<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 1-14634
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SANTA FE INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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CAYMAN ISLANDS 98-0108989
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Two Lincoln Centre, Suite 1100
5420 LBJ Freeway
Dallas, Texas 75240-2648
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 701-7890
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of July 31, 2000, 115,144,252 ordinary shares, par value $.01 per
share, were outstanding.
<PAGE> 2
SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Page No.
-----------
<S> <C>
COVER PAGE 1
DOCUMENT TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
Item 1. Interim Condensed Financial Statements (Unaudited) 3
Consolidated Statements of Operations and Retained Earnings for the Three and
Six Months ended June 30, 2000 and 1999 3
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 4
Consolidated Statements of Cash Flows for the Six Months ended
June 30, 2000 and 1999 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 17
PART II - OTHER INFORMATION 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
(U.S. dollars, in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenues $ 146,285 $ 160,002 $ 278,833 $ 345,518
Operating costs 92,664 88,126 181,307 181,639
------------- ------------- ------------- -------------
Operating margin 53,621 71,876 97,526 163,879
Other operating costs and expenses:
Depreciation and amortization 20,362 17,810 40,721 35,468
General and administrative 4,296 5,330 8,417 10,519
Gain on sale of assets (50) (181) (334) (381)
------------- ------------- ------------- -------------
Operating income 29,013 48,917 48,722 118,273
Other income (expense):
Investment income 4,450 2,384 8,040 3,815
Other, net (326) 176 (1,454) (938)
------------- ------------- ------------- -------------
Income before provision for taxes on income 33,137 51,477 55,308 121,150
Provision for taxes on income (Note 4) 5,945 8,288 9,847 19,505
------------- ------------- ------------- -------------
Net income 27,192 43,189 45,461 101,645
------------- ------------- ------------- -------------
Retained earnings as of the beginning of the period 707,702 612,987 693,168 558,260
Dividends declared ($0.0325 per share per quarter) (3,742) (3,728) (7,477) (7,457)
------------- ------------- ------------- -------------
Retained earnings as of the end of the period $ 731,152 $ 652,448 $ 731,152 $ 652,448
============= ============= ============= =============
Income per Ordinary Share:
Basic $ 0.24 $ 0.38 $ 0.40 $ 0.89
============= ============= ============= =============
Diluted $ 0.23 $ 0.37 $ 0.39 $ 0.88
============= ============= ============= =============
Weighted average ordinary and ordinary equivalent
shares used in Ordinary Share computations:
Basic 114,916,587 114,728,946 114,913,712 114,728,720
Effect of dilutive securities - employee and
non-employee director stock options 1,708,898 693,585 1,584,758 566,277
------------- ------------- ------------- -------------
Diluted 116,625,485 115,422,531 116,498,470 115,294,997
============= ============= ============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE> 4
SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars, in thousands, except share data)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 127,257 $ 99,692
Marketable securities 143,488 147,749
Accounts receivable 132,012 107,741
Inventories 37,579 42,083
Prepaid expenses and other current assets 8,016 11,427
----------- -----------
Total current assets 448,352 408,692
----------- -----------
Property and equipment, at cost 2,173,122 2,152,094
Less accumulated depreciation and amortization (1,088,758) (1,049,530)
----------- -----------
Property and equipment, net 1,084,364 1,102,564
Other noncurrent assets 61,578 52,286
----------- -----------
Total assets $ 1,594,294 $ 1,563,542
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,452 $ 49,212
Accrued liabilities 94,826 100,214
----------- -----------
Total current liabilities 143,278 149,426
Other noncurrent liabilities 43,957 48,091
----------- -----------
Total liabilities 187,235 197,517
Commitments and contingencies (Note 3)
Shareholders' equity:
Ordinary shares par value $.01; 600,000,000 shares authorized,
115,144,252 and 114,971,177 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 1,151 1,150
Additional paid-in capital 674,756 671,707
Retained earnings 731,152 693,168
----------- -----------
Total shareholders' equity 1,407,059 1,366,025
----------- -----------
Total liabilities and shareholders' equity $ 1,594,294 $ 1,563,542
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE> 5
SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars, in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
--------- ----------
<S> <C> <C>
Operating activities:
Net income $ 45,461 $ 101,645
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 40,721 35,468
Gain on sale of assets (334) (381)
Accretion of interest income and gains on sales
of marketable securities (2,033) (989)
Deferred income tax provision (benefit) (561) (77)
Changes in operating assets and liabilities:
Accounts receivable (24,271) 21,851
Inventories 4,504 3,532
Prepaid expenses and other current assets 3,411 (771)
Accounts payable (760) (16,860)
Accrued liabilities (5,790) 4,902
Other, net (11,787) 830
--------- ---------
Net cash provided by operating activities 48,561 149,150
Investing activities:
Capital expenditures (22,374) (65,803)
