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FORM 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer Pursuant to Rule 13a-16 or 15-f-16 of the
Securities and Exchange Act of 1934
For the month of March, 1998
SANTA FE INTERNATIONAL CORPORATION
(Translation of Registrant's name into English)
Two Lincoln Centre, Suite 1100, 5420 LBJ Freeway, Dallas, Texas 75240-2648
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.]
Form 20-F [ X ] Form 40-F [ ]
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934]
Yes [ ] No [ X ]
[If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with rule 12g3-2(b): 82 - ________.]
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SANTA FE INTERNATIONAL CORPORATION
TABLE OF CONTENTS TO FORM 6-K
QUARTER ENDED MARCH 31, 1998
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Page No.
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COVER PAGE 1
DOCUMENT TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months ended
March 31, 1998 and 1997 3
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows for the Three Months ended March 31,
1998 and 1997 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION 13
SIGNATURES 14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATION AND RETAINED EARNINGS
(Unaudited)
(U.S. dollars, in thousands, except share and per share data)
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Three Months ended March 31,
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1998 1997
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Operating revenues $ 196,281 $ 149,253
Operating costs and expenses:
Operating costs 99,712 86,779
Depreciation and amortization 12,992 10,302
General and administrative 5,636 5,080
Gain on sale of assets (162) (42)
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Total operating costs and expenses 118,178 102,119
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Operating income 78,103 47,134
Other income (expense):
Investment income 1,316 1,506
Other, net (2,695) (826)
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Income before provision for taxes on income 76,724 47,814
Provision for taxes on income (Note 4) 8,965 4,891
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Net income 67,759 42,923
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Retained earnings as of December 31, 1997 and 1996 286,001 68,658
Dividends declared ($0.325 per share) (3,721) --
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Retained earnings as of March 31, 1998 and 1997 $ 350,039 $ 111,581
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Income per ordinary share:
Basic and Diluted $ 0.59
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Pro forma net income per ordinary share:
Basic and Diluted $ 0.37
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Weighted average ordinary and ordinary equivalent
shares used in ordinary share computations:
Basic 114,500,000 114,500,000
Diluted 114,656,000 114,500,000
</TABLE>
See notes to consolidated financial statements.
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SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars, in thousands, except share data)
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MARCH 31, DECEMBER 31,
1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 29,999 $ 68,453
Marketable securities 5,188 8,093
Accounts receivable 173,164 149,268
Inventories 49,808 51,182
Prepaid expenses and other current assets 18,162 17,459
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Total current assets 276,321 294,455
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Property and equipment, at cost 1,816,931 1,737,285
Less accumulated depreciation and amortization (947,782) (935,315)
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Property and equipment, net 869,149 801,970
Prepaid deposits 18,532 14,861
Other noncurrent assets 48,469 50,167
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Total assets $ 1,212,471 $ 1,161,453
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,029 $ 92,014
Accrued liabilities 85,390 79,741
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Total current liabilities 155,419 171,755
Other noncurrent liabilities 39,417 36,681
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Total liabilities 194,836 208,436
Commitments and contingencies (Note 3)
Shareholders' equity:
Ordinary shares par value $.01; 600,000,000 shares authorized,
114,771,980 and 114,746,550 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 1,148 1,147
Additional paid-in capital 666,448 665,869
Retained earnings 350,039 286,001
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Total shareholders' equity 1,017,635 953,017
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Total liabilities and shareholders' equity $ 1,212,471 $ 1,161,453
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</TABLE>
See notes to consolidated financial statements.
