<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
________________________________
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
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 1-8097
Energy Service Company, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232579
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202-2792
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 922-1500
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, par value $.10 American Stock Exchange
Preferred Share Purchase Right American Stock Exchange
$1.50 Cumulative Convertible Exchangeable American Stock Exchange
Preferred Stock, $25.00 Stated and
Redemption Value
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]<PAGE>
As of March 13, 1995, 60,413,780 shares of the registrant's common stock
were outstanding. The aggregate market value of the common stock (based
upon the closing price on the American Stock Exchange on March 13, 1995 of
$14.125) of Energy Service Company, Inc. held by nonaffiliates of the
registrant at that date was approximately $853,344,643.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company's definitive proxy statement, which
involves the election of directors and is to be filed under the Securities
Exchange Act of 1934 within 120 days of the end of the Company's fiscal
year on December 31, 1994, are incorporated by reference into Part III
hereof. Except for those portions specifically incorporated by reference
herein, such document shall not be deemed to be filed with the Commission
as part of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PAGE
PART ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . 1
I Overview and Operating Strategy . . . . . . . . 1
Recent Events . . . . . . . . . . . . . . . . . 1
Contract Drilling Operations . . . . . . . . . . 1
Marine Transportation Operations . . . . . . . . 3
Technical Services Operations . . . . . . . . . 3
Discontinued Operations . . . . . . . . . . . . 4
Segment Information . . . . . . . . . . . . . . 4
Major Customers . . . . . . . . . . . . . . . . 5
Industry Conditions . . . . . . . . . . . . . . 5
Governmental Regulation . . . . . . . . . . . . 7
Environmental Matters . . . . . . . . . . . . . 7
Operational Risks and Insurance . . . . . . . . 7
International Operations . . . . . . . . . . . . 8
Executive Officers of the Registrant . . . . . . 8
Employees . . . . . . . . . . . . . . . . . . . 9
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . 10
Contract Drilling . . . . . . . . . . . . . . . 10
Marine Transportation . . . . . . . . . . . . . 11
Technical Services . . . . . . . . . . . . . . . 12
Other Property . . . . . . . . . . . . . . . . . 12
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . 13
PART ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
II RELATED STOCKHOLDER MATTERS . . . . . . . . . . 14
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . 16
Business Environment . . . . . . . . . . . . . . 16
Results of Operations . . . . . . . . . . . . . 17
Liquidity and Capital Resources . . . . . . . . 23
Other Matters . . . . . . . . . . . . . . . . . 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . 50
PART ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS, EXECUTIVE
III COMPENSATION, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 50
PART ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
IV REPORTS ON FORM 8-K . . . . . . . . . . . . . . 51
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 72
- i -<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW AND OPERATING STRATEGY
Energy Service Company, Inc. ("ENSCO" or the "Company") is an international
contract drilling company that also provides related oilfield services.
The Company's compliment of offshore drilling rigs includes 23 jackup and
10 barge rigs. The Company also provides marine transportation services
and horizontal and directional drilling services. The Company's three
business lines are integral to the exploration, development and production
of oil and gas.
Since 1987, the Company has pursued a strategy of building its fleet of
offshore drilling rigs. This strategy was exemplified by the Company's
acquisition of the remainder of Penrod Holding Corporation ("Penrod") in
August 1993 and the expansion of the Company's Venezuelan rig fleet during
1993 and 1994 with the delivery of four new barge drilling rigs in each
year. The Company also added two harsh environment jackup rigs to its
North Sea fleet in 1994. In addition, the Company has acquired and
established businesses which provide products and services complementary to
the drilling business. The Company has built its marine transportation
fleet to 35 vessels operating in the Gulf of Mexico. The Company's
technical drilling services division, which operates primarily in the
Austin Chalk trend of South and Central Texas, and to a lesser extent in
Canada and the North Sea, is a leading provider of horizontal drilling
services to the industry.
With the Company's increasing emphasis on offshore markets, the Company has
disposed of businesses that are not offshore oriented or that management
does not believe will meet the Company's standards for financial
performance. During 1994, the Company exited the land rig business with
the sale of all twelve domestic and three of its four foreign land rigs.
In 1993, substantially all of the Company's supply business was sold in
keeping with the Company's decision to concentrate on expanding its
contract drilling and marine transportation operations.
The Company (formerly Blocker Energy Corporation) was formed as a Texas
corporation in 1975 and was reincorporated in Delaware in 1987. The
Company's principal office is located at 2700 Fountain Place, 1445 Ross
Avenue, Dallas, Texas, 75202-2792 and its telephone number is (214) 922-
1500.
RECENT EVENTS
On January 25, 1995, ENSCO Drilling Company, a wholly-owned subsidiary of
the Company, entered into a letter of intent with the 30% minority interest
partner in ENSCO Drilling (Caribbean), Inc. ("Caribbean") under which ENSCO
Drilling Company will purchase half of the minority interest partner's
shareholdings in Caribbean. The purchase price to be paid for the 15%
interest in Caribbean is based on Caribbean's future operating activity and
proceeds from any future sale of Caribbean's rigs. The agreement, which is<PAGE>
effective January 1, 1995, increases ENSCO Drilling Company's interest in
Caribbean from 70% to 85%.
CONTRACT DRILLING OPERATIONS
The Company's contract drilling operations are conducted by its wholly
owned subsidiaries, ENSCO Offshore Company, ENSCO Offshore U.K. Limited,
ENSCO Netherlands Ltd. and ENSCO Drilling Company ("the Subsidiaries").
The Subsidiaries engage in the drilling of oil and gas wells in domestic
and international markets under contracts with major and independent oil
companies. ENSCO Offshore Company currently owns 20 jackup drilling rigs
of which 18 are located in the Gulf of Mexico and two are in the North Sea.
ENSCO Offshore U.K. Limited owns and operates three jackup drilling rigs in
the North Sea.
In February 1994, ENSCO Offshore Company purchased two jackup rigs located
in the North Sea and simultaneously entered into bareboat charter
agreements with the seller for an initial twelve month period. The
purchase price consisted of $50.0 million paid at closing and an additional
$6.0 million which was to be credited against the bareboat charter payments
during the last four months of the initial bareboat charter agreements.
The bareboat charter agreements were not extended beyond the initial twelve
month period and the Company made a payment of $1.8 million to the seller,
in December 1994, for the remainder of the deferred purchase payment, net
of bareboat charter payments due to the Company through the end of the
twelve month bareboat charter period. The drilling contracts for the two
rigs have been assigned to the Company as of January 1, 1995. Under such
contracts, the rigs work for the joint venture of major oil and gas
exploration companies for whom the rigs operated during the term of the
bareboat charter agreements.
ENSCO Drilling Company conducts contract drilling operations through its
ownership interest in Caribbean. Caribbean and its subsidiary own and
operate ten barge drilling rigs on Lake Maracaibo, Venezuela for Lagoven,
S.A. ("Lagoven"), a subsidiary of the Venezuelan national oil company.
Caribbean has also managed barge drilling rigs owned by Lagoven. Four of
Caribbean's ten barge drilling rigs were constructed in 1994 in order to
fulfill four separate five-year drilling contracts with Lagoven. All four
barge drilling rigs commenced drilling operations in the third quarter of
1994.
In the third quarter of 1994, the Company mobilized its jackup rig located
in Brazil to the Gulf of Mexico. After undergoing modifications the rig
began operating in the Gulf of Mexico during the fourth quarter of 1994.
In the fourth quarter of 1994 the Company commenced the mobilization of its
jackup rig from Dubai to the Gulf of Mexico. The rig is currently in a
shipyard for modifications and will be available to commence operations in
the second quarter of 1995.
The Company's contract drilling services and equipment are used in
connection with the process of drilling and completing oil and gas wells.
Demand for the Company's drilling services is based upon many factors over
which the Company has no control, including the market price of oil and
gas, the stability of such prices, the production levels and other<PAGE>
activities of OPEC and other oil and gas producers, the regional supply and
demand for natural gas, the level of worldwide economic activity and the
long-term effect of worldwide energy conservation measures. These factors,
in turn, will affect the level of drilling and production activity.
The drilling services provided by the Company are conducted on a contract
basis. The Company may be asked to provide drilling services on a
"daywork", "footage" or "turnkey" basis. Under daywork contracts, the
Company receives a fixed amount per day for drilling the well and the
customer bears a major portion of the out-of-pocket costs of drilling. The
customer may pay the cost of moving the equipment to the job site and
assembling and dismantling the equipment. In some cases, the Company
provides drilling services on a daywork contract basis with additional
incentive compensation earned for completion of drilling activity ahead of
budgeted targets set by the customer. Under footage contracts, the Company
is paid a fixed amount for each foot drilled, regardless of the time
required or the problems encountered in drilling the well. The Company
pays more of the out-of-pocket costs associated with footage contracts than
with daywork contracts. Under turnkey contracts, the Company agrees to
drill a well to a specified depth for a fixed price. The Company generally
operates on a daywork basis since footage and turnkey contracts involve a
higher degree of risk to the Company and normally entail greater variations
in profitability. However, where it considers risks to be manageable, the
Company has operated under turnkey or footage contracts due to the
potential for higher profits.
During the past several years, contracts have typically been short-term,
particularly in the U.S. Accordingly, the Subsidiaries have had no
material backlog of contracts for their drilling services in recent years.
However, due to extension clauses included in the contracts, approximately
75% of the Company's rigs have worked for the same operator for greater
than six months and over 50% of the Company's rigs have worked for the same
operator for longer than one year. The backlog of business for the
Subsidiaries at March 1, 1995 was approximately $45.3 million compared to a
$55.0 million backlog level in February 1994. The Company's subsidiary in
Venezuela, Caribbean, has a number of term contracts, most of which
terminate in 1998 and 1999, with a backlog as of March 1, 1995 of
approximately $212.8 million, compared to a backlog of approximately $266.0
million in February 1994.
The contract drilling business is highly competitive and, in recent years,
has suffered from a substantial oversupply of drilling rigs. ENSCO
competes with other drilling contractors on the basis of quality of
service, price, equipment suitability and availability, reputation and
technical expertise. Competition is usually on a regional basis, but
drilling rigs are mobile and may be moved from one region to another in
response to demand. Drilling operations are generally conducted throughout
the year with some seasonal declines in winter months.
MARINE TRANSPORTATION OPERATIONS
The Company conducts its marine transportation operations through a wholly
owned subsidiary, ENSCO Marine Company ("ENSCO Marine"), based in
Broussard, Louisiana. <PAGE>
ENSCO Marine entered the marine transportation business in March 1988 with
the acquisition and refurbishment of 14 supply vessels. Between September
1989 and April 1990, ENSCO Marine took delivery of four additional 184-foot
supply vessels that are operated pursuant to long-term operating lease
agreements. In January 1991, the Company acquired the 20 vessel Argosy
Offshore Ltd. fleet. In August 1993, the Company acquired two additional
marine vessels in the Penrod acquisition. In November 1994, ENSCO Marine
acquired a supply vessel and contracted to modify four existing vessels, as
discussed below.
During 1992, the Company mobilized six marine vessels to Singapore for work
possibilities. Two of the vessels returned to the Gulf of Mexico in 1993.
The Company operated the remaining four vessels in Singapore through a
joint venture beginning in August 1993. The Singapore joint venture was
terminated in May 1994 and three of the vessels were mobilized to the Gulf
of Mexico. The remaining vessel, a utility boat, was sold effective June
30, 1994. During most of 1993 the Company operated two anchor handling
vessels offshore Brazil. One vessel returned to the Gulf of Mexico in the
fourth quarter of 1993 and the other vessel returned to the Gulf of Mexico
in February 1994. All of the Company's marine transportation vessels are
currently located in the Gulf of Mexico.
In the fourth quarter of 1994, the Company entered into an agreement with
an unrelated third party to purchase a supply vessel, convert four of the
Company's utility vessels into four larger, 146-foot mini-supply vessels
and assign ownership of four of the Company's utility vessels to the
unrelated third party. This transaction was consistent with the Company's
strategy to concentrate its fleet on the larger, more capable vessels and
to exit the unprofitable utility boat market. Earlier in 1994, the Company
converted another utility boat to a mini-supply vessel. Including the four
utility vessels currently being converted into mini-supply vessels, the
Company has a marine transportation operating fleet of 35 vessels
consisting of six anchor handling tug supply vessels, 21 supply vessels and
eight mini-supply vessels. The Company continues to own one utility vessel
which is used for training purposes only.
The Company's marine transportation services are used primarily in
connection with the process of servicing offshore oil and gas operations.
Demand for these services is largely dependent on the factors affecting the
level of activity in the offshore oil and gas industry.
The Company's six anchor handling tug supply ("AHTS") vessels ordinarily
support semi-submersible drilling rigs and large offshore construction
projects or provide towing services. The 21 supply vessels and eight mini-
supply vessels support general drilling and production activity by ferrying
supplies from land and between offshore rigs. All of the Company's marine
transportation operating vessels have liquid mud handling capabilities
which management believes enhance their marketability. The Company's
vessels are typically chartered on a well-to-well basis, or on term
contracts which may be terminated on short notice. At March 1, 1995, ENSCO
Marine had a backlog of contracts for its services of approximately $4.2
million compared to $6.4 million for such services in February 1994.
ENSCO Marine competes with numerous vessel operators on the basis of<PAGE>
quality of service, price, vessel suitability and availability and
reputation. Some of the vessel operators with whom the Company competes
have larger fleets of vessels and have longer operating histories than the
Company. Marine transportation operations are conducted throughout the
year, but some reductions in vessel utilization and charter rates may be
experienced during winter months due to seasonal declines in offshore
activities.
TECHNICAL SERVICES OPERATIONS
In the first quarter of 1988, the Company's wholly owned subsidiary, ENSCO
Technology Company ("ENSCO Technology"), commenced providing horizontal
drilling services to the petroleum industry. Horizontal drilling
technology has attracted increased interest by the oil and gas industry due
to the potential for significantly enhancing the recovery of oil and gas
from certain types of producing reservoirs.
In 1990, the Company augmented its horizontal drilling capabilities with
the addition of measurement while drilling ("MWD") equipment. MWD tools
provide directional and locational readings (i.e., borehole inclination,
azimuth and toolface direction) on a real time basis to the drillers. Some
of the Company's MWD tools have been upgraded to include gamma ray sensors
which provide a real time reading of lithological formation characteristics
allowing the driller to know when the drill bit has entered the producing
formation and whether it is remaining within the formation as the
horizontal drilling equipment follows the formation's undulations.
ENSCO Technology has also developed horizontal drilling applications
utilizing coiled tubing and slimhole drilling motors. Both of these
applications can be employed in depleted vertical wells in existing oil and
gas fields that are still productive, facilitating the recovery of
additional reserves previously not economically recoverable.
The technical services industry is highly competitive. Demand is largely
dependent upon drilling activity in certain geographical regions where oil
and gas production can be enhanced through horizontal drilling and MWD
services. The Company competes against numerous suppliers of horizontal
drilling and MWD services on the basis of quality of service, price,
equipment suitability and availability, technical performance and
reputation. Several suppliers with whom the Company competes have
substantially greater financial resources than the Company and develop and
manufacture their own motors and equipment. However, by using multiple
sources of technology and tools, the Company is able to focus on quality
performance of its services.
The Company's technical services operations are presently conducted in the
U.S., Canada and the North Sea. During 1992 the Company expanded
internationally into Ecuador and Abu Dhabi in response to the downturn in
U.S. horizontal drilling activity. The Company terminated operations in
these two countries in 1993 due to the completion of contracts and lack of
profitability. In 1994, the U.S. and Canada were targeted for horizontal
drilling/MWD services and the North Sea was targeted for coiled tubing
services.<PAGE>
ENSCO Technology does not have a significant backlog for its services due
to the generally short duration of its contracts, with most jobs lasting
less than 30 days.
DISCONTINUED OPERATIONS
In 1993, the Company completed a series of transactions that resulted in
the sale of substantially all of the Company's supply segment. In 1990,
the Company adopted plans to discontinue its oil and gas operations and
seek a buyer for its oil and gas assets. As of December 31, 1994, the
Company had sold substantially all assets of its discontinued operations.
