 South America 50.9 52.2 31.3 Other Foreign - 1.0 .3 Corporate - - - --------- --------- ------- Total $ 942.1 $ 609.6 $ 390.3 ========= ========= ======= Operating profit:(1) United States $ 166.1 $ 69.1 $ 21.6 Southeast Asia 40.9 23.6 22.4 Mediterranean- Middle East 2.2 2.4 10.7 Europe 143.4 73.9 16.2 Australia 5.2 11.4 (.3) West Africa 25.5 8.9 2.7 South America 2.3 14.0 9.8 Other Foreign - 3.0 .2 Corporate (28.6) (26.6) (19.1) --------- --------- ------- Total $ 357.0 $ 179.7 $ 64.2 ========= ========= ======= Identifiable assets: United States $ 823.8 $ 458.5 $ 316.4 Southeast Asia 92.7 133.4 163.1 Mediterranean- Middle East 52.2 14.0 61.0 Europe 535.2 402.2 258.9 Australia 21.9 47.9 3.9 West Africa 190.3 47.0 14.4 South America 175.1 234.6 77.2 Other Foreign - 76.2 .1 Corporate 37.2 42.0 51.8 --------- --------- ------- Total $ 1,928.4 $ 1,455.8 $ 946.8 ========= ========= =======
(1) Operating profit represents operating revenues less operating expenses, depreciation, general and administrative and other, net.
(K) NET INCOME (LOSS) PER COMMON SHARE
Basic net income per common share is computed by dividing net income, after deducting the preferred stock dividend, by the weighted average number of common shares outstanding during the period. Diluted net income per common share is the same as basic and assumes the exercise of outstanding stock options as computed using the treasury stock method and the conversion of preferred stock if dilutive, and is approximately equal to the combined primary earnings per share previously reported by R&B and Falcon adjusted for merger related adjustments.
The following table reconciles weighted average common shares outstanding from basic to diluted for the years ended December 31, 1997, 1996 and 1995 as follows (in millions):
1997 1996 1995 ----- ----- ----- Weighted average common shares outstanding - basic 164.1 147.4 115.7 Outstanding stock options 2.1 2.7 1.2 Convertible preferred stock - 7.6 - Outstanding stock warrants - - 4.9 ----- ----- ----- Weighted average common shares outstanding - diluted 166.2 157.7 121.8 ===== ===== =====
(L) DISCONTINUED OPERATIONS
The Company, primarily through its wholly owned subsidiary Reading & Bates Development Co. ("Devco") and to an insignificant extent through its wholly owned subsidiary Raptor Exploration Company, Inc., engages in oil and gas exploration activities. Devco engages primarily in the acquisition of working interests in offshore oil and gas properties pursuant to which it shares in reservoir and oil and gas price risks and thus profits and losses from such properties. In March 1998, the Company decided to divest its oil and gas segment, and expects such divestiture to occur by March 1999. The Company's oil and gas segment has been accounted for as a discontinued operation.
Oil and gas assets held for sale at December 31, 1997 which consisted primarily of oil and gas properties were $81.2 million and related liabilities totaled $87.0 million, including a $78.8 million reserve for losses on ultimate disposal and operations until disposal. Net assets of discontinued operations at December 31, 1996 consisted primarily of oil and gas properties. There were no revenues from the discontinued operations during the years ended December 31, 1997, 1996, and 1995.
The successful efforts method of accounting was used for oil and gas exploration and production activities. Under this method, acquisition costs for proved and unproved properties were capitalized when incurred. Exploration costs, including geological and geophysical costs and costs of carrying and retaining unproved properties, were charged to expense as incurred. The costs of drilling exploratory wells were capitalized pending determination of whether each well had discovered proved reserves. If proved reserves were not discovered, such drilling costs were charged to expense. Costs incurred to drill and equip development wells, including unsuccessful development wells, were capitalized.
In 1997, R&B approved, in principle, an option plan for Devco stock. This plan was rescinded in November 1997 prior to any grants being made.
(M) QUARTER FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the two years ended December 31, 1997, are as follows (in millions except for per share amounts):
Quarter ------------------------------------------------ First Second Third Fourth Total -------- -------- -------- -------- -------- 1997: - ---- Operating revenues $ 203.1 $ 222.2 $ 247.8 $ 269.0 $ 942.1 Gross income (1) $ 80.8 $ 100.9 $ 115.7 $ 111.5 $ 408.9 Income (loss) from continuing operations (2) $ 44.7 $ 60.7 $ 77.2 $ (26.6) $ 156.0 Loss from discontinued operations $ (5.8) $ (16.7) $ (42.2) $ (97.5) $(162.2) Net income (loss) $ 38.9 $ 44.0 $ 35.0 $(124.1) $ (6.2) Net income (loss) per common share: Basic: Continuing operations $ .27 $ .37 $ .47 $ (.16) $ .95 Discontinued operations (.03) (.10) (.26) (.59) (.9) -------- -------- -------- -------- -------- Net income (loss) $ .24 $ .27 $ .21 $ (.75) $ (.04) ======== ======== ======== ======== ======== Diluted: Continuing operations $ .27 $ .37 $ .47 $ (.16) $ .94 Discontinued operations (.04) (.10) (.25) (.59) (.98) -------- -------- -------- -------- -------- Net income (loss) $ .23 $ .27 $ .22 $ (.75) $ (.04) ======== ======== ======== ======== ======== 1996: - ---- Operating revenues $ 117.3 $ 135.7 $ 167.3 $ 189.3 $ 609.6 Gross income (1) $ 34.2 $ 43.2 $ 61.0 $ 78.3 $ 216.7 Income from continuing operations $ 14.5 $ 18.3 $ 33.4 $ 40.2 $ 106.4 Income (loss) from discontinued operations $ (.1) $ .1 $ .2 $ .1 $ .3 Net income $ 14.4 $ 18.4 $ 33.6 $ 40.3 $ 106.7 Net income per common share: Basic: Continuing operations $ .09 $ .12 $ .22 $ .26 $ .70 Discontinued operations - - - - - -------- -------- -------- -------- -------- Net income $ .09 $ .12 $ .22 $ .26 $ .70 ======== ======== ======== ======== ======== Diluted: Continuing operations $ .09 $ .12 $ .21 $ .25 $ .67 Discontinued operations - - - - - -------- -------- -------- -------- -------- Net income $ .09 $ .12 $ .21 $ .25 $ .67 ======== ======== ======== ======== ======== - -------------------------- (1) Gross income represents operating revenues less operating expenses, depreciation, and other, net. (2) The fourth quarter of 1997 includes merger expenses of $66.4 million.
(N) SUBSEQUENT EVENTS
On March 23, 1998, the Company offered to redeem the 8 7/8% Notes, the 9 3/4% Notes and the 12 1/2% Notes subject to (a) the execution by the trustee of each of these notes of an amended indenture which modifies the terms of the existing indenture including removal of certain restrictive covenants and events of default, and (b) receipt by the Company of proceeds of an issuance of debt securities in an amount sufficient to pay the aggregate cost of redeeming these notes and all related costs and expenses of the tender offer.
Subsequent to December 31, 1997, the Company purchased the following: (1) outstanding shares of common stock of a company which owns six workover rigs in exchange for 204,900 shares of the Company's common stock. In connection with this purchase, the Company is contingently obligated to issue (a) an additional 36,494 shares of its common stock based upon a working capital adjustment, as defined and (b) an additional 59,581 shares of its common stock based upon the operating results of the Company's workover operations, as defined. (2) Eight tugs and five ocean going barges in exchange for cash of $1.5 million and 517,184 shares of the Company's common stock. In addition, the Company is contingently obligated to issue an additional 172,250 shares of its common stock based on certain potential adjustments. (3) Eight tugs in exchange for cash of approximately $8.9 million.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
PART III
The information called for by Part III of Form 10-K is incorporated by reference from the Registrant's Proxy Statement relating to its annual meeting of Stockholders to be held May 19, 1998, which will be filed by the Registrant with the Securities and Exchange Commission no later than 120 days after the close of the fiscal year.
