<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 SEPTEMBER 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
------------
SANTA FE INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
------------
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
------------
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 October 31, 2000, 115,203,510 ordinary shares, par value $.01 per
share, were outstanding.
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SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
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PAGE
NO.
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COVER PAGE 1
DOCUMENT TABLE OF CONTENTS 2
PART I - FINANCIAL INFORMATION
Item 1. Interim Condensed Financial Statements (Unaudited)
Consolidated Statements of Operations and Retained Earnings
for the Three and Nine Months ended September 30, 2000 and 1999 3
Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 4
Consolidated Statements of Cash Flows for the Nine Months ended
September 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 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II - OTHER INFORMATION 19
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
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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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating revenues $ 145,694 $ 143,599 $ 424,527 $ 489,117
Operating costs 91,251 86,523 272,558 268,162
------------- ------------- ------------- -------------
Operating margin 54,443 57,076 151,969 220,955
Other operating costs and expenses:
Depreciation and amortization 20,667 17,653 61,388 53,121
General and administrative 4,487 4,351 12,904 14,870
Gain on sale of assets 22 10 (312) (371)
------------- ------------- ------------- -------------
Operating income 29,267 35,062 77,989 153,335
Other income (expense):
Investment income 5,129 3,142 13,169 6,957
Other, net (520) (261) (1,974) (1,199)
------------- ------------- ------------- -------------
Income before provision for taxes on income 33,876 37,943 89,184 159,093
Provision for taxes on income (Note 4) 6,028 6,109 15,875 25,614
------------- ------------- ------------- -------------
Net income 27,848 31,834 73,309 133,479
------------- ------------- ------------- -------------
Retained earnings as of the beginning of the period 731,152 652,448 693,168 558,260
Dividends declared ($0.0325 per share per quarter) (3,744) (3,730) (11,221) (11,187)
------------- ------------- ------------- -------------
Retained earnings as of the end of the period $ 755,256 $ 680,552 $ 755,256 $ 680,552
============= ============= ============= =============
Income per Ordinary Share:
Basic $ 0.24 $ 0.28 $ 0.64 $ 1.16
============= ============= ============= =============
Diluted $ 0.24 $ 0.28 $ 0.63 $ 1.16
============= ============= ============= =============
Weighted average ordinary and ordinary equivalent
shares used in Ordinary Share computations:
Basic 114,931,215 114,733,469 114,919,588 114,732,897
============= ============= ============= =============
Effect of dilutive securities - employee and
non-employee director stock options 1,891,692 875,527 1,687,070 725,894
------------- ------------- ------------- -------------
Diluted 116,822,907 115,608,996 116,606,658 115,458,791
============= ============= ============= =============
</TABLE>
See notes to unaudited consolidated financial statements.
3
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SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(U.S. dollars, in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 185,231 $ 99,692
Marketable securities 113,775 147,749
Accounts receivable 138,767 107,741
Inventories 40,087 42,083
Prepaid expenses and other current assets 16,904 11,427
----------- -----------
Total current assets 494,764 408,692
----------- -----------
Property and equipment, at cost 2,190,379 2,152,094
Less accumulated depreciation and amortization (1,108,626) (1,049,530)
----------- -----------
Property and equipment, net 1,081,753 1,102,564
Other noncurrent assets 67,586 52,286
----------- -----------
Total assets $ 1,644,103 $ 1,563,542
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 60,837 $ 49,212
Accrued liabilities 107,044 100,214
----------- -----------
Total current liabilities 167,881 149,426
Other noncurrent liabilities 43,201 48,091
----------- -----------
Total liabilities 211,082 197,517
Commitments and contingencies (Note 3)
Shareholders' equity:
Ordinary shares par value $.01; 600,000,000 shares authorized,
115,201,060 and 114,971,177 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 1,152 1,150
Additional paid-in capital 676,613 671,707
Retained earnings 755,256 693,168
----------- -----------
Total shareholders' equity 1,433,021 1,366,025
----------- -----------
Total liabilities and shareholders' equity $ 1,644,103 $ 1,563,542
=========== ===========
</TABLE>
See notes to unaudited 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)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Operating activities:
Net income $ 73,309 $ 133,479
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 61,388 53,121
Gain on sale of assets (312) (371)
Accretion of interest income and gains on sales
of marketable securities (3,994) (1,934)
Deferred income tax benefit (561) (42)
Changes in operating assets and liabilities:
Accounts receivable (31,026) 38,268
Inventories 1,996 9,326
