-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bixq53YaV/Jk7kM47rb4+KXRrNlK4kGaLZg0tOhiUwfM/ZQYSRcaQMPsz5X+7vPB K1l7Yq6L7jfh7zOzvIc0CQ== 0000899243-98-002085.txt : 19981113 0000899243-98-002085.hdr.sgml : 19981113 ACCESSION NUMBER: 0000899243-98-002085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSOCEAN OFFSHORE INC CENTRAL INDEX KEY: 0000314047 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 720464968 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07746 FILM NUMBER: 98745480 BUSINESS ADDRESS: STREET 1: 4 GREENWAY PLAZA CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7138717500 MAIL ADDRESS: STREET 1: 4 GREENWAY PLAZA CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: SONAT OFFSHORE DRILLING INC DATE OF NAME CHANGE: 19930415 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 1-7746 ------------------- TRANSOCEAN OFFSHORE INC. (Exact name of registrant as specified in its charter) -------------------- DELAWARE 72-0464968 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4 GREENWAY PLAZA HOUSTON, TEXAS 77046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 871-7500 -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- As of October 31, 1998, 100,551,127 shares of common stock, par value $.01 per share, of Transocean Offshore Inc. were outstanding. ================================================================================ TRANSOCEAN OFFSHORE INC. INDEX TO FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1998
Page ---- PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 1998 and 1997......... 2 Condensed Consolidated Balance Sheets September 30, 1998 and December 31, 1997........................ 3 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 1998 and 1997................... 4 Notes to Condensed Consolidated Financial Statements............. 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 10 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 21 PART II - OTHER INFORMATION - --------------------------- ITEM 1. Legal Proceedings............................................... 22 ITEM 6. Exhibits and Reports on Form 8-K................................ 22
1 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The condensed consolidated financial statements of Transocean Offshore Inc. and consolidated subsidiaries (the "Company") included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands, except per share data) Operating Revenues $269,002 $223,201 $778,892 $650,910 - --------------------------------------------------------------------------------------------------------- Costs and Expenses Operating and maintenance 113,104 129,965 359,601 408,584 Depreciation and amortization 29,297 26,001 85,478 76,246 General and administrative 6,310 6,296 21,001 18,452 - --------------------------------------------------------------------------------------------------------- 148,711 162,262 466,080 503,282 - --------------------------------------------------------------------------------------------------------- Operating Income 120,291 60,939 312,812 147,628 - --------------------------------------------------------------------------------------------------------- Other Income (Expense), Net Equity in earnings of joint ventures 3,350 3,248 8,240 8,133 Interest income 562 743 2,514 1,593 Interest expense, net of amounts capitalized (4,889) (5,671) (17,571) (16,502) Gain on termination of cash flow sharing agreement - - 21,290 - Other, net 12,501 (1,298) 13,354 (1,911) - --------------------------------------------------------------------------------------------------------- 11,524 (2,978) 27,827 (8,687) - --------------------------------------------------------------------------------------------------------- Income Before Income Taxes 131,815 57,961 340,639 138,941 Income Taxes 38,886 18,842 100,489 44,197 - --------------------------------------------------------------------------------------------------------- Net Income $ 92,929 $ 39,119 $240,150 $ 94,744 ========================================================================================================= Earnings Per Share Basic $ 0.93 $ 0.39 $ 2.40 $ 0.93 ========================================================================================================= Diluted $ 0.92 $ 0.38 $ 2.38 $ 0.92 ========================================================================================================= Weighted Average Shares Outstanding Basic 100,283 101,280 100,015 101,545 - --------------------------------------------------------------------------------------------------------- Diluted 100,869 102,807 100,861 103,048 - --------------------------------------------------------------------------------------------------------- Dividends Paid Per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09 =========================================================================================================
See accompanying notes. 2 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31, 1998 1997 ------------ ------------ (In thousands, except share data) ASSETS Cash and Cash Equivalents $ 30,681 $ 54,225 Accounts Receivable 245,539 199,716 Deferred Income Taxes 3,967 4,418 Materials and Supplies 35,004 30,917 Prepayments 5,071 9,389 Other Current Assets 21,004 8,425 - ---------------------------------------------------------------------------- Total Current Assets 341,266 307,090 - ---------------------------------------------------------------------------- Property and Equipment 2,548,094 2,113,462 Less Accumulated Depreciation 505,214 445,488 - ---------------------------------------------------------------------------- Property and Equipment, net 2,042,880 1,667,974 - ---------------------------------------------------------------------------- Goodwill, net 679,725 693,154 Investments in and Advances to Joint Ventures 52,176 45,869 Other Assets 32,642 41,001 - ---------------------------------------------------------------------------- Total Assets $3,148,689 $2,755,088 ============================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts Payable $ 40,070 $ 62,997 Accrued Income Taxes 68,302 47,002 Current Portion of Long-Term Debt 4,798 4,812 Other Current Liabilities 68,331 70,381 - ---------------------------------------------------------------------------- Total Current Liabilities 181,501 185,192 - ---------------------------------------------------------------------------- Long-Term Debt 853,134 728,282 Deferred Income Taxes 210,827 171,306 Other Long-Term Liabilities 34,739 49,130 - ---------------------------------------------------------------------------- Total Long-Term Liabilities 1,098,700 948,718 - ---------------------------------------------------------------------------- Preferred Stock, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding - - Common Stock, $0.01 par value; 150,000,000 shares authorized, 104,335,127 shares issued and 100,551,127 shares outstanding at September 30, 1998, and 103,700,638 shares issued and 99,916,638 shares outstanding at December 31, 1997 1,043 1,037 Less Common Stock in Treasury, at cost; 3,784,000 shares at September 30, 1998 and December 31, 1997 (144,297) (144,297) Additional Paid-in Capital 1,525,295 1,509,110 Retained Earnings 486,447 255,328 - ---------------------------------------------------------------------------- Total Stockholders' Equity 1,868,488 1,621,178 - ---------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $3,148,689 $2,755,088 ============================================================================
See accompanying notes. 3 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, --------------------------- 1998 1997 ---------- -------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 240,150 $ 94,744 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 85,478 76,246 Deferred income taxes 39,972 4,886 Equity in earnings of joint ventures (8,240) (8,133) Gain on disposal of assets (16,725) (295) Deferred income, net (6,908) 12,572 Deferred expenses, net 3,405 (14,375) Other, net 5,522 (10,867) Changes in operating assets and liabilities, net of effects from divestiture Accounts receivable (47,243) (28,517) Accounts payable (21,195) 11,013 Income taxes receivable/payable, net 30,101 (5,091) Other current assets (12,725) (7,485) Other current liabilities (4,166) (3,428) - ------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 287,426 121,270 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (458,012) (307,243) Proceeds from disposal of assets 13,316 891 Distributions from (Investments in) joint ventures, net 4,359 (419) Divestitures of non-core drilling services activities and assets 10,000 105,584 Cash balances of activities divested - (6,109) Other (529) (1,587) - ------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (430,866) (208,883) - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) on revolving credit facility 129,700 (88,761) Exercise of stock options 6,678 7,101 Dividends paid (9,030) (9,124) Repayment of notes payable (4,616) - Proceeds of public debt offering, net - 299,209 Proceeds from project financing agreement - 188,428 Repayments on term loan facility - (193,250) Financing costs - (5,210) Treasury shares purchased - (96,308) Sale of note receivable - 11,000 Other, net (2,836) 973 - ------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 119,896 114,058 - ------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (23,544) 26,445 - ------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Period 54,225 24,154 - ------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 30,681 $ 50,599 =================================================================================================
See accompanying notes. 4 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - GENERAL BASIS OF CONSOLIDATION - The accompanying condensed consolidated financial statements of Transocean Offshore Inc. and its consolidated subsidiaries (the "Company") have been prepared without audit in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, pursuant to such rules and regulations, these financial statements do not include all disclosures required by generally accepted accounting principles for complete financial statements. Operating results for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. In connection with the preparation of these financial statements, management was required to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues, expenses and disclosure of contingent liabilities. Actual results could differ from such estimates. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. EARNINGS PER SHARE - In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to fully diluted earnings per share which was previously not required to be reported if the effect of the dilution was less than three percent. Earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. STOCK SPLIT - In August 1997, the Board of Directors declared a two-for-one stock split to be effected in the form of a 100 percent stock dividend. The dividend was paid September 19, 1997 to stockholders of record on September 5, 1997. All references in the financial statements to number of shares and per share amounts have been retroactively restated to reflect the increased number of shares of common stock issued and outstanding as a result of the dividend. SUPPLEMENTARY CASH FLOW INFORMATION - Cash payments for interest and income taxes, net were $36.8 million and $31.5 million, respectively, for the nine months ended September 30, 1998 and $18.7 million and $44.5 million, respectively, for the nine months ended September 30, 1997. GOODWILL - Goodwill is amortized on a straight-line basis over 40 years. Accumulated amortization as of September 30, 1998 and December 31, 1997 totaled $38.2 million, and $24.8 million, respectively. CAPITALIZED INTEREST - Interest costs for construction and upgrade of qualifying assets are capitalized. The Company capitalized interest costs on construction work in progress of $10.0 million and $25.0 million for the three and nine months ended September 30, 1998 and $5.2 million and $12.9 million in the corresponding periods of 1997. RECLASSIFICATIONS - Certain reclassifications have been made to prior period amounts to conform with the current period's presentation. 