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(a)Financial Statements and Exhibits
1.Financial Statements:
Report of Independent Public Accountants Consolidated Balance Sheet as of December 31, 1997 and 1996 Consolidated Statement of Operations for the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements
2. Exhibits:
2.1 - Agreement and Plan of Merger, dated July 10, 1997, among R&B Falcon, FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon and R&B. (Filed as Exhibit 2.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
3.1 - Amended and Restated Certificate of Incorporation of R&B Falcon.
3.2 - Amended and Restated Bylaws of R&B Falcon.
4.1 - Form of R&B Falcon's Common Stock Certificate.
4.2 - Rights Agreement dated as of December 23, 1997 between R&B Falcon and American Stock Transfer and Trust Company.
4.3 - Indenture relating to R&B's 8% Senior Subordinated Convertible Debentures due 1998 dated as of August 29, 1989, between R&B and IBJ Schroder Bank & Trust Company, as Trustee. (Filed as Exhibit 4.1 to R&B's Annual Report on Form 10-K for 1989 and incorporated herein by reference.)
4.4 - Form of R&B's registered 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.2 to R&B's Registration No. 33-28580 and incorporated herein by reference.)
4.5 - Form of R&B's bearer 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.3 to R&B's Registration No. 33-28580 and incorporated herein by reference.)
4.6 - First Supplemental Indenture dated as of December 23, 1997 among the Company, R&B and IBJ Schroder Bank & Trust Company.
4.7 - Indenture dated as of January 15, 1994, between Falcon and Texas Commerce Bank National Association, including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.)
4.8 - Supplemental Indenture dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc., became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.)
4.9 - Supplemental Indenture dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc. and FALRIG Offshore (USA), L.P., and FALRIG Offshore Partners became Guarantors. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.)
4.10 - Supplemental Indenture dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
4.11 - Floating Rate Senior Note Purchase Agreement, dated as of February 23, 1994, by and between Falcon and Crescent/Mach I partners, L.P., including a form of Note. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.12 - Joinder Agreement dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc. became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.13 - Joinder Agreement dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc., FALRIG Offshore (USA), L.P., and FALRIG Offshore partners became Guaranctors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.14 - Joinder Agreement dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.15 - Joinder Agreement dated as of March 1, 1996, pursuant to which Falcon Atlantic, Ltd., Falcon Drilling do Brasil, Ltda., Falcon Drilling de Venezuela, Inc. and perforaciones FALRIG de Venezuela, C.A. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
4.16 - Indenture dated as of March 15, 1995, between Falcon and Texas Commerce Bank National Association, including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on March 24, 1995, Registration No. 33-90582 and incorporated herein by reference.)
4.17 - Indenture dated as of March 1, 1996, between Falcon and Bank One, Texas, N. A., including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on March 8, 1996, Registration No. 333-2114 and incorporated herein by reference.)
Falcon hereby agrees to furnish to the Commission upon its request any instrument defining the rights of holders of long-term debt of Falcon and its consolidated subsidiaries and for any of its unconsolidated subsid- iaries for which financial statements are required to be filed with respect to long-term debt not being registered which does not exceed 10% of the total assets of Falcon and its subsidiaries on a consolidated basis.
9.1 - Voting Trust Agreement dated as of November 12, 1991, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33- 78369 and incorporated herein by reference.)
9.2 - Amendment to Voting Trust Agreement dated as of November 1, 1995. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
9.3 - Voting Trust Agreement dated as of November 21, 1989, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-1, Amendment No.2, filed on July 6, 1995, Registration No. 33-84582 and incorporated herein by reference.)
9.4 - Voting Trust Agreement dated as of May 30, 1990, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-1, Amendment No.2, filed on July 6, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.1* - Reading & Bates 1990 Stock Option Plan. (Filed as Appendix A to R&B's Proxy Statement dated April 26, 1993 and incorporated herein by reference.)
10.2* - 1992 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit B to R&B's Proxy Statement dated April 27, 1992 and incorporated herein by reference.)
10.3* - 1995 Long-Term Incentive Plan of Reading & Bates Corporation (Filed as Exhibit 99.A to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.)
10.4* - 1995 Director Stock Option Plan of Reading & Bates Corporation (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.)
10.5* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and C. A. Donabedian. (Filed as Exhibit 10.15 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.6* - Surrender Letter dated as of February 7, 1995 by C. A. Donabedian. (Filed as Exhibit 10.33 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.7* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and J. W. McLean. (Filed as Exhibit 10.16 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.8* - Surrender Letter dated as of February 7, 1995 by J. W. McLean. (Filed as Exhibit 10.35 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.9* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and R. L. Sandmeyer. (Filed as Exhibit 10.17 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.10* - Surrender Letter dated as of February 7, 1995 by R. L. Sandmeyer. (Filed as Exhibit 10.37 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.11* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and S. A. Webster. (Filed as Exhibit 10.18 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.12* - Surrender Letter dated as of February 7, 1995 by S. A. Webster. (Filed as Exhibit 10.39 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.13* - Stock Option Agreement dated as of February 7, 1995 between A.L. Chavkin and R&B. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.14* - Stock Option Agreement dated as of February 7, 1995 between Willem Cordia and R&B. (Filed as Exhibit 10.41 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.15* - Stock Option Agreement dated as of February 7, 1995 between C.A. Donabedian and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.16* - Stock Option Agreement dated as of February 7, 1995 between Ted Kalborg and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.17* - Stock Option Agreement dated as of February 7, 1995 between J.W. McLean and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.18* - Stock Option Agreement dated as of February 7, 1995 between R.L. Sandmeyer and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.19* - Stock Option Agreement dated as of February 7, 1995 between S.A. Webster and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.20* - Stock Option Agreement dated as of April 19, 1995 between M.A.E. Lacqueur and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.21* - Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.48 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.22* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.22 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.23* - Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.24* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.25* - Employment Agreement dated as of November 1, 1991 between R&B and L. E. Voss, Jr. (Filed as Exhibit 10.34 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.26* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and L. E. Voss, Jr. (Filed as Exhibit 10.22 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.27* - Employment Agreement dated as of November 1, 1991 between R&B and T. W. Nagle. (Filed as Exhibit 10.35 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.28* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and T. W. Nagle. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.29* - Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.36 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.30* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.26 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.31* - Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.37 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.32* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.28 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.33* - Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.38 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.34* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.30 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.35* - Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.42 to Registration No. 33-51120 and incorporated herein by reference.)
10.36* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.32 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.37* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between L. E. Voss, Jr. and R&B. (Filed as Exhibit 10.41 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.38* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.39* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.40* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.41* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.42* - 1996 Director Restricted Stock Award Plan of Reading & Bates Corporation. (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 28, 1997 and incorporated herein by reference.)
10.43* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between A. L. Chavkin and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.44* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between C. A. Donabedian and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.45* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between M. A. E. Laqueur and R&B. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.46* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between R. L. Sandmeyer and R&B. (Filed as Exhibit 10.51 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.47* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between Paul B. Loyd, Jr. and R&B. (Filed as Exhibit 10.52 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.48* - Stock Option Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.53 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.49* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.54 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.50* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.55 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.51* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.56 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.52* - 1997 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit 99.A to R & B's Proxy Statement dated March 18, 1997 and incorporated herein by reference.)
10.53* - Stock Option Agreement dated as of April 24, 1997 between R&B and P.B. Loyd, Jr. under R&B's 1995 Long-Term Incentive Plan.
10.54* - Stock Option Agreement dated as of April 24, 1997 between R&B and T. W. Nagle under R&B's 1995 Long-Term Incentive Plan.
10.55* - Stock Option Agreement dated as of April 24, 1997 between R&B and C. R. Ofner under R&B's 1995 Long-Term Incentive Plan.
10.56* - Stock Option Agreement dated as of April 24, 1997 between R&B and D.L. McIntire under R&B's 1995 Long-Term Incentive Plan.
10.57* - Stock Option Agreement dated as of April 24, 1997 between R&B and W. K. Hillin under R&B's 1995 Long-Term Incentive Plan.