Prepaid expenses and other current assets (5,477) 1,067
Accounts payable 11,625 (39,322)
Accrued liabilities 6,476 (7,253)
Deferred mobilization and contract costs (12,945) 5,157
Other, net (5,509) (8,109)
--------- ---------
Net cash provided by operating activities 94,970 183,387
Investing activities:
Capital expenditures (40,261) (82,296)
Proceeds from sales of property and equipment 590 519
Maturities of marketable securities 243,467 45,261
Purchases of marketable securities (205,499) (152,261)
--------- ---------
Net cash used for investing activities (1,703) (188,777)
Financing activities:
Dividends paid (11,199) (11,179)
Issuance of shares under the Employee Share Purchase Plan 3,471 2,101
--------- ---------
Net cash used for financing activities (7,728) (9,078)
--------- ---------
Net change in cash and cash equivalents 85,539 (14,468)
Cash and cash equivalents at beginning of period 99,692 124,314
--------- ---------
Cash and cash equivalents at end of period $ 185,231 $ 109,846
========= =========
Supplemental disclosures of cash flows information:
Income taxes paid $ 14,257 $ 26,284
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Santa Fe International Corporation ("Santa Fe" or the "Company"), a
Cayman Islands corporation, 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. Prior to the completion
of a public offering of 31 million ordinary shares in July 2000, Santa Fe 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. Upon completion of the offering,
Holdings' ownership was reduced to approximately 37.8%.
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 September 30, 2000, the Company had declared dividends that
had not been paid amounting to $3,744,000.
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
nine month periods ended September 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.
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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 September 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
nine month periods ended September 30, 2000 and 1999, respectively, is
calculated based on the weighted average shares outstanding.
Comprehensive Income
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 nine month periods ended September 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.
The Company is one of approximately 20 named defendants in a class
action lawsuit recently filed in the United States District Court for the
Southern District of Texas, Galveston Division. In the suit, the plaintiff, who
purports to be a member of an "offshore worker" class, alleges that the
offshore drilling contractor defendants, including the Company, have engaged in
a conspiracy to depress wages and benefits paid to their offshore employees.
Plaintiff seeks an unspecified amount of treble damages, attorneys' fees and
costs on behalf of himself and the alleged class of offshore workers. The
Company vigorously denies these allegations and, while the outcome of any
lawsuit is unpredictable, management does not believe based upon information
presently available that the outcome of this suit will have a material adverse
affect on its financial condition or results of operations.
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 nine month
periods ended September 30, 2000 and 1999, respectively, were recognized based
upon the expected annualized relationship.
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SANTA FE INTERNATIONAL CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - 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 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Heavy duty harsh environment jackup rigs $ 51,811 $ 45,470 $ 160,207 $ 137,264
Semisubmersible rigs 12,236 23,518 25,692 77,105
300-350 foot premium cantilever jackup rigs 17,802 14,163 48,885 70,393
200-250 foot jackup rigs 18,652 11,897 48,126 47,058
--------- --------- --------- ---------
Total marine rigs 100,501 95,048 282,910 331,820
Land rigs 32,144 35,705 99,974 106,803
Drilling related services 12,849 12,626 40,833 49,557
Other 200 220 810 937
--------- --------- --------- ---------
Total operating revenues $ 145,694 $ 143,599 $ 424,527 $ 489,117
========= ========= ========= =========
SEGMENT INCOME (LOSS)
Heavy duty harsh environment jackup rigs $ 27,397 $ 25,103 $ 87,788 $ 78,542
Semisubmersible rigs 921 11,274 (15,479) 39,413
300-350 foot premium cantilever jackup rigs 222 179 (1,562) 25,148
200-250 foot jackup rigs (487) (2,173) (1,702) 3,661
--------- --------- --------- ---------
Total marine rigs 28,053 34,383 69,045 146,764
Land rigs 3,187 5,689 12,162 18,968
Drilling related services 3,721 3,396 15,014 13,382
Other (1,207) (4,055) (5,328) (10,909)
--------- --------- --------- ---------
Total segment income 33,754 39,413 90,893 168,205
--------- --------- --------- ---------
Unallocated amount:
General and administrative 4,487 4,351 12,904 14,870
--------- --------- --------- ---------
Operating income 29,267 35,062 77,989 153,335
--------- --------- --------- ---------
Other income 4,609 2,881 11,195 5,758
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR TAXES ON INCOME $ 33,876 $ 37,943 $ 89,184 $ 159,093
========= ========= ========= =========
</TABLE>
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NOTE 6 - RECLASSIFICATION
Certain amounts in the financial statements for the nine months ended
September 30, 1999 have been reclassified to conform to the 2000 presentation.