SEGMENT INFORMATION
The following table provides operational information regarding the
Company's contract drilling, marine transportation and technical services
operations for the five years ended December 31, 1994:<PAGE>
<TABLE>
<CAPTION>
1994 <F1> 1993 <F1> 1992 <F1> 1991 <F2> 1990 <F2>
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Offshore Drilling Rig Utilization and Day Rates
Utilization:
Jackup rigs
United States . . . . . . . . . . . . . 91% 97% 61% 96% 98%
International . . . . . . . . . . . . . . 63% 62% 60% -- --
Total jackup rigs . . . . . . . . . 83% 84% 61% 96% 98%
Barge drilling rigs - Venezuela . . . . . . . 100% 100% 100% 100% 100%
Total . . . . . . . . . . . . . . . . . 87% 87% 64% 98% 99%
Average day rates:
Jackup rigs
United States . . . . . . . . . . . . . $ 21,531 $ 20,035 $ 13,118 $ 15,280 $ 13,447
International . . . . . . . . . . . . . . 24,765 25,715 26,959 -- --
Total jackup rigs . . . . . . . . . 22,269 21,572 18,122 15,280 13,447
Barge drilling rigs - Venezuela . . . . . . . 16,413 15,432 11,332 10,342 7,719
Total . . . . . . . . . . . . . . . . . $ 20,539 $ 20,281 $ 17,201 $ 12,992 $ 11,513
Marine Fleet Utilization and Day Rates <F3>
Utilization:
AHTS <F4> . . . . . . . . . . . . . . . . 81% 76% 56% 71% 79%
Supply . . . . . . . . . . . . . . . . . 86% 84% 61% 74% 92%
Mini-supply . . . . . . . . . . . . . . . 93% 95% 100% 99% --
Total . . . . . . . . . . . . . . . . 86% 84% 64% 77% 89%
Average day rates:
AHTS <F4> . . . . . . . . . . . . . . . . $ 7,686 $ 6,987 $ 6,309 $ 4,417 $ 4,114
Supply . . . . . . . . . . . . . . . . . 3,173 3,039 2,047 2,482 2,847
Mini-supply . . . . . . . . . . . . . . . 1,663 1,677 1,133 1,348 --
Total . . . . . . . . . . . . . . . . $ 3,826 $ 3,559 $ 2,669 $ 2,585 $ 3,102
Technical Services Information
Jobs:
Drilling . . . . . . . . . . . . . . . . 93 105 111 156 148
Guidance . . . . . . . . . . . . . . . . 132 151 87 120 90
Total . . . . . . . . . . . . . . . . 225 256 198 276 238
Average days per job:
Drilling . . . . . . . . . . . . . . . . 21.7 23.3 19.0 20.7 20.7
Guidance . . . . . . . . . . . . . . . . 15.9 14.6 14.8 15.0 10.4
Total . . . . . . . . . . . . . . . . 18.3 18.2 17.2 18.2 16.8
Average revenue per job (in thousands):
Drilling . . . . . . . . . . . . . . . . $ 108.1 $ 114.2 $ 106.2 $ 126.8 $ 144.4
Guidance . . . . . . . . . . . . . . . . 49.0 45.2 38.8 44.1 30.0
Total . . . . . . . . . . . . . . . . $ 73.4 $ 73.5 $ 76.6 $ 90.9 $ 101.2<PAGE>
<FN>
<F1> Offshore Drilling Rig and Marine Fleet information includes Penrod
rigs and vessels acquired in 1993.
<F2> Offshore Drilling Rig and Marine Fleet information excludes Penrod
rigs and vessels acquired in 1993.
<F3> Excludes utility vessels. As of December 31, 1994, the Company no
longer has utility vessels available for work.
<F4> Anchor handling tug supply vessels.
</FN>
/TABLE
<PAGE>
Financial information regarding the Company's operating segments and
foreign and domestic operations is presented in Note 14 of the Notes to
Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data." Additional financial information
regarding the Company's operating segments is presented in "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MAJOR CUSTOMERS
The Company provides its services to a broad customer base which includes
major international oil companies, government owned oil companies and
independent domestic oil producers.
During 1994, aggregate revenues provided to the Company's contract drilling
operations by Lagoven were $48.2 million, or 18%, of total revenues.
Additionally, revenues of $35.3 million, or 13%, of total revenues were
provided to the Company by Exxon Corporation, with $33.7 million from
contract drilling operations, $1.4 million from marine transportation
operations and the remainder from technical services operations.
INDUSTRY CONDITIONS
The Company's level of business activity and its corresponding operating
results are significantly affected by the worldwide level of expenditures
for oil and gas drilling, particularly in the Gulf of Mexico where the
Company has a large concentration of its rigs and vessels. Expenditures
for oil and gas drilling activity fluctuate based upon many factors
including world economic conditions, the legislative environment in the
United States and other major countries, production levels and other
activities of OPEC and other oil and gas producers and the impact that
these and other events have on the current and future pricing of oil and
natural gas.
Since the peak in domestic drilling activity of 4,500 rigs operating in
December 1981, as reported by Baker Hughes, the rig count has trended down
with several periods of brief recovery until the count reached 596 rigs
operating in June 1992, the lowest count since World War II. An
improvement in natural gas prices in 1992 and 1993 resulted in the rig
count increasing, especially in the Gulf of Mexico. The increased activity
levels generally continued throughout 1993 and into 1994, causing the
Company's revenues and operating margins to improve. However, the
Company's day rates in the Gulf of Mexico declined throughout 1994,
although remaining higher on average than in 1993, as a number of
competitors' rigs were mobilized to the Gulf of Mexico and as domestic
natural gas prices weakened. Gulf of Mexico average utilization for jackup
rigs, which is the type of rig the Company operates, decreased only
marginally in 1994 to 79% from 80% in 1993, although the total average
number of jackup rigs available increased to 136 in 1994 compared to 116 in
1993.
During the first two months of 1995 the Gulf of Mexico rig count has
declined due to a slowdown in demand caused by reduced natural gas prices.
Demand has also declined in the first two months of 1995 as a result of the<PAGE>
normal decline in drilling activity due to poorer weather conditions and
drilling budgeting cycles after a peak is normally reached in the fourth
quarter of each year as oil and gas operators endeavor to complete planned
programs by year end. Gulf of Mexico jackup rig industry utilization was
63% on March 1, 1995. If domestic natural gas prices remain weak or
decline further, management anticipates that drilling activity in the Gulf
of Mexico will be adversely affected during 1995. Average Gulf of Mexico
jackup day rates similar to the type the Company operates are currently in
the range of $14,000 - $21,000 compared to $18,000 - $24,000 approximately
one year ago.
Oil and natural gas prices have remained volatile for many years. As
described above, changes in oil and gas prices can have significant effects
on the Company's business. Spot natural gas prices have remained under
pressure throughout 1994 and into 1995. Spot natural gas prices were $2.05
per mcf at the beginning of 1994, $2.02 per mcf at mid-year 1994 and ended
1994 at $1.55 per mcf. Spot natural gas prices were $1.46 as of March 1,
1995. Crude oil prices increased in 1994 fueled by worldwide economic
growth and have remained strong in 1995. Oil prices were $14.35 per barrel
at the beginning of 1994, $18.85 per barrel at mid-year and $17.80 per
barrel at the end of 1994. Oil prices were $18.35 per barrel as of March
1, 1995. General industry expectations currently provide that both crude
oil and natural gas prices will remain volatile with crude oil prices in
the $15 - $19 per barrel range and gas prices in the $1.40 - $2.00 per mcf
range in 1995.
The North Sea market experienced a decline in rig supply during 1994, with
a total of 89 rigs available in January 1994 and 78 available in December
1994. As of March 1, 1995, 77 rigs were available in the North Sea market.
Demand also declined during 1994 with the number of rigs under contract in
January 1994 and December 1994 at 67 and 58, respectively. The number of
rigs contracted remained at 58 as of March 1, 1995. The standard jackup
rig day rates in the North Sea for the type of jackup rigs the Company
owned showed little movement in 1994 with day rates ranging from $23,000 to
$27,000 at the beginning of the year and $24,000 to $28,000 at the end of
1994.
Demand for standard jackup rigs in the North Sea has strengthened during
the first two months of 1995 and is likely to continue throughout 1995.
North Sea jackup demand is expected to exceed supply in the second half of
1995. As a result, day rates for standard jackup rigs have experienced an
increase during the first two months of 1995, with the range now standing
at $30,000 to $40,000. The Company has three-fifths of its North Sea fleet
operating under contracts where the contractual day rate is tied to general
market rates. As such, the day rates received under these contracts are
expected to strengthen in 1995 unless a significant number of rigs are
moved to the North Sea from other areas.
The marine transportation industry is highly competitive and utilization
rates for vessels vary significantly, depending on drilling and
construction activity. Demand is largely dependent on offshore drilling
activity of new wells or the workover of older wells. Therefore, when oil
and gas prices declined during the 1980's, the demand for vessels was
significantly reduced. Beginning in the fourth quarter of 1992, increased<PAGE>
drilling activity in the Gulf of Mexico caused utilization and day rates
for marine transportation vessels to increase. The activity level for
marine transportation vessels in the Gulf of Mexico, which is tied to the
level of oil and gas drilling activity, increased throughout 1993 and
remained fairly stable in 1994. The average number of vessels operating in
the Gulf of Mexico increased to 264 in 1994 from 247 in 1993 with average
utilization of 89% and 86% for 1994 and 1993, respectively. Gulf of Mexico
oilfield supply vessel utilization was approximately 83% on March 1, 1995.
The Company anticipates that, based on lower domestic natural gas prices,
the Gulf of Mexico market may experience some softening during 1995.
Horizontal drilling activity in the Austin Chalk of Texas, where the
Company's technical services activities are concentrated, remained steady
in 1994 as compared to the 1993 activity levels. Activity levels in 1993
increased over the depressed 1992 activity levels. Accompanying the steady
level of 1994 activity was marginally higher pricing for the Company's
services.
The Company will primarily focus on opportunities in the U.S., and to a
lesser extent Canada and the North Sea, for its technical services segment
in 1995. To date in 1995, domestic market conditions for the Company's
technical services segment have remained consistent with the activity level
in the second half of 1994 and there are no indications of substantial
improvement in horizontal drilling activity during 1995.
Additional information regarding industry conditions and industry
utilization rates is presented in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
GOVERNMENTAL REGULATION
The Company's businesses are affected by changes in public policy and by
federal, state, foreign and local laws and regulations relating to the
energy industry. The adoption of laws and regulations curtailing
exploration and development drilling for oil and gas for economic,
environmental or other policy reasons adversely affects the Company's
operations by limiting available drilling and other opportunities in the
energy service industry.
The Company is subject to the requirements of the federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The OSHA
hazard communication standard, the Environmental Protection Agency
"community right-to-know" regulations under Title III of the Federal
Superfund Amendment and Reauthorization Act and comparable state statutes
require the Company to report certain information about the hazardous
materials used in its operations to employees, state and local government
authorities, and local citizens.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. Laws and<PAGE>
regulations specifically applicable to the Company's business activities
could impose significant liability on the Company for damages, clean-up
costs and penalties in the event of the occurrence of oil spills or similar
discharges of pollutants into the environment in the course of the
Company's operations, although, to date, such laws and regulations have not
had a material adverse effect on the Company's results of operations, nor
has the Company experienced an accident that has exposed it to material
liability for discharges of pollutants into the environment. In addition,
events in recent years have heightened environmental concerns about the oil
and gas industry generally. From time to time, legislative proposals have
been introduced which would materially limit or prohibit offshore drilling
in certain areas. To date, no proposals which would materially limit or
prohibit offshore drilling in the Company's principal areas of operation
have been enacted into law. If laws are enacted or other governmental
action is taken that restrict or prohibit offshore drilling in the
Company's areas of operation or impose environmental protection
requirements that materially increase the costs of offshore exploration,
development or production of oil and gas, the Company could be materially
adversely affected.
OPERATIONAL RISKS AND INSURANCE
Contract drilling and oil and gas operations are subject to various risks
including blowouts, craterings, fires and explosions, each of which could
result in damage to or destruction of drilling rigs and oil and gas wells,
personal injury and property damage, suspension of operations or
environmental damage through oil spillage or extensive, uncontrolled fires.
The Company's marine transportation operations are subject to various
risks, which include property and environmental damage and personal injury.
The Company generally insures its drilling rigs, marine transportation
vessels and other equipment for amounts not less than the estimated fair
market value thereof. The Company also maintains liability insurance
coverage in amounts and scope which management believes are comparable to
the levels of coverage carried by other energy service companies. To date,
the Company has not experienced difficulty in obtaining insurance coverage.
While the Company believes its insurance coverages are customary for the
energy service industry, the occurrence of a significant event not fully
insured against could have a material adverse effect on the Company's
financial position.
INTERNATIONAL OPERATIONS
The Company conducts certain of its international drilling and marine
transportation operations through joint ventures or similar arrangements
with local entities. Further, the Company generally staffs its
international operations extensively with local nationals. Management
believes these methods of operation have enabled the Company to penetrate
international markets and better obtain contracts.
The Company's international operations are subject to political, economic,
and other uncertainties, such as the risks of expropriation of its
equipment, expropriation of a customer's property or drilling rights,
repudiation of contracts, adverse tax policies, general hazards associated
with international sovereignty over certain areas in which the Company<PAGE>
operates and fluctuations in international economies. To lessen the risk
of possible future adverse developments outside the United States, the
Company, in some instances, enters into contracts for indemnification from
operators for whom drilling services are being performed.
The Company's international operations face the additional risk of
fluctuating currency values and exchange controls. Occasionally the
countries in which the Company operates have enacted exchange controls to
regulate international currency exchange. Historically, the Company has
been able to limit these risks by obtaining compensation in United States
dollars or freely convertible international currency and, to the extent
possible, by limiting acceptance of blocked currency to amounts which match
its expenditure requirements in local currencies.
The Venezuelan currency experienced significant devaluation in the first
half of 1994 and the Venezuelan government established policies to control
the exchange rate of the Venezuelan currency and severely restricted the
conversion of Venezuelan currency to U.S. dollars. To date, Caribbean has
not experienced problems associated with receiving U.S. dollar payments
with respect to the U.S. dollar portion of its contracts with Lagoven.
Changes in these conditions, other policy enactments, or political
developments in Venezuela could have an adverse effect upon the Company.
However, the Company believes such adverse effects are unlikely due to the
volume of U.S. dollars paid to the parent company of Lagoven for its oil
exports and the contractual protection available to Caribbean if U.S.
dollar payments are not made.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company:
NAME AGE POSITION WITH THE COMPANY
Carl F. Thorne 54 Chairman of the Board, President,
Chief Executive Officer and Director
Richard A. Wilson 57 Senior Vice President, Chief Operating
Officer and Director
Marshall Ballard 52 Vice President - Business Development
William S. Chadwick, Jr. 47 Vice President - Administration and
Secretary
C. Christopher Gaut 38 Vice President - Finance, Treasurer
and Chief Financial Officer
H. E. Malone 51 Vice President - Controller and Chief
Accounting Officer
Martin Oudshoorn 56 Vice President - Engineering<PAGE>
Set forth below is certain additional information concerning the executive
officers of the Company, including the business experience of each during
the past five years.
Carl F. Thorne has been a director of the Company since December 1986. He
was elected President and Chief Executive Officer of the Company in May
1987 and was elected Chairman of the Board of Directors in November 1987.
Mr. Thorne holds a Bachelor of Science Degree in Petroleum Engineering from
the University of Texas and a Juris Doctorate Degree from Baylor University
College of Law. He lives in Dallas, Texas.
Richard A. Wilson has been a director of the Company since June 1990. Mr.
Wilson joined the Company in July 1988 and was elected President of ENSCO
Drilling Company in August 1988. Mr. Wilson was elected Senior Vice
President - Operations of the Company in October 1989 and to his present
position in June 1991. Mr. Wilson holds a Bachelor of Science Degree in
Petroleum Engineering from the University of Wyoming. He lives in Dallas,
Texas.
Marshall Ballard joined the Company in connection with the acquisition of
Penrod Holding Corporation and was elected Vice President of Business
Development in August 1993. From September 1977 through August 1993, Mr.
Ballard served in various capacities as an employee of Penrod Holding
Corporation, most recently as President. Mr. Ballard holds a Bachelor of
Arts Degree in History from the University of North Carolina and a Law
Degree from Tulane University.
William S. Chadwick, Jr. joined the Company as Director of Administration
in June 1987, has been a Vice President of the Company since July 1988 and
was elected Secretary of the Company in May 1993. Mr. Chadwick holds a
Bachelor of Science Degree in Industrial Management from the University of
Pennsylvania.
C. Christopher Gaut joined the Company in December 1987 and was elected
Treasurer and Chief Financial Officer in February 1988 and Vice President -
Finance in January 1991. Mr. Gaut holds a Bachelor of Arts Degree in
Engineering Science from Dartmouth College and a Master of Business
Administration Degree in Finance from The Wharton School of the University
of Pennsylvania.
H. E. Malone joined the Company in August 1987 and was elected Controller
and Chief Accounting Officer in January 1988 and Vice President -
Controller and Chief Accounting Officer in February 1995. Mr. Malone holds
Bachelor of Business Administration Degrees from the University of Texas
and Southern Methodist University and a Master of Business Administration
Degree from the University of North Texas.