Proceeds from sales of property and equipment 584 511
Maturities of marketable securities 148,254 22,094
Purchases of marketable securities (141,960) (71,399)
--------- ---------
Net cash used for investing activities (15,496) (114,597)
Financing activities:
Dividends paid (7,464) (7,450)
Issuance of shares under the Employee Share Purchase Plan 1,964 2,101
--------- ---------
Net cash used for financing activities (5,500) (5,349)
--------- ---------
Net change in cash and cash equivalents 27,565 29,204
Cash and cash equivalents at beginning of period 99,692 124,314
--------- ---------
Cash and cash equivalents at end of period $ 127,257 $ 153,518
========= =========
Supplemental disclosures of cash flows information:
Income taxes paid $ 10,145 $ 9,608
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE> 6
SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
At June 30, 2000 and 1999, Santa Fe International Corporation ("Santa
Fe" or the "Company"), a Cayman Islands corporation, was 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 State of Kuwait. During July 2000, Holdings completed the
public offering of 31 million ordinary shares of Santa Fe, thereby reducing
Holdings' ownership to approximately 38%. Santa Fe owns and operates a high
quality, technologically advanced fleet of 27 marine and 33 land drilling rigs
and provides drilling related services to the petroleum industry worldwide.
Holders of Ordinary Shares are entitled to participate in the payment
of dividends in proportion to their holdings. Under Cayman Islands 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 June 30, 2000, the Company had declared dividends that had
not been paid amounting to $3,735,000.
The accompanying condensed consolidated financial statements are
presented in U.S. dollars and in accordance with accounting principles
generally accepted in the U.S. The preparation of interim financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. While management
has based its assumptions and estimates on facts and circumstances currently
known, actual amounts may differ from such estimates.
The condensed consolidated financial statements included herein have
been prepared without 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 and six
month periods ended June 30, 2000 are not necessarily indicative of the results
of operations that will be realized for the year ending December 31, 2000.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 20-F for the year ended December 31, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid short-term investments that
are readily convertible into cash and which at the date of purchase were so
near their maturity that they expose the Company to an insignificant risk from
changes in interest rates. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. The interest method is used to account
for any premium or discount on cash equivalents. The Company's policy is to
place its temporary cash investments with high credit quality financial
institutions and by policy limit the amount of credit exposure to any one
financial institution.
6
<PAGE> 7
SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's marketable securities are classified as
available-for-sale securities. Unrealized holding gains and losses on
available-for-sale securities are included as a component of other
comprehensive income in shareholders' equity, net of the tax effect. The fair
values for marketable securities are based on quoted market prices. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in investment income. The Company does not believe that it is exposed to any
significant risks on its investments.
At June 30, 2000, marketable securities consisted primarily of
Eurodollar debt securities and commercial paper. Cost approximates market
value.
Income Per Ordinary Share
The basic and diluted income per Ordinary Share data for the three and
six month periods ended June 30, 2000 and 1999, respectively, is calculated
based on the weighted average shares outstanding.
Comprehensive Income
The Company accounts for comprehensive income in accordance with
Statement of Financial Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which establishes standards for reporting and display of comprehensive
income and its components. 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 three and six month
periods ended June 30, 2000 and 1999, respectively, the Company realized no
such transactions other than those reported in net income.
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.
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 varies from period
to period. The provisions for taxes on income for the three and six month
periods ended June 30, 2000 and 1999, respectively, were recognized based upon
the expected annualized relationship.
NOTE 5 - SUBSEQUENT EVENTS
During July 2000, Holdings completed the public offering of 31 million
ordinary shares of Santa Fe, thereby reducing Holdings' ownership to
approximately 38%. The Company did not receive any proceeds from the offering
of the ordinary shares.
NOTE 6 - SEGMENT INFORMATION
The Company currently has six reportable segments, defined as
different equipment classifications, or by contract terms in the case of
drilling related services, as follows: heavy duty harsh
7
<PAGE> 8
SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
environment jackup rigs, semisubmersible rigs, 300 to 350 foot premium
cantilever jackup rigs, 200 to 250 foot jackup rigs, land rigs and drilling
related services.