5 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) INTERIM FINANCIAL INFORMATION - The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. NEW ACCOUNTING PRONOUNCEMENTS - In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. This Statement revises employers' disclosures about pension and other postretirement benefit plans in annual financial statements. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company adopted this standard in the first quarter of 1998. In March 1998, the Accounting Standards Executive Committee issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement provides guidance on accounting for the costs of software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company will adopt this standard in the first quarter of 1999. Its adoption is not expected to have a material effect on the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal years beginning after June 15, 1999. Because of the Company's limited use of derivatives to manage its exposure to fluctuations in foreign exchange rates and interest rates, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. NOTE 2 - UPGRADE AND EXPANSION OF DRILLING FLEET The Company made capital additions of $458.0 million during the nine months ending September 30, 1998, primarily relating to its previously announced fleet additions and upgrades. During the nine months ending September 30, 1998, the Company spent $94.1 million on the conversion of the Transocean Marianas, $109.4 million on the construction of the deepwater drillship Discoverer Enterprise, and $95.1 million and $96.5 million on the construction of the deepwater drillships to be named "Discoverer Spirit" and "Discoverer Deep Seas", respectively. The Company spent approximately $41.6 million during the nine months ended September 30, 1998 for upgrades and improvements on its operating fleet of offshore rigs. 6 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - DEBT Debt is comprised of the following:
September 30, December 31, 1998 1997 ------------- ------------ (In thousands) Revolving Credit Facility $336,100 $206,400 Project Financing Agreement 196,210 196,210 8.00% Debentures, net of discount 199,236 199,216 7.45% Notes 100,000 100,000 6.90% Notes Payable 25,384 30,000 Other 1,002 1,268 - ------------------------------------------------------------------- Total Debt 857,932 733,094 Less Current Maturities 4,798 4,812 - ------------------------------------------------------------------- Total Long-Term Debt $853,134 $728,282 ===================================================================
CREDIT AGREEMENT - In connection with the 1996 combination with Transocean ASA, the Company entered into a secured credit agreement dated as of July 30, 1996 with a group of banks led by ABN AMRO Bank, N.V. (the "Credit Agreement"). The Credit Agreement, as subsequently amended, provides for unsecured borrowing by the Company under a revolving credit facility in the amount of $540 million (the "Revolving Credit Facility"). Loans under the Credit Agreement bear interest, at the option of the Company, at a base rate or LIBOR plus a margin (0.25 percent at September 30, 1998) that varies depending on the Company's funded debt to total capital ratio or its public senior unsecured debt rating. In May 1998, the Credit Agreement was amended to remove certain restrictions that affected borrowing capability, allow for additional indebtedness subject to financial covenants, and enable the Company to grant liens on new assets to secure additional indebtedness. PROJECT FINANCING AGREEMENT - In connection with the on-going construction of the Discoverer Enterprise and the completed upgrade of the Transocean Amirante, the Company's wholly owned subsidiary, Transocean Enterprise Inc. (the "Borrower"), obtained a project financing agreement effective December 27, 1996 from a group of banks led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement"). Approximately $338.7 million is available for drawdowns during the construction period and is available in two tranches. The first tranche of $66.0 million is to be repaid upon completion of construction and acceptance of the two rigs by Amoco Exploration and Production Company ("Amoco"), which is contracting the rigs for a period of up to five years following completion. It bears an interest rate of LIBOR plus a margin of 0.35 percent. The Company expects to lend Transocean Enterprise Inc. the necessary funds to repay the $66.0 million through borrowing under the Revolving Credit Facility. The second tranche of up to $272.7 million (of which $130.2 million in borrowings were outstanding as of September 30, 1998) bears an interest rate of LIBOR plus 0.85 percent during the construction period and is convertible to term financing upon completion of construction and acceptance of the two rigs by Amoco. The term financing, which is to be repaid out of cash flows from the two drilling units, matures over a period of five years. The Company expects the term financing to consist of borrowings under a lease securitization facility provided by the agent at a floating interest rate (which has been converted to a fixed rate by the interest rate swap transactions described below) plus a margin of 0.28 percent for amounts fully amortized by cash flows from the Amoco contracts and a margin of 0.58 percent for remaining amounts, if any. 7 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Project Financing Agreement requires acceptance of the two drilling units by Amoco, repayment of the first tranche and conversion of the second tranche to term financing no later than December 31, 1998. Due to construction delays, the Discoverer Enterprise is not expected to be completed until late in the first quarter of 1999, and could be delayed into the second quarter of 1999. The Transocean Amirante was accepted by Amoco and commenced operations in July 1997. The Borrower currently is in the process of amending the Project Financing Agreement to accommodate these construction delays. During the third quarter of 1998, Transocean Enterprise Inc. amended the terms of its two interest rate swap transactions, which effectively lock in a fixed interest rate for the term financing under the Project Financing Agreement, to adjust the payment schedule for the anticipated construction delays. In connection with the amendment, the fixed rate Transocean Enterprise Inc. will pay increased from an average of 6.4 percent to 6.545 percent. The variable interest rates Transocean Enterprise Inc. will receive in the swap transactions has decreased from an average of 5.7 percent as of December 31, 1997 to 5.2 percent as of September 30, 1998. The net unrealized loss on the interest rate swaps is $11.1 million as of September 30, 1998. NOTE 4 - TERMINATION OF CASH FLOW SHARING AGREEMENT The Company and Global Marine Inc. ("Global Marine") were parties to an agreement pursuant to which the Company participated in the cash flow from three jackup drilling rigs owned and operated by Global Marine and Global Marine participated in the cash flow from one of the Company's jackup drilling rigs, the Transocean Nordic. During April 1997, Global Marine initiated arbitration proceedings against the Company in the United Kingdom with respect to various disputed matters under the agreement. In March 1998, the Company reached an agreement with Global Marine that terminated the cash flow sharing agreement, effective February 1, 1998, with certain continuing rights if any of the rigs are sold within three years, and settled all disputed matters. Under the terms of this agreement, the Company received $29.8 million in cash in settlement of outstanding accounts receivable and to terminate the cash flow sharing agreement, resulting in an after tax gain of $13.8 million, or $0.14 per share, diluted. 8 TRANSOCEAN OFFSHORE INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5 - EARNINGS PER SHARE The reconciliation of the numerator and denominator used for the computation of basic and diluted earnings per share is as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------- -------------------- 1998 1997 1998 1997 -------- -------- --------- -------- (In thousands, except per share data) Net Income for basic and diluted earnings per share $ 92,929 $ 39,119 $240,150 $ 94,744 ================================================================================================ Weighted-average shares for basic earnings per share 100,283 101,280 100,015 101,545 Effect of dilutive securities Employee stock options and unvested stock grants 586 1,527 846 1,503 - ------------------------------------------------------------------------------------------------ Adjusted weighted-average shares and assumed conversions for diluted earnings per share 100,869 102,807 100,861 103,048 ================================================================================================ Basic earnings per share $ 0.93 $ 0.39 $ 2.40 $ 0.93 ================================================================================================ Diluted earnings per share $ 0.92 $ 0.38 $ 2.38 $ 0.92 ================================================================================================
NOTE 6 - BUSINESS DIVESTITURES In August 1998, the Company sold certain non-core assets within its drilling services line of business to a subsidiary of Dailey International Inc. for $10.0 million in cash, resulting in a pre-tax gain of approximately $8.2 million ($5.3 million after tax or $0.05 per share, diluted). In May 1997, the Company divested certain non-core activities and associated assets within its drilling services line of business originally acquired in the 1996 combination with Transocean ASA by selling the shares of a new corporate entity, Procon Offshore ASA, to investors in Norway. The divestiture had no material effect on the financial results of the Company. The net proceeds from the sale were approximately $105.6 million, goodwill was reduced by approximately $68.7 million and no gain or loss was recognized on the sale. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in connection with the information contained in the Company's consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. OVERVIEW Transocean Offshore Inc. is a leading international provider of deepwater and harsh-environment contract drilling services for oil and gas wells. The Company currently owns, has ownership interests in or operates 31 mobile offshore drilling rigs (including one unit not yet in service). Transocean's fleet consists of seven fourth-generation semisubmersibles, fourteen second- and third-generation semisubmersibles, four drillships and six jackup rigs. In addition, the Company has under construction two new technologically advanced, ultra-deepwater drillships. The Company contracts these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill offshore wells. The Company also provides additional drilling services, including turnkey drilling, coiled tubing drilling and well engineering and planning. In September 1997, the Company effected a two-for-one split of its common stock in the form of a 100 percent stock dividend. All references in this report to number of shares and per share amounts have been retroactively restated to reflect the increased number of shares of common stock issued and outstanding as a result of the dividend. 10 OPERATING RESULTS Comparative data relating to the Company's operating revenues and operating income by segment and geographic area follows. In the table and related discussion below, the "Mobile Units" segment consists of the results of operations for drilling rigs contracted to customers primarily on a dayrate basis. The "Drilling Services" segment includes results of all other drilling services provided by the Company, including turnkey operations. Certain reclassifications have been made to prior period amounts to conform with the current period's presentation.