Martin Oudshoorn joined the Company as Manager of Engineering in February
1991 and was elected Vice President - Engineering in February 1994. From
June 1964 through January 1991, Mr. Oudshoorn was employed by Sedco-Forex,
the contract drilling division of Schlumberger Technology Corporation, and
served in various capacities including Assistant Vice President of
Engineering. Mr. Oudshoorn holds a Degree in Mechanical Engineering from
the Municipal Technical College in The Hague, Holland. In October 1990,<PAGE>
Mr. Oudshoorn became a naturalized citizen of the United States.
Officers each serve for a one-year term or until their successors are
elected and qualified to serve. Mr. Thorne and Mr. Malone are brothers-in-
law.
EMPLOYEES
The Company had approximately 2,300 full-time employees worldwide as of
March 1, 1995. In addition, the Company employs local personnel in foreign
countries to work on rigs on a job-by-job basis. The Company considers
relations with its employees to be satisfactory. None of the Company's
domestic employees are represented by unions. The Company has not
experienced any significant work stoppages or strikes as a result of labor
disputes.<PAGE>
ITEM 2. PROPERTIES
CONTRACT DRILLING
The following table sets forth as of March 1, 1995 certain information
regarding the offshore drilling rigs owned by the Company:
<TABLE>
<CAPTION>
JACKUP RIGS
WATER DEPTH
RIG NAME BUILT RIG DESIG RIG TYPE /RATED DEPTH LOCATION STATUS
<S> <C> <C> <C> <C> <C> <C>
ENSCO 63 1977 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 64 1974 MLT 53 SLOT-SD-Z 250 /30,000 GOM A
ENSCO 67<F1> 1976 MLT 84 SLOT-SD-Z 300 /30,000 GOM A
ENSCO 68 1976 MLT 84 SLOT 350 /30,000 GOM A
ENSCO 69 1976 MLT 84 SLOT-TD <F2> 400 /30,000 <F2> GOM S
ENSCO 70 1981 HITACHI-300 CANT-TD-Z 250 /25,000 NS A
ENSCO 71 1982 HITACHI-300 CANT-TD-Z 225 /25,000 NS SC
ENSCO 80 1978 MLT 116 CANT-TD-Z <F2> 225 /25,000 NS SC
ENSCO 81 1979 MLT 116 CANT-TD-Z <F2> 350 /25,000 <F2> GOM SC
ENSCO 82 1979 MLT 116 CANT-TD 300 /25,000 GOM A
ENSCO 83 1979 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 84 1981 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 85 1981 MLT 116 CANT-TD-Z <F2> 225 /25,000 NS SC
ENSCO 86 1981 MLT 82 SD CANT-TD-Z 250 /30,000 GOM A
ENSCO 87 1982 MLT 116 CANT-TD 350 /25,000 GOM A
ENSCO 88 1982 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 89 1982 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 90 1982 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 92 1982 MLT 116 CANT-SD-Z 225 /25,000 NS A
ENSCO 93 1982 MLT 82 SD CANT-TD 250 /25,000 GOM A
ENSCO 94 1981 HITACHI-250 CANT-TD-Z 250 /25,000 GOM A
ENSCO 95 1981 HITACHI-250 CANT-TD 250 /25,000 GOM A
ENSCO 99 1985 MLT 82 SD CANT-TD-Z 250 /30,000 GOM A
<FN>
<F1> Owned through a 50% joint venture
<F2> Upon completion of upgrade
</FN>
/TABLE
<PAGE>
<TABLE>
<CAPTION>
BARGE DRILLING RIGS
RATED
RIG NAME BUILT DRAWWORKS DEPTH LOCATION STATUS
<S> <C> <C> <C> <C> <C>
ENSCO V 1982 GD1100E 15,000 VENEZUELA A
ENSCO VI 1991 GD1100E 15,000 VENEZUELA A
ENSCO VII 1993 N 840E 20,000 VENEZUELA A
ENSCO VIII 1993 I 1700E 20,000 VENEZUELA A
ENSCO IX 1993 N 840E 20,000 VENEZUELA A
ENSCO X 1993 I 1700E 20,000 VENEZUELA A
ENSCO XI 1994 MC1220E 25,000 VENEZUELA A
ENSCO XII 1994 MC1220E 25,000 VENEZUELA A
ENSCO XIV 1994 N1320E 25,000 VENEZUELA A
ENSCO XV 1994 N1320E 25,000 VENEZUELA A
/TABLE
<PAGE>
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES: RIG TYPE LOCATION STATUS
-------- -------- ------
<C> <C> <C>
CANT - Cantilever GOM - Gulf of Mexico A - Active
SLOT - Slot NS - North Sea S - In shipyard for upgrade
SD - Side Drive SC - In shipyard for upgrade -
TD - Top Drive committed to work upon completion
Z - Zero Discharge capabilities
permitting operation in evniron-
mentally sensitive areas
</TABLE>
- --------------------------------------------------------------------------
The company continues to own one land rig, which is stacked, located in the
Middle East.
The Company's drilling rigs consist of engines, drawworks, masts, pumps to
circulate the drilling fluid, blowout preventers, drill string and related
equipment. The engines power a rotary table that turns a bit consisting of
rotating cones so that the hole is drilled by grinding the rock which is
then carried to the surface by the drilling fluid. The intended well depth
and the drilling conditions are the principal factors that determine the
size and type of rig most suitable for a particular drilling job.
The Company's offshore jackup rigs consist of mobile drilling platforms
equipped with legs that can be lowered to the ocean floor to provide
support for the drilling platform. All the Company's jackup rigs are of
the independent leg design. The jackup rig hull includes the drilling rig,
jacking system, crew quarters, storage and loading facilities, helicopter
landing pad and related equipment.
The Company's barge drilling rigs have all of the crew quarters, storage
facilities, and related equipment mounted on floating barges with the
drilling equipment cantilevered from the stern of the barge. The barges
are towed to the drilling location and are held in place by anchors while
drilling activities are conducted.
Over the life of a typical rig, several of the major components are
replaced due to normal wear and tear. Components such as masts and
drawworks are seldom replaced.
Substantially all of the Company's jackup rigs, which had a combined net
book value of $246.6 million at December 31, 1994, are pledged as
collateral in favor of a financial institution to secure payment of a
secured term loan.
All of the Company's active rigs, and rigs in shipyards, are in good
condition.
Depending upon the nature of the work, the proximity of the job site to the
Company's repair facilities and certain other factors, rig maintenance and<PAGE>
repairs are performed either at the job site or at the Company's
facilities. The Company owns or leases field locations and repair
facilities for its drilling rigs in Las Morochas, Venezuela; Dubai, United
Arab Emirates; Beverwijk, Holland; Broussard, Louisiana; and Aberdeen,
Scotland.
MARINE TRANSPORTATION
In the fourth quarter of 1994, the Company entered into an agreement with
an unrelated third party to purchase a supply vessel, convert four of the
Company's utility vessels into four larger, 146-foot mini-supply vessels
and assign ownership of four of the Company's utility vessels to the
unrelated third party. Earlier in 1994, the Company sold one utility boat
and converted another to a mini-supply vessel. Including the four utility
vessels currently being converted into mini-supply vessels, the Company has
a marine transportation operating fleet of 35 vessels consisting of six
anchor handling tug supply vessels, 21 supply vessels and eight mini-supply
vessels. All of the Company's marine transportation vessels are currently
located in the Gulf of Mexico. The Company continues to own one utility
vessel which is used for training purposes only.
Substantially all of the Company's owned marine transportation vessels,
which had a combined net book value of $40.9 million at December 31, 1994,
are pledged as collateral to secure payment of a secured term loan. The
Company leases four of the supply vessels under long-term lease agreements.
The Company's marine transportation operations are headquartered in
Broussard, Louisiana.
The following table provides as of March 1, 1995 certain information
regarding the Company's marine transportation vessels:
MARINE FLEET
NO. OF YEAR HORSE
VESSEL TYPE VESSELS BUILT POWER LENGTH
- ----------- ------- --------- ----------- ---------
KODIAKS-AHTS 2 1983 12,000 225'
OTHER- AHTS 4 1976-1983 5,800-7,240 185'-230'
SUPPLY 21 1977-1985 1,800-3,000 166'-185'
MINI - SUPPLY 8 * 1981-1984 1,200 140'-146'
* Includes four 116 vessels which are currently in a shipyard for
conversion to mini-supply vessels.
The Company continues to own one utility vessel which is used for training
purposes only.
TECHNICAL SERVICES
The Company's technical services properties consist primarily of MWD
systems, wireline trucks, survey equipment, motors and steering equipment
necessary to perform horizontal drilling. The Company leases its motors
primarily from Dreco Energy Services Ltd. ("Dreco"). The Company's MWD<PAGE>
systems are licensed from Technolink (Cyprus) Ltd. ("Technolink") and
Geolink (UK) Ltd. ("Geolink"), which are related entities. If the
Company's relationships with Dreco, Technolink or Geolink should change,
the Company would need to secure alternative supplies of similar downhole
motors and MWD systems.
The Company's technical services operations are headquartered in Houston,
Texas with leased field offices in Rosenberg, Texas and Edmonton, Alberta,
Canada.
OTHER PROPERTY
The Company leases its executive offices in Dallas, Texas. The Company
owns offices and other facilities in Houma, Shreveport and Broussard,
Louisiana and Aberdeen Scotland; and rents offices in Houston, Texas;
Edmonton, Alberta, Canada; Las Morochas, Venezuela; Dubai, United Arab
Emirates; and Beverwijk, Holland.
ITEM 3. LEGAL PROCEEDINGS
Prior to October 1990, Penrod was self-insured for the majority of its
maritime claims exposure. During the period from October 1990 to the
August 1993 acquisition date, Penrod had insurance coverage which limited
its maritime claims exposure to a maximum of the $25,000 deductible for
each claim, plus a fluctuating aggregate of $500,000 to $1.5 million in
excess of the $25,000 claim deductible for each policy year. Penrod is
also a defendant in lawsuits with certain of its insurers and the
administrator of its self-insurance program, and personal injury and
maritime liability lawsuits filed by present and former employees.
Management of the Company has provided reserves for such claims as it
considers appropriate given the facts currently known.
On February 13, 1991, Penrod filed an action against TransAmerican Natural
Gas Corporation ("TransAmerican") which is presently pending in the U.S.
District Court Southern District of Texas, Houston Division, seeking
damages for breach of contract. On August 21, 1991, TransAmerican filed an
action against Penrod in the 133rd Judicial District Court, Harris County,
Texas, seeking damages for breach of contract and tort claims. Management
of the Company believes that the outcome of this litigation will be
favorable to the Company.
In addition to the matters discussed above, the Company is from time to
time involved in litigation incidental to the conduct of its business. In
the opinion of management, none of such litigation in which the Company is
currently involved would, individually or in the aggregate, have a material
effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 1994.<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth the high and low sales prices, reported on
the American Stock Exchange for each period indicated for the Company's
common stock, $.10 par value (the "Common Stock") for each of the last two
fiscal years, restated for the reverse stock split as discussed below:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
1994 High . . . . $17 $18 5/8 $19 1/4 $15 1/2 $19 1/4
1994 Low . . . . $12 1/2 $13 1/2 $14 5/8 $10 3/4 $10 3/4
1993 High . . . . $10 $14 1/4 $14 $16 1/4 $16 1/4
1993 Low . . . . $ 4 $ 8 3/4 $ 9 1/4 $11 1/4 $ 4
The Company's Common Stock (Symbol: ESV) is traded on the American Stock
Exchange. At December 31, 1994, there were approximately 4,800
stockholders of record of the Company's Common Stock.
Since inception, no dividends have been declared on the Company's Common
Stock, and the Company does not expect to declare dividends on its Common
Stock in the near future.
The Company's stockholders approved a one share for four shares reverse
stock split of the Company's common stock at the Company's Annual Meeting
of Stockholders held on May 24, 1994.
In August 1994, the Company issued a redemption notice for the 2,839,110
outstanding shares of its $1.50 Cumulative Convertible Exchangeable
Preferred Stock ("1.50 Preferred Stock"). Holders of 2,807,147 shares of
the $1.50 Preferred Stock elected to convert each of their shares into
approximately 1.786 shares of the Company's common stock which resulted in
the issuance of 5,012,762 shares of the Company's common stock. Holders of
the remaining 31,963 shares of the $1.50 Preferred Stock elected to redeem
their shares for cash.
The Company is also authorized to issue shares of convertible common stock.
As of December 31, 1994 and March 1, 1995, no shares of convertible common
stock were outstanding.<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the five years
ended December 31, 1994 has been derived from the Company's audited
consolidated financial statements (in thousands, except per share amounts).
This information should be read in conjunction with the audited
consolidated financial statements and notes thereto included in "Item 8.
Financial Statements and Supplementary Data."<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1994 1993 1992<F1> 1991<F1> 1990<F1>
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Operating revenues . . . . . . . . . . . . . . . . $261,973 $246,235 $ 99,431 $101,300 $ 88,903
Operating expenses, excluding D&A . . . . . . . . 156,309 166,311 99,750 90,186 79,767
Depreciation and amortization (D&A) . . . . . . . 54,201 43,757 14,901 14,762 10,960
Operating income (loss) . . . . . . . . . . . . . 51,463 36,167 (15,220) (3,648) (1,824)
Other income (expense) . . . . . . . . . . . . . (7,571) (6,579) (7,975) (2,056) 3,458
Income (loss) from continuing operations before
income taxes, minority interest and cumulative
effect of accounting changes . . . . . . . . . 43,892 29,588 (23,195) (5,704) 1,634
Provision for income taxes . . . . . . . . . . . . (3,759) (5,947) (2,050) (4,221) (110)
Minority interest . . . . . . . . . . . . . . . . (2,962) (6,932) -- -- --
Income (loss) from continuing operations . . . . . 37,171 16,709 (25,245) (9,925) 1,524
Income (loss) from discontinued operations <F2> . -- 2,324 (4,119) (2,862) (10,413)
Income (loss) before cumulative effect of
accounting changes . . . . . . . . . . . . . . 37,171 19,033 (29,364) (12,787) (8,889)
Cumulative effect of accounting changes, net
of minority interest <F3> . . . . . . . . . . -- (2,542) -- -- (13,072)
Net income (loss) . . . . . . . . . . . . . . . . 37,171 16,491 (29,364) (12,787) (21,961)
Preferred stock dividend requirements . . . . . . (2,135) (4,260) (4,260) (4,607) (4,799)
Income (loss) applicable to common stock . . . . . $ 35,036 $ 12,231 $(33,624) $(17,394) $(26,760)
Income (loss) per common share:
Continuing operations . . . . . . . . . . . . $ .61 $ .31 $ (.98) $ (.59) $ (.16)
Discontinued operations . . . . . . . . . . . -- .06 (.14) (.12) (.51)
Cumulative effect of account changes . . . . . -- (.07) -- -- (.64)
Income (loss) per common share . . . . . . . . $ .61 $ .30 $ (1.12) $ (.71) $ (1.31)
Weighted average common shares outstanding . . . . 57,843 40,325 30,003 24,407 20,468
Balance Sheet Data
Working capital . . . . . . . . . . . . . . . . . $124,160 $127,105 $ 46,551 $ 29,419 $ 45,648
Total assets . . . . . . . . . . . . . . . . . . . 775,383 691,412 275,041 295,192 279,838
Long-term debt, net of current portion . . . . . . 162,466 125,983 23,628 31,437 30,638
Series A preferred stock . . . . . . . . . . . . . -- -- -- -- 4,377
$1.50 preferred stock . . . . . . . . . . . . . . -- 70,977 70,977 70,977 70,977
Stockholders' equity <F4> . . . . . . . . . . . . 487,950 383,925 142,512 163,990 147,657
<FN>
<F1> Amounts have been restated for adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." See
Note 11 to Consolidated Financial Statements.
<F2> During 1993 the Company adopted plans to sell its supply segment
operations. Prior years results of the supply operations segment
have been reclassified for comparative purposes. The 1993 results<PAGE>
include a gain of $2.1 million in connection with the sale of supply
segment assets and liabilities. See Note 17 to Consolidated
Financial Statements. In 1990, the Company adopted plans to
discontinue its oil and gas operations. The 1990 results include a
provision of $5.6 million to write down the oil and gas operations
to their anticipated liquidation value net of disposal costs.
<F3> Effective January 1, 1993, Penrod adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." See Note 10 to
Consolidated Financial Statements. The Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" retroactive to January 1, 1990. See Note 11 to Consolidated
Financial Statements.
<F4> The Company has never paid cash dividends on its common stock and
has no plans to pay dividends on its common stock in the near
future.
</FN>
/TABLE
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT.