9
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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. 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.
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
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expenditures, thus reducing rig utilization. Oil and natural gas prices have
since recovered to record high levels and the offshore drilling market has
enjoyed moderate but steady improvement during 2000.
We believe that if oil prices remain at or above a range of $20 - $25
per barrel, the offshore drilling market will continue to improve during the
remainder of 2000 and in 2001. Earlier in the year, the U.S. Gulf of Mexico
market strengthened in response to the sharply increased oil and natural gas
prices. Demand for drilling rigs increased rapidly, resulting in high
utilization which, in turn, led to increasing dayrates for nearly all classes
of rigs operating in the Gulf of Mexico. Improvements in the international
markets have generally lagged the Gulf of Mexico, but have shown steady
increases in the demand for drilling services. Generally, demand for drilling
services in the international markets, with the associated increases in rig
utilization and dayrates, has increased 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 continued to recover from the
industry-wide downturn. Our earnings during the second and third quarters of
2000 were an improvement over those earned in our first quarter, which in turn
was 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands except as indicated)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Heavy duty harsh environment jackup rigs $ 51,811 $ 45,470 $ 160,207 $ 137,264
Semisubmersible rigs 12,236 23,518 25,692 77,105
300-350 foot premium cantilever jackup rigs 17,802 14,163 48,885 70,393
200-250 foot jackup rigs 18,652 11,897 48,126 47,058
--------- --------- --------- ---------
Total marine rigs 100,501 95,048 282,910 331,820
Land rigs 32,144 35,705 99,974 106,803
Drilling related services 12,849 12,626 40,833 49,557
Other 200 220 810 937
--------- --------- --------- ---------
Total operating revenues 145,694 143,599 424,527 489,117
--------- --------- --------- ---------
OPERATING COSTS(1)
Heavy duty harsh environment jackup rigs 18,083 16,042 53,488 45,225
Semisubmersible rigs 9,484 10,918 35,708 32,935
300-350 foot premium cantilever jackup rigs 14,218 11,294 41,281 37,229
200-250 foot jackup rigs 17,053 11,659 43,690 36,340
--------- --------- --------- ---------
Total marine rigs 58,838 49,913 174,167 151,729
Land rigs 22,726 23,954 69,001 70,648
Drilling related services 8,891 9,007 25,098 35,484
Other 796 3,649 4,292 10,301
--------- --------- --------- ---------
Total operating costs 91,251 86,523 272,558 268,162
--------- --------- --------- ---------
OPERATING MARGIN 54,443 57,076 151,969 220,955
--------- --------- --------- ---------
Depreciation and amortization 20,667 17,653 61,388 53,121
General and administrative 4,487 4,351 12,904 14,870
Loss (gain) on sale of assets 22 10 (312) (371)
--------- --------- --------- ---------
OPERATING INCOME $ 29,267 $ 35,062 $ 77,989 $ 153,335
========= ========= ========= =========
OPERATING INCOME AS A PERCENTAGE OF REVENUES 20.1% 24.4% 18.4% 31.3%
========= ========= ========= =========
</TABLE>
----------
(1) Exclusive of depreciation which is presented separately below.
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The following table presents data relating to the Company's rig fleet
utilization and average dayrates by segment. Data related to operations of our
leased semisubmersible rig, which is included in our drilling related services
segment, is presented as well.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
RIG FLEET UTILIZATION (IN PERCENTAGES)
Heavy duty harsh environment jackup rigs 93.3% 92.0% 92.4% 97.3%
Semisubmersible rigs 88.8% 85.1% 60.7% 95.0%
300-350 foot premium cantilever jackup rigs 75.0% 70.7% 73.3% 78.6%
200-250 foot jackup rigs 91.0% 44.9% 79.3% 48.3%
Total marine rigs 86.7% 87.4% 78.1% 73.4%
Land rigs 64.6% 66.8% 66.0% 68.3%
Leased rig operations - semisubmersible 41.3% -- 73.0% --
AVERAGE DAYRATES (IN WHOLE DOLLARS)
Heavy duty harsh environment jackup rigs $ 100,604 $ 107,494 $ 105,469 $ 103,361
Semisubmersible rigs 49,943 100,077 51,487 99,107
300-350 foot premium cantilever jackup rigs 28,667 27,237 27,053 41,022
200-250 foot jackup rigs 27,839 31,981 27,690 39,644
Total marine rigs 49,001 61,321 50,856 66,245
Land rigs 16,400 17,615 16,746 17,706
Leased rig operations - semisubmersible 59,895 -- 59,836 --
</TABLE>
QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
OPERATING REVENUES. Total operating revenues for the quarter ended
September 30, 2000 increased $2.1 million, or 1.5%, compared to the quarter
ended September 30, 1999.