Santa Fe evaluates performance and allocates resources based upon the
operating margin (operating revenues less operating expenses) generated by the
segment. For further details of operating margin by segment, see "Item 2. -
Management's Discussion and Analysis of Financial Condition and Results of
Operations." There are no intersegment sales and transfers due to the nature of
the business of the segments. The following table sets forth operating revenue
and segment income for each of the reportable segments and reconciles total
segment income to consolidated income before provision for taxes on income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Heavy duty harsh environment jackup rigs $ 53,001 $ 46,532 $ 108,396 $ 91,794
Semisubmersible rigs 8,092 24,670 13,456 53,587
300-350 foot premium cantilever jackup rigs 17,384 22,163 31,083 56,230
200-250 foot jackup rigs 15,055 14,367 29,474 35,161
----------- ----------- ----------- -----------
Total marine rigs 93,532 107,732 182,409 236,772
Land rigs 33,238 36,297 67,830 71,098
Drilling related services 19,197 15,558 27,984 36,931
Other 318 415 610 717
----------- ----------- ----------- -----------
Total operating revenues $ 146,285 $ 160,002 $ 278,833 $ 345,518
=========== =========== =========== ===========
SEGMENT INCOME
Heavy duty harsh environment jackup rigs $ 28,673 $ 27,158 $ 60,391 $ 53,439
Semisubmersible rigs (6,762) 11,454 (16,400) 28,139
300-350 foot premium cantilever jackup rigs 34 6,819 (1,784) 24,969
200-250 foot jackup rigs 144 (422) (1,215) 5,834
----------- ----------- ----------- -----------
Total marine rigs 22,089 45,009 40,992 112,381
Land rigs 4,186 7,800 8,975 13,279
Drilling related services 8,811 4,488 11,293 9,986
Other (1,777) (3,050) (4,121) (6,854)
----------- ----------- ----------- -----------
Total segment income 33,309 54,247 57,139 128,792
----------- ----------- ----------- -----------
Unallocated amount:
General and administrative 4,296 5,330 8,417 10,519
----------- ----------- ----------- -----------
Operating income 29,013 48,917 48,722 118,273
----------- ----------- ----------- -----------
Other income (expense) 4,124 2,560 6,586 2,877
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR TAXES ON INCOME $ 33,137 $ 51,477 $ 55,308 $ 121,150
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 9
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. Statements made in this document that state Santa
Fe's or management's intentions, hopes, plans, estimates, beliefs,
expectations, anticipations or predictions of the future and words of similar
import are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although we believe that the
expectations reflected in such forward-looking statements are reasonable, we
can give no assurance that such expectations will prove to have been correct.
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 us and our subsidiaries could be breached, changes in
the markets for oil and natural gas and for drilling rigs and the risks of
doing business in changing markets and changing costs and other factors
discussed herein and in our 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.
The contract drilling industry is a highly competitive and cyclical
industry that is influenced by customer drilling budgets and expenditures and
oil and natural gas pricing, consumption and demand. Our contract drilling
revenues vary based upon demand, which affects the number of days the rig fleet
is utilized and the daily remuneration received for each rig. Revenue can also
increase or decrease as a result of the acquisition or disposal of rigs. To
improve utilization, realize higher dayrates or retain market share, we may
move our rigs from one market to another. During the period in which a rig is
moved to a new market, revenues generally are adversely affected. As an
additional response to changes in demand and dayrate conditions, we may
withdraw a rig from the market by "stacking" it in an idle mode or may
reactivate a rig that was previously stacked. Withdrawing a rig from a market
may decrease revenues and reactivating a rig may increase revenues. The
volatile and cyclical nature of the industry may be further exacerbated as
newly built rigs enter the market and drilling companies compete for the
opportunities to contract offshore and land rigs.
During an up cycle in the contract drilling industry, our drilling
services are in high demand, and we may contract our drilling fleet at
relatively high dayrates. During an industry down cycle, we compete
aggressively for drilling contracts at lower rates and additionally must often
accept less favorable contract terms. In addition, during a down cycle, we may
have to lay-up or stack idle rigs, which often results in terminating the
employment of all or part of the associated rig crews.
The volatility of our business is caused by many factors beyond our
control, including:
- the current and anticipated prices of oil and natural gas;
- the drilling expenditures of oil and gas companies;
- political and economic factors, including war and civil disturbances,
export sales restrictions, embargoes and expropriation or
nationalization with or without compensation; and
- the conversion of existing rigs and construction of new rigs by our
competitors.
Oil and natural gas prices are extremely volatile and are affected by
numerous factors, including:
- worldwide demand for oil and natural gas;
- the ability of the Organization of Petroleum Exporting Countries,
also referred to as OPEC, to set and maintain production levels and
pricing;
- the level of production of non-OPEC countries;
- the policies of the various governments regarding exploration and
development of their oil and natural gas reserves;
- advances in exploration and development technology; and
- the political environment of oil-producing regions.