The Company conducts its business in three primary operating segments
serving the oil and gas industry, contract drilling, marine transportation
and technical services. The Company's level of business activity and its
corresponding operating results are significantly affected by the worldwide
level of expenditures for oil and gas drilling, particularly in the Gulf of
Mexico where the Company has a large concentration of its rigs and vessels.
Expenditures for oil and gas drilling activity fluctuate based upon many
factors including world economic conditions, the legislative environment in
the United States and other major countries, production levels and other
activities of OPEC and other oil and gas producers and the impact that
these and other events have on the current and future pricing of oil and
natural gas.
Since the peak in domestic drilling activity of 4,500 rigs operating in
December 1981, as reported by Baker Hughes, the rig count has trended down
with several periods of brief recovery until the count reached 596 rigs
operating in June 1992, the lowest count since World War II. An
improvement in natural gas prices in 1992 and 1993 resulted in the rig
count increasing, especially in the Gulf of Mexico. The increased activity
levels generally continued throughout 1993 and into 1994, causing the
Company's revenues and operating margins to improve. However, the
Company's day rates in the Gulf of Mexico declined throughout 1994,
although remaining higher on average than in 1993, as a number of
competitors' rigs were mobilized to the Gulf of Mexico and as domestic
natural gas prices weakened. To date in 1995, the level of industry
activity in the Gulf of Mexico has begun to decline marginally compared to
the levels prevalent in the last quarter of calendar year 1994. If
domestic natural gas prices remain weak or decline further, management
anticipates that drilling activity in the Gulf of Mexico will be adversely
affected during 1995.
Offshore rig and oilfield supply vessel industry utilization is summarized
below:<PAGE>
<TABLE>
<CAPTION>
INDUSTRY WIDE AVERAGES <F1>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
OFFSHORE RIGS
Gulf of Mexico:
All rigs:
Rigs under contract . 133 116 79
Total rigs available . 175 152 160
% Utilization . . . . 76% 76% 49%
Jackup rigs:
Rigs under contract . 108 93 64
Total rigs available . 136 116 122
% Utilization . . . . 79% 80% 53%
Worldwide:
All rigs:
Rigs under contract . 536 545 519
Total rigs available . 661 666 683
% Utilization . . . . 81% 82% 76%
Jackup rigs:
Rigs under contract . 322 332 303
Total rigs available . 392 394 400
% Utilization . . . . 82% 84% 76%
OILFIELD SUPPLY VESSELS: <F2>
Gulf of Mexico:
Vessels under contract . 235 213 183
Total vessels available . 264 247 249
% Utilization . . . . . . 89% 86% 74%
<FN>
<F1> Industry utilization based on data published by OFFSHORE DATA
SERVICES, INC.
<F2> Excludes utility vessels.
</FN>
/TABLE
<PAGE>
Worldwide utilization for oilfield supply vessels is not readily
obtainable. The demand for oilfield supply vessels is closely related to
the level of drilling activity, particularly in the Gulf of Mexico.
RESULTS OF OPERATIONS.
In August 1993, the Company through a wholly-owned subsidiary completed the
acquisition of the remaining 64% of the outstanding common stock of Penrod
Holding Corporation ("Penrod") that was not then beneficially owned by the
Company (the "Penrod Acquisition"). The Company has included the operating
results of Penrod in its consolidated results of operations beginning
January 1, 1993. The preacquisition earnings attributable to the 64% of
Penrod that the Company did not own prior to the acquisition has been
deducted as "Minority Interest" in calculating the Company's net income for
the year ended December 31, 1993. The results of the Company's 1992
operations have not been restated to include Penrod on a consolidated
basis. The Company has recorded its share of Penrod's 1992 results in
"Income (Loss) from Equity Affiliates."
Combined 1992 results of the Company and Penrod are presented below for
comparative purposes to 1994 and 1993. The combined amounts have not been
restated on a pro forma basis to reflect anticipated savings associated
with integrating the operations. The discussion of operating revenues and
margins below refer to combined amounts.
The following analysis highlights the Company's operating results for the
years indicated (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992 <F1>
--------- --------- ---------
<S> <C> <C> <C>
OPERATING RESULTS
Revenues . . . . . . . . . . . . . . . . $261,973 $246,235 $182,235
Operating margin . . . . . . . . . . . . 114,916 91,650 23,909
Operating income (loss) . . . . . . . . . 51,463 36,167 (30,291)
Other income (expense) . . . . . . . . . (7,571) (6,579) (6,228)
(Provision) benefit for income tax . . . (3,759) (5,947) 3,853
Minority interest . . . . . . . . . . . . (2,962) (6,932) --
Income (loss) from continuing
operations . . . . . . . . . . . . . 37,171 16,709 (32,666)
Income (loss) from discontinued
operations . . . . . . . . . . . . . -- 2,324 (4,119)
Cumulative effect of accounting change,
net of minority interest . . . . . . -- (2,542) --
Net income (loss) . . . . . . . . . . . . 37,171 16,491 (36,785)
Preferred stock dividend requirements . . (2,135) (4,260) (4,260)
Income (loss) applicable to common
stock . . . . . . . . . . . . . . . 35,036 12,231 (41,045)<PAGE>
<FN>
<F1> Combined results for Penrod and the Company for 1992 are presented
for purposes of comparison with 1994 and 1993. The amounts have not
been presented on a pro forma basis to reflect the anticipated
savings associated with combining the operations of Penrod and the
Company.
</FN>
/TABLE
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992<F1>
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Contract drilling
Jackup rigs
United States . . . . . . . . . . $109,012 $ 91,387 $ 39,170
International . . . . . . . . . . 37,735 43,532 46,932
Total jackup rigs . . . . 146,747 134,919 86,102
Barge drilling rigs - Venezuela . . . 48,227 28,966 11,336
Total offshore rigs . . . . . . . 194,974 163,885 97,438
Land rigs <F2> . . . . . . . . . . . . 12,807 28,235 30,919
Total contract drilling . . . . . 207,781 192,120 128,357
Marine transportation
AHTS <F3> . . . . . . . . . . . . . . 14,743 12,673 7,691
Supply . . . . . . . . . . . . . . . . 19,362 18,251 9,069
Mini-supply . . . . . . . . . . . . . 1,701 1,747 1,243
Subtotal . . . . . . . . . . . . 35,806 32,671 18,003
Utility <F4> . . . . . . . . . . . . . 1,864 2,619 3,612
Total marine transportation . . . 37,670 35,290 21,615
Technical services . . . . . . . . . . . . 16,522 18,825 15,160
Other . . . . . . . . . . . . . . . . . . . -- -- 17,103
Total . . . . . . . . . . . . . . . . $261,973 $246,235 $182,235
OPERATING MARGIN
Contract drilling
Jackup rigs
United States . . . . . . . . . . $ 49,607 $ 42,635 $ 4,355
International . . . . . . . . . . 15,749 12,830 12,040
Total jackup rigs . . . . . 65,356 55,465 16,395
Barge drilling rigs - Venezuela . . . 31,720 18,354 5,328
Total offshore rigs . . . . . . . 97,076 73,819 21,723
Land rigs <F2> . . . . . . . . . . . . 481 3,677 5,144
Total contract drilling . . . 97,557 77,496 26,867
Marine transportation
AHTS <F3> . . . . . . . . . . . . . . 6,022 3,458 710
Supply . . . . . . . . . . . . . . . . 6,877 6,653 (1,431)
Mini-supply . . . . . . . . . . . . . 585 745 343
Subtotal . . . . . . . . . . . . 13,484 10,856 (378)
Utility <F4> . . . . . . . . . . . . . (919) (398) 11
Total marine transportation . . . 12,565 10,458 (367)
Technical services . . . . . . . . . . . . 4,794 3,696 (2,591)
Total . . . . . . . . . . . . . . . . $114,916 $ 91,650 $ 23,909 <PAGE>
<FN>
<F1> Combined results for Penrod and the Company for 1992 are presented
for purposes of comparison with 1994 and 1993. The amounts have not
been presented on a pro forma basis to reflect the anticipated
savings associated with combining the operations of Penrod and the
Company.
<F2> United States and international land rigs are combined. The Company
sold all but one of its land rigs in 1994.
<F3> Anchor handling tug supply vessels.
<F4> As of December 31, 1994, the Company no longer has utility vessels
available for work.
</FN>
</TABLE>
The Company's 1994 increases in consolidated revenues and operating income
compared to 1993 are primarily attributable to higher average domestic day
rates for the Company's contract drilling and marine transportation
segments, revenues and operating margins associated with the six drilling
rigs that were added in 1994 and a full year of operation from four rigs
constructed and placed into service in the first half of 1993. Operating
income was also positively impacted by lower general and administrative
costs but reduced by additional depreciation and amortization expense in
1994 as compared to 1993.
The consolidated revenues and operating income of the Company for the year
ended December 31, 1993 increased substantially over the combined 1992
levels. The 1993 increases are primarily due to higher average day rates
and increased utilization for the Company's contract drilling and marine
transportation segments and increased activity in the Company's technical
services segment. Operating revenues in 1992 included $17.1 million
recorded by the Company in connection with its role as general contractor
for the construction of four new barge drilling rigs for an affiliate in
Venezuela.
CONTRACT DRILLING. Natural gas prices increased in 1992 and 1993
resulting in an increase in the number of rigs working, particularly in the
Gulf of Mexico. The activity level increased throughout 1993 and remained
fairly stable in 1994 causing the Company's contract drilling revenues and
operating margins to increase in both 1993 and 1994. However, management
anticipates that the decline in natural gas prices in late 1994 and early
1995 may result in decreased drilling activity in 1995, particularly in the
Gulf of Mexico.
As of March 1, 1995 all but one of the Company's eighteen Gulf of Mexico
rigs were operating or were committed under contract. The one uncommitted
rig is undergoing major modifications. The Gulf of Mexico rigs continue to
operate under relatively short-term agreements with contract durations
normally not exceeding six months.
The Company's revenues and operating margins, defined as operating revenues
less operating expenses, exclusive of depreciation and general and
administrative expenses, for its jackup rigs operating in the U.S.
increased for the year ended December 31, 1994 compared to the prior year
due to marginally higher average day rates in the Gulf of Mexico and to the<PAGE>
relocation of four of the Company's rigs to the Gulf of Mexico during 1993
and 1994. U.S. operating days increased to 5,063 for the year ended
December 31, 1994 as compared to 4,558 for the year ended December 31,
1993. For the year ended December 31, 1994, average day rates for the
Company's rigs in the Gulf of Mexico increased by 7% compared to the prior
year with results offset partially by a 6% utilization decrease from the
prior year.
Revenues and operating margins for the Company's jackup rigs operating in
the U.S. increased substantially for the year ended December 31, 1993
compared to the combined 1992 results primarily due to improved market
conditions in the Gulf of Mexico. Utilization rates for the Company's U.S.
jackup rigs in 1993 were near 100% compared to approximately 60% in the
combined 1992 period with corresponding 1993 average day rates up 53%.
For the year ended December 31, 1994, revenues for the Company's
international jackup rigs decreased by 13% and operating margin increased
by 23% as compared to the prior year. The revenue decrease is primarily
attributable to the mobilization of five international jackup rigs to the
Gulf of Mexico; three in the second, third and fourth quarters of 1993 from
the North Sea, one in the third quarter of 1994 from Brazil and one which
began mobilizing in the fourth quarter of 1994 from Dubai. These rigs were
included in the international jackup rig results for a portion or all of
the year ended December 31, 1993. The revenue decrease was partially
offset by, and the operating margin increase was primarily attributable to,
two North Sea jackup rigs acquired in mid-February 1994 which operated
under bareboat charter agreements during 1994.
The bareboat charter agreements on the two North Sea jackup rigs acquired
in mid-February 1994 were not extended beyond the initial twelve month
period. The Company made a $1.8 million payment to the seller in December
1994 for the remainder of the deferred purchase payment net of bareboat
charter payments due to the Company through the end of the twelve month
bareboat charter period. The drilling contracts for the two rigs have been
assigned to the Company as of January 1, 1995. Under such contracts, the
rigs work for the joint venture of major oil and gas exploration companies
for whom the rigs operated during the term of the bareboat charter
agreements.
The Company's jackup rig offshore Brazil was mobilized to the Gulf of
Mexico during the third quarter of 1994 with costs of $1.3 million charged
against 1994 earnings. Upon arrival in the U.S., the rig was placed in a
shipyard for enhancements including extending the rig's water depth
capability from 300 feet to 350 feet. Due to the mobilization and shipyard
enhancements, the rig was unavailable for work from late June 1994 through
early October 1994. The rig began operating in the Gulf of Mexico in mid-
October 1994.
The Company began mobilizing a jackup rig from Dubai to the Gulf of Mexico
in the fourth quarter of 1994 with costs of $2.2 million charged against
1994 earnings. The rig arrived in the Gulf of Mexico in January 1995 and
is currently undergoing modifications and enhancements including extending
the rig's water depth capability to approximately 400 feet. Due to the
modifications and enhancements, the rig will be unavailable for work until<PAGE>
approximately June 1, 1995.
As of March 1, 1995, two of the Company's five jackup rigs located in the
North Sea are currently undergoing substantial modifications and
enhancements including converting one of the rigs from a slot rig to a
cantilever rig. Due to the modifications and enhancements, the rigs will
be unavailable for work until approximately May 1, 1995 and July 1, 1995,
respectively.
Revenues decreased by 7% for the Company's international jackup rigs for
the year ended December 31, 1993 while operating margins increased 7%
compared to the combined 1992 period. The 1993 revenue decrease from 1992
is the result of decreased average day rates in 1993 for the Company's
international jackup rigs, coupled with the mobilization in the second,
third and fourth quarters of 1993 of three of the Company's rigs located in
the North Sea to the Gulf of Mexico. The 1993 operating margin increase is
a result of reduced operating costs.
The Company's barge drilling rigs are all located on Lake Maracaibo,
Venezuela and are operated by a 70% owned subsidiary of the Company, ENSCO
Drilling (Caribbean), Inc. ("Caribbean"). The Company's revenues and
operating margins from its barge drilling rigs in Venezuela increased
substantially for the year ended December 31, 1994 as compared to the prior
year, primarily due to the addition of four barge drilling rigs in the
third quarter of 1994 and a full year of operation of four barge drilling
rigs that began operating in March through June of 1993. Revenues and
operating margins from the Company's barge drilling rigs in Venezuela
improved significantly for the year ended December 31, 1993 compared to the
combined 1992 period, primarily as a result of the addition of four barge
drilling rigs in 1993.
All eight of the barge drilling rigs which commenced operation in Venezuela
in 1993 and 1994 are contracted under separate five-year contracts with
Lagoven, S.A. ("Lagoven"), a subsidiary of the Venezuelan national oil
company, to operate on Lake Maracaibo. The contracts afford Lagoven the
option to buy the barge drilling rigs during or at the end of the five-year
contracts. The barges were financed under eight, five-year secured term
loans which totalled $143.0 million at origination. Each loan is secured
by a specific barge and the related charter contract with Lagoven, but is
without recourse to the Company. Under the terms of the Lagoven contracts,
the barges will earn day rates which the Company believes will be
sufficient to fully amortize the associated financing.
In addition to the eight barge drilling rigs constructed in 1993 and 1994,
the Company owns two other barge drilling rigs that are contracted to
Lagoven, and the Company supplied labor to operate other rigs owned by
Lagoven during 1994, 1993 and 1992.
The Venezuelan currency experienced significant devaluation in the first
half of 1994 and the Venezuelan government established policies to control
the exchange rate of the Venezuelan currency and severely restricted the
conversion of Venezuelan currency to U.S. dollars. To date, Caribbean has
not experienced problems associated with receiving U.S. dollar payments
with respect to the U.S. dollar portion of its contracts with Lagoven.<PAGE>
Changes in these conditions, other policy enactments, or political
developments in Venezuela could have an adverse effect upon the Company.
However, the Company believes such adverse effects are unlikely due to the
volume of U.S. dollars paid to the parent company of Lagoven for its oil
exports and the contractual protection available to Caribbean if U.S.
dollar payments are not made.
The Company sold its U.S. land rig operation effective June 30, 1994 and
three of the Company's four land rigs located in the Middle East in the
fourth quarter of 1994. The Company continues to own one land rig, located
in Dubai, which is currently inactive. Revenues and operating margins for
the Company's land rigs for the year ended December 31, 1994 decreased
$15.4 million and $3.2 million, respectively, compared to the prior year.
The decreases are primarily a result of the sales.
Revenues and operating margins for land rig operations for the year ended
December 31, 1993 decreased $2.7 million and $1.5 million, respectively,
compared to the combined results for 1992. The decreases are primarily a
result of reduced utilization of the Company's Middle East land rigs which
historically earned higher day rates and margins than land rigs operating
in the U.S.