10.58* - Stock Option Agreement dated as of April 24, 1997 between R&B and W.K. Hillin under R&B's 1997 Long-Term Incentive Plan.
10.59* - Amended and Restated Stock Option Agreement dated as of February 16, 1995 between Falcon and Robert F. Fulton.
10.60* - Amended and Restated Stock Option Agreement dated as of January 23, 1996 between Falcon and Steven A. Webster.
10.61* - Stock Option Agreement dated as of April 15, 1996 between Falcon and Bernie W. Stewart.
10.62* - Rescission Agreement dated August 5, 1997 between R&B and P.B. Loyd, Jr.
10.63* - Rescission Agreement dated August 5, 1997 between R&B and T. W. Nagle.
10.64* - Rescission Agreement dated August 5, 1997 between R&B and C. R. Ofner.
10.65* - Rescission Agreement dated August 5, 1997 between R&B and D. L. McIntire.
10.66* - Rescission Agreement dated August 5, 1997 between R&B and W. K. Hillin.
10.67* - Affiliate Agreement effective December 31, 1997 between R&B and P. B. Loyd, Jr.
10.68* - Affiliate Agreement effective December 31, 1997 between R&B and A. L. Chavkin.
10.69* - Affiliate Agreement effective December 31, 1997 between R&B and C. A. Donabedian.
10.70* - Affiliate Agreement effective December 31, 1997 between R&B and M. A. E. Laqueur.
10.71* - Affiliate Agreement effective December 31, 1997 between R&B and R. L. Sandmeyer.
10.72* - Affiliate Agreement effective December 31, 1997 between R&B and T. W. Nagle.
10.73* - Affiliate Agreement effective December 31, 1997 between R&B and C. R. Ofner.
10.74* - Affiliate Agreement effective December 31, 1997 between R&B and D. L. McIntire.
10.75* - Affiliate Agreement effective December 31, 1997 between R&B and W. K. Hillin.
10.76* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven A. Webster.
10.77* - Affiliate Agreement effective December 31, 1997 between Falcon and Bernie W. Stewart.
10.78* - Affiliate Agreement effective December 31, 1997 between Falcon and Robert F. Fulton.
10.79* - Affiliate Agreement effective December 31, 1997 between Falcon and Leighton E. Moss.
10.80* - Affiliate Agreement effective December 31, 1997 between Falcon and Rodney W. Meisetschlaeger.
10.81* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven R. Meheen.
10.82* - Affiliate Agreement effective December 31, 1997 between Falcon and Douglas A.P. Hamilton.
10.83* - Affiliate Agreement effective December 31, 1997 between Falcon and Michael Porter.
10.84* - Affiliate Agreement effective December 31, 1997 between Falcon and William R. Ziegler.
10.85* - Affiliate Agreement effective December 31, 1997 between Falcon and Don P. Rodney.
10.86 - Reading & Bates Stock Option Agreement dated as of July 10, 1997 between R&B and Falcon. (Filed as Annex E to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
10.87 - Falcon Stock Option Agreement dated as of July 10, 1997 between Falcon and R&B. (Filed as Annex D to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporate herein by reference.)
10.88 - Agreement dated as of August 31, 1991 among R&B, Arcade Shipping AS and Sonat Offshore Drilling Inc. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.89 - Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.51 to Registration No. 33-51120 and incorporated herein by reference.)
10.90 - Amendment Agreement dated November 30, 1995 to Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.71 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.91 - Second Amendment Agreement dated October, 1996 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.60 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.92 - Agreement for the sale and purchase of Semi-Submersible Emergency Support Vessel Iolair dated September 8, 1995 between BP Exploration Operating Company Limited and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.3 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.93 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.4 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.94 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil plc. (Filed as Exhibit 10.5 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.95 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.6 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.96 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil Public Limited Company. (Filed as Exhibit 10.7 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.97 - Performance Guarantee dated September 8, 1995 by R&B in favour of BP Exploration Operating Company Limited. (Filed as Exhibit 10.8 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.98 - Performance Guarantee dated September 8, 1995 by R&B in favour of Britoil plc. (Filed as Exhibit 10.9 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.99 - Initial Services Agreement dated September 8, 1995 between Britoil Public Limited Company and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.10 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.100 - Heads of Agreement for the provision of Vessel Services dated September 8, 1995 between Britoil Public Limited Company, Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and R&B. (Filed as Exhibit 10.11 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.101 - Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.85 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.102 - Security Agreement dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.86 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.103 - Subsidiary Guaranty dated as of April 30, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., and Reading and Bates Borneo Drilling Co., Ltd. (Filed as Exhibit 10.87 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.104 - First Preferred Mortgage on the "D. R. STEWART" dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.88 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.105 - First Preferred Mortgage on the "JACK BATES" dated April 30, 1996 between Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.89 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.106 - First Preferred Mortgage on the "W. D. KENT" dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.90 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.107 - Indenture of First Naval Mortgage on the "CHARLEY GRAVES" dated April 30, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.91 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.108 - First Priority Mortgage on the "RON TAPPMEYER" dated April 30, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.92 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.109 - Deed of Covenant on the "J. W. McLEAN" dated April 30, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.93 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.110 - Indenture of Trust dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.94 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.111 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "JACK BATES" between Reading & Bates Drilling Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.95 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.112 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "D. R. STEWART" between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.96 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.113 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "W. D. KENT" between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.97 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.114 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "CHARLEY GRAVES" between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.98 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.115 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "RON TAPPMEYER" between Reading and Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.99 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.116 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "J. W. McLEAN" between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.100 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.117 - First Amendment dated as of July 9, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.101 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.118 - Subsidiary Assumption Agreement dated as of July 9, 1996 by RB Drilling Co. and HRB Rig Corporation. (Filed as Exhibit 10.102 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.119 - Indenture of First Naval Mortgage on the "J. W. McLEAN" dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.103 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.120 - First Preferred Mortgage on the "HARVEY H. WARD" dated July 9, 1996 by HRB Rig Corporation in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.104 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.121 - Amendment No. 1 to Indenture of First Naval Mortgage on the "CHARLIE GRAVES" dated July 9, 1996 by Reading and Bates Borneo Drilling Co., Ltd. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.105 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.122 - Amendment to First Preferred Mortgage on the "JACK BATES" dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.106 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.123 - Amendment to First Preferred Mortgage on the "D. R. STEWART" dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.107 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.124 - Amendment to First Preferred Mortgage on the "W. D. KENT" dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.108 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.125 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the "HARVEY H. WARD" between HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.109 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.126 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the "RIG 41" between RB Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.127 - Amended and Restated Indenture of Trust dated as of July 9, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.128 - Second Amendment dated as of August 30, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.129 - Subsidiary Assumption Agreement dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.113 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.130 - Subsidiary Guaranty dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.114 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.131 - Indenture of First Naval Mortgage on "SEILLEAN" dated August 30, 1996 by Reading & Bates Development Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.115 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.132 - Collateral Assignment of Insurance dated August 30, 1996 with respect to the "SEILLEAN" between Reading & Bates Development Co. and Christiana Bank og Kreditkasee, New York Branch, as agent. (Filed as Exhibit 10.116 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.133 - Credit Agreement dated as of November 13, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Banque Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee. (Filed as Exhibit 10.117 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.134 - Security Agreement dated as of November 13, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates Offshore, Limited, HRB Rig Corporation, Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.118 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.135 - Subsidiary Guaranty dated as of November 13, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd., Reading & Bates Offshore, Limited and HRB Rig Corporation. (Filed as Exhibit 10.119 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.136 - First Preferred Mortgage on the "D. R. STEWART" dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.120 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.137 - First Preferred Mortgage on the "JACK BATES" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.121 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.138 - First Preferred Mortgage on the "W. D. KENT" dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.122 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.139 - First Preferred Mortgage on the "RANDOLPH YOST" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.123 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.140 - First Preferred Mortgage on the "GEORGE H. GALLOWAY" dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.124 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.141 - First Preferred Mortgage on the "F. G. MCCLINTOCK" dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.142 - First Preferred Mortgage on the "J. T. ANGEL" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.126 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.143 - First Preferred Mortgage on the "ROGER W. MOWELL" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.127 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.144 - First Preferred Mortgage on the "HARVEY H. WARD" dated November 13, 1996 between HRB Rig Corporation in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.128 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.145 - Indenture of First Naval Mortgage on the "CHARLEY GRAVES" dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.129 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.146 - Indenture of First Naval Mortgage on the "J. W. McLEAN" dated November 13, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.130 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.147 - Indenture of First Naval Mortgage on the "RIG 41" dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.131 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.148 - First Priority Mortgage on the "RON TAPPMEYER" dated November 13, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.132 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.149 - Pledge Agreement dated as of November 13, 1996 between R&B and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.133 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.150 - Amended and Restated Credit Agreement dated as of November 13, 1996 and amended and restated as of July 3, 1997 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Agricole Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee.