9
<PAGE> 10
During the second quarter of 1998, drilling activity slowed in
response to weak oil prices that had been declining since late 1997. Oil and
gas companies responded to depressed prices by reducing their drilling
expenditures, thus reducing rig utilization. Oil and natural gas prices have
since recovered to record high levels. However, the industry generally is
continuing to experience low rig utilization and dayrates.
We believe that if oil and natural gas prices remain at or around
current levels, the offshore drilling market will improve moderately during
2000. The recent improvement in the offshore drilling market began in the U.S.
Gulf of Mexico, where dayrates tend to be more responsive to changes in oil and
natural gas prices than in international markets. The international markets in
which we operate recently have begun to recover as the major and national oil
and gas companies that dominate these markets experience increased cash flows.
As a result, we expect that these oil and gas companies will increase their
exploration and production spending.
Our drilling operations have begun to recover from the industry-wide
downturn. Our earnings during the second quarter of 2000 were an improvement
over those earned in our first quarter, which in turn were an improvement over
our earnings for the fourth quarter of 1999.
The following table presents data relating to the Company's operating
revenues, operating costs, operating margin and operating income by segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(in thousands except as indicated)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Heavy duty harsh environment jackup rigs $ 53,001 $ 46,532 $ 108,396 $ 91,794
Semisubmersible rigs 8,092 24,670 13,456 53,587
300-350 foot premium cantilever jackup rigs 17,384 22,163 31,083 56,230
200-250 foot jackup rigs 15,055 14,367 29,474 35,161
----------- ----------- ----------- -----------
Total marine rigs 93,532 107,732 182,409 236,772
Land rigs 33,238 36,297 67,830 71,098
Drilling related services 19,197 15,558 27,984 36,931
Other 318 415 610 717
----------- ----------- ----------- -----------
Total operating revenues 146,285 160,002 278,833 345,518
----------- ----------- ----------- -----------
OPERATING COSTS (1)
Heavy duty harsh environment jackup rigs 18,020 14,746 35,405 29,183
Semisubmersible rigs 13,043 11,302 26,224 22,017
300-350 foot premium cantilever jackup rigs 14,399 12,697 27,063 25,935
200-250 foot jackup rigs 12,951 12,438 26,637 24,681
----------- ----------- ----------- -----------
Total marine rigs 58,413 51,183 115,329 101,816
Land rigs 22,643 23,088 46,275 46,694
Drilling related services 10,126 10,844 16,207 26,477
Other 1,482 3,011 3,496 6,652
----------- ----------- ----------- -----------
Total operating costs 92,664 88,126 181,307 181,639
----------- ----------- ----------- -----------
OPERATING MARGIN 53,621 71,876 97,526 163,879
----------- ----------- ----------- -----------
Depreciation and amortization 20,362 17,810 40,721 35,468
General and administrative 4,296 5,330 8,417 10,519
Loss (gain) on sale of assets (50) (181) (334) (381)
OPERATING INCOME $ 29,013 $ 48,917 $ 48,722 $ 118,273
=========== =========== =========== ===========
OPERATING INCOME AS A PERCENTAGE OF REVENUES 19.8% 30.6% 17.5% 34.2%
=========== =========== =========== ===========
</TABLE>
----------
(1) Exclusive of depreciation which is presented separately below.
10
<PAGE> 11
The following table presents data relating to the Company's rig fleet
utilization and average dayrates by segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RIG FLEET UTILIZATION (IN PERCENTAGES)
Heavy duty harsh environment jackup rigs 91.9% 100.0% 91.9% 100.0%
Semisubmersible rigs 59.7% 100.0% 45.6% 100.0%
300-350 foot premium cantilever jackup rigs 77.5% 75.5% 72.4% 62.6%
200-250 foot jackup rigs 74.5% 45.9% 73.4% 50.0%
Total marine rigs 79.7% 72.7% 75.1% 76.4%
Land rigs 65.5% 65.3% 66.8% 69.1%
Leased rig operations - semisubmersible 100.0% -- 100.0% --
AVERAGE DAYRATES (IN WHOLE DOLLARS)
Heavy duty harsh environment jackup rigs $ 105,580 $ 102,268 $ 107,964 $ 101,430
Semisubmersible rigs 49,644 90,366 52,976 98,667
300-350 foot premium cantilever jackup rigs 27,376 40,296 26,208 47,015
200-250 foot jackup rigs 27,777 38,210 27,597 43,142
Total marine rigs 49,593 65,134 51,296 68,451
Land rigs 16,906 19,024 16,915 17,752
Leased rig operations - semisubmersible 60,099 -- 59,815 --
</TABLE>
QUARTERS ENDED JUNE 30, 2000 AND 1999
OPERATING REVENUES. Total operating revenues for the quarter ended
June 30, 2000 compared to the quarter ended June 30, 1999 decreased $13.7
million, or 8.6%.
