-----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, GvGMhHVdltKHDscovElWhAo1rSHrofH7B/k8LfvrD5Br9TxxvBQIMyWHlH/llFBu zQcn1bbow0fpM1rVGy4U9A== 0000950129-98-001795.txt : 19980430 0000950129-98-001795.hdr.sgml : 19980430 ACCESSION NUMBER: 0000950129-98-001795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980429 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND OFFSHORE DRILLING INC CENTRAL INDEX KEY: 0000949039 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 760321760 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13926 FILM NUMBER: 98604449 BUSINESS ADDRESS: STREET 1: 15415 KATY FREEWAY CITY: HOUSTON STATE: TX ZIP: 77094 BUSINESS PHONE: 7134925300 MAIL ADDRESS: STREET 1: 15415 KATY FREEWAY CITY: HOUSTON STATE: TX ZIP: 77094 10-Q 1 DIAMOND OFFSHORE DRILLING, INC. - 03/31/98 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ................. to ................... Commission file number 1-13926 DIAMOND OFFSHORE DRILLING, INC. (Exact name of registrant as specified in its charter) Delaware 76-0321760 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 15415 Katy Freeway Houston, Texas 77094 (Address of principal executive offices) (Zip Code) (281) 492-5300 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 15, 1998 Common stock, $0.01 par value per share 139,328,160 shares
2 DIAMOND OFFSHORE DRILLING, INC. TABLE OF CONTENTS FOR FORM 10-Q QUARTER ENDED MARCH 31, 1998
PAGE NO. COVER PAGE.......................................................................................1 DOCUMENT TABLE OF CONTENTS.......................................................................2 PART I. FINANCIAL INFORMATION...................................................................3 ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets...................................................3 Consolidated Statements of Income.............................................4 Consolidated Statements of Cash Flows.........................................5 Notes to Consolidated Financial Statements....................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................................................10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................15 PART II. OTHER INFORMATION......................................................................16 ITEM 1. LEGAL PROCEEDINGS..............................................................16 ITEM 2. CHANGES IN SECURITIES..........................................................16 ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................16 ITEM 5. OTHER INFORMATION..............................................................16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................................16 SIGNATURES.......................................................................................17 INDEX OF EXHIBITS................................................................................18
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
MARCH 31, DECEMBER 31, ----------- ----------- 1998 1997 ----------- ----------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents ...................................................... $ 78,056 $ 102,958 Short-term investments ......................................................... 277,402 363,137 Accounts receivable ............................................................ 238,295 205,589 Rig inventory and supplies ..................................................... 34,363 33,714 Prepaid expenses and other ..................................................... 10,560 13,377 ----------- ----------- Total current assets ......................................... 638,676 718,775 DRILLING AND OTHER PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION........................................................ 1,458,192 1,451,741 GOODWILL, NET OF ACCUMULATED AMORTIZATION ........................................... 117,005 118,623 LONG-TERM INVESTMENTS ............................................................... 177,486 -- OTHER ASSETS ........................................................................ 10,250 9,422 ----------- ----------- Total assets ................................................. $ 2,401,609 $ 2,298,561 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................................................... $ 58,568 $ 57,557 Accrued liabilities ............................................................ 49,250 48,935 Taxes payable .................................................................. 47,095 24,653 ----------- ----------- Total current liabilities .................................... 154,913 131,145 LONG-TERM DEBT....................................................................... 400,000 400,000 DEFERRED TAX LIABILITY............................................................... 225,210 209,513 OTHER LIABILITIES ................................................................... 23,607 22,376 ----------- ----------- Total liabilities ............................................ 803,730 763,034 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock (par value $0.01, 25,000,000 shares authorized, none issued or outstanding) ..................................................... -- -- Common stock (par value $0.01, 200,000,000 shares authorized, and 139,328,160 and 139,309,948 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively) .................................. 1,393 1,393 Additional paid-in capital...................................................... 1,302,784 1,302,712 Retained earnings .............................................................. 296,656 233,350 Accumulated other comprehensive losses ......................................... (2,954) (1,928) ----------- ----------- Total stockholders' equity ................................... 1,597,879 1,535,527 ----------- ----------- Total liabilities and stockholders' equity ................... $ 2,401,609 $ 2,298,561 =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 3 4 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data)
THREE MONTHS ENDED MARCH 31, ---------------------- 1998 1997 --------- -------- REVENUES ............................................ $ 286,069 $204,733 OPERATING EXPENSES: Contract drilling ............................ 125,333 89,739 Depreciation and amortization ................ 31,999 25,812 General and administrative ................... 6,772 4,941 Gain on sale of assets ....................... (78) (65) --------- -------- Total operating expenses ................ 164,026 120,427 --------- -------- OPERATING INCOME .................................... 122,043 84,306 OTHER INCOME (EXPENSE): Interest income .............................. 6,585 2,893 Interest expense ............................. (3,843) -- Other, net ................................... (137) (185) --------- -------- INCOME BEFORE INCOME TAX EXPENSE .................... 124,648 87,014 INCOME TAX EXPENSE .................................. (43,926) (30,784) --------- -------- NET INCOME .......................................... $ 80,722 $ 56,230 ========= ======== EARNINGS PER SHARE: Basic ........................................ $ 0.58 $ 0.41 ========= ======== Diluted ...................................... $ 0.56 $ 0.39 ========= ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Common shares ................................ 139,325 136,768 Dilutive potential common shares ............. 9,876 6,036 --------- -------- Total weighted average shares outstanding 149,201 142,804 ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 4 5 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
THREE MONTHS ENDED MARCH 31, ----------------------- 1998 1997 --------- --------- OPERATING ACTIVITIES: Net income ..................................................... $ 80,722 $ 56,230 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................ 31,999 25,812 Gain on sale of assets ....................................... (78) (65) Loss on sale of investment securities ........................ 69 3 Deferred tax provision ....................................... 17,862 13,870 Accretion of discounts on investment securities .............. (2,609) (2,331) Amortization of debt issuance costs .......................... 129 72 Changes in operating assets and liabilities: Accounts receivable .......................................... (32,161) (7,887) Rig inventory and other current assets ....................... 2,168 (5,054) Other assets, non-current .................................... (957) (176) Accounts payable and accrued liabilities ..................... 1,187 (1,836) Taxes payable ................................................ 22,442 (7,632) Other liabilities, non-current ............................... (569) 2,520 Other, net ..................................................... (350) 129 --------- --------- Net cash provided by operating activities ................ 119,854 73,655 --------- --------- INVESTING ACTIVITIES: Capital expenditures ........................................... (37,089) (73,923) Proceeds from sales of assets .................................. 335 440 Net change in short-term investment securities ................. (261,065) (211,203) Net change in investments through repurchase agreements ........ 350,000 -- Purchases of long-term investment securities ................... (179,732) (99,474) --------- --------- Net cash used in investing activities .................... (127,551) (384,160) --------- --------- FINANCING ACTIVITIES: Payment of dividends ........................................... (17,416) -- Debt repayments, net ........................................... -- (73,000) Issuance of convertible subordinated notes ..................... -- 400,000 Debt issuance costs ............................................ -- (5,750) Proceeds from stock options exercised .......................... 211 333 --------- --------- Net cash (used in) provided by financing activities ...... (17,205) 321,583 --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS .............................. (24,902) 11,078 Cash and cash equivalents, beginning of period ................. 