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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

   For the fiscal year ended December 31, 2000

                                        OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

    For the transition period from             to            .

                          Commission File No. 1-13729

                            R&B FALCON CORPORATION
            (Exact name of registrant as specified in its charter)

              Delaware                                 76-0544217
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
   incorporation or organization)

                      4 Greenway Plaza, Houston, TX 77046
              (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code 713-232-7500

       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

The registrant meets the conditions set forth in Section I(1)(a) and (b) of the
General Instructions of Form 10-K and is therefore filing this Form 10-K with a
reduced disclosure format.

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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                               TABLE OF CONTENTS

                                                                          Page
                                                                          ----

                                     PART I

 Item 1.  Business......................................................    3
 Item 2.  Properties....................................................    7
 Item 3.  Legal Proceedings.............................................    8
 Item 4.  Submission of Matters to a Vote of Security Holders...........   10

                                    PART II

 Item 5.  Market for the Registrant's Common Stock and Related
           Stockholder Matters..........................................   11
 Item 6.  Selected Financial Data.......................................   11
 Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................   12
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk....   15
 Item 8.  Financial Statements and Supplementary Data...................   16
 Item 9.  Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure......................................   54

                                    PART III

 Item 10. Directors and Executive Officers of the Registrant............   54
 Item 11. Executive Compensation........................................   54
 Item 12. Security Ownership of Certain Beneficial Owners and
           Management...................................................   54
 Item 13. Certain Relationships and Related Transactions................   54

                                    PART IV

 Item 14. Exhibits, Financial Statements and Reports on Form 8-K........   54

Signatures..............................................................   64

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                          FORWARD-LOOKING INFORMATION

The statements included in this annual report regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements to the effect that the Company or management "anticipates,"
"believes," "budgets," "estimates," "expects," "forecasts," "intends," "plans,"
"predicts," or "projects" a particular result or course of events, or that such
result or course of events "could," "might," "may," "scheduled" or "should"
occur, and similar expressions, are also intended to identify forward-looking
statements.  Forward-looking statements in this annual report include, but are
not limited to, statements involving expected capital expenditures, results and
effects of legal proceedings, timing of completion of turnkey commitments,
timing of the sale of the land and barge drilling business in Venezuela,
potential refinancing of indebtedness, the timing and cost of completion of
capital projects and timing of delivery of drilling units. Such statements are
subject to numerous risks, uncertainties and assumptions, including but not
limited to, worldwide demand for oil and gas, uncertainties relating to the
level of activity in offshore oil and gas exploration and development,
exploration success by producers, oil and gas prices, demand for offshore rigs,
competition and market conditions in the contract drilling industry, delays or
termination of drilling contracts due to a number of events, cost overruns on
construction projects and possible cancellation of drilling contracts as a
result of delays or performance, our ability to enter into and the terms of
future contracts, the availability of qualified personnel, labor relations and
the outcome of negotiations with unions representing workers, operating hazards,
political and other uncertainties inherent in non-U.S. operations (including
exchange and currency fluctuations), the impact of governmental laws and
regulations, compliance with or breach of environmental laws, the adequacy of
sources of liquidity, the effect of litigation and contingencies and other
factors discussed in this annual report and in the Company's other filings with
the SEC, which are available free of charge on the SEC's website at www.sec.gov.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those indicated. You should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the
particular statement, and we undertake no obligation to publicly update or
revise any forward-looking statements.


                                     PART I

Item 1. Business

   The following information has been provided in accordance with the reduced
disclosure format as permitted by General Instruction I (2)(d) of Form 10-K.

                                  THE COMPANY

   R&B Falcon Corporation ("R&B Falcon"), a Delaware corporation, was
incorporated in July 1997. Prior to December 31, 1997, R&B Falcon did not own
any material assets or conduct any business.  Effective December 31, 1997,
pursuant to an Agreement and Plan of Merger dated July 10, 1997, Falcon Drilling
Company, Inc. ("Falcon"), currently R&B Falcon Holdings, Inc., a Delaware
corporation incorporated in 1991, and Reading & Bates Corporation ("R&B"),
currently R&B Falcon (International and Deepwater) Inc., a Delaware corporation
incorporated in 1955, became wholly owned subsidiaries of R&B Falcon (the "RBF
Merger").  Effective December 1, 1998, R&B Falcon acquired all of the
outstanding stock of Cliffs Drilling Company ("Cliffs Drilling"), a Delaware
corporation incorporated in 1988. Unless the context otherwise indicates, the
term "Company" herein refers to the total business conducted by R&B Falcon and
its subsidiaries.

   On August 19, 2000, the Company, entered into an Agreement and Plan of Merger
with Transocean Sedco Forex Inc. ("Transocean"), a Cayman Islands company,
whereby each share of the Company's  common stock would convert into 0.5
ordinary shares of Transocean (the "TSF Merger").   The common stock
shareholders of the Company approved the TSF Merger on December 12, 2000 at a
special meeting. On January 31, 2001, the TSF Merger was completed and the
Company became an indirect wholly owned subsidiary of Transocean. The current
directors of the Company were elected at the time of the TSF Merger. In
connection with the TSF Merger, Transocean also assumed warrants and options
exercisable for R&B Falcon common stock prior to the TSF Merger. Such warrants
and options are exercisable

                                       3
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for approximately 13.2 million ordinary shares of Transocean. As of December 31,
2000, the Company had incurred $6.1 million of expenses in association with the
TSF Merger consisting primarily of legal and accounting fees. The TSF Merger was
accounted for as a purchase with Transocean as the acquiror for accounting
purposes. The purchase price will be "pushed down" to the consolidated financial
statements of the Company.

   In January 2001, in connection with the TSF Merger, the Company: 1) paid an
investment advisory fee of $19.6 million to Morgan Stanley; 2) paid termination
benefits of $25.1 million to seven employees in accordance with employment
contracts; 3) recorded a $9.5 million charge due to the acceleration of vesting
of certain stock options and unearned compensation of restricted stock grants
previously awarded to certain employees; and 4) contributed the inland marine
support vessel business consisting primarily of the Company's shallow water
tugs, crewboats and utility barges, to Delta Towing Holdings, LLC ("Delta
Towing"). In connection with this contribution, the Company received secured
contingent notes totaling $144.0 million and a 25% ownership interest in Delta
Towing. The Company recorded a pre-tax charge of approximately $64.0 million
as a reserve against the contingent notes in January 2001. The remaining 75%
ownership interest is beneficially owned by unrelated third parties.


                               BUSINESS - GENERAL

   The Company's primary business is providing marine contract drilling and
ancillary services relating to oil and gas wells on a worldwide basis.

   The Company provides the equipment and personnel for drilling wells and
conducting workover operations on wells in marine environments and on land.
Drilling operations essentially involve the boring of a hole in the earth's
crust with the objective of locating hydrocarbon reservoirs.  Workover
operations involve efforts to repair damage to, or stimulate production from, an
existing well.  Drilling operations in general require heavier and more powerful
equipment due to the weight of the drillpipe and downhole equipment involved and
the potential pressures that may be encountered while drilling.  Most of the
Company's rigs are capable of providing both drilling and workover services.

   The Company, primarily through its subsidiary Reading & Bates Development Co.
("Devco"), engages in exploration for oil and gas. In March 1998, the Company
decided to divest its oil and gas business, and in the Company's financial
statements previously filed with the Securities and Exchange Commission for the
three years ended December 31, 1997, 1996 and 1995 and the first three quarters
of 1998, the business was accounted for as a discontinued operation.  However in
March 1999, the Company had not been able to divest this business on terms it
found acceptable and in accordance with generally accepted accounting principles
the Company reclassified its financial statements for the three years ended
December 31, 1998, 1997 and 1996 as if this business had not been discontinued.
See Notes N, O and R of Notes to Consolidated Financial Statements.

              SIGNIFICANT DEVELOPMENTS DURING 2000 AND EARLY 2001

    .  The high-specification semisubmersible Deepwater Nautilus was delivered
       in February 2000 and commenced its five-year drilling contract in the
       U.S. Gulf of Mexico with Shell in June 2000.

    .  The high-specification drillship Navis Explorer I was delivered in March
       2000. This drillship is owned by Navis ASA ("Navis"), a Norwegian public
       company, in which the Company owned an approximate 38.6% interest. In the
       second quarter of 2000, the Company entered into a definitive agreement
       to sell its 38.6% ownership interest in Navis, together with an agreement
       to assign the management contract for the Navis Explorer I, for a total
       price of $79.0 million. In November 2000, the sale was completed and as a
       result, the Company recorded a pre-tax gain of approximately $19.8
       million in the fourth quarter of 2000. The assignment of the management
       contract is expected to take place in the second quarter of 2001.

    .  The high-specification drillship Deepwater Navigator was delivered from
       the shipyard in the first quarter of 2000. The drillship's original
       drilling contract with a unit of BP for three years (with five one-year
       extensions) was cancelled on April 15, 1999 by the client in accordance
       with the contract's terms because the drillship had not been delivered on
       time. The Company obtained a three-year drilling contract for the
       Deepwater Navigator offshore Brazil with Petrobras, which commenced in
       July 2000.

                                       4
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    .  The high-specification drillship Deepwater Discovery was delivered in
       July 2000 and commenced its three-year drilling contract offshore Nigeria
       with Texaco in December 2000.

    .  The high-specification semisubmersible Deepwater Horizon was delivered
       from the shipyard in February 2001 and is in the testing and
       commissioning phase. The unit is expected to commence a three-year
       contract (with five one-year options) with a unit of BP in the U.S. Gulf
       of Mexico in the third quarter of 2001.

    .  In April 1998, Cliffs Drilling entered into a turnkey contract with PDVSA
       Exploration and Production ("PDVSA") to drill 60 turnkey wells in
       Venezuela. The drilling program commenced in March 1998 and the program
       was expected to extend over approximately three and one-half years and to
       utilize seven of the Company's land drilling rigs. However, during the
       first quarter of 1999, in response to the downturn in the market and
       changes in both PDVSA's management and its operating policies, PDVSA and
       the Company renegotiated prices at reduced margins and in the fourth
       quarter of 1999, renegotiations were made at further reduced margins. By
       the end of the second quarter of 2000, the Company had completed 35 of
       the 60 wells. In February 2000, PDVSA cancelled the turnkey contract for
       the remaining 25 wells. The Company continues bidding on other dayrate
       contracts with PDVSA and other operators in Venezuela.

    .  In July 2000, the Company's wholly owned subsidiary R&B Falcon Subsea
       Development Inc. and its subsidiary Devco (see the subsequent purchase of
       Devco's minority interest below) sold their U.S. Gulf of Mexico oil and
       gas properties for an aggregate amount of $127.2 million. As a result,
       the Company recorded a gain, net of tax and minority interest, of
       approximately $35.8 million in the third quarter of 2000. At the time of
       this sale, approximately 13.6% of Devco was owned by minority
       shareholders, comprised of directors, employees and officers of the
       Company and Devco, and as a result net proceeds to the Company were
       reduced.

    .  In September 2000, the Company sold its stacked drillships Falcon Duchess
       and Falcon Ice for an aggregate amount of $23.0 million and as a result,
       the Company recorded a pre-tax gain of $2.5 million.

    .  On October 27, 2000, the Company commenced a tender offer to purchase for
       cash any and all of the Company's outstanding 13.875% Senior Cumulative
       Redeemable Preferred Stock at a fixed price of $1,300 per share. The
       offer expired on November 29, 2000 and all except 36.05 shares out of a
       total of 369,343.099 shares outstanding were tendered on December 1,
       2000. The remaining 36.05 shares were redeemed on December 15, 2000 at a
       price of $1,156.09 per share. The total cash cost to the Company was
       approximately $482.5 million (including expenses of approximately $2.4
       million). Such cash requirement was funded from the proceeds from a
       common stock offering (see below) and cash held by unrestricted
       subsidiaries of the Company. As a result of the tender offer, the Company
       recorded a charge to net loss applicable to common stockholders for a
       tender offer premium of $110.8 million and the write-off of unamortized
       discount and expenses of $49.2 million.

    .  On October 31, 2000, the Company sold 16.3 million shares of its common
       stock resulting in gross proceeds of approximately $403.4 million in cash
       (net proceeds of approximately $400.2 million). The net proceeds were
       used to fund a significant portion of the Company's tender offer to
       purchase its outstanding preferred stock (see above) and for general
       corporate purposes.

    .  In November 2000, Devco sold its Israeli oil and gas properties for an
       aggregate amount of $114.0 million which, after a 30% tax withholding,
       resulted in net proceeds of $79.8 million. As a result, the Company
       recorded a gain, net of tax and minority interest, of approximately $60.5
       million in the fourth quarter of 2000. At the time of this sale,
       approximately 13.6% of Devco was owned by minority shareholders,
       comprised of directors, employees and officers of the Company and Devco,
       and as a result net proceeds to the Company were reduced.

                                       5
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    .  In January 2001, the Company purchased for $34.7 million the approximate
       13.6% minority interest in Devco which was owned by former directors and
       employees of the Company and directors and employees of Devco. As a
       result, Devco is now a wholly owned subsidiary of the Company. The
       purchase price was based on a valuation by a third party advisor. In
       connection with the purchase, a $.3 million bonus was paid to Richard A.
       Pattarozzi, a current director of Transocean. See Subsidiary Stock Award
       in Note J of Notes to Consolidated Financial Statements.

    .  The TSF Merger was completed effective January 31, 2001.  See Item 1.
       Business, The Company.

    .  Subsequent to the TSF Merger, Transocean's management informed the
       Company of its intent to sell its land and barge drilling business in
       Venezuela consisting of 11 wholly owned and two partially owned land rigs
       and three lake barges. The Company is in discussions with possible buyers
       and expects to close the sale in the second quarter of 2001, provided it
       is able to realize an acceptable purchase price. Management is soliciting
       offers which include some or all of the assets in Venezuela and is unable
       to predict the final outcome.

    .  The Company conducts turnkey drilling operations through Cliffs Drilling.
       Two turnkey wells initiated by Cliffs Drilling during the fourth quarter
       of 2000 encountered downhole problems and the Company took a charge
       against earnings of $5.0 million in the fourth quarter relating to
       estimated losses on these wells. Subsequent to December 31, 2000, Cliffs
       Drilling encountered additional downhole problems with these wells and
       three additional wells, and the Company expects to take a charge,
       currently estimated at $4.4 million, against earnings in the first
       quarter of 2001.

    .  Subsequent to the TSF Merger, Transocean's management decided that Cliffs
       Drilling will no longer accept turnkey contracts but will complete
       turnkey contracts to which it is committed. The Company expects to
       fulfill all turnkey commitments by the end of the second quarter of 2001.

    .  On March 5, 2001, the Company commenced a tender offer for all of its
       outstanding 11.375 % Senior Secured Notes ("11.375% Notes"). Under the
       terms of the offer, the Company will purchase outstanding 11.375% Notes
       at a purchase price determined by reference to a fixed spread of 50 basis
       points over the yield to maturity of the United States Treasury 4 3/4%
       Note due February 15, 2004, plus accrued interest to the date of payment
       of such purchase price. The purchase price includes an amount equal to 3%
       of the principal amount that will be paid only for 11.375% Notes tendered
       at or prior to a "consent payment deadline", which is expected to be 5:00
       P.M., New York City time, on March 22, 2001. In connection with the
       offer, the Company is also seeking consents to certain proposed
       amendments to the Indenture under which the 11.375% Notes were issued.
       The offer will expire at 5:00 P.M., New York City time, on April 9, 2001,
       unless extended or earlier terminated. Payment for tendered 11.375% Notes
       will be made in same day funds on the first business day following
       expiration of the offer, or as soon thereafter as practicable.
       Concurrently with the launch of the offer, RBF Finance Co. has called the
       11% Senior Secured Notes and the Company has called the 12.25% Senior
       Notes for redemption on April 6, 2001, in each case at the applicable
       redemption price. As a result, the Company expects to incur an estimated
       $18.2 million extraordinary loss, net of tax, in the second quarter of
       2001 relating to the early extinguishment of this debt. Transocean has
       agreed to provide the Company with sufficient funds to pay for all
       securities purchased pursuant to the offer or redeemed in the redemption.

    .  The TSF Merger constituted a "change of control" of Cliffs Drilling, as
       defined in the indenture for the 10.25% Senior Notes. Subsequent to the
       TSF Merger and pursuant to the indenture, Cliffs Drilling has caused a
       notice of change of control and offer to purchase to be delivered to the
       holders. Transocean has agreed to provide the Company with sufficient
       funds to pay for all securities purchased pursuant to the offer.

                                       6
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ITEM 2. PROPERTIES
                              THE COMPANY'S FLEET

   The following sets forth a brief description of the types and capabilities of
the rigs operated by the Company.

   Drillships. Drillships are generally self-propelled and designed to drill in
the deepest water in which offshore drilling rigs currently operate.  Shaped
like conventional ships, they are the most mobile of the major rig types.  The
Company's drillships are either dynamically positioned, which allows them to
maintain position without anchors through the use of their onboard propulsion
and station-keeping systems, or are operated in a moored configuration.
Drillships typically have greater load capacity than semisubmersible rigs.  This
enables them to carry more supplies on board, which often makes them better
suited for drilling in remote locations where resupply is more difficult.
However, drillships are typically limited to calmer water conditions than those
in which semisubmersibles can operate.  High-specification drillships are those
that are dynamically positioned and rated for drilling in water depths of at
least 7,000 feet and are designed for ultra-deepwater exploration and
development drilling programs. As of March 1, 2001, the Company's fleet included
eight high-specification  drillships (one of which is owned 50% and one of which
is owned 60%) and one other drillship located in Brazil, the U.S. Gulf of Mexico
and Nigeria.

   Semisubmersible Rigs. Semisubmersibles are floating vessels that can be
submerged by means of a water ballast system such that a substantial portion of
the lower hull is below the water surface during drilling operations.  These
rigs maintain their position over the well through the use of an anchoring
system or computer controlled dynamic positioning thruster system.  Some
semisubmersible rigs are self-propelled and move between locations under their
own power when afloat on the pontoons although most are relocated with the
assistance of tugs.  Typically, semisubmersibles are better suited for
operations in rough water conditions than drillships.  High-specification
semisubmersibles are those that were built or extensively upgraded since 1984
and have one or more of the following characteristics: larger physical size than
other semisubmersibles; rated for drilling in water depths of over 4,000 feet;
year-round harsh environment capability; variable deck load capability of
greater than 4,000 metric tons; dynamic positioning; and superior motion
characteristics. As of March 1, 2001, the Company's fleet included seven high-
specification semisubmersibles and three other semisubmersibles in various
locations around the world.

   Jackup Rigs. Jackup rigs are mobile self-elevating drilling platforms
equipped with legs that can be lowered to the ocean floor until a foundation is
established to support the drilling platform.  Once a foundation is established,
the drilling platform is then jacked further up the legs so that the platform is
above the highest expected waves.  These rigs are generally suited for water
depths of 300 feet or less. As of March 1, 2001, the Company's fleet included 39
jackup rigs in various locations around the world.

   Barge Drilling Rigs. The Company's barge drilling fleet consists of
conventional and posted inland barge rigs.  These rigs are mobile drilling
platforms that are submersible and are built to work in eight to 20 feet of
water.  A posted barge is identical to a conventional barge except that the hull
and superstructure are separated by 10 to 14 foot columns, which increases the
water depth capabilities of the rig.  The Company's fleet includes 33 inland
barge drilling rigs, all of which are located in the U.S.

   Other Rigs. In addition to the drillships, semisubmersibles, jackups and
barge drilling rigs, the Company also owns or operates several other types of
rigs.  These rigs include three mobile offshore production units, which are
mobile offshore drilling units that have been converted from drilling operations
to a production application, two multi-purpose service vessels, two tenders,
three submersible rigs and three platform drilling rigs.  The Company also has a
fleet of land and barge drilling rigs in Venezuela consisting of 11 wholly owned
and two partially owned land rigs and three lake barges.

                              OIL & GAS PROPERTIES

   The Company's oil and gas business has been operated primarily through Devco
and to a lesser extent, through its wholly owned subsidiaries R&B Falcon Subsea
Development Inc. ("Subsea Development"), Raptor Exploration Company, Inc. and
Cliffs Oil and Gas Company.  The Company sold a substantial portion of its oil
and gas portfolio during 2000.

                                       7
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   Domestic Operations.  Devco owned a 50% record title interest in East Breaks
642, 643, 688 and 732 ("Boomvang Project") offshore U.S. Gulf of Mexico.  The
Boomvang Project had been successfully drilled by Devco and its partners, Kerr-
McGee Oil & Gas Corporation (30%) and Ocean Energy, Inc. (20%).  In 1999, Devco
and its partners determined that sufficient proved and probable reserves had
been established to warrant the expenditure of funds for planning the
fabrication and installation of production facilities for the Boomvang Project.
In the first and second quarters of 2000 the Company evaluated its options and
elected to attempt to sell its interest on favorable terms. Effective July 1,
2000, Devco sold its interests in the Boomvang Project and all of its other oil
and gas properties in the U.S. to Enterprise Oil Gulf of Mexico Inc.
("Enterprise") for approximately $117.2 million in cash.

   Subsea Development owned a 100% working interest in the producing gas
property "Gyrfalcon" located at Green Canyon 20.  Effective July 1, 2000, Subsea
Development sold its interest in Gyrfalcon to Enterprise for $10.0 million in
cash.

   International Operations. RB Mediterranean Ltd., a wholly owned subsidiary of
Devco, owned a 15% working interest in a lease, nine licenses and two permits in
deepwater offshore Israel ("Israel Project"). Devco participated in the drilling
and discovery of significant gas reserves on these properties in 1999 and 2000.
After evaluating its options, Devco elected to sell its interest in the Israel
Project to the parent of its Israeli partner, Delek Drilling Limited Partnership
("Delek").  The Israel Project was sold to Delek effective September 1, 2000 for
$114.0 million in cash, however, RB Mediterranean retained a 0.7% of 8/8ths
overriding royalty on new discoveries outside of the area of the proven
reserves.

   In 1998, Devco completed a transaction with Vanco Energy Company ("Vanco")
and its subsidiary companies to acquire a working interest in the Anton Marin
and Astrid Marin Exploration and Production Sharing Contracts covering 2,831,392
acres in deepwater offshore Gabon, West Africa ("Gabon Project").   Vanco and
Devco jointly presented the Gabon Project to selected major oil companies in an
effort to sell down their interests. The negotiation process culminated in the
signing of a Participation Agreement on November 2, 1998. Subsidiaries of Total
S.A. (28%), as Operator, Unocal Corporation (25%), Kerr-McGee Corporation (14%),
as farminees, joined Vanco Energy Company  (22%) and Devco (11%), as farminors,
to form the Vanco Gabon Group.  The Gabon Project farminees carried the full
cost of shooting a 4,400 square kilometer 3-D seismic program in 1999.
Processing of the seismic commenced in the last quarter of 1999 and
interpretation continued through 2000. An integrated project team staffed by
representatives from each of the farminees has been opened in Paris, France and
an operations office has been opened in Libreville, Gabon.  Locations for the
initial wells have been selected.  It is anticipated that the exploration
drilling program in which the Company is fully carried for a minimum of four
wells will commence in the first quarter of 2001.  The Company intends to
evaluate the results of the initial drilling program after which a decision will
be made regarding monetization.

                                Other Properties

   Real Property.  The Company owns and leases real property in connection with
the conduct of its business.  The Company owns (i) an office and yard facility
in Broussard, Louisiana; (ii) an office and yard facility in Houma, Louisiana;
(iii) an office building in New Iberia, Louisiana; (iv) an office and yard
facility in Macae, Brazil; (v) an office and yard facility in Maturin, Venezuela
and (vi) an office and yard facility and a two story, 86,000 square foot office
building in Houston, Texas.  In addition, the Company leases other office space
in Houston, Texas and facilities in most of the countries where it conducts
operations.

ITEM 3.  LEGAL PROCEEDINGS

   In November 1988, a lawsuit was filed in the U.S. District Court for the
Southern District of West Virginia against Reading & Bates Coal Co., a wholly
owned subsidiary of the Company, by SCW Associates, Inc. claiming breach of an
alleged agreement to purchase the stock of Belva Coal Company, a wholly owned
subsidiary of Reading & Bates Coal Co. with coal properties in West Virginia.
When those coal properties were sold in July 1989 as part of the disposition of
the Company's coal operations, the purchasing joint venture indemnified Reading
& Bates Coal Co. and the Company against any liability Reading & Bates Coal Co.
might incur as a result of this litigation. A judgment for the plaintiff of
$32,000 entered in February 1991 was satisfied and Reading & Bates Coal Co. was
indemnified by the purchasing joint venture. On October 31, 1990, SCW
Associates, Inc., the plaintiff in the above-referenced action, filed a separate
ancillary action in the Circuit Court, Kanawha County, West Virginia against the
Company, Caymen Coal,

                                       8
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Inc. (the former owner of the Company's West Virginia coal properties), as well
as the joint venture, Mr. William B. Sturgill (the former President of Reading &
Bates Coal Co.) personally, three other companies in which the Company believes
Mr. Sturgill holds an equity interest, two employees of the joint venture, First
National Bank of Chicago and First Capital Corporation. The lawsuit seeks to
recover compensatory damages of $50.0 million and punitive damages of $50.0
million for alleged tortious interference with the contractual rights of the
plaintiff and to impose a constructive trust on the proceeds of the use and/or
sale of the assets of Caymen Coal, Inc. as they existed on October 15, 1988. The
Company intends to defend its interests vigorously and believes that the damages
alleged by the plaintiff in this action are highly exaggerated. In any event,
the Company believes that it has valid defenses and does not expect that the
ultimate outcome of this case will have a material adverse effect on its
consolidated financial position or results of operations.