o Revenues from our marine fleet decreased $14.2 million, or 13.2%.
o Heavy duty harsh environment jackups increased $6.5 million (13.9%)
primarily due to the impact of Galaxy III operations, which began on
December 5, 1999 ($15.1 million), partially offset by lower
utilization ($3.6 million) and lower average dayrates ($5.0 million).
o The utilization decrease resulted from idle time incurred on the
Monitor due to damage that occurred while the rig was being
moved between contracts. This damage resulted in an insurance
claim being filed. We believe that the cost of repairs, less a
minor deductible, will be reimbursed under our policy. The
Monitor is expected to return to work during September 2000
under the original contract to which it was being moved when the
damage occurred.
o Semisubmersible rigs decreased $16.6 million (67.2%) mainly due to
idle time incurred for Rig 135 and the Aleutian Key ($10.0 million)
and a 45% decrease in average dayrates ($6.6 million).
o 300-350 foot premium cantilever jackup rigs decreased $4.8 million
(21.6%) primarily because of a 32% decrease in average dayrates ($7.7
million), partially offset by increased utilization ($2.9 million).
o Revenues from our land rigs decreased $3.1 million, or 8.4%, mainly due to
lower utilization ($3.8 million) and average dayrates earned ($1.4
million), partially offset by full quarter operations of Rig 180, which
was placed in service on June 22, 1999 ($2.1 million).
11
<PAGE> 12
o Revenues from drilling related services increased $3.6 million, or 23.4%.
o First full quarter operations of a new contract for our leased
semisubmersible rig operating in Azerbaijan, the Dada Gorgud,
resulted in an $8.4 million increase.
o Revenues earned in the North Sea from both incentive drilling and
third party rig operations decreased $4.1 million due to lower
activity levels.
OPERATING COSTS. Total operating costs for the quarter ended June 30,
2000 compared to the quarter ended June 30, 1999 increased $4.5 million, or
5.1%.
o Operating costs for our marine fleet increased $7.2 million, or 14.1%.
o Heavy duty harsh environment jackup rigs increased $3.3 million
(22.2%) primarily due to initiation of the new rig Galaxy III
operations in December 1999.
o Semisubmersible rigs increased $1.7 million (15.4%) primarily due to
planned maintenance costs incurred on the Aleutian Key while idle.
o 300-350 foot premium cantilever jackup rigs increased $1.7 million
(13.4%) primarily due to increased utilization.
o Other operating expenses decreased $1.5 million (50.8%) primarily due to
decreased provision for inventory obsolescence.
GENERAL AND ADMINISTRATIVE. General and administrative expense
decreased $1.0 million (19.4%) primarily due to lower employee benefit costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.6 million (14.3%) for the quarter ended June 30, 2000 as compared
with the same period in the prior year.
o Full quarter operations of the new rigs Galaxy III and Rig 180 increased
depreciation expense by $1.7 million and $0.5 million, respectively.
o The remaining increase was from depreciation of other general capital
additions.
OTHER INCOME (EXPENSE), NET. Other income increased $1.6 million for
the quarter ended June 30, 2000 compared to June 30, 1999, mainly due to higher
investment income that resulted from both higher rates earned and higher
invested balances.
PROVISION FOR TAXES ON INCOME. The provision for taxes on income
decreased $2.3 million (28.3%) for the second quarter of 2000 as compared with
the same quarter of 1999. Although the Company's income before provision for
taxes on income decreased $18.3 million (35.6%), our expected annualized
effective tax rate is expected to increase to 17.8% for calendar 2000, up from
16.1% in 1999. This expected increase is due to changes in the mix of
reportable earnings generated within the various taxing jurisdictions in which
we operate. The quarterly increase from 16.1% to 17.9% reflects this expected
full year increase.
NET INCOME. Net income for the quarter ended June 30, 2000 decreased
$16.0 million (37.0%) to $27.2 million as compared to $43.2 million for the
quarter ended June 30, 1999, primarily due to:
o $13.7 million decreased operating revenues,
o $4.9 million increased operating expenses, and
o $2.6 million increased depreciation and amortization expense,
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partially offset by:
o $2.3 million lower provision for taxes on income,
o $1.6 million increased other income (expense), net, and
o $1.0 million lower general and administrative expense.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
OPERATING REVENUES. Total operating revenues for the six months ended
June 30, 2000 compared to the six months ended June 30, 1999 decreased $66.7
million, or 19.3%.
o Revenues from our marine fleet decreased $54.4 million, or 23.0%.