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SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars, in thousands)
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THREE MONTHS ENDED MARCH 31,
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1998 1997
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Cash flows from operating activities:
Net income $ 67,759 $ 42,923
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 12,992 10,302
Gain on sale of assets (162) (42)
Accretion of interest income and gains on sales
of marketable securities (95) (1,506)
Deferred income tax provision (benefit) (28) 478
Changes in operating assets and liabilities:
Accounts receivable (23,896) (10,601)
Inventories 1,374 2,050
Prepaid expenses and other (703) (462)
Accounts payable (21,985) (18,366)
Accrued liabilities 5,648 2,187
Other, net 5,845 2,129
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Net cash provided by operating activities 46,749 29,092
Capital expenditures (66,125) (37,014)
Advance payments for drilling rigs (18,532) --
Proceeds from sales of property and equipment 175 57
Maturities of marketable securities 3,000 14,422
Purchases of marketable securities -- (6,905)
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Net cash provided by (used for) investing activities (81,482) (29,440)
Cash flows from financing activities:
Dividends paid (3,721) --
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Net cash used for financing activities (3,721) --
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Net change in cash and cash equivalents (38,454) (348)
Cash and cash equivalents at beginning of period 68,453 73,092
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Cash and cash equivalents at end of period $ 29,999 $ 72,744
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Supplemental disclosures of cash flows information:
Income taxes paid $ 6,421 $ 3,218
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</TABLE>
See notes to consolidated financial statements.
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SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Santa Fe International Corporation (the "Company"), a Cayman Islands
corporation, is a majority-owned subsidiary of SFIC Holdings (Cayman), Inc.
("Holdings"), which in turn is a wholly-owned subsidiary of Kuwait Petroleum
Corporation ("KPC"). KPC is wholly-owned by the Government of Kuwait. In a
series of transactions during the four years ended December 31, 1996, Holdings
and its subsidiaries were reorganized in a manner which resulted in the Company
owning all of the drilling assets and the direct and indirect subsidiaries of
Holdings and KPC engaged in providing contract drilling and drilling related
services (the "Reorganization"). The actions taken in connection with the
Reorganization have been accounted for as a reorganization of entities under
common control in a manner similar to a pooling of interests.
On May 27, 1997, the Company was recapitalized, resulting in the
Company's 900,000 authorized ordinary shares, par value $1.00 per share, with
1,003 ordinary shares issued and outstanding, being recapitalized into
600,000,000 authorized ordinary shares, par value $0.01 per share ("Ordinary
Shares"), with 84,500,000 Ordinary Shares issued and outstanding. The
accompanying consolidated financial statements have been adjusted to reflect
this recapitalization retroactively.
On June 9 and 13, 1997, respectively, the Company commenced and
completed an initial public offering (the "Offering") of Ordinary Shares. Upon
the issuance of 40,000,000 Ordinary Shares in the Offering and consummation of
the purchase described below of Ordinary Shares from Holdings, the Company had
114,500,000 Ordinary Shares outstanding. Immediately following the Offering,
Holdings held 65.1% of the outstanding Ordinary Shares of the Company. The
Offering price was $28.50 per share, resulting in net proceeds of approximately
$1,088,720,000 after deducting underwriting discounts and commissions. The
Company also incurred approximately $8 million of expenses in connection with
the Offering which has been charged to additional paid-in-capital. Upon receipt
of proceeds from the sale of the first 30,000,000 Ordinary Shares sold in the
Offering, the Company paid a cash dividend to Holdings in an amount equal to
those proceeds. All of the proceeds the Company received from the sale in the
Offering of Ordinary Shares in excess of that amount were used to purchase a
like number of Ordinary Shares from Holdings.
Holders of Ordinary Shares are entitled to participate in the payment
of dividends in proportion to their holdings. Under Cayman Island law, the
Company may pay dividends or make other distributions to its shareholders, in
such amounts as the Board of Directors deems appropriate from the profits of the
Company or out of the Company's share premium account (equivalent to additional
paid-in capital) if the Company thereafter has the ability to pay its debts as
they come due. Cash dividends, if any, will be declared and paid in U.S.
dollars. At March 31, 1998 the Company had declared dividends which had not been
paid amounting to $3,721,000.
The Company operates in one business segment, providing contract
drilling and related services throughout the world.
At the direction of the Board of Directors, the Company has implemented
a change from a June 30 fiscal year end to a December 31 fiscal year end
effective January 1, 1998.
The accompanying consolidated financial statements are presented in
U.S. dollars and in accordance with U.S. generally accepted accounting
principles.