   In December 1998, Mobil North Sea Limited ("Mobil") purportedly terminated
its contract for use of the Company's Jack Bates semisubmersible rig based on
failure of two mooring lines while anchor recovery operations at a Mobil well
location had been suspended during heavy weather.  The Company does not believe
that Mobil had the right to terminate this contract.  The Company later
recontracted the Jack Bates to Mobil at a lower dayrate. The Company has filed a
request for arbitration with the London Court of International Arbitration
seeking damages for the termination.  Mobil in turn has counterclaimed against
the Company seeking damages for the Company's alleged breaches of the original
contract.  The arbitration proceedings are continuing and a preliminary hearing
is currently scheduled for April 2001.  The Company does not expect that the
ultimate outcome of this case will have a material adverse effect on its
consolidated financial position or results of operations.

   In March 1997, an action was filed by Mobil Exploration and Producing U.S.
Inc. and affiliates, St. Mary Land & Exploration Company and affiliates and
Samuel Geary and Associates, Inc. against Cliffs Drilling, its underwriters and
insurance broker in the 16th Judicial District Court of St. Mary Parish,
Louisiana. The plaintiffs alleged damages amounting to in excess of $50.0
million in connection with the drilling of a turnkey well in 1995 and 1996.  The
case was tried before a jury in January and February 2000, and the jury returned
a verdict of approximately $30.0 million in favor of the plaintiffs for excess
drilling costs, loss of insurance proceeds, loss of hydrocarbons and interest.
The Company has filed motions for a new trial and a judgment notwithstanding the
verdict in contemplation of perfecting its appeal of such judgment.  The Company
believes that all but the portion of the verdict representing excess drilling
costs of approximately $4.7 million is covered by relevant primary and excess
liability insurance policies of Cliffs Drilling; however, the insurers and
underwriters have denied coverage.  Cliffs Drilling has instituted litigation
against those insurers and underwriters to enforce its rights under the relevant
policies.  The Company does not expect that the ultimate outcome of this case
will have a material adverse effect on its consolidated financial position or
results of operations.

   The Company is a defendant in Bryant, et al. v. R&B Falcon Drilling USA,
Inc., et al., in the United States District Court for the Southern District of
Texas, Galveston Division.  R&B Falcon Drilling USA is a wholly owned indirect
subsidiary of the Company.  In this suit, the plaintiffs allege that R&B Falcon
Drilling USA, the Company and a number of other offshore drilling contractors
with operations in the U.S. Gulf of Mexico have engaged in a conspiracy to
depress wages and benefits paid to their offshore employees.  The plaintiffs
contend that this alleged conduct violates federal antitrust law and constitutes
unfair trade practices and wrongful employment acts under state law.  The
plaintiffs seek treble damages, attorneys' fees and costs on behalf of
themselves and an alleged class of offshore workers, along with an injunction
against exchanging certain wage and benefit information with other offshore
drilling contractors named as defendants. The plaintiffs contend that actual
damages to the alleged class will exceed $5.0 billion.  A hearing has been set
for the second quarter of 2001 to determine if the matter should proceed as a
class action. The Company vigorously denies the plaintiff's allegations and does
not expect that the outcome of this matter will have a material adverse effect
on its consolidated financial position or results of operations.

   A subsidiary of the Company, R&B Falcon Drilling Company,  is a defendant in
a Texas state court in a suit brought by Hahn & Clay, Inc. alleging that R&B
Falcon Drilling breached an oral agreement and committed fraud in connection
therewith. The matter went to trial in January 2001 and the jury returned a
verdict against the Company in the amount of approximately $1.1 million. In
addition, punitive damages in the amount of approximately $1.9 million were
awarded. The plaintiff further seeks attorneys' fees and interest. The Company
intends to appeal this judgement and does not expect the liability, if any,
resulting from this matter to have a material adverse effect on its consolidated
financial position or results of operations.

                                       9
<PAGE>

   A subsidiary of the Company is involved in arbitration proceedings with
Nabors Drilling USA Inc. ("Nabors") concerning issues arising from two bareboat
charters of barge drilling rigs from Nabors.  Nabors alleges that the Company
failed to return one of the rigs in the agreed upon condition and seeks
continued bareboat charter fees, unspecified costs for repairs and attorneys'
fees.  The Company disputes the allegation that charter fees have continued to
accrue and disputes the nature and extent of any needed repairs.  The Company
does not expect the liability, if any, resulting from this matter to have a
material adverse effect on its consolidated financial position or results of
operations.

   The Falcon 100, Deepwater Navigator and Deepwater Expedition were completed
later than the required commencement dates under the drilling contracts for such
rigs and at costs significantly in excess of original estimates. The customers
for the Falcon 100 and Deepwater Navigator cancelled the drilling contracts for
such rigs based on the rigs not being delivered on time. The Company does not
believe that Petrobras, the customer for the Falcon 100, had the right to cancel
such contract. The Company is continuing to review its rights with respect to
termination of the contract. The Falcon 100 commenced a six-month drilling
contract from another customer in the third quarter of 2000. Also, the Company
has received a three-year drilling contract from Petrobras for the use of the
Deepwater Navigator offshore Brazil. Petrobras, the customer for the Deepwater
Expedition, did not cancel its drilling contract and in October 2000, Petrobras
demanded late delivery penalties of  $10.0 million under the contract for delay
in commencement of operations. The Company believes that it is entitled to an
unpaid mobilization fee of approximately $7.0 million from Petrobras, and
intends to initiate discussions with Petrobras to resolve this dispute. Based on
information presently available, the Company does not expect that the outcome of
this mater will have a material adverse effect on its consolidated financial
position or results of operations.

   The Company and its subsidiaries are involved in a number of other lawsuits,
all of which have arisen in the ordinary course of the Company's business.  The
Company does not believe that ultimate liability, if any, resulting from any
such other pending litigation will have a material adverse effect on its
consolidated financial position or results of operations.

   The Company cannot predict with certainty the outcome or effect of any of the
litigation matters specifically described above or of any such other pending
litigation. There can be no assurance that the Company's belief or expectations
as to the outcome or effect of any lawsuit or other litigation matter will prove
correct and the eventual outcome of these matters could materially differ from
management's current estimates.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   On December 12, 2000, the Company held a special meeting of common
stockholders. At such special meeting, the Company submitted to a vote of its
common stockholders two proposals: 1) to approve the proposed merger with
Transocean  and 2) to amend the Company's certificate of incorporation to grant
holders of the Company's outstanding preferred shares voting rights in the
election of directors. Both proposals were approved by the shareholders with the
following results: 1) the proposal to approve the Company's merger with
Transocean, with 138,771,061 votes for the proposal, 1,423,427 votes against the
proposal, 192,398 abstentions and 1 broker non-vote, and 2) the proposal to
approve the amendment of the Company's certificate of incorporation, with
136,960,346 votes for the proposal, 2,883,956 votes against the proposal,
542,483 abstentions and 102 broker non-votes.

                                       10
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
         STOCKHOLDER MATTERS

   The common stock of R&B Falcon was traded on the New York Stock Exchange
("NYSE") under the symbol "FLC."  The following table sets forth, for the
calendar periods indicated, the high and low sales prices per share of R&B
Falcon common stock as reported by the NYSE Composite Tape for the periods
indicated.  R&B Falcon did not declare any dividends on its common stock for the
periods indicated. As a result of the TSF Merger, the last trading day of R&B
Falcon was January 31, 2001, and the closing price was $22.40.  Transocean now
owns all of the outstanding common stock of the Company, and the Company's
common stock is no longer publicly traded.


                                     2000               1999
                              -----------------   -----------------
                               High       Low      High       Low
                              -------   -------   -------   -------
          First Quarter       $20.938   $11.688   $ 9.250   $ 5.188
          Second Quarter       25.500    16.813    11.750     6.625
          Third Quarter        30.938    18.313    16.063     8.938
          Fourth Quarter       31.000    16.063    15.000    10.688


ITEM 6.  SELECTED FINANCIAL DATA

   Under the reduced disclosure format permitted by General Instruction I(2)(a)
of Form 10-K, the information otherwise required by this item has been omitted.

                                       11
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

   The following information has been provided in accordance with the reduced
disclosure format as permitted by General Instruction I(2)(a) of Form 10-K.

                             Business Combinations

   On July 10, 1997, Falcon Drilling Company, Inc. ("Falcon"), renamed as R&B
Falcon Holdings, Inc., and Reading & Bates Corporation ("R&B"), renamed as R&B
Falcon (International and Deepwater) Inc., announced that they had agreed to
combine their companies under a new company -- R&B Falcon Corporation (together
with its subsidiaries unless the context requires otherwise, the "Company") (the
"RBF Merger"). On December 23, 1997, the RBF Merger was approved by both
companies' shareholders and on December 31, 1997, the RBF Merger was
consummated. Each outstanding share of common stock of Falcon was converted into
one share of common stock of the Company and each outstanding share of common
stock of R&B was converted into 1.18 shares of common stock of the Company. The
RBF Merger was accounted for as a pooling of interests.

   On December 1, 1998, the Company acquired all of the outstanding stock of
Cliffs Drilling Company ("Cliffs Drilling"). Cliffs Drilling was a provider of
daywork and turnkey drilling services, mobile offshore production units and well
engineering and management services. At the time of the acquisition, Cliffs
Drilling's fleet consisted of 16 jackup rigs, three self-contained platform
rigs, four mobile offshore production units and 11 land rigs. The acquisition
was effected pursuant to an Agreement and Plan of Merger dated August 21, 1998,
whereby each share of Cliffs Drilling's common stock was converted into 1.7
shares of the Company's common stock. Total consideration for Cliffs Drilling
was approximately $405.1 million. The Company issued approximately 27.1 million
shares of its common stock valued at approximately $385.3 million.  In addition,
the Company assumed Cliffs Drilling's outstanding stock options valued at
approximately $6.2 million and the Company paid approximately $13.6 million in
acquisition costs. The acquisition of Cliffs Drilling was recorded using the
purchase method of accounting.  The excess of the purchase price over the
estimated fair value of net assets acquired amounted to approximately $89.8
million, which has been accounted for as goodwill and is being amortized over 40
years using the straight-line method. The consolidated financial statements
include Cliffs Drilling since December 1, 1998.

   On August 19, 2000, the Company, entered into an Agreement and Plan of Merger
with Transocean Sedco Forex Inc. ("Transocean"), a Cayman Islands company,
whereby each share of the Company's  common stock would convert into 0.5
ordinary shares of Transocean (the "TSF Merger").   The common stock
shareholders of the Company approved the TSF Merger on December 12, 2000 at a
special meeting. On January 31, 2001, the TSF Merger was completed and the
Company became an indirect wholly owned subsidiary of Transocean. The current
directors of the Company were elected at the time of the TSF Merger. In
connection with the TSF Merger, Transocean also assumed warrants and options
exercisable for R&B Falcon common stock prior to the TSF Merger. Such warrants
and options are exercisable for approximately 13.2 million ordinary shares of
Transocean.  As of December 31, 2000, the Company had incurred $6.1 million of
expenses in association with the TSF Merger consisting primarily of legal and
accounting fees. The TSF Merger was accounted for as a purchase with Transocean
as the acquiror for accounting purposes. The purchase price will be "pushed
down" to the consolidated financial statements of the Company.

   In January 2001, in connection with the TSF Merger, the Company: 1) paid an
investment advisory fee of $19.6 million to Morgan Stanley; 2) paid termination
benefits of $25.1 million to seven employees in accordance with employment
contracts; 3) recorded a $9.5 million charge due to the acceleration of vesting
of certain stock options and unearned compensation of restricted stock grants
previously awarded to certain employees; and 4) contributed the inland marine
support vessel business consisting primarily of the Company's shallow water
tugs, crewboats and utility barges, to Delta Towing Holdings, LLC ("Delta
Towing"). In connection with this contribution, the Company received secured
contingent notes totaling $144.0 million and a 25% ownership interest in Delta
Towing. The Company recorded a pre-tax charge of approximately $64.0 million
as a reserve against the contingent notes in January 2001. The remaining 75%
ownership interest is beneficially owned by unrelated third parties.

                                       12
<PAGE>

                             RESULTS OF OPERATIONS

   The Company reported a net loss for 2000 of $58.0 million ($1.35 per diluted
share after preferred stock dividends, accretion and tender offer premium of
$206.8 million) compared to a net loss of $69.5 million ($.54 per diluted share
after preferred stock dividends and accretion of $33.7 million) for 1999. The
2000 results included a $176.0 million gain on the sale of the Company's U.S.
Gulf of Mexico and Israeli oil and gas properties reported in the development
operating expenses.  Deepwater operating expenses for 2000 included a $22.1
million write-down of four supply boats in Africa.

   Operating Revenues

   Operating revenues are primarily a function of dayrates and utilization.
Operating revenues increased $126.4 million in total from 1999 to 2000.  The
deepwater fleet revenues increased $57.8 million as a result of the activation
of the Deepwater Millennium and Deepwater Expedition in the fourth quarter of
1999 and the Deepwater Nautilus in the second quarter of 2000, partially offset
by lower utilization of the J.W. McLean and lower average dayrates on the Paul
B. Loyd, Jr., M.G. Hulme, Jr. and the Henry Goodrich.  Revenues from the shallow
and inland water fleets increased $69.8 million and $22.7 million, respectively,
primarily due to higher utilization and dayrates for the domestic jackups and
barges. Revenues from engineering services and land operations decreased $27.5
million with a reduced number of international turnkey wells completed as a
result of the cancellation of the multi-well turnkey contract with PDVSA
Exploration and Production in the first quarter of 2000, partially offset by an
increase in the number of domestic turnkey wells completed.

   Operating Expenses

   Operating expenses do not necessarily fluctuate in proportion to changes in
operating revenues due to the continuation of personnel on board and equipment
maintenance when the Company's units are stacked.  It is only during prolonged
stacked periods that the Company is able to significantly reduce labor costs and
equipment maintenance expense. Additionally, labor costs fluctuate due to the
geographic diversification of the Company's units and the mix of labor between
expatriates and nationals as stipulated in the contracts.  In general, labor
costs increase primarily due to higher salary levels and inflation.  Equipment
maintenance expenses fluctuate depending upon the type of activity the unit is
performing and the age and condition of the equipment.

   Operating expenses increased $94.2 million fleetwide in 2000 compared to 1999
excluding the $176.0 million gain on the sale of certain oil and gas properties
and a $22.1 million write-down of four supply boats.  This increase was
primarily due to the activation of the Deepwater Millennium and Deepwater
Expedition in the fourth quarter of 1999 and the Deepwater Nautilus in the
second quarter of 2000 and higher utilization of the remaining fleet partially
offset by a $2.5 million gain on the sale of the Falcon Ice and Falcon Duchess.
Engineering services and land operations included losses of $13.5 million
relating primarily to three domestic turnkey wells.  In 1999, inland water
included a gain of $16.1 million from insurance recoveries relating  to the
total loss of a drilling barge and shallow water included an $8.3 million gain
due to the insurance settlement for the loss of the W.D. Kent's derrick
equipment.

   Cancellation of Conversion Projects

   Following a third party evaluation, 2000 results included a $13.8 million
charge compared to a charge in 1999 of $34.7 million  from the write-down of
surplus equipment arising from the cancellation of four drillship conversion
projects in 1998.

   Depreciation and Amortization

   The $31.9 million increase in depreciation and amortization expense in 2000
from 1999 was attributable to the activation of the Deepwater Millennium,
Deepwater Expedition and the Falcon 100 in the latter part of 1999 and the
Deepwater Nautilus and Deepwater Navigator in 2000.

                                       13
<PAGE>

   General and Administrative Expenses

   General and administrative expenses decreased $8.4 million in 2000 compared
to 1999 primarily due to $6.6 million of executive termination expense and $1.5
million of employee incentive compensation expense incurred in 1999. See Notes J
and P of Notes to Consolidated Financial Statements.

   Merger Expenses

   Included in 2000 results were $6.1 million of expenses related to the TSF
Merger.

   Interest Expense

   The $53.2 million increase in interest expense in 2000 as compared to 1999
was a direct result of the issuance of $1.0 billion of senior notes in March
1999 and a $250.0 million project financing in August 1999.  Also, there was an
$18.9 million decrease in capitalized interest following the completion of most
of the significant upgrade and new build projects.

   Income (loss) from equity investees plus related revenues and expenses

   The Company recognized a loss from equity investees plus related revenue and
expenses of $11.5 million in 2000 compared to income from equity investees of
$3.5 million in 1999. The loss in 2000 consisted of a $30.4 million loss
primarily due to provisions associated with an impaired drilling contract for
the Deepwater Frontier, offset by $5.1 million of income from the Deepwater
Pathfinder and  $15.7 million of income primarily from the gain on the sale of
the Company's investment in Navis ASA in November 2000.  See Note C of Notes to
Consolidated Financial Statements.

   Income Tax Expense (Benefit)

   The $80.4 million increase in income tax expense in 2000 as compared to 1999
was due to the increase in income and in valuation allowances attributable to
foreign tax credits.

   Minority Interest

   Minority interest increased $16.4 million primarily due to an increase in
Reading & Bates Development Co.'s ("Devco") net income offset by a decrease in
Arcade Drilling's net income.  Arcade Drilling reported net income in 2000 and
1999 of $20.8 million and $46.9 million, respectively, and Devco reported net
income of $166.2 million in 2000 and a net loss of $5.8 million in 1999. The
decrease in Arcade Drilling's net income was primarily due to lower dayrates on
the Henry Goodrich in 2000.  The increase in Devco's net income was due to the
gain on the sale of its U.S. Gulf of Mexico and Israeli oil and gas properties
(see Note O of Notes to Consolidated Financial Statements).

   Extraordinary Loss

   Included in 1999 results was an extraordinary loss of $1.7 million on the
extinguishment of certain debt obligations.

   Preferred Stock Dividends, Accretion and Tender Offer Premium

   In December 2000, the Company acquired all of the Company's outstanding
13.875% Senior Cumulative Redeemable Preferred Stock at prices of $1,300 per
share (369,307.049 shares) and $1,156.09 per share (36.05 shares) and as a
result the Company recorded a charge to net loss applicable to common
stockholders for a tender offer premium of $110.8 million and the write-off of
unamortized discount and expenses of $49.2 million.

                                       14
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company's earnings and cash flows are subject to fluctuations due to
changes in foreign currency exchange rates.  The Company may enter into forward
exchange contracts to hedge specific commitments and anticipated transactions
but not for speculative or trading purposes.  However, the Company's contracts
generally provide for payment in U.S. dollars and the Company does not maintain
significant foreign currency cash balances.  See Note A of Notes to Consolidated
Financial Statements.

   The Company is exposed to changes in interest rates with respect to its debt
obligations.  The following table sets forth the average interest rate for the
scheduled maturity of the Company's debt obligations as of December 31, 2000
(dollars in millions):

<TABLE>
<CAPTION>
                                                                                                        ESTIMATED
                                                                                                        FAIR VALUE
                                                                                                            AT
                                                                                                       DECEMBER 31,
                            2001      2002      2003      2004      2005    THEREAFTER     TOTAL          2000
                           ------    ------    ------    ------    ------   ----------    --------    -------------
<S>                        <C>       <C>       <C>       <C>       <C>       <C>           <C>         <C>
Fixed Rate Debt:
  Amount                   $ 41.4    $ 38.6    $591.6    $ 44.6    $419.6    $1,800.0     $2,935.8       $3,032.5
  Average interest rate     7.620%    7.310%    8.268%    7.310%    7.093%      9.906%       9.068%
</TABLE>

   The Company is exposed to changes in the price of oil and natural gas.  The
marine contract drilling industry is dependent upon the exploration and
production programs of oil and gas companies, which in turn are influenced by
the price of oil and natural gas.

                                       15
<PAGE>

Item 8. Financial Statements and Supplementary Data

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
R&B Falcon Corporation

   We have audited the accompanying consolidated balance sheets of R&B Falcon
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

   In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of R&B Falcon
Corporation and subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

Arthur Andersen LLP

Houston, Texas
February 23, 2001

                                      16
<PAGE>

                             R&B FALCON CORPORATION
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                           December 31, 2000 and 1999
                       (in millions except share amounts)

<TABLE>
<CAPTION>
                                                              2000      1999
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS
CURRENT ASSETS:
 Cash and cash equivalents, gross.......................... $  377.5  $  415.5
 Less cash dedicated to capital projects...................    (19.5)   (160.4)
                                                            --------  --------
 Cash and cash equivalents, net............................    358.0     255.1
 Short-term investments....................................       --     301.5
 Accounts receivable:
   Trade, net..............................................    248.0     141.3
   Other...................................................     40.3      86.0
 Materials and supplies inventory..........................     64.6      52.6
 Drilling contracts in progress............................     11.8      16.7
 Other current assets......................................     37.2      19.7
                                                            --------  --------
     Total current assets..................................    759.9     872.9
                                                            --------  --------
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED INVESTEES....     21.3      82.7
                                                            --------  --------
PROPERTY AND EQUIPMENT:
 Drilling..................................................  4,427.3   4,041.1
 Other.....................................................    200.1     256.1
                                                            --------  --------
     Total property and equipment..........................  4,627.4   4,297.2
 Accumulated depreciation..................................   (829.4)   (662.0)
                                                            --------  --------
     Net property and equipment............................  3,798.0   3,635.2
                                                            --------  --------
GOODWILL, NET OF ACCUMULATED AMORTIZATION..................     85.5      84.8
                                                            --------  --------
DEFERRED CHARGES AND OTHER ASSETS..........................    130.5     248.7
                                                            --------  --------
TOTAL ASSETS............................................... $4,795.2  $4,924.3
                                                            ========  ========
           LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Long-term obligations due within one year................. $   41.4  $   20.1
 Accounts payable--trade...................................     49.0     110.7
 Accrued liabilities.......................................    230.2     215.2
                                                            --------  --------
     Total current liabilities.............................    320.6     346.0
LONG-TERM OBLIGATIONS......................................  2,891.8   2,933.4
OTHER NONCURRENT LIABILITIES...............................     85.4      54.7
DEFERRED INCOME TAXES......................................     40.1      53.2
                                                            --------  --------
     Total liabilities.....................................  3,337.9   3,387.3
                                                            --------  --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST..........................................     81.8      56.6
                                                            --------  --------
REDEEMABLE PREFERRED STOCK
 322,250.188 shares issued and outstanding at December 31,
 1999......................................................       --     276.0
                                                            --------  --------
STOCKHOLDERS' EQUITY:
 Common stock, $.01 par value, 550,000,000 shares
  authorized, 212,049,592 shares and 193,743,778 shares
  issued and outstanding at December 31, 2000 and 1999,
  respectively.............................................      2.1       1.9
 Capital in excess of par value............................  1,458.1   1,113.4
 Retained earnings (deficit)...............................    (80.9)     95.9
 Other.....................................................     (3.8)     (6.8)
                                                            --------  --------
     Total stockholders' equity............................  1,375.5   1,204.4
                                                            --------  --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................. $4,795.2  $4,924.3
                                                            ========  ========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.