o Heavy duty harsh environment jackups increased $16.6 million (18.1%)
increase primarily due to the impact of Galaxy III, which began
operations on December 5, 1999 ($29.3 million), partially offset by
lower total fleet utilization ($6.7 million) and lower average
dayrates ($6.0 million).
o The utilization decrease was due solely to idle time incurred on
the Monitor.
o Semisubmersible rigs decreased $40.1 million (74.9%) mainly due to
idle time incurred for Rig 135 and the Aleutian Key ($30.1 million)
and a 46.0% decrease in average dayrates ($10.0 million).
o 300-350 foot premium cantilever jackup rigs decreased $25.1 million
(44.7%) primarily because of a 44% decrease in average dayrates.
o 200-250 foot jackup rigs decreased $5.7 million (16.2%) mainly due to
a 36% decrease in average dayrates ($7.7 million) and the
reclassification of Rig 134 as a premium cantilever jackup ($4.0
million) effective January 1, 2000. These decreases were partly
offset by increased utilization ($6.0 million) for the remainder of
the 200-250 foot jackups.
o Revenues from our land rigs decreased $3.3 million, or 4.6%, mainly due to
a 5% decrease in average dayrates earned.
o Revenues from drilling related services decreased $8.9 million, or 24.2%.
o Operation of a new contract for our leased semisubmersible rig
operating in Azerbaijan, the Dada Gorgud, resulted in an $8.5 million
increase in revenues.
o Revenues earned in the North Sea from both incentive drilling and
third party rig operations decreased $14.4 million due to lower
activity levels.
o Other labor job and incentive services revenues decreased $3.0
million, mainly in Venezuela and Egypt.
OPERATING COSTS. Total operating costs for the six months ended June
30, 2000 were essentially flat compared to the six months ended June 30, 1999.
o Operating costs for our marine fleet increased $13.5 million, or 13.3%.
o Heavy duty harsh environment jackup rigs increased $6.2 million
(21.3%) primarily due to the impact of Galaxy III operations.
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o Semisubmersible rigs increased $4.2 million (19.1%) primarily due to
planned maintenance costs incurred on the Aleutian Key while idle,
partly offset by lower utilization.
o 300-350 foot premium cantilever jackup rigs increased $1.1 million
(4.3%) primarily due to increased maintenance costs associated with
the reclassification of Rig 134, partly offset by lower mobilization
costs for the Compact Driller.
o 200-250 foot jackup rigs increased $2.0 million (7.9%) mainly due to
increased utilization ($6.1 million), partly offset by the
reclassification of Rig 134 as a premium cantilever jackup ($3.8
million).
o Operating costs from drilling related services decreased $10.3 million, or
38.8%.
o Operation of a new contract for our leased semisubmersible rig
operating in Azerbaijan, the Dada Gorgud, resulted in an $5.1 million
increase in operating costs.
o Operating costs in the North Sea for both incentive drilling and
third party rig operations decreased $14.0 million due to lower
activity levels.
o Operating costs for other labor jobs and incentive services decreased
$1.4 million, mainly in Venezuela and Egypt.
o Other operating expenses decreased $3.2 million (47.4%) primarily due to
decreased provision for inventory obsolescence.
GENERAL AND ADMINISTRATIVE. General and administrative expense
decreased $2.1 million (20.0%) primarily due to lower employee benefit costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $5.3 million (14.8%) for the six months ended June 30, 2000 as
compared with the same period in the prior year.
o Operations of the new rigs Galaxy III and Rig 180 increased depreciation
expense by $3.5 million and $0.8 million, respectively.
o The remaining increase was from depreciation of other general capital
additions.
OTHER INCOME (EXPENSE), NET. Other income increased $3.7 million for
the six months ended June 30, 2000 compared to June 30, 1999, mainly due to
higher investment income that resulted from both higher rates earned and higher
invested balances.
PROVISION FOR TAXES ON INCOME. The provision for taxes on income
decreased $9.7 million (49.5%) for the first six months of 2000 as compared
with the same period of 1999. Although the Company's income before provision
for taxes on income decreased $65.8 million (54.3%), our expected annualized
effective tax rate increased to 17.8% in 2000 from 16.1% in 1999. This expected
increase is due to changes in the mix of reportable earnings generated within
the various taxing jurisdictions in which we operate.
NET INCOME. Net income for the six months ended June 30, 2000
decreased $56.1 million (55.3%) to $45.5 million as compared to $101.6 million
for the six months ended June 30, 1999, primarily due to:
o $66.7 million decreased operating revenues,
o $5.3 million increased depreciation and amortization expense,
partially offset by:
o $9.7 million lower provision for taxes on income,
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o $3.7 million increased other income (expense), net, and
o $2.1 million lower general and administrative expense.