MARINE TRANSPORTATION. Beginning in the fourth quarter of 1992,
increased drilling activity in the Gulf of Mexico caused utilization and
day rates for marine transportation vessels to increase. The activity
level for marine transportation vessels in the Gulf of Mexico, which is
tied to the level of oil and gas drilling activity, increased throughout
1993 and remained fairly stable in 1994. The Company anticipates that,
based on lower domestic natural gas prices, the Gulf of Mexico market may
experience some softening during 1995.
In the fourth quarter of 1994, the Company entered into an agreement with
an unrelated third party to purchase a supply vessel, convert four of the
Company's utility vessels into four larger, 146-foot mini-supply vessels
and assign ownership of four of the Company's utility vessels to the
unrelated third party. This transaction was consistent with the Company's
strategy to concentrate its fleet on the larger, more capable vessels and
to exit the unprofitable utility boat market. Earlier in 1994, the Company
sold one utility boat and converted another to a mini-supply vessel.
Including the supply vessel acquired in the fourth quarter of 1994 and the
four utility vessels currently being converted into mini-supply vessels,
the Company has a marine transportation operating fleet of 35 vessels, four
of which are leased under long-term agreements, consisting of six anchor
handling tug supply vessels, 21 supply vessels and eight mini-supply
vessels. All of the Company's marine transportation vessels are currently
located in the Gulf of Mexico.
During 1992, the Company mobilized six marine vessels to Singapore for work
possibilities. Two of the vessels returned to the Gulf of Mexico in 1993.
The Company operated the remaining four vessels in Singapore through a
joint venture beginning in August 1993. The Singapore joint venture was
terminated in May 1994 and three of the vessels were mobilized to the Gulf
of Mexico. The remaining vessel, a utility boat, was sold effective June
30, 1994. The charter fees from the joint venture were recorded as<PAGE>
operating revenue by the Company and the Company's 50% interest in the
results of the joint venture operations were reported in "Income (Loss)
From Equity Affiliates." During most of 1993 the Company operated two
anchor handling vessels offshore Brazil. One vessel returned to the Gulf
of Mexico in the fourth quarter of 1993 and the other vessel returned to
the Gulf of Mexico in February 1994.
As a result of increased average day rates in the Gulf of Mexico and
improved work opportunities for the three vessels that returned to the Gulf
of Mexico from Singapore in September 1994, the Company's marine
transportation revenues and operating margin increased 7% and 20%,
respectively, for the year ended December 31, 1994 compared to the prior
year. The Company's marine transportation revenues increased 63% for the
year ended December 31, 1993 compared to the combined 1992 period, with a
corresponding improvement in operating margin to $10.5 million in 1993 from
a negative operating margin of $367,000 in the combined 1992 period due to
increased Gulf of Mexico activity and day rates.
TECHNICAL SERVICES. The Company's horizontal drilling activity
declined for the year ended December 31, 1994 as compared to the prior year
which caused revenues to decrease. Average days per job in 1994 increased
marginally compared to 1993 due to the additional time required to drill
dual horizontal laterals from one vertical well bore partially offset by
substantially improved drilling efficiency with a new high performance
drilling motor. Guidance activity and revenues increased due to slightly
longer average job days compared to 1993. Operating margin for the year
ended December 31, 1994 increased from the prior year due primarily to
reduced operating expenses, the collection of a receivable that had been
fully reserved in a prior year, reductions in previously recorded liability
estimates and improved rates for premium tools partially offset by reduced
rates in other areas. Drilling activity improved in 1993 from the
depressed activity levels of 1992. Average job margins in 1993 improved,
as compared to 1992, as a result of the increased demand for the Company's
services coupled with the results of cost cutting programs implemented
throughout the latter part of 1992 and continuing into 1993.
In September 1994, a wholly owned subsidiary of the Company entered into an
exclusive alliance agreement with Halliburton Energy Services, a division
of Halliburton Company, to jointly provide coiled tubing directional and
horizontal drilling services on a worldwide basis.
In October 1994, a wholly owned subsidiary of the Company entered into an
agreement with Lateral Vector Resources, Inc. ("LVR"), a Canadian company,
under which LVR purchased a 30% interest in a subsidiary of the Company.
The purpose of the sale was to combine forces with LVR to conduct
horizontal/directional drilling services in Canada and certain areas of the
U.S. The subsidiary continues to be included in the Company's consolidated
financial statements.
The Company's technical services operations are presently conducted in the
U.S., primarily in the Austin Chalk trend in the Southern U.S., Canada and
the North Sea. The Company will continue to focus primarily on domestic
and Canadian opportunities for its technical services segment in 1995, as
well as expanding its coiled tubing drilling services in the North Sea.<PAGE>
To date in 1995, domestic market conditions for the Company's technical
services segment have remained consistent with the activity level in 1994.
There are currently no indications of substantial change in horizontal
drilling activity during 1995, although management anticipates that the
demand for specialized drilling applications will increase.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expense for the year ended December 31, 1994 increased 24% from the prior
year. The increase is primarily attributable to a full year of
depreciation and amortization related to the step-up in basis of the assets
acquired in the Penrod Acquisition, a full year of depreciation on four
barge drilling rigs delivered to Venezuela in March through June of 1993,
depreciation on four additional barge drilling rigs delivered to Venezuela
in July through September of 1994 and depreciation on two North Sea jackup
rigs acquired in mid-February 1994. Depreciation expense in 1994 was
reduced by the sale of all but one of the Company's land rigs during 1994.
Depreciation and amortization expense for the year ended December 31, 1993
increased by $28.9 million from 1992. The substantial increase is due
primarily to the inclusion of the assets acquired in the Penrod Acquisition
for the entire year of 1993 and depreciation on four barge drilling rigs
delivered to Venezuela in March through June of 1993.
GENERAL AND ADMINISTRATIVE. General and administrative expense for
the year ended December 31, 1994 decreased $2.5 million, or 21%, from the
prior year. The decrease is primarily attributable to the benefits
realized in 1994 from integrating Penrod's general and administrative
functions into the Company following the acquisition of Penrod in August
1993. General and administrative expense increased in 1993 by $3.3 million
compared to 1992 as a result of the inclusion of Penrod's general and
administrative expenses, primarily consisting of additional salaries and
related benefits and outside professional fees. Combined Penrod and
Company general and administrative expenses for 1992, without any pro forma
adjustments for the effects of anticipated savings associated with the
acquisition, were $16.2 million, or $4.5 million over 1993 levels.
OTHER INCOME (EXPENSE). The Company reported net other expense of
$7.6 million, $6.6 million and $8.0 million for the years ended December
31, 1994, 1993 and 1992, respectively. Interest income for 1994 increased
by $2.5 million over 1993 and $1.6 million in 1993 over 1992 due to higher
average cash levels, due in part to the acquisition of Penrod and increased
interest rates. Interest expense increased by $3.6 million in 1994
compared to 1993, while 1993 interest expense exceeded 1992 by $5.3 million
due to higher levels of debt, increased interest rates and the inclusion of
Penrod's debt acquired. See Note 6 to Consolidated Financial Statements.
Income (Loss) from Equity Affiliates for 1994 and 1993 consists of the
Company's 50% share of the earnings (loss) of a Mexican joint venture
formed in June 1993 to operate a jackup rig in the Gulf of Mexico and a
joint venture in Singapore formed in August 1993 to operate marine vessels
in Southeast Asia. In 1992 the Company reported its proportionate share of
the losses of Penrod on the equity method of accounting.
The Company recorded a gain of $670,000 in 1994 related to the sale of<PAGE>
stock of a subsidiary. See Note 12 to Consolidated Financial Statements.
The Company currently has no plans to reduce its ownership interest in any
of its subsidiaries. The Company reported under "Other, net" losses of
$755,000 in 1994 consisting primarily of foreign currency translation
losses of $1.3 million partially offset by other miscellaneous income.
PROVISION FOR INCOME TAXES. For the years ended December 31, 1994,
1993 and 1992 the Company recorded provisions for income taxes of $3.8
million, $5.9 million and $2.1 million, respectively, resulting in
effective tax rates of 8.6%, 20.0% and 8.8%, respectively. The Company's
effective tax rate varies between years due primarily to the expected
utilization or non-utilization of U.S. net operating loss carryforwards,
foreign taxes and the recording of deferred taxes.
The Company has a deferred tax asset valuation allowance of $47.9 million
recorded at December 31, 1994 which relates to the uncertainty as to the
realization of certain deferred tax assets, primarily consisting of U.S.
net operating loss carryforwards. Based upon anticipated future results,
the Company has concluded that it is more likely than not that the deferred
tax assets balance, net of valuation allowance, will be realized. See Note
11 to Consolidated Financial Statements.
MINORITY INTEREST. Minority interest of $3.0 million for the year
ended December 31, 1994 consists primarily of the minority shareholder's
interest in the net income of Caribbean. The Company has entered into a
letter of intent with the minority shareholder of Caribbean to purchase,
effective January 1, 1995, one-half of the 30% of Caribbean currently owned
by the minority shareholder. See Note 18 to Consolidated Financial
Statements. Minority interest of $6.9 million for the year ended December
31, 1993 consists of $4.5 million related to the preacquisition earnings of
the 64% of Penrod which the Company did not own prior to the Penrod
Acquisition and $2.4 million related to the minority shareholder's interest
in the net income of Caribbean. See Note 1 to Consolidated Financial
Statements.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. In 1993, the Company
completed a series of transactions that resulted in the sale of
substantially all of the Company's supply business, conducted by its wholly
owned subsidiary, ENSCO Tool and Supply Company, for net cash proceeds of
approximately $12.3 million. As a result of these transactions, the
Company's financial statements were reclassified to present the Company's
supply operations segment as discontinued operations for all years
presented. Included in 1993 "Income (Loss) from Discontinued Operations"
is a gain on the supply division sale of $2.1 million, which includes a
provision of $1.3 million for operations during the phase out period which
began July 1, 1993, and income from operations for the six months ended
June 30, 1993 of $200,000. Revenues for the supply operations were $22.2
million and $62.6 million in 1993 and 1992, respectively. See Note 17 to
Consolidated Financial Statements.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF MINORITY INTEREST.
Effective January 1, 1993, Penrod adopted Statement of Financial Accounting
Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the accrual,<PAGE>
during the year the employee renders the service, of the estimated cost of
providing postretirement non-pension benefit payments. The cumulative
effect after taxes and minority interest on the Company resulting from
Penrod's adoption of SFAS No. 106 was $2.5 million ($.07 per share after
the reverse stock split). See Note 10 to Consolidated Financial
Statements.
PREFERRED STOCK DIVIDEND REQUIREMENTS. Preferred stock dividends
decreased to $2.1 million for the year ended December 31, 1994 as compared
to $4.3 million for each of the years ended December 31, 1993 and 1992 due
to the conversion/redemption of all of the Company's preferred stock in
August 1994. See Note 7 to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES.
CASH FLOW AND CAPITAL EXPENDITURES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- ------
(in thousands)
<S> <C> <C> <C>
Cash flow from operations . . . . . . . . . . . . . . . $107,833 $55,492 $7,220
Capital expenditures, excluding the Penrod acquisition
and discontinued operations . . . . . . . . . . . . . 153,165 83,002 3,375
</TABLE>
Cash flow from operations in 1994 increased by $52.3 million, or 94%,
compared to 1993. The increase in 1994 cash flow is primarily a result of
improved operating results and a full year's contribution from the cash
flow of the ex-Penrod operations. Cash flow from operations increased
substantially in 1993 to $55.5 million from $7.2 million in 1992 primarily
as a result of improved operating results, a reduction of accounts
receivable relating to the construction of four barge drilling rigs and the
contribution from the cash flow from Penrod's operations during the last
five months of 1993.
The Company's consolidated statement of cash flows for the year ended
December 31, 1993 includes the cash and cash equivalents acquired with the
acquisition of Penrod in August 1993, plus the cash provided by operating
activities of Penrod subsequent to the acquisition. The cash flows from
investing and financing activities of Penrod subsequent to the acquisition,
including capital expenditures for property and equipment, long-term
borrowings, and repayments of long-term borrowings, are also included in
the Company's consolidated statement of cash flows. The cash provided by
operating activities of Penrod prior to the Penrod Acquisition and the cash
flows from investing and financing activities of Penrod prior to the
acquisition have not been included in the Company's consolidated statement
of cash flows. See Note 3 to Consolidated Financial Statements.
The Company's capital expenditures for 1994 consisted principally of $62.2<PAGE>
million towards the construction of four barge drilling rigs delivered for
operation in Venezuela in July through September of 1994, $55.7 million for
the purchase of two jackup rigs located in the North Sea, $24.9 million for
contract drilling equipment, $7.0 million for marine transportation
equipment and $3.4 million for other equipment, primarily for technical
services operations.
During 1994, the Company sold its U.S. land rig operations and three of the
Company's four land rigs located in the Middle East for aggregate proceeds
of $23.0 million consisting of cash, a promissory note which was repaid
prior to December 31, 1994 and receivables.
The Company's capital expenditures for the year ended December 31, 1993 for
continuing operations included $65.7 million in connection with the
construction of four barge drilling rigs that commenced operations in
Venezuela in 1993, $4.2 million for the barge drilling rigs under
construction at the end of 1993 that were delivered to Venezuela in 1994,
$9.9 million for contract drilling equipment, $2.0 million for marine
transportation equipment and $1.2 million for equipment used in the
Company's technical service operations.
The Company's capital expenditures for continuing operations for 1992
included $1.9 million for technical services equipment, $1.0 million for
contract drilling equipment and $500,000 for other equipment, primarily for
marine transportation vessels.
Management anticipates that capital expenditures in 1995 will be
approximately $25.0 million for existing operations and up to an additional
$50.0 million for upgrades and enhancements of rigs and vessels, dependent
upon the cash generated from the Company's operations. The Company may
spend additional funds to acquire rigs or vessels in 1995, depending on
market conditions and opportunities.
FINANCING AND CAPITAL RESOURCES. The Company's long-term debt,
total capital and debt to capital ratios are summarized below (in
thousands, except percentages):
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Long-term debt . . . . . . . . . . . . . . . . . . $162,466 $125,983 $ 23,628
Total capital . . . . . . . . . . . . . . . . . . . 650,416 580,885 237,117
Long-term debt to total capital . . . . . . . . . . 25.0% 21.7% 10.0%
</TABLE>
The increase in long-term debt in 1994 as compared to 1993 primarily
relates to an additional $76.5 million borrowed by Caribbean, on a non-
recourse basis to the Company, in connection with the construction of four
barge drilling rigs which were completed and placed into service in the
third quarter of 1994. This increase in long-term debt was partially<PAGE>
offset by scheduled repayments and the redemption of the Company's
convertible subordinated debentures in March 1994. The total capital of
the Company increased in 1994 as compared to 1993 due primarily to the net
increase in long-term debt as discussed above and the profitability of the
Company in 1994.
The long-term debt of the Company increased substantially in 1993 as
compared to 1992 due primarily to $60.0 million of borrowings in December
1993, a portion of which was used to retire existing term loans of Penrod.
Caribbean also borrowed $65.0 million in 1993, on a non-recourse basis to
the Company, related to four barge drilling rigs delivered to Venezuela in
1993. Additionally the Company borrowed $25.0 million in October 1993, a
portion of which was used to repay a secured term loan and secured notes
payable. These increases in long-term debt were partially offset by
scheduled repayments. The total capital of the Company also significantly
increased in 1993 as compared to 1992 due primarily to the issuance of
common stock of the Company in connection with the acquisition of Penrod in
August 1993, the net increase in long-term debt as discussed above and due
to the profitability of the Company in 1993. See Note 3 to Consolidated
Financial Statements.
The Company had a $39.0 million undrawn revolving line of credit at
December 31, 1994. The revolver is reduced semi-annually by $1.0 million
over five years, with the final $30.0 million line expiring in December
1998. See Note 6 to Consolidated Financial Statements.
In August 1994, the Company issued a redemption notice for the 2,839,110
outstanding shares of its $1.50 Cumulative Convertible Exchangeable
Preferred Stock ("$1.50 Preferred Stock"), which was also the number of
shares outstanding at December 31, 1993. Holders of substantially all of
the $1.50 Preferred Stock elected to convert each of their shares into
approximately 1.786 shares of the Company's common stock. See Note 7 to
Consolidated Financial Statements.
The Company's liquidity position is summarized in the table below (in
thousands, except ratios):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Cash and short-term investments . . . . . . . . . $154,078 $128,060 $25,490
Working capital . . . . . . . . . . . . . . . . . 124,160 127,105 46,551
Current ratio . . . . . . . . . . . . . . . . . . 2.4 2.9 2.4
</TABLE>
The Company utilizes a conservative investment philosophy with respect to
its cash and short-term investments and does not invest in any derivative
financial instruments.