                                       17
<PAGE>

                             R&B FALCON CORPORATION
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
                     (in millions except per share amounts)

<TABLE>
<CAPTION>
                                                      Years Ended December 31,
                                                     -------------------------
                                                      2000     1999     1998
                                                     -------  -------  -------
<S>                                                  <C>      <C>      <C>
OPERATING REVENUES:
 Deepwater.......................................... $ 418.2  $ 360.4  $ 392.5
 Shallow water......................................   269.3    199.5    383.8
 Inland water.......................................   145.2    122.5    244.3
 Engineering services and land operations...........   215.3    242.8     12.9
 Development........................................     4.1       .5       --
                                                     -------  -------  -------
     Total operating revenues....................... 1,052.1    925.7  1,033.5
                                                     -------  -------  -------
COSTS AND EXPENSES:
 Deepwater..........................................   252.2    179.6    186.1
 Shallow water......................................   177.3    153.3    162.4
 Inland water.......................................   107.5     99.9    169.1
 Engineering services and land operations...........   193.4    181.7     11.1
 Development........................................  (171.9)     3.7     19.5
 Cancellation of conversion projects................    13.8     34.7    118.3
 Depreciation and amortization......................   189.9    158.0     98.0
 General and administrative.........................    61.3     69.7     61.2
 Merger expenses....................................     6.1       --     (8.0)
                                                     -------  -------  -------
     Total costs and expenses.......................   829.6    880.6    817.7
                                                     -------  -------  -------
OPERATING INCOME....................................   222.5     45.1    215.8
                                                     -------  -------  -------
OTHER INCOME (EXPENSE):
 Interest expense, net of capitalized interest......  (223.0)  (169.8)   (63.9)
 Interest income....................................    31.9     35.3      9.6
 Income (loss) from equity investees plus related
  revenues and expenses.............................   (11.5)     3.5      (.2)
 Other, net.........................................     (.4)    (1.2)     (.1)
                                                     -------  -------  -------
     Total other income (expense)...................  (203.0)  (132.2)   (54.6)
                                                     -------  -------  -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
 INCOME TAXES, MINORITY INTEREST AND EXTRAORDINARY
 LOSS...............................................    19.5    (87.1)   161.2
                                                     -------  -------  -------
INCOME TAX EXPENSE (BENEFIT):
 Current............................................    55.4     48.3     38.5
 Deferred...........................................    (6.6)   (79.9)    20.4
                                                     -------  -------  -------
     Total income tax expense (benefit).............    48.8    (31.6)    58.9
                                                     -------  -------  -------
MINORITY INTEREST...................................   (28.7)   (12.3)   (11.3)
                                                     -------  -------  -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
 EXTRAORDINARY LOSS.................................   (58.0)   (67.8)    91.0
INCOME FROM DISCONTINUED OPERATIONS.................      --       --     36.0
EXTRAORDINARY LOSS, NET OF TAX BENEFIT..............      --     (1.7)   (24.2)
                                                     -------  -------  -------
NET INCOME (LOSS)...................................   (58.0)   (69.5)   102.8
PREFERRED STOCK DIVIDENDS, ACCRETION AND TENDER
 OFFER PREMIUM......................................   206.8     33.7       --
                                                     -------  -------  -------
NET INCOME (LOSS) APPLICABLE TO COMMON
 STOCKHOLDERS....................................... $(264.8) $(103.2) $ 102.8
                                                     =======  =======  =======
NET INCOME (LOSS) PER COMMON SHARE:
 Basic:
   Continuing operations after preferred stock
    dividends....................................... $ (1.35) $  (.53) $   .54
   Discontinued operations..........................      --       --      .21
   Extraordinary loss...............................      --     (.01)    (.14)
                                                     -------  -------  -------
     Net income (loss).............................. $ (1.35) $  (.54) $   .61
                                                     =======  =======  =======
 Diluted:
   Continuing operations after preferred stock
    dividends....................................... $ (1.35) $  (.53) $   .54
   Discontinued operations..........................      --       --      .21
   Extraordinary loss...............................      --     (.01)    (.14)
                                                     -------  -------  -------
     Net income (loss).............................. $ (1.35) $  (.54) $   .61
                                                     =======  =======  =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
 Basic..............................................   196.6    192.7    167.5
                                                     =======  =======  =======
 Diluted............................................   196.6    192.7    168.8
                                                     =======  =======  =======
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       18
<PAGE>

                             R&B FALCON CORPORATION
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in millions)

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                    ---------------------------
                                                     2000      1999      1998
                                                    -------  --------  --------
<S>                                                 <C>      <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)................................  $ (58.0) $  (69.5) $  102.8
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
   Depreciation and amortization..................    189.9     158.0      98.0
   Gain on dispositions of property and
    equipment.....................................   (176.8)    (19.2)     (9.0)
   Cancellation of conversion projects............     13.8      34.7     118.3
   Loss on impaired assets........................     22.1        --        --
   Deferred income taxes..........................     (6.6)    (80.6)     20.4
   Recognition of deferred expenses...............     45.2      22.5      12.2
   Deferred compensation..........................      3.7       5.0       1.1
   Loss (income) from equity investees plus
    related revenues and expenses.................     11.5      (3.5)       .2
   Minority interest in income of consolidated
    subsidiaries..................................     28.7      12.3      11.3
   Dryhole and exploration expenses relating to
    oil and gas properties........................       --        --      23.2
   Income from discontinued operations............       --        --     (36.0)
   Extraordinary loss from extinguishment of debt,
    net of tax benefit............................       --       1.7      24.2
   Changes in assets and liabilities:
     Accounts receivable, net.....................    (61.2)     50.9     (28.1)
     Materials and supplies inventory.............     (9.7)    (17.6)     (9.9)
     Drilling contracts in progress...............      4.9      13.5      (6.2)
     Deferred charges and other assets............    (83.0)     (3.3)    (22.0)
     Accounts payable--trade......................    (72.8)     40.0     (17.9)
     Accrued interest.............................      1.9      33.9      (5.9)
     Accrued liabilities..........................     25.2       6.3     (21.8)
     Deferred revenue.............................     36.1      (1.0)       .8
     Income taxes.................................     (5.5)     (2.8)     (4.4)
     Other, net...................................     (8.7)     17.3      (3.4)
                                                    -------  --------  --------
      Net cash provided by (used in) operating
       activities.................................    (99.3)    198.6     247.9
                                                    -------  --------  --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Dispositions of property and equipment...........    265.2      28.1      43.0
 Purchases of property and equipment, exclusive of
  noncash items...................................   (465.0)   (830.4) (1,152.8)
 Decrease (increase) in cash dedicated to capital
  projects........................................    140.9    (160.4)       --
 Purchase of Cliffs Drilling Company, net of cash
  acquired........................................       --        --      28.0
 Sale (purchase) of short-term investments........    301.5    (301.5)     45.4
 Decrease (increase) in investments in and
  advances to unconsolidated investees............     50.0     (51.1)    (25.2)
                                                    -------  --------  --------
   Net cash provided by (used in) investing
    activities....................................    292.6  (1,315.3) (1,061.6)
                                                    -------  --------  --------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from (payments on) short-term
  obligations.....................................       --    (123.4)    123.4
 Net proceeds from (payments on) revolving credit
  facilities......................................       --    (150.0)   (332.0)
 Proceeds from long-term obligations..............       --   1,215.8   1,494.0
 Net proceeds from issuance of common stock.......    400.2        --        --
 Principal payments on long-term obligations......    (20.4)    (19.9)   (323.2)
 Premium paid on debt extinguishment..............       --        --     (23.9)
 Issuance (purchase) of preferred stock...........   (480.1)    288.8        --
 Distribution to minority shareholders of
  consolidated subsidiaries, net of
  contributions...................................     (3.4)    (18.6)     (4.0)
 Other............................................     13.3       1.7       1.3
                                                    -------  --------  --------
   Net cash provided by (used in) financing
    activities....................................    (90.4)  1,194.4     935.6
                                                    -------  --------  --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.........    102.9      77.7     121.9
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....    255.1     177.4      55.5
                                                    -------  --------  --------
CASH AND CASH EQUIVALENTS AT END OF YEAR..........  $ 358.0  $  255.1  $  177.4
                                                    =======  ========  ========
Supplemental Cash Flow Disclosures:
 Interest paid, net of capitalized interest.......  $ 212.7  $  127.4  $  105.6
 Income taxes paid................................  $  71.2  $   41.0  $   36.5
 Noncash investing activities:
   Purchase of Cliffs Drilling Company in exchange
    for equity....................................  $    --  $     --  $  391.5
   Other purchases of property and equipment in
    exchange for equity, debt or other noncurrent
    liabilities...................................  $  11.1  $    9.3  $   35.5
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       19
<PAGE>

                             R&B FALCON CORPORATION
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  For the Three Years Ended December 31, 2000
                                 (in millions)
<TABLE>
<CAPTION>

                                                      Capital
                                                         in
                                    Common Stock       Excess   Retained
                                  -----------------    of Par   Earnings
                                  Shares  Amount/(1)/  Value    (Deficit) Other
                                  ------  ---------   --------  --------- ------
<S>                               <C>     <C>         <C>       <C>       <C>
Balances at December 31, 1997...  164.3     $1.6      $  631.4   $  96.3  $ (1.3)

Net income......................                                   102.8
Purchase of assets..............   27.9       .3         416.4
Activity in Company stock
 plans..........................     .2                    1.3
Restricted stock award, net of
 amortization...................     .9                   12.3             (11.0)
Other...........................     .1                     .1
                                  -----     ----      --------   -------  ------
Balances at December 31, 1998...  193.4      1.9       1,061.5     199.1   (12.3)

Net loss........................                                   (69.5)
Preferred stock dividends and
 accretion......................                                   (33.7)
Purchase of assets..............     .2                    4.1
Contribution to employee savings
 plans..........................     .1                    1.1
Issuance of subsidiary stock to
 employees......................                            .8
Activity in Company stock
 plans..........................                            .8
Amortization of restricted stock
 award..........................                          (1.2)              5.5
Issuance of warrants............                          46.4
Other...........................                           (.1)
                                  -----     ----      --------   -------  ------
Balances at December 31, 1999...  193.7      1.9       1,113.4      95.9    (6.8)

Net loss........................                                   (58.0)
Preferred stock dividends,
 accretion and tender offer
 premium........................                         (88.0)   (118.8)
Purchase of assets..............     .1                    4.8
Common stock offering...........   16.3       .2         400.0
Contribution to employee savings
 plans..........................     .4                    7.1
Activity in Company stock
 plans..........................    1.2                   11.3
Tax benefit from options
 exercised......................                           6.6
Exercise of warrants............     .2                    2.3
Restricted stock award, net of
 amortization and forfeitures...     .1                     .9               2.7
Other...........................                           (.3)               .3
                                  -----     ----      --------   -------  ------
Balances at December 31, 2000...  212.0     $2.1      $1,458.1   $ (80.9) $ (3.8)
                                  =====     ====      ========   =======  ======
</TABLE>
--------
/(1)/ Amounts less than one-tenth of a million are not shown.

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       20
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  -----------


(A) INDUSTRY CONDITIONS, LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES

    CONSOLIDATION - Effective January 31, 2001, a change of control occurred and
R&B Falcon Corporation is now  an indirect wholly owned subsidiary of Transocean
Sedco Forex Inc. ("Transocean") (see Note R).

    The accompanying consolidated financial statements include the accounts of
R&B Falcon Corporation ("R&B Falcon") and its subsidiaries (collectively with
R&B Falcon, the "Company"), including R&B Falcon (International & Deepwater)
Inc., formerly Reading & Bates Corporation ("R&B"); R&B Falcon Holdings, Inc.,
formerly Falcon Drilling Company, Inc. ("Falcon"); Cliffs Drilling Company
("Cliffs Drilling") effective December 1, 1998 and its majority owned
subsidiaries Arcade Drilling as ("Arcade") (approximately 74.4%) and Reading &
Bates Development Company ("Devco") (approximately 86.4%) (see Note R).  All
significant intercompany balances and transactions have been eliminated. The
Company uses the equity method to account for unconsolidated investees (see
Note C).

    INDUSTRY CONDITIONS - Oil and gas companies' demand for offshore drilling
services are principally a function of: 1) current and projected oil and gas
prices, 2) government taxation and concession/leasing policies, 3) their lease
inventory and existing drilling commitments on leases held, 4) their free cash
flow and general funding availability, 5) their  internal reserve replacement
requirements and 6) geopolitical factors (e.g., the drive for national
hydrocarbons self sufficiency).  The first factor is generally considered as the
most important.  In particular, the domestic shallow water market tends to be
primarily driven by the price of natural gas. Continued strength in natural gas
prices has recently bolstered this market.

    Changes in demand for exploration and production services can impact the
Company's liquidity as supply and demand factors directly affect utilization and
dayrates, which are the primary determinants of cash flow from the Company's
operations. In late 1998 and early 1999, lower crude oil and gas prices reduced
exploration and production spending, which led to significantly lower dayrates
and utilization for offshore drilling companies, particularly in the U.S. Gulf
of Mexico. Management believes such decline in demand also contributed to
terminated or renegotiated contracts for certain of the Company's high-
specification  rigs.  While there has been some improvement in utilization and
dayrates in certain segments of drilling activity in which the Company
participates since the beginning of 2000, if crude oil and/or gas prices were to
decline substantially from current levels, there could be a deterioration in rig
utilization and dayrates which could have a material adverse effect on the
Company's liquidity, consolidated financial position and results of operations.

    CASH AND CASH EQUIVALENTS - The Company considers all highly liquid cash
investments purchased with an original maturity of three months or less to be
cash equivalents. Arcade's cash and cash equivalents balance is available to
Arcade for all purposes subject to restrictions under the Standstill Agreement
dated as of August 31, 1991 among Arcade, a subsidiary of Transocean and R&B
which restrictions preclude R&B from borrowing any cash from Arcade unless (i)
Transocean is offered a pro-rata loan (based on stock ownership in Arcade) on
similar terms and (ii) any such loan(s) otherwise comply with applicable laws.
At December 31, 2000, $45.3 million of the cash and cash equivalents balance
related to Arcade.  Arcade declared distributions of approximately $110.0
million in 1999, of which the Company received approximately $78.8 million, net
of applicable withholding taxes and approximately $15.8 million in 1998, of
which the Company received approximately $11.8 million.  There were no
distributions from Arcade in 2000.

    In the third quarter of 1999, the project financings for the Deepwater
Nautilus (see Note D) and the Deepwater Frontier (see Notes C and D) were
completed. As a result of the project financing for the Deepwater Nautilus, the
Company is required to maintain in cash certain principal and interest payments.
As of December 31, 2000 such restricted cash amounted to $19.5 million and has
been classified as Other Assets. Prior to August 31, 2000, $50.0 million of
restricted cash related to the financing for the construction of the Deepwater
Frontier (in which the Company

                                       21
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


has a 60% interest) which collateralized a five-year standby letter of credit
that the Company was required to secure for the limited liability company to
obtain such financing. However, in the third quarter of 2000, the Company
entered into a letter of credit facility (see Note E) and the $50.0 million of
cash collateral was released and a new $50.0 million letter of credit was
issued.

    SHORT-TERM  INVESTMENTS - Short-term investments consist of interest-bearing
deposits with a commercial bank with an original maturity greater than three
months but less than one year from the date of the investment.

    MATERIALS AND SUPPLIES INVENTORY - Materials and supplies are stated at the
lower of average cost or market.

    PROPERTY AND EQUIPMENT - Property and equipment are stated at cost or market
at the date of acquisition with respect to purchased property and equipment.
Drilling units and marine equipment are depreciated under the straight-line
method. Gain (loss) on disposal of properties is credited (charged) to operating
expense. Estimated useful lives range from three to 30 years.  In the first
quarter of 1998, the Company had an independent appraiser evaluate the expected
useful lives of its marine units and, based on such appraisal, the Company
extended the useful lives of its marine units effective January 1, 1998.  Such
change in estimate resulted in an approximate $20.7 million reduction in
depreciation expense for the year ended December 31, 1998.

    Costs incurred for construction and significant upgrades of marine equipment
are accumulated in construction in progress with no depreciation being recorded
on such amounts until the construction or upgrade is completed and the equipment
is placed into service.  The amount of construction in progress included in
drilling equipment at December 31, 2000 and 1999 was $350.5 million and $1,609.8
million, respectively.  Certain marine contract drilling equipment consisting
primarily of barge and jackup rigs were held in nonoperational status at
December 31, 2000 pending modification and decisions regarding deployment.  As
of December 31, 2000 management believes its net realizable value approximates
its net book value of $72.8 million.  Subsequent to the TSF Merger, certain of
these assets and others have been reclassified as held for sale (see Note R).

    The Company's management periodically evaluates the carrying value of its
property and equipment based upon the estimated undiscounted future net cash
flows of the related asset compared to the carrying amount of that asset.  In
2000, the Company recorded a $22.1 million write-down of four supply boats in
Africa and a $3.4 million write-down of inventory.  Also see Note G.

    On June 30, 2000, the Company completed a series of refinancing transactions
on the Deepwater Nautilus which resulted in the Company receiving $13.0 million,
which has been recorded as a reduction of the Deepwater Nautilus' cost, and the
Company has the potential to receive an additional $19.0 million over the next
20 years.

    In September 2000, the Company sold its stacked drillships Falcon Duchess
and Falcon Ice for an aggregate amount of $23.0 million and as a result, the
Company recorded a pre-tax gain of $2.5 million.

    GAIN ON DRILLING BARGE CASUALTY - In June 1999, one of the Company's inland
drilling barges was declared a total loss as a result of a blowout and fire at a
location in inland waters approximately two miles southeast of Amelia,
Louisiana.  No injuries of personnel were sustained.  The Company's physical
damage insurance covered the loss of the barge and as a result the Company
recorded a gain of approximately $16.1 million in the third quarter of 1999.
Such gain has been credited to operating expenses in the inland water segment.

    OIL AND GAS ACCOUNTING - The successful efforts method of accounting is used
for oil and gas exploration and production activities.  Under this method,
acquisition costs for proved and unproved properties are capitalized when
incurred.  Exploration costs, including geological and geophysical costs and
costs of carrying and retaining unproved properties, are charged to expense as
incurred.  The costs of drilling exploratory wells are capitalized pending

                                       22
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


determination of whether each well had discovered proved reserves.  If proved
reserves are not discovered, such drilling costs are charged to expense. Costs
incurred to drill and equip development wells, including unsuccessful
development wells, are capitalized. See Note O.

   GOODWILL - Goodwill from the purchase of Cliffs Drilling (see Note B) is
amortized on a straight-line basis over 40 years.  The Company's management
periodically evaluates recorded goodwill balances, net of accumulated
amortization, for impairment based on the undiscounted cash flows associated
with the asset compared to the carrying amount of that asset.  As of December
31, 2000, management believes that there have been no events or circumstances
which warrant revision to the remaining useful life or affect the recoverability
of its recorded goodwill.

   DEFERRED CHARGES AND OTHER ASSETS - Deferred charges and other assets include
cash dedicated to capital projects (see CASH AND CASH EQUIVALENTS above),
deferred financing costs and deferred rig mobilization and preparation costs.
Deferred charge amounts are stated net of accumulated amortization.

   INCOME TAXES - Deferred income taxes are recognized for revenues and expenses
reported in different years for financial statement purposes and income tax
purposes.  See Note H.

   OPERATING REVENUES AND EXPENSES - Operating revenues are recognized as
earned, based on contractual daily rates or on a fixed price basis.  Turnkey
profits are recognized on completion of the well and acceptance by the customer;
however, provisions for losses are made on contracts in progress when losses are
anticipated. In connection with drilling contracts, the Company may receive lump
sum fees for the mobilization of equipment and personnel or for capital
improvements to rigs.  In connection with contracted mobilizations, revenues
earned and related costs incurred are deferred and recognized over the primary
contract term of the drilling project.  Costs of relocating drilling units
without contracts to more promising market areas are expensed as incurred. Upon
completion of drilling contracts, any demobilization fees received are reflected
in income, as are any related expenses.  Capital upgrade fees received are
deferred and recognized as revenue over the primary contract term of the
drilling project.  The actual cost incurred for the capital upgrade is
depreciated over the estimated useful life of the asset.  The Company incurs
periodic survey and drydock costs in connection with obtaining regulatory
certification to operate its rigs on an ongoing basis.  Costs associated with
these certifications are deferred and amortized over the period until the next
survey. If the Company determines that a drilling contract's expected operating
costs will exceed its revenues, a loss provision is recorded and amortized over
the remaining period of the drilling contract.

   CAPITALIZED INTEREST - The Company capitalizes interest applicable to the
construction and significant upgrades of its marine equipment as a cost of such
assets.  Interest capitalized for the years ended December 31, 2000, 1999 and
1998 was $55.2 million, $74.1 million and $39.1 million, respectively and is
included as a reduction of interest expense in the Consolidated Statement of
Operations.

   FOREIGN CURRENCY TRANSACTIONS - The U.S. dollar is the functional currency
for all of the Company's operations.  The net gains and losses resulting from
foreign currency transactions included in determining net income (loss) amounted
to a net gain of $30 thousand in 2000, a net loss of $2.3 million in 1999 and a
net gain of $.2 million in 1998.  The loss in 1999 was primarily due to the
Company's operations in Venezuela.  The Company may enter into forward exchange
contracts to hedge specific commitments and anticipated transactions but not for
speculative or trading purposes.  At December 31, 2000, the Company did not have
any outstanding forward exchange contracts.

   MINORITY INTEREST - Minority interest relates primarily to the results of
Arcade, Devco (effective in the second quarter of 1999) and the majority owned
(90%) floating production vessel Seillean (effective in the third quarter

                                       23
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


of 1999). The ownership percentage of Arcade, which owns the drilling units
Henry Goodrich and Paul B. Loyd, Jr., attributable to stockholders other than
the Company was 25.6% for each of the years ending December 31, 2000, 1999 and
1998. Arcade reported income in 2000, 1999 and 1998 of $20.8 million, $46.9
million and $44.2 million, respectively. The ownership percentage of Devco,
which engages in oil and gas exploration activities, attributable to
stockholders other than the Company was 13.6% (see Notes J, O and R). Devco
reported income of $166.2 million in 2000 and a loss of $5.8 million in 1999.
The 10% minority ownership of the Seillean is the result of Nissho Iwai Europe
PLC ("NIC") exercising, in the third quarter of 1999, its option to purchase up
to 10% of the vessel.

   EXTRAORDINARY LOSSES - In the first quarter of 1999, the Company incurred an
extraordinary loss of $1.7 million, net of a tax benefit of $.9 million. In the
second quarter of 1998, the Company incurred an extraordinary loss of $22.0
million, net of a tax benefit of $11.9 million and in the fourth quarter of
1998, the Company incurred an extraordinary loss of $2.2 million, net of a tax
benefit of $1.1 million.  Such losses were due to the early extinguishment of
debt obligations and consisted of premium payments and the write-off of
unamortized debt issuance costs.  See Note D.

   COMPREHENSIVE INCOME - For the years ended December 31, 2000, 1999 and 1998,
the Company did not have any material non-owner changes in equity.

   CONCENTRATION OF CREDIT RISK -  The Company maintains cash balances and
short-term investments with commercial banks throughout the world.  The
Company's cash equivalents and short-term investments generally consist of
commercial paper, money-market mutual funds and interest-bearing deposits with
strong credit rated financial institutions, therefore, bearing minimal risk. No
losses were incurred during 2000, 1999 and 1998.

   The Company's revenues were generated primarily from its drilling rigs.
Revenues can be generated from a relatively small number of customers, which are
primarily major and independent foreign and domestic oil and gas companies, as
well as foreign state owned oil and gas companies.  The Company performs ongoing
credit evaluations of its customers' financial conditions and generally requires
no collateral from its customers.  The Company's allowance for doubtful accounts
at December 31, 2000 and 1999 was $15.2 million and $21.5 million, respectively.

   NEWLY ISSUED ACCOUNTING STANDARDS - In June 1998, Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133") was issued. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument be measured at
its fair value, recorded in the balance sheet as either an asset or liability
and that changes in the derivative's fair value be recognized currently in
earnings. The Company adopted SFAS 133 as of January 1, 2001 when it became
effective.  Because of the Company's limited use of derivatives to manage its
exposure to fluctuations in foreign currency exchange rates and interest rates,
the adoption of the new statement had no effect on the results of operations or
the consolidated financial position of the Company.

   In December 1999, SEC Staff Accounting Bulletin: No. 101 - Revenue
Recognition in Financial Statements ("SAB 101") was issued. SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements.  On October 1, 2000,
with an effective date of January 1, 2000, the Company adopted new guidelines
for the treatment of revenues related to contract preparation, mobilization and
demobilization of drilling units.  The cumulative effect at January 1, 2000 and
the impact on 2000 of the adoption of the new guidelines was not material to the
consolidated financial position or results of operations of the Company.

   USE OF ESTIMATES - The preparation of the consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ from those
estimates.

                                       24
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


   RECLASSIFICATION - Certain prior period amounts in the consolidated financial
statements have been reclassified for comparative purposes.  Such
reclassifications had no effect on the net income (loss) or the overall
financial condition of the Company.

(B) BUSINESS COMBINATIONS

   On December 31, 1997, R&B and Falcon completed a business combination
(merger) whereby each outstanding share of common stock of Falcon was converted
into one share of R&B Falcon common stock and each outstanding share of common
stock of R&B was converted into 1.18 shares of R&B Falcon common stock. The
merger qualified as a tax-free exchange and has been accounted for as a pooling
of interests.

   In connection with the merger, the Company recorded $66.4 million of expenses
in the fourth quarter of 1997. Such expenses consist primarily of employment
contract termination fees associated with executives of R&B, the acceleration of
unearned compensation of certain stock grants previously awarded to certain R&B
employees, fees for investment bankers, attorneys, and accountants, and printing
and other related costs.  In 1998, the Company reversed $8.0 million of merger
expenses primarily due to an Internal Revenue Service ruling received relating
to taxes on executive termination fees.

   On December 1, 1998, R&B Falcon acquired all of the outstanding stock of
Cliffs Drilling. Cliffs Drilling was a provider of daywork and turnkey drilling
services, mobile offshore production units and well engineering and management
services.  At the time of the acquisition, Cliffs Drilling's fleet consisted of
16 jackup rigs, three self-contained platform rigs, four mobile offshore
production units and 11 land rigs. The acquisition was effected pursuant to an
Agreement and Plan of Merger dated August 21, 1998, whereby each share of Cliffs
Drilling's common stock was converted into 1.7 shares of R&B Falcon common
stock.  Total consideration for Cliffs Drilling was approximately $405.1
million. The Company issued approximately 27.1 million shares of its common
stock valued at approximately $385.3 million.  In addition, the Company assumed
Cliffs Drilling's outstanding stock options valued at approximately $6.2 million
and the Company paid approximately $13.6 million in acquisition costs. The
acquisition of Cliffs Drilling was recorded using the purchase method of
accounting, accordingly Cliffs Drilling's results of operations are included
with the Company's results of operations since the acquisition date. The excess
of the purchase price over the estimated fair value of net assets acquired
amounted to approximately $89.8 million, which has been accounted for as
goodwill and is being amortized over 40 years using the straight-line method.
Goodwill increased $19.1 million since December 31, 1998 and represents
revisions to estimates used in the initial purchase price allocation, primarily
related to various contingencies, including an income tax contingency in 2000.
Amortization of goodwill was $2.2 million in 2000, $1.9 million in 1999 and $.1
million in 1998.