102,958 28,180 --------- --------- Cash and cash equivalents, end of period ....................... $ 78,056 $ 39,258 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 5 6 DIAMOND OFFSHORE DRILLING, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The consolidated financial statements of Diamond Offshore Drilling, Inc. and subsidiaries (the "Company") should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-13926). Interim Financial Information The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all disclosures required by generally accepted accounting principles for complete financial statements. The consolidated financial information has not been audited but, in the opinion of management, includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the consolidated balance sheets, statements of income, and statements of cash flows at the dates and for the periods indicated. Results of operations for interim periods are not necessarily indicative of results of operations for the respective full years. Cash and Cash Equivalents Short-term, highly liquid investments that have an original maturity of three months or less which are considered part of the Company's cash management activities rather than part of its investing activities are considered cash equivalents. Investments The Company's investments are classified as available for sale and stated at fair value under the terms of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, any unrealized gains and losses, net of taxes, are recorded as a separate component of stockholders' equity until realized. The cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity and such adjustments are included in interest income. The cost of debt securities sold is based on the specific identification method and the cost of equity securities sold is based on the average cost method. Realized gains or losses and declines in value, if any, judged to be other than temporary are reported in the Consolidated Statements of Income in "Other income (expense)." Supplementary Cash Flow Information Cash payments made for interest on long-term debt, including commitment fees, during the three months ended March 31, 1998 and 1997 totaled $7.5 million and $0.5 million, respectively. Cash payments made for income taxes during the three months ended March 31, 1998 and 1997 totaled $4.2 million and $24.4 million, respectively. Capitalized Interest Interest cost for construction and upgrade of qualifying assets is capitalized. During the three months ended March 31, 1998, the Company incurred interest cost, including amortization of debt issuance costs, of $3.9 million. Interest cost capitalized during the three months ended March 31, 1998 was not material. Total interest cost incurred of $2.8 million was capitalized during the three months ended March 31, 1997. 6 7 Goodwill Goodwill from the merger with Arethusa (Off-Shore) Limited ("Arethusa") is amortized on a straight-line basis over 20 years. Amortization expense totaled $1.6 million and $1.7 million for the three months ended March 31, 1998 and 1997, respectively. Debt Issuance Costs Debt issuance costs are included in the Consolidated Balance Sheets in "Other assets" and are amortized over the term of the related debt. Comprehensive Income In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For the three months ended March 31, 1998 and 1997, comprehensive income totaled $79.7 million and $55.5 million, respectively. Comprehensive income includes net income, foreign currency translation losses and unrealized holding losses on investments. Net Income Per Share In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which requires dual presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share was calculated by dividing net income, adjusted to eliminate the after-tax effect of interest expense, by the weighted average number of common shares outstanding and the weighted average number of shares issuable assuming full conversion of the convertible subordinated notes as of the issuance date, February 4, 1997. Weighted average shares outstanding and all per share amounts included herein for all periods presented have been restated to include the retroactive effect of the July 1997 two-for-one stock split in the form of a stock dividend. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimated. Reclassifications Certain amounts applicable to the prior periods have been reclassified to conform to the classifications currently followed. Such reclassifications do not affect earnings. 7 8 2. INVESTMENTS Investments classified as available for sale at March 31, 1998 were as follows:
------------------------------------ UNREALIZED MARKET COST GAIN (LOSS) VALUE --------- --------- --------- (IN THOUSANDS) Debt securities issued by the U.S. Treasury Due within one year ......................... $ 263,575 $ (492) $ 263,083 Due after one year through five years ....... 179,217 (1,731) 177,486 Equity securities ................................ 13,300 1,019 14,319 --------- --------- --------- Total ....................................... $ 456,092 $ (1,204) $ 454,888 ========= ========= =========
During the three months ended March 31, 1998, certain debt securities due within one year were sold for proceeds of $95.4 million. The resulting realized loss was not material. Also during the three months ended March 31, 1998, investments through repurchase agreements with third parties were sold for their contracted amounts totaling $350.0 million. 3. DRILLING AND OTHER PROPERTY AND EQUIPMENT Cost and accumulated depreciation of drilling and other property and equipment are summarized as follows:
MARCH 31, DECEMBER 31, ----------- ----------- 1998 1997 ----------- ----------- (IN THOUSANDS) Drilling rigs and equipment ....... $ 1,818,014 $ 1,781,107 Construction work in progress ..... 16,444 17,696 Land and buildings ................ 12,615 12,552 Office equipment and other ........ 11,665 10,551 ----------- ----------- Cost ......................... 1,858,738 1,821,906 Less accumulated depreciation ..... (400,546) (370,165) ----------- ----------- Total ................... $ 1,458,192 $ 1,451,741 =========== ===========
4. GOODWILL The merger with Arethusa generated an excess of the purchase price over the estimated fair value of the net assets acquired. Cost and accumulated amortization of such goodwill are summarized as follows:
MARCH 31, DECEMBER 31, --------- --------- 1998 1997 --------- --------- (IN THOUSANDS) Goodwill .......................... $ 129,746 $ 129,746 Less accumulated amortization ..... (12,741) (11,123) --------- --------- Total ................... $ 117,005 $ 118,623 ========= =========
8 9 5. ACCRUED LIABILITIES Accrued liabilities consist of the following:
MARCH 31, DECEMBER 31, ------- ------- 1998 1997 ------- ------- (IN THOUSANDS) Personal injury and other claims ................................ $23,851 $23,960 Payroll and benefits ............................................ 17,443 15,951 Interest payable ................................................ 1,917 5,684 Other ........................................................... 6,039 3,340 ------- ------- Total ................................................. $49,250 $48,935 ======= =======
6. COMMITMENTS AND CONTINGENCIES The survivors of a deceased employee of a subsidiary of the Company, Diamond M Onshore, Inc., sued such subsidiary in Duval County, Texas, for damages as a result of the death of the employee. The plaintiffs obtained a judgment in the trial court for $15.7 million plus post-judgment interest. The Company has appealed the judgment and is currently awaiting the opinion of the appellate court. The Company has received notices from certain of its insurance underwriters reserving their rights to deny coverage on the Company's insurance policies in excess of $2.0 million for damages resulting from such lawsuit. Management believes the Company has complied with all conditions of coverage for final unappealable damages, if any, in the case. While the ultimate liability in this matter is difficult to assess, it is management's belief that the final outcome is not reasonably likely to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. The Company has not established a liability for such claim at this time. A former subsidiary of Arethusa, which is now a subsidiary of the Company, defended and indemnified Zapata Off-Shore Company and Zapata Corporation (the "Zapata Defendants"), pursuant to a contractual defense and indemnification agreement, in a suit for tortious interference with contract and conspiracy to tortiously interfere with contract. The plaintiffs sought $14.0 million in actual damages and unspecified punitive damages, plus costs of court, interest and attorneys' fees. In November 1997, the jury awarded a take nothing judgment in favor of the Zapata Defendants. The plaintiffs have appealed the judgment. No provision for any liability has been established at this time. Various other claims have been filed against the Company in the ordinary course of business, particularly claims alleging personal injuries. Management believes the Company has established adequate reserves for any liabilities that may reasonably be expected to result from these claims. In the opinion of management, no pending or threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's Consolidated Financial Statements (including the Notes thereto) included elsewhere herein. The Company is a leader in deep water drilling with a fleet of 46 offshore drilling rigs. The fleet consists of 30 semisubmersibles, 15 jack-ups and one drillship which operate in the waters of six of the world's seven continents. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Comparative data relating to the Company's revenues and operating expenses by equipment type are listed below (eliminations offset dayrate revenues earned when the Company's rigs are utilized in its integrated services operations and intercompany expenses charged to rig operations). Certain amounts applicable to the prior period have been reclassified to conform to the classifications currently followed. Such reclassifications do not affect earnings. During November 1997, July 1997, and March 1997, the Company completed its major upgrades of the Ocean Victory, the Ocean Clipper I, and the Ocean Star, respectively, expanding those rigs to have fourth-generation capabilities. Upon completion, these rigs were included in Fourth-Generation Semisubmersibles for discussion purposes (prior period information will continue to include these rigs in Other Semisubmersibles).