10.151 - Letter of Credit Agreement dated as of December 30, 1996 between R&B, Reading & Bates Drilling Co., and Christiana Bank og Kreditkasse, New York Branch. (Filed as Exhibit 10.134 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.152 - Memorandum of Agreement dated November 28, 1995 between Reading and Bates, Inc., a subsidiary of R&B, and Deep Sea Investors, L.L.C. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.153 - Bareboat Charter "M.G. Hulme, Jr." dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of R&B. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.154 - Purchase and Sale Agreement dated October 18, 1995 between Enserch Exploration, Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.155 - Operating Agreement made effective as of May 1, 1995 among Enserch Exploration, Inc., Mobil Oil Corporation, Mobil Oil exploration & Producing Southeast Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.156 - Participation Agreement dated December 4, 1996 between Santa Fe Energy Resources, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.152 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.157 - Joint Venture Agreement dated December 16, 1996 among Shell Deepwater Development Inc., SOI Finance Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.161 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.158 - Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (Filed as Exhibit 10.162 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.159 - Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc.
10.160 - Joint Venture Agreement dated February 22, 1996 between INTEC Engineering, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.163 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.161 - Loan Agreement dated as of December 14, 1996 among TRB Holding Corporation, Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.164 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.162 - First Naval Mortgage on the "SEILLEAN" dated December 14, 1996 between TRB Holding Corporation in favor of Nissho Iwai Europe PLC. (Filed as Exhibit 10.165 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.163 - Collateral Assignment of Deposit Account, Pledge and Security Agreement dated December 14, 1996 with respect to the "SEILLEAN" between TRB Holding Corporation and Nissho Iwai Europe PLC. (Filed as Exhibit 10.166 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.164 - Assignment of Insurances dated December 14, 1996 with respect to the "SEILLEAN" between TRB Holding Corporation and Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.167 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.165 - Contract dated November 14, 1997 for Construction and Sale of Vessel (Hull No. HRBS6) between Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and RB Exploration Co.
10.166 - Contract dated September 5, 1997 for Construction and Sale of a 103,000 Metric Tons Displacement Drillship (Hull No. 1255) between Samsung Heavy Industries Co., Ltd., Samsung Corporation and Reading & Bates Drilling Co.
10.167 - 1992 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.)
10.168 - 1994 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
10.169 - Uncommitted Acquisition Credit Agreement dated as of January 24, 1996, between Falcon and Banque Paribas. (Filed as an exhibit to Falcon's Annual Report on Form 10- K for the year ended December 31, 1995 and incorporated herein by reference.)
10.170 - First Amendment, dated as of March 4, 1996, to Uncommitted Acquisition Credit Agreement. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
10.171 - 1995 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
10.172 - Bank Earn-Out Agreement, dated as of December 23, 1992, by and between Falcon and Whitney National Bank. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.173 - Senior Executive Incentive Compensation Agreement, dated as of December 24, 1992, by and among Falcon, Robert H. Reeves, Jr., and Charles E. Reeves. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.174 - Registration Rights Agreement dated August 15, 1995, between Falcon and Blake Holding Co., Inc. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
10.175 - Credit Agreement dated as of November 12, 1996, among Falcon, Banque Paribas, and Arab Banking Corporation (B.S.C.) relating to a $25 million facility. (Filed as Exhibit 10.24 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.176 - First Amendment to Credit Amendment, dated October 3, 1997, among Falcon, Banque Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated November 12, 1996, relating to a $25 million facility.
10.177 - Credit Agreement dated as of November 12, 1996, among Falcon, Banque Paribas, and Arab Banking Corporation (B.S.C.) relating to a $40 million facility. (Filed as Exhibit 10.25 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.178 - First Amendment to Credit Agreement, dated October 3, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated November 12, 1996 relating to a $40 million facility, increasing such facility to $60 million.
10.179 - Credit Agreement dated as of October 3, 1997, among Falcon, Banque Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation relating to an $80 million facility.
10.180 - First Amendment to Credit Agreement, dated December 22, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated October 3, 1997 relating to an $80 million facility, increasing such facility to $130 million.
10.181 - Registration Rights Agreement dated December 10, 1996, between Falcon and KS Deepsea Drillships. (Filed as Exhibit 10.26 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.182 - Participation Agreement made effective August 28, 1997, between Reading & Bates Development Co., a subsidiary of R&B, British-Borneo Petroleum, Inc. and British-Borneo Exploration, Inc.
10.183 - Purchase and Sale and Acreage Exchange Agreement made effective August 28, 1997 between Enserch Exploration, Inc., and Reading & Bates Development Co., a subsidiary of R&B.
21 - Schedule of Subsidiaries of the Company (Filed as Exhibit 21.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedule. (Exhibit 27 is being submitted as an exhibit only in the electronic format of this Annual Report on Form 10-K being submitted to the Securities and Exchange Commission.)
99 - Annual Report on Form 11-K with respect to Reading & Bates Savings Plan. (To be filed by amendment to the Annual Report on Form 10-K.)
Instruments with respect to certain long-term obligations of the Company are not being filed as exhibits hereto as the securities authorized thereunder do not exceed 10% of the Company's total assets. The Company agrees to furnish a copy of each such instrument to the Securities and Exchange Commission upon its request.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
R&B filed twelve Current Reports on Form 8-K during the three months ended December 31, 1997. A Current Report on Form 8-K was: filed October 3, 1997 announcing the acquisition of the semisubmersible accommodation unit "ALLEGHENY", filed October 14, 1997 announcing additional unsuccessful exploratory expenses for the third quarter, filed October 16, 1997 announcing third quarter 1997 earnings, filed October 27, 1997 announcing the postponement of the special stockholders meeting, filed October 29, 1997 announcing the award of a two year contract for the "J.W. McLEAN", filed November 4, 1997 announcing the award of a three to four well contract for the "M.G. HULME, JR.", filed November 6, 1997 announcing an update on newbuild projects, filed November 21, 1997 announcing the rescheduling of the special stockholders meeting, filed December 16, 1997 announcing the extension of the "JACK BATES" contract with Mobil, filed December 17, 1997 announcing the board of directors of R&B Falcon Corporation, filed December 23, 1997 announcing oil discovery on East Breaks 643, North Boomvang and filed December 29, 1997 announcing Reading & Bates' shareholders approve business combination with Falcon.
Falcon filed 2 current Reports on Form 8-K during the three months ended December 31, 1997. A Current Report on Form 8-K was: filed December 17, 1997 announcing the board of directors of R&B Falcon Corporation and filed December 24, 1997 announcing Falcon's shareholders approve business combination with Reading & Bates Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 1998.
R&B FALCON CORPORATION
By /s/ Steven A. Webster ------------------------------------- Steven A. Webster President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on March 30, 1998.