   Pro forma consolidated operating results of the Company and Cliffs Drilling
for the year ended December 31, 1998 assuming the Cliffs Drilling transaction
occurred at the beginning of the period, is as follows:
<TABLE>
<CAPTION>

                                                                        Year Ended
                                                                     December 31, 1998
                                                                     -----------------
                                                                        (unaudited)
                                                           (in millions except per share amounts)
<S>                                                                         <C>
Operating revenues                                                        $1,349.0
Income from continuing operations before extraordinary loss                  138.5
Net income                                                                   150.3
Net income per common share:
 Basic                                                                         .78
 Diluted                                                                       .78
</TABLE>

                                       25
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


(C)  UNCONSOLIDATED INVESTEES

   Unconsolidated investees are accounted for using the equity method.
Investments in and advances to unconsolidated investees at December 31, 2000 and
1999 were as follows (in millions):

<TABLE>
<CAPTION>
                                                             December 31,
                                                         -------------------
                                                           2000         1999
                                                          -----        -----
<S>                                                        <C>            <C>
Unconsolidated Investee
-----------------------
Navis ASA                                                $    -        $62.6
Deepwater Drilling L.L.C.                                  11.9          8.3
Deepwater Drilling II L.L.C.                                2.2          3.6
Other                                                       7.2          8.2
                                                          -----        -----
                                                          $21.3        $82.7
                                                          =====        =====
</TABLE>

   Income (loss) from equity investees plus related revenues and expenses for
the years ended December 31, 2000, 1999 and 1998 consisted of the following (in
millions):

<TABLE>
<CAPTION>
Unconsolidated Investee                       2000          1999          1998
-----------------------                      ------         -----         -----
<S>                                             <C>           <C>           <C>
Deepwater Drilling L.L.C.                    $  5.1         $ 4.6         $ (.2)
Deepwater Drilling II L.L.C.                  (30.4)          (.2)            -
Navis ASA                                      15.7            .5             -
Other                                          (1.9)         (1.4)            -
                                             ------         -----         -----

                                             $(11.5)        $ 3.5         $ (.2)
                                             ======         =====         =====
</TABLE>

   Deepwater Drilling L.L.C. ("DDI") is owned 50% by the Company and 50% by
Conoco. DDI leases and operates the Deepwater Pathfinder which commenced
operations in the first quarter of 1999. See Note K.

   Deepwater Drilling II L.L.C. ("DDII") is owned 60% by the Company and 40% by
Conoco. DDII leases and operates the Deepwater Frontier, which commenced
operations in the second quarter of 1999.  In 2000, the Company leased the
Deepwater Frontier from DDII and recorded a $13.4 million loss provision
associated with the Company's impaired drilling contract for the Deepwater
Frontier.  Such impairment is due to the contract's expected operating costs
exceeding its revenues. See Notes F and K.

   In September 1998, the Company and Navis ASA ("Navis"), a Norwegian public
company which constructed the dynamically positioned drillship (the Navis
Explorer I), entered into an agreement pursuant to which the Company agreed to
make a capital contribution to Navis of $50.0 million in exchange for stock in
Navis. Also, Navis and the Company had entered into an agreement pursuant to
which the Company would manage the operations of the drillship following its
delivery. In the second quarter of 2000, the Company entered into a definitive
agreement to sell its 38.6% ownership interest in Navis, together with an
agreement to assign the management contract for the Navis Explorer I, for a
total price of $79.0 million. In November 2000, the agreement was completed and
as a result, the Company recorded a pre-tax gain of approximately $19.8 million.

                                       26
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


(D)  LONG-TERM OBLIGATIONS

     Long-term obligations at December 31, 2000 and 1999 consisted of the
following (in millions):
<TABLE>
<CAPTION>

                                                                        2000         1999
                                                                    --------     --------
     <S>                                                                <C>          <C>
  9.75% Senior Notes, due January 2001 ("9.75% Notes") (1)(8)       $    5.2     $    5.2
  6.5% Senior Notes, due April 2003 (2)                                249.6        249.4
  8.875% Senior Notes, due March 2003 ("8.875% Notes") (3)(8)             .4           .4
  9.125% Senior Notes, due December 2003 (4)                           100.0        100.0
  10.25% Senior Notes, due May 2003 ("10.25% Notes") (5)               201.3        201.9
  6.75% Senior Notes, due April 2005 (2)                               348.7        348.4
  11% Senior Secured Notes, due March 2006 (6)                         400.0        400.0
  12.25% Senior Notes, due March 2006 (6)                              200.0        200.0
  6.95% Senior Notes, due April 2008 (2)                               249.3        249.3
  9.5% Senior Notes, due December 2008 (4)                             300.0        300.0
  11.375% Senior Secured Notes, due March 2009 (6)                     400.0        400.0
  7.375% Senior Notes, due April 2018 (2)                              248.2        248.1
  Project financing (7)                                                230.3        250.0
  Other debt obligations                                                  .2           .8
                                                                    --------     --------
  Total                                                              2,933.2      2,953.5
  Less long-term obligations due within one year                       (41.4)       (20.1)
                                                                    --------     --------
  Long-term obligations                                             $2,891.8     $2,933.4
                                                                    ========     ========

</TABLE>
-----------------------
   (1) The 9.75% Notes were issued by Falcon pursuant to an offering in January
       1994 and originally consisted of  a principal amount of $110.0 million
       (see Note (8) below). Interest is payable semiannually on January 15 and
       July 15.  Certain of the Company's subsidiaries guarantee the 9.75%
       Notes.  The 9.75% Notes are unsecured obligations of Falcon, ranking pari
       passu in right of payment with all other senior indebtedness of Falcon,
       but are effectively subordinated to any secured indebtedness of Falcon to
       the extent of the collateral securing such secured indebtedness.  In
       January 2001, the 9.75% Notes were repaid in full.

   (2) In April 1998, the Company issued 6.5% Senior Notes, 6.75% Senior Notes,
       6.95% Senior Notes and 7.375% Senior Notes with an aggregate principal
       amount of $1.1 billion. As a result, the Company received net proceeds of
       approximately $1,082.9 million after deducting offering related expenses.
       Interest on these notes is payable semiannually on April 15 and October
       15. These notes are unsecured obligations of the Company, ranking pari
       passu in right of payment with all other existing and future senior
       unsecured indebtedness of the Company. The Company used the proceeds to
       repay existing indebtedness of $874.4 million and the remainder was used
       for planned capital expenditures, working capital and other general
       corporate purposes. As a result of the repayment of existing
       indebtedness, the Company incurred an extraordinary loss of $22.0
       million, net of tax, in the second quarter of 1998. These notes were
       issued at a discount of approximately $6.0 million which is being
       amortized as interest expense over the term of the notes. The amount of
       unamortized discount at December 31, 2000 was approximately $4.1 million
       and the amount of amortized

                                       27
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------

       discount for the years ended December 31, 2000, 1999 and 1998 was
       approximately $.7 million, $.7 million and $.5 million, respectively.

       The 6.75% Senior Notes and the 6.95% Senior Notes are redeemable at the
       option of the Company in whole or in part, at a make-whole premium with
       present values calculated using a discount rate equal to the then-
       prevailing yield of U.S. treasury notes for a corresponding remaining
       term plus 20 basis points, together with interest accrued to the
       redemption date. The 7.375% Senior Notes are redeemable at the option of
       the Company, in whole or in part, at a make-whole premium with present
       values calculated using a discount rate equal to the then-prevailing
       yield of U.S. treasury notes for a corresponding remaining term plus 25
       basis points. The 6.5% Senior Notes are not redeemable at the option of
       the Company. The indenture pursuant to which the 6.5% Senior Notes, the
       6.75% Senior Notes, the 6.95% Senior Notes and the 7.375% Senior Notes
       were issued imposes certain restrictions on the Company, including
       creating liens, engaging in sale/leaseback transactions and engaging in
       merger, consolidation or reorganization transactions.

   (3) The 8.875% Notes were issued by Falcon pursuant to an offering in March
       1996 and originally consisted of a principal amount of $120.0 million
       (see Note (8) below). Interest is payable semiannually on March 15 and
       September 15.  The 8.875% Notes are unsecured obligations of Falcon,
       ranking pari passu in right of payment with all other senior indebtedness
       of Falcon.  The 8.875% Notes are not guaranteed by any of Falcon's
       subsidiaries, and thus are structurally subordinated to the 9.75% Notes
       (described above) and other indebtedness of the subsidiaries.  Further,
       they are effectively subordinated to any secured indebtedness of Falcon
       to the extent of the collateral securing such secured indebtedness.

       The 8.875% Notes are redeemable at the option of the Company, in whole or
       in part, at a price equal to 102.2188 % of the principal amount if
       redeemed during the 12 months beginning March 15, 2001, or at a price of
       100% of the principal amount if redeemed after March 15, 2002, in each
       case together with interest accrued to the redemption date.

   (4) In December 1998, the Company issued 9.125% Senior Notes and 9.5% Senior
       Notes with an aggregate principal amount of $400.0 million. As a result,
       the Company received net proceeds of approximately $392.3 million after
       deducting offering related expenses.  Interest on these notes is payable
       semiannually on June 15 and December 15. These notes are unsecured
       obligations of the Company, ranking pari passu in right of payment with
       all other existing and future senior indebtedness of the Company. The
       Company used the proceeds to reduce borrowings under an existing
       revolving credit facility. As a result of such reduction, the Company
       incurred an extraordinary loss of $2.2 million, net of tax, in the fourth
       quarter of 1998.

       The 9.125% Senior Notes and the 9.5% Senior Notes are redeemable at the
       option of the Company, in whole or in part, at a make-whole premium with
       present values calculated using a discount rate equal to the then-
       prevailing yield of U.S. treasury notes for a corresponding remaining
       term plus 50 basis points, together with interest accrued to the
       redemption date. The indenture pursuant to which the 9.125% Senior Notes
       and the 9.5% Senior Notes were issued imposes restrictions on certain
       actions by the Company, including creating liens, engaging in
       sale/leaseback transactions and engaging in merger, consolidation or
       reorganization transactions. In addition, the indenture imposes
       restrictions on the incurrence of additional indebtedness and the payment
       of dividends by the Company. However, these restrictions are suspended
       during the period that the 9.125% Senior Notes and the 9.5% Senior Notes
       are rated as investment grade.

   (5) The 10.25% Notes were issued by Cliffs Drilling pursuant to offerings in
       1996 and 1997.  The 10.25% Notes originally consisted of a principal
       amount of $200.0 million and interest is payable semiannually on May 15
       and November 15. These notes are senior unsecured obligations of Cliffs
       Drilling, ranking pari passu in right of payment with all other senior
       indebtedness and senior to all subordinated indebtedness.  These notes
       are unconditionally guaranteed on a senior unsecured basis by certain
       subsidiaries of Cliffs Drilling (the

                                       28
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


       "Cliffs Drilling Subsidiary Guarantors"), which guarantees rank pari
       passu in right of payment with all senior indebtedness of the Cliffs
       Drilling Subsidiary Guarantors and senior to all subordinated
       indebtedness of the Cliffs Drilling Subsidiary Guarantors. The 10.25%
       Notes are publicly traded and are not guaranteed by the Company or any
       other subsidiary of the Company, accordingly, separate financial
       statements of Cliffs Drilling Subsidiary Guarantors are not required to
       be included in these financial statements.

       On or after May 15, 2000, the 10.25% Notes are redeemable at the option
       of Cliffs Drilling, in whole or in part, at a price of 105% of the
       principal amount if redeemed during the 12 months beginning May 15, 2000,
       at a price of 102.5% of the principal amount if redeemed during the 12
       months beginning May 15, 2001, or at a price of 100% of the principal
       amount if redeemed after May 15, 2002, in each case together with
       interest accrued to the redemption date.

       The indenture under which the 10.25% Notes are issued imposes significant
       operating and financial restrictions on Cliffs Drilling. Such
       restrictions affect, and in many respects limit or prohibit, among other
       things, the ability of Cliffs Drilling to pay dividends, repurchase
       stock, make payments on subordinated indebtedness, make investments,
       incur additional indebtedness, make capital expenditures, create liens,
       sell assets, engage in transactions with affiliates and engage in merger,
       consolidation or reorganization transactions.

       The indenture also requires that Cliffs Drilling make an offer to
       purchase the notes at an amount equal to 101% of the principal amount of
       the notes upon the occurrence of certain events constituting a change of
       control. As a result of the Company acquiring Cliffs Drilling, Cliffs
       Drilling was required to offer to purchase for cash all of the
       outstanding 10.25% Notes. On January 28, 1999, Cliffs Drilling
       repurchased approximately $.3 million principal amount of the 10.25%
       Notes that were tendered pursuant to this offer. See Note R.

       These notes were issued at a premium of approximately $3.9 million which
       is being amortized as interest expense over the term of the notes. The
       amount of unamortized premium at December 31, 2000 was approximately $1.6
       million and the amount of amortized premium for each of the years ended
       December 31, 2000, 1999 and 1998 was approximately $.7 million.

  (6)  In March 1999, the Company issued $200.0 million of 12.25% Senior Notes
       due 2006 (the "12.25% Notes"). Also in March 1999, RBF Finance Co., a
       limited purpose finance company and a consolidated affiliate of the
       Company, issued $400.0 million of 11% Senior Secured Notes due 2006 (the
       "11% Secured Notes") and $400.0 million of 11.375% Senior Secured Notes
       due 2009 (the "11.375% Secured Notes" and collectively, with the 11%
       Secured Notes, the "Secured Notes"). The 12.25% Notes are senior
       unsecured obligations of the Company, ranking pari passu in right of
       payment with all other senior indebtedness and senior to all subordinated
       indebtedness. The Company borrowed the proceeds from the Secured Notes
       from RBF Finance Co. pursuant to 10 separate loan agreements, each of
       which is secured by one of the Company's drilling rigs. As a result, the
       Company received net proceeds of approximately $970.6 million after
       deducting offering expenses. The Company used the proceeds to repay
       existing indebtedness of $350.0 million of long-term obligations, $125.0
       million of short-term obligations and the Company's portion ($81.0
       million) of an interim facility for the construction of the Deepwater
       Frontier. Remaining proceeds were used for planned capital expenditures,
       working capital and other general corporate purposes. As a result of the
       repayment of existing indebtedness, the Company incurred an extraordinary
       loss of $1.7 million, net of tax, in the first quarter of 1999 which
       consisted of the write-off of unamortized debt issuance costs. The
       Company guaranteed the payment of the Secured Notes issued by RBF Finance
       Co. Interest is payable semiannually on March 15 and September 15 on both
       the 12.25% Notes and Secured Notes. The indentures under which the 12.25%
       Notes and the Secured Notes are issued impose certain restrictions on the
       Company, including incurring additional debt, paying dividends,
       repurchasing stock, making payments on subordinated debt,

                                       29
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


       selling assets, creating liens, engaging in sale/leaseback transactions,
       making investments, engaging in merger, consolidation or reorganization
       transactions and engaging in affiliate transactions. However, the
       restrictions on incurring additional indebtedness, paying dividends,
       repurchasing stock, making payments on subordinated indebtedness and
       making investments are suspended during the period that the 12.25% Notes
       and the Secured Notes are rated as investment grade.

       The indentures also require that the Company and RBF Finance Co. make an
       offer to purchase the 12.25% Notes and the Secured Notes, respectively,
       for an amount equal to the principal amount of the notes upon the
       occurrence of certain events constituting a change of control of the
       Company. Neither the Company nor RBF Finance Co. is required to make such
       an offer as a result of the TSF Merger because these notes were rated
       investment grade at the time of the merger. See Note R.

       The 12.25% Notes are redeemable at the option of the Company, in whole or
       in part, at a make-whole premium with present values calculated using a
       discount rate equal to the then-prevailing yield of U.S. treasury notes
       for a corresponding remaining term plus 50 basis points, together with
       interest accrued to the redemption date. The 11% Secured Notes are
       redeemable at the option of RBF Finance Co., in whole or in part, at a
       make-whole premium with present values calculated using a discount rate
       equal to the then-prevailing yield of U.S. treasury notes for a
       corresponding remaining term plus 50 basis points, together with interest
       accrued to the redemption date. The 11.375% Secured Notes are redeemable
       at the option of RBF Finance Co., in whole or in part, at a price of
       105.6875% of principal if redeemed during the 12 months beginning March
       15, 2004, at a price of 103.7917% of principal if redeemed during the 12
       months beginning March 15, 2005, at a price of 101.8958% if redeemed
       during the 12 months beginning March 15, 2006, or at a price of 100% of
       principal if redeemed after March 15, 2007, in each case together with
       interest accrued to the redemption date.

   (7) In August 1999, a subsidiary of the Company completed a $250.0 million
       project financing for the construction the Deepwater Nautilus in which
       such subsidiary received net proceeds of approximately $245.2 million.
       The financing consists of two five-year notes. The first note is for
       $200.0 million and bears interest at 7.31%, with monthly interest
       payments, which commenced in September 1999, and monthly principal
       payments which commenced in June 2000.  The second note is for $50.0
       million and bears interest at 9.41%, with monthly interest payments,
       which commenced in September 1999, and a balloon principal payment which
       is due at maturity of the loan in May 2005. Both notes are collateralized
       by the Deepwater Nautilus and drilling contract revenues from such rig
       and are without recourse to the Company.

   (8) The indentures pursuant to which the 8.875% Notes and 9.75% Notes
       ("Falcon Notes") were issued (i) provide that Falcon may redeem such
       obligations at a premium at certain times prior to maturity, (ii) require
       Falcon to offer to redeem such obligations at a premium if there is a
       change of control of Falcon (see below), and (iii) impose restrictions on
       certain actions by Falcon, including payment of dividends, incurrence of
       debt, pledging of assets, engaging in sale/leaseback transactions, sale
       of assets, making investments, and engaging in merger, consolidation or
       reorganization transactions.

       As a result of the merger between R&B and Falcon, Falcon was required to
       offer to purchase for cash all of the Falcon Notes. On January 28, 1998,
       Falcon made a purchase offer to each note holder at a price equal to 101%
       of the aggregate principal amount outstanding plus accrued interest. As a
       result, none of the notes were tendered for redemption.

       On March 23, 1998, the Company offered to redeem the Falcon Notes. The
       aggregate principal amount of the outstanding Falcon Notes was $230.0
       million and on April 20, 1998, $224.4 million in principal amount of
       Falcon Notes was repaid from proceeds from the sale of senior notes (see
       Note (2) above).

                                       30
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


     Other than as discussed in Note R, Transocean has made no commitment to
retire any of the Company's debt obligations. However, if any were retired the
Company would incur an extraordinary charge related to the early extinguishment
of debt.

  None of the above debt obligations of the Company have financial covenant
requirements. However, all of the above debt obligations contain cross covenant
default provisions. Whereas, if the Company does not meet its financial covenant
requirements under any of its other obligations, such debt obligations
containing the cross covenant default provisions would also be considered in
default, with the exception of the 10.25% Notes. The Company's letter of credit
facility (see Note E) contains financial covenants, which at December 31, 2000
were not in default.

   As of December 31, 2000, the Company estimates the fair value of its debt
obligations to be $3,032.5 million compared to a book value of $2,933.2 million.

   Aggregate annual maturities of long-term obligations, (including the current
portion) for the next five years and thereafter are as follows (in millions):

<TABLE>
<CAPTION>

                <S>                                        <C>
                2001                                       $   41.4
                2002                                           38.6
                2003                                          591.6
                2004                                           44.6
                2005                                          419.6
                Thereafter                                  1,800.0
                                                           --------
                                                            2,935.8
                Less the unamortized discount
                 and premium on senior notes                   (2.6)
                                                           --------
                Total long-term obligations and long-
                 term obligations due within one year
                 at December 31, 2000                      $2,933.2
                                                           ========
</TABLE>

(E)  COMMITMENTS AND CONTINGENCIES

     GENERAL - The Company's construction and upgrade projects are subject to
the risks of delay and cost overruns inherent in any large construction project,
including shortages of equipment, unforeseen engineering problems, work
stoppages, weather interference, unanticipated cost increases and shortages of
materials or skilled labor. Significant cost overruns or delays would adversely
affect the Company's liquidity, consolidated financial condition and results of
operations. Delays could also result in penalties under, or the termination of,
the long-term contracts under which the Company plans to operate these rigs.

     The Falcon 100, Deepwater Navigator and Deepwater Expedition were completed
later than the required commencement dates under the drilling contracts for such
rigs and at costs significantly in excess of original estimates. The customers
for the Falcon 100 and Deepwater Navigator cancelled the drilling contracts for
such rigs based on the rigs not being delivered on time. The Company does not
believe that Petrobras, the customer for the Falcon 100, had the right to cancel
such contract. The Company is continuing to review its rights with respect to
termination of the contract. The Falcon 100 commenced a six-month drilling
contract from another customer in the third quarter of 2000. Also, the Company
has received a three-year drilling contract from Petrobras for the use of the
Deepwater Navigator offshore Brazil. Petrobras, the customer for the Deepwater
Expedition, did not cancel its drilling contract and in October 2000, Petrobras
demanded late delivery penalties of  $10.0 million under the contracts for delay
in commencement of operations. The Company believes that it is entitled to an
unpaid mobilization fee of approximately $7.0 million from Petrobras, and
intends to initiate discussions with Petrobras to resolve this dispute. Based on
information presently

                                       31
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


available, the Company does not expect that the outcome of this mater will have
a material adverse effect on the Company's business or consolidated financial
position.

     CAPITAL EXPENDITURES - In 2001, the Company expects to spend approximately
$264.6 million to expand and upgrade its operating rig fleet, primarily its
deepwater rig fleet.

     EMPLOYMENT CONTRACTS - In August 1999, the Company entered into employment
contracts with seven employees. Such employment contracts included certain
provisions, which call for termination payments to the employee upon the
occurrence of certain events including change of control. As a result of the TSF
Merger in January 2001 (see Note R), a change of control occurred and such
payments were made.

     OPERATING LEASES - The Company has operating leases covering premises and
equipment.  Certain operating leases contain renewal options and have options to
purchase the asset at fair market value at the end of the lease term. Lease
expense amounted to $31.5 million (2000), $45.3 million (1999) and $44.5 million
(1998).  As of December 31, 2000, future minimum rental payments relating to
operating leases were as follows (in millions):

<TABLE>
<CAPTION>

<S>                        <C>     <C>     <C>     <C>     <C>     <C>
                            2001    2002    2003    2004    2005   Thereafter
                           -----   -----   -----   -----   -----   ----------

       Drilling units      $13.0   $13.0   $13.0   $13.0   $10.8     $    -
       Other                 3.3     2.0      .9      .6      .1          -
                           -----   -----   -----   -----   -----     ------

       Total               $16.3   $15.0   $13.9   $13.6   $10.9     $    -
                           =====   =====   =====   =====   =====     ======
</TABLE>

     In November 1995, the Company entered into a sale/leaseback of the M. G.
Hulme, Jr. and agreed to lease the drilling unit for 10 years.  The leaseback is
accounted for as an operating lease and a deferred gain of $7.4 million was
recorded and is being amortized over the life of the lease (see Note F).

     LITIGATION - In November 1988, a lawsuit was filed in the U.S. District
Court for the Southern District of West Virginia against Reading & Bates Coal
Co., a wholly owned subsidiary of the Company, by SCW Associates, Inc. claiming
breach of an alleged agreement to purchase the stock of Belva Coal Company, a
wholly owned subsidiary of Reading & Bates Coal Co. with coal properties in West
Virginia. When those coal properties were sold in July 1989 as part of the
disposition of the Company's coal operations, the purchasing joint venture
indemnified Reading & Bates Coal Co. and the Company against any liability
Reading & Bates Coal Co. might incur as a result of this litigation. A judgment
for the plaintiff of $32,000 entered in February 1991 was satisfied and Reading
& Bates Coal Co. was indemnified by the purchasing joint venture. On October 31,
1990, SCW Associates, Inc., the plaintiff in the above-referenced action, filed
a separate ancillary action in the Circuit Court, Kanawha County, West Virginia
against the Company, Caymen Coal, Inc. (the former owner of the Company's West
Virginia coal properties), as well as the joint venture, Mr. William B. Sturgill
(the former President of Reading & Bates Coal Co.) personally, three other
companies in which the Company believes Mr. Sturgill holds an equity interest,
two employees of the joint venture, First National Bank of Chicago and First
Capital Corporation. The lawsuit seeks to recover compensatory damages of $50.0
million and punitive damages of $50.0 million for alleged tortious interference
with the contractual rights of the plaintiff and to impose a constructive trust
on the proceeds of the use and/or sale of the assets of Caymen Coal, Inc. as
they existed on October 15, 1988. The Company intends to defend its interests
vigorously and believes that the damages alleged by the plaintiff in this action
are highly exaggerated. In any event, the Company believes that it has valid
defenses and does not expect that the ultimate outcome of this case will have a
material adverse effect on its consolidated financial position or results of
operations.