Based on current energy industry conditions, management believes cash flow
from operations, the Company's existing credit facilities and the Company's<PAGE>
working capital should be sufficient to fund the Company's required debt
service and capital additions for the next twelve months.
OTHER MATTERS.
In December 1994, the Company's Board of Directors authorized the
repurchase of up to $50.0 million of the Company's common stock. As of
December 31, 1994, the Company had repurchased 201,400 shares of its common
stock. Management anticipates that future repurchases of the Company's
common stock will be funded from the Company's cash flow from operations
and working capital.
On February 21, 1995, the Board of Directors of the Company adopted a
shareholder rights plan and declared a dividend of one preferred share
purchase right (a "Right") for each share of the Company's common stock
outstanding on March 6, 1995. Each Right initially entitles its holder to
purchase 1/100th of a share of the Company's Series A Junior Participating
Preferred Stock for $50.00, subject to adjustment. The Rights generally
will not become exercisable until 10 days after a public announcement that
a person or group has acquired 15% or more of the Company's common stock
(thereby becoming an "Acquiring Person") or the commencement of a tender or
exchange offer upon consummation of which such person or group would own
15% or more of the Company's common stock (the earlier of such dates being
called the "Distribution Date"). Rights will be issued with all shares of
the Company's common stock issued between March 6, 1995, and the
Distribution Date. Until the Distribution Date, the Rights will be
evidenced by the certificates representing the Company's common stock and
will be transferrable only with the Company's common stock. If any person
or group becomes an Acquiring Person, each Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become
void), will thereafter entitle its holder to purchase, at the Right's then
current exercise price, shares of the Company's common stock having a
market value of two times the exercise price of the Right. If, after a
person or group has become an Acquiring Person, the Company is acquired in
a merger or other business combination transaction or 50% or more of its
assets or earning power are sold, each Right (other than Rights owned by an
Acquiring Person which will have become void) will entitle its holder to
purchase, at the Rights then current exercise price, that number of shares
of common stock of the person with whom the Company has engaged in the
foregoing transaction (or its parent) which at the time of such transaction
will have a market value of two times the exercise price of the Right.
After any person or group has become an Acquiring Person, the Company's
Board of Directors may, under certain circumstances, exchange each Right
(other than Rights of the Acquiring Person) for shares of the Company's
common stock having a value equal to the difference between the market
value of the shares of the Company's common stock receivable upon exercise
of the Right and the exercise price of the Right. The Company will
generally be entitled to redeem the Rights for $.01 per Right at any time
until 10 days after a public announcement that a 15% position has been
acquired. The Rights expire on February 21, 2005. <PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORTS OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Energy Service Company, Inc.
In our opinion, based upon our audits and the report of other auditors,
the accompanying consolidated balance sheet and the related consolidated
statements of operations and of cash flows present fairly, in all material
respects, the financial position of Energy Service Company, Inc. and its
subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
did not audit the financial statements of the Company's Venezuelan
operations for the year ended December 31, 1993, which statements reflect
total revenues of $28,967,000 for the year then ended. Those statements
were audited by other auditors whose report thereon has been furnished to
us, and our opinion expressed herein, insofar as it relates to the amounts
included for the Company's Venezuelan operations, is based solely on the
report of the other auditors. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits and report of other auditors provide a reasonable basis for the
opinion expressed above.
As discussed in Note 17, in 1993 the Company decided to discontinue its
supply business. The financial statements for 1992 have been restated to
reflect the discontinuance of the supply business. We have audited the
adjustments that were applied to restate the 1992 financial statements. In
our opinion, such adjustments are appropriate and have been properly
applied to the 1992 financial statements.
As discussed in Note 10, in 1993 the Company changed its method of
accounting for postretirement benefits other than pensions.
/s/ Price Waterhouse LLP
Dallas, Texas
February 21, 1995
- ---------------------------------------------------------------------------
To the Board of Directors and Stockholders of Energy Service Company, Inc.
We have audited the consolidated statements of operations and cash flows of
Energy Service Company, Inc. and its subsidiaries ("the Company") for the
year ended December 31, 1992 (which are not presented herein). These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit. The financial statements of Penrod Partners L.P.,<PAGE>
formerly NGP No. I., L.P. ("Penrod Partners"), which were not audited by
us, were audited by other auditors whose report thereon has been furnished
to us, and our opinion expressed herein, insofar as it relates to the
amounts included for such entity, is based solely upon the report of such
other auditors. The Company's investment in Penrod Partners is accounted
for under the equity method. Included in the consolidated financial
statements is a net loss of $2.9 million for the Company's equity interest
in the operations of Penrod Partners for the year ended December 31, 1992.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based upon our audit and the report of other auditors,
the consolidated financial statements referred to above present fairly, in
all material respects, the results of the Company's operations and its cash
flows for the year ended December 31, 1992 in conformity with generally
accepted accounting principles.
As discussed in Note 11 to the financial statements, in 1993 the
Company changed its method of accounting for taxes to conform with
Statement of Financial Accounting Standards No. 109 and, retroactively,
restated the 1992 financial statements for the change.
/s/ Deloitte & Touche LLP
Dallas, Texas
March 2, 1993 (except for Note 11 as to which the date is May 12, 1993)<PAGE>
<TABLE>
<CAPTION>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except for share amounts)
DECEMBER 31,
--------------------
1994 1993
-------- ---------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . $148,209 $128,060
Short-term investments . . . . . . . . . . . . 5,869 --
Accounts receivable, net . . . . . . . . . . . 40,137 51,232
Prepaid expenses and other . . . . . . . . . . 18,155 13,699
Total current assets . . . . . . . . . . . . 212,370 192,991
INVESTMENT IN EQUITY AFFILIATE . . . . . . . . . 6,970 8,276
PROPERTY AND EQUIPMENT, AT COST . . . . . . . . . 666,363 580,730
Less accumulated depreciation . . . . . . . . . 137,342 124,713
Property and equipment, net . . . . . . . . . 529,021 456,017
OTHER ASSETS
Goodwill . . . . . . . . . . . . . . . . . . . 21,159 28,636
Other . . . . . . . . . . . . . . . . . . . . . 5,863 5,492
Total other assets . . . . . . . . . . . . . 27,022 34,128
$775,383 $691,412
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . $ 12,742 $ 5,964
Accrued liabilities . . . . . . . . . . . . . . 34,718 32,724
Current maturities of long-term debt . . . . . 40,750 27,198
Total current liabilities . . . . . . . . . . 88,210 65,886
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 162,466 125,983
DEFERRED INCOME TAXES . . . . . . . . . . . . . . 22,989 26,856
OTHER LIABILITIES . . . . . . . . . . . . . . . . 13,768 17,785
COMMITMENTS AND CONTINGENCIES . . . . . . . . . .
PREFERRED STOCK
$1.50 Cumulative convertible exchangeable
preferred stock, $25.00 stated, liquidation
and redemption value . . . . . . . . . . . . -- 70,977 <PAGE>
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 125.0 million and
500.0 million shares authorized, 66.6 million
and 245.0 million shares issued . . . . . . . 6,657 24,500
Additional paid-in capital . . . . . . . . . . 612,318 520,775
Accumulated deficit . . . . . . . . . . . . . (71,657) (106,693)
Restricted stock (unearned compensation) . . . (5,518) (5,614)
Cumulative translation adjustment . . . . . . . (1,210) (1,230)
Treasury stock at cost, 5.6 million and
21.0 million shares . . . . . . . . . . . . . (52,640) (47,813)
Total stockholders' equity . . . . . . . . 487,950 383,925
$775,383 $691,412
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
<TABLE>
<CAPTION>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . $261,973 $246,235 $ 99,431
OPERATING EXPENSES
Operating costs . . . . . . . . . . . . 147,057 154,585 91,349
Depreciation and amortization . . . . . 54,201 43,757 14,901
General and administrative . . . . . . . 9,252 11,726 8,401
210,510 210,068 114,651
OPERATING INCOME (LOSS) . . . . . . . . . . 51,463 36,167 (15,220)
OTHER INCOME (EXPENSE)
Interest income . . . . . . . . . . . . 5,284 2,826 1,207
Interest expense . . . . . . . . . . . . (13,377) (9,803) (4,465)
Income (loss) from equity affiliates . . 607 432 (5,152)
Gain on sale of subsidiary stock . . . 670 -- --
Other, net . . . . . . . . . . . . . . . (755) (34) 435
(7,571) (6,579) (7,975)
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, MINORITY INTEREST
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE . . . . . . . . . . . . . . . . 43,892 29,588 (23,195)
PROVISION FOR INCOME TAXES . . . . . . . . (3,759) (5,947) (2,050)
MINORITY INTEREST . . . . . . . . . . . . (2,962) (6,932) --
INCOME (LOSS) FROM CONTINUING OPERATIONS . 37,171 16,709 (25,245)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS . . . . . . . . . . . . . . -- 2,324 (4,119)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE . . . . . . . . . . . 37,171 19,033 (29,364)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF MINORITY INTEREST . . . . . . . -- (2,542) --
NET INCOME (LOSS) . . . . . . . . . . . . . 37,171 16,491 (29,364)
PREFERRED STOCK DIVIDEND REQUIREMENTS . . (2,135) (4,260) (4,260)
INCOME (LOSS) APPLICABLE TO COMMON STOCK . $ 35,036 $ 12,231 $(33,624)
INCOME (LOSS) PER COMMON SHARE:
Continuing operations . . . . . . . . . $ .61 $ .31 $ (.98)
Discontinued operations . . . . . . . . -- .06 (.14)
Cumulative effect of accounting change . -- (.07) --
Income (loss) . . . . . . . . . . . . . $ .61 $ .30 $ (1.12)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . 57,843 40,325 30,003 <PAGE>
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
<TABLE>
<CAPTION>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,171 $ 16,491 $(29,364)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 54,201 30,133 14,901
Provision for deferred income taxes . . . . . . . . . . . . . . (878) 3,199 2,417
Amortization of debt discount and other assets . . . . . . . . . 3,205 2,627 1,366
Net cash provided (used) by discontinued operations . . . . . . -- (639) 12,126
Losses or distributed income (undistributed income) from equity
affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 403 (114) 5,152
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,171 1,565 1,019
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . 12,246 12,914 (9,800)
(Increase) decrease in prepaid expenses and other . . . . . . (7,774) (2,052) 1,961
Increase (decrease) in accounts payable . . . . . . . . . . . 5,493 (1,781) 1,402
Increase (decrease) in accrued and other liabilities . . . . 2,595 (6,851) 6,040
Net cash provided by operating activities . . . . . . . . 107,833 55,492 7,220
INVESTING ACTIVITIES
Additions to property and equipment . . . . . . . . . . . . . . . . (153,165) (83,002) (3,375)
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . -- 36,819 --
Net proceeds from sales of discontinued operations . . . . . . . . . 652 12,275 2,047
Purchase of short-term investments . . . . . . . . . . . . . . . . . (5,869) -- --
Proceeds from disposition of assets . . . . . . . . . . . . . . . . 24,898 1,259 754
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 972 (3,683) 2,279
Net cash provided (used) by investing activities . . . . . (132,512) (36,332) 1,705
FINANCING ACTIVITIES
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 114,698 159,113 --
Reduction of long-term borrowings . . . . . . . . . . . . . . . . . (64,641) (72,364) (8,652)
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . (2,426) -- --
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . (2,135) (4,260) (4,260)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (668) 921 --
Net cash provided (used) by financing activities . . . . . 44,828 83,410 (12,912)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 20,149 102,570 (3,987)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . . . . . . . . . . . . 128,060 25,490 29,477
CASH AND CASH EQUIVALENTS, END OF YEAR . . . . . . . . . . . . . . . . . $148,209 $128,060 $ 25,490
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Energy Service Company, Inc. (the "Company"), a Delaware corporation,
was incorporated in August 1987, and is the successor by merger to Blocker
Energy Corporation. The accompanying consolidated financial statements
include the accounts of the Company and its majority owned subsidiaries.
The Company's investments in 50% or less owned affiliates are accounted for
under the equity method. All significant intercompany accounts and
transactions have been eliminated. See Note 2 "Investments in Equity
Affiliates."
In August 1993, the Company completed the step acquisition (the
"Penrod Acquisition") of Penrod Holding Corporation ("Penrod"). See Note
2 "Investments in Equity Affiliates" and Note 3 "Acquisition." The Company
has included the income from continuing operations of Penrod in its
consolidated statement of operations beginning January 1, 1993 and has
presented the preacquisition earnings related to the 64% of Penrod which it
did not own prior to August 1993 as Minority Interest. The results of the
Company's 1992 operations reflect Penrod on the equity method of
accounting.
CONSOLIDATED STATEMENT OF CASH FLOWS
The Company's consolidated statement of cash flows for the year ended
December 31, 1993 includes the cash and cash equivalents acquired in the
Penrod Acquisition, net of acquisition costs, plus the cash provided by
operating activities of Penrod subsequent to the Penrod Acquisition. The
cash flows from investing and financing activities of Penrod subsequent to
the Penrod Acquisition, including additions to property and equipment,
long-term borrowings, and repayments of long-term borrowings, are also
included in the Company's consolidated statement of cash flows for the year
ended December 31, 1993. The cash provided by operating activities of
Penrod prior to the Penrod Acquisition and the cash flows from investing
and financing activities of Penrod prior to the Penrod Acquisition have not
been included in the Company's consolidated statement of cash flows for the
year ended December 31, 1993.
For purposes of the consolidated balance sheet and statement of cash
flows, the Company considers highly liquid debt instruments to be cash
equivalents if they have maturities of three months or less at the date of
purchase.
FOREIGN CURRENCY TRANSLATION
The financial statements of certain foreign subsidiaries are
maintained in their local currency, and assets and liabilities are
translated into U.S. dollars at current exchange rates. Revenues and<PAGE>
expenses are translated at the average exchange rate for each period.
Translation adjustments are accumulated as a separate component of
stockholders' equity. Such translation adjustment activity was
insignificant for all years presented.
Some foreign subsidiaries operate in highly inflationary economies.
The financial statements of these subsidiaries, as well as the financial
statements of certain foreign subsidiaries for which the U.S. dollar is the
functional currency, are remeasured in U.S. dollars based on a combination
of both current and historical exchange rates. Gains and losses caused by
the remeasurement process applicable to these foreign subsidiaries are
reflected in the consolidated statement of operations. Transaction and
translation losses were $1.3 million for the year ended December 31, 1994,
$961,000, net of minority interest, for the year ended December 31, 1993
and $217,000 for the year ended December 31, 1992.
SHORT-TERM INVESTMENTS
Short-term investments are comprised of debt instruments having
maturities of greater than three months and less than one year at the date
of purchase and are stated at cost due to the Company's intent and ability
to hold the investments to maturity. The aggregate fair value of short-
term investments at December 31, 1994 approximates cost. As of December
31, 1994, short-term investments consisted of debt instruments issued by
U.S. government agencies.
PROPERTY AND EQUIPMENT
Depreciation on drilling rigs and related equipment and marine vessels
acquired after 1990 is computed using the straight line method over
estimated useful lives ranging from 4 to 15 years. Depreciation on
drilling rigs and related equipment and marine vessels acquired prior to
1991 is computed using the units-of-production method over estimated useful
lives ranging from 10 to 15 years. Under the units-of-production method,
depreciation is based on the utilization of the drilling rigs and vessels
with a minimum provision when the rigs or vessels are idle. Depreciation
is computed using the straight line method over estimated useful lives
ranging from 2 to 10 years for other equipment and 7 to 30 years for
buildings and improvements.
The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. Interest capitalized for
the years ended December 31, 1994 and 1993 was $731,000 and $735,000,
respectively. No interest was capitalized in 1992.
Maintenance and repair costs are charged to expense as incurred.
Major renewals and improvements are capitalized. Upon retirement or
replacement of assets, the related cost and accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in
income.
GOODWILL
Goodwill arising from the acquisition of Penrod in 1993 and Argosy<PAGE>
Offshore, Ltd. in 1991 is amortized on the straight-line basis over periods
of 40 years and 10 years, respectively. See Note 3 "Acquisition." During
1994, goodwill from the Penrod Acquisition was reduced primarily for
adjustments to insurance and other liabilities and deferred taxes. See
Note 11 "Income Taxes". Accumulated amortization was $2.0 million and
$1.2 million at December 31, 1994 and 1993, respectively. Amortization
expense was $802,000, $598,000 and $290,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
At each balance sheet date, the Company evaluates the realizability of
goodwill based upon expectations of undiscounted cash flows and operating
income. Based upon its most recent analysis, the Company believes that no
impairment of goodwill exists at December 31, 1994.
INCOME TAXES
In 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," the
effects of which were applied retroactively to the beginning of 1990. SFAS
No. 109 requires the Company to compute deferred income taxes based upon
the amount of taxes payable in future years after considering changes in
tax rates and other statutory provisions that will be in effect in those
years. The provision for income taxes includes federal, foreign, state and
local income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases of
assets and liabilities. See Note 11 "Income Taxes."