o Revenues from our marine fleet increased $5.5 million, or 5.7%.
o Heavy duty harsh environment jackups increased $6.4 million
(13.9%) primarily due to the impact of Galaxy III operations,
which began on December 5, 1999 ($14.9 million), partially
offset by lower average dayrates ($8.5 million).
o Semisubmersible rigs decreased $11.3 million (48.0%) mainly
due to a 50% decrease in average dayrates ($12.4 million),
partially offset by increased utilization of the Aleutian Key
($1.1 million) as it returned to work in Equatorial Guinea
following completion of an extensive refurbishment program.
o 300-350 foot premium cantilever jackup rigs increased $3.6
million (25.7%) primarily because of a 5% increase in average
dayrates ($2.7 million) and higher utilization ($0.9
million).
o 200-250 foot jackup rigs increased $6.8 million (56.8%)
mainly due to increased utilization ($9.1 million), partially
offset by 13% lower average dayrates ($2.3 million).
o Revenues from our land rigs decreased $3.6 million, or 10.0%, mainly
due to lower utilization ($3.3 million) and lower average dayrates
earned ($0.3 million).
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OPERATING COSTS. Total operating costs for the quarter ended September
30, 2000 increased $4.7 million, or 5.5%, compared to the quarter ended
September 30, 1999.
o Operating costs for our marine fleet increased $8.9 million, or 17.9%.
o Heavy duty harsh environment jackup rigs increased $2.0
million (12.7%) primarily due to the December 1999 start-up
of the new rig Galaxy III in the North Sea.
o Semisubmersible rigs decreased $1.4 million (13.1%) primarily
due to $1.1 million in non-recurring maintenance and
mobilization costs incurred in 1999 for Rig 140.
o 300-350 foot premium cantilever jackup rigs increased $2.9
million (25.9%) primarily due to the transfer of Rig 134 from
200-250 foot jackups effective January 1, 2000 ($1.7 million)
and increased utilization.
o 200-250 foot jackup rigs increased $5.4 million (46.3%)
mainly due to higher utilization ($5.3 million) and increased
planned repair and maintenance costs for the Britannia ($1.6
million), partially offset by the transfer of Rig 134 to
300-350 foot premium cantilever jackups.
o Operating costs for our land rigs decreased $1.2 million, or 5.1%,
mainly due to lower utilization.
o Other operating expenses decreased $2.9 million (78.2%) primarily due
to decreased provision for inventory obsolescence.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $3.0 million (17.1%) for the quarter ended September 30, 2000 as
compared with the same period in the prior year.
o Full quarter operations of the Galaxy III increased depreciation
expense by $1.7 million.
o The remaining increase was from depreciation of other capital
additions.
OTHER INCOME (EXPENSE), NET. Other income increased $1.7 million for
the quarter ended September 30, 2000 compared to the quarter ended September
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 for
the quarter ended September 30, 2000 was essentially flat as compared to the
same quarter of 1999. The Company's expected annualized effective tax rate is
expected to increase to 17.8% for calendar 2000, up from 16.1% in 1999 due to
changes in the mix of reportable earnings generated within the various taxing
jurisdictions in which the Company operates. The quarterly increase from 16.1%
to 17.8% reflects the expected full year rate.
NET INCOME. Net income for the quarter ended September 30, 2000
decreased $4.0 million (12.5%) to $27.8 million as compared to $31.8 million
for the quarter ended September 30, 1999, primarily due to:
o $4.7 million increased operating expenses and
o $3.0 million increased depreciation and amortization expense,
partially offset by:
o $2.1 million increased operating revenues and
o $1.7 million increased other income (expense), net.