THREE MONTHS ENDED MARCH 31, --------------------------- INCREASE/ 1998 1997 (DECREASE) --------- --------- --------- (in thousands) REVENUES Fourth-Generation Semisubmersibles ......... $ 70,945 $ 42,643 $ 28,302 Other Semisubmersibles ..................... 153,274 116,833 36,441 Jack-ups ................................... 60,086 43,554 16,532 Integrated Services ........................ 15,711 4,311 11,400 Other ...................................... -- -- -- Eliminations ............................... (13,947) (2,608) (11,339) --------- --------- --------- Total Revenues ..................... $ 286,069 $ 204,733 $ 81,336 ========= ========= ========= CONTRACT DRILLING EXPENSE Fourth-Generation Semisubmersibles ......... $ 20,615 $ 11,473 $ 9,142 Other Semisubmersibles ..................... 79,276 55,336 23,940 Jack-ups ................................... 21,160 21,260 (100) Integrated Services ........................ 15,505 4,259 11,246 Other ...................................... 2,724 361 2,363 Eliminations ............................... (13,947) (2,950) (10,997) --------- --------- --------- Total Contract Drilling Expense .... $ 125,333 $ 89,739 $ 35,594 ========= ========= ========= OPERATING INCOME Fourth-Generation Semisubmersibles ......... $ 50,330 $ 31,170 $ 19,160 Other Semisubmersibles ..................... 73,998 61,497 12,501 Jack-ups ................................... 38,926 22,294 16,632 Integrated Services ........................ 206 52 154 Other ...................................... (2,724) (361) (2,363) Eliminations ............................... -- 342 (342) Depreciation and Amortization Expense ...... (31,999) (25,812) (6,187) General and Administrative Expense ......... (6,772) (4,941) (1,831) Gain on Sale of Assets ..................... 78 65 13 --------- --------- --------- Total Operating Income ............. $ 122,043 $ 84,306 $ 37,737 ========= ========= =========
10 11 Revenues. The $28.3 million increase in revenues from fourth-generation rigs resulted primarily from $16.9 million in revenues generated during the three months ended March 31, 1998 by the Ocean Victory, the Ocean Clipper I and the Ocean Star upon completion of their upgrade projects and $11.4 million in revenues generated during the same period by increased operating dayrates. The $36.4 million increase in revenues from other semisubmersibles resulted primarily from $45.7 million in revenues generated during the three months ended March 31, 1998 by increased operating dayrates and $6.9 million in revenues generated by the Ocean Century, which returned to work after reactivation in the fourth quarter of 1997. Partially offsetting the increases in revenues were decreases in the first quarter of 1998 of $14.6 million primarily due to revenues foregone during mandatory inspections and a $1.6 million decrease in revenues due to the sale of the Ocean Zephyr in 1997. The $16.5 million increase in revenues from jack-ups resulted primarily from $20.5 million in revenues contributed by increased operating dayrates, primarily in the Gulf of Mexico. In addition, a decrease of $5.5 million in revenues from the first quarter of 1997 resulted from the Ocean Tower being in the shipyard for upgrades and the relinquishment of the Miss Kitty (a bareboat chartered rig) to the owner in late 1997. The $11.4 million increase in revenues from integrated services resulted from additional projects and increased rates as compared to the same period in 1997. Contract Drilling Expense. The $9.1 million increase in contract drilling expense for fourth-generation rigs resulted primarily from operating costs generated by the Ocean Victory, the Ocean Clipper I and the Ocean Star upon completion of their upgrade projects. The $23.9 million increase in contract drilling expense for other semisubmersibles was primarily due to costs for mandatory inspections and associated repairs during the three months ended March 31, 1998. Contract drilling expense for jack-ups was relatively unchanged from the three months ended March 31, 1997. The $11.2 million increase in expenses from integrated services resulted from additional projects and increased rates as compared to the same period in 1997. Other contract drilling expense increased $2.4 million primarily due to crew training programs, maintenance and repairs on spare equipment, and various other non-recurring charges. Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended March 31, 1998 of $32.0 million increased $6.2 million from $25.8 million for the three months ended March 31, 1997 primarily due to an increase in the 1998 budgeted capital additions as compared to those budgeted in 1997 and additional expense for the Ocean Victory, the Ocean Clipper I, and the Ocean Star upon completion of their upgrades. General and Administrative Expense. General and administrative expense for the three months ended March 31, 1998 of $6.8 million increased $1.9 million from $4.9 million for the three months ended March 31, 1997 primarily due to increased accruals associated with the Company's management bonus and retention plan. Other increases resulted from costs associated with ongoing litigation and additional personnel. Also, general and administrative costs capitalized to fourth-generation upgrade projects decreased as compared to the same period in the prior year. Interest Income. Interest income of $6.6 million for the three months ended March 31, 1998 increased $3.7 million from $2.9 million for the same period in 1997. This increase resulted primarily from the investment of additional excess cash in 1998. See " - Liquidity." Income Tax Expense. Income tax expense of $43.9 million for the three months ended March 31, 1998 increased $13.1 million from $30.8 million for the three months ended March 31, 1997. This increase resulted primarily from the $37.6 million increase in income before income tax expense as compared to the three months ended March 31, 1997. 11 12 OUTLOOK The Company continues to benefit from increased demand and from the tight supply of major offshore drilling rigs worldwide. These conditions are due, in part, to the impact of technological advances, including 3-D seismic, horizontal drilling, and subsea completion procedures, on oil and gas exploration and development economics. To address the current tight supply situation, customers seek to contract rigs for term commitments (as opposed to contracts for the drilling of a single well or a group of wells) in many cases, and often will pay for upgrades and modifications necessary for more challenging drilling locations in order to assure rig availability. The Company seeks to have a foundation of long-term contracts with a reasonable balance of short-term or well-to-well contracts to minimize risk while participating in the benefit of increasing dayrates. The Company continues to enhance its fleet to meet customer demand for diverse drilling capabilities, including those required for deep water and harsh environment operations. The Company has begun the conversion of the Ocean Confidence (formerly named Polyconfidence) from an accommodation vessel to a semisubmersible drilling unit capable of operating in harsh environments and ultra-deep waters. See " - Capital Resources." The upgrade is anticipated to be completed in late 1999, when the rig will begin a five-year commitment in the Gulf of Mexico. The Company completed the upgrade of the Ocean Clipper I in July 1997, however, the drillship has experienced certain subsea system difficulties primarily associated with new technology for operations in deep water as well as difficulties with the vessel's thrusters. While the drillship is operating under its drilling contract in the Gulf of Mexico, the Company continues to participate in developing design revisions that will provide long-term benefits to the affected systems. Results of operations are likely to be adversely impacted by additional downtime from such difficulties, however, the Company cannot predict the extent of such adverse impact. In February 1998, a fire was detected in the engine room of the Ocean Victory, which was operating in the Gulf of Mexico. Although the fire was contained and extinguished, damage was done to the power and electrical systems aboard the rig. The rig is currently in the shipyard for necessary repairs, which are expected to be completed by mid-1998. The Company expects that its insurance will cover most of the cost of such repairs, however the loss of revenue during the repair period is not covered by insurance. As a result, the loss of revenues will reduce the Company's results of operations for 1998. The ability to minimize costs and downtime is critical to the Company's results of operations. The improved opportunities for the offshore contract drilling industry worldwide have resulted in increased demand for and a shortage of experienced personnel and equipment, including drill pipe and riser, necessary on offshore drilling rigs. The Company does not consider the shortage of such personnel and equipment currently to be a material factor in its business. However, because of the increased demand for oil field services, a significant increase in costs, including compensation and training, may occur if present trends continue for an extended period. In addition, because of periodic inspections required by certain regulatory agencies, 15 of the Company's rigs will be in the shipyard for a portion of 1998. At March 31, 1998, five of these 15 inspections were completed and one was in progress. The Company intends to focus on returning these rigs to operations as soon as reasonably possible, in order to minimize the downtime and associated loss of revenues. In addition, the improvement in the current results of operations and prospects for the offshore contract drilling industry as a whole has led to increased rig construction and enhancement programs by the Company's competitors. A significant increase in the supply of technologically advanced rigs capable of drilling in deep water may have an adverse effect on the average operating dayrates for the Company's rigs, particularly its more advanced semisubmersible units, and on the overall utilization level of the Company's fleet. In such case, the Company's results of operations would be adversely affected. The offshore contract drilling industry historically has been highly competitive and cyclical and, although not currently a material factor in the Company's markets, weak commodity prices, economic problems in countries outside the United States, or a number of other influencing factors could curtail spending by oil and gas companies and possibly depress the offshore drilling industry. Therefore, the Company cannot predict whether and, if so, to what extent, current market conditions will continue. 