LIQUIDITY AND CAPITAL RESOURCES
The net change in cash and cash equivalents was $27.6 million and
$29.2 million, respectively, for the six months ended June 30, 2000 and 1999,
or a decrease of $1.6 million.
o Net cash provided by operating activities decreased $100.6 million for the
six months ended June 30, 2000 compared to the same six months in 1999.
o The decrease in cash flows from operations was primarily attributable
to changes in income before non-cash charges and working capital
requirements.
o Cash used for investing activities decreased $99.1 million.
o Cash provided by net maturities and purchases of marketable securities
increased $55.6 million.
o Maturities and purchases of marketable securities for both six
month periods were primarily for Eurodollar debt instruments and
commercial paper with original maturities of more than 90 but
less than 365 days.
o Cash used for capital spending decreased $43.4 million.
o Expansion capital spending for the new rigs, Galaxy III and Rig
180, was $48.9 million for the first six months of 1999, with no
corresponding spending in 2000.
o Capital spending for the Dada Gorgud upgrade required $1.5
million for the six months ended June 30, 2000.
o Spending to meet contractual obligations to customers and for rig
upgrade, maintenance and enhancement projects increased $4.0
million for the six months ended June 30, 2000 compared to the
same period in 1999.
o Cash used in financing activities was essentially flat between the two six
month periods.
o $7.5 million in dividends were paid to shareholders in each period.
o Shares were issued under Santa Fe's Employee Share Purchase Plan in
January 2000 and 1999 in the amount of $1.9 million and $2.1 million,
respectively.
The Company budgeted approximately $150 million for capital
expenditures during the year ending December 31, 2000.
o Capital spending to meet routine rig maintenance and contractual
obligations for customers and for rig upgrade, modernization and
enhancement projects was budgeted to require approximately $60 million,
representing numerous individual transactions spread over the course of
the year. We expect to spend this entire amount.
o $50 million was budgeted for use in either constructing or acquiring one
or more new rigs, based upon market conditions.
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o Although some spending will be incurred for preliminary research and
design work on a new deepwater vessel, it is unlikely that a
significant portion of this budgeted amount will be spent in 2000.
o $40 million was budgeted for anticipated equipment upgrades to the
semisubmersible Dada Gorgud.
o In order to meet the contract specifications required, the Company
now estimates spending approximately $30 million related to the Dada
Gorgud in 2000, including $17 million of capital expenditures and $13
million of deferred costs which will be recovered through operating
dayrates following completion of the upgrade.
It is expected that the entire 2000 capital program will be funded
from internally generated funds. Future capital spending, particularly rig
fleet 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 the Company undertakes a capital
project, 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. At any
time, should plans for rig acquisition, construction or upgrade not be
completed, the Company would not have those rigs available to compete in its
markets.
On June 6, 2000, the Company's Board of Directors declared a regular
quarterly dividend of $0.0325 per Ordinary Share payable on July 17, 2000 to
holders of record at the close of business June 30, 2000. 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 2000.
The Company currently has a $35 million uncommitted credit facility
for advances and letter of credit with a major bank, none of which was drawn or
subject to standby letters of credit at June 30, 2000.
CURRENCY RISK AND INFLATION
Our international drilling and services contracts are partially
payable to us in local currency in amounts that approximate our estimated
operating costs, with the balance of the payments under the contract payable in
U.S. dollars, except in Kuwait and Saudi Arabia where we are paid entirely in
local currency. Because of our strategy, we have reduced our net asset or
liability positions denominated in local currencies. As a result, we have not
experienced significant gains or losses associated with changes in currency
exchange rates. However, to the extent that our revenues denominated in local
currency do not equal our local operating expenses, we are exposed to currency
exchange transaction losses, which could materially adversely affect our
results of operations. We have not historically entered into financial hedging
arrangements to manage risks relating to fluctuations in currency exchange
rates. However, we may enter into hedging contracts in the future if we assume
significant foreign currency risks.
Although inflation has not had a significant impact on our results of
operations during the past several years, labor availability and cost and
vendor prices and delivery fluctuate in response to overall drilling industry
conditions.
CREDIT RISKS
Our customers consist primarily of major international, state owned
and large independent oil companies and their affiliates. We have not incurred
any charges for credit losses during the last five years.
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There is no assurance that in the future such charges will not occur. Such
charges may adversely affect Santa Fe's profitability.
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. These losses, liabilities or obligations may be uninsured or
underinsured. As a result of these hazards, we may sustain a loss of revenue by
reason of the rig loss or damage and have to pay extraordinary expenses for
losses that are uninsured or underinsured.