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NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
OPERATING REVENUES. Total operating revenues for the nine months ended
September 30, 2000 decreased $64.6 million, or 13.2%, compared to the nine
months ended September 30, 1999.
o Revenues from our marine fleet decreased $48.9 million, or 14.7%.
o Heavy duty harsh environment jackups increased $22.9 million
(16.7%) primarily due to the impact of Galaxy III, which
began operations on December 5, 1999 ($44.1 million),
partially offset by lower utilization ($6.5 million) and
lower average dayrates for rigs other than Galaxy III ($14.7
million).
o The utilization decrease was due solely to idle time
incurred on the Monitor due to damage that occurred
while the rig was being moved between contracts.
o Semisubmersible rigs decreased $51.4 million (66.7%) mainly
due to idle time incurred for Rig 135 and the Aleutian Key
($30.3 million) and a 48% decrease in average dayrates ($21.1
million).
o 300-350 foot premium cantilever jackup rigs decreased $21.5
million (30.6%) primarily because of a 34% decrease in
average dayrates.
o 200-250 foot jackup rigs increased $1.1 million (2.3%) mainly
due to increased utilization ($15.6 million), partially
offset by a 30% decrease in average dayrates ($8.4 million)
and the reclassification of Rig 134 as a premium cantilever
jackup ($6.1 million) effective January 1, 2000.
o Revenues from our land rigs decreased $6.8 million, or 6.4%, mainly due to
lower utilization ($4.4 million) and a 5% decrease in average dayrates
earned ($2.4 million).
o Revenues from drilling related services decreased $8.7 million, or 17.6%.
o Operation of a new contract for our leased semisubmersible
rig operating in Azerbaijan, the Dada Gorgud, resulted in a
$9.7 million increase in revenues.
o Revenues earned in the North Sea from both incentive drilling
and third party rig operations decreased $17.4 million due to
lower activity levels.
o Other labor job and incentive services revenues decreased
$1.0 million, mainly in Venezuela.
OPERATING COSTS. Total operating costs for the nine months ended
September 30, 2000 increased $4.4 million, or 1.6%, compared to the nine months
ended September 30, 1999.
o Operating costs for our marine fleet increased $22.4 million, or 14.8%.
o Heavy duty harsh environment jackup rigs increased $8.3
million (18.3%) primarily due to the impact of Galaxy III
operations.
o Semisubmersible rigs increased $2.8 million (8.4%) primarily
due to planned maintenance costs incurred on the Aleutian Key
while idle, partly offset by lower utilization of both the
Aleutian Key and Rig 135.
o 300-350 foot premium cantilever jackup rigs increased $4.0
million (10.9%) 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 $7.3 million (20.2%)
mainly due to increased utilization and higher planned
maintenance cost for the Britannia, partly offset by the
reclassification of Rig 134 as a premium cantilever jackup.
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<PAGE> 15
o Operating costs for land rigs decreased $1.6 million, or 2.3%, mainly
due to lower utilization, partly offset by the impact of Rig 180
operations, which began in June 1999.
o Operating costs from drilling related services decreased $10.4
million, or 29.3%.
o Operation of a new contract for our leased semisubmersible
rig operating in Azerbaijan, the Dada Gorgud, resulted in an
$6.7 million increase in operating costs.
o Operating costs in the North Sea for both incentive drilling
and third party rig operations decreased $16.1 million due to
lower activity levels.
o Operating costs for other labor jobs and incentive services
decreased $1.0 million, mainly in Venezuela.
o Other operating expenses decreased $6.0 million (58.3%) primarily due
to decreased provision for inventory obsolescence.
GENERAL AND ADMINISTRATIVE. General and administrative expense
decreased $2.0 million (13.2%) primarily due to lower employee benefit costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $8.3 million (15.6%) for the nine months ended September 30, 2000 as
compared with the same period in the prior year.
o Operation of the new rigs Galaxy III and Rig 180 increased
depreciation expense by $5.2 million and $0.9 million, respectively.
o The remaining increase was from depreciation of other capital
additions.
OTHER INCOME (EXPENSE), NET. Other income increased $5.4 million for
the nine months ended September 30, 2000 compared to September 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 (38.0%) for the nine months ended September 30, 2000 as
compared to the same period of 1999. The Company's expected annualized
effective tax rate increased to 17.8% in 2000 from 16.1% in 1999 due to changes
in the mix of reportable earnings generated within the various taxing
jurisdictions in which the Company operates.