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- (In thousands) OPERATING REVENUES (a) Mobile Units U.S. Gulf of Mexico $ 77,075 $ 61,106 $208,938 $147,083 North Sea and Europe 115,905 86,757 339,012 254,548 Other Western Hemisphere 42,694 2,844 108,787 12,549 Other Eastern Hemisphere 16,958 21,514 48,224 59,493 - --------------------------------------------------------------------------------- 252,632 172,221 704,961 473,673 - --------------------------------------------------------------------------------- Drilling Services 16,370 50,980 73,931 177,237 - --------------------------------------------------------------------------------- Total Revenues $269,002 $223,201 $778,892 $650,910 ================================================================================= OPERATING INCOME (LOSS) (b) Mobile Units U.S. Gulf of Mexico $ 48,871 $ 36,479 $127,782 $ 85,560 North Sea and Europe 43,108 21,832 119,274 46,280 Other Western Hemisphere 25,050 638 63,011 4,053 Other Eastern Hemisphere 10,705 10,091 26,451 28,345 Other (3,531) (3,045) (9,105) (8,322) - --------------------------------------------------------------------------------- 124,203 65,995 327,413 155,916 - --------------------------------------------------------------------------------- Drilling Services 2,632 1,492 7,272 11,050 Corporate Expenses (6,544) (6,548) (21,873) (19,338) - --------------------------------------------------------------------------------- Operating Income $120,291 $ 60,939 $312,812 $147,628 =================================================================================
(a) Intersegment eliminations are not material. (b) Amounts shown are after applicable depreciation and amortization. 11 QUARTER ENDED SEPTEMBER 30, 1998, COMPARED TO QUARTER ENDED SEPTEMBER 30, 1997 Net income for the quarter ended September 30, 1998 was $92.9 million or $0.92 per share, diluted, compared to $39.1 million or $0.38 per share, diluted, for the third quarter of 1997, an increase of $53.8 million or $0.54 per share, diluted. The increase for 1998 resulted primarily from increases in dayrates and rig utilization and lower operating and maintenance costs. In August 1998, the Company also recognized a non-recurring $13.2 million pre-tax gain ($8.5 million after tax or $0.08 per share, diluted) on the sale of certain non-core assets within the Company's Drilling Services business segment and surplus drilling components. Revenues were $269.0 million for the quarter ended September 30, 1998, compared to $223.2 million for the prior year quarter, an increase of $45.8 million or 21 percent. Operating income was $120.3 million in the third quarter of 1998 compared to $60.9 million in the third quarter of 1997, an increase of $59.4 million or 98 percent. Revenues and operating income from Mobile Units increased significantly in the third quarter of 1998, compared to the prior year quarter. Rig utilization increased to 98 percent in the third quarter of 1998 from 91 percent in the third quarter of 1997, reflecting reduced downtime for rig repairs and upgrades. The average dayrate for the Company's semisubmersible drilling rigs and drillships was approximately $124,800 in the third quarter of 1998, compared to approximately $96,700 in the third quarter of 1997, an increase of 29 percent. The Company's jackup drilling rigs experienced a similar percentage increase in average dayrates. In the U.S. Gulf of Mexico, the increase in revenues and operating income resulted primarily from higher average dayrates and the results of two additional rigs that were in the shipyard undergoing upgrades in the prior year quarter. These increases were offset by the relocation of a rig to Trinidad during the second quarter of 1998. In the North Sea and Europe, increases resulted from higher average dayrates and lower downtime for repairs and marine surveys compared to the prior period. In addition, the prior year period included the impact of a work stoppage in September 1997 by offshore workers, which affected three rigs operating in Norway. Operating results in Other Western Hemisphere significantly increased in the current quarter due to higher average dayrates, the relocation of two rigs from the U.S. Gulf of Mexico, including one that was in the shipyard during the prior year quarter, the relocation of one rig that had operated in Other Eastern Hemisphere in 1997, and the inclusion of results from one rig that had operated in an unconsolidated joint venture in the prior year. Other Eastern Hemisphere experienced a decrease in revenues from 1997 as a result of the relocation of a rig to Other Western Hemisphere in the first quarter of 1998. This decrease was partially offset by increases in rig utilization and average dayrates for the current period. Revenues from Drilling Services decreased and operating income increased slightly in the third quarter of 1998, compared to the prior year quarter. The decrease in revenue primarily reflects the completion of one turnkey well offshore Mexico and one turnkey well in the Gulf of Mexico during the third quarter 1997 while the current year period does not include any turnkey well completions. Depreciation and amortization expense increased by $3.3 million in the three month period ending September 30, 1998 over the same period in 1997. The increase was due primarily to additional depreciation resulting from the capitalization of property and equipment associated with the Company's major upgrade and construction projects. Other income increased to $11.5 million in the three month period ending September 30, 1998, compared to other expense of $3.0 million in the prior year. In the current quarter, the Company recognized a $13.2 12 million pre-tax gain on the sale of certain non-core assets within its Drilling Services business segment and surplus drilling equipment. Income tax expense increased by $20.0 million due primarily to higher pre-tax earnings in the third quarter of 1998 over the same period in 1997. The Company's effective tax rate was lower in the third quarter of 1998 compared to the same period in 1997 due to an increase in the permanent reinvestment of earnings of certain foreign subsidiaries. NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1997 Net income for the nine months ended September 30, 1998 was $240.2 million or $2.38 per share, diluted, compared to $94.7 million or $0.92 per share, diluted, for the first nine months of 1997, an increase of $145.5 million or $ 1.46 per share, diluted. The increase for 1998 resulted primarily from increases in dayrates and rig utilization and lower operating and maintenance costs, partially offset by an increase in depreciation and amortization expense. The Company also recognized a one-time $21.3 million pre-tax gain ($13.8 million after tax or $0.14 per share, diluted) on the termination of a cash flow sharing agreement with Global Marine Inc. ("Global Marine") and a non-recurring $13.2 million pre-tax gain ($8.5 million after tax or $0.08 per share, diluted) on the sale of certain non-core assets within the Company's Drilling Services business segment and surplus drilling components in the current period. Revenues were $778.9 million for the nine months ended September 30, 1998, compared to $650.9 million for the first nine months of 1997, an increase of $128.0 million or 20 percent. Operating income was $312.8 million in 1998 compared to $147.6 million in 1997, an increase of $165.2 million or 112 percent. Revenues and operating income from Mobile Units increased significantly for the nine months ended September 30, 1998, compared to the first nine months of 1997. Rig utilization increased to 98 percent in 1998 from 91 percent in the first nine months of 1997, reflecting reduced downtime for rig repairs and upgrades. The average dayrate for the Company's semisubmersible drilling rigs and drillships was approximately $118,200 in 1998, compared to approximately $91,900 in the first nine months of 1997, an increase of 29 percent. The Company's jackup drilling rigs experienced a similar percentage increase in average dayrates. In the U.S. Gulf of Mexico, the increase in revenues and operating income for the nine months ended September 30, 1998 resulted primarily from higher average dayrates and the results of three additional rigs that were in the shipyard undergoing upgrades for a significant portion of the prior year period. These increases were offset by the relocation of a rig to Trinidad during the current year. In the North Sea and Europe, increases resulted from higher average dayrates and lower downtime for repairs and marine surveys over the prior period. Operating results in Other Western Hemisphere significantly increased in the current year due to higher average dayrates, the relocation of two rigs from the U.S. Gulf of Mexico for a portion of the current period, including one that was in the shipyard during 1997, the relocation of one rig that had operated in Other Eastern Hemisphere in 1997, and the inclusion of results from one rig that had operated in an unconsolidated joint venture in the prior year. Other Eastern Hemisphere experienced a decrease in operating results from 1997 primarily due to the relocation of a rig to Other Western Hemisphere in the first quarter of 1998. This decrease was partially offset by increases in rig utilization and average dayrates for the current period. Revenues and operating income from Drilling Services decreased for the nine month period ending September 30, 1998, compared to the same period in 1997. This decrease primarily reflects the May 1997 divestiture of certain non-core activities and assets originally acquired in the 1996 combination with 13 Transocean ASA and the cessation of turnkey drilling services in the U.S. Gulf of Mexico in the first quarter of 1998. Depreciation and amortization expense increased by $9.2 million in the nine month period ending September 30, 1998 over the same period in 1997. The increase was due primarily to additional depreciation resulting from the capitalization of property and equipment associated with the Company's major upgrade and construction projects. Corporate expenses increased $2.6 million, from $19.3 million in the first nine months of 1997 to $21.9 million in the current period, reflecting the increased activities of the Company. The previously announced fleet expansion projects require expanded recruiting and training activities for drilling crews. The Company also continues to upgrade and expand its communication and data processing systems to more effectively manage its geographically diversified operations. Other income increased to $27.8 million in the nine month period ending September 30, 1998, compared to other expense of $8.7 million in the prior year. In 1998, the Company recognized $34.5 million in pre-tax gains on the termination of a cash flow sharing agreement with Global Marine and the sale of certain non-core assets within its Drilling Services business segment and surplus drilling equipment. Income tax expense increased by $56.3 million due primarily to higher pre-tax earnings in the nine month period ending September 30, 1998, compared to the prior period. The Company's effective tax rate was lower in the nine months ending September 30, 1998 compared to the same period in 1997 due to an increase in the permanent reinvestment of earnings of certain foreign subsidiaries. MARKET OUTLOOK Fleet utilization continued at high levels in the third quarter of 1998 with a rate of 98% fleetwide and 99% for the Company's 20 fully owned and active floating drilling units. Average dayrates also continued to improve from the second quarter, up approximately 6% fleetwide and up 7% for the Company's floaters, due primarily to several rigs rolling over to higher contract rates and to the Transocean Marianas commencing operations during the third quarter. The backlog of contracts in place for the Company's 20 fully owned and active floaters, averaging 24 months, should enable the Company to maintain similar utilization and average dayrate levels for these units through the first half of 1999. However, the period of lower oil prices that began in the latter part of 1997 has continued and has resulted in a weakening in the market for offshore drilling rigs generally, as oil companies have adjusted exploration and development spending plans to reflect the lower prices and correspondingly reduced cash flow levels. This weakening has been most pronounced in the market for jackups and less capable floaters, but has also begun to have an impact on the market for deepwater and high-specification floaters. Dayrates for these units have begun to decrease from peak levels experienced in recent quarters. The Company anticipates that contracts being negotiated in the near-term for units becoming available through 1999 will be adversely affected by this market weakness. Historically, the contract drilling market has been highly competitive and cyclical and affected significantly by prevailing oil and gas prices. As a result, the Company cannot predict the extent to which current market conditions will continue. Although the continued weakness in oil prices has not materially affected the dayrates and utilization of the Company's rigs as of the date of this quarterly report, to the extent that low oil prices continue to reduce demand for contract drilling services, the Company anticipates that utilization and dayrates for its fleet would be adversely affected. A number of drilling contractors are upgrading existing rigs or constructing new rigs that will be capable of competing with the Company's deepwater and harsh- environment rigs. Although most of these rigs are being 14 built pursuant to long-term contract commitments, there can be no assurance that, upon the expiration of such contracts and the contracts for the Company's rigs, the then-current market conditions will be favorable. Historically, drilling contractors have tended to overbuild drilling units in response to increased demand, and small changes in the supply and demand balance could lead to increased volatility in dayrates. LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES OF CASH Cash flows provided by operations were $287.4 million for the nine months ended September 30, 1998, compared to $121.3 million for the nine months ended September 30, 1997, an increase of $166.1 million. The increase in cash provided by operations was due primarily to higher cash flows from net income in the nine months ending September 30, 1998 compared to the 1997 period, partially offset by a decrease due to changes in working capital components. Cash flows used in investing activities increased $222.0 million from $208.9 million in the nine months ended September 30, 1997 to $430.9 million in the current period. The increase in cash used in investing activities resulted primarily from an increase in capital expenditures relating to rig construction and upgrade projects partially offset by proceeds from disposal of assets. In addition, in the nine months ended September 30, 1997, the Company received proceeds from the divestiture of certain non-core drilling services activities and assets. Cash flows provided by financing activities increased $5.8 million from $114.1 million in the nine months ended September 30, 1997 to $119.9 million in the current year period. During 1998, the Company increased its net borrowings under its revolving credit facility. In the nine months ended September 30, 1997, the Company received proceeds from the sale of a note receivable, the issuance of public debt, and borrowings under its project financing facility. These proceeds were partially offset by the repurchase of Company common stock and net repayments of amounts outstanding under its Credit Agreement referred to below. CAPITAL EXPENDITURES The Company's investments in its existing fleet and previously announced fleet additions continue to require significant capital expenditures. Capital expenditures totaled $458 million during the nine months ending September 30, 1998 and are expected to be approximately $190 million during the remainder of the year, including amounts that will be spent on the construction of the deepwater drillships to be named "Discoverer Spirit" and "Discoverer Deep Seas". 15 The following table summarizes actual and projected expenditures (including capitalized interest) for the Company's major construction and conversion projects.