12 13 LIQUIDITY As of March 31, 1998, cash and investments totaled $532.9 million, up from $466.1 million at December 31, 1997. Cash provided by operating activities for the three months ended March 31, 1998 increased by $46.2 million to $119.9 million, as compared to $73.7 million for the comparable period of the prior year. This increase in operating cash flow was primarily attributable to a $24.5 million increase in net income for the first quarter of 1998, a $6.2 million increase in depreciation and amortization expense, and various changes in operating assets and liabilities. Investing activities used $127.6 million in cash during the three months ended March 31, 1998, compared to $384.2 million during the comparable period of 1997. The decrease resulted primarily from the initial investment of excess cash generated primarily by the issuance of $400.0 million of convertible subordinated notes (the "Notes") in February 1997. The payment of a dividend to stockholders resulted in cash used by financing activities for the three months ended March 31, 1998 of $17.4 million. Cash provided by financing activities for the three months ended March 31, 1997 totaled $321.6 million. Sources of financing during the first quarter of 1997 consisted primarily of the issuance of the Notes. The Company has the ability to issue an aggregate of approximately $117.5 million in debt, equity and other securities under a "shelf" registration statement. In addition, the Company may issue, from time to time, up to eight million shares of common stock, which shares are registered under an "acquisition shelf" registration statement (upon effectiveness of an amendment thereto reflecting the effect of the two-for-one stock split declared in July 1997), in connection with one or more acquisitions by the Company of securities or assets of other businesses. The Company believes that it has the financial resources needed to meet its business requirements in the foreseeable future, including capital expenditures for major upgrades, continuing rig enhancements as well as working capital requirements. CAPITAL RESOURCES Cash requirements for capital commitments result from rig upgrades to meet specific customer requirements and from the Company's continuing rig enhancement program, including top-drive drilling system installations and water depth and drilling capability upgrades. It is management's opinion that operating cash flow resulting from current conditions of improved dayrates and high utilization, in conjunction with proceeds from the Notes, will be sufficient to meet these capital commitments. In addition, the Company may, from time to time, issue debt or equity securities, or a combination thereof, to finance capital expenditures, the acquisition of assets and businesses, or for general corporate purposes. The Company's ability to effect any such issuance will be dependent on the Company's results of operations, its current financial condition and other factors beyond its control. The Company has budgeted $108.5 million for rig upgrade capital expenditures during 1998. During the three months ended March 31, 1998, the Company expended $20.3 million, including capitalized interest expense, for significant rig upgrades. Such upgrade projects include the conversion of the Ocean Confidence (formerly named Polyconfidence), from an accommodation vessel to a semisubmersible drilling unit capable of operating in harsh environments and ultra-deep waters. The conversion includes enhancements which will provide capabilities greater than existing fourth-generation equipment: capability for operation in 7,500 foot water depths, approximately 6,000 tons variable deck load, a 15,000 psi blow-out prevention system and four mud pumps to complement the existing Class III dynamic-positioning system. Upon completion of the conversion, the rig will begin a five-year drilling program in the Gulf of Mexico, which is anticipated to commence in late 1999. Other upgrade projects include the cantilever conversion project on the Ocean Warwick, a jack-up drilling rig located in the Gulf of Mexico, which was completed in March 1998. In addition, leg strengthening and other modifications on the Ocean Tower, a jack-up drilling rig operating in the Gulf of Mexico, are anticipated to be completed in the first half of 1998. 13 14 The Company has also budgeted $126.7 million for 1998 capital expenditures associated with its continuing rig enhancement program, spare equipment and other corporate requirements. These expenditures include purchases of anchor chain, drill pipe, riser, and other drilling equipment. During the three months ended March 31, 1998, the Company expended $16.8 million on this program. The Company is continually considering potential transactions including, but not limited to, enhancement of existing rigs, the purchase of existing rigs, construction of new rigs and the acquisition of other companies engaged in contract drilling. Certain of the potential transactions reviewed by the Company would, if completed, result in its entering new lines of business, although, in general, these opportunities have been related in some manner to the Company's existing operations. For example, the Company has explored the possibility of acquiring certain floating production systems, crew accommodation units similar to the Ocean Confidence (formerly named Polyconfidence), oil service companies providing subsea products, technology and services, oil and gas exploration companies, and shipping assets such as oil tankers, through the acquisition of existing businesses or assets or new construction. Although the Company does not, as of the date hereof, have any commitment with respect to a material acquisition, it could enter into such an agreement in the future and such acquisition could result in a material expansion of its existing operations or result in its entering a new line of business. Some of the potential acquisitions considered by the Company could, if completed, result in the expenditure of a material amount of funds or the issuance of a material amount of debt or equity securities. YEAR 2000 ISSUES The Company has addressed the impact of the upcoming change in the century on the Company's business, operations, and financial condition. The impact is dependent upon many factors, including the Company's software and hardware, as well as that of the Company's suppliers, customers, creditors, and financial service organizations. While the cost of addressing Year 2000 issues is not anticipated to be material, the Company is continuing to monitor, on an ongoing basis, the problems and uncertainties associated with these issues and their consequences. FORWARD-LOOKING STATEMENTS Certain written and oral statements made or incorporated by reference from time to time by the Company or its representatives are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, performance or achievements, and may contain the words "expect," "intend," "plan," "anticipate," "estimate," "believe," "will be," "will continue," "will likely result," and similar expressions. Such statements inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, among others, general economic and business conditions, operating difficulties arising from shortages of equipment or qualified personnel or as a result of other causes, casualty losses, industry fleet capacity, changes in foreign and domestic oil and gas exploration and production activity, competition, changes in foreign political, social and economic conditions, regulatory initiatives and compliance with governmental regulations, the ability to attract and retain qualified personnel, customer preferences and various other matters, many of which are beyond the Company's control. The risks included here are not exhaustive. Other sections of this Report and the Company's other filings with the Securities and Exchange Commission include additional factors that could adversely impact the Company's business and financial performance. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based. 14 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate and Equity Price Sensitivity The Company's financial instruments that are potentially sensitive to changes in interest rates include the Notes and investments in debt securities. In addition, the Company's investment in equity securities is sensitive to equity price risk. The Notes, which are due February 15, 2007, have a stated interest rate of 3.75 percent and an effective interest rate of 3.93 percent. At March 31, 1998, the fair value of the Company's investment in debt securities issued by the U.S. Treasury was approximately $440.6 million, which includes an unrealized holding loss of $2.2 million. The fair value of the Company's investment in equity securities at March 31, 1998 was approximately $14.3 million, which includes an unrealized holding gain of $1.0 million. Based on the nature of these financial instruments and consideration of past market movements and reasonably possible near-term market movements, the Company does not believe that potential near-term losses in future earnings, fair values, or cash flows are likely to be material. Exchange Rate Sensitivity Other than trade accounts receivable and trade accounts payable, the Company does not currently have financial instruments that are sensitive to foreign currency exchange rates. 15 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Brown Services, Inc. and KOS Industries, Inc. v. Michael D. Brown, BSI International, Inc., Robert Brown, Robert Furlough, Power House International, Inc., Zapata Off-Shore Company and Zapata Corporation; No. 92-05691 in the 334th Judicial District Court of Harris County, Texas, filed February 7, 1992. Plaintiffs sued Zapata Off-Shore Company and Zapata Corporation (the "Zapata Defendants") for tortious interference with contract and conspiracy to tortiously interfere with contract seeking $14.0 million in actual damages and unspecified punitive damages, plus costs of court, interest and attorneys' fees. A former subsidiary of Arethusa, which is now a subsidiary of the Company, defended and indemnified the Zapata Defendants pursuant to a contractual defense and indemnification agreement. In November 1997, the jury awarded a take nothing judgment in favor of the Zapata Defendants. The plaintiffs appealed the judgment in March 1998. The Company and its subsidiaries are named defendants in certain other lawsuits and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. For a description of one such lawsuit, see Note 6 to the Company's Consolidated Financial Statements in Part I of this Report. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material adverse effect on the financial position, results of operations, or cash flows of the Company. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See Index of Exhibits for a list of those exhibits filed herewith. (b) There were no reports on Form 8-K filed during the first quarter of 1998. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DIAMOND OFFSHORE DRILLING, INC. (Registrant) Date 29-Apr-1998 By: \s\ Gary T. Krenek --------------------------- --------------------------- Gary T. Krenek Vice President and Chief Financial Officer Date 29-Apr-1998 \s\ Leslie C. Knowlton --------------------------- --------------------------- Leslie C. Knowlton Controller and Principal Accounting Officer 17 18 INDEX OF EXHIBITS
Exhibit No. Description - ----------- ----------- 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.2* Amended By-laws of the Company. 3.2.1* Amendment of the Company's By-laws on November 8, 1995. 3.2.2* Amendment of the Company's By-laws on April 3, 1996. 3.2.3* Amendment of the Company's By-laws on March 31, 1998. 4.1 Indenture, dated as of February 4, 1997, between the Company and Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed February 11, 1997). 4.2 Supplemental Indenture, dated as of February 4, 1997, between the Company and Chase Manhattan Bank, as Trustee (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed February 11, 1997). 11.1* Statement Re Computation of Per Share Earnings. 27.1* Financial Data Schedule for the interim year to date period ended March 31, 1998. 27.2* Financial Data Schedule, as restated for the interim year to date periods ended March 31, 1997, June 30, 1997, and September 30, 1997 and the year ended December 31, 1997. 27.3* Financial Data Schedule, as restated for the interim year to date periods ended March 31, 1996, June 30, 1996, and September 30, 1996 and the year ended December 31, 1996. 27.4* Financial Data Schedule, as restated for the year ended December 31, 1995.