In our international operations, we are subject to many environmental
laws and regulations, including regulations controlling the discharge of
materials into the environment, requiring removal and clean up of discharged
materials or otherwise relating to the protection of the environment. As a
result, the application of these laws could materially adversely affect out
results of operations by increasing our cost of doing business, discouraging
our customers from drilling for hydrocarbons or subjecting us to liability.
Laws and regulations protecting the environment have become increasingly
stringent in recent years and may impose a liability on us for environmental
damage and disposal of hazardous materials even if we were not negligent or at
fault. We may also be liable for the conduct of others, or for our own acts
even if our acts complied with applicable laws at the time we performed those
acts.
We operate each of our rigs under a contract either to drill a
specified well or number of wells or for a stated period of time. This period
of time is generally automatically extended to include the period required to
complete the well in progress on the scheduled contract expiration date.
Contracts often are cancelable upon specified notice at the option of the
customer. Some contracts require the customer to pay a specified early
termination payment in the event of cancellation. The contracts customarily
provide for either automatic termination or termination at the option of the
customer in the event of total loss of the drilling rig or if drilling
operations are suspended for extended periods because of acts of God or some
other events beyond our control or for excessive rig downtime for repairs. The
contracts also contain provisions addressing automatic termination or
termination at the option of the customer in some circumstances and may be
dishonored or subject to renegotiation in depressed market conditions.
Our liquidity also may be adversely impacted by reason of war,
political turmoil, revolution, insurrection or similar events which could
result in damage to or loss of our rigs, either physically or by reason of
nationalization, expropriation or deprivation of use, or could impair the
concessionary rights of our customers, thus jeopardizing our drilling
contracts. We do not normally insure against these risks. These 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
The Company's exposure to interest rates relates primarily to its
investment portfolio. The Company does not currently use financial derivative
instruments to manage interest rate risk; however, it closely monitors the
relationship between interest rate-sensitive assets and liabilities and may
elect to use derivative instruments in the future.
The objectives of the Company's short-term investments are safety of
principal, liquidity maintenance, yield maximization and full investment of all
available funds. As such, the Company's investment portfolio consists primarily
of high credit quality Eurodollar debt securities and commercial paper. For the
six months ended June 30, 2000, had short-term interest rates averaged 10%
lower than actually earned, the Company's interest income for the six months
would change by approximately $0.8 million. This estimate was determined by
applying the hypothetical interest rate change to the Company's average
short-term investment balance for the six months ended June 30, 2000.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual General Meeting of Shareholders held on June 6, 2000,
111,412,892 shares of the total 115,142,620 entitled to vote as of the record
date of April 14, 2000, were represented either in person or by proxy, thus
representing a quorum. Of the shares represented in person or by proxy, all
were eligible to vote. No shares were represented by broker non-votes on any
matters voted upon. Voters were asked to:
(1) elect three Class III Directors to hold office until the Annual General
Meeting of Shareholders in 2003 or until their successors have been duly
qualified and elected, and
(2) ratify the appointment of Ernst & Young LLP as the independent auditors of
Santa Fe for the year ended December 31, 2000.
Both matters voted on were approved.
With respect to the election of Directors, the following number of
votes were cast as to the Class III nominees.
o C. Stedman Garber, Jr., 110,884,413 votes for and 528,479 votes withheld
o Maha A. R. Razzuqi, 105,481,639 votes for and 5,931,253 votes withheld
o Robert E. Wycoff, 111,111,497 votes for and 301,395 votes withheld
As to the ratification of Ernst & Young LLP as independent auditors
for the year ending December 31, 2000, 111,385,110 votes were cast for
ratification, 15,328 votes were cast against and 12,454 abstained.
ITEM 5. OTHER INFORMATION
On July 3, 2000, Holdings completed the sale of 30,000,000 of its
ordinary shares of Santa Fe through an underwritten secondary offering to the
public. On July 31, 2000, Holdings sold an additional 1,000,000 of its ordinary
shares of Santa Fe through the exercise of an option granted to the
underwriters to cover overallotments. Upon the closing of the sales, Holdings'
ownership interest in Santa Fe was reduced to approximately 37.8%. Santa Fe
received none of the proceeds from the sales of the ordinary shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
The following exhibits are filed in connection with this Report:
27.1 Financial Data Schedule.
99.1 News Release dated July 28, 2000.
99.2 News Release dated July 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 4, 2000 SANTA FE INTERNATIONAL CORPORATION
By: /s/ S. M. McCarty
------------------------------------
S. M. McCarty, Senior Vice President
and Chief Financial Officer
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INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
27.1 Financial Data Schedule.
99.1 News Release dated July 28, 2000.
99.2 News Release dated July 31, 2000.
</TABLE>