Transocean Discoverer Discoverer Discoverer Expenditures in millions Marianas Enterprise Spirit Deep Seas - ------------------------ ---------- ---------- ---------- ---------- Cumulative at December 31, 1997 $174 $148 $ - $ - Actual for the nine months ended September 30, 1998 94 109 95 97 - ------------------------------------------------------------------------------------------------- Cumulative at September 30, 1998 268 258 95 97 Projected - quarter ended December 31, 1998 20 55 50 30 Projected - 1999 through completion - 45 175 195 - ------------------------------------------------------------------------------------------------- Projected Total Costs $288 $358 $320 $322 =================================================================================================
The amounts shown for the Discoverer Enterprise include certain costs not expected to be incurred in connection with the construction of the Discoverer Spirit and Discoverer Deep Seas, including: engineering design costs that will not be repeated because the Discoverer Spirit and Discoverer Deep Seas are the same design as the Discoverer Enterprise; lifting and other construction costs that will be contracted on a lump sum basis rather than time and materials; and incremental capitalized interest and administrative costs attributable to project delays, some of which are due to weather and other factors beyond the control of the Company. The Discoverer Enterprise is expected to be completed late in the first quarter of 1999, but could be delayed into the second quarter of 1999. As with any major construction project that takes place over an extended period of time, the actual costs, the timing of expenditures, and the project completion date may vary from estimates based on numerous factors, including finalization of the design, actual terms of awarded contracts, weather, exchange rates, and the market demand for components and resources required for drilling unit construction. The Company intends to fund the cash requirements relating to these capital commitments through available cash balances, borrowings under the Credit Agreement referred to below and other commercial bank or capital market financings, including potential public offerings under the Company's shelf registration statement (discussed below) and, in the case of the Discoverer Enterprise, financing under the Project Financing Agreement referred to below. ACQUISITIONS The Company regularly reviews possible acquisitions of businesses and drilling units, and may from time to time in the future make significant capital commitments for such purposes. Any such acquisition could involve the payment by the Company of a substantial amount of cash and the issuance of a substantial number of shares of common stock. The Company would expect to fund the cash portion of any such acquisition through cash balances on hand, the incurrence of additional debt, sales of assets or common stock, or a combination thereof. TERMINATION OF CASH FLOW SHARING AGREEMENT The Company and Global Marine Inc. ("Global Marine") were parties to an agreement pursuant to which the Company participated in the cash flow from three jackup drilling rigs owned and operated by Global Marine and Global Marine participated in the cash flow from one of the Company's jackup drilling rigs, the Transocean Nordic. In April 1997, Global Marine initiated arbitration proceedings against the Company in the United Kingdom with respect to various disputed matters under the agreement. In March 1998, the Company reached an agreement with Global Marine that terminated the cash flow sharing agreement, 16 effective February 1, 1998, with certain continuing rights if any of the rigs are sold within three years, and settled all disputed matters. Under the terms of this agreement, the Company received $29.8 million in cash in settlement of outstanding accounts receivable and to terminate the cash flow sharing agreement, resulting in an after tax gain of $13.8 million, or $0.14 per share, diluted. The net proceeds were used to repay debt. ASSET DIVESTITURES In August 1998, the Company sold certain non-core assets within its Drilling Services business segment to a subsidiary of Dailey International Inc. for $10.0 million in cash, resulting in a pre-tax gain of approximately $8.2 million ($5.3 million after tax or $0.05 per share, diluted). In addition, the Company sold surplus drilling components for $6.6 million in proceeds, resulting in a non- recurring pre-tax gain of approximately $5.0 million ($3.3 million after tax or $0.03 per share, diluted). The net proceeds were used to repay debt. AUTHORIZED STOCK REPURCHASE In May 1997, the Company's Board of Directors authorized the repurchase of up to $200 million worth of shares of the Company's common stock from time to time on the open market or in privately negotiated transactions. After purchases made during 1997, approximately $105 million remains available under this authority. The Board of Directors regularly reviews the possibility of repurchasing common stock in light of prevailing stock prices and the financial position of the Company. DEBT CREDIT AGREEMENT - In connection with the 1996 combination with Transocean ASA, the Company entered into a secured credit agreement dated as of July 30, 1996 with a group of banks led by ABN AMRO Bank, N.V. (the "Credit Agreement"). The Credit Agreement, as subsequently amended, provides for borrowing by the Company under a revolving credit facility in the amount of $540 million (the "Revolving Credit Facility"). Loans under the Credit Agreement bear interest, at the option of the Company, at a base rate or LIBOR plus a margin (0.25 percent at September 30, 1998) that varies depending on the Company's funded debt to total capital ratio or its public senior unsecured debt rating. The Credit Agreement requires compliance with various restrictive covenants, including an interest coverage ratio, which could limit the Company's ability to pay dividends in the future. The Credit Agreement has a maturity date of July 2002. As of September 30, 1998, $336.1 million in borrowings were outstanding under the Credit Agreement. PROJECT FINANCING AGREEMENT - In connection with the on-going construction of the Discoverer Enterprise and the completed upgrade of the Transocean Amirante, the Company's wholly owned subsidiary, Transocean Enterprise Inc. (the "Borrower"), obtained a project financing agreement effective December 27, 1996 from a group of banks led by ABN AMRO Bank, N.V., as agent (the "Project Financing Agreement"). Approximately $338.7 million is available for drawdowns during the construction period and is available in two tranches. The first tranche of $66.0 million is to be repaid upon completion of construction and acceptance of the two rigs by Amoco Exploration and Production Company ("Amoco"), which is contracting the rigs for a period of up to five years following completion. It bears an interest rate of LIBOR plus a margin of 0.35 percent. The Company expects to lend Transocean Enterprise Inc. the necessary funds to repay the $66.0 million through borrowing under the Revolving Credit Facility. The second tranche of up to $272.7 million (of which $130.2 million in borrowings were outstanding as of September 30, 1998) bears an interest rate of LIBOR plus 0.85 percent during the construction period and is convertible to term financing upon completion of construction and acceptance of the two rigs by Amoco. The term financing, which is to be repaid out of cash flows from the two drilling units, matures over a period of five years. The Company expects the term financing to consist of borrowings under a lease securitization facility provided by the agent at a floating interest rate (which has been converted to a fixed rate by the interest rate swap transactions 17 described below) plus a margin of 0.28 percent for amounts fully amortized by cash flows from the Amoco contracts and a margin of 0.58 percent for remaining amounts, if any. As of September 30, 1998, $196.2 million in borrowings were outstanding under the Project Financing Agreement. The Project Financing Agreement requires acceptance of the two drilling units by Amoco, repayment of the first tranche and conversion of the second tranche to term financing no later than December 31, 1998. Due to construction delays, the Discoverer Enterprise is not expected to be completed until late in the first quarter of 1999, and could be delayed into the second quarter of 1999. The Transocean Amirante was accepted by Amoco and commenced operations in July 1997. The Borrower currently is in the process of amending the Project Financing Agreement to accommodate these construction delays. During the third quarter of 1998, Transocean Enterprise Inc. amended the terms of its two interest rate swap transactions, which effectively lock in a fixed interest rate for the term financing under the Project Financing Agreement, to adjust the payment schedule for the anticipated construction delays. In connection with the amendment, the fixed rate Transocean Enterprise Inc. will pay increased from an average of 6.4 percent to 6.545 percent. The variable interest rates Transocean Enterprise Inc. will receive in the swap transactions has decreased from an average of 5.7 percent as of December 31, 1997 to 5.2 percent as of September 30, 1998. The net unrealized loss on the interest rate swaps is $11.1 million as of September 30, 1998. LETTERS OF CREDIT The Company had letters of credit outstanding at September 30, 1998 totaling $35.8 million, including $28.2 million relating to a legal dispute with Kvaerner Installasjon a.s (see Part II. Item 1. Legal Proceedings). The remaining $7.6 million guarantees various insurance and contract bidding activities. SHELF REGISTRATION In July 1998, the Company filed with the Securities and Exchange Commission (the "SEC") a $450 million shelf registration statement on Form S-3 for the proposed offering from time to time of senior or subordinated debt securities, preferred stock, common stock and warrants to purchase debt securities, preferred stock, common stock or other securities. The registration statement was declared effective by the SEC on July 20, 1998. The new registration statement effectively amends and carries forward the unused portion of the Company's prior registration statement on Form S-3 without registering any additional amount of securities. DERIVATIVE INSTRUMENTS The Company enters into a variety of derivative financial instruments in connection with the management of its exposure to fluctuations in foreign exchange rates and interest rates. The Company does not enter into derivative transactions for speculative purposes; however, for accounting purposes certain transactions may not meet the criteria for hedge accounting. Gains and losses on foreign exchange derivative instruments, which qualify as accounting hedges, are deferred and recognized when the underlying foreign exchange exposure is realized. Gains and losses on foreign exchange derivative instruments, which do not qualify as hedges for accounting purposes, are recognized currently based on the change in market value of the derivative instruments. At September 30, 1998, the Company did not have any foreign exchange derivative instruments not qualifying as hedges. The Company recognized a net pre-tax loss of $1.5 million on such instruments for the nine months ended September 30, 1997. 18 The Company uses interest rate swap agreements to effectively convert a portion of its floating rate debt to a fixed rate basis, reducing the impact of interest rate changes on future income. Interest rate swaps are designated as a hedge of underlying future interest payments. The interest rate differential to be received or paid on the swaps is recognized over the lives of the swaps as an adjustment to interest expense. At September 30, 1998, the net unrealized loss on open interest rate swaps was $11.1 million. (See "--Liquidity and Capital Resources--Debt--Project Financing Agreement".) SOURCES OF LIQUIDITY The Company believes that its cash and cash equivalents, cash generated from operations, borrowings available under its Credit Agreement, Project Financing Agreement and access to other financing sources will be adequate to meet its anticipated short-term and long-term liquidity requirements, including scheduled debt repayments and capital expenditures for new rig construction, upgrade and conversion projects. NEW ACCOUNTING PRONOUNCEMENTS In February 1998, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standards ("SFAS") No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. This Statement revises employers' disclosures about pension and other postretirement benefit plans in annual financial statements. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company adopted this standard in the first quarter of 1998. In March 1998, the Accounting Standards Executive Committee issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement provides guidance on accounting for the costs of software developed or obtained for internal use and is effective for fiscal years beginning after December 15, 1998. The Company will adopt this standard in the first quarter of 1999. Its adoption is not expected to have a material effect on the Company's financial statements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in fiscal years beginning after June 15, 1999. Because of the Company's limited use of derivatives to manage its exposure to fluctuations in foreign exchange rates and interest rates, management does not anticipate that the adoption of the new Statement will have a significant effect on earnings or the financial position of the Company. YEAR 2000 ISSUE The Company has instituted a plan to address the Year 2000 issue for its computer systems, microprocessors, operational and control systems and other significant computer-based devices and applications. It is possible that certain of these systems will not be able to process dates beginning in the year 2000, as many such systems are based on storing two digits to identify a particular year rather than a full four digits and are not designed to take into account the start of a new century. The Company's plan focuses on ensuring Year 2000 compliance in two distinct areas--(1) rig-based operational systems and control devices and (2) all other business, financial and engineering systems, including third-party systems that the Company may rely on. The plan is being implemented under the direction of senior management by the Company's information systems and technology personnel and operations personnel with appropriate expertise, with the goal of ensuring compliance of critical systems during the second half of 1999. With respect to rig-based systems, the Company has instituted an ongoing compliance procedure that includes an initial survey followed by analysis, vendor participation, corrective action, testing and continuous 19 reappraisal. The Company conducted a survey of computer systems, computer- controlled equipment, control systems, and electronic devices, including equipment with embedded microprocessors, onboard each rig to identify those systems and devices to be reviewed for Year 2000 compliance. The Company has requested letters of compliance from its third-party vendors and suppliers and, in addition, is conducting its own tests where possible to verify compliance. Critical systems and devices identified by the survey that are likely to be affected by the Year 2000 issue are in the process of being modified or replaced. A number of these systems and devices had already been identified for renewal or replacement in connection with the Company's ongoing maintenance programs. In some cases, systems or equipment may be covered by warranties, while other vendors are providing software upgrades at minimal costs. The Company believes its Year 2000 compliance plan has adequately identified and addressed Year 2000 issues with respect to critical operational and safety systems and devices. The Company's drilling units are composed of many stand- alone systems provided by a wide diversity of manufacturers. As such, the Company believes the risk of a failure that would affect the functionality or safety of the fleet is minimal, and the Company does not believe that the Year 2000 issue will have a significant effect on the operations of its drilling units. The Company expects to complete implementation of its compliance plan for rig-based systems during the second half of 1999. With respect to business, financial and engineering systems, the Company surveyed all of its internal systems worldwide and identified those software and hardware systems determined not to be Year 2000 compliant. Letters of compliance are being obtained from all vendors of standard systems, and the Company plans to conduct tests of selected systems to provide an enhanced degree of confidence for Year 2000 compliance. Replacement or modification of known non-compliant systems has commenced, and the Company expects to complete this process during the second half of 1999. In addition to its internal systems, the Company also relies, directly and indirectly, on the systems of third parties, such as its banks and investment managers, for the accurate exchange of data and for financial processing capabilities. The Company is contacting these third parties to determine what actions may be needed to mitigate its risks relating to the failure of such third parties to be Year 2000 compliant in a timely fashion. The effect, if any, on the Company's results of operations arising from the failure of these third parties to be Year 2000 compliant is not reasonably estimable at this time. The Company has spent approximately $0.5 million through September 30, 1998 and expects additional expenditures to be less than $1 million to complete implementation of its Year 2000 plan. The Company is in the process of evaluating where contingency plans may be required in the event of Year 2000 related disruptions. Although the Company's failure to fully implement its Year 2000 compliance plan or the occurrence of an unexpected Year 2000 problem could result in the disruption of normal business activities or operations and have a material adverse effect on the Company's results of operations, liquidity or financial condition, based upon the work performed to date and the anticipated completion of the plan during the second half of 1999, the Company does not believe that such matters will have a material adverse effect. With respect to third parties, however, there can be no assurance that their systems will be rendered Year 2000 compliant on a timely basis or that any resulting Year 2000 issues would not have an adverse effect on the results of operations of the Company. FORWARD-LOOKING INFORMATION The statements included in this quarterly report regarding future financial performance and results of operations and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements to the effect that the Company or management "anticipates," "believes," "estimates," "expects," "predicts," or "projects" a particular result or course of events, or that such result or course of events "may" or "should" occur, and similar expressions, are also intended to identify forward- looking statements. Forward-looking statements in this quarterly report include, but are not limited to, statements 20 involving expected capital expenditures, the timing of completion of capital projects, the Company's plans and expectations with regard to Year 2000 issues, the expected amendment of the Project Financing Agreement and the Company's expectations with regard to market outlook. Such statements are subject to numerous risks, uncertainties and assumptions, including but not limited to uncertainties relating to industry and market conditions, prices of crude oil and natural gas, exploration success by producers in deepwater and harsh- environment regions, foreign exchange and currency fluctuations, changes in existing tax laws, political instability in foreign jurisdictions, construction delays due to weather and other causes, the labor market for skilled personnel in the offshore drilling industry, the outcome of annual labor negotiations with unions representing certain Norwegian offshore workers, the success of the Company in implementing its Year 2000 compliance plan, the failure of financial and other service providers to be Year 2000 complaint on a timely basis, and other factors discussed in this quarterly report and in the Company's other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Debt--Project Financing Agreement" and "--Liquidity and Capital Resources--Derivative Instruments." 21 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company has certain claims pending involving a dispute of work performance by and amounts owed to the Kvaerner shipyard in Norway and contested tax assessments by the municipality of Rio de Janeiro, Brazil. These matters have been previously discussed and reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. With respect to the Kvaerner dispute, the Company has now instituted an action in the Norwegian courts alleging that it owes no additional amounts and that the $28.2 million letter of credit outstanding should be released. Other than as stated herein, there have been no material developments in these previously reported matters. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed in connection with this Report:
NUMBER DESCRIPTION - ------ ----------- 10.1 Employment Agreement dated as of August 12, 1998 between Alan A. Broussard and Transocean Offshore Inc. 10.2 Deferred Compensation Plan of Transocean Offshore Inc. effective July 1, 1998. 27.1 Financial Data Schedule. - -------------------
(b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ending September 30, 1998. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 12, 1998. TRANSOCEAN OFFSHORE INC. By: /s/ Robert L. Long ------------------------------------ Robert L. Long Senior Vice President (Principal Financial Officer) 23 EX-10.1 2 EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT by and between Transocean Offshore Inc., a Delaware corporation (the "Company"), and Alan B. Broussard (the "Executive"), dated as of the 12th day of August, 1998. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common 2 stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120- day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. 3 (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that, to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the 4 Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under the Company's Performance Award and Cash Bonus Plan, or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any 5 time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120- day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 6 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) The willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties; or (ii) The willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the 7 advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) The assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) Any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) The Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) Any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) Any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. 8 For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: 9 (i) The Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the higher of (1) the Recent Annual Bonus and (11) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified defined benefit retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Supplemental Retirement Plan immediately prior to the Effective Date and assuming benefits commence at age 65), and any excess or supplemental retirement plan in which the Executive participates (together, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the 10 Retirement Plan and the SERP as of the Date of Termination; (ii) Should the Executive move his residence in order to pursue other business opportunities within three years of the Date of Termination (or until his normal retirement date, whichever is sooner), the Company shall reimburse him for any expenses incurred in that relocation (including taxes payable on the reimbursement) which are not reimbursed by another employer; provided, however, that the Executive shall be entitled to such reimbursement with respect to only one such relocation, the Executive shall be entitled to specify the relocation for which reimbursement hereunder is to be made. Benefits under this provision will include the assistance, at no cost to the Executive, in selling his home and other assistance which was customarily provided to executives transferred within the Company or between the Company and its subsidiaries prior to the Effective Date; (iii) For three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iv) The Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and 11 (v) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter 12 generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program, or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate 13 provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young, L.L.P. or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting 14 Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) Give the Company any information reasonably requested by the Company relating to such claim; (ii) Take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company; (iii) Cooperate with the Company in good faith in order effectively to contest such claim; and (iv) Permit the Company to participate in any proceedings relating to such claim; 15 provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 16 10. Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or 17 modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Alan B. Broussard 277 Sugarberry Circle Houston, Texas 77024 If to the Company: Transocean Offshore Inc. 4 Greeenway Plaza Houston, Texas 77046 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the 18 Company is "at will" and, subject to Section 1 (a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. --------------------------------------- Alan B. Broussard TRANSOCEAN OFFSHORE INC. By: ------------------------------------ J. Michael Talbert Chairman 19 EX-10.2 3 DEFERRED COMPENSATION PLAN EXHIBIT 10.2 TRANSOCEAN OFFSHORE INC. DEFERRED COMPENSATION PLAN THIS PLAN, made and executed at Houston, Texas by TRANSOCEAN OFFSHORE INC., a Delaware corporation (the "Company"), is being established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees of the Company and its participating affiliates and for the purpose of providing non-employee members of the Board of Directors of the Company the ability to defer receipt of all or part of their compensation from the Company. ARTICLE I. DEFINITIONS Section 1.1 Definitions. Unless the context clearly indicates otherwise, when used in this Plan: (a) "Account" means a Participant's Deferral Account and/or Employer Account, as the case may be. (b) "Adjustment Date" means the last day of each calendar quarter and such other dates as the Administrative Committee in its discretion may prescribe. (c) "Affiliated Company" means any corporation or organization which together with the Company would be treated as a single employer under Section 414 of the Code. (d) "Administrative Committee" means the committee designated pursuant to Section 2.1 to administer this Plan. (e) "Change of Control" means: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1.1(e); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Company" means TRANSOCEAN OFFSHORE INC., a Delaware corporation, and its successors. (h) "Compensation Committee" means the Compensation Committee of the Board of Directors of the Company. 