     In December 1998, Mobil North Sea Limited ("Mobil") purportedly terminated
its contract for use of the Company's Jack Bates semisubmersible  rig based on
failure of two mooring lines while anchor recovery operations at a Mobil well
location had been suspended during heavy weather.  The Company does not believe
that Mobil had the

                                       32
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


right to terminate this contract. The Company later recontracted the Jack Bates
to Mobil at a lower dayrate. The Company has filed a request for arbitration
with the London Court of International Arbitration seeking damages for the
termination. Mobil in turn has counterclaimed against the Company seeking
damages for the Company's alleged breaches of the original contract. The
arbitration proceedings are continuing and a preliminary hearing is currently
scheduled for April 2001. The Company does not expect that the ultimate outcome
of this case will have a material adverse effect on its consolidated financial
position or results of operations.

     In March 1997, an action was filed by Mobil Exploration and Producing U.S.
Inc. and affiliates, St. Mary Land & Exploration Company and affiliates and
Samuel Geary and Associates, Inc. against Cliffs Drilling, its underwriters and
insurance broker in the 16th Judicial District Court of St. Mary Parish,
Louisiana. The plaintiffs alleged damages amounting to in excess of $50.0
million in connection with the drilling of a turnkey well in 1995 and 1996.  The
case was tried before a jury in January and February 2000, and the jury returned
a verdict of approximately $30.0 million in favor of the plaintiffs for excess
drilling costs, loss of insurance proceeds, loss of hydrocarbons and interest.
The Company has filed motions for a new trial and a judgment notwithstanding the
verdict in contemplation of perfecting its appeal of such judgment.  The Company
believes that all but the portion of the verdict representing excess drilling
costs of approximately $4.7 million is covered by relevant primary and excess
liability insurance policies of Cliffs Drilling; however, the insurers and
underwriters have denied coverage.  Cliffs Drilling has instituted litigation
against those insurers and underwriters to enforce its rights under the relevant
policies.  The Company does not expect that the ultimate outcome of this case
will have a material adverse effect on its consolidated financial position or
results of operations.

     The Company is a defendant in Bryant, et al. v. R&B Falcon Drilling USA,
Inc., et al., in the United States District Court for the Southern District of
Texas, Galveston Division.  R&B Falcon Drilling USA is a wholly owned indirect
subsidiary of the Company.  In this suit, the plaintiffs allege that R&B Falcon
Drilling USA, the Company and a number of other offshore drilling contractors
with operations in the U.S. Gulf of Mexico have engaged in a conspiracy to
depress wages and benefits paid to their offshore employees.  The plaintiffs
contend that this alleged conduct violates federal antitrust law and constitutes
unfair trade practices and wrongful employment acts under state law.  The
plaintiffs seek treble damages, attorneys' fees and costs on behalf of
themselves and an alleged class of offshore workers, along with an injunction
against exchanging certain wage and benefit information with other offshore
drilling contractors named as defendants. The plaintiffs contend that actual
damages to the alleged class will exceed $5.0 billion.  A hearing has been set
for the second quarter of 2001 to determine if the matter should proceed as a
class action. The Company vigorously denies the plaintiff's allegations and does
not expect that the outcome of this matter will have a material adverse effect
on its consolidated financial position or results of operations.

     A subsidiary of the Company, R&B Falcon Drilling Company, is a defendant in
a Texas state court in a suit brought by Hahn & Clay, Inc. alleging that R&B
Falcon Drilling breached an oral agreement and committed fraud in connection
therewith. The matter went to trial in January 2001 and the jury returned a
verdict against the Company in the amount of approximately $1.1 million. In
addition, punitive damages in the amount of approximately $1.9 million were
awarded. The plaintiff further seeks attorneys' fees and interest. The Company
intends to appeal this judgement and does not expect the liability, if any,
resulting from this matter to have a material adverse effect on its consolidated
financial position or results of operations.

     A subsidiary of the Company is involved in arbitration proceedings with
Nabors Drilling USA Inc. ("Nabors") concerning issues arising from two bareboat
charters of barge drilling rigs from Nabors.  Nabors alleges that the Company
failed to return one of the rigs in the agreed upon condition and seeks
continued bareboat charter fees, unspecified costs for repairs and attorneys'
fees.  The Company disputes the allegation that charter fees have continued to
accrue and disputes the nature and extent of any needed repairs.  The Company
does not expect the liability, if any, resulting from this matter to have a
material adverse effect on its consolidated financial position or results of
operations.

                                       33
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


     The Company and its subsidiaries are involved in a number of other
lawsuits, all of which have arisen in the ordinary course of the Company's
business. The Company does not believe that ultimate liability, if any,
resulting from any such other pending litigation will have a material adverse
effect on its consolidated financial position or results of operations.

     SELF INSURANCE - The Company is self-insured for the deductible portion of
its insurance coverage.  In the opinion of management, adequate accruals have
been made based on known and estimated exposures up to the deductible portion of
the Company's insurance coverages.  Management believes that claims and
liabilities in excess of the amounts accrued are adequately insured.

     LETTER OF CREDIT - On August 31, 2000, the Company entered into a $70.0
million letter of credit facility with three banks.  Under this facility, the
Company pays letter of credit fees of 2% per annum on the amount of letters of
credit issued under the facility and a commitment fee of 0.5% per annum on the
unused portion of the facility. These fees could be lowered to 1.5% per annum
and .375% per annum, respectively, if the Company's senior unsecured debt
ratings are raised to certain levels by the credit rating agencies. This
facility contains covenants which require the Company to meet certain ratios and
working capital conditions and at December 31, 2000, the Company was in
compliance.  In addition, the facility matures in April 2004, and is secured by
mortgages on five of the Company's drilling rigs, the J.W. McLean, J.T. Angel,
Randolph Yost, D.R. Stewart and George H. Galloway. At December 31, 2000, the
Company had letters of credit outstanding and unused totaling $57.0 million and
$13.0 million, respectively.

(F)  ACCRUED LIABILITIES AND OTHER NONCURRENT LIABILITIES

     The components of "Accrued liabilities" at December 31, 2000 and 1999 were
as follows (in millions):

<TABLE>
<CAPTION>

                                                                           2000     1999
                                                                           ----     ----
           <S>                                                             <C>       <C>
          Expenses - general                                              $124.6   $111.5
          Taxes                                                             20.1     20.8
          Interest expense                                                  56.2     54.3
          Worker compensation claims                                        15.7     13.5
          Payroll                                                            6.7     10.1
          Employee benefits                                                  6.9      5.0
                                                                          ------   ------
          Total                                                           $230.2   $215.2
                                                                          ======   ======
 </TABLE>

     The components of "OTHER NONCURRENT LIABILITIES" at December 31, 2000 and
1999 were as follows (in millions):

<TABLE>
<CAPTION>

                                                                           2000     1999
                                                                           ----     ----
           <S>                                                             <C>       <C>
          Deferred income                                                 $ 27.6   $  3.0
          Postretirement benefit obligations                                14.5     14.4
          Provision for loss on drilling contract (see Note C)              11.8        -
          Foreign income taxes                                              15.9     21.1
          Pension obligations                                                4.2      4.2
          Deferred gain on sale of drilling unit (see Note E)                1.8      2.1
          Other                                                              9.6      9.9
                                                                          ------   ------
          Total                                                           $ 85.4   $ 54.7
                                                                          ======   ======
</TABLE>


     Deferred income relates primarily to deferred revenue for incomplete
drilling contracts (see Note A).

                                       34
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------



(G)  CANCELLATION OF CONVERSION PROJECTS

     In the third quarter of 1998, the Company cancelled the Peregrine VI and
the Peregrine VIII drillship conversion projects due to continuing uncertainty
as to final cost and expected delivery dates. As a result, the drilling contract
on the Peregrine VIII was terminated on September 24, 1998, and the drilling
contract on the Peregrine VI was terminated on January 1, 1999. Both
terminations were without prejudice to the rights of the oil companies. The
Company believes that, based on provisions of the contracts that preclude
recovery of indirect or consequential damages and projected rig availability in
the offshore drilling industry, the Company will not have any material liability
under these drilling contracts as a result of the termination thereof. The
contracts with the shipyard for conversion of the Peregrine VI and the Peregrine
VIII were also cancelled. In addition, in the fourth quarter of 1998, the
Company cancelled two additional drillship conversion projects (Peregrine IX and
Peregrine X) that were in the preliminary phases. As a result of the termination
of these four drillship conversion projects, the Company expensed $118.3 million
in related costs in 1998.

     In connection with the drillship conversion projects, the Company purchased
or committed to purchase drilling equipment with an aggregate cost of
approximately $285.0 million. The Company expected to use some of the surplus
equipment on other construction and/or upgrade projects and to maintain the
balance as inventory. A majority of the equipment originally ordered was
directed to other construction projects. However, the Company determined that a
portion of such surplus equipment was not usable for other projects or as spare
parts and as a result the Company expensed $25.6 million in the third quarter of
1999 and $13.8 million in the fourth quarter of 2000 to write-down such
inventory to its estimated net realizable value.  As of December 31, 2000, the
Company had approximately $35.0 million remaining of such surplus drilling
equipment. The Company is continually reviewing the value and utility of such
equipment and if in the future it is determined the Company cannot realize the
recorded value of the surplus equipment, the Company could incur additional
write-offs or write-downs of such equipment.

     Also in the third quarter of 1999, the Company sold the Peregrine X (with
the hull being the primary remaining asset) for approximately $5.8 million. As a
result of the sale, the Company recorded a loss of $6.1 million that has been
included in the cancellation of conversion projects in the Consolidated
Statement of Operations.

     In the fourth quarter of 1999, the Company expensed $3.0 million in
connection with the final settlement with the shipyard and the write-down of the
Peregrine VI and Peregrine VIII hulls to estimated scrap value.

(H)  INCOME TAXES

     Income tax expense (benefit) for the years ended December 31, 2000, 1999
and 1998 consisted of the following (in millions):

<TABLE>
<CAPTION>


                                  2000       1999    1998
                                  -----     ------  ------
               <S>                 <C>      <C>       <C>
              Current:
               Foreign            $60.3    $ 48.8    $28.1
               Federal              (.1)      (.8)     3.3
               State               (4.8)       .3      7.1
                                  -----    ------    -----
              Total current        55.4      48.3     38.5
                                  -----    ------    -----
              Deferred:
               Foreign               .2       (.8)     4.9
               Federal             (6.8)    (82.9)    13.7
               State                  -       3.8      1.8
                                  -----    ------    -----
              Total deferred       (6.6)    (79.9)    20.4
                                  -----    ------    -----

              Total               $48.8    $(31.6)   $58.9
                                  =====    ======    =====
</TABLE>

                                       35
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------



     The domestic and foreign components of income (loss) from continuing
operations before income taxes, minority interest and extraordinary loss for the
years ended December 31, 2000, 1999 and 1998 were as follows (in millions):

<TABLE>
<CAPTION>


                               2000        1999      1998
                               ----        ----      ----
                 <S>           <C>        <C>        <C>
                Domestic      $(123.6)   $(294.9)   $(26.2)
                Foreign         143.1      207.8     187.4
                              -------    -------    ------

                Total         $  19.5    $ (87.1)   $161.2
                              =======    =======    ======
</TABLE>

     The effective tax rate, as computed on income (loss) from continuing
operations before income taxes, minority interest and extraordinary loss differs
from the statutory U.S. income tax rate for the years ended December 31, 2000,
1999 and 1998 due to the following:

<TABLE>
<CAPTION>
                                                            2000    1999    1998
                                                            ----    ----    ----
           <S>                                               <C>     <C>     <C>
          Statutory tax rate                                  35%    (35)%    35%
          Use of previously reserved tax benefits            (40)     (6)      -
          Limitation on recognition of tax benefits            -       -       2
          Foreign tax expense (net of federal benefit)       206      (1)     (3)
          State tax expense (net of federal benefit)         (16)      5       3
          Non-deductible merger expenses                      11       -      (2)
          Non-deductible expenses - other                      7       -       -
          Revisions to depreciable tax basis                  50       -       -
          Other                                               (3)      1       2
                                                            ----    ----    ----
          Effective tax rate                                 250%    (36)%    37%
                                                            ====    ====    ====
</TABLE>

     Deferred income taxes result from those transactions which affect financial
and taxable income in different years. The nature of these transactions  and the
income tax effect of each as of December 31, 2000 and 1999 were as follows (in
millions):


                                                          2000       1999
                                                          ----       ----
                     Deferred tax liabilities:
                      Depreciation                       $ 408.9    $ 363.0
                      Undistributed earnings                 8.3       13.6
                                                         -------    -------
                     Total deferred tax liabilities        417.2      376.6
                                                         -------    -------

                     Deferred tax assets:
                      Postretirement benefits               (5.1)      (5.3)
                      Tax benefit carryforwards           (465.7)    (352.0)
                      Discontinued operations, net          (2.2)      (2.2)
                      Accrued expenses                      (5.1)      (4.6)
                      Valuation allowance                  115.1       52.0
                      Other                                (14.1)     (11.3)
                                                         -------    -------

                     Total deferred tax assets            (377.1)    (323.4)
                                                         -------    -------

                     Net deferred tax liability          $  40.1    $  53.2
                                                          ======     ======


     The valuation allowance reflects the possible expiration of tax benefits
(primarily foreign tax credit carryforwards) prior to their utilization because
in the opinion of management it is more likely than not that some or all of the
benefits will not be realized.  In 1999, valuation allowance related to tax net
operating loss carryforwards were reversed as the Company foresaw the ability to
use these loss carryforwards coupled with the recent change in tax law whereby
the

                                       36
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


carryforward period was increased from 15 years to 20 years. Also, valuation
allowances related to certain capital losses incurred in the past were reversed
as the Company had generated capital gains in excess of such capital losses.

     Recapitalizations of R&B in 1989 and 1991 resulted in ownership changes for
federal income tax purposes.  As a result of these ownership changes, the amount
of tax benefit carryforwards generated prior to the ownership changes which may
be utilized to offset federal taxable income is limited by the Internal Revenue
Code to approximately $1.4 million annually plus certain built-in gains that
existed as of the date of such changes.  United States net tax operating loss
carryforwards ("NOL") not subject to the ownership change limitation consist of
the following (in millions):

<TABLE>
<CAPTION>
                                     Year          U.S.
                 NOL                  NOL           NOL
                 Year               Expires     Not Limited
                 ----               -------     -----------
                 <S>                  <C>           <C>
               Pre-1991               2005        $  5.5
                 1991                 2006           2.1
                 1992                 2007           3.7
                 1993                 2008          12.5
                 1994                 2009          18.7
                 1995                 2010             -
                 1996                 2011          11.6
                 1997                 2012          75.1
                 1998                 2018          37.6
                 1999                 2019         299.9
                 2000                 2020         292.2
                                                  ------
                Total                             $758.9
                                                  ======
</TABLE>

(I)  CAPITAL SHARES

     RIGHTS - On December 31, 1997, the effective date of the merger between R&B
and Falcon (see Note B), each share of the Company's common stock received one
preferred share purchase right (a "Right").  Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock, (the "Preferred Shares") of the Company at
a price of $150, subject to adjustment.  The Rights will not become exercisable
until 10 days after a public announcement that a person or group has acquired
15% or more of the Company's common stock (thereby becoming an "Acquiring
Person") or the commencement of a tender or exchange offer upon consummation of
which such person or group would own 15% or more of the Company's common stock
(the earlier of such dates being called the "Distribution Date"). Until the
Distribution Date, the Rights will be evidenced by the certificates representing
the Company's common stock and will be transferable only with the Company's
common stock. In the event that any person or group becomes an Acquiring Person,
each Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter entitle its holder to purchase shares
of the Company's common stock having a market value of two times the exercise
price of the Right.  If after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination transaction or
50% or more of its assets or earning power are sold, each Right will entitle its
holder to purchase, at the Right's then current exercise price, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right.  The board of directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right at any time prior to 10 business
days following a public announcement that a person or group becomes an Acquiring
Person.  The Rights expire on November

                                       37
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


1, 2007. Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a preferential quarterly
dividend payment equal to the greater of $1 per share or 100 times the dividend
declared per common share. Liquidation preference will be equal to 100 times the
par value per share plus an amount equal to accrued and unpaid dividends and
distributions to the date of such payment. Each Preferred Share will have 100
votes, voting together with the common stock, and certain rights to elect two
directors during certain periods of default in the payment of dividends on the
Preferred Shares. See Note R.

     PREFERRED STOCK AND WARRANTS - On April 22, 1999, the Company issued
300,000 shares of 13.875% Senior Cumulative Redeemable Preferred Stock (the
"Preferred Stock"). Attached to each share of Preferred Stock was one warrant to
purchase 35 shares of the Company's common stock (10,500,000 shares in the
aggregate) at an exercise price of $9.50 per share (the "Warrants"). The Company
received net proceeds of approximately $288.8 million from the issuance of the
Preferred Stock and Warrants. The Warrants separated from the Preferred Stock
and became exercisable on July 7, 1999 and they expire on May 1, 2009. On
October 27, 2000, the Company commenced a tender offer to purchase for cash any
and all of the outstanding Preferred Stock at a fixed price of $1,300 per share.
The offer expired on November 29, 2000 and all but 36.05 shares out of a total
of 369,343.099 shares outstanding were tendered on December 1, 2000. The
remaining 36.05 shares were redeemed on December 15, 2000 at a price of
$1,156.09 per share. The total cash cost to the Company was approximately $482.5
million (including expenses of approximately $2.4 million). Such cash
requirement was funded from the proceeds from a common stock offering (see
below) and cash held by unrestricted subsidiaries of the Company. As a result,
the Company recorded a charge in 2000 to net loss applicable to common
stockholders for a tender offer premium of $110.8 million.

     Dividends were paid quarterly which commenced on August 1, 1999 and at the
Company's option could have been paid in cash or, on or before May 1, 2004, in
additional shares of Preferred Stock. Dividends paid in 2000 and 1999 were $39.6
million and $22.3 million, respectively, and were paid by the issuance of
additional shares of Preferred Stock.

     The Warrants' initial fair value of $159.95 per Warrant, or approximately
$48.0 million in total, was recorded as a discount to the Preferred Stock and an
addition to capital in excess of par. The Warrants' initial fair value and
Preferred Stock offering expenses of $9.7 million were being amortized on a
straight-line basis over the Warrants' 10 year term. However as a result of the
tender offer, the Company recorded a charge in 2000 to net loss applicable to
common stockholders for the write-off of unamortized discount and expenses of
$49.2 million.  In 2000, the Company received $2.3 million and issued 245,000
shares of its common stock as a result of 7,000 Warrants being exercised.  See
Note R.

     COMMON STOCK - During 1998 in a series of transactions, the Company issued
763,680 shares of its common stock in partial consideration for the acquisition
of 25 tugs, five ocean going barges and six workover rigs.  In 2000, an
additional 148,624 shares of common stock were issued as a result of the final
purchase price analysis.

     On December 1, 1998, the Company issued approximately 27.1 million shares
of its common stock for the acquisition of Cliffs Drilling (see Note B).

     In 1999, the Company issued 206,250 shares of its common stock for the
acquisition of two tugs.

     In 1999, the Company began to issue shares of its common stock for its
matching contribution to the employee savings plans.  As a result 366,512 shares
and 93,606 shares were issued in 2000 and 1999, respectively.

     On October 31, 2000, the Company sold 16.3 million shares of its common
stock resulting in gross proceeds of approximately $403.4 million in cash (net
proceeds of approximately $400.2 million). The net proceeds were be used to fund
a significant portion of the Company's tender offer to purchase its outstanding
preferred stock (see above) and for general corporate purposes.

                                       38
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


     As of December 31, 2000, 20,791,334 shares of authorized, unissued shares
of common stock were reserved for issuance under the Company's stock plans (net
of forfeitures), and 10,255,000 shares of authorized, unissued shares of common
stock were reserved for issuance for the exercise of Warrants.

(J)  EMPLOYEE BENEFIT PLANS

     PENSION AND POSTRETIREMENT BENEFITS - The Company has three noncontributory
pension plans. Substantially all of the R&B Falcon employees paid from a U.S.
payroll are covered by one or more of these plans.  Effective January 1, 1998,
substantially all of the Falcon employees paid from a U.S. payroll began
accruing benefit service although they were not eligible to participate in the
plans until January 1, 1999.  Effective April 1, 1999, substantially all of the
Cliffs Drilling employees paid from a U.S. payroll became eligible to
participate.   Plan benefits are primarily based on years of service and average
high 60-month average compensation (changed from average high 36 months
effective January 1, 1999).

     The R&B Falcon U.S. Pension Plan (the "U.S. Pension Plan") is qualified
under the Employee Retirement Income Security Act (ERISA). It is the Company's
policy to fund this plan not less than the minimum required by ERISA. It is the
Company's policy to contribute to the R&B Falcon Non-U.S. Pension Plan (the
"Non-U.S. Pension Plan") an amount equal to the normal cost plus amounts
sufficient to amortize the initial unfunded actuarial liability and subsequent
unfunded liability caused by plan or assumption changes over 30 years. The
unfunded liability arising from actuarial gains and losses is funded over 15
years. The Non-U.S. Pension Plan is a nonqualified plan and is not subject to
ERISA funding requirements. The U.S. and Non-U.S. Pension Plans invest in cash
equivalents, fixed income and equity securities.

     The R&B Falcon Retirement Benefit Replacement Plan (the "Replacement Plan")
is a self-administered unfunded excess benefit plan.  All members of the U.S.
Pension Plan and the Non-U.S. Pension Plan are potential participants in the
Replacement Plan.

     Effective July 1, 1999, all three of the Company's noncontributory pension
plans were suspended.  The suspension was designed to control costs, but did not
terminate the plans.  The Company can elect to terminate the plans or reactivate
the plans at any point in the future. The suspension impacts the participants as
follows:

 .    Vesting service will continue to accrue;
 .    Benefit service will not accrue (suspended);
 .    No compensation is accrued during the suspension, thus all compensation
     determinations in calculating benefits will be based on periods prior to
     July 1, 1999;
 .    New participants will not be allowed to enter the plans during the
     suspension;
 .    All funding of the plans required by ERISA continues;
 .    Benefits that have already accrued by active employees or deferred vested
     participants continue to be payable upon request (in accordance with normal
     plan provisions - generally as early as age 55);
 .    Current retiree benefit payments continue unchanged; and
 .    Required audits, valuations and other plan administration will continue.

     In addition to providing pension benefits, R&B Falcon provides certain life
and health care insurance benefits for its retired employees.  Effective January
1, 1999, the Company no longer provides a Retiree Life Insurance plan to its
current employees.  Only those former employees who retired prior to May 1, 1986
were eligible to retain their retiree life insurance. Retiree life insurance
benefits are provided through an insurance company whose premiums are based on
benefits paid during the year.  Retiree health coverage was also significantly
restricted effective January 1, 1999. As of this date, only those employees who
had 10 or more years of prior service with R&B, accumulate at least 25 years of
service (15 years prior to January 1, 1996) as of their retirement date and
continue to work for the Company until at least age 55 will qualify for retiree
health care coverage.  Health care costs are paid as they are incurred.

                                       39
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


     The following table includes the aggregate of the Company's three pension
plans and the Company's postretirement benefits plan.  Only the Replacement Plan
has a projected benefit obligation in excess of plan assets. Only the
Replacement Plan has an accumulated benefit obligation in excess of plan assets,
and such accumulated benefit obligation was $4.9 million and $5.2 million as of
December 31, 2000 and 1999, respectively.  There are no assets held in the
Replacement Plan.


<TABLE>
<CAPTION>

                                                                  Pension                Postretirement
                                                           --------------------       -------------------
                                                            2000          1999         2000         1999
                                                           ------        ------       ------       ------
                                                           (dollars in millions)     (dollars in millions)
<S>                                                           <C>         <C>           <C>          <C>
 Change in projected benefit obligation:
  Projected benefit obligation at beginning of year        $ 82.9        $ 91.5       $ 12.8       $ 12.5
  Service cost                                                  -           3.5           .2           .1
  Interest cost                                               5.9           5.7          1.1           .8
  Participant contributions                                     -             -           .1           .1
  Plan amendments                                               -           1.0            -         (1.4)
  Curtailment                                                (1.0)        (15.0)           -            -
  Actuarial (gain) loss                                       4.3           1.0          2.8          1.5
  Benefits paid                                              (5.3)         (4.8)        (1.0)         (.8)
                                                           ------        ------       ------       ------
  Projected benefit obligation at end of year                86.8          82.9         16.0         12.8
                                                           ------        ------       ------       ------
 Change in plan assets:
  Plan assets at fair value at beginning of year             97.2          79.8            -            -
  Actual return on plan assets                                6.6          15.4            -            -
  Employer contributions                                       .4           6.8           .9           .7
  Participant contributions                                     -             -           .1           .1
  Benefits paid                                              (5.3)         (4.8)        (1.0)         (.8)
                                                           ------        ------       ------       ------
  Plan assets at fair value at end of year                   98.9          97.2            -            -
                                                           ------        ------       ------       ------
 Funded status of plan                                       12.1          14.3        (16.0)       (12.8)
 Unrecognized net (gain) loss                                 7.2           1.2          2.7          (.1)
 Unrecognized prior service cost                             (1.8)         (2.2)        (1.8)        (2.0)
 Unrecognized net transition obligation                       (.4)          (.7)           -            -
                                                           ------        ------       ------       ------
 Prepaid (accrued) pension cost                            $ 17.1        $ 12.6       $(15.1)      $(14.9)
                                                           ======        ======       ======       ======
 Weighted-average assumptions:
  Discount rate                                              7.25%         7.50%        7.25%        7.50%
  Long-term rate of return                                  10.00%        10.00%           -            -
  Salary scale                                                  -             -            -            -

</TABLE>

                                       40
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------



Net benefit costs for the years ended December 31, 2000, 1999 and 1998 included
the following (in millions):

<TABLE>
<CAPTION>

                                                        Pension                   Postretirement
                                               -------------------------    ------------------------
                                                2000       1999     1998     2000      1999     1998
                                               -----      -----    -----    -----     -----    -----
<S>                                             <C>       <C>        <C>      <C>      <C>       <C>
Service cost                                   $   -      $ 3.5    $ 1.9    $  .2     $  .1    $  .2
Interest cost                                    5.9        5.7      5.5      1.1        .8       .8
Expected return on plan assets                  (9.5)      (7.8)    (6.9)       -         -        -
Amortization of:
 Unrecognized transition obligation              (.3)       (.2)     (.1)       -         -        -
 Unrecognized prior service cost                 (.3)       (.4)     (.3)     (.3)      (.3)     (.4)
 Unrecognized actuarial (gain)/loss                -         .6       .4       .1       (.1)     (.1)
Loss due to change in attribution period           -          -        -        -         -       .2
Curtailment (gain)/loss                            -         .6        -        -       (.3)       -
                                               -----      -----    -----    -----     -----    -----

Net benefit costs                              $(4.2)     $ 2.0    $  .5    $ 1.1     $  .2    $  .7
                                               =====      =====    =====    =====     =====    =====
</TABLE>

     The health care cost trend rate used to measure the expected cost in 2001
was 8.5% graded down to an ultimate trend rate of 5% to be achieved in the year
2021.