The condensed consolidated financial statements of Santa Fe
International Corporation and its consolidated subsidiaries (the "Company")
included herein have been prepared without
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audit, pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
The financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. Such adjustments are considered to be of a normal recurring
nature unless otherwise identified. Results of operations for the three month
period ended March 31, 1998 are not necessarily indicative of the results of
operations that will be realized for the year ending December 31, 1998. These
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Transition Report on
Form 20-F for the six months ended December 31, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Per Ordinary Share
The basic and diluted income per Ordinary Share data for the three
months ended March 31, 1998 is calculated based on the weighted average shares
outstanding for the periods. The pro forma income per share data for the three
months ended March 31, 1997 is calculated as though the 114,500,000 shares
issued in connection with the recapitalization and the Offering were outstanding
for the periods then ended. At December 31, 1997 the Company adopted SFAS No.
128, "Earnings Per Share". Accordingly, the financial statements have been
restated as applicable. The effect of the adoption of this statement was not
material.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income ("FAS 130"), which established standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. For the quarters ended
March 31, 1998 and 1997, the Company realized no such transactions other than
those reported as net income.
Also in June 1997, the FASB issued FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in the annual financial statements and
requires that those enterprises report selected information about products and
services, geographical areas and major customers. The Company will adopt the
provisions of FAS 131 at the end of the fiscal year ended December 31, 1998. The
adoption of FAS 131 will not have a material impact on the Company's disclosures
with respect to business segments.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various
lawsuits, claims and related matters. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
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In January 1997, the Company entered into a contract for the
construction of the Galaxy II, a heavy duty harsh environment jackup drilling
rig. The cost of the rig, excluding initial mobilization, is expected to be
approximately $156 million. The Company has entered into a five year drilling
contract with a customer for this rig beginning in October 1998.
In September 1997, the Company entered into a contract for the
construction of the Galaxy III, a heavy duty harsh environment jackup drilling
rig. The cost of the rig, excluding initial mobilization is expected to be
approximately $175 million. The rig is expected to be mobilized during the
fourth quarter of 1999. The Company has entered into a three year drilling
contract with a customer for the rig to operated in the U.K.
sector of the North Sea following initial mobilization.
NOTE 4 - INCOME TAXES
The Company is not subject to income taxes in the Cayman Islands. All
of the Company's income before provision for taxes on income and the related
provision for taxes on income relates to operations in jurisdictions other than
the Cayman Islands. The relationship between income before provision for taxes
on income and the provision for taxes on income varies from period to period
because each jurisdiction in which the Company operates has its own system of
taxation (not only with respect to the nominal rate, but also with respect to
the allowability of deductions, credits and other benefits) and because the
amounts earned in, and subject to tax by, each jurisdiction changes from period
to period.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements regarding future performance and results and the other
statements that are not historical facts contained in this report are
forward-looking statements. The words "anticipate", "expect", "project",
"estimate", "predict" and similar expressions are also intended to identify
forward-looking statements. Such statements involve risks and uncertainties
including, but not limited to, the risks involved in dealing with other parties,
including the risk that other parties' commitments to the Registrant and its
subsidiaries could be breached, changes in the markets for oil and natural gas
and for offshore drilling rigs and the risks of doing business in changing
markets, changes in the dates the Company's rigs undergoing conversion to
drilling operations will commence drilling, and changing costs and other factors
discussed herein and in the Company's other Securities and Exchange Commission
filings. Should one or more risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated.
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THREE MONTHS ENDED MARCH 31,
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1998 1997
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OPERATING REVENUES
Heavy duty harsh environment jackup rigs $ 33,306 $ 29,328
Semisubmersible rigs 24,527 17,440
300-350 foot cantilever jackup rigs 37,899 25,963
200-250 foot jackup rigs 39,333 25,650
Other marine rigs 3,927 2,330
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Total marine rigs 138,992 100,711
Land rigs 38,010 25,671
Drilling related services 18,975 22,539
Other 304 332
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Total operating revenues 196,281 149,253
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OPERATING COSTS(1)
Heavy duty harsh environment jackup rigs 10,478 10,094
Semisubmersible rigs 12,205 9,065
300-350 foot cantilever jackup rigs 14,073 13,575
200-250 foot jackup rigs 15,264 12,083
Other marine rigs 3,037 1,485
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Total marine rigs 55,057 46,302
Land rigs 25,060 18,000
Drilling related services 17,268 17,150
Other 2,327 5,327
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Total operating costs 99,712 86,779
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Depreciation and amortization 12,992 10,302
General and administrative 5,636 5,080
Loss (gain) on sale of assets (162) (42)
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OPERATING INCOME $ 78,103 $ 47,134
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OPERATING INCOME AS A PERCENTAGE OF REVENUES 39.8% 31.6%
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</TABLE>
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(1) EXCLUSIVE OF DEPRECIATION WHICH IS PRESENTED SEPARATELY BELOW.