MINORITY INTEREST
The Company's 1994 and 1993 consolidated financial statements include
Penrod, which prior to the Company's acquisition of the remaining interest
in August 1993 was a 36% owned affiliate. See Note 3 "Acquisition." ENSCO
Drilling (Caribbean), Inc. ("Caribbean"), which is 70% owned by the
Company, has been included in the Company's consolidated financial
statements for all years presented. The Company's consolidated financial
statements also include ENSCO Technology Canada, Inc. ("ETC") for all years
presented. In October 1994, a wholly owned subsidiary of the Company sold
a 30% interest in ETC to an unrelated third party. See Note 12 "Gain on
Sale of Subsidiary Stock." The minority shareholders' interest included in
the Company's consolidated balance sheet at December 31, 1994 and 1993 was
$4.7 million and $1.2 million, respectively, and is included in Other
Liabilities.
The minority interest amount in the consolidated statement of
operations for the year ended December 31, 1993 included $4.5 million
related to the preacquisition earnings of Penrod.
CONSTRUCTION REVENUE RECOGNITION
Revenues from the construction of Venezuela barge drilling rigs were
recognized on the percentage of completion method based on shipyard costs
incurred as a percentage of estimated total shipyard costs in the
consolidated statement of operations for the year ended December 31, 1992.
There was no such treatment of construction activity for the years ended<PAGE>
December 31, 1994 or 1993.
SALE OF SUBSIDIARY STOCK
The Company has adopted the income statement recognition method as its
accounting policy with respect to gains and losses associated with the sale
of subsidiary stock. A gain of $670,000 is included in the Company's
consolidated statement of operations for the year ended December 31, 1994
related to the sale of stock of a subsidiary. See Note 12 "Gain on Sale of
Subsidiary Stock."
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share has been computed based on the weighted
average number of common shares outstanding during the applicable period
after recognition of minority interest charges and preferred stock dividend
requirements. Common stock equivalents have been included in periods in
which their effect is dilutive. All weighted average share and per share
amounts have been restated to reflect the one share for four shares reverse
stock split ("reverse stock split") which was effective June 1, 1994. See
Note 8 "Stockholders' Equity."
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform
to the 1994 presentation.
2. INVESTMENTS IN EQUITY AFFILIATES
Investment in equity affiliate at December 31, 1994 and 1993 consists
primarily of a wholly owned subsidiary's 50% interest in a joint venture,
which was formed in June 1993, for the purpose of owning, leasing and
operating jackup rigs in the territorial waters of Mexico and other parts
of the world. The wholly owned subsidiary contributed a jackup rig to the
joint venture and the other partner's capital contribution consisted of
payments for mobilization costs, costs of leg extensions and other rig
equipment and a working capital contribution. For the years ended December
31, 1994 and 1993, the Company recorded income of $700,000 and $561,000,
respectively, in Income (Loss) from Equity Affiliates from its beneficial
ownership in the joint venture. The difference between the Company's
investment in the joint venture and its proportionate share of the joint
venture's net assets was $1.4 million, net of accumulated amortization, at
December 31, 1994 and is being amortized over a ten year period. The
Company received $2.2 million of distributions from the joint venture in
1994, of which $1.1 million represented a return of capital. No
distributions were received from the joint venture in 1993.
A wholly owned subsidiary of the Company, through its 42% investment
in a partnership, beneficially owned 25% of Penrod during 1992. See Note 3
"Acquisition." The following is a consolidated summary of the operating
results of the partnership for the year ended December 31, 1992 (in
thousands):<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
PARTNERSHIP PENROD ELIMINATIONS TOTALS
----------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $ -- $ 82,805 $ -- $82,805
Operating expenses . . . . . . . . . 335 74,821 (216) <F1> 74,940
Net loss . . . . . . . . . . . . . . . (6,811) (12,819) 12,819 (6,811)
<FN>
<F1> To eliminate intercompany transactions.
</FN>
</TABLE>
A wholly owned subsidiary of the Company also owned, through a 28%
ownership interest in certain trusts in 1992, an additional 11% of Penrod.
See Note 3 "Acquisition."
For the year ended December 31, 1992, the Company recorded in its
results of operations in Income (Loss) from Equity Affiliates a loss of
$5.2 million from its beneficial ownership in the Penrod-related
affiliates.
3. ACQUISITION
In August 1993, ENSCO Engineering Company, a wholly owned subsidiary
of the Company, acquired the remaining 64% of the common stock of Penrod
not then beneficially owned by the Company. In exchange for the common
stock of Penrod, the Company issued 102.1 million net shares (25.5 million
net shares after the reverse stock split) of its common stock valued at
approximately $227.9 million, which included 23.9 million shares (6.0
million shares after the reverse stock split) of a new class of convertible
common stock of the Company that was converted into an equal number of
shares of the Company's common stock in October 1993. The exchange was
based upon four common shares of the Company's common stock (prior to the
reverse stock split) for each share of Penrod common stock.
The Company accounted for the Penrod Acquisition, under the rules of
purchase accounting, as a step acquisition. Under a step acquisition, the
acquiring company purchases its controlling interest in the acquired
company through a series of transactions at different time intervals. A
partial step-up or step-down in basis of the acquired company's assets is
recognized in the consolidated financial statements of the acquirer each
time an additional interest is acquired. The purchase by the Company of
the remaining 64% of Penrod was recorded at the price paid at the time of
purchase, while the prior 36% ownership of Penrod obtained by the Company
in prior transactions remained at historical cost.
The following unaudited pro forma information shows the consolidated
results of operations for the years ended December 31, 1993 and 1992 based
upon adjustments to the restated historical financial statements of the
Company and the historical financial statements of Penrod to give effect to
the acquisition by the Company of the remaining 64% of Penrod as if such<PAGE>
acquisition had occurred January 1, 1992 (in thousands, except per share
data):
1993 1992
--------- ---------
Operating revenues . . . . . . . . . . $246,235 $182,235
Operating income (loss) . . . . . . . . $ 33,886 $(34,124)
Income (loss) from continuing operations $ 19,005 $(35,529)
Net income (loss) . . . . . . . . . . . $ 21,329 $(39,648)
Preferred stock dividend requirements . (4,260) (4,260)
Income (loss) applicable to common stock $ 17,069 $(43,908)
Income (loss) per common share . . . . $ .30 $ (.79)
The pro forma consolidated results of operations are not necessarily
indicative of the actual results that would have occurred had the
acquisition occurred on January 1, 1992, or of results that may occur in
the future.<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1993 consisted of the
following (in thousands):
1994 1993
--------- ---------
Land and buildings . . . . . . . . . $ 2,638 $ 2,169
Drilling rigs and equipment . . . . . 562,722 475,590
Marine vessels . . . . . . . . . . . 66,729 66,492
Other equipment . . . . . . . . . . . 19,989 21,084
Work in progress . . . . . . . . . . 14,285 15,395
$666,363 $580,730
In February 1994, the Company purchased two jackup rigs located in the
North Sea and simultaneously entered into bareboat charter agreements with
the seller for an initial twelve month period. The purchase price
consisted of $50.0 million paid at closing and an additional $6.0 million
which was to be credited against the bareboat charter payments during the
last four months of the initial bareboat charter agreements. The bareboat
charter agreements were not extended beyond the initial twelve month period
and the Company made a payment of $1.8 million to the seller, in December
1994, for the remainder of the deferred purchase payment, net of bareboat
charter payments due to the Company through the end of the twelve month
bareboat charter period. The drilling contracts for the two rigs have been
assigned to the Company as of January 1, 1995. Under such contracts, the
rigs work for the joint venture of major oil and gas exploration companies
for whom the rigs operated during the term of the bareboat charter
agreements.
The Company's additions to property and equipment for the year ended
December 31, 1994 also included $62.2 million in connection with the
construction of four barge drilling rigs delivered to Venezuela in July
through September of 1994. The rigs immediately commenced operations under
five-year drilling contracts with Lagoven, S.A. ("Lagoven"), an affiliate
of the Venezuelan national oil company. The contracts afford Lagoven the
option to buy the barge drilling rigs during or at the end of the five-year
contracts.
In June 1994, the Company completed the sale of its United States land
rig operations consisting of twelve land rigs and related equipment, as
well as an office building and yard, to an unrelated third party. The
total sales price was approximately $15.5 million, consisting of cash, a
promissory note and receivables. In November and December of 1994, the
Company sold three of its land rigs and related equipment, located in the
Middle East, to unrelated third parties for $7.5 million. No significant
gains or losses resulted from the 1994 land rig sales.
The Company's additions to property and equipment for the year ended
December 31, 1993 include $65.7 million in connection with the construction
of four barge drilling rigs delivered to Venezuela in March through June of
1993. The rigs immediately commenced operations under five-year drilling
contracts with Lagoven. The contracts afford Lagoven the option to buy the<PAGE>
barge drilling rigs during or at the end of the five-year contracts.
In November 1993, the Company transferred three inactive land rigs to
work in progress in connection with the construction of four barge drilling
rigs which began operating in July through September of 1994 in Venezuela.
The rigs had a net book value of $6.8 million at the date of transfer to
work in progress.
In June 1992, the Company sold four inactive land rigs located in
Texas to a third party in connection with the construction of four barge
drilling rigs. The land rigs were sold at the Company's net book value and
therefore no gain or loss was recognized. The rigs had a net book value at
the time of sale of $7.6 million.
5. LEASES
The Company operates four marine transportation vessels pursuant to
ten-year operating lease agreements. The leases are renewable at the
option of the Company for up to three successive one-year periods and
provide the Company with an option to buy each of the vessels at the end of
the initial lease term at fair market value. In addition, the Company is
obligated under leases for certain of its offices and equipment.
Rental expense relating to operating leases was $3.7 million, $4.1
million and $3.1 million for the years ended December 31, 1994, 1993 and
1992, respectively. Future minimum rental payments under the Company's
noncancellable operating lease obligations having initial or remaining
lease terms in excess of one year are as follows: $4.2 million in 1995;
$3.4 million in 1996; $3.2 million in 1997; $2.7 million in 1998; $1.9
million in 1999 and $860,000 thereafter.
6. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 consists of the following
(in thousands):
1994 1993
--------- ---------
Secured term loans (non-recourse to the
Company) . . . . . . . . . . . . . $127,799 $ 59,722
Secured term loans . . . . . . . . . . 75,417 85,000
Interim construction financing . . . . -- 3,320
Convertible subordinated debentures . -- 5,059
Other notes payable . . . . . . . . . -- 80
Total long-term debt . . . . . . . . . 203,216 153,181
Less current maturities . . . . . . . (40,750) (27,198)
$162,466 $125,983
A subsidiary of the Company entered into two financing arrangements
with a subsidiary of a Japanese corporation in connection with the<PAGE>
construction of eight barge drilling rigs. The first financing
arrangement, totalling $65.0 million, funded the cost of four barge
drilling rigs delivered to Venezuela in 1993. The second financing
arrangement, totalling $78.0 million, funded the cost of four more barge
drilling rigs delivered to Venezuela in 1994. Each financing arrangement
consists of four secured term loans, one for each barge drilling rig. The
eight secured term loans bear interest at an average fixed rate of 8.17%
and are each repayable in 60 equal monthly installments of principal and
interest ending in mid-1998 through the first part of 2000. The term loans
are each secured by a specific barge drilling rig, which rigs together had
a combined net book value of $131.8 million at December 31, 1994, and the
charter contract on each rig. The secured term loans are expected to be
repaid from the cash flow generated by the eight barge drilling rigs and
are without recourse to the Company.
In March 1994, the Company redeemed its convertible subordinated
debentures consisting of $5.1 million principal amount of 8.25% convertible
subordinated debentures which were originally due July 1, 1995.
In December 1993, a subsidiary of the Company entered into a $100.0
million loan arrangement with a group of international banks. The facility
consisted of a $60.0 million secured term loan and a $40.0 million
revolving line of credit. The secured term loan is repayable in equal
semi-annual installments of principal over five years. The revolver is
reduced semi-annually by $1.0 million over five years, with the final $30.0
million line expiring at the end of the five-year term. The facility
carries a floating interest rate tied to London InterBank Offered Rates.
As of December 31, 1994, the interest rate on the facility was 7.4% per
annum. The remaining $39.0 million of the revolver is undrawn at December
31, 1994. The facility is collateralized by most of the Company's jackup
rigs, which had a combined net book value of $246.6 million at December 31,
1994. The loan arrangement requires that the Company maintain specified
minimum balances of cash and working capital, maintain certain operating
cash flows and not exceed a certain debt to total asset ratio, and it
includes certain limitations on dividends and requires that the appraised
value of the rigs securing the facility exceed the loan balances relating
to those rigs by a specified factor.
In October 1993, a subsidiary of the Company entered into a $25.0
million loan agreement with a financial institution. The seven year
secured term loan bears interest at a fixed rate of 7.91% per annum,
repayable in 28 equal quarterly installments ending October 15, 2000. The
term loan is collateralized by substantially all of the Company's marine
transportation vessels which had a combined net book value of $40.9 million
at December 31, 1994. The loan agreement requires that the Company
maintain a specified minimum tangible net worth and that the Company not
exceed a certain ratio of liabilities to tangible net worth.
The Company maintains legally restricted cash balances with a bank as
collateral for letters of credit issued by the bank related to borrowings
and insurance arrangements. These restricted cash balances aggregated $5.6
million at December 31, 1994 and are included in prepaid expenses and
other.<PAGE>
Maturities of long-term debt are as follows: $40.8 million in 1995;
$43.5 million in 1996; $45.8 million in 1997; $40.6 million in 1998; $29.1
million in 1999, and $3.4 million thereafter.
7. PREFERRED STOCK
In August 1994, the Company issued a redemption notice for the
2,839,110 outstanding shares of its $1.50 Cumulative Convertible
Exchangeable Preferred Stock ("$1.50 Preferred Stock"), which was also the
number of shares outstanding at December 31, 1993. Holders of 2,807,147
shares of the $1.50 Preferred Stock elected to convert each of their shares
into approximately 1.786 shares of the Company's common stock. Such
conversion resulted in the issuance of 5,012,762 shares of the Company's
common stock. Holders of the remaining 31,963 shares of the $1.50
Preferred Stock elected to redeem their shares which resulted in a cash
outlay of $799,000.
Dividends on the $1.50 Preferred Stock were cumulative and payable
quarterly when declared at a rate of $1.50 per annum per share.<PAGE>
8. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RESTRICTED
COMMON STOCK ADDITIONAL STOCK
------------------------ PAID-IN ACCUMULATED (UNEARNED TREASURY
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION) STOCK
--------- --------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
BALANCE, December 31, 1991 115,678 $ 11,568 $250,539 $ (85,300) $(8,240) $ (3,395)
Net loss -- -- -- (29,364) -- --
Common stock issued under
employee benefits plans, net 44 4 (410) -- 540 (36)
Common stock issued
in acquisition 6,378 638 9,507 -- -- 797
Preferred stock dividends -- -- -- (4,260) -- --
Amortization of unearned
compensation -- -- -- -- 1,154 --
BALANCE, December 31, 1992 122,100 12,210 259,636 (118,924) (6,546) (2,634)
Net income -- -- -- 16,491 -- --
Common stock issued under
employee benefits plans, net 437 44 1,026 -- (55) (351)
Common stock issued
in acquisition 122,212 12,221 260,438 -- -- (44,828)
Preferred stock dividends -- -- -- (4,260) -- --
Amortization of unearned
compensation -- -- -- -- 987 --
Reorganization adjustments -- -- 449 -- -- --
Exercise/extinguishment
of options/warrants 248 25 (774) -- -- --
BALANCE, December 31, 1993 244,997 24,500 520,775 (106,693) (5,614) (47,813)
Net income -- -- -- 37,171 -- --
Common stock issued under
employee benefits plans, net 309 31 3,491 -- (941) (2,401)
Preferred stock dividends -- -- -- (2,135) -- --
Amortization of unearned
compensation -- -- -- -- 1,037 --
Conversion of preferred stock 5,013 501 69,677 -- -- --
Repurchase of common stock -- -- -- -- -- (2,426)
Reverse stock split (183,748) (18,375) 18,375 -- -- --
BALANCE, December 31, 1994 66,571 $ 6,657 $612,318 $ (71,657) $(5,518) $(52,640)
</TABLE>
The Company's stockholders approved a one share for four shares
reverse stock split of the Company's common stock at the Company's Annual
Meeting of Stockholders held on May 24, 1994. All references in the
financial statements to weighted average common shares outstanding, income
(loss) per common share amounts and the 1994 share amounts in the table
above have been restated to reflect the reverse stock split. The aggregate
par value of the Company's common stock was reduced and additional paid-in
capital was increased to reflect the decreased aggregate par value of the
Company's common stock outstanding subsequent to the reverse stock split. <PAGE>
In December 1994, the Company's Board of Directors authorized the
repurchase of up to $50.0 million of the Company's common stock. As of
December 31, 1994, the Company had repurchased 201,400 shares of its common
stock. Management anticipates that future repurchases of the Company's
common stock will be funded from the Company's cash flow from operations
and working capital.
