Transocean Sedco Forex Reports First Quarter 2002 Results
Transocean Sedco Forex Inc. announced that net income for the three months ended March 31, 2002, before the cumulative effect of a change in accounting principle, was $77.3 million, or $0.24 per diluted share on revenues of $667.9 million. Including the cumulative effect of the change in accounting principle resulting from the company's January 1, 2002 adoption of Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible Assets, the company reported a net loss of $1,286.4 million, or $3.98 per diluted share.
During the first quarter of 2002, the company performed its initial test of impairment for goodwill on its two reporting units, "Gulf of Mexico Shallow and Inland Water" and "International and U.S. Floater Contract Drilling Services." The test, which was applied utilizing the fair value of the reporting units at January 1, 2002, resulted in a non-cash charge of $1,363.7 million, or $4.22 per diluted share, to reflect the impairment of goodwill associated with the Gulf of Mexico Shallow and Inland Water reporting unit. There was no goodwill impairment charge in the International and U.S. Floater Contract Drilling Services reporting unit. In accordance with SFAS 142, the company has discontinued the amortization of goodwill as of January 1, 2002. The company's goodwill balance, after giving effect to the goodwill write down, is $5.1 billion.
During the three months ended March 31, 2001, the company reported net income of $30.5 million, or $0.11 per diluted share, on revenues of $550.1 million. The results included a $15.9 million, or $0.06 per diluted share, net after-tax gain pertaining to the sale of a semisubmersible rig owned by a joint venture in which the company has a 25% equity interest. Goodwill amortization for the three months ended March 31, 2001 totaled $30.2 million, or $0.11 per diluted share. Adjusting for the net after-tax gain and excluding goodwill amortization expense, net income for the three months ended March 31, 2001 was $44.8 million, or $0.16 per diluted share.
Transocean Sedco Forex completed a merger transaction with R&B Falcon Corporation on January 31, 2001. Therefore, results for the three months ended March 31, 2001 reflect only two months of operating results of R&B Falcon Corporation. Pro forma utilization measures noted below have been calculated based on the combined fleet of Transocean Sedco Forex and R&B Falcon for the three months ended March 31, 2001.
Operating revenues from the company's International and U.S. Floater Contract Drilling Services business segment totaled $623.2 million during the three months ended March 31, 2002, an 8% decline from operating segment revenues of $678.4 million during the three months ended December 31, 2001. Revenues from this segment accounted for 93% of total operating revenues during the first quarter of 2002. Operating income, defined as operating revenues less operating and maintenance expenses, declined 4% to $294.5 million during the three months ended March 31, 2002, compared to $305.4 million during the three months ended December 31, 2001. Segment fleet utilization declined to 82% during the three months ended March 31, 2002, from 86% during the three months ended December 31, 2001.
Operating revenues from the company's Gulf of Mexico Shallow and Inland Water business segment declined 35% during the three months ended March 31, 2002, to $44.7 million compared to segment operating revenues of $69.2 million during the three months ended December 31, 2001. The further weakening operating environment that has persisted since mid-2001 resulted in a $7.6 million segment operating loss during the three months ended March 31, 2002, compared to an operating profit of $2.4 million during the three months ended December 31, 2001. Segment utilization declined to 31% during the three months ended March 31, 2002, from 38% during the fourth quarter of 2001.
As of March 31, 2002, net debt (defined as long-term debt plus debt due within one year, less cash and cash equivalents) was $4,009 million, down $161 million from net debt of $4,170 million as of December 31, 2001 and down $599 million from net debt of $4,608 million as of March 31, 2001.
J. Michael Talbert, Chief Executive Officer of Transocean Sedco Forex Inc., stated, "Declining drilling activity in the North America floater market sector, the Norwegian sector of the North Sea and the Gulf of Mexico Shallow and Inland Water segment, combined with the mobilization of two high-specification rigs, contributed substantially to an 11% decline in operating revenues during the first quarter of 2002, compared to the final three months of 2001. The uncertain duration of lower activity resulted in decisions to immediately cold-stack several rigs in each of our two business segments following the conclusion of contract commitments. These decisions, coupled with the deferral of some discretionary rig maintenance projects to later periods in 2002, helped to reduce operating and maintenance expenses by $58.8 million during the quarter, or 13% compared to levels experienced during the three months ended December 31, 2001."
In commenting on the company's adoption of SFAS 142, Talbert explained, "The non-cash goodwill impairment charge reflects the highly cyclical nature of the shallow and inland water business in the U.S. Gulf of Mexico. An initial $1.8 billion of unamortized goodwill was allocated to the business segment at January 31, 2001, based on fair value assumptions when the business was progressing toward a cyclical peak. Our initial test for goodwill impairment was required to be performed 11 months later, when the segment had deteriorated to a cyclical low."
In closing, Talbert stated, "The outlook for 2002 drilling activity remains uncertain. Reduced rig demand in Norway has materialized as expected, while several market sectors for conventional semisubmersible rigs are noticeably weaker today than 90 days ago, in particular the U.S. Gulf of Mexico and West Africa. Globally, the international deepwater drilling market is essentially in balance, with opportunities emerging offshore India. The U.S. Gulf of Mexico deepwater market sector is currently oversupplied, but is expected to see higher rig utilization during the second half of 2002 or early 2003, driven by a greater mix of development drilling projects and by rig mobilizations to other, currently more active deepwater regions. Our jackup rig fleet in the U.S. Gulf of Mexico is experiencing a modest improvement in customer interest, resulting in one previously stacked 200 foot, mat-cantilever unit returning to work on an estimated 120-day drilling program. Two to three other units in our jackup rig fleet that are currently stacked could return to work in the next 30 to 60 days."