2 (i) "Deferral Account" means the account established and maintained on the books of an Employer to record a Participant's interest under this Plan attributable to amounts credited to such Participant pursuant to Sections 3.1, 3.2, 3.3 and/or 3.5. (j) "Director" means a member of the Board of Directors of the Company who is not also an Employee; provided, however, that no Director who is not already a member of the Board of Directors of the Company immediately prior to a Change of Control shall become eligible to participate in this Plan upon or after a Change of Control. (k) "Effective Date" means July 1, 1998. (l) "Election Period" means (i) such period immediately prior to the beginning of a Plan Year (or, with respect to the Short Plan Year, the period immediately prior to the Effective Date) specified by the Administrative Committee for the making of deferral elections for such Plan Year pursuant to Sections 3.1, 3.2 and/or 3.5, (ii) for purposes of Sections 3.1 and 3.5, solely with respect to individuals who first become Eligible Employees or Directors after the beginning of a Plan Year (or Short Plan Year), the period of 30 days (or shorter period as may be prescribed by the Administrative Committee) beginning on the date such individual becomes an Eligible Employee or Director, as the case may be, (iii) with respect to deferral elections pursuant to Section 3.3, such period determined in accordance with Section 3.3, or (iv) with respect to a Participant whose Account is credited with an Employer contribution or who has entered into a Deferred Compensation Award Agreement pursuant to Section 3.4 prior to making any deferral election pursuant to this Plan, the period immediately prior to the date such Employer contribution is credited or such Deferred Compensation Award Agreement is signed by the Participant as may be specified by the Administrative Committee). (m) "Eligible Employee" means any Employee who is one of a select group of management or highly compensated employees and (i) whose annual base salary equals or exceeds $125,000, or 3 (ii) whose annual base salary equals or exceeds $100,000 and whose position is of significant impact on the operations of his or her Employer as determined by the Administrative Committee in its absolute discretion; provided, however, that no Employee who is not already an Eligible Employee immediately prior to a Change of Control shall become eligible to participate in this Plan upon or after a Change of Control. (n) "Employee" means an employee of an Employer. (o) "Employer" includes the Company and any Affiliated Company which adopts this Plan with the consent of the Compensation Committee in accordance with Section 6.5. (p) "Employer Account" means the account established and maintained on the books of an Employer to record an Employee Participant's interest under this Plan attributable to amounts credited to such Participant pursuant to Section 3.4. (q) "Net Amount Payable" means the gross amount payable to a Participant by the Company or other Employer absent a deferral election under this Plan minus all amounts to be deducted from the gross amount other than income tax withholding, amounts deferred under a cash or deferred arrangement subject to Section 401(k) of the Internal Revenue Code and deferrals under this Plan. (r) "Participant" means a Director, former Director, Eligible Employee or former Eligible Employee for whom an Account is being maintained under this Plan. (s) "Plan" means this Transocean Offshore Inc. Deferred Compensation Plan, as in effect from time to time on and after the Effective Date. (t) "Plan Year" means each calendar year commencing after the Short Plan Year. (u) "Short Plan Year" means the period commencing on the Effective Date and ending on December 31, 1998. (v) "Termination Date" means with respect to an Employee Participant, the termination of employment with an Employer or Affiliated Company for any reason other than death or transfer to employment with another Employer or Affiliated Company, and with respect to a Director Participant, the termination of service as a Director of the Company. 4 ARTICLE II. PLAN ADMINISTRATION Section 2.1 Administrative Committee. This Plan shall be administered by an Administrative Committee composed of at least three individuals appointed by the Compensation Committee. Each member of the Administrative Committee so appointed shall serve in such office until his or her death, resignation or removal by the Compensation Committee. The Compensation Committee may remove any member of the Administrative Committee at any time by giving written notice thereof to the members of the Administrative Committee. Vacancies shall likewise be filled from time to time by the Compensation Committee. The Administrative Committee shall have discretionary and final authority to interpret and implement the provisions of the Plan, including without limitation, authority to determine eligibility for benefits under the Plan. The Administrative Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Administrative Committee may adopt such rules and procedures for the administration of the Plan as are consistent with the terms hereof and shall keep adequate records of its proceedings and acts. Every interpretation, choice, determination or other exercise by the Administrative Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Plan or otherwise directly or indirectly affected by such action, without restriction, however, on the right of the Administrative Committee to reconsider and redetermine such action. Section 2.2 Appointment of Independent Committee. (a) Upon a Change of Control, an Independent Committee consisting of at least three members shall be appointed by the Compensation Committee subject to the written approval of a majority of the Participants in the Plans on the date of such Change of Control. Each member of the Independent Committee so appointed shall serve in such office until his or her death, resignation or removal. The Compensation Committee may remove any member of the Independent Committee by giving written notice thereof to all Plan Participants and all members of the Independent Committee; provided, however, that no member of the Independent Committee may be removed by the Compensation Committee except with the written consent of a majority of the Plan Participants. Vacancies on the Independent Committee shall be filled from time to time by the Compensation Committee subject to the written approval of a majority of the Participants in the Plans on the date such vacancy is filled. (b) The Independent Committee shall act by a majority of its members at the time in office and such action may be taken either by a vote at a meeting or in writing without a meeting. The Independent Committee may by such majority action authorize any one or more of its members to execute any document or documents on behalf of the Independent Committee. Every interpretation, choice, determination or other exercise by the Independent Committee of any power or discretion given either expressly or by implication to it shall be conclusive and binding upon all parties having or claiming to have an interest under the Plan or otherwise directly or indirectly affected by such action, 5 without restriction, however, on the right of the Independent Committee to reconsider and redetermine such action. (c) Any provision of this Plan to the contrary notwithstanding, in the event that (i) the Compensation Committee shall not appoint an Independent Committee within 30 days following a Change of Control or a majority of the Participants in the Plans do not approve in writing at least three members selected by the Compensation Committee to serve on an Independent Committee within such 30-day period or (ii) the Compensation Committee does not fill a vacancy on the Independent Committee within 30 days of the date such office becomes vacant or a majority of the Participants in the Plans do not approve in writing the Compensation Committee's selection to fill a vacancy on the Independent Committee within such 30-day period, then the Participants in the Plans shall elect, by majority vote, up to three individuals to the extent necessary to ensure that the Independent Committee consists of three members. (e) Any provision of this Plan to the contrary notwithstanding, on and after the date of a Change of Control, the Independent Committee appointed in accordance with this Section shall be responsible for the administration of this Plan and shall have all of the powers, duties, responsibilities and obligations of the Administrative Committee as provided hereunder. In addition, the Independent Committee shall determine the amount of the irrevocable contributions to be made by the Company to the Deferred Compensation Trust established in accordance with Section 6.2 hereof, and have all authority otherwise allocated to the Administrative Committee under the terms of said Deferred Compensation Trust to determine the entitlement of Plan Participants and beneficiaries to benefits under the terms of the Plan, the amounts payable with respect to each Plan Participant (and his or her beneficiaries), the form in which such amounts are to be paid and the time of commencement for payment of such amounts, and to direct the trustee of the Deferred Compensation Trust to make payments to Plan Participants and their beneficiaries in accordance with such determinations. 6 ARTICLE III. DEFERRED COMPENSATION PROVISIONS Section 3.1 Base Salary Deferral Election. During the Election Period prior to the beginning of each Plan Year (and the Short Plan Year), or with respect to a new Eligible Employee the Election Period during a Plan Year (or the Short Plan Year), an Eligible Employee may elect to have the payment of an amount of up to 90% of the annual base salary otherwise payable by an Employer to such Eligible Employee for such Plan Year (or the Short Plan Year), but not in excess of the Net Amount Payable of such base salary, deferred for payment in the manner and at the time specified in Article IV; provided, however, that the Administrative Committee may in its discretion establish a minimum amount that an Eligible Employee may elect to defer for a Plan Year (or the Short Plan Year) pursuant to this Section 3.1. The amount of annual base salary a Participant elects to defer pursuant to this Section 3.1 shall be deducted from the Participant's pay in substantially equal amounts over all pay periods during the Plan Year (or Short Plan Year). All elections made pursuant to this Section 3.1 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable; provided, however, that effective as of the first day of any calendar quarter during a Plan Year, an Eligible Employee may revoke his or her deferral election and thereby suspend further salary deferrals for the remainder of such Plan Year by providing written notice thereof to the Administrative Committee no later than 15 days prior to the effective date of such suspension. Any Eligible Employee who so suspends his or her salary deferrals pursuant to this Section shall not be permitted to elect future salary deferrals pursuant to this Section to be effective earlier than the first day of the next Plan Year. Section 3.2 Performance Award Cash Bonus Deferral Election. During the Election Period prior to the beginning of each Plan Year (but not the Short Plan Year), an Eligible Employee may elect to have the payment of an amount up to 100% of any future bonus otherwise payable pursuant to the Performance Award Cash Bonus Plan by an Employer with respect to services to be performed by such Eligible Employee during such Plan Year, but not in excess of the Net Amount Payable of such bonus, deferred for payment in the manner and at the time specified in Article IV; provided, however, that the Administrative Committee may in its discretion establish a minimum amount that an Eligible Employee may elect to defer for a Plan Year pursuant to this Section 3.2. All elections made pursuant to this Section 3.2 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable. Section 3.3 Special Payment Deferral Election. In addition to the above, during the Election Period prescribed pursuant to this Section, an Eligible Employee may elect to have the payment of an amount of up to 100% of any bonus or other special payment as may be designated by the Chief Executive Officer of the Company (or with respect to amounts otherwise payable to the Chief Executive Officer of the Company, designated by the Chairman of the Compensation Committee) otherwise payable by an Employer with respect to such Eligible Employee, but not in excess of the Net Amount Payable of such bonus or special payment, deferred for payment in the manner and at the time specified in Article IV with the deferral election to be made in the manner and during the Election Period prescribed by the Chief Executive Officer of the Company (or with respect to amounts otherwise payable to the Chief Executive Officer of the Company, the Chairman of the Compensation Committee); provided, however, that any such election must be made in writing by the Eligible Employee prior to the time at which the Eligible Employee otherwise is entitled to receive payment of the amount from the Employer and shall be irrevocable. 