By /s/ Paul B. Loyd, Jr. By /s/ Steven A. Webster --------------------------- ----------------------------- Paul B. Loyd, Jr. Steven A. Webster Chairman and Director President, Chief Executive Officer and Director
By /s/ Tim W. Nagle By /s/ Robert F. Fulton --------------------------- ----------------------------- Tim W. Nagle Robert F. Fulton Executive Vice President Executive Vice President (Principal Accounting Officer) (Principal Financial Officer)
By /s/ Purnendu Chatterjee By --------------------------- ---------------------------- Purnendu Chatterjee Macko A. E. Laqueur Director Director
By /s/ Arnold L. Chavkin By /s/ Michael E. Porter --------------------------- ----------------------------- Arnold L. Chavkin Michael E. Porter Director Director
By /s/ Charles A. Donabedian By /s/ Robert L. Sandmeyer --------------------------- ----------------------------- Charles A. Donabedian Robert L. Sandmeyer Director Director
By /s/ Douglas A. P. Hamilton By /s/ William R. Ziegler --------------------------- ----------------------------- Douglas A. P. Hamilton William R. Ziegler Director Director
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(a)Financial Statements and Exhibits
1.Financial Statements:
Report of Independent Public Accountants Consolidated Balance Sheet as of December 31, 1997 and 1996 Consolidated Statement of Operations for the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements
2. Exhibits:
2.1 - Agreement and Plan of Merger, dated July 10, 1997, among R&B Falcon, FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon and R&B. (Filed as Exhibit 2.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
3.1 - Amended and Restated Certificate of Incorporation of R&B Falcon.
3.2 - Amended and Restated Bylaws of R&B Falcon.
4.1 - Form of R&B Falcon's Common Stock Certificate.
4.2 - Rights Agreement dated as of December 23, 1997 between R&B Falcon and American Stock Transfer and Trust Company.
4.3 - Indenture relating to R&B's 8% Senior Subordinated Convertible Debentures due 1998 dated as of August 29, 1989, between R&B and IBJ Schroder Bank & Trust Company, as Trustee. (Filed as Exhibit 4.1 to R&B's Annual Report on Form 10-K for 1989 and incorporated herein by reference.)
4.4 - Form of R&B's registered 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.2 to R&B's Registration No. 33-28580 and incorporated herein by reference.)
4.5 - Form of R&B's bearer 8% Senior Subordinated Convertible Debentures due 1998. (Filed as Exhibit 4.3 to R&B's Registration No. 33-28580 and incorporated herein by reference.)
4.6 - First Supplemental Indenture dated as of December 23, 1997 among the Company, R&B and IBJ Schroder Bank & Trust Company.
4.7 - Indenture dated as of January 15, 1994, between Falcon and Texas Commerce Bank National Association, including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.)
4.8 - Supplemental Indenture dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc., became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.)
4.9 - Supplemental Indenture dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc. and FALRIG Offshore (USA), L.P., and FALRIG Offshore Partners became Guarantors. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, Amendment No.1, filed on June 30, 1994, Registration No. 33-78360 and incorporated herein by reference.)
4.10 - Supplemental Indenture dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
4.11 - Floating Rate Senior Note Purchase Agreement, dated as of February 23, 1994, by and between Falcon and Crescent/Mach I partners, L.P., including a form of Note. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.12 - Joinder Agreement dated as of June 3, 1994, pursuant to which Falcon Workover Company, Inc. became a Guarantor. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.13 - Joinder Agreement dated as of June 28, 1994, pursuant to which Raptor Exploration Company, Inc., FALRIG Offshore (USA), L.P., and FALRIG Offshore partners became Guaranctors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.14 - Joinder Agreement dated as of December 30, 1994, pursuant to which Falcon Inland, Inc., Falcon Services Company, Inc. and FALRIG de Venezuela, Inc. became Guarantors. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
4.15 - Joinder Agreement dated as of March 1, 1996, pursuant to which Falcon Atlantic, Ltd., Falcon Drilling do Brasil, Ltda., Falcon Drilling de Venezuela, Inc. and perforaciones FALRIG de Venezuela, C.A. became Guarantors. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
4.16 - Indenture dated as of March 15, 1995, between Falcon and Texas Commerce Bank National Association, including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on March 24, 1995, Registration No. 33-90582 and incorporated herein by reference.)
4.17 - Indenture dated as of March 1, 1996, between Falcon and Bank One, Texas, N. A., including a form of Note. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on March 8, 1996, Registration No. 333-2114 and incorporated herein by reference.)
Falcon hereby agrees to furnish to the Commission upon its request any instrument defining the rights of holders of long-term debt of Falcon and its consolidated subsidiaries and for any of its unconsolidated subsid- iaries for which financial statements are required to be filed with respect to long-term debt not being registered which does not exceed 10% of the total assets of Falcon and its subsidiaries on a consolidated basis.
9.1 - Voting Trust Agreement dated as of November 12, 1991, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33- 78369 and incorporated herein by reference.)
9.2 - Amendment to Voting Trust Agreement dated as of November 1, 1995. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
9.3 - Voting Trust Agreement dated as of November 21, 1989, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-1, Amendment No.2, filed on July 6, 1995, Registration No. 33-84582 and incorporated herein by reference.)
9.4 - Voting Trust Agreement dated as of May 30, 1990, between Lydia Richardson and Linda Webster as common stockholders and Steven A. Webster as voting trustee. (Filed as an exhibit to Falcon's Registration Statement on Form S-1, Amendment No.2, filed on July 6, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.1* - Reading & Bates 1990 Stock Option Plan. (Filed as Appendix A to R&B's Proxy Statement dated April 26, 1993 and incorporated herein by reference.)
10.2* - 1992 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit B to R&B's Proxy Statement dated April 27, 1992 and incorporated herein by reference.)
10.3* - 1995 Long-Term Incentive Plan of Reading & Bates Corporation (Filed as Exhibit 99.A to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.)
10.4* - 1995 Director Stock Option Plan of Reading & Bates Corporation (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 29, 1995 and incorporated herein by reference.)
10.5* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and C. A. Donabedian. (Filed as Exhibit 10.15 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.6* - Surrender Letter dated as of February 7, 1995 by C. A. Donabedian. (Filed as Exhibit 10.33 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.7* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and J. W. McLean. (Filed as Exhibit 10.16 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.8* - Surrender Letter dated as of February 7, 1995 by J. W. McLean. (Filed as Exhibit 10.35 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.9* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and R. L. Sandmeyer. (Filed as Exhibit 10.17 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.10* - Surrender Letter dated as of February 7, 1995 by R. L. Sandmeyer. (Filed as Exhibit 10.37 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.11* - Director Stock Option Agreement dated as of September 14, 1993 between R&B and S. A. Webster. (Filed as Exhibit 10.18 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.12* - Surrender Letter dated as of February 7, 1995 by S. A. Webster. (Filed as Exhibit 10.39 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.13* - Stock Option Agreement dated as of February 7, 1995 between A.L. Chavkin and R&B. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.14* - Stock Option Agreement dated as of February 7, 1995 between Willem Cordia and R&B. (Filed as Exhibit 10.41 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.15* - Stock Option Agreement dated as of February 7, 1995 between C.A. Donabedian and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.16* - Stock Option Agreement dated as of February 7, 1995 between Ted Kalborg and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.17* - Stock Option Agreement dated as of February 7, 1995 between J.W. McLean and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.18* - Stock Option Agreement dated as of February 7, 1995 between R.L. Sandmeyer and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.19* - Stock Option Agreement dated as of February 7, 1995 between S.A. Webster and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.20* - Stock Option Agreement dated as of April 19, 1995 between M.A.E. Lacqueur and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.21* - Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.48 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.22* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1995 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.22 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.23* - Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan dated February 6, 1996 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.24* - Amendment No. 1, dated as of December 3, 1996 to Stock Option Agreement with respect to the 1992 Long-Term Incentive Plan between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.25* - Employment Agreement dated as of November 1, 1991 between R&B and L. E. Voss, Jr. (Filed as Exhibit 10.34 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.26* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and L. E. Voss, Jr. (Filed as Exhibit 10.22 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.27* - Employment Agreement dated as of November 1, 1991 between R&B and T. W. Nagle. (Filed as Exhibit 10.35 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.28* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and T. W. Nagle. (Filed as Exhibit 10.24 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.29* - Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.36 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.30* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and C. R. Ofner. (Filed as Exhibit 10.26 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.31* - Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.37 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.32* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and D. L. McIntire. (Filed as Exhibit 10.28 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.33* - Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.38 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.34* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of November 1, 1991 between R&B and W. K. Hillin. (Filed as Exhibit 10.30 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.35* - Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.42 to Registration No. 33-51120 and incorporated herein by reference.)