At the Company's Annual Meeting of Stockholders held on August 10,
1993, the Company's stockholders approved an increase in the number of
authorized shares of common stock ($.10 par value) of the Company from
250.0 million (62.5 million after the reverse stock split) to 500.0 million
(125.0 million after the reverse stock split).
In March 1988, in connection with borrowings under a secured loan
facility, the Company issued warrants to purchase 2.5 million shares (prior
to the reverse stock split) at prices between $3.75 and $4.50 per share
(prior to the reverse stock split). The warrants were extinguished in
October 1993 at the time the secured loans were repaid.
9. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OPTIONS
The Company has an employee stock option plan as part of the ENSCO
Incentive Plan (the "Incentive Plan"). The maximum number of shares with
respect to which awards may be made pursuant to the Incentive Plan is 6.3
million. Of the 6.3 million shares, a minimum of 625,000 are reserved for
issuance of incentive stock grants and a minimum of 625,000 are reserved
for issuance as profit sharing grants.
The exercise price of stock options under the Incentive Plan is the
fair market value of the stock at the time the option is granted.
Accordingly, no compensation expense is recognized by the Company with
respect to such grants. Non-qualified options are generally exercisable
one year after grant. Incentive stock options generally become exercisable
in 25% increments over a four-year period. To the extent not exercised,
options expire generally on the fifth anniversary of the date of grant.
A summary of stock option transactions, restated for the reverse stock
split, under the Incentive Plan is as follows (in thousands, except per
share amounts):
Outstanding December 31, 1991 . . . . . . . 1,007
Granted ($4.76 to $11.00 per share) . 389
Forfeited . . . . . . . . . . . . . . (350)
-----
Outstanding December 31, 1992 . . . . . . . 1,046
Granted ($12.00 per share) . . . . . . 310
Exercised ($4.76 to $11.00 per share) (89)
Forfeited . . . . . . . . . . . . . . (192)
----- <PAGE>
Outstanding December 31, 1993 . . . . . . . 1,075
Granted ($15.69 per share) . . . . . . 213
Exercised ($4.76 to $16.00 per share) (244)
Forfeited . . . . . . . . . . . . . . (39)
-----
Outstanding December 31, 1994 . . . . . . . 1,005
=====
At December 31, 1994, 468,000 options were exercisable at prices
ranging from $4.76 to $16.00 per share. Under the Incentive Plan, 2.7
million shares were available for grant as options or incentive grants at
December 31, 1994.
INCENTIVE STOCK GRANTS
Key employees, who are in a position to contribute materially to the
Company's growth and development and to its long-term success, are eligible
for incentive stock grants under the Incentive Plan through February 8,
1998.
Shares of common stock subject to incentive grants shall vest on such a
basis as determined by a committee of the Board of Directors. Through
1994, incentive stock grants for 1.1 million shares of common stock were
granted, of which 520,000 were vested at December 31, 1994. During 1994
and 1993, incentive stock grants for 60,000 shares and 50,000 shares
(12,500 shares after the reverse stock split), respectively, were granted.
No incentive stock grants were made in 1992. During 1993, 40,000 shares
(10,000 shares after the reverse stock split) were forfeited. The
remaining outstanding incentive stock grants vest as follows: 102,500 in
1995, 92,500 in each of the years 1996 through 1998, 90,000 in each of the
years 1999 and 2000, and 6,000 in each of the years 2001 through 2004. The
Company charged $1.0 million to operations in each of the years 1994 and
1993, and $1.2 million in 1992, related to incentive stock grants. The
unvested portion of the incentive stock grants is classified in the
Stockholders' Equity section of the consolidated balance sheet as
Restricted Stock.
PROFIT SHARING PLAN
The Company has a profit sharing plan (the "ENSCO Savings Plan") which
covers eligible employees with more than one year of service, as defined.
Profit sharing contributions require Board approval and may be in cash or
grants of the Company's common stock. The Company recorded profit sharing
contribution provisions for the years ended December 31, 1994 and 1993 of
$1.1 million and $500,000, respectively. No profit sharing contribution
was made for 1992.
The ENSCO Savings Plan includes a 401(k) savings plan feature which
allows eligible employees with more than three months of service to make
tax deferred contributions to the plan. Beginning July 1, 1993, the
Company made matching contributions equivalent to 25% of all employee
contributions, subject to a maximum employee contribution of 6% of their
compensation, which amounted to $307,000 and $64,000 in 1994 and 1993,
respectively. The Company made no matching contributions during 1992. The<PAGE>
Company has reserved 500,000 shares of common stock for issuance as
matching contributions under the ENSCO Savings Plan.
EMPLOYEE STOCK PURCHASE PLAN
Under the terms of the Company's employee stock purchase plan (the
"Stock Purchase Plan"), eligible employees could acquire shares of common
stock through payroll deductions of not more than 10% of their base annual
compensation. The price at which shares were purchased was 85% of the
lower of fair market value for such shares on the first or last day of each
plan year. In February 1993, the Board of Directors of the Company voted
to terminate the Stock Purchase Plan, effective June 30, 1993. Employees
participating in the Stock Purchase Plan at the date of termination had the
option of purchasing common stock of the Company or receiving a cash refund
of funds contributed in 1993. For the 1993 and 1992 plan years, 18,340
shares (4,585 shares after the reverse stock split) and 115,352 shares
(28,838 shares after the reverse stock split), respectively, were sold at
$.96 per share ($3.84 per share after the reverse stock split).
Common stock acquired pursuant to the Stock Purchase Plan may not be
sold or otherwise transferred by the participant within two years after the
purchase date, unless such common stock is first tendered to the Company.
The Company has the right to repurchase the common stock at the lesser of
the original purchase price paid for such common stock by the participant
or the fair market value on the tender date.
EMPLOYEE RETIREMENT PLAN
Eligible former Penrod employees participate in a noncontributory
defined benefit employee retirement plan. However, the plan was frozen
effective December 31, 1990. Accordingly, no additional participants may
join the plan and no additional benefits have been accrued for participants
subsequent to December 31, 1990. The Company's policy is to fund the plan
based on the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 and tax considerations. Management intends to
terminate the plan when it is in the best financial interest of the Company
by purchasing annuities or otherwise providing for participants under the
plan. The plan termination liability is estimated at $11.1 million, and
the value of plan assets is estimated at $6.0 million, resulting in an
unfunded termination liability of $5.1 million which is included in Other
Liabilities at December 31, 1994. Net periodic pension expense for all
years presented was insignificant. The Company does not expect to incur
any future charges or additional liabilities in connection with the plan
prior to its termination.
10. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1993, Penrod adopted Statement of Financial
Accounting Standards No. 106 ("SFAS No. 106"), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires the
accrual, during the year the employee renders the service, of the estimated
cost of providing postretirement non-pension benefit payments. SFAS No.
106 allows recognition of the cumulative effect of the liability in the<PAGE>
year of adoption or the amortization of the obligation over a period of up
to twenty years. Penrod elected to recognize this change in accounting on
the immediate recognition basis. The cumulative effect, after taxes and
minority interest, on the Company resulting from Penrod's adoption of SFAS
No. 106 was $2.5 million ($.07 per share after the reverse stock split).
Effective January 1, 1994, the Company's medical plan was amended such that
eligible Penrod retirees and eligible future retirees of the Company could
participate in the Company's medical plan. Retirees participating in the
Company's medical plan make contributions to the plan at a level that is
intended to fund the cost of all retiree medical claims. The Company's
current and contemplated employee benefit plans do not require the
recognition of a liability for postretirement benefits under SFAS No. 106.<PAGE>
11. INCOME TAXES
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires the use of
the liability method for computing deferred income taxes. In accordance
with the provisions of SFAS No. 109, the Company elected to retroactively
apply the requirements of SFAS No. 109 to January 1, 1990, and to restate
the financial statements of the Company issued subsequent to that date.
The adoption of SFAS No. 109 resulted in an increase of $246,000 ($.01 per
share after the reverse stock split) to income from continuing operations
for the year ended December 31, 1992.
The Company had income of $31.6 million and $9.4 million, and a loss of
$23.4 million from its operations before income taxes in the United States
and income of $12.3 million, $20.2 million and $191,000 from its operations
before income taxes in foreign countries for the years ended December 31,
1994, 1993 and 1992, respectively.
The provisions for income taxes for the years ended December 31, 1994,
1993 and 1992 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . $ 1,047 $ 500 $ --
Foreign . . . . . . . . . . . . . . . . . . . 3,591 1,899 52
Total current . . . . . . . . . . . . . . 4,638 2,399 52
Deferred:
Federal . . . . . . . . . . . . . . . . . . . (650) -- (106)
State . . . . . . . . . . . . . . . . . . . . -- -- (217)
Foreign . . . . . . . . . . . . . . . . . . . 2,771 3,100 2,321
Total deferred . . . . . . . . . . . . . 2,121 3,100 1,998
Effect of enacted rate change on pre quasi-
reorganization net operating loss carryforwards . -- 448 --
Deferred tax asset valuation allowance . . . . . . . (3,000) -- --
Total . . . . . . . . . . . . . . . . . . . . $ 3,759 $5,947 $2,050
/TABLE
<PAGE>
Deferred income tax assets (liabilities) as of December 31, 1994 and
1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ----------
<S> <C> <C>
Deferred income tax benefits:
Net operating loss carryforwards . . . . . . . $104,151 $ 128,056
Bad debts provision . . . . . . . . . . . . . 493 778
Liabilities not deductible for tax purposes . 3,251 5,299
Safe harbor leases . . . . . . . . . . . . . . 6,474 6,940
Investment tax credit carryforward . . . . . . 3,584 3,584
Unfunded pension liability . . . . . . . . . . 1,785 3,236
Investment in equity affiliates . . . . . . . 154 1,515
Foreign branch deferred taxes . . . . . . . . - 4,911
Other . . . . . . . . . . . . . . . . . . . . 2,096 2,326
Gross deferred tax assets . . . . . . . . . . 121,988 156,645
Less: Valuation allowance . . . . . . . . . . (47,936) (61,626)
Deferred tax assets, net of valuation
allowance . . . . . . . . . . . . . . . . . 74,052 95,019
Deferred tax liabilities:
Property . . . . . . . . . . . . . . . . . . . (92,477) (113,793)
Tax gain recognized on transfer of assets . . (4,052) (6,066)
Other . . . . . . . . . . . . . . . . . . . . (638) (908)
Gross deferred tax liabilities . . . . . . . . (97,167) (120,767)
Net deferred tax liabilities . . . . . . . $(23,115) $ (25,748)
Net current deferred tax assets (liabilities) . . . $ (126) $ 1,108
Net noncurrent deferred tax liabilities . . . . . . (22,989) (26,856)
Net deferred tax liability . . . . . . . . $(23,115) $ (25,748)
</TABLE>
The valuation allowance decreased by $13.7 million in 1994, of which
$1.6 million was recorded as an adjustment to goodwill, due to the expected
utilization of net operating losses that were previously projected to
expire unutilized. Included in the valuation allowance at December 31,
1994 is approximately $13.3 million related to net operating loss
carryforwards of Penrod, which originated prior to the Penrod Acquisition,
that are projected to expire unutilized. Any future adjustments to the
valuation allowance related to the projected utilization or nonutilization
of the net operating loss carryforwards of Penrod that originated prior to
the Penrod Acquisition will be allocated to goodwill. The valuation
allowance in 1993 and 1992 increased $15.9 million and $10.3 million,
respectively, due to net operating losses incurred for which no future
benefit was projected to be realized.<PAGE>
The consolidated effective income tax rate for the years ended December
31, 1994, 1993 and 1992 differs from the United States statutory income tax
rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory income tax rate . . . . . . . . . . . . . . . . . 35.0% 35.0% (34.0%)
Utilization of net operating loss carryforwards . . . . . . (31.7) (10.5) 29.5
Change in valuation allowance . . . . . . . . . . . . . . . (6.8) -- --
Foreign taxes . . . . . . . . . . . . . . . . . . . . . . . 10.0 (6.9) 14.6
Alternative minimum tax . . . . . . . . . . . . . . . . . . 2.4 -- --
Enacted future rate change . . . . . . . . . . . . . . . . . -- 1.5 --
State income taxes . . . . . . . . . . . . . . . . . . . . . -- -- (0.9)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (0.3) 0.9 (0.4)
Effective income tax rate . . . . . . . . . . . . . . . . . 8.6% 20.0% 8.8%
</TABLE>
At December 31, 1994, the Company had regular and alternative minimum
tax net operating losses and investment tax credit carryforwards of
approximately $297.6 million, $176.3 million and $3.6 million,
respectively. Included in the foregoing amounts are approximately $22.1
million of net operating loss carryforwards and $3.6 million of investment
tax credit carryforwards which originated prior to the Company's quasi-
reorganization in 1983. Through December 31, 1994, in accordance with the
provisions of SFAS No. 109, the Company had recognized the benefit of all
of the pre quasi-reorganization net operating loss carryforwards for
financial reporting purposes, by utilizing reversing taxable temporary
differences available during the carryforward period of such net operating
losses, and through tax planning strategies that will generate sufficient
taxable income to offset the remaining pre quasi-reorganization net
operating loss carryforwards. The costs of the tax planning strategies
have been included in the income tax provision. The utilization of these
net operating loss carryforwards did not reduce the Company's provision for
income taxes but resulted in the addition of $15.3 million to additional
paid-in capital. This accounting treatment does not affect the Company's
ability to use such net operating loss carryforwards to offset taxes
otherwise payable. If not utilized, the regular and alternative minimum
tax net operating loss carryforwards expire from 1998 through 2007, and the
investment tax credit carryforwards expire from 1995 through 2000. As a
result of the Penrod Acquisition, the utilization of a portion of the
Company's net operating loss carryforwards are subject to limitations
imposed by the Internal Revenue Code of 1986.
It is the policy of the Company to consider that income generated in
foreign subsidiaries is permanently invested. A significant portion of the
Company's undistributed foreign earnings at December 31, 1994 were
generated by controlled foreign corporations and were taxed, for U.S. tax
purposes, in the year that such earnings arose. Upon distribution of
foreign earnings in the form of dividends or otherwise, the Company may be<PAGE>
subject to additional U.S. income taxes. However, deferred taxes related
to the future remittance of these funds are not expected to be significant
to the financial statements of the Company since additional available net
operating loss carryforwards would be utilized to reduce the additional
U.S. income taxes payable.<PAGE>
12. GAIN ON SALE OF SUBSIDIARY STOCK
In October 1994, a wholly owned subsidiary of the Company sold 400,000
shares of ETC to Lateral Vector Resources, Inc. ("LVR"), a Canadian
company, for $1.2 million and a gain of $670,000 was recognized. The
purpose of the sale was to combine forces with LVR to conduct horizontal/
directional drilling services in Canada and certain areas of the United
States. The sale reduced the Company's ownership interest in ETC to 70%.
A provision for income taxes related to the gain on sale has been made.
However, the income tax provision has been offset by a reduction in the
deferred tax asset valuation allowance due to the utilization of additional
net operating loss carryforwards that had previously been projected to
expire unutilized.
13. COMMITMENTS AND CONTINGENCIES
Prior to October 1990, Penrod was self-insured for the majority of its
maritime claims exposure. During the period from October 1990 to the
August 1993 acquisition date, Penrod had insurance coverage which limited
its maritime claims exposure to a maximum of the $25,000 deductible for
each claim, plus a fluctuating aggregate of $500,000 to $1.5 million which
is in excess of the $25,000 claim deductible for each policy year. Penrod
is also a defendant in lawsuits with certain of its insurers and the
administrator of its self-insurance program, and personal injury and
maritime liability lawsuits filed by present and former employees.
Management of the Company has provided reserves for such claims as it
considers appropriate given the facts currently known.
On February 13, 1991, Penrod filed an action against TransAmerican
Natural Gas Corporation ("TransAmerican") which is presently pending in the
U.S. District Court Southern District of Texas, Houston Division, seeking
damages for breach of contract. On August 21, 1991, TransAmerican filed an
action against Penrod in the 133rd Judicial District Court, Harris County,
Texas, seeking damages for breach of contract and tort claims. Management
of the Company believes that the outcome of this litigation will be
favorable to the Company.
At December 31, 1994, there were no other contingencies, claims, or
lawsuits against the Company which, in the opinion of management, would
have a material effect on its financial