7 Section 3.4 Employer Contributions. For each Plan Year (and the Short Plan Year) each Employer shall credit to the Employer Accounts as an Employer contribution such amount, if any, to be determined by the Compensation Committee. Any Employer contribution so determined for a Plan Year shall be credited to Participants' Employer Accounts at the time and in the manner described in Section 3.6. In addition, the Chief Executive Officer of the Company may enter into "Deferred Compensation Award Agreements" with such Eligible Employees as may from time to time be approved by the Compensation Committee. Such Agreements shall provide for the grant of a deferred compensation award, either fixed as to amount or determinable pursuant to a formula, to the Eligible Employee subject to such vesting requirements, including performance criteria, as shall be approved by the Compensation Committee. Section 3.5 Director Fee Deferral Election. During the Election Period prior to the beginning of each Plan Year (and the Short Plan Year), or with respect to a new Director the Election Period during a Plan Year (or the Short Plan Year), a Director may elect to have the payment of an amount of up to 100% of the cash fees otherwise payable by the Company to such Director for services rendered to the Company as a member of its Board of Directors, including services on a committee of the Board of Directors, for such Plan Year (or the Short Plan Year), but not in excess of the Net Amount Payable of such fees, deferred for payment in the manner and at the time specified in Article IV; provided, however, that the Administrative Committee may in its discretion establish a minimum amount that a Director may elect to defer for a Plan Year (or the Short Plan Year) pursuant to this Section 3.5. The amount of Director fees a Participant elects to defer pursuant to this Section 3.5 shall be deducted from the Participant's fees during the Plan Year (or Short Plan Year). All elections made pursuant to this Section 3.5 shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall be irrevocable; provided, however, that effective as of the first day of any calendar quarter during a Plan Year, a Director may revoke his or her deferral election and thereby suspend further fee deferrals for the remainder of such Plan Year by providing written notice thereof to the Administrative Committee no later than 15 days prior to the effective date of such suspension. Any Director who so suspends his or her deferrals pursuant to this Section shall not be permitted to elect future fee deferrals pursuant to this Section to be effective earlier than the first day of the next Plan Year. Section 3.6 Accounts and Allocations. (a) An Employer shall establish and maintain on its books a Deferral Account and an Employer Account for each Eligible Employee employed by such Employer who elects to participate in this Plan. The Company shall establish and maintain on its books a Deferral Account for each Director who elects to participate in this Plan. Each such Account shall be designated by the name of the Participant for whom it is established. The Administrative Committee may require separate subaccounts to be maintained within a Participant's Deferral Account and Employer Account. (b) Amounts deferred for a Participant pursuant to Sections 3.1, 3.2, 3.3 and/or 3.5 shall be credited by the Employer to such Participant's Deferral Account as of 8 the date such amounts otherwise would have been paid to such Participant by such Employer. (c) The amount of any deferred compensation award pursuant to Section 3.4 hereof which vests pursuant to the terms of a Deferred Compensation Award Agreement entered into with an Eligible Employee shall be credited to such Participant's Deferral Account as of the date of such vesting, if such individual is an Eligible Employee as of the date of vesting. (d) Any Employer contribution declared for a Plan Year pursuant to Section 3.4 shall be credited to the Employer Accounts of those Employee Participants specified by the Compensation Committee at the time and in the manner determined by the Compensation Committee in its absolute discretion. (e) An Employer shall continue maintaining a Participant's Accounts as long as a positive balance remains credited to such Accounts. Section 3.7 Account Adjustments. As of each Adjustment Date, the amount credited to a Participant's Accounts as of the preceding Adjustment Date, less any distributions or forfeitures made with respect to such Accounts since such preceding Adjustment Date, shall be adjusted by reference to the fluctuations in value, taking into account gain, loss, expenses and other adjustments, of the investment indices selected by the Participant for the investment adjustment of his or her Accounts, with such adjustments to be made in the manner prescribed by the Administrative Committee. Following such adjustment, the amounts credited to a Participant's Accounts shall be increased to take into account additional deferrals and contributions credited to such Accounts since the preceding Adjustment Date. The Administrative Committee shall have sole and absolute discretion with respect to the number and type of investment indices made available for selection by Participants pursuant to this Section, the timing of Participant elections and the method by which adjustments are made. The designation of investment indices by the Administrative Committee shall be for the sole purpose of adjusting Accounts pursuant to this Section and this provision shall not obligate the Employers to invest or set aside any assets for the payment of benefits hereunder; provided, however, that an Employer may invest a portion of its general assets in investments, including investments which are the same as or similar to the investment indices designated by the Administrative Committee and selected by Participants, but any such investments shall remain part of the general assets of such Employer and shall not be deemed or construed to grant a property interest of any kind to any Participant, designated beneficiary or estate. The Administrative Committee shall notify the Participants of the investment indices available and the procedures for making and changing elections. Section 3.8 Vesting. Subject to Section 4.5, all amounts credited to a Participant's Deferral Account shall be fully vested and nonforfeitable at all times. Any amounts attributable to Employer contributions made for a Plan Year pursuant to Section 3.4 which are credited to Participants' Employer Accounts shall be subject to such vesting schedule as the Compensation Committee shall establish for such contributions in its sole and absolute discretion; provided, however, that all amounts credited to Participants' Employer Accounts shall be 100% vested and nonforfeitable on and after the date of a Change of Control. 9 ARTICLE IV. BENEFITS Section 4.1 Source of Benefit Payments. Benefit payments to be made with respect to an Employee Participant's Accounts maintained pursuant to the Plan will be paid in cash and will be the obligation solely of the Employer maintaining such Accounts. Benefit payments to be made with respect to a Director Participant's Accounts maintained pursuant to the Plan will be paid in cash and will be the obligation solely of the Company. Section 4.2 Amount of Benefit Payments. The amount payable from a Participant's Accounts shall be determined based upon the vested amount credited to such Accounts as of the Adjustment Date last preceding the date of payment plus any contributions and deferrals credited to and less any distributions or withdrawals made from such Accounts since such Adjustment Date. The amount of each payment made with respect to a Participant's Accounts and any forfeiture amounts applied pursuant to Section 4.5 shall be deducted from the balance credited to such Accounts at the time of payment or forfeiture. Section 4.3 Termination. Upon a Participant's Termination Date, the amount payable from such Participant's Accounts, as determined in accordance with Section 4.2, shall be paid to such Participant (or, in the event of his or her subsequent death, to the beneficiary or beneficiaries designated by such Participant pursuant to Plan Section 4.6) in one of the following forms as elected by the Participant during the Participant's initial Election Period or in a subsequent election made in accordance with Section 4.8: (a) a single lump sum to be paid as soon as practicable following the Participant's Termination Date or the Participant's attainment of age 65, as designated by the Participant in his or her election; or (b) if the amount payable from a Participant's Accounts is $50,000 or more as of the Termination Date, annual installments over the period certain designated by the Participant in his or her election which may not exceed 15 years, commencing in payment as soon as practicable following the Termination Date or the Participant's attainment of age 65, as designated by the Participant in his or her election, with each annual installment equal to the Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a Participant who is entitled to a delayed lump sum or installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.7 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the delayed lump sum or installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the Participant caused by such unforeseeable emergency. Section 4.4 Death. Upon a Participant's Termination Date arising by reason of death, the amount payable from such Participant's Accounts, as determined in accordance with Section 4.2, shall be paid by the Employer to the beneficiary or beneficiaries designated by such Participant 10 pursuant to Section 4.6 in one of the following forms as elected by the Participant during the Participant's initial Election Period or in a subsequent election made in accordance with Section 4.8: (a) a single lump sum to be paid as soon as practicable following the Participant's death; or (b) if the amount payable from the Participant's Accounts is $50,000 or more as of the date of the Participant's death, annual installments over the period certain designated by the Participant in his or her election which may not exceed 15 years, commencing in payment as soon as practicable following the Participant's death with each annual installment equal to the Account balance multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining; provided, however, that if a beneficiary of a deceased Participant who is entitled to installment payments hereunder encounters an unforeseeable emergency (as determined in accordance with Section 4.7 hereof), the Administrative Committee, in its absolute discretion, may direct the Employer to accelerate such portion of the installment payments as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of the beneficiary caused by such unforeseeable emergency. Section 4.5 Option to Request Immediate Payout. Each Participant (or beneficiary in the case of a deceased Participant) shall have the right at any time, but no more frequently than one time during any calendar year, to elect a lump sum payment in an amount equal to: (a) all or any portion (but not less than $5,000 or, if less, the entire amount credited to the Participant's Accounts) of the amount payable from the Participant's Accounts, determined in accordance with Section 4.2, minus (b) a forfeiture amount equal to 10% of the amount elected for withdrawal as provided in (a) above. A Participant's election for an immediate payout pursuant to this Section must be in the form of a written notice provided to the Administrative Committee. The Administrative Committee shall notify any Employer maintaining a Participant's Accounts with respect to such Participant of the election and the amount so determined, less the amount forfeited as provided above, shall be paid to the Participant (or, in the case of a deceased Participant, to the beneficiary or beneficiaries designated by such Participant pursuant to Section 4.6) by the Employers no later than fifteen days following receipt of notice by the Administrative Committee. Section 4.6 Designation of Beneficiaries. Any amount payable under this Plan on account of the death of a married Participant shall be paid when otherwise due hereunder to the surviving spouse of such Participant unless such Participant designates otherwise with the written consent of his or her spouse. Any amount payable under this Plan on account of the death of a Participant who is not married or who is married but has designated, as provided above, a beneficiary other than his or her spouse, shall be paid when otherwise due hereunder to 11 