10.36* - Amendment No. 1, dated as of October 1, 1993, to the Employment Agreement dated as of January 1, 1992 between R&B and Paul B. Loyd, Jr. (Filed as Exhibit 10.32 to R&B's Annual Report on Form 10-K for 1993 and incorporated herein by reference.)
10.37* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between L. E. Voss, Jr. and R&B. (Filed as Exhibit 10.41 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.38* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.42 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.39* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.43 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.40* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.44 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.41* - Restricted Stock Award Agreement dated December 5, 1995 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.45 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.42* - 1996 Director Restricted Stock Award Plan of Reading & Bates Corporation. (Filed as Exhibit 99.B to R&B's Proxy Statement dated March 28, 1997 and incorporated herein by reference.)
10.43* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between A. L. Chavkin and R&B. (Filed as Exhibit 10.46 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.44* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between C. A. Donabedian and R&B. (Filed as Exhibit 10.47 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.45* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between M. A. E. Laqueur and R&B. (Filed as Exhibit 10.49 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.46* - Restricted Stock Award Agreement dated December 3, 1996 under the 1996 Director Restricted Stock Award Plan between R. L. Sandmeyer and R&B. (Filed as Exhibit 10.51 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.47* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between Paul B. Loyd, Jr. and R&B. (Filed as Exhibit 10.52 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.48* - Stock Option Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between T. W. Nagle and R&B. (Filed as Exhibit 10.53 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.49* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between C. R. Ofner and R&B. (Filed as Exhibit 10.54 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.50* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between D. L. McIntire and R&B. (Filed as Exhibit 10.55 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.51* - Restricted Stock Award Agreement dated December 3, 1996 under the 1995 Long-Term Incentive Plan between W. K. Hillin and R&B. (Filed as Exhibit 10.56 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.52* - 1997 Long-Term Incentive Plan of Reading & Bates Corporation. (Filed as Exhibit 99.A to R & B's Proxy Statement dated March 18, 1997 and incorporated herein by reference.)
10.53* - Stock Option Agreement dated as of April 24, 1997 between R&B and P.B. Loyd, Jr. under R&B's 1995 Long-Term Incentive Plan.
10.54* - Stock Option Agreement dated as of April 24, 1997 between R&B and T. W. Nagle under R&B's 1995 Long-Term Incentive Plan.
10.55* - Stock Option Agreement dated as of April 24, 1997 between R&B and C. R. Ofner under R&B's 1995 Long-Term Incentive Plan.
10.56* - Stock Option Agreement dated as of April 24, 1997 between R&B and D.L. McIntire under R&B's 1995 Long-Term Incentive Plan.
10.57* - Stock Option Agreement dated as of April 24, 1997 between R&B and W. K. Hillin under R&B's 1995 Long-Term Incentive Plan.
10.58* - Stock Option Agreement dated as of April 24, 1997 between R&B and W.K. Hillin under R&B's 1997 Long-Term Incentive Plan.
10.59* - Amended and Restated Stock Option Agreement dated as of February 16, 1995 between Falcon and Robert F. Fulton.
10.60* - Amended and Restated Stock Option Agreement dated as of January 23, 1996 between Falcon and Steven A. Webster.
10.61* - Stock Option Agreement dated as of April 15, 1996 between Falcon and Bernie W. Stewart.
10.62* - Rescission Agreement dated August 5, 1997 between R&B and P.B. Loyd, Jr.
10.63* - Rescission Agreement dated August 5, 1997 between R&B and T. W. Nagle.
10.64* - Rescission Agreement dated August 5, 1997 between R&B and C. R. Ofner.
10.65* - Rescission Agreement dated August 5, 1997 between R&B and D. L. McIntire.
10.66* - Rescission Agreement dated August 5, 1997 between R&B and W. K. Hillin.
10.67* - Affiliate Agreement effective December 31, 1997 between R&B and P. B. Loyd, Jr.
10.68* - Affiliate Agreement effective December 31, 1997 between R&B and A. L. Chavkin.
10.69* - Affiliate Agreement effective December 31, 1997 between R&B and C. A. Donabedian.
10.70* - Affiliate Agreement effective December 31, 1997 between R&B and M. A. E. Laqueur.
10.71* - Affiliate Agreement effective December 31, 1997 between R&B and R. L. Sandmeyer.
10.72* - Affiliate Agreement effective December 31, 1997 between R&B and T. W. Nagle.
10.73* - Affiliate Agreement effective December 31, 1997 between R&B and C. R. Ofner.
10.74* - Affiliate Agreement effective December 31, 1997 between R&B and D. L. McIntire.
10.75* - Affiliate Agreement effective December 31, 1997 between R&B and W. K. Hillin.
10.76* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven A. Webster.
10.77* - Affiliate Agreement effective December 31, 1997 between Falcon and Bernie W. Stewart.
10.78* - Affiliate Agreement effective December 31, 1997 between Falcon and Robert F. Fulton.
10.79* - Affiliate Agreement effective December 31, 1997 between Falcon and Leighton E. Moss.
10.80* - Affiliate Agreement effective December 31, 1997 between Falcon and Rodney W. Meisetschlaeger.
10.81* - Affiliate Agreement effective December 31, 1997 between Falcon and Steven R. Meheen.
10.82* - Affiliate Agreement effective December 31, 1997 between Falcon and Douglas A.P. Hamilton.
10.83* - Affiliate Agreement effective December 31, 1997 between Falcon and Michael Porter.
10.84* - Affiliate Agreement effective December 31, 1997 between Falcon and William R. Ziegler.
10.85* - Affiliate Agreement effective December 31, 1997 between Falcon and Don P. Rodney.
10.86 - Reading & Bates Stock Option Agreement dated as of July 10, 1997 between R&B and Falcon. (Filed as Annex E to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
10.87 - Falcon Stock Option Agreement dated as of July 10, 1997 between Falcon and R&B. (Filed as Annex D to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporate herein by reference.)
10.88 - Agreement dated as of August 31, 1991 among R&B, Arcade Shipping AS and Sonat Offshore Drilling Inc. (Filed as Exhibit 10.40 to R&B's Annual Report on Form 10-K for 1991 and incorporated herein by reference.)
10.89 - Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.51 to Registration No. 33-51120 and incorporated herein by reference.)
10.90 - Amendment Agreement dated November 30, 1995 to Facility Agreement dated February 21, 1991 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.71 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.91 - Second Amendment Agreement dated October, 1996 between Arcade Drilling AS, Chase Investment Bank Limited, The Chase Manhattan Bank, N.A. and others. (Filed as Exhibit 10.60 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.92 - Agreement for the sale and purchase of Semi-Submersible Emergency Support Vessel Iolair dated September 8, 1995 between BP Exploration Operating Company Limited and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.3 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.93 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.4 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.94 - Mortgage of a Ship dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil plc. (Filed as Exhibit 10.5 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.95 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and BP Exploration Operating Company Limited. (Filed as Exhibit 10.6 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.96 - Deed of Covenant dated September 8, 1995 between Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and Britoil Public Limited Company. (Filed as Exhibit 10.7 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.97 - Performance Guarantee dated September 8, 1995 by R&B in favour of BP Exploration Operating Company Limited. (Filed as Exhibit 10.8 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.98 - Performance Guarantee dated September 8, 1995 by R&B in favour of Britoil plc. (Filed as Exhibit 10.9 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.99 - Initial Services Agreement dated September 8, 1995 between Britoil Public Limited Company and Reading & Bates (Caledonia) Limited, a subsidiary of R&B. (Filed as Exhibit 10.10 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.100 - Heads of Agreement for the provision of Vessel Services dated September 8, 1995 between Britoil Public Limited Company, Reading & Bates (Caledonia) Limited, a subsidiary of R&B, and R&B. (Filed as Exhibit 10.11 to R&B's Quarterly Report on Form 10-Q for the Third Quarter of 1995 and incorporated herein by reference.)