- ---------- * Filed herewith. 18 EX-3.2 2 AMENDED BY-LAWS OF DIAMOND OFFSHORE 1 EXHIBIT 3.2 AMENDED BY-LAWS OF DIAMOND OFFSHORE DRILLING, INC. (a Delaware corporation) ARTICLE I Stockholders SECTION 1. Annual Meetings. The annual meeting (the "Annual Meeting of Stockholders") of the holders of such classes or series of capital stock as are entitled to notice thereof and to vote thereat pursuant to the provisions of the Restated Certificate of Incorporation (the "Certificate of Incorporation") of Diamond Offshore Drilling, Inc. (the "Company") for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date as may be designated by resolution of the Board of Directors or, in the event that no such date is so designated, on the second Tuesday in May of each year, at such hour (within ordinary business hours) as shall be stated in the notice of the meeting. If the day so designated shall be a legal holiday, then such meeting shall be held on the next succeeding business day. Each such annual meeting shall be held at such place, within or without the State of Delaware, as shall be determined by the Board of Directors. The Annual Meeting of Stockholders may be adjourned by the presiding officer of the meeting for any reason (including, if the presiding officer determines that it would be in the best interests of the Company, to extend the period of time for the solicitation of proxies) from time to time and place to place until such presiding officer shall determine that the business to be conducted at the meeting is completed, which determination shall be conclusive. At the Annual Meeting of Stockholders, the only business which shall be conducted thereat shall be that which shall have been properly brought before the meeting. To be properly brought before the annual meeting, business must be (a) specified in the notice of meeting (or any supplement or addendum thereto) given by or at the direction of the Board of Directors, (b) brought before the meeting by or at the direction of the Board of Directors or (c) otherwise brought before the meeting by a stockholder in the manner prescribed immediately below. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have delivered timely notice thereof in writing to the Secretary of the Company. To be timely, a stockholder's notice must be delivered to or mailed and received by the Secretary at the principal executive offices of the Company, not less than 90 calendar days in advance of the anniversary date of the previous year's annual meeting of stockholders (or if there was no such prior annual meeting, not less than 90 calendar days prior to the date which represents the second Tuesday in May of the current year); provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 60 days, from such anniversary date, then, to be considered timely, notice by the stockholders must be received not later than the close of business on the later of (x) the 90th day prior to such - 1 - 2 annual meeting or (y) the seventh day following the date on which notice of the date of the annual meeting was mailed to stockholders or public disclosure thereof was otherwise made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be transacted, (b) the name and address, as they appear on the Company's most recent stockholder lists, of the stockholder proposing such proposal, (c) the class and number of shares of capital stock of the Company that are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Any stockholder who desires to propose any matter at an annual meeting shall, in addition to the aforementioned requirements described in clauses (a) through (d), comply in all material respects with the content and procedural requirements of Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), irrespective of whether the Company is then subject to such Rule or said Exchange Act. In addition, if the stockholder's ownership of shares of the Company, as set forth in the notice, is solely beneficial (and not of record) documentary evidence satisfactory to the Company of such ownership must accompany the notice in order for such notice to be considered validly and timely received. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 1. The presiding officer at an annual meeting shall, if the facts warrant, determine and declare to the meeting that any business which was not properly brought before the meeting is out of order and shall not be transacted at the meeting. SECTION 2. Special Meetings. Special meetings of stockholders for the transaction of such business as may properly come before the meeting shall only be called by order of a majority of the entire Board of Directors or by the Chairman of the Board of Directors or by the President of the Company, and shall be held at such date and time, within or without the State of Delaware, as may be specified by such order. SECTION 3. Notice of Meetings. Written notice of all meetings of the stockholders, stating the place, date and hour of the meeting and the place within the city or other municipality or community at which the list of stockholders may be examined, shall be mailed or delivered to each stockholder not less than 10 nor more than 60 days prior to the meeting. Notice of any special meeting shall state with reasonable specificity the purpose or purposes for which the meeting is to be held and the business proposed to be transacted thereat. SECTION 4. Stockholder Lists. The Secretary shall prepare and make, or cause to be prepared and made, at least 10 calendar days before every meeting of stockholders, a true and complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 calendar days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and - 2 - 3 place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present in person thereat. SECTION 5. Quorum. Except as otherwise provided by law or the Certificate of Incorporation, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority in voting power of the then issued and outstanding shares of all classes and series of stock of the Company entitled to vote at the meeting, present in person or by proxy. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided by law, the Certificate of Incorporation or these By-laws, shall be decided by the vote of the holders of a majority in voting power of the shares entitled to vote thereat present in person or by proxy. If there be no such quorum, the holders of a majority in voting power of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal from the meeting by any stockholder. SECTION 6. Organization. Meetings of stockholders shall be presided over by the Chairman, if any, or if none or in the Chairman's absence the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the President, if any, or if none or in the President's absence any Vice President, or, if none of the foregoing is present, by a chairman to be chosen by the holders of a majority in voting power of the shares entitled to vote thereat present in person or by proxy at the meeting. The Secretary of the Company, or in the Secretary's absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint an appropriate person present at the meeting to act as secretary. SECTION 7. Voting; Proxies; Required Vote. Except as otherwise provided in the Certificate of Incorporation, at each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy (but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period), and shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Company on the applicable record date fixed by applicable law or pursuant to these By-laws in respect of each matter properly presented to the meeting. At all elections of directors the voting may (but need not) be by ballot and a plurality of the votes cast there shall be sufficient to elect directors. Except as otherwise required by law or the Certificate of Incorporation, any other action shall be authorized by the vote of the holders of a majority in voting power of the shares entitled to vote thereat present in person or by proxy. SECTION 8. Inspectors. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting shall appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall (i) ascertain the number of shares - 3 - 4 outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. ARTICLE II Board of Directors SECTION 1. General Powers. The business, property and affairs of the Company shall be managed by, or under the direction of, the Board of Directors. SECTION 2. Qualification; Number; Term; Remuneration. (a) Each director shall be at least 18 years of age. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the entire Board shall be no less than three nor more than eleven, as may be fixed from time to time by action of a majority of the entire Board of Directors. The use of the phrase "entire Board" herein refers to the total number of directors which the Company would have if there were no vacancies. (b) Directors who are elected at an annual meeting of stockholders, and directors who are elected to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. (c) Directors who are not officers or other employees of the Company may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Company in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3. Nomination of Directors. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or, to the extent permitted by this Section 3, by any holder of record of capital stock of the Company entitled to vote generally in the election of directors. Any stockholder entitled to vote generally in the election of directors may nominate one or more persons for election as directors only in accordance with the procedures specified in the next sentence, and only if written notice of such stockholder's intent to make such nomination or nominations has been received, either by hand delivery or by United States mail, postage prepaid, by the Secretary of the Company not later than (i) with respect to an election to be held at the Annual Meeting of Stockholders, not less than 90 calendar days prior to the anniversary date of the date of the immediately preceding annual meeting (or if there was no such prior annual meeting, not less than 90 calendar days prior to the date which represents the second Tuesday in May of the current year), - 4 - 5 and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the fifth calendar day following the date on which notice of such meeting is first delivered to stockholders. Each such notice from a stockholder shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of capital stock of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all contracts, arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy or information statement filed pursuant to the Exchange Act and the rules and regulations promulgated thereunder (or any subsequent provisions replacing such Act, rules or regulations); and (e) the consent of each nominee to serve as a director of the Company if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. SECTION 4. Quorum and Manner of Voting. Except as otherwise provided by law or the Certificate of Incorporation, a majority of the entire Board of Directors shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 5. Places of Meetings. Meetings of the Board of Directors may be held at any place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of meeting. SECTION 6. Annual Meetings. Following the Annual Meeting of Stockholders, the newly elected Board of Directors shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the Annual Meeting of Stockholders at the same place at which such stockholders' meeting is held. SECTION 7. Regular Meetings. Regular meetings of the Board of Directors shall be held on the third Tuesday of each January, April, July and October at such place and time as the Board of Directors shall from time to time by resolution determine. Notice need not be given of regular meetings of the Board of Directors held at times and places fixed by resolution of the Board of Directors. SECTION 8. Special Meetings. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board, President, or by a majority of the directors then in office. SECTION 9. Notice of Meetings. A notice of the place, date and time and the purpose or purposes of each meeting of the Board of Directors shall be given to each director - 5 - 6 by mailing the same at least five days before the meeting, or by telefaxing or telephoning the same or by delivering the same personally not later than the day before the day of the meeting. SECTION 10. Organization. At all meetings of the Board of Directors, the Chairman, if any, or if none or in the Chairman's absence or inability to act the President, or in the President's absence or inability to act any Vice President who is a member of the Board of Directors, or in such Vice-President's absence or inability to act a chairman chosen by the directors, shall preside. The Secretary of the Company shall act as secretary at all meetings of the Board of Directors when present, and, in the Secretary's absence, the presiding officer may appoint any person to act as secretary. SECTION 11. Resignation and Removal. Any director may voluntarily resign at any time upon written notice to the Company and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Subject to the rights of the holders of any series of Preferred Stock or any other class of capital stock of the Company (other than the Common Stock) then outstanding, any director may be removed from office at any time, with or without cause, by the affirmative vote of a majority in voting power of the outstanding shares entitled to vote at an election of directors. SECTION 12. Vacancies. Vacancies on the Board of Directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled only by the affirmative vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and any directors so chosen shall hold office until their successors are elected and qualified. SECTION 13. Board Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. ARTICLE III Indemnification SECTION 1. Indemnification. (a) The Company shall indemnify, to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware, as amended from time to time, all persons who it may indemnify pursuant thereto and in the manner prescribed thereby. (b) The Company shall pay the expenses (including attorneys' fees) incurred by an indemnitee in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise. - 6 - 7 ARTICLE IV Committees SECTION 1. Appointment. From time to time the Board of Directors by a resolution adopted by a majority of the entire Board may appoint any committee or committees which, to the extent lawful, shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment. SECTION 2. Procedures, Quorum and Manner of Acting. Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors. SECTION 3. Committee Action by Written Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. Executive Committee. (a) The Board of Directors, by resolution, shall appoint from its members an Executive Committee consisting of the Chairman of the Board and the President and such other directors as it may choose to appoint. Each member of the Executive Committee shall continue to be a member thereof only so long as he remains a director and at the pleasure of the Board of Directors. Any vacancies on the Executive Committee may be filled by the Board of Directors. (b) The Executive Committee, between meetings of the Board of Directors, shall have and may exercise, except as otherwise provided by law, all the powers of the Board of Directors in the management of the property, business and affairs of the Company and may authorize the seal of the Company to be affixed to all papers which may require it. Without limiting the foregoing, the Executive Committee shall have the express power and authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware, as amended. (c) At each meeting of the Executive Committee, one of the following shall act as chairman of the meeting and preside thereat in the following order of precedence: (i) the Chairman of the Executive Committee, who shall be appointed from the members of the Executive Committee by the Board of Directors; (ii) the Chairman of the Board; or - 7 - 8 (iii) the President. The Secretary of the Company shall act as secretary at all meetings of the Executive Committee when present, and, in the Secretary's absence, the presiding officer may appoint any person to act as secretary. (d) Regular meetings of the Executive Committee, of which no notice shall be necessary, shall be held on such days and at such places, within or without the State of Delaware, as shall be fixed by resolution adopted by a majority of the Executive Committee. Special meetings of the Executive Committee shall be held whenever called by the Chairman of the Board, the President or the Chairman of the Executive Committee and shall be called by the Secretary of the Corporation on the request of a majority of the Executive Committee. Notice of each special meeting of the Executive Committee shall be given to each member thereof by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his residence or usual place of business at least two days before the day on which such meeting is to be held or shall be sent addressed to him at such place by telecopy, telegraph, cable, wireless or other form of recorded communication or be delivered personally or by telephone a reasonable time in advance of the time at which such meeting is to be held. Notice of any such meeting need not, however, be given to any member of the Executive Committee if he shall be present at such meeting. Any meeting of the Executive Committee shall be a legal meeting without any notice thereof having been given if all the members of the Executive Committee shall be present thereat. Such notice shall specify the time and place of the meeting, but, except as otherwise expressly provided by law, the purposes thereof need not be stated in such notice. Subject to the provisions of these By-laws, the Executive Committee may fix its own rules of procedure, and it shall keep a record of its proceedings and report them to the Board at the next regular or special meeting thereof after such proceedings shall have been taken. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by any such revision or alteration. (e) Except as otherwise provided by law, a majority of the Executive Committee then in office shall constitute a quorum for the transaction of business, and the act of a majority of those present at a meeting thereof shall be the act of the Executive Committee. In the absence of a quorum, a majority of the members of the Executive Committee present thereat may adjourn such meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given. The Executive Committee shall act only as a committee and the individual members shall have no power as such. (f) Any member of the Executive Committee may resign therefrom at any time by giving written notice of his resignation to the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, it shall take effect immediately upon its receipt; and, except as specified therein, the acceptance of such resignation shall not be necessary to make it effective. (g) In addition to the foregoing, in the absence or disqualification of a member of the Executive Committee, the member or members present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another - 8 - 9 member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. SECTION 5. Audit Committee. The Board of Directors, by resolution, shall appoint from its members an Audit Committee consisting of at least two directors, each of which shall be independent of management and free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment as a committee member. The Audit Committee shall: (a) Prior to each Annual Meeting of Stockholders, submit a recommendation in writing to the Board of Directors for the selection of independent public accountants to be appointed by the Board of Directors in advance of the Annual Meeting of Stockholders, subject to ratification or rejection by the stockholders at such meeting; (b) Consult, at least annually, with the independent public accountants with regard to the proposed plan of audit and from time to time consult privately with them and also with the internal auditor and the Controller with regard to the adequacy of internal controls; (c) Upon completion of the report of audit by the independent public accountants and before the date of the Annual Meeting of Stockholders; (i) review the financial statements of the Company, and (ii) meet with the independent public accountants and review with them the results of their audit and any recommendations made to the management; and (d) Periodically, but at least annually, review the terms of all material transactions and arrangements entered into between the Company and its affiliates and subsidiaries. SECTION 6. Term; Termination. In the event any person shall cease to be a director of the Company, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors. ARTICLE V Officers SECTION 1. Election and Qualifications. The Board of Directors shall elect the officers of the Company, which shall include a Chairman of the Board of Directors, Chief Executive Officer, a Chief Financial Officer, a President and a Secretary, and may include, by election or appointment, one or more Vice-Presidents (any one or more of whom may be given an additional designation or rank or function), a Controller, a Treasurer and such Assistant Treasurers, Assistant Controllers, Assistant Secretaries, and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these By-laws and as may be assigned by the Board of Directors or the President. Any two or more offices may be held by the same person except the offices of President and Secretary. - 9 - 10 SECTION 2. Term of Office and Remuneration. The term of office of all officers shall be one year and until their respective successors have been elected and qualified or until their earlier resignation or removal. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. The remuneration of all officers of the Company may be fixed by the Board of Directors or in such manner as the Board of Directors shall otherwise provide. SECTION 3. Resignation; Removal. Any officer may resign at any time upon written notice to the Company and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by an affirmative vote of a majority of the Board of Directors. SECTION 4. Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and at all meetings of the directors, shall have general management and supervision of the business and affairs of the Company, and shall see that all orders and resolutions of the Board of Directors are carried into effect. SECTION 5. President and Chief Executive Officer. The President shall be the Chief Executive Officer of the Company and shall have general management and supervision of the property, business and affairs of the Company and over its other officers; may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 of this Article V; and may execute and deliver in the name of the Company powers of attorney, contracts, bonds and other obligations and instruments. SECTION 6. Chief Financial Officer. The Chief Financial Officer shall in general have all duties incident to such position, including, without limitation, the organization and review of all accounting, tax and related financial matters involving the Company, the implementation of appropriate Company financial controls and procedures, and the supervision and assignment of the duties of all other financial officers and personnel employed by the Company, and shall have such other duties as may be assigned by the Board of Directors or the President. SECTION 7. Vice-President. A Vice-President may execute and deliver in the name of the Company contracts and other obligations and instruments pertaining to the regular course of the duties of said office, and shall have such other authority as from time to time may be assigned by the Board of Directors or the President. SECTION 8. Treasurer. The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the Chief Financial Officer. SECTION 9. Secretary. The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors, the President or any Vice President. - 10 - 11 SECTION 10. Controller. The Controller shall in general have all the duties incident to the office of Controller and such other duties as may be assigned by the Board of Directors or the Chief Financial Officer. SECTION 11. Assistant Officers. Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe. ARTICLE VI Books and Records SECTION 1. Location. The books and records of the Company may be kept at such place or places within or outside the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary or by the transfer agent or registrar as shall be designated by the Board of Directors. SECTION 2. Addresses of Stockholders. Notices of meetings and all other corporate notices may be delivered personally or mailed to each stockholder at the stockholder's address as it appears on the records of the Company. SECTION 3. Fixing Date for Determination of Stockholders of Record. In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting; (2) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law, or, if prior - 11 - 12 action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VII Certificates Representing Stock SECTION 1. Certificates; Signatures. The shares of the Company shall be represented by certificates, and every holder of stock shall be entitled to have a certificate, signed by or in the name of the Company by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company, representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the books of the Company. SECTION 2. Transfers of Stock. Upon compliance with any provisions restricting the transfer or registration of transfer of shares of stock, including, without limitation, the restrictions set forth in the Certificate of Incorporation, shares of capital stock shall be transferable on the books of the Company only by the holder of record thereof in person, or by duly authorized attorney or legal representative, upon surrender and cancellation of certificates for a like number of shares (or upon compliance with the provisions of Section 5 of this Article VII, if applicable), properly endorsed, and the payment of all taxes due thereon. Upon such surrender to the Company or a transfer agent of the Company of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer (or upon compliance with the provisions of Section 5 of this Article VII, if applicable) and of compliance with any transfer restrictions applicable thereto contained in an agreement to which the Company is a party or of which the Company had knowledge by reason of legend with respect thereto placed on any such surrendered stock certificate, it shall be the duty of the Company to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 3. Ownership of Shares. The Company shall be entitled to treat the holder of record of any shares or shares of capital stock of the Company as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. - 12 - 13 SECTION 4. Fractional Shares. The Company may, but shall not be required to, issue certificates for fractions of a share where necessary to effect authorized transactions, or the Company may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Company or its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a stockholder except as therein provided. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of capital stock of the Company. SECTION 5. Lost, Stolen, or Destroyed Certificates. The Company may issue a new certificate of stock in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to furnish an affidavit as to such loss, theft, or destruction and to give the Company a bond sufficient to indemnify the Company and each transfer agent and registrar against any and all claims that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. ARTICLE VIII Dividends Subject always to provisions of applicable law and the Certificate of Incorporation, the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds or other property legally available for the payment of dividends shall be declared as dividends and paid to holders of the capital stock of the Company; the division of the whole or any part of such funds or other property of the Company shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds or other property among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Company available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Company, or for such other purpose as the Board of Directors shall think conducive to the interest of the Company, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. - 13 - 14 ARTICLE IX Corporate Seal The corporate seal shall have inscribed thereon the name of the Company and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. ARTICLE X Fiscal Year The fiscal year of the Company shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Company shall commence on January 1, and end on December 31, of each and every calendar year. ARTICLE XI Waiver of Notice Whenever notice is required to be given by the Certificate of Incorporation or by these By-laws, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE XII Bank Accounts, Drafts, Contracts, Etc. SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts as may be authorized by the Board of Directors, the Chief Financial Officer, the Treasurer or any other person designated by said Chief Financial Officer, whether or not an employee of the Company, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Company as he may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Company in accordance with the written instructions of said Chief Financial Officer, Treasurer, or other person so designated by said Chief Financial Officer. SECTION 2. Contracts. The Board of Directors may authorize any person or persons in the name and on behalf of the Company to enter into or execute and deliver any and - 14 - 15 all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. Proxies; Powers of Attorney; Other Instruments. The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments in the name and on behalf of the Company in connection with the rights and powers incident to the ownership of stock by the Company. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Company may attend and vote at any meeting of stockholders of any company in which the Company may hold stock, and may exercise on behalf of the Company any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person. SECTION 4. Financial Reports. The Board of Directors may appoint the primary financial officer or other fiscal officer and/or the Secretary or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. ARTICLE XIII Amendments SECTION 1. Except as otherwise set forth in Section 2 of this Article XIII, these By-laws may be altered or repealed at the Annual Meeting of Stockholders or at any special meeting of the stockholders, in each case, at which a quorum is present or represented, provided in the case of a special meeting that notice of the proposed alteration or repeal is contained in the notice of such special meeting, by the affirmative vote of the holders of a majority in voting power of the outstanding capital stock entitled to vote at such meeting and present or represented thereat (in person or by proxy), or by the affirmative vote of a majority of the Board of Directors, at any regular meeting or any special meeting of the board. SECTION 2. Notwithstanding any other provisions of these By-laws (including Section 1 of this Article XIII), the adoption by stockholders of any alteration, amendment, change, addition to or repeal of all or any part of Sections 1, 2, 3, 5, and 7 of Article I, Sections 2, 3, 4, 11 and 12 of Article II or Section 2 of this Article XIII of these By-laws, or the adoption by stockholders of any other provision of these By-laws which is inconsistent with or in addition to such Sections of these By-laws shall require the affirmative vote of the holders of not less than 66 2/3% of the votes entitled to be cast by the holders of all then outstanding capital stock of the Company entitled to vote thereon. THIS IS TO CERTIFY that I am the duly elected and qualified Secretary of Diamond Offshore Drilling, Inc., and that the foregoing By-Laws were adopted as the By-Laws of said Corporation - 15 - 16 on the 10th day of October, 1995, by the Board of Directors of such Corporation. IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of October, 1995. /s/ RICHARD L. LIONBERGER -------------------------------- Richard L. Lionberger, Secretary - 16 - EX-3.2.1 3 AMENDMENT OF THE COMPANY'S BY-LAWS - 11/8/95 1 EXHIBIT 3.2.1 CERTIFICATE OF SECRETARY I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the "Company") do certify that at a duly called meeting of the Board of Directors of the Company held on November 8, 1995, at which a quorum was present, the following resolutions were adopted: WHEREAS, the Company desires to amend its Bylaws to remove the provisions thereof that provide that the Chairman of the Board shall be an officer of the Company and to change the duties of the Chairman of the Board, and; WHEREAS, the Board of Directors is expressly authorized by the Company's Restated Certificate of Incorporation to amend, alter, change, adopt or repeal the Bylaws of the Company. NOW THEREFORE be it RESOLVED, that the Bylaws of the Company be, and they hereby are, amended to delete the position of Chairman of the Board of Directors from the list of officers contained in Article V, Section 1, and to change Article V, Section 4 of the Bylaws to read in its entirety as follows: SECTION 4. Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and at all meetings of the directors and shall have such other authority as from time to time may be assigned by the Board of Directors. The Chairman of the Board of Directors shall not be an officer of the Company. and be it further RESOLVED, that except as amended herein the Bylaws of the Company adopted 10 October 1995 remain in full force and effect. I do further certify that the above resolutions have not been amended, rescinded or repealed and are in full force and effect as of the date hereof. WITNESS, my hand and the seal of the Company, this 10th day of November, 1995. /s/ RICHARD L. LIONBERGER --------------------------------------- Richard L. Lionberger, Secretary EX-3.2.2 4 AMENDMENT OF THE COMPANY'S BY-LAWS - 4/3/96 1 EXHIBIT 3.2.2 CERTIFICATE OF SECRETARY I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the "Company") do certify that the following resolution was adopted by unanimous written consent of the Board of Directors of the Company, dated April 3, 1996: RESOLVED, that Article IV, Section 2 of the Amended By-laws of the Company be, and the same hereby is, amended to read in its entirety as follows: "SECTION 2. Procedures, Quorum and Manner of Acting. Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee; provided, however, that in the event a committee is comprised of two members, the presence of any one of the then appointed members of such committee shall constitute a quorum for the transaction of business by that committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors." I do further certify that the above resolution has not been amended, rescinded or repealed and is in full force and effect as of the date hereof. WITNESS, my hand and the Seal of the Company this 4th day of April, 1996. /s/ RICHARD L. LIONBERGER -------------------------------- Richard L. Lionberger, Secretary EX-3.2.3 5 AMENDMENT OF THE COMPANY'S BY-LAWS - 3/31/98 1 EXHIBIT 3.2.3 CERTIFICATE OF SECRETARY I, RICHARD L. LIONBERGER, Secretary of Diamond Offshore Drilling, Inc. (the "Company") do certify that at a duly called meeting of the Board of Directors of the Company held on 31 March 1998 at which a quorum was present, the following resolutions were adopted: WHEREAS, it has been proposed that the By-Laws of the Company be amended as hereinafter set forth; and WHEREAS, the Board of Directors is expressly authorized by the Company's Restated Certificate of Incorporation to amend, alter, change, adopt or repeal the By-Laws of the Company; NOW THEREFORE, BE IT RESOLVED, that Article V, Section 1 of the By-Laws be, and the same hereby is, amended to read in its entirety as follows: "Section 1. Election and Qualifications. The Board of Directors shall elect the officers of the Company, which shall include a Chief Executive Officer, a Chief Financial Officer, a President and a Secretary, and may include, by election or appointment, a Chief Operating Officer, one or more Vice Presidents (any one or more of whom may be given an additional designation of rank or function), a Controller, a Treasurer and such Assistant Treasurers, Assistant Controllers, Assistant Secretaries, and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these By-laws and as may be assigned by the Board of Directors or (except in the case of the Chief Executive Officer) the President. Any two or more offices may be held by the same person except the offices of President and Secretary."; and further RESOLVED, that Article V, Section 5 of the By-Laws be, and the same hereby is, amended to read in its entirety as follows: "Section 5. (a) Chief Executive Officer. The Chief Executive Officer of the Company shall have such duties as customarily pertain to that office; may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 of this Article V; and may execute and deliver in the name of the Company powers of attorney, contracts, bonds and other obligations and instruments. 2 (b) President. The President of the Company shall have general management and supervision of the property, business and affairs of the Company and over its other officers (other than the Chief Executive Officer); may appoint and remove assistant officers and other agents and employees, other than officers referred to in Section 1 of this Article V; and may execute and deliver in the name of the Company powers of attorney, contracts, bonds and other obligations and instruments. (c) Chief Operating Officer. The Chief Operating Officer of the Company shall in general have all duties incident to such position, including, without limitation, general management and supervision of the operational affairs of the Company and the supervision and assignment of the duties of all other operational officers and personnel employed by the Company, and shall have such other duties as may be assigned by the Board of Directors or the President."; and further RESOLVED, that except as amended herein, the By-Laws shall remain in full force and effect. I do further certify that the above resolutions have not been amended, rescinded or repealed and are in full force and effect as of the date hereof. WITNESS, my hand and the seal of the Company, this 31st day of March, 1998. /s/ RICHARD L. LIONBERGER -------------------------------- Richard L. Lionberger, Secretary EX-11.1 6 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 DIAMOND OFFSHORE DRILLING, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------------------------------- 1998 ------------------------------------------- WEIGHTED AVERAGE PER SHARE INCOME SHARES AMOUNT (NUMERATOR) (DENOMINATOR) ------------------------------------------- BASIC EPS Net income .......................... $ 80,722 139,325 $ 0.58 EFFECT OF DILUTIVE POTENTIAL SHARES Convertible notes issued 2/4/97 ..... 2,498 9,876 DILUTED EPS --------- --------- --------- Net income + assumed conversions .... $ 83,220 149,201 $ 0.56 ========= ========= ========= THREE MONTHS ENDED MARCH 31, ------------------------------------------- 1997 ------------------------------------------- WEIGHTED (1) AVERAGE PER SHARE INCOME SHARES AMOUNT (NUMERATOR) (DENOMINATOR) ------------------------------------------- BASIC EPS Net income .......................... $ 56,230 136,768 $ 0.41 EFFECT OF DILUTIVE POTENTIAL SHARES Convertible notes issued 2/4/97 ..... -- (2) 6,036 DILUTED EPS --------- --------- --------- Net income + assumed conversions .... $ 56,230 142,804 $ 0.39 ========= ========= =========
- ---------- (1) Weighted average shares outstanding have been restated to include the retroactive effect of the July 1997 two-for-one stock split in the form of a stock dividend. (2) There was no adjustment needed to eliminate the interest on the convertible notes due to the capitalization of all interest cost incurred. EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1998 JAN-01-1998 MAR-31-1998 78,056 277,402 238,295 0 34,363 638,676 1,858,738 400,546 2,401,609 154,913 400,000 0 0 1,393 1,596,486 2,401,609 0 286,069 0 125,333 38,693 0 3,843 124,648 43,926 80,722 0 0 0 80,722 0.58 0.56 INCLUDES CONTRACT DRILLING EXPENSES ONLY. INCLUDES OTHER OPERATING EXPENSES.
EX-27.2 8 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 6-MOS 9-MOS YEAR DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997 39,258 41,145 70,860 102,958 213,465 196,624 312,305 363,137 180,318 197,092 217,236 205,589 0 0 0 0 30,754 31,282 32,314 33,714 480,668 482,128 654,435 718,775 1,544,633 1,705,878 1,764,091 1,821,906 297,072 322,485 349,381 370,165 1,963,759 2,124,664 2,201,527 2,298,561 108,532 115,672 113,123 131,145 400,000 400,000 400,000 400,000 0 0 0 0 0 0 0 0 684 696 1,393 1,393 1,249,900 1,398,374 1,464,198 1,534,134 1,963,759 2,124,664 2,201,527 2,298,561 0 0 0 0 204,733 433,267 683,764 956,093 0 0 0 0 89,739 187,960 287,867 406,343 30,688 62,772 96,349 129,877 0 0 0 0 0 3,349 6,940 10,270 87,014 187,403 306,741 430,061 30,784 65,939 107,446 151,456 56,230 121,464 199,295 278,605 0 0 0 0 0 0 0 0 0 0 0 0 56,230 121,464 199,295 278,605 0.41 0.88 1.44 2.01 0.39 0.85 1.39 1.93 Includes contract drilling expenses only. Includes other operating expenses. Per share amounts reflect the retroactive effect of the two-for-one stock split in the form of a stock dividend to stockholders of record on July 24, 1997.
EX-27.3 9 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 6-MOS 9-MOS YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 3,867 5,051 11,357 28,180 5,110 5,202 6,827 0 87,624 144,812 135,008 172,214 0 0 0 0 15,746 31,085 30,678 30,407 120,556 201,355 195,330 242,967 761,834 1,320,319 1,390,839 1,471,085 228,189 243,426 262,186 272,925 658,185 1,367,329 1,414,019 1,574,500 50,076 74,807 81,547 128,000 15,000 70,000 55,000 63,000 0 0 0 0 0 0 0 0 500 683 683 684 511,132 1,098,237 1,136,651 1,194,048 658,185 1,367,329 1,414,019 1,574,500 0 0 0 0 106,868 253,851 424,473 611,430 0 0 0 0 66,157 147,754 242,109 341,654 15,015 33,787 52,534 56,285 0 0 0 0 0 104 104 2,326 26,130 72,914 130,843 212,705 7,398 21,160 40,609 66,317 18,732 51,754 90,234 146,388 0 0 0 0 0 0 0 0 0 0 0 0 18,732 51,754 90,234 146,388 0.19 0.46 0.75 1.18 0.19 0.46 0.75 1.18 Includes contract drilling expenses only. Includes other operating expenses. Per share amounts reflect the retroactive effect of the two-for-one stock split in the form of a stock dividend to stockholders of record on July 24, 1997.
EX-27.4 10 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 10,306 5,041 74,496 0 15,330 115,774 718,409 216,131 618,052 52,251 0 0 0 500 492,394 618,052 0 336,584 0 259,560 65,373 0 27,052 (13,803) (6,777) (7,026) 0 0 0 (7,026) 0.10 0.10 INCLUDES CONTRACT DRILLING EXPENSES ONLY. INCLUDES OTHER OPERATING EXPENSES. PER SHARE AMOUNTS REFLECT THE RETROACTIVE EFFECT OF THE TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND TO STOCKHOLDERS OF RECORD ON JULY 24, 1997. EARNINGS PER SHARE IS PRESENTED ON A PRO FORMA BASIS ASSUMING THE COMPANY'S INITIAL PUBLIC OFFERING HAD OCCURRED AT THE BEGINNING OF THE PERIOD. NET LOSS WAS ADJUSTED FOR THE AFTER-TAX EFFECTS OF A REDUCTION IN INTEREST EXPENSE.
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