     A one-percentage-point change in assumed health care cost trend rates would
have the following effects (in millions):

                                           One-Percentage-    One-Percentage-
                                           Point Increase    Point Decrease
                                           --------------    --------------
          Effect on total of service and
            interest cost components            $ .2             $ (.1)
          Effect on postretirement
            benefit obligation                  $2.0             $(1.6)

     SAVINGS PLANS - The Company has two savings plans, which allow an employee
to contribute up to 15% of their base salary (subject to certain limitations).
Effective January 1, 1999 the Reading & Bates Savings Plan and the Falcon
Drilling Company, Inc. Savings & Investment Plan were merged, amended and
restated to become the R&B Falcon U.S. Savings Plan ("U.S. Savings Plan"). In
addition, the Reading & Bates Offshore Savings Plan and the Falcon Drilling
Company International Plan were merged, amended and restated to become the R&B
Falcon Non-U.S. Savings Plan ("Non-U.S. Savings Plan"). The U.S. Savings Plan
was subsequently amended effective April 1, 1999 to allow the merger of the
Cliffs Drilling Company Savings Plan into the U.S. Savings Plan. Cliffs Drilling
did not have a non-U.S. savings plan.

     Effective January 1, 1999, the U.S. Savings Plan was also restructured to
meet IRS Safe Harbor requirements. Accordingly, there is no longer a vesting
schedule for Company matching contributions, all contributions are immediately
100% vested.  The Company's Safe Harbor matching contributions equal 100% on the
1st 3% of contributions and 50% on the 4th and 5th percent of contributions.
Effective January 1, 1999, the Company began to provide an additional
discretionary match of 50% on the 4th and 5th percent and 100% on the 6 th
percent of contributions, for a total matching contribution of 6% on the 1st 6%
of contributions.  Effective July 1, 1999, the Company began making its matching
contributions in the form of issuing shares of R&B Falcon common stock (see Note
I).  Employees may direct the investment of their contributions into various
plan investment options.

                                       41
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------

     The Non-U.S. Savings Plan follows the same design structure with regard to
contributions, vesting and Company matching contributions as the U.S. Savings
Plan.  Compensation costs under the plans amounted to $6.5 million in 2000 $6.7
million in 1999 and $4.6 million in 1998.

     STOCK PLANS - The Company has 17 stock plans which are intended to provide
an incentive that will allow the Company to retain persons of the training,
experience and ability necessary for the development and financial success of
the Company. Such plans provide for grants of stock options, stock appreciation
rights, stock awards and cash awards, which may be granted singly, in
combination or in tandem. All stock options awarded under these plans expire 10
years from the date of their grant and were granted at the market price on the
date of grant unless otherwise noted. Four of these plans were originally
adopted by Falcon, five by R&B, two by Cliffs Drilling and six by the Company.
As a result of the business combination between R&B and Falcon, and R&B Falcon
and Cliffs Drilling, all of the R&B, Falcon and Cliffs Drilling plans were
assumed by the Company, and the options outstanding thereunder were converted to
options to acquire common stock of R&B Falcon (with appropriate adjustments to
reflect the exchange ratios). See Note R.

     The Company's Reading & Bates Corporation 1990 Stock Option Plan authorized
options with respect to approximately 2.3 million shares of common stock to be
granted to certain employees of R&B at an adjusted option price of $6.25 per
share.  In 1991, options with respect to all 2.3 million shares were granted and
vested over a four-year period.  Such grant's option price was less than the
market price on the date of grant and the difference was recorded as
compensation expense during the vesting period.

     The Company's Reading & Bates Corporation 1992 Long-Term Incentive Plan
(the "1992 Incentive Plan") authorized 1,180,000 shares of common stock to be
available for awards. In 1992, restricted stock awards with respect to 354,000
shares were granted to certain officers of R&B. Such shares awarded were
restricted as to transfer until vested pursuant to a schedule whereby 1/24th of
the total number of shares vested per calendar quarter from June 30, 1992
through March 31, 1998 (subject to certain conditions). The market value at the
date of grant of the common stock granted was recorded as unearned compensation
and was amortized to expense over the periods during which the restrictions
lapse or shares vested. In 1995, stock options with respect to the remaining
826,000 shares were granted to certain officers and employees of R&B at adjusted
option prices ranging from $7.627 to $11.759 per share. Such options become
exercisable either over a one or four year period from the date of grant. All
stock awards under the 1992 Incentive Plan vested on December 31, 1997 as a
result of the merger of R&B and Falcon (see Note B).

     The Company's Reading & Bates Corporation 1995 Director Stock Option Plan
authorized 236,000 shares of common stock to be available for awards of stock
options to non-employee members of the board of directors.  In 1995, R&B granted
141,600 options at an adjusted option price of $6.25 per share.  In 1999, stock
options with respect to 94,400 shares were granted at $7.031 per share.  Such
options become exercisable over a two-year period from the date of grant.

   The Company's Reading & Bates Corporation 1995 Long-Term Incentive Plan
("1995 Incentive Plan") authorized 2,950,000 shares of common stock to be
available for awards. In 1995, stock options with respect to 708,000 shares were
granted to an officer of R&B at an adjusted option price of $11.759 per share.
Such options became exercisable one year from the date of grant. Also in 1995,
restricted stock awards with respect to 642,156 shares were granted to certain
employees of R&B.  Such shares awarded were restricted as to transfer until
fully vested three years from the date of grant.  The market value at the date
of grant of the common stock granted was recorded as unearned compensation and
was amortized to expense over the period during which the shares vested.  In
1996, stock options with respect to 177,000 shares were granted to an officer of
R&B at an adjusted option price of $23.729 per share.  Such options became
exercisable over a three-year period from the date of grant.  Also in 1996,
restricted stock awards with respect to 489,228 shares were granted to certain
employees of R&B.  Such shares awarded were restricted as to transfer until
fully vested three years from the date of grant.  The market value at the date
of grant of the common stock granted was recorded as unearned compensation and
was amortized to expense over the period during which the shares vested.

                                       42
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------

In 1997, stock options with respect to 902,582 shares were granted to officers
of R&B at an adjusted option price of $20.127 per share and in August 1997 R&B
rescinded such option grants. Under the 1995 Incentive Plan, stock options and
restricted stock awards with respect to 868,700 shares vested on December 31,
1997 as a result of the merger of R&B and Falcon (See Note B). In 1999, stock
options with respect to 889,118 shares were granted to officers of the Company
at option prices ranging from $6.25 to $7.031 per share. Such options become
exercisable either in six months or over a two-year period from the date of
grant.

     The Company's Reading & Bates Corporation 1997 Long-Term Incentive Plan
(the "1997 Incentive Plan") authorized 2,950,000 shares of common stock to be
available for awards. In 1997, restricted stock awards with respect to 33,866
shares were granted to certain employees of R&B. Such shares awarded were
restricted as to transfer until fully vested three years from the date of grant.
The market value at the date of grant of the common stock granted was recorded
as unearned compensation and was amortized to expense over the period during
which the shares vested. Also in 1997, stock options with respect to 6,018
shares were granted to an officer of R&B at an adjusted option price of $20.127
per share and in August 1997 R&B rescinded such option grants. Under the 1997
Incentive Plan, restricted stock awards with respect to 33,866 shares vested on
December 31, 1997 as a result of the merger of R&B and Falcon (see Note B). In
1999, stock options with respect to 2,892,020 shares were granted to officers of
the Company at an option price of $7.031 per share. Such options become
exercisable over a two-year period from the date of grant.

     The Company's Falcon Drilling Company, Inc. 1992 Stock Option Plan
authorized options with respect to 1.0 million shares of common stock to be
granted to certain employees and directors of Falcon. In 1992, options with
respect to all 1.0 million shares were granted at adjusted option prices ranging
from $1.665 to $1.85 per share and vested immediately. No compensation expense
was recorded as a result of the option price being the estimated market price of
Falcon's common stock on the date of grant.

     The Company's Falcon Drilling Company, Inc. 1994 Stock Option Plan
authorized options with respect to 570,000 shares of common stock to be granted
to certain employees and directors of Falcon. In 1994, options with respect to
all 570,000 shares were granted at an adjusted option price of $5.00 per share,
vesting ratably over three years. No compensation expense was recorded as a
result of the option price being the estimated market price of Falcon's common
stock on the date of grant.

     The Company's Falcon Drilling Company, Inc. 1995 Stock Option Plan
authorized options with respect to 1.0 million shares of common stock to be
granted to certain employees and directors of Falcon. In 1995, options with
respect to 250,000 shares were granted at an adjusted option price of $5.00 per
share, vesting ratably over three years. In 1996, options with respect to
280,000 shares were granted at an adjusted option price of $6.065 per share,
vesting over two years and options with respect to 150,000 shares were granted
at an adjusted option price of $9.72 per share, vesting ratably over five years.
In February 1997, options with respect to 258,000 shares were granted at an
adjusted option price of $12.50 per share and in November 1997 Falcon rescinded
such option grants. No compensation expense was recorded as a result of the
option price being the estimated market price of Falcon's common stock on the
date of grant.

     The Company's Falcon Drilling Company, Inc. 1997 Stock Option Plan
authorized options with respect to 1.2 million shares of common stock to be
granted to certain employees and directors of Falcon. In July 1997, options with
respect to 3,000 shares were granted at an option price of $12.50 per share and
in November 1997 Falcon rescinded such option grants. In July 1997, options for
40,000 shares were granted at an option price of $29.00 per share, vesting
ratably over three years. No compensation expense was recorded as a result of
the option price being the estimated market price of Falcon's common stock on
the date of grant.

     The Company's Cliffs Drilling Company 1988 Incentive Equity Plan and Cliffs
Drilling Company 1998 Incentive Equity Plan were both assumed by the Company on
December 1, 1998 as a result of the purchase of Cliffs Drilling (see Note B).
Under these plans, the Company assumed outstanding options to purchase 1,052,300
shares of common stock

                                       43
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                                  -----------


at adjusted option prices ranging from $3.79 to $40.89 per share and expiring at
dates ranging from 2000 to 2008. All such options vested on December 1, 1998 as
a result of the Company's purchase of Cliffs Drilling.

     The Company's 1998 Employee Long-Term Incentive Plan authorized 3.2 million
shares of common stock to be available for awards. In 1998, stock options with
respect to 100,000 shares were granted to an employee of the Company at an
option price of $22.375 per share and stock options with respect to 1,830,500
shares were granted to certain employees of the Company at an option price of
$12.9375 per share.  Such options become exercisable over a three-year period.
Also in 1998, restricted stock awards with respect to 941,500 shares were
granted to certain employees of the Company.  Such shares awarded are restricted
as to transfer until fully vested three years from the date of grant. The market
value at the date of grant of the common stock granted was recorded as unearned
compensation and will be amortized to expense over the period during which the
shares vest. In 1999, stock options with respect to 396,568 shares were granted
to officers of the Company at an option price of $6.25 per share.  Such options
became exercisable six months from the date of grant. Also in 1999, stock
options with respect to 145,000 shares were granted to four employees of the
Company at an option price of $6.15625 per share and which vest equally over
three years. Such options were not granted from any of the Company's stock
option plans but were granted under the terms of the 1998 Employee Long-Term
Incentive Plan. In 2000, stock options with respect to 15,000 shares were
granted to an employee of the Company at an option price of $22.50 per share.
Such options become exercisable over a three-year period.

     The Company's 1998 Director Long-Term Incentive Plan authorized 250,000
shares of common stock to be available for awards to non-employee members of the
board of directors. In 1999, stock options with respect to 249,600 shares were
granted an option price of $7.031 per share.  Such options become exercisable
over a two-year period from the date of grant.

     The Company's 1998 Acquisition Option Plan authorized options with respect
to 1.0 million shares of common stock to be granted to certain employees of
Cliffs Drilling. On December 1, 1998, options with respect to all 1.0 million
shares were granted at an option price of $9.125 per share and vest over a
three-year period.

     The Company's 1999 Employee Long-Term Incentive Plan authorized 6.5 million
shares of common stock to be available for awards. In 1999, stock options with
respect to 3,508,760 shares were granted to certain employees of the Company at
option prices ranging from $9.75 to $13.4688 per share. Such options become
exercisable over a three-year period. In 2000, stock options with respect to
2,474,381 shares were granted to certain employees and executive officers of the
Company at option prices ranging from $12.469 to $20.625 per share. Such options
become exercisable at varying times from six months to three years. Also in
2000, restricted stock awards with respect to 137,350 shares were granted to
certain employees of the Company.  Such shares awarded are restricted as to
transfer until fully vested four years from the date of grant. The market value
at the date of grant of the common stock granted was recorded as unearned
compensation and will be amortized to expense over the period during which the
shares vest.

     The Company's 1999 Director Long-Term Incentive Plan authorized .3 million
shares of common stock to be available for awards. In 1999, stock options with
respect to 136,000 shares were granted at an option price of $10.0625 per share.
Such options become exercisable over a two-year period. In 2000, stock options
with respect to 115,000 shares were granted to non-employee members of the board
of directors at option prices ranging from $12.656 to $12.719 per share. Such
options become exercisable at varying times from one to three years.

     The Company's 2000 Employee Long-Term Incentive Plan authorized 5.0 million
shares of common stock to be available for awards. In 2000, stock options with
respect to 688,294 shares were granted at option prices ranging from $23.6875 to
$27.96875 per share and vest over a three-year period.

   Unearned compensation relating to the Company's restricted stock awards is
shown as a reduction of stockholders' equity.  Compensation recognized for the
years ending December 31, 2000, 1999 and 1998 totaled approximately $3.7
million, $5.9 million and $1.1 million, respectively.

                                       44
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------


   Stock option transactions under the plans were as follows:

<TABLE>
<CAPTION>
                                                2000                     1999                     1998
                                        ----------------------   ----------------------   ----------------------
                                                      Weighted                 Weighted                 Weighted
                                          Number      Average      Number      Average      Number      Average
                                        of Options     Price     of Options     Price     of Options     Price
                                        ----------    --------   ----------    --------   ----------    --------
<S>                                     <C>           <C>        <C>           <C>        <C>           <C>
Outstanding at beginning of year        14,413,450      $10.10    6,550,354      $12.61    2,794,101      $ 9.83
    Granted                              3,292,675       16.17    8,311,466        8.29    2,930,500       11.96
    Assumed from Cliffs Drilling                 -           -            -           -    1,052,300       20.41
    Exercised                           (1,183,802)       9.53     (113,260)       7.03     (226,547)       6.03
    Forfeited                             (368,051)      20.22     (335,110)      15.21            -           -
                                        ----------               ----------                ---------
Outstanding at end of year              16,154,272       11.15   14,413,450       10.10    6,550,354       12.61
                                        ==========               ==========                =========
Exercisable at end of year              10,089,149       10.12    8,216,401       10.22    3,503,187       12.69
Available for grant at end of year       4,637,062           -    3,456,161           -    4,516,604           -
</TABLE>

   The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.  Had compensation cost for these plans
been determined consistent with SFAS 123, the Company's net income and earnings
per share would have been reduced to the following pro forma amounts (in
millions except per share amounts):

                                             2000       1999       1998
                                            -------    -------    ------
          Net income (loss) applicable
            to common stockholders:
              As reported                   $(264.8)   $(103.2)   $102.8
              Pro forma                     $(288.1)   $(121.5)   $101.3
          Basic EPS:
              As reported                   $ (1.35)   $  (.54)   $  .61
              Pro forma                     $ (1.47)   $  (.63)   $  .60
          Diluted EPS:
              As reported                   $ (1.35)   $  (.54)   $  .61
              Pro forma                     $ (1.47)   $  (.63)   $  .60

   The fair value of each grant since January 1, 1995 was estimated as of the
date of the grant using the Black-Scholes option pricing model.  The following
weighted-average assumptions were used for the options granted in 2000: risk-
free interest rate of 6.6%, an expected life of 10 years, expected volatility of
65.2% and no expected dividends. The resulting fair value of such options
granted was $12.62.

   Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.

   SUBSIDIARY STOCK AWARD - On April 1, 1999, Devco, a then wholly owned
indirect subsidiary of the Company made awards of restricted stock of Devco to
certain directors, officers and employees of the Company, as well as awards of
restricted stock to certain former directors of R&B who served in such capacity
prior to completion of the merger with Falcon in December 1997.  Such award
comprised of 1,650,000 shares of Devco's common stock or approximately 13.9% of
the outstanding common stock of Devco.  The awards vested upon issuance, but
were subject to restrictions on sale or transfer for a period of six months
following the date of the award. As a result, the Company incurred $1.5 million
of expense in the second quarter of 1999, which was included in general and
administrative expenses.  See Note R.

                                       45
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------


(K)  RELATED PARTY TRANSACTIONS

     In 1999, the Company entered into rig management agreements with DDI and
DDII for the management of the Deepwater Pathfinder and Deepwater Frontier,
respectively. DDI and DDII are unconsolidated investees accounted for on the
equity method (see Note C). For the year ended December 31, 2000 and 1999, DDI
paid to the Company $1.5 million and $1.4 million, respectively, for such
management services. For the year ended December 31, 2000 and 1999, DDII paid to
the Company $1.6 million and $1.1 million, respectively, for such management
services. Such revenue amounts are included in "Income (loss) from equity
investees plus related revenues and expenses" in the Consolidated Statement of
Operations. At December 31, 2000, the Company had receivables from DDI and DDII
of $1.7 million and $4.3 million, respectively, which are included in "Accounts
Receivable: Other".

     In 1999, the Company entered into an agreement pursuant to which the
Company supervised the construction of the drillship Navis Explorer I and would
manage it following its delivery (See Note C). For the years ended December 31,
2000 and 1999, Navis paid to the Company $.6 million and $.7 million,
respectively, for such services. At December 31, 2000, the Company had a
receivable from Navis of $11.9 million.

     The former owners of a company acquired by the Company in 1992, who
currently are employees of the Company and were officers of Falcon, lease
crewboats, tugboats and supply barges and other vessels to Falcon at a
contracted bareboat rate of $100 per day for crewboats and tugboats and $60 per
day for other vessels, with Falcon responsible for drydocking, painting and
repairs. The former owners received revenues of $.9 million, $1.1 million and
$.9 million for the years ended December 31, 2000, 1999 and 1998, respectively.

     William R. Ziegler, a Director and stockholder of the Company, is a partner
in a law firm which provided legal services to the Company and certain of its
affiliated entities. Fees paid by the Company to this law firm were $.1 million
for the year ended December 31, 1998.

     Michael E. Porter, a Director and stockholder of the Company, who provided
consulting services to the Company, received $.4 million in the year ended
December 31, 1998.

     Steven A. Webster, a Director and stockholder of the Company, who provided
consulting services to the Company, received $.3 million and $.2 million in the
years ended December 31, 2000 and 1999, respectively.

     In June 1994, the Company entered into an agreement with Eilert-Olsen
Investments, Inc. ("Eilert-Olsen"), to buy the equity interest in Eilert-Olsen
for a nominal purchase price.  In June 1994, Eilert-Olsen acquired three barge
drilling rigs for a cost of approximately $2.8 million consisting of cash of
approximately $.9 million and the assumption of debt of approximately $1.9
million secured by the three barge drilling rigs.  The Company advanced $.9
million to Eilert-Olsen in June 1994 and has subsequently advanced approximately
$.2 million and $.5 million for the years ended December 31, 1999 and 1998,
respectively, to pay principal and interest due on this debt. Such debt was
repaid in full in 2000.  Due to the Company's affiliation with Eilert-Olsen, the
financial statements of Eilert-Olsen and the option to purchase Eilert-Olsen
from inception have been consolidated with the financial statements of the
Company and, accordingly, the accounts and transactions between the Company and
Eilert-Olsen have been eliminated in consolidation.

                                       46
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------

(L)  SEGMENT INFORMATION

     The Company's revenues are generated primarily from its marine drilling
rigs. The Company's management has organized these rigs by general equipment
types based on water depth capability. Any rig capable of drilling in water
depths greater than 400 feet is included in the deepwater category for purposes
of this discussion. In addition, as a result of the purchase of Cliffs Drilling,
the Company provides turnkey drilling services and land drilling operations both
of which are included in the engineering services and land operations segment.
The Company's development segment primarily consists of the Company's oil and
gas operations (see Note N and O).

     Operating revenues and income by segment for the years ended December 31,
2000, 1999 and 1998 is as follows (in millions):

<TABLE>
<CAPTION>
                                                    2000             1999            1998
                                                  --------          -------        --------
<S>                                               <C>               <C>           <C>
Operating revenues by segment:
 Deepwater                                        $  418.5          $ 364.9        $  392.5
 Shallow water                                       285.4            203.5           383.8
 Inland water                                        158.8            123.3           244.9
 Engineering services and land operations            215.6            260.8            12.9
 Development                                           4.1               .5               -
 Intersegment                                        (30.3)           (27.3)            (.6)
                                                  --------          -------        --------
   Operating revenues                              1,052.1            925.7         1,033.5
                                                  --------          -------        --------

Operating income (loss) by segment:
 Deepwater                                            62.1             87.8            42.3
 Shallow water                                        33.7            (10.5)          194.4
 Inland water                                         14.4             (6.6)           52.4
 Engineering services and land operations             11.1             56.6             1.3
 Development                                         170.6             (3.6)          (20.2)
 Profit elimination                                    3.3             (4.5)            (.2)
                                                  --------          -------        --------
                                                     295.2            119.2           270.0
Unallocated depreciation and amortization             (5.3)            (4.4)           (1.0)
Unallocated general and administrative               (61.3)           (69.7)          (61.2)
Unallocated merger expenses                           (6.1)               -             8.0
                                                  --------          -------        --------

Operating income                                  $  222.5          $  45.1        $  215.8
                                                  ========          =======        ========
</TABLE>


   Total assets by segment at December 31, 2000, 1999 and 1998 were as follows
(in millions):

                                               2000       1999       1998
                                             --------   --------   --------

   Deepwater                                 $2,985.7   $2,836.6   $2,067.1
   Shallow water                                817.8      823.0      934.6
   Inland water                                 346.8      354.5      251.2
   Engineering services and land operations     134.6      162.8      256.8
   Development                                    6.2       49.6       11.6
   Corporate                                    504.1      697.8      192.7
                                             --------   --------   --------

        Total                                $4,795.2   $4,924.3   $3,714.0
                                             ========   ========   ========

                                       47
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------

    Geographic information about the Company's operations for the three years
ended December 31, 2000 is as follows (in millions):

                                          2000       1999       1998
                                        --------   --------   --------
          Operating revenues: (1)
           United States                $  560.8   $  276.8   $  453.0
           Europe                          105.3      198.8      251.9
           West Africa                     103.1       81.6      127.3
           Southeast Asia                   61.5       66.3       83.5
           South America                   208.8      279.2       75.2
           Australia                        11.7       14.9       26.2
           Mediterranean-
               Middle East                    .9        8.1       16.4
           Corporate                           -          -          -
                                        --------   --------   --------
             Total                      $1,052.1   $  925.7   $1,033.5
                                        ========   ========   ========
          Identifiable assets:
           United States                $1,150.1   $1,444.8   $1,139.2
           Europe                          841.5      781.2      877.3
           West Africa                     234.0      223.5      255.2
           Southeast Asia                1,503.9    1,185.6      703.5
           South America                   497.2      521.3      469.0
           Australia                        17.7       18.6       24.0
           Mediterranean-
              Middle East                   46.7       51.5       53.1
           Corporate                       504.1      697.8      192.7
                                        --------   --------   --------
              Total                     $4,795.2   $4,924.3   $3,714.0
                                        ========   ========   ========
      ----------------
      (1)  Operating revenues are shown by countries in which the Company's
           marine and drilling units operated.