10.101 - Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.85 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.102 - Security Agreement dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.86 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.103 - Subsidiary Guaranty dated as of April 30, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., and Reading and Bates Borneo Drilling Co., Ltd. (Filed as Exhibit 10.87 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.104 - First Preferred Mortgage on the "D. R. STEWART" dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.88 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.105 - First Preferred Mortgage on the "JACK BATES" dated April 30, 1996 between Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.89 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.106 - First Preferred Mortgage on the "W. D. KENT" dated April 30, 1996 between Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.90 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.107 - Indenture of First Naval Mortgage on the "CHARLEY GRAVES" dated April 30, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.91 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.108 - First Priority Mortgage on the "RON TAPPMEYER" dated April 30, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.92 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.109 - Deed of Covenant on the "J. W. McLEAN" dated April 30, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.93 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.110 - Indenture of Trust dated as of April 30, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.94 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.111 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "JACK BATES" between Reading & Bates Drilling Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.95 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.112 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "D. R. STEWART" between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.96 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.113 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "W. D. KENT" between Reading & Bates Exploration Co. and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.97 to R&B's Annual Report on Form 10- K for 1996 and incorporated herein by reference.)
10.114 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "CHARLEY GRAVES" between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.98 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.115 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "RON TAPPMEYER" between Reading and Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.99 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.116 - Collateral Assignment of Insurance dated April 30, 1996 with respect to the "J. W. McLEAN" between Reading and Bates Borneo Drilling Co., Ltd. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.100 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.117 - First Amendment dated as of July 9, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.101 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.118 - Subsidiary Assumption Agreement dated as of July 9, 1996 by RB Drilling Co. and HRB Rig Corporation. (Filed as Exhibit 10.102 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.119 - Indenture of First Naval Mortgage on the "J. W. McLEAN" dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.103 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.120 - First Preferred Mortgage on the "HARVEY H. WARD" dated July 9, 1996 by HRB Rig Corporation in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.104 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.121 - Amendment No. 1 to Indenture of First Naval Mortgage on the "CHARLIE GRAVES" dated July 9, 1996 by Reading and Bates Borneo Drilling Co., Ltd. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.105 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.122 - Amendment to First Preferred Mortgage on the "JACK BATES" dated July 9, 1996 by Reading & Bates Drilling Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.106 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.123 - Amendment to First Preferred Mortgage on the "D. R. STEWART" dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.107 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.124 - Amendment to First Preferred Mortgage on the "W. D. KENT" dated July 9, 1996 by Reading & Bates Exploration Co. in favor of Wilmington Trust Company, as trustee. (Filed as Exhibit 10.108 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.125 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the "HARVEY H. WARD" between HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.109 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.126 - Collateral Assignment of Insurance dated July 9, 1996 with respect to the "RIG 41" between RB Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.127 - Amended and Restated Indenture of Trust dated as of July 9, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., HRB Rig Corporation and Wilmington Trust Company, as trustee. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.128 - Second Amendment dated as of August 30, 1996 to Credit Agreement dated as of April 30, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Lyonnais New York Branch, as co-agent, and Christiana Bank og Kreditkasse, New York Branch, as agent. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.129 - Subsidiary Assumption Agreement dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.113 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.130 - Subsidiary Guaranty dated as of August 30, 1996 by Reading & Bates Development Co. (Filed as Exhibit 10.114 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.131 - Indenture of First Naval Mortgage on "SEILLEAN" dated August 30, 1996 by Reading & Bates Development Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.115 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.132 - Collateral Assignment of Insurance dated August 30, 1996 with respect to the "SEILLEAN" between Reading & Bates Development Co. and Christiana Bank og Kreditkasee, New York Branch, as agent. (Filed as Exhibit 10.116 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.133 - Credit Agreement dated as of November 13, 1996 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Banque Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee. (Filed as Exhibit 10.117 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.134 - Security Agreement dated as of November 13, 1996 among Reading & Bates Drilling Co., Reading & Bates Exploration Co., Reading & Bates Offshore, Limited, HRB Rig Corporation, Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd, and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.118 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.135 - Subsidiary Guaranty dated as of November 13, 1996 by Reading & Bates Exploration Co., Reading & Bates (A) Pty. Ltd., Reading and Bates Borneo Drilling Co., Ltd., Reading & Bates Offshore, Limited and HRB Rig Corporation. (Filed as Exhibit 10.119 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.136 - First Preferred Mortgage on the "D. R. STEWART" dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.120 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.137 - First Preferred Mortgage on the "JACK BATES" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, New York Branch, as security trustee. (Filed as Exhibit 10.121 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.138 - First Preferred Mortgage on the "W. D. KENT" dated November 13, 1996 between Reading & Bates Exploration Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.122 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.139 - First Preferred Mortgage on the "RANDOLPH YOST" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.123 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.140 - First Preferred Mortgage on the "GEORGE H. GALLOWAY" dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.124 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.141 - First Preferred Mortgage on the "F. G. MCCLINTOCK" dated November 13, 1996 between Reading & Bates Offshore, Limited in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.142 - First Preferred Mortgage on the "J. T. ANGEL" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.126 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.143 - First Preferred Mortgage on the "ROGER W. MOWELL" dated November 13, 1996 between Reading & Bates Drilling Co. in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.127 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.144 - First Preferred Mortgage on the "HARVEY H. WARD" dated November 13, 1996 between HRB Rig Corporation in favor of Christiana Bank og Kreditkasse, as security trustee. (Filed as Exhibit 10.128 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.145 - Indenture of First Naval Mortgage on the "CHARLEY GRAVES" dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.129 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.146 - Indenture of First Naval Mortgage on the "J. W. McLEAN" dated November 13, 1996 between Reading & Bates Drilling Co. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.130 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.147 - Indenture of First Naval Mortgage on the "RIG 41" dated November 13, 1996 between Reading and Bates Borneo Drilling Co. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.131 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.148 - First Priority Mortgage on the "RON TAPPMEYER" dated November 13, 1996 between Reading & Bates (A) Pty. Ltd. and Christiana Bank og Kreditkasse, New York Branch, as mortgagee. (Filed as Exhibit 10.132 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.149 - Pledge Agreement dated as of November 13, 1996 between R&B and Christiana Bank og Kreditkasse, New York Branch, as collateral agent. (Filed as Exhibit 10.133 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.150 - Amended and Restated Credit Agreement dated as of November 13, 1996 and amended and restated as of July 3, 1997 among R&B, Reading & Bates Drilling Co., certain lending institutions named therein, Credit Agricole Indosuez, as documentation agent, Credit Lyonnais New York Branch, as documentation agent, and Christiana Bank og Kreditkasse, New York Branch, as administrative agent, arranger and security trustee.
10.151 - Letter of Credit Agreement dated as of December 30, 1996 between R&B, Reading & Bates Drilling Co., and Christiana Bank og Kreditkasse, New York Branch. (Filed as Exhibit 10.134 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.152 - Memorandum of Agreement dated November 28, 1995 between Reading and Bates, Inc., a subsidiary of R&B, and Deep Sea Investors, L.L.C. (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.153 - Bareboat Charter "M.G. Hulme, Jr." dated November 28, 1995 between Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a subsidiary of R&B. (Filed as Exhibit 10.111 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.154 - Purchase and Sale Agreement dated October 18, 1995 between Enserch Exploration, Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.112 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.155 - Operating Agreement made effective as of May 1, 1995 among Enserch Exploration, Inc., Mobil Oil Corporation, Mobil Oil exploration & Producing Southeast Inc. and Reading & Bates Development Co., a subsidiary of R&B. (Filed as Exhibit 10.125 to R&B's Annual Report on Form 10-K for 1995 and incorporated herein by reference.)
10.156 - Participation Agreement dated December 4, 1996 between Santa Fe Energy Resources, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.152 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.157 - Joint Venture Agreement dated December 16, 1996 among Shell Deepwater Development Inc., SOI Finance Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.161 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.158 - Limited Liability Company Agreement dated October 28, 1996 between Conoco Development Company and RB Deepwater Exploration Inc. (Filed as Exhibit 10.162 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.159 - Limited Liability Company Agreement dated April 30, 1997 between Conoco Development II Inc. and RB Deepwater Exploration II Inc.