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AVERAGE FOR THE
THREE MONTHS ENDED MARCH 31,
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1998 1997
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RIG FLEET UTILIZATION
Heavy duty harsh environment jackup rigs 93.1% 97.8%
Semisubmersible rigs 100.0% 100.0%
300-350 foot cantilever jackup rigs 97.4% 94.6%
200-250 foot jackup rigs 100.0% 97.0%
Other marine rigs 100.0% 100.0%
Total marine rigs 98.1% 97.0%
Land rigs 91.7% 88.7%
AVERAGE DRYRATES
Heavy duty harsh environment jackup rigs $ 99,421 $ 83,318
Semisubmersible rigs 90,841 64,593
300-350 foot cantilever jackup rigs 54,064 38,125
200-250 foot jackup rigs 48,559 32,634
Other marine rigs 21,817 12,944
Total marine rigs 60,537 44,386
Land rigs 16,285 13,405
</TABLE>
QUARTERS ENDED MARCH 31, 1998 AND 1997
OPERATING REVENUES. Total operating revenues increased $47.0 million
(31.5%) principally because of increased revenues from the marine fleet and land
rigs, partly offset by reduced revenue from drilling related services. Revenues
from the Company's heavy duty harsh environment jackup rig fleet, which operated
entirely in the North Sea for both quarterly periods, increased $4.0 million
(13.6%) principally because of a 19.3% increase in average dayrates ($5.2
million) and 8 days increased utilization for the Galaxy I ($0.8 million),
partially offset by 25 days idle time for the Magellan for certification
inspections and preparation for a new contract ($2.1 million). Operating
revenues for the Company's three semisubmersibles increased $7.1 million
(40.6%), all of which was due to average dayrate increases. Revenues from
300-350 foot cantilever jackups increased $11.9 million (46.0%) primarily
because of a 41.8% increase in average dayrates. Revenues from 200-250 foot
jackup rigs increased $13.7 million (53.3%), mainly due to a 48.8% increase in
average dayrates. Operating revenues for other marine rigs increased $1.6
million (86.5%) primarily due to a North Sea platform rig having 45 additional
operating days. Revenues from land rigs increased by $12.3 million (48.1%). Five
additional rigs, four in the Middle East and one in North Africa, operated in
the quarter ended March 31, 1998 as compared with the same period of 1997,
increasing revenues by $8.1 million. The remaining increase of $4.2 million was
primarily due to a 14.5% increase in dayrates earned by all other land rigs in
the fleet. Revenues from drilling related services decreased by $3.6 million
(15.8%) primarily because of a $3.1 million (20.9%) decrease in third party rig
operations revenues and a $0.5 million (6.5%) decrease in revenues from
incentive drilling contracts. Third party operations revenues decreased mainly
due to the inception of a rig sharing agreement in Azerbaijan for a third party
semisubmersible rig, which was operated solely by the Company during the quarter
ended March 31, 1997, and decreased days in operating mode for third party
platforms in the North Sea, partially offset by increased activity in South
America. Incentive drilling revenues decreased because of a decrease in the
number of contracts containing incentive based provisions, primarily in South
America and North Africa, partially offset by an increase in the North Sea.
OPERATING COSTS. Total operating costs increased $12.9 million (14.7%)
due principally to increased costs related to the operations of the Company's
marine fleet and land rigs. Semisubmersibles operating costs increased $3.1
million (34.6%) primarily due to amortization of mobilization cost associated
with Rig 135's new drilling contract in the North Sea and increased repair and
maintenance costs for both Rig 140, operating in the Gulf of Mexico, and Rig
135. Operating costs on 200-250 foot jackup rigs increased $3.2 million (26.3%),
mainly due to increased
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costs associated with a new contract for the Key Victoria in South America,
which included increased labor and support costs stemming from a new collective
bargaining agreement that was in effect for the quarter ended March 31, 1998.
Increased operating costs of $1.6 million (104.5%) for other marine rigs stemmed
mainly from increased costs for the lake barge working in South America and
increased days in operating mode for the platform rig in the North Sea.