    In April 1998, Cliffs Drilling entered into a turnkey contract with PDVSA
Exploration and Production ("PDVSA") to drill 60 turnkey wells in Venezuela. The
drilling program commenced in March 1998 and the program was expected to extend
over approximately three and one-half years and to utilize seven of the
Company's land drilling rigs. However, during the first quarter of 1999, in
response to the downturn in the market and changes in both PDVSA's management
and its operating policies, PDVSA and the Company renegotiated prices at reduced
margins and in the fourth quarter of 1999, renegotiations were made at further
reduced margins. By the end of the second quarter of 2000, the Company had
completed 35 of the 60 wells. In February 2000, PDVSA cancelled the turnkey
contract for the remaining 25 wells. The Company continues bidding on other
dayrate contracts with PDVSA and other operators in Venezuela.

    For the year ended December 31, 2000, revenues from Petrobras of
approximately $108.8 million ($107.7 million reported in the deepwater segment
and $1.1 million reported in the engineering services and land operations
segment) accounted for 10.3% of the Company's total operating revenues. For the
year ended December 31, 1999, revenues from PDVSA of approximately $175.1
million ($152.3 million reported in the engineering services and land operations
segment and $22.8 million reported in the shallow water segment) accounted for
19.0% of the Company's total operating revenues and revenues from British
Petroleum and affiliates of approximately $119.5 million ($113.8 million
reported in the deepwater segment and $5.7 million reported in the shallow water
segment) accounted for 13.0% of the Company's total operating revenues.  For the
year ended December 31, 1998, revenues from British Petroleum and affiliates of
approximately $116.1 million, reported in the deepwater segment, accounted for
11.2% of the Company's total operating revenues.

                                       48
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------

(M)  EARNINGS PER SHARE

     Basic net income (loss) per common share is computed by dividing net income
(loss), after deducting the preferred stock dividend, accretion and tender offer
premium by the weighted average number of common shares outstanding during the
period. Diluted net income (loss) per common share is the same as basic and
assumes the exercise of outstanding stock options and the issuance of restricted
stock both computed using the treasury stock method.

     The following table reconciles the numerators and denominators of the basic
and diluted per common share computations for income (loss) from continuing
operations before extraordinary loss for the three years ended December 31,
2000, 1999 and 1998 as follows (in millions except per share amounts):

<TABLE>
<CAPTION>
                                                             2000      1999       1998
                                                           -------    -------    ------
<S>                                                        <C>        <C>        <C>
   Numerator:
   Income (loss) from continuing operations
     before extraordinary loss                             $ (58.0)   $ (67.8)   $ 91.0
   Preferred stock dividends, accretion and tender
     offer premium                                           206.8       33.7         -
                                                           -------    -------    ------
   Income (loss) from continuing operations
     before extraordinary loss - basic and diluted         $(264.8)   $(101.5)   $ 91.0
                                                           =======    =======    ======
   Denominator:
   Weighted average common shares outstanding - basic        196.6      192.7     167.5
   Outstanding stock options and restricted stock                -          -       1.3
                                                           -------    -------    ------
   Weighted average common shares outstanding
    and assumed conversions - diluted                        196.6      192.7     168.8
                                                           =======    =======    ======
   Earnings per share:
   Income (loss) from continuing operations
     before extraordinary loss:
          Basic                                            $ (1.35)   $  (.53)   $  .54
          Diluted                                          $ (1.35)   $  (.53)   $  .54
</TABLE>

    Diluted weighted average common shares outstanding for the years ended
December 31, 2000 and 1999 exclude incremental shares related to stock options,
restricted stock grants and Warrants of 27.3 million and 25.7 million,
respectively.  As a result of the Company's loss from continuing operations
before extraordinary loss for the years ended December 31, 2000 and 1999, these
shares were excluded due to their antidilutive effect.

    Diluted weighted average common shares outstanding for the year ended
December 31, 1998 excludes .3 million incremental shares related to outstanding
options to purchase common stock which had an exercise price greater than the
average market price of the common shares for the year. These shares were
excluded due to their antidilutive effect.

(N)  DISCONTINUED OPERATIONS

     In March 1998, the Company decided to divest its oil and gas segment, and
in the Company's financial statements previously filed with the Securities and
Exchange Commission for the three years ended December 31, 1997, 1996 and 1995
and the first three quarters of 1998, the segment was accounted for as a
discontinued operation. However in March 1999, the Company had not been able to
divest this segment on terms it found acceptable and in accordance with
generally accepted accounting principles the Company reclassified its financial
statements as if this segment had not

                                       49
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------

been discontinued. In 1997, a $36.0 million reserve for estimated losses from
operations until disposal had been recorded and in 1998 it was reversed in
accordance with the Company reclassifying the oil and gas segment as if it had
not been discontinued.

(O)  OIL AND GAS OPERATIONS

     The Company, primarily through its majority owned subsidiary Devco,
engages in oil and gas exploration activities. Devco engages primarily in the
acquisition of working interests in offshore oil and gas properties pursuant to
which it shares in reservoir and oil and gas price risks and thus profits and
losses from such properties.

     In 1998, Devco incurred dryhole costs of $11.7 million and asset impairment
charges of $11.3 million.  The Company's oil and gas operations are not
significant; therefore, applicable disclosures are not required at December 31,
2000 and 1999 or for the years ended December 31, 2000, 1999 and 1998.

     In July 2000, the Company's wholly owned subsidiary R&B Falcon Subsea
Development Inc. and Devco sold their U.S. Gulf of Mexico oil and gas properties
for an aggregate amount of $127.2 million, resulting in a gain, net of tax and
minority interest, of approximately $35.8 million.

     In November 2000, Devco sold its Israeli oil and gas properties for an
aggregate amount of $114.0 million,  which after a 30% tax withholding, resulted
in net proceeds of $79.8 million. As a result, the Company recorded  a gain, net
of tax and minority interest, of approximately $60.5 million in the fourth
quarter of 2000.

     The above mentioned gains on the sale of oil and gas properties are
reflected as a reduction of the Development costs and expenses in the
accompanying Consolidated Statement of Operations. Net proceeds to the Company
were reduced by the approximate 13.6% of Devco owned by minority shareholders,
including directors and employees of the Company and Devco (see Note R).

(P)  RESTRUCTURING EXPENSES

     On April 7, 1999, the Company announced that Mr. Steven Webster, the
Company's then President and Chief Executive Officer had agreed to resign from
these officer positions effective May 31, 1999.  As a result of Mr. Webster's
resignation and the termination of certain other executive officers, the Company
incurred $6.6 million of expense in the second quarter of 1999.  Such expense is
reported as general and administrative expense in the Company's Consolidated
Statement of Operations.

     As a result of the termination of Mr. Douglas E. Swanson as President and
Chief Executive Officer of Cliffs Drilling, the Company entered into a
termination agreement and a non-competition agreement contract with Mr. Swanson.
The related termination contract expense of $2.6 million will be amortized over
three years. Amortization for 2000 and 1999 amounted to $.9 million and $.4
million, respectively, and is included in "Other, net" per the Consolidated
Statement of Operations.

                                       50
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------

(Q)  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Summarized quarterly financial data for the two years ended December 31,
2000, are as follows (in millions except for per share amounts):

<TABLE>
<CAPTION>
                                                                Quarter
                                           --------------------------------------------------
                                            First    Second     Third     Fourth      Total
                                           -------   -------   -------   --------   ---------
<S>                                        <C>       <C>       <C>       <C>        <C>
2000 (1):
---------
Operating revenues                         $210.9    $211.1    $304.7    $ 325.4    $1,052.1
Gross income (2)                           $  4.3    $ 19.7    $138.9    $ 140.4    $  303.3
Net income (loss) (3)                      $(41.7)   $(33.7)   $ 28.1    $ (10.7)   $  (58.0)
Net income (loss) applicable to common
        stockholders                       $(54.6)   $(47.0)   $ 14.5    $(177.7)   $ (264.8)
Net income (loss) per common share:
  Basic                                    $ (.28)   $ (.24)   $  .07    $  (.86)   $  (1.35)
                                           ======    ======    ======    =======    ========
  Diluted                                  $ (.28)   $ (.24)   $  .07    $  (.86)   $  (1.35)
                                           ======    ======    ======    =======    ========
</TABLE>

<TABLE>
1999:
-----
<S>                                        <C>       <C>       <C>       <C>        <C>
Operating revenues                         $244.0    $226.0    $217.6    $ 238.1    $  925.7
Gross income (2)                           $ 48.2    $ 33.2    $ 49.6    $  17.3    $  148.3
Income (loss) from continuing operations
  before extraordinary loss (4)            $  3.3    $(15.0)   $(21.8)   $ (34.3)   $  (67.8)
Extraordinary loss (5)                     $ (1.7)   $         $         $          $   (1.7)
                                                     -         -         -
Net income (loss)                          $  1.6    $(15.0)   $(21.8)   $ (34.3)   $  (69.5)
Net income (loss) applicable to common
       stockholders                        $  1.6    $(24.1)   $(33.9)   $ (46.8)   $ (103.2)
Net income (loss) per common share:
  Basic:
    Income (loss) from operations          $  .02    $ (.13)   $ (.18)   $  (.24)   $   (.53)
    Extraordinary loss                       (.01)        -         -          -        (.01)
                                           ------    ------    ------    -------    --------
      Net income (loss)                    $  .01    $ (.13)   $ (.18)   $  (.24)   $   (.54)
                                           ======    ======    ======    =======    ========
  Diluted:
    Income (loss) from operations          $  .02    $ (.13)   $ (.18)   $  (.24)   $   (.53)
    Extraordinary loss                       (.01)        -         -          -        (.01)
                                           ------    ------    ------    -------    --------
      Net income (loss)                    $  .01    $ (.13)   $ (.18)   $  (.24)   $   (.54)
                                           ======    ======    ======    =======    ========
</TABLE>
--------------------------
(1)  The amounts have been restated to reflect the adoption of SAB 101.  See
     Note A.
(2)  Gross income represents operating revenues less operating expenses,
     depreciation and amortization, and other, net.
(3)  Includes cancellation of conversion project expense of $13.8 million and
     merger expenses of $6.1 million, both in the fourth quarter of 2000.
(4)  Includes cancellation of conversion project expense of $31.7 million in the
     third quarter of 1999 and $3.0 million in the fourth quarter of 1999.
(5)  The extraordinary loss incurred in the first quarter of 1999 is shown net
     of a tax benefit of $.9 million.

                                       51
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------


(R)  SUBSEQUENT EVENTS (UNAUDITED)

     Merger with Transocean - On August 19, 2000, the Company entered into an
Agreement and Plan of Merger with Transocean Sedco Forex Inc. ("Transocean"), a
Cayman Islands company, whereby each share of the Company's common stock would
convert into 0.5 ordinary shares of Transocean (the "TSF Merger").  The common
stock shareholders of the Company approved the TSF Merger on December 12, 2000
at a special meeting. On January 31, 2001, the TSF Merger was completed and the
Company became an indirect wholly owned subsidiary of Transocean. The current
directors of the Company were elected at the time of the TSF Merger. In
connection with the TSF Merger, Transocean also assumed warrants and options
exercisable for R&B Falcon common stock prior to the TSF Merger. Such warrants
and options are exercisable for approximately 13.2 million ordinary shares of
Transocean. Each Right to purchase Preferred Shares (see Note I) expired
immediately prior to the completion of the TSF Merger.  As of December 31, 2000,
the Company had incurred $6.1 million of expenses in association with the TSF
Merger consisting primarily of legal and accounting fees.  The TSF Merger was
accounted for as a purchase with Transocean as the acquiror for accounting
purposes. The purchase price will be "pushed down" to the consolidated financial
statements of the Company.

     In January 2001, in connection with the TSF Merger, the Company: 1) paid an
investment advisory fee of $19.6 million to Morgan Stanley; 2) paid termination
benefits of $25.1 million to seven employees in accordance with employment
contracts; 3) recorded a $9.5 million charge due to the acceleration of vesting
of certain stock options and unearned compensation of restricted stock grants
previously awarded to certain employees; and 4) contributed the inland marine
support vessel business consisting primarily of the Company's shallow water
tugs, crewboats and utility barges, to Delta Towing Holdings, LLC ("Delta
Towing"). In connection with this contribution, the Company received secured
contingent notes totaling $144.0 million and a 25% ownership interest in Delta
Towing. The Company recorded a pre-tax charge of approximately $64.0 million
as a reserve against the contingent notes in January 2001. The remaining 75%
ownership interest is beneficially owned by unrelated third parties.

     Disposals - Subsequent to the TSF Merger, Transocean's management informed
the Company of its intent to sell its land and barge drilling business in
Venezuela consisting of 11 wholly owned and two partially owned land rigs and
three lake barges. The Company is in discussions with possible buyers and
expects to close the sale in the second quarter of 2001, provided it is able to
realize an acceptable purchase price. Management is soliciting offers which
include some or all of the assets in Venezuela and is unable to predict the
final outcome. In addition, Transocean's management has also identified certain
idle marine contract drilling assets for disposal.

     Tender Offer and Redemption - The Company intends to make a tender offer
for all of the outstanding 11.375% Secured Notes. Under the terms of the offer,
the Company will purchase outstanding 11.375% Secured Notes at a purchase price
determined by reference to a fixed spread of 50 basis points over the yield to
maturity of the United States Treasury 4 3/4% Note due February 15, 2004, plus
accrued interest to the date of payment of such purchase price. The purchase
price will include an amount equal to 3% of the principal amount that will be
paid only for 11.375% Secured Notes tendered at or prior to a "consent payment
deadline". In connection with the offer, the Company will also seek consents to
certain proposed amendments to the Indenture under which the 11.375% Secured
Notes were issued. Concurrently with the launch of the offer, RBF Finance Co.
will call the 11% Secured Notes and the 12.25% Notes, in each case at the
applicable redemption price. As a result, the Company expects to incur an
estimated $18.2 million extraordinary loss, net of tax, in the second quarter of
2001 relating to the early extinguishment of this debt.

     The TSF Merger constituted a "change of control" of Cliffs Drilling, as
defined in the indenture for the 10.25% Notes. Subsequent to the TSF Merger and
pursuant to the indenture, Cliffs Drilling has caused a notice of change of
control and offer to purchase to be delivered to the holders.

     Transocean has agreed to provide the Company with sufficient funds to
pay for all securities purchased pursuant to the offers or redeemed in the
redemption.

                                       52
<PAGE>

                            R&B FALCON CORPORATION
                               AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


                                --------------


     Purchase of Minority Interest - In January 2001, the Company purchased for
$34.7 million the approximate 13.6% minority interest in Devco which was owned
by former directors and employees of the Company and directors and employees of
Devco (See Note J).  As a result, Devco is now a wholly owned subsidiary of the
Company. The purchase price was based on a valuation by a third party advisor.
In connection with the purchase, a $.3 million bonus was paid to Richard A.
Pattarozzi, a current director of Transocean.

     Turnkey Operations - The Company conducts turnkey drilling operations
through Cliffs Drilling. Two turnkey wells initiated by Cliffs Drilling during
the fourth quarter of 2000 encountered downhole problems and the Company took a
charge against earnings of $5.0 million in the fourth quarter relating to
estimated losses on these wells. Subsequent to December 31, 2000, Cliffs
Drilling encountered additional downhole problems with these wells and three
additional wells, and the Company expects to take a charge, currently estimated
at $4.4 million, against earnings in the first quarter of 2001.

     Subsequent to the TSF Merger, Transocean's management decided that Cliffs
Drilling will no longer accept turnkey contracts but will complete turnkey
contracts to which it is committed. The Company expects to fulfill all turnkey
commitments by the end of the second quarter of 2001.

                                       53
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     Consistent with the Company's Form 8-K filed February 14, 2001, the Company
has elected Ernst & Young as its independent accountants for the year ended
December 31, 2001.

                                 PART III

     Under the reduction disclosure format permitted by General Instruction
I(2)(c) of Form 10-K, the information otherwise required by Part III of Form
10-K has been omitted.

                                 PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

  (a) Financial Statements and Exhibits

    1. Financial Statements:

       Report of Independent Public Accountants
       Consolidated Balance Sheet as of December 31, 2000 and 1999
       Consolidated Statement of Operations for the years ended December 31,
        2000, 1999 and 1998
       Consolidated Statement of Cash Flows for the years ended December 31,
        2000, 1999 and 1998
       Consolidated Statement of Stockholders' Equity for the years ended
        December 31, 2000, 1999 and 1998
       Notes to Consolidated Financial Statements

2.  Exhibits:

    2.1   - Agreement and Plan of Merger, dated July 10, 1997, among R&B Falcon,
            FDC Acquisition Corp., Reading & Bates Acquisition Corp., Falcon and
            R&B. (Filed as Exhibit 2.1 to R&B Falcon's Registration Statement on
            Form S-4 dated November 20, 1997 and incorporated herein by
            reference.)

    2.2   - Agreement and Plan of Merger, dated August 21, 1998 by and among
            Cliffs Drilling Company, R&B Falcon Corporation and RBF Cliffs
            Drilling Acquisition Corp. (Filed as Exhibit 2 to R&B Falcon's
            Registration Statement No. 333-63471 on Form S-4 dated September 15,
            1998 and incorporated herein by reference.)

    2.3   - Agreement and Plan of Merger, dated as of August 19, 2000, among
            Transocean Sedco Forex Inc., Transocean Holdings Inc., TSF Delaware
            Inc. and R&B Falcon Corporation. (Filed as Exhibit 2.1 to R&B
            Falcon's Current Report on Form 8-K filed on August 22, 2000 and
            incorporated herein by reference.)

    3.1   - Amended and Restated Certificate of Incorporation of R&B Falcon.
            (Filed as Exhibit 3.1 to R&B Falcon's Annual Report on Form 10-K for
            1997 and incorporated herein by reference.)

    3.2+  - Certificate of Merger of TSF Delaware Inc. with and into R&B Falcon
            filed with the Secretary of State of the State of Delaware on
            January 31, 2001.

    3.3   - Amended and Restated Bylaws of R&B Falcon. (Filed as Exhibit 3.2 to
            R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated
            herein by reference.)

    4.1   - Form of R&B Falcon's Common Stock Certificate. (Filed as Exhibit 4.1
            to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated
            herein by reference.)

    4.2   - Rights Agreement dated as of December 23, 1997 between R&B Falcon
            and American Stock Transfer and Trust Company. (Filed as Exhibit 4.2
            to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated
            herein by reference.)

    4.3  -  Amendment No. 1 dated as of August 19, 2000, to the Rights
            Agreement between R&B Falcon Corporation and American Stock Transfer
            and Trust Company, as Rights Agent. (Filed as Exhibit

                                       54
<PAGE>

            2 to R&B Falcon's Amendment No. 1 to Form 8-A filed on August 22,
            2000 and incorporated herein by reference.)

    4.4  -  Indenture dated as of March 1, 1996, between Falcon and Bank One,
            Texas, N. A., including a form of Note. (Filed as an exhibit to
            Falcon's Registration Statement on Form S-4, filed on March 8, 1996,
            Registration No. 333-2114 and incorporated herein by reference.)

    4.5  -  Indenture dated as of April 14, 1998, between R&B Falcon
            Corporation, as Issuer, and Chase Bank of Texas, National
            Association, as Trustee, with respect to Series A and Series B of
            each of $250,000,000 6  1/2% Senior Notes due 2003, $350,000,000
            6 3/4% Senior Notes due 2005, $250,000,000 6.95% Senior Notes due
            2008, and $250,000,000 7 3/8% Senior Notes due 2018. (Filed as
            Exhibit 4.1 to R&B Falcon's Registration Statement No. 333-56821 on
            Form S-4 dated June 15, 1998 and incorporated herein by reference.)

    4.6  -  Indenture dated as of December 22, 1998, between R&B Falcon
            Corporation, as Issuer and Chase Bank of Texas, National
            Association, as Trustee, with respect to $400,000,000 Series A and
            Series B 9 1/8% Senior notes due 2003, and 9  1/2% Senior Notes due
            2008. (Filed as Exhibit 4.21 to R&B Falcon's Annual Report on Form
            10-K for 1998 and incorporated herein by reference.)

    4.7  -  Indenture dated as of March 26, 1999, between RBF Finance Co., as
            Issuer, and United States Trust Company of New York, as Trustee,
            with respect to $400,000,000 11% Senior Secured Notes due 2006 and
            $400,000,000 11 3/8% Senior Secured Notes due 2009.  (Filed as
            Exhibit 4.1 to R&B Falcon's Quarterly Report on Form 10-Q for the
            First Quarter of 1999 and incorporated herein by reference.)

    4.8  -  Indenture dated as of March 26, 1999, between R&B Falcon
            Corporation, as Issuer, and U.S. Trust Company of Texas, National
            Association, as Trustee, with respect to 12 1/4% Senior Notes due
            2006. (Filed as Exhibit 4.2 to R&B Falcon's Quarterly Report on Form
            10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

    4.9  -  Registration Rights Agreement dated as of April 22, 1999 among
            R&B Falcon Corporation and Donaldson, Lufkin & Jenrette Securities
            Corporation. (Filed as Exhibit 4.2 to R&B Falcon's

                                       55
<PAGE>

            Registration Statement No. 333-81179 on Form S-4 dated June 21, 1999
            and incorporated herein by reference.)

    4.10+-  Supplement to Warrant Registration Rights Agreement dated as of
            January 31, 2001 among R&B Falcon Corporation and Transocean Sedco
            Forex Inc.

    4.11 -  Warrant Agreement, including form of Warrant dated April 22, 1999
            between R&B Falcon and American Stock Transfer & Trust Company.
            (Filed as Exhibit 4.1 to R&B Falcon's Registration Statement No.
            333-81181 on Form S-3 dated June 21, 1999 and incorporated herein by
            reference.)

    4.12+-  Supplement to Warrant Agreement dated January 31, 2001 among R&B
            Falcon Corporation, Transocean Sedco Forex Inc. and American Stock
            Transfer and Trust Company.

    4.13+-  Note Agreement dated as of January 30, 2001 among Delta Towing, LLC,
            as Borrower. R&B Falcon Drilling USA, Inc., as RBF Noteholder and
            Beta Marine Services, L.L.C., as Beta Noteholder.

   10.1  -  Memorandum of Agreement dated November 28, 1995 between Reading
            and Bates, Inc., a subsidiary of R&B, and Deep Sea Investors, L.L.C.
            (Filed as Exhibit 10.110 to R&B's Annual Report on Form 10-K for
            1995 and incorporated herein by reference.)

   10.2  -  Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between
            Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a
            subsidiary of R&B.   (Filed as Exhibit 10.111 to R&B's Annual Report
            on Form 10-K for 1995 and incorporated herein by reference.)

   10.3  -  Amended and Restated Bareboat Charter dated July 23, 1997 to
            Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between
            Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a
            subsidiary of R&B. (Filed as Exhibit 10.176 to R&B Falcon's Annual
            Report on Form 10-K for 1998 and incorporated herein by reference.)

   10.4  -  Amended and Restated Bareboat Charter dated July 1, 1998 to
            Bareboat Charter M. G. Hulme, Jr. dated November 28, 1995 between
            Deep Sea Investors, L.L.C. and Reading & Bates Drilling Co., a
            subsidiary of R&B. (Filed as Exhibit 10.177 to R&B Falcon's Annual
            Report on Form 10-K for 1998 and incorporated herein by reference.)

   10.5  -  Limited Liability Company Agreement dated October 28, 1996
            between Conoco Development Company and RB Deepwater Exploration Inc.
            (Filed as Exhibit 10.162 to R&B's Annual Report on Form 10-K for
            1996 and incorporated herein by reference.)

   10.6  -  Amendment No. 1 dated February 7, 1997 to Limited Liability
            Company Agreement dated October 28, 1996 between Conoco Development
            Company and RB Deepwater Exploration Inc. (Filed as Exhibit 10.183
            to R&B Falcon's Annual Report on Form 10-K for 1998 and incorporated
            herein by reference.)

   10.7  -  Amendment No. 2 dated April 30, 1997 to Limited Liability Company
            Agreement dated October 28, 1996 between Conoco Development Company
            and RB Deepwater Exploration Inc. (Filed as Exhibit 10.184 to R&B
            Falcon's Annual Report on Form 10-K for 1998 and incorporated herein
            by reference.)

   10.8  -  Amendment No. 3 dated April 24, 1998 to Limited Liability Company
            Agreement dated October 28, 1996 between Conoco Development Company
            and RB Deepwater Exploration Inc. (Filed as Exhibit 10.185 to R&B
            Falcon's Annual Report on Form 10-K for 1998 and incorporated herein
            by reference.)

   10.9  -  Amendment No. 4 dated August 7, 1998 to Limited Liability Company
            Agreement dated October 28, 1996 between Conoco Development Company
            and RB Deepwater Exploration Inc. (Filed as

                                       56
<PAGE>

            Exhibit 10.186 to R&B Falcon's Annual Report on Form 10-K for 1998
            and incorporated herein by reference.)

   10.10  - Limited Liability Company Agreement dated April 30, 1997 between
            Conoco Development II Inc. and RB Deepwater Exploration II Inc.
            (Filed as Exhibit 10.159 to R&B Falcon's Annual Report on Form 10-K
            for 1997 and incorporated herein by reference.)

   10.11  - Amendment No. 1 dated April 24, 1998 to Limited Liability
            Company Agreement dated April 30, 1997 between Conoco Development II
            Inc. and RB Deepwater Exploration II Inc. (Filed as Exhibit 10.188
            to R&B Falcon's Annual Report on Form 10-K for 1998 and incorporated
            herein by reference.)