the beneficiary or beneficiaries designated by such Participant. Such designation of beneficiary or beneficiaries shall be made in writing on a form prescribed by and filed with the Administrative Committee and shall remain in effect until changed by such Participant by the filing of a new beneficiary designation form with the Administrative Committee. If an unmarried Participant fails to so designate a beneficiary, or in the event all of a Participant's designated beneficiaries are individuals who either predecease the Participant or survive the Participant but die prior to receiving the full amount payable under this Plan, any remaining amount payable under this Plan shall be paid when otherwise due hereunder to such Participant's spouse if living at the time of the Participant's death or, if not, to the Participant's estate. Section 4.7 Hardship Distributions. If a Participant encounters an unforeseeable emergency, the Administrative Committee in its absolute discretion may direct the Employer maintaining such Participant's Accounts to pay to such Participant and deduct from such Accounts such portion of the vested amount then credited to such Accounts (including, if appropriate, the entire amount determined in accordance with Section 4.2) as the Administrative Committee shall determine to be necessary to alleviate the severe financial hardship of such Participant caused by such unforeseeable emergency. For this purpose, an "unforeseeable emergency" shall be a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but in any case, payment may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participant's assets, to the extent liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. No distribution shall be made to a Participant pursuant to this Section 4.7 unless such Participant requests such a distribution in writing and provides to the Administrative Committee such information and documentation with respect to his or her unforeseeable emergency as may be requested by the Administrative Committee. Section 4.8 Change of Distribution Form. Each Participant may elect at any time after a Participant's initial Election Period, but no more often than once during each calendar year, to change the distribution form elected with respect to all amounts credited to such Participant's Accounts; provided, however, that such election shall not be effective unless made at least twelve months preceding the Participant's Termination Date. Section 4.9 Accelerated Distribution of Reclassified Amounts. In the event that the Internal Revenue Service formally assesses a deficiency against a Participant on the grounds that an amount credited to such Participant's Accounts under this Plan is subject to federal income tax (the "Reclassified Amount") earlier than the time payment otherwise would be made to the Participant pursuant to this Plan, then the Administrative Committee shall direct the Employer maintaining such Participant's Accounts to pay to such Participant and deduct from such Accounts the Reclassified Amount. No payment made to a Participant pursuant to this Section 4.9 shall be subject to forfeiture as provided in Section 4.5 hereof. 12 ARTICLE V. AMENDMENT AND TERMINATION Section 5.1 Amendment and Termination. The Compensation Committee shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, on behalf of all Employers, and to terminate this Plan or any Employer's participation hereunder. Any amendment to or termination of this Plan shall be made by or pursuant to a resolution duly adopted by the Compensation Committee and shall be evidenced by such resolution or by a written instrument executed by such person as the Compensation Committee shall authorize for such purpose. Any provision of this Plan to the contrary notwithstanding, no amendment to or termination of this Plan shall reduce the amounts actually credited to a Participant's Accounts as of the date of such amendment or termination, or further defer the dates for the payment of such amounts, without the consent of the affected Participant. Upon termination of this Plan, the Compensation Committee, in its sole discretion, may require the Administrative Committee to calculate final Account balances as of such Adjustment Date as it may prescribe, and direct each Employer to make immediate lump sum payments to each Participant (or beneficiary in the case of a deceased Participant) with respect to which such Employer maintains an Account in the amount determined to be credited to such Participant's Accounts as of such final Adjustment Date. Section 5.2 Change of Control. The preceding provisions of this Article to the contrary notwithstanding, no action taken on or after a Change of Control to amend or terminate this Plan shall be effective unless written consent thereto is obtained from a majority of the Participants. ARTICLE VI. MISCELLANEOUS PROVISIONS Section 6.1 Nature of Plan and Rights. This Plan is unfunded and maintained by the Employers primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and directors of the Employers. The Accounts established and maintained under this Plan by an Employer are for its accounting purposes only and shall not be deemed or construed to create a trust fund or security interest of any kind for or to grant a property interest of any kind to any Participant, designated beneficiary or estate. The amounts credited by an Employer to Accounts maintained under this Plan are and for all purposes shall continue to be a part of the general assets and liabilities of such Employer, and to the extent that a Participant, designated beneficiary or estate acquires a right to receive a payment from such Employer pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of such Employer. Section 6.2 Deferred Compensation Trust. An Employer may, but shall not be required to, establish a trust (the "Deferred Compensation Trust") which satisfies the requirements of the model trust prescribed by the Internal Revenue Service in Revenue Procedure 92-64 (or otherwise constitutes a grantor trust, of which the Employer is the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code) into which the Employer will 13 contribute funds to be used to fund the benefit payments under this Plan without accelerating the timing of income recognition for federal income tax purposes for the Participant or beneficiary; provided, however, that, as soon as possible, but in no event more than 30 days following the date of a Change of Control, each Employer shall (i) establish (if such Employer has not already) a Deferred Compensation Trust governed by such provisions and with a trustee as may be acceptable to the Independent Committee, (ii) make an irrevocable contribution to the Deferred Compensation Trust in an amount, as determined by the Independent Committee which when added to the total value of the assets of the Deferred Compensation Trust at such time equals the total amount credited to all Accounts under the Plan as of the date on which the Change of Control occurred, and (iii) on and after the date of the Change of Control, make monthly contributions to the Deferred Compensation Trust in amounts sufficient, as determined by the Independent Committee, to maintain the total value of the Deferred Compensation Trust assets at an amount equal to the total amount credited to all Accounts under the Plan. Any provision of this Plan to the contrary notwithstanding, on and after the date of a Change of Control, the assets of the Deferred Compensation Trust, including any additional contributions made by the Employer in accordance with this Section 6.2 for the period following such Change of Control and any earnings on the assets of the Deferred Compensation Trust, shall be held exclusively for the benefit of those individuals (or their beneficiaries) who were Participants in the Plan or beneficiaries thereof immediately prior to such Change of Control, subject to the claims of general creditors of the Employer under federal and state law as set forth in the Deferred Compensation Trust. Section 6.3 Spendthrift Provision. No Account balance or other right or interest under this Plan of a Participant, designated beneficiary or estate may be assigned, transferred or alienated, in whole or in part, either directly or by operation of law, and no such balance, right or interest shall be liable for or subject to any debt, obligation or liability of such Participant, designated beneficiary or estate. Section 6.4 Employment Noncontractual. The establishment of this Plan shall not enlarge or otherwise affect the terms of any Participant's employment with an Employer or service as a Director of the Company, and each Employer may terminate an Employee Participant's employment and the Company may terminate a Director Participant's service as a Director as freely and with the same effect as if this Plan had not been established. Section 6.5 Adoption by Other Employers. With the consent of the Compensation Committee, this Plan may be adopted by any Affiliated Company, such adoption to be effective as of the date specified by such Affiliated Company at the time of adoption. Section 6.6 Claims Procedure. If any person (hereinafter called the "Claimant") feels that he or she is being denied a benefit to which he or she is entitled under this Plan, such Claimant may file a written claim for said benefit with the Administrative Committee. Within sixty days following the receipt of such claim the Administrative Committee shall determine and notify the Claimant as to whether he or she is entitled to such benefit. Such notification shall be in writing and, if denying the claim for benefit, shall set forth the specific reason or reasons for the denial, make specific reference to the pertinent provisions of this Plan, and advise the Claimant that he or she may, within sixty days following the receipt of such notice, in writing request to appear before the Administrative Committee or its designated representative for a hearing to review such denial. Any such hearing shall be scheduled at the mutual convenience of 14 the Administrative Committee or its designated representative and the Claimant, and at any such hearing the Claimant and/or his or her duly authorized representative may examine any relevant documents and present evidence and arguments to support the granting of the benefit being claimed. The final decision of the Administrative Committee with respect to the claim being reviewed shall be made within sixty days following the hearing thereon, and Administrative Committee shall in writing notify the Claimant of said final decision, again specifying the reasons therefor and the pertinent provisions of this Plan upon which said final decision is based. The final decision of the Administrative Committee shall be conclusive and binding upon all parties having or claiming to have an interest in the matter being reviewed. Section 6.7 Reimbursement of Expenses. In the event that a dispute arises between a Participant or beneficiary and the Company or other Employer liable for payments with respect to the payment of benefits hereunder and the Participant or beneficiary is successful in pursuing a benefit to which he or she is entitled under the terms of the Plan against the Company or such other Employer or any other party in the course of litigation or otherwise and incurs attorneys' fees, expenses and costs in connection therewith, the Company or such other Employer against whom the Participant or beneficiary has been successful in pursuing a benefit under this Plan shall reimburse the Participant or beneficiary for the full amount of any such attorneys' fees, expenses and costs. Section 6.8 Withholding Tax. There shall be deducted from all amounts paid under this Plan any taxes required to be withheld by any Federal, state, local or other government. The Participant and/or his or her beneficiary (including his or her estate) shall bear all taxes on amounts paid under this Plan to the extent that no taxes are withheld, irrespective of whether withholding is required. The Participant will be required to pay to his or her Employer the amount of any federal, state or local taxes required by law to be withheld in connection with the Plan in the event that such Participant is not being paid by an Employer or amounts being paid by an Employer to such Participant are insufficient to satisfy any such withholding obligation. Section 6.9 Applicable Law. This Plan shall be governed and construed in accordance with the internal laws (and not the principles relating to conflicts of laws) of the State of Texas, except where superseded by federal law. IN WITNESS WHEREOF, this Plan has been executed on this _____ day of ______________, 1998, to be effective as of the Effective Date. TRANSOCEAN OFFSHORE INC. By ----------------------------- Title: 15 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS 9-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 SEP-30-1998 SEP-30-1997 30,681 50,599 0 0 245,539 159,745 0 0 0 0 341,266 274,357 2,548,094 2,036,191 505,214 445,425 3,148,689 2,655,153 181,501 194,298 853,134 619,097 0 0 0 0 1,043 1,037 1,867,445 1,623,620 3,148,689 2,655,153 0 0 778,892 650,910 0 0 466,080 503,282 0 0 0 0 17,571 16,502 340,639 138,941 100,489 44,197 240,150 94,744 0 0 0 0 0 0 240,150 94,744 2.40 0.93 2.38 0.92 Reflects adoption of SFAS No. 128, Earnings per share, and a two-for-one stock split paid in September 1997.
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