Operating costs associated with land rigs increased $7.1 million (39.2%),
primarily due to the deployment of four additional rigs in the Middle East and
one in North Africa ($4.3 million) and increased costs for rigs working in South
America. The $3.0 million (56.3%) decrease in other operating costs was
primarily due to reduced provision for inventory obsolescence.
GENERAL AND ADMINISTRATIVE. General and administrative expense
increased $0.5 million (10.9%) primarily due to an increase in staff levels
($0.2 million) and increased costs ($0.3 million) associated with becoming a
public company in June 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.7 million (12.9%) for the quarter ended March 31, 1998 as compared
with the same period in the prior year. Depreciation of five land rigs placed in
service during 1997 yielded increased expense of $1.1 million, with the
remainder of the increase due to depreciation of capital additions to other rigs
and equipment.
OTHER INCOME (EXPENSE), NET. This category experienced a $2.0 million
decrease for the quarter ended March 31, 1998. Foreign exchange gains decreased
$1.0 million for the quarter, primarily resulting from unfavorable movements of
the dollar in relation to the rupiah and the pound sterling, while other
non-operating expenses increased $0.8 million mainly due to increased accruals
for contingency reserves. Investment income decreased by $0.2 million, primarily
due to lower invested balances.
PROVISION FOR TAXES ON INCOME. The provision for taxes on income
increased by $4.1 million, primarily due to increased earnings in the U.K., West
Africa, North Africa and the Middle East, leading to an increase in the
Company's effective tax rate to 11.7% from 10.2% for the same period in 1997.
NET INCOME. Net income for the quarter ended March 31, 1998 increased
$24.8 million 57.9%) to $67.7 million as compared to $42.9 million for the same
period in the prior year. This increase resulted primarily from the increase of
$47.0 million in the Company's operating revenues, partially offset by increased
operating expense of $12.9 million, increased general and administrative expense
of $0.5 million, $2.7 million higher depreciation expense, lower other income
(expense), net of $2.0 million and an increased provision for income taxes of
$4.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $46.7 million and $29.1
million for the quarters ended March 31, 1998 and 1997, respectively. The
increase in cash flows from operations was primarily attributable to changes in
income before non-cash charges, partially offset by changes in cash used for
working capital. Investing activities used cash of $81.5 million and $29.4
million for the quarters ended March 31, 1998 and 1997. This increased usage in
investing activities of $52.1 million was primarily due to $29.1 million
increased capital spending, $18.5 million in increased advance payments related
to construction of drilling rigs and decreased purchases and maturities of
marketable securities of $4.5 million. Capital expenditures totaled $66.1
million and $37.0 million for the quarters ended March 31, 1998 and 1997,
respectively, principally related to rig expansion, upgrades and modernization.
The $29.1 million increase in capital spending for the quarter ended March 31,
1998, as compared to the same period in 1997, resulted primarily from $22.1
million increased expansion capital expenditures and $7.0 million increased
maintenance and provisional spending. Capital expenditures on the heavy duty
harsh environment jackup rigs Galaxy II and Galaxy III increased $2.3 million
and $24.6 million, respectively, partially offset by $4.8 million decreased
spending on land rig expansion. Cash used in financing activities was $3.7
million for the quarter ended March 31, 1998, consisting solely of dividends
paid, while there were no cash uses associated with financing activities for the
quarter ended March 31, 1997.
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The Company expects to spend approximately $384 million during the year
ending December 31, 1998. Capital spending to meet contractual obligations for
customers and for rig upgrade, modernization and enhancement projects is
estimated to require approximately $64 million and represent numerous individual
transactions over the course of the year. Capital expenditures on the two new
heavy duty harsh environment jackup rigs presently under construction are
estimated to require approximately $180 million. The Company believes it has
minimal exposure to significant cost increases in constructing either rig as the
construction contracts with the shipyard are fixed price arrangements. Further,
the Company has to date been, and expects through the completion of these
construction projects to be, successful in purchasing the Company provided
drilling equipment at price and delivery terms within the Company's initial
project estimates. The Company currently has four high specification land rigs
under construction for use in South America. Current estimates indicate
approximately $50 million will be needed to complete these rigs for initial work
beginning during the third and fourth quarters of 1998. In addition, the Company
had identified $40 million and $50 million, respectively, as amounts intended
for use in constructing a new high specification heavy duty jackup rig and the
acquisition of two additional 3,000 horsepower land rigs. It is expected that
the entire 1998 capital program will be funded from internally generated funds.