   10.12  - Contract dated November 14, 1997 for Construction and Sale of
            Vessel (Hull No. HRBS6) between Hyundai Heavy Industries Co., Ltd.,
            Hyundai Corporation and RB Exploration Co. (Filed as Exhibit 10.165
            to R&B Falcon's Annual Report on Form 10-K for 1997 and incorporated
            herein by reference.)

   10.13  - Contract dated December 16, 1998 for Construction and Sale of
            Vessel (Hull No. HRB8-D) between Hyundai Heavy Industries Co., Ltd.,
            Hyundai Corporation and R&B Falcon Drilling Co. (Filed as Exhibit
            10.198 to R&B Falcon's Annual Report on Form 10-K for 1998 and
            incorporated herein by reference.)

   10.14  - Contract dated September 5, 1997 for Construction and Sale of a
            103,000 Metric Tons Displacement Drillship (Hull No. 1255) between
            Samsung Heavy Industries Co., Ltd., Samsung Corporation and Reading
            & Bates Drilling Co. (Filed as Exhibit 10.166 to R&B Falcon's Annual
            Report on Form 10-K for 1997 and incorporated herein by reference.)

   10.15  - Contract dated October 14, 1998 for Construction and Sale of a
            98,000 Metric Tons Displacement Drillship (Hull No. 1300) between
            Samsung Heavy Industries Co., Ltd. and R&B Falcon Drilling Co.
            (Filed as Exhibit 10.200 to R&B Falcon's Annual Report on Form 10-K
            for 1998 and incorporated herein by reference.)

   10.16  - Guaranty, dated as of July 30, 1998, made by Registrant in favor
            of the Deepwater Investment Trust 1998-A, Wilmington Trust FSB, not
            in its individual capacity, but solely as Investment Trustee,
            Wilmington Trust Company, not in its individual capacity, except as
            specified herein, but solely as Charter Trustee, BA Leasing &
            Capital Corporation, as Documentation Agent, ABN Amro Bank N.V., as
            Administrative Agent, The Bank of Nova Scotia, as Syndication Agent,
            BA Leasing & Capital Corporation, ABN Amro Bank N.V., Bank Austria
            Aktiengesellschaft New York Branch, The Bank of Nova Scotia,
            Bayerische Vereinsbank AG New York Branch, Commerzbank
            Aktiengesellschaft, Atlanta Agency, Credit Lyonnais New York Branch,
            Great-West Life and Annuity Insurance Company, Mees Pierson Capital
            Corporation, Westdeutsche Landesbank Girozentrale, New York Branch,
            as Certificate Purchasers, and ABN Amro Bank, N.V., Bank of America
            National Trust and Savings Association and The Bank of Nova Scotia,
            New York Branch, as Swap Counterparties, and the other parties named
            therein. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly Report on
            Form 10-Q for the Third Quarter of 1998 and incorporated herein by
            reference.)

   10.17  - Letter agreement dated as of August 7, 1998 between RBF
            Deepwater Exploration Inc., an indirect subsidiary of the
            Registrant, and Conoco Development Company and Acknowledgment by
            Conoco Inc. and the Registrant. (Filed as Exhibit 10.2 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998
            and incorporated herein by reference.)

   10.18  - Letter agreement dated as of August 7, 1998 between RBF
            Deepwater Exploration Inc., an indirect subsidiary of the
            Registrant, and Conoco Development Company and Acknowledgment by
            Conoco Inc. and the Registrant. (Filed as Exhibit 10.3 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1998
            and incorporated herein by reference.)

                                       57
<PAGE>

   10.19  - Senior Secured Loan Agreement, Harvey Ward, dated March 26, 1999
            between R&B Falcon Corporation, as Borrower, and RBF Finance Co., as
            Lender. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly Report on
            Form 10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

   10.20  - Senior Secured Loan Agreement, Peregrine II, dated March 26,
            1999 between R&B Falcon Corporation, as Borrower, and RBF Finance
            Co., as Lender. (Filed as Exhibit 10.2 to R&B Falcon's Quarterly
            Report on Form 10-Q for the First Quarter of 1999 and incorporated
            herein by reference.)

   10.21  - Senior Secured Loan Agreement, Peregrine I, dated March 26, 1999
            between R&B Falcon Corporation, as Borrower, and RBF Finance Co., as
            Lender. (Filed as Exhibit 10.3 to R&B Falcon's Quarterly Report on
            Form 10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

   10.22  - Senior Secured Loan Agreement, Deepwater IV, dated March 26,
            1999 between R&B Falcon Corporation, as Borrower, and RBF Finance
            Co., as Lender. (Filed as Exhibit 10.4 to R&B Falcon's Quarterly
            Report on Form 10-Q for the First Quarter of 1999 and incorporated
            herein by reference.)

   10.23  - Senior Secured Loan Agreement, Falrig 82, dated March 26, 1999
            between R&B Falcon Corporation, as Borrower, and RBF Finance Co., as
            Lender. (Filed as Exhibit 10.5 to R&B Falcon's Quarterly Report on
            Form 10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

   10.24  - Senior Secured Loan Agreement, Peregrine IV, dated March 26,
            1999 between R&B Falcon Corporation, as Borrower, and RBF Finance
            Co., as Lender. (Filed as Exhibit 10.6 to R&B Falcon's Quarterly
            Report on Form 10-Q for the First Quarter of 1999 and incorporated
            herein by reference.)

   10.25  - Senior Secured Loan Agreement, Peregrine VII, dated March 26,
            1999 between R&B Falcon Corporation, as Borrower, and RBF Finance
            Co., as Lender. (Filed as Exhibit 10.7 to R&B Falcon's Quarterly
            Report on Form 10-Q for the First Quarter of 1999 and incorporated
            herein by reference.)

   10.26  - Senior Secured Loan Agreement, Falcon 100, dated March 26, 1999
            between R&B Falcon Corporation, as Borrower, and RBF Finance Co., as
            Lender. (Filed as Exhibit 10.8 to R&B Falcon's Quarterly Report on
            Form 10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

   10.27  - Senior Secured Loan Agreement, W.D. Kent, dated March 26, 1999
            between R&B Falcon Corporation, as Borrower, and RBF Finance Co., as
            Lender. (Filed as Exhibit 10.9 to R&B Falcon's Quarterly Report on
            Form 10-Q for the First Quarter of 1999 and incorporated herein by
            reference.)

   10.28  - Senior Secured Loan Agreement, Deepwater Millennium, dated March
            26, 1999 between R&B Falcon Corporation, as Borrower, and RBF
            Finance Co., as Lender. (Filed as Exhibit 10.10 to R&B Falcon's
            Quarterly Report on Form 10-Q for the First Quarter of 1999 and
            incorporated herein by reference.)

   10.29  - Construction Supervisory Agreement dated as of August 12, 1999
            among RBF Exploration Co., as Owner and RBF Exploration II Inc., as
            Construction Supervisor. (Filed as Exhibit 10.1 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 1999 and
            incorporated herein by reference.)

   10.30  - Note Purchase Agreement, Deepwater Nautilus, dated as of August
            12, 1999, RBF Exploration Co. (Filed as Exhibit 10.2 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 1999 and
            incorporated herein by reference.)

   10.31  - First Amendment dated February 1, 2000 to Note Purchase
            Agreement dated as of August 12, 1999 between RBF Exploration Co.
            and Victory Receivables Corporation, Anchor National Life

                                       58
<PAGE>

            Insurance Company, First Sun America Life Insurance Company, and
            Parthenon Receivables Funding, L.L.C. (Filed as Exhibit 10.246 to
            R&B Falcon's Annual Report on Form 10-K for 1999 and incorporated
            herein by reference.)

   10.32  - Operation and Maintenance Agreement executed as of August 12,
            1999 by and between R&B Falcon Corporation and RBF Exploration Co.
            (Filed as Exhibit 10.3 to R&B Falcon's Quarterly Report on Form 10-Q
            for the Third Quarter of 1999 and incorporated herein by reference.)

   10.33  - Performance Guarantee dated as of August 12, 1999 made by R&B
            Falcon Corporation in favor of RBF Exploration Co., Travelers
            Casualty and Surety Company of America, American Home Assurance
            Company, and Chase Bank of Texas, National Association, as Trustee.
            (Filed as Exhibit 10.4 to R&B Falcon's Quarterly Report on Form 10-Q
            for the Third Quarter of 1999 and incorporated herein by reference.)

   10.34  - First Preferred Ship Mortgage, Deepwater Nautilus, made by RBF
            Exploration Co. in favor of Chase Bank of Texas, National
            Association, as Indenture Trustee. (Filed as Exhibit 10.5 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1999
            and incorporated herein by reference.)

   10.35  - Trust Indenture and Security Agreement dated as of August 12,
            1999, between RBF Exploration Co., a Nevada corporation, and Chase
            Bank of Texas, National Association as Trustee. (Filed as Exhibit
            10.6 to R&B Falcon's Quarterly Report on Form 10-Q for the Third
            Quarter of 1999 and incorporated herein by reference.)

   10.36  - Supplemental Indenture and Agreement dated as of February 1,
            2000 to the Trust Indenture and Security Agreement dated as of
            August 12, 1999 among RBF Exploration Co., BTM Capital Corporation
            and Chase Bank of Texas, National Association, as trustee. (Filed as
            Exhibit 10.251 to R&B Falcon's Annual Report on Form 10-K for 1999
            and incorporated herein by reference.)

   10.37  - Assignment of Drilling Contract dated as of August 12, 1999, by
            RBF Exploration Co. to Chase Bank of Texas, National Association, as
            trustee. (Filed as Exhibit 10.7 to R&B Falcon's Quarterly Report on
            Form 10-Q for the Third Quarter of 1999 and incorporated herein by
            reference.)

   10.38  - R&B Falcon Guaranty from R&B Falcon Corporation dated as of
            August 31, 1999. (Filed as Exhibit 10.8 to R&B Falcon's Quarterly
            Report on Form 10-Q for the Third Quarter of 1999 and incorporated
            herein by reference.)

   10.39  - Participation Agreement dated as of August 31, 1999 among
            Deepwater Drilling II L.L.C., Deepwater Investment Trust 1999-A,
            Wilmington Trust FSB, Wilmington Trust Company, BA Leasing & Capital
            Corporation, and other Financial Institutions, as Certified
            Purchasers, solely with respect to Section 2.15, 6.9, 9.4(a) and
            12.13(b) R&B Falcon Corporation and Conoco Inc., and solely with
            respect to Sections 5.2 and 6.4, RBF Deepwater Exploration II Inc.
            and Conoco Development II Inc. (Filed as Exhibit 10.9 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1999
            and incorporated herein by reference.)

   10.40  - Appendix 1 to Participation Agreement dated as of August 31,
            1999. (Filed as Exhibit 10.10 to R&B Falcon's Quarterly Report on
            Form 10-Q for the Third Quarter of 1999 and incorporated herein by
            reference.)

   10.41* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Paul B. Loyd, Jr. (Filed as
            Exhibit 10.13 to R&B Falcon's Quarterly Report on Form 10-Q for the
            Third Quarter of 1999 and incorporated herein by reference.)

   10.42* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Charles R. Ofner. (Filed as
            Exhibit 10.14 to R&B Falcon's Quarterly Report on Form 10-Q for the
            Third Quarter of 1999 and incorporated herein by reference.)

   10.43* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Ron Toufeeq. (Filed as Exhibit
            10.15 to R&B Falcon's Quarterly Report on Form 10-Q for the Third
            Quarter of 1999 and incorporated herein by reference.)

   10.44* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon

                                       59
<PAGE>

            Corporation and Bernie W. Stewart. (Filed as Exhibit 10.16 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 1999
            and incorporated herein by reference.)

   10.45* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Wayne K. Hillin. (Filed as
            Exhibit 10.17 to R&B Falcon's Quarterly Report on Form 10-Q for the
            Third Quarter of 1999 and incorporated herein by reference.)

   10.46* - Employment and Change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Andrew Bakonyi. (Filed as Exhibit
            10.18 to R&B Falcon's Quarterly Report on Form 10-Q for the Third
            Quarter of 1999 and incorporated herein by reference.)

   10.47* - Employment and change of Control Agreement dated August 25, 1999
            between R&B Falcon Corporation and Tim W. Nagle. (Filed as Exhibit
            10.264 to R&B Falcon's Annual Report on Form 10-K for 1999 and
            incorporated herein by reference.)

   10.48  - Issuer Loan Escrow Agreement dated March 26, 1999 among United
            States Trust Company of New York, R&B Falcon Corporation and RBF
            Finance Co.  (Filed as Exhibit 10.2 to R&B Falcon's Registration
            Statement No. 333-79363 on Form S-4 dated May 26, 1999 and
            incorporated herein by reference.)

   10.49  - Senior Secured Note Escrow Agreement dated March 26, 1999 among
            United States Trust Company of New York and RBF Finance Co.  (Filed
            as Exhibit 10.3 to R&B Falcon's Registration Statement No. 333-79363
            on Form S-4 dated May 26, 1999 and incorporated herein by
            reference.)

   10.50  - Security Agreement dated as of March 26, 1999 from R&B Falcon
            Corporation to RBF Finance Co.  (Deepwater Millenium). (Filed as
            Exhibit 10.14 to R&B Falcon's Registration Statement No. 333-79363
            on Form S-4 dated May 26, 1999 and incorporated herein by
            reference.)

   10.51  - Security Agreement dated as of March 26, 1999 from R&B Falcon
            Corporation to RBF Finance Co. (Deepwater IV). (Filed as Exhibit
            10.15 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.52  - Senior Secured Note Security and Pledge Agreement dated as of
            March 26, 1999 by RBF Finance Co. in favor of United States Trust
            Company. (Filed as Exhibit 10.16 to R&B Falcon's Registration
            Statement No. 333-79363 on Form S-4 dated May 26, 1999 and
            incorporated herein by reference.)

   10.53  - First Preferred Ship Mortgage made March 26, 1999 by R&B Falcon
            Corporation and RBF Finance Co. (Peregrine IV). (Filed as Exhibit
            10.17 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.54  - First Preferred Ship Mortgage made March 26, 1999 by R&B Falcon
            Corporation and RBF Finance Co. (Peregrine VII). (Filed as Exhibit
            10.18 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.55  - First Preferred Ship Mortgage made March 26, 1999 by R&B Falcon
            Corporation and RBF Finance Co. (Falcon 100). (Filed as Exhibit
            10.19 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.56  - Deed of Covenants dated March 26, 1999 by and between R&B Falcon
            Corporation and R&B Finance Co. (Peregrine I). (Filed as Exhibit
            10.20 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.57  - Deed of Covenants dated March 26, 1999 by and between R&B Falcon
            Corporation and R&B Finance Co. (Peregrine II). (Filed as Exhibit
            10.21 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

   10.58  - First Naval Mortgage dated April 12, 1999 by R&B Falcon
            Corporation to R&B Finance Co. (Harvey Ward). (Filed as Exhibit
            10.22 to R&B Falcon's Registration Statement No. 333-79363 on Form
            S-4 dated May 26, 1999 and incorporated herein by reference.)

                                       60
<PAGE>

   10.59  - First Naval Mortgage dated April 12, 1999 by R&B Falcon
            Corporation to R&B Finance Co. (W.D. Kent). (Filed as Exhibit 10.23
            to R&B Falcon's Registration Statement No. 333-79363 on Form S-4
            dated May 26, 1999 and incorporated herein by reference.)

   10.60  - First Preferred Ship Mortgage made March 26, 1999 by R&B Falcon
            Corporation and R&B Finance Co. (Falrig 82). (Filed as Exhibit 10.24
            to R&B Falcon's Registration Statement No. 333-79363 on Form S-4
            dated May 26, 1999 and incorporated herein by reference.)

   10.61  - Performance Bond dated January 31, 2000 from Travelers Casualty
            and Surety Company of America and American Home Assurance Company,
            RBF Exploration II Inc., as principal unto BTM Capital Corporation
            and Chase Bank of Texas, National Association, as trustee. (Filed as
            Exhibit 10.317 to R&B Falcon's Annual Report on Form 10-K for 1999
            and incorporated herein by reference.)

   10.62  - Indemnity Agreement dated as of January 31, 2000 from R&B Falcon
            Corporation and RBF Exploration II Inc. in favor of Travelers
            Casualty and Surety Company of America and American Home Assurance
            Company. (Filed as Exhibit 10.318 to R&B Falcon's Annual Report on
            Form 10-K for 1999 and incorporated herein by reference.)

   10.63  - First Naval Mortgage dated February 2, 2000 made by BTM Capital
            Corporation in favor of Chase Bank of Texas, National Association.,
            as indenture trustee. (Filed as Exhibit 10.319 to R&B Falcon's
            Annual Report on Form 10-K for 1999 and incorporated herein by
            reference.)

   10.64  - Construction Supervisory Agreement dated as of February 1, 2000
            among BTM Capital Corporation, RBF Exploration Co.  and RBF
            Exploration II Inc. (Filed as Exhibit 10.320 to R&B Falcon's Annual
            Report on Form 10-K for 1999 and incorporated herein by reference.)

   10.65  - Equipment Sale and Funding Agreement dated 1 February 2000
            between RBF Exploration Co. and BTM Capital Corporation. (Filed as
            Exhibit 10.321 to R&B Falcon's Annual Report on Form 10-K for 1999
            and incorporated herein by reference.)

   10.66  - Novation Agreement dated 1 February 2000 among Hyundai
            Corporation, Hyundai Heavy Industries Co., Ltd., RBF Exploration Co.
            and BTM Capital Corporation. (Filed as Exhibit 10.322 to R&B
            Falcon's Annual Report on Form 10-K for 1999 and incorporated herein
            by reference.)

   10.67  - Acknowledgment of Rig Ownership and Ratification of Operation
            and Maintenance Agreement dated as of February 1, 2000 among R&B
            Falcon Corporation, RBF Exploration Co. and BTM Capital Corporation.
            (Filed as Exhibit 10.323 to R&B Falcon's Annual Report on Form 10-K
            for 1999 and incorporated herein by reference.)

   10.68  - Performance Guarantee dated as of February 1, 2000 made by R&B
            Falcon Corporation in favor of RBF Exploration Co., BTM Capital
            Corporation, Travelers Casualty and Surety Company of America,
            American Home Assurance Company and Chase Bank of Texas, National
            Association, as indenture trustee. (Filed as Exhibit 10.324 to R&B
            Falcon's Annual Report on Form 10-K for 1999 and incorporated herein
            by reference.)

   10.69  - Bill of Sale dated February 1, 2000 from RBF Exploration Co. to
            BTM Capital Corporation. (Filed as Exhibit 10.325 to R&B Falcon's
            Annual Report on Form 10-K for 1999 and incorporated herein by
            reference.)

   10.70  - Acknowledgment of Independent Transaction dated as of February
            1, 2000 among RBF Exploration Co., BTM Capital Corporation, Chase
            Bank of Texas, National Association, as trustee, Victory Receivables
            Corporation,  Anchor National Life Insurance Company, First
            SunAmerica Life Insurance Company and Parthenon Receivables Funding,
            L.L.C. (Filed as Exhibit 10.326 to R&B Falcon's Annual Report on
            Form 10-K for 1999 and incorporated herein by reference.)

   10.71  - Consent of Note Holder dated February 1, 2000 regarding the Note
            Purchase Agreement, Deepwater Nautilus, dated August 12, 1999, RBF
            Exploration Co. (Filed as Exhibit 10.1 to R&B Falcon's Quarterly
            Report on Form 10-Q for the First Quarter of 2000 and incorporated
            herein by reference.)

                                       61
<PAGE>

   10.72  - Consent of Surety dated February 1, 2000 regarding the Trust
            Indenture and Security Agreement dated August 12, 1999 as
            supplemental and amended by the Supplemental Indenture and Amendment
            dated February 1, 2000. (Filed as Exhibit 10.2 to R&B Falcon's
            Quarterly Report on Form 10-Q for the First Quarter of 2000 and
            incorporated herein by reference.)

   10.73  - Contingent Undertaking dated as of June 2, 2000 between the Company
            and Sovereign Corporate Limited. (Filed as Exhibit 10.30 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Second Quarter of
            2000 and incorporated herein by reference.)

   10.74  - Operation and Maintenance Agreement dated as of June 2, 2000 among
            the Company, RBF Exploration Co., BTM Capital Corporation and R&B
            Falcon Deepwater (UK) Limited. (Filed as Exhibit 10.31 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Second Quarter of
            2000 and incorporated herein by reference.)

   10.75  - Consent of Note Holder dated as of May 2000 regarding the Note
            Purchase Agreement, Deepwater Nautilus, dated August 12, 1999.
            (Filed as Exhibit 10.32 to R&B Falcon's Quarterly Report on Form
            10-Q for the Second Quarter of 2000 and incorporated herein by
            reference.)

   10.76  - Letter of Credit and Reimbursement Agreement among R&B Falcon
            Corporation, Credit Agricole Indosuez, Credit Lyonnais New York
            Branch, as syndication agent and Christiania Bank og Kreditkasse
            ASA, New York Branch, as administrative agent dated as of August 31,
            2000. (Filed as Exhibit 10.2 to R&B Falcon's Quarterly Report on
            Form 10-Q for the Third Quarter of 2000 and incorporated herein by
            reference.)

   10.77  - Form of Security Agreement and Assignment of Earnings and Insurances
            dated as of August 31, 2000, made by R&B Falcon Corporation and
            Christiania Bank og Kreditkasse ASA, New York Branch, as Collateral
            Agent. (Filed as Exhibit 10.3 to R&B Falcon's Quarterly Report on
            Form 10-Q for the Third Quarter of 2000 and incorporated herein by
            reference.)

   10.78  - Form of Indenture of First Naval Mortgage (J.W. McLean) between R&B
            Falcon Corporation and Christiania Bank og Kreditkasse ASA, New York
            Branch dated August 31, 2000. (Filed as Exhibit 10.4 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 2000 and
            incorporated herein by reference.)

   10.79  - Form of Indenture of First Naval Mortgage (J.T. Angel) between R&B
            Falcon Corporation and Christiania Bank og Kreditkasse ASA, New York
            Branch dated August 31, 2000. (Filed as Exhibit 10.5 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 2000 and
            incorporated herein by reference.)

   10.80  - Form of Indenture of First Naval Mortgage (Randolph Yost) between
            R&B Falcon Corporation and Christiania Bank og Kreditkasse ASA, New
            York Branch dated August 31, 2000. (Filed as Exhibit 10.6 to R&B
            Falcon's Quarterly Report on Form 10-Q for the Third Quarter of 2000
            and incorporated herein by reference.)

   10.81  - Form of Indenture of First Naval Mortgage (D.R. Stewart) between R&B
            Falcon Corporation and Christiania Bank og Kreditkasse ASA, New York
            Branch dated August 31, 2000. (Filed as Exhibit 10.7 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 2000 and
            incorporated herein by reference.)

   10.82  - Form of First Preferred Mortgage (George H. Galloway) between R&B
            Falcon Corporation and Christiania Bank og Kreditkasse ASA, New York
            Branch dated August 31, 2000. (Filed as Exhibit 10.8 to R&B Falcon's
            Quarterly Report on Form 10-Q for the Third Quarter of 2000 and
            incorporated herein by reference.)

   10.83+ - Consulting Agreement dated January 31, 2001 between Paul B. Loyd,
            Jr. and R&B Falcon Corporation.

   21     - Schedule of Subsidiaries of the Company (not included as permitted
            by General Instruction I (2)(b) of Form 10-K.)

   23+    - Consent of Arthur Andersen LLP

                                       62
<PAGE>

   99     - Annual Report on Form 11-K with respect to R&B Falcon U.S. Savings
            Plan. (To be filed by amendment to the Annual Report on Form 10-K.)

           Instruments with respect to certain long-term obligations of the
Company are not being filed as exhibits hereto as the securities authorized
thereunder do not exceed 10% of the Company's total assets. The Company agrees
to furnish a copy of each such instrument to the Securities and Exchange
Commission upon its request.

__________________________________
* Management contract or compensatory plan or arrangement required to be
  filed as an exhibit pursuant to the requirements of Item 14(c) of Form
  10-K.

+ Filed herewith.

(b)  Reports on Form 8-K

     R&B Falcon filed three Current Reports on Form 8-K during the three months
     ended December 31, 2000: (1) Report filed on October 26, 2000 which
     included the Company's third quarter 2000 earnings release and a brief
     discussion of other recent significant events; (2) Report filed on October
     27, 2000 which included various exhibits, including the Underwriting
     Agreement, related to the Company's Prospectus Supplement dated October 26,
     2000; (3) Report filed December 5, 2000 announcing the results of the
     tender offer of the Company's 13 7/8% Senior Cumulative Redeemable
     Preferred Stock.

                                       63
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 19, 2001.


                             R&B FALCON CORPORATION

                             By    /s/ W. DENNIS HEAGNEY
                                _______________________________
                                       W. Dennis Heagney
                                       President


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on March 19, 2001.



By   /s/ W. DENNIS HEAGNEY
     ______________________________
     W. Dennis Heagney
     President (Principal Executive Officer)



By   /s/ ROBERT L. LONG
     ______________________________
     Robert L. Long
     Vice President and Director
     (Principal Financial and Accounting Officer)



By   /s/ ERIC B. BROWN
     ___________________________________________________________
     Eric B. Brown
     Vice President, Secretary, General Counsel and Director

                                       64