10.160 - Joint Venture Agreement dated February 22, 1996 between INTEC Engineering, Inc. and Reading & Bates Development Co. (Filed as Exhibit 10.163 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.161 - Loan Agreement dated as of December 14, 1996 among TRB Holding Corporation, Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.164 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.162 - First Naval Mortgage on the "SEILLEAN" dated December 14, 1996 between TRB Holding Corporation in favor of Nissho Iwai Europe PLC. (Filed as Exhibit 10.165 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.163 - Collateral Assignment of Deposit Account, Pledge and Security Agreement dated December 14, 1996 with respect to the "SEILLEAN" between TRB Holding Corporation and Nissho Iwai Europe PLC. (Filed as Exhibit 10.166 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.164 - Assignment of Insurances dated December 14, 1996 with respect to the "SEILLEAN" between TRB Holding Corporation and Reading & Bates (U.K.) Limited and Nissho Iwai Europe PLC. (Filed as Exhibit 10.167 to R&B's Annual Report on Form 10-K for 1996 and incorporated herein by reference.)
10.165 - Contract dated November 14, 1997 for Construction and Sale of Vessel (Hull No. HRBS6) between Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and RB Exploration Co.
10.166 - Contract dated September 5, 1997 for Construction and Sale of a 103,000 Metric Tons Displacement Drillship (Hull No. 1255) between Samsung Heavy Industries Co., Ltd., Samsung Corporation and Reading & Bates Drilling Co.
10.167 - 1992 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Registration Statement on Form S-4, filed on April 29, 1994, Registration No. 33-78369 and incorporated herein by reference.)
10.168 - 1994 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
10.169 - Uncommitted Acquisition Credit Agreement dated as of January 24, 1996, between Falcon and Banque Paribas. (Filed as an exhibit to Falcon's Annual Report on Form 10- K for the year ended December 31, 1995 and incorporated herein by reference.)
10.170 - First Amendment, dated as of March 4, 1996, to Uncommitted Acquisition Credit Agreement. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
10.171 - 1995 Stock Option Plan of Falcon. (Filed as an exhibit to Falcon's Annual Report on form 10-K for the year ended December 31, 1994 and incorporated herein by reference.)
10.172 - Bank Earn-Out Agreement, dated as of December 23, 1992, by and between Falcon and Whitney National Bank. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.173 - Senior Executive Incentive Compensation Agreement, dated as of December 24, 1992, by and among Falcon, Robert H. Reeves, Jr., and Charles E. Reeves. (Filed as an exhibit to Falcon's Registration Statement of Form S-1, Amendment No. 3, filed on July 19, 1995, Registration No. 33-84582 and incorporated herein by reference.)
10.174 - Registration Rights Agreement dated August 15, 1995, between Falcon and Blake Holding Co., Inc. (Filed as an exhibit to Falcon's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.)
10.175 - Credit Agreement dated as of November 12, 1996, among Falcon, Banque Paribas, and Arab Banking Corporation (B.S.C.) relating to a $25 million facility. (Filed as Exhibit 10.24 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.176 - First Amendment to Credit Amendment, dated October 3, 1997, among Falcon, Banque Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated November 12, 1996, relating to a $25 million facility.
10.177 - Credit Agreement dated as of November 12, 1996, among Falcon, Banque Paribas, and Arab Banking Corporation (B.S.C.) relating to a $40 million facility. (Filed as Exhibit 10.25 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.178 - First Amendment to Credit Agreement, dated October 3, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated November 12, 1996 relating to a $40 million facility, increasing such facility to $60 million.
10.179 - Credit Agreement dated as of October 3, 1997, among Falcon, Banque Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation relating to an $80 million facility.
10.180 - First Amendment to Credit Agreement, dated December 22, 1997, among Falcon, Bank Paribas, Arab Banking Corporation (B.S.C.), and ING (U.S.) Capital Corporation, amending Credit Agreement dated October 3, 1997 relating to an $80 million facility, increasing such facility to $130 million.
10.181 - Registration Rights Agreement dated December 10, 1996, between Falcon and KS Deepsea Drillships. (Filed as Exhibit 10.26 to Falcon's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.)
10.182 - Participation Agreement made effective August 28, 1997, between Reading & Bates Development Co., a subsidiary of R&B, British-Borneo Petroleum, Inc. and British-Borneo Exploration, Inc.
10.183 - Purchase and Sale and Acreage Exchange Agreement made effective August 28, 1997 between Enserch Exploration, Inc., and Reading & Bates Development Co., a subsidiary of R&B.
21 - Schedule of Subsidiaries of the Company (Filed as Exhibit 21.1 to R&B Falcon's Registration Statement on Form S-4 dated November 20, 1997 and incorporated herein by reference.)
23 - Consent of Arthur Andersen LLP
27 - Financial Data Schedule. (Exhibit 27 is being submitted as an exhibit only in the electronic format of this Annual Report on Form 10-K being submitted to the Securities and Exchange Commission.)
99 - Annual Report on Form 11-K with respect to Reading & Bates Savings Plan. (To be filed by amendment to the Annual Report on Form 10-K.)
Instruments with respect to certain long-term obligations of the Company are not being filed as exhibits hereto as the securities authorized thereunder do not exceed 10% of the Company's total assets. The Company agrees to furnish a copy of each such instrument to the Securities and Exchange Commission upon its request.
*Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
R&B filed twelve Current Reports on Form 8-K during the three months ended December 31, 1997. A Current Report on Form 8-K was: filed October 3, 1997 announcing the acquisition of the semisubmersible accommodation unit "ALLEGHENY", filed October 14, 1997 announcing additional unsuccessful exploratory expenses for the third quarter, filed October 16, 1997 announcing third quarter 1997 earnings, filed October 27, 1997 announcing the postponement of the special stockholders meeting, filed October 29, 1997 announcing the award of a two year contract for the "J.W. McLEAN", filed November 4, 1997 announcing the award of a three to four well contract for the "M.G. HULME, JR.", filed November 6, 1997 announcing an update on newbuild projects, filed November 21, 1997 announcing the rescheduling of the special stockholders meeting, filed December 16, 1997 announcing the extension of the "JACK BATES" contract with Mobil, filed December 17, 1997 announcing the board of directors of R&B Falcon Corporation, filed December 23, 1997 announcing oil discovery on East Breaks 643, North Boomvang and filed December 29, 1997 announcing Reading & Bates' shareholders approve business combination with Falcon.
Falcon filed 2 current Reports on Form 8-K during the three months ended December 31, 1997. A Current Report on Form 8-K was: filed December 17, 1997 announcing the board of directors of R&B Falcon Corporation and filed December 24, 1997 announcing Falcon's shareholders approve business combination with Reading & Bates Corporation.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 1998.
R&B FALCON CORPORATION
By /s/ Steven A. Webster ------------------------------------- Steven A. Webster President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated on March 30, 1998.
By /s/ Paul B. Loyd, Jr. By /s/ Steven A. Webster --------------------------- ----------------------------- Paul B. Loyd, Jr. Steven A. Webster Chairman and Director President, Chief Executive Officer and Director
By /s/ Tim W. Nagle By /s/ Robert F. Fulton --------------------------- ----------------------------- Tim W. Nagle Robert F. Fulton Executive Vice President Executive Vice President (Principal Accounting Officer) (Principal Financial Officer)
By /s/ Purnendu Chatterjee By --------------------------- ---------------------------- Purnendu Chatterjee Macko A. E. Laqueur Director Director
By /s/ Arnold L. Chavkin By /s/ Michael E. Porter --------------------------- ----------------------------- Arnold L. Chavkin Michael E. Porter Director Director
By /s/ Charles A. Donabedian By /s/ Robert L. Sandmeyer --------------------------- ----------------------------- Charles A. Donabedian Robert L. Sandmeyer Director Director
By /s/ Douglas A. P. Hamilton By /s/ William R. Ziegler --------------------------- ----------------------------- Douglas A. P. Hamilton William R. Ziegler Director Director