NET INCOME. Net income for the nine months ended September 30, 2000
decreased $60.2 million (45.1%) to $73.3 million as compared to $133.5 million
for the nine months ended September 30, 1999, primarily due to:
o $64.6 million decreased operating revenues,
o $4.4 million increased operating expenses, and
o $8.3 million increased depreciation and amortization expense,
partially offset by:
o $9.7 million lower provision for taxes on income,
o $5.4 million increased other income (expense), net, and
o $2.0 million lower general and administrative expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $85.5 million for the nine months
ended September 30, 2000 compared to a decrease of $14.5 million for the nine
months ended September 30, 1999.
o Net cash provided by operating activities decreased $88.4 million for
the nine months ended September 30, 2000 compared to the same nine
months in 1999.
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<PAGE> 16
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 $187.1 million.
o Cash provided by net maturities and purchases of marketable
securities increased $145.0 million.
o Maturities and purchases of marketable securities
for both nine 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 $42.0 million.
o Expansion capital spending for two new rigs, Galaxy
III and Rig 180, was $53.0 million for the nine
months ended September 30, 1999, with no
corresponding spending in 2000.
o Capital spending for upgrade of the Dada Gorgud
required $6.8 million for the nine months ended
September 30, 2000.
o Spending to meet contractual obligations to
customers and for rig upgrade, maintenance and
enhancement projects increased $4.2 million for the
nine months ended September 30, 2000 compared to the
same period in 1999.
o Cash used in financing activities was $7.7 million for the nine months
ended September 30, 2000 and $9.1 million for the nine months ended
September 30, 1999.
o Cash was used to pay $11.2 million in dividends to
shareholder for each period.
o Cash was provided from the issuance of shares under Santa
Fe's various share options and award plans of $3.5 million
for the nine months ended September 30, 2000 and $2.1 million
for the corresponding period in 1999.
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.
o The Company continues to monitor and evaluate customer and
competitor plans and activities in exploring for oil and gas
in increasingly deeper water depths. We have an active
research and design program focused on developing a new
deepwater semisubmersible and a high-end jackup design. It is
unlikely that either program will require spending a
significant portion of this budgeted amount 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.
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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 September 18, 2000, the Company's Board of Directors declared a
regular quarterly dividend of $0.0325 per Ordinary Share payable on October 16,
2000 to holders of record at the close of business September 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 letters of credit with a major bank, none of which was drawn
or subject to standby letters of credit at September 30, 2000.
CURRENCY RISK AND INFLATION
We follow a strategy that calls for our international drilling and
services contracts to be 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. Following this strategy,
we have reduced our net asset or liability positions denominated in local
currencies to a minimum. 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. 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.
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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 nine
months ended September 30, 2000, had short-term interest rates averaged 10%
lower than actually earned, the Company's interest income for the nine months
would change by approximately $1.3 million. This estimate was determined by
applying the hypothetical interest rate change to the Company's average
short-term investment balance for the nine months ended September 30, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in Verdin v. R&B Falcon Drilling USA, Inc.,
et al., Civil Action No. G-00-488, recently filed in the United States District
Court for the Southern District of Texas, Galveston Division. In the amended
complaint, plaintiff purports to be an "offshore worker" previously employed by
several of the named defendants. Plaintiff alleges that approximately 20
offshore drilling contractor defendants , including the Company, have engaged
in a conspiracy to depress wages and benefits paid to their offshore employees.
Plaintiff contends that this alleged conduct violates federal and state
antitrust laws. Plaintiff seeks an unspecified amount of treble damages,
attorneys' fees and costs on behalf of himself and an alleged class of offshore
workers. The purported class includes all individuals in the employ of, or who
have been employed within the last ten years by, the defendants as crew members
on water-based drilling apparatuses and who accepted employment by the
defendants within the United States for either domestic or international
employ. The Company vigorously denies these allegations and, while the outcome
of any lawsuit is unpredictable, management does not believe based upon
information presently available that the outcome of this suit will have a
material adverse affect on its financial condition or results of operations.
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.
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 3, 2000 reporting
under Item 5. thereof the closing of the public offering of 30,000,000 ordinary
shares of Santa Fe by SFIC Holdings (Cayman), Inc., which resulted in Santa
Fe's ceasing to qualify as a foreign private issuer. The press release and
underwriting agreement relating to the sale were filed as exhibits to the Form
8-K.
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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: November 3, 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.
</TABLE>