Future capital spending, particularly rig additions, is subject to the Company's
prospects for securing appropriate drilling contract opportunities and the
availability of suitable rigs, rig components, construction facilities and
supplies.
From time to time, the Company reviews opportunities for rig
acquisition, construction or upgrade. Once a capital project is undertaken by
the Company, factors outside the Company's control, such as changes in market
demand, may alter the project economics and the Company may be unable to fully
recoup the cost of such expenditures through future drilling contracts. Should
current plans for rig acquisition, construction or upgrade not be completed, the
Company will not have those rigs available to compete in its markets.
On March 25, 1998, the Company's Board of Directors declared a
quarterly dividend of $0.0325 per Ordinary Share payable on April 15, 1998 to
holders of record at the close of business March 31, 1998. The Company's current
dividend policy contemplates payment of future quarterly dividends of $0.0325
per Ordinary Share.
The Company's principal source of funds has been cash flow from
operations. The Company believes available cash resources and cash flows from
operations will be sufficient to meet its capital requirements during 1998.
CURRENCY RISK AND INFLATION
The Company conducts material business operations in foreign currency
environments, including the U.K., Venezuela, Indonesia and Egypt. The Company
generally attempts to minimize its currency exchange risk by seeking
international contracts payable in local currency in amounts equal to the
Company's estimated operating costs payable in local currency and in dollars for
the balance of the contract. Because of this strategy, the Company has minimized
its net asset or liability positions denominated in local currencies and has not
experienced significant gains or losses associated with changes in currency
exchange rates. Accordingly, the Company has not historically entered into
financial hedging arrangements to manage risks relating to fluctuations in
currency exchange rates. However, the Company may enter into such contracts in
the future in the event that the Company assumes significant foreign currency
risks.
Although inflation has not had a significant impact on the Company's
results of operations during the past several years, the Company has recently
experienced significant increases in the cost of rig related equipment and spare
parts. The Company's financial results could be negatively affected in the
future by these or similar cost increases.
CREDIT RISKS
The Company's customers consist primarily of major international, state
owned and large independent oil companies and their affiliates. The Company has
not incurred any charges for credit losses during the last five years. There is
no assurance that in the future such charges will not occur. Such charges may
adversely affect the Company's profitability.
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OTHER
Operational risks and hazards may result in extensive damage to or
total loss of drilling rigs, with associated personal injuries and loss of life,
pollution, well loss, well control expenses and/or wreck removal or other
requirements. Such losses, liabilities or obligations may be uninsured or
underinsured. In the event of a major incident or incidents resulting from
operational risks and hazards, the Company will sustain a loss of revenue by
reason of the rig loss or damage and may be subject to extraordinary expenses in
respect of uninsured or underinsured losses, liabilities or obligations.
The Company's worldwide operations are subject to numerous
international, U.S., state and local environmental laws and regulations that
relate directly or indirectly to its operations, including certain regulations
controlling the discharge of materials into the environment, requiring removal
and clean-up under certain circumstances, or otherwise relating to the
protection of the environment. Laws and regulations protecting the environment
have become increasingly stringent in recent years and may in certain
circumstances impose a strict liability and render a company liable for
environmental damage without regard to negligence or fault on the part of such
company. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed.
The Company's liquidity also may be adversely impacted by reason of
war, political turmoil, revolution, insurrection or similar events which could,
inter alia, result in damage to or loss of the Company's rigs, either physically
or by reason of nationalization, expropriation or deprivation of use, or could
impair the concessionary rights of the Company's customers, thus jeopardizing
the Company's drilling contracts. The Company does not normally insure against
these risks, and such events could result in an actual or constructive loss of
substantial assets and the associated loss of revenues and/or receivables.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 12 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.
Date: May 15, 1998 SANTA FE INTERNATIONAL CORPORATION
By: /s/ D. G. Barber
-----------------------------------
D.G. Barber, Senior Vice President
and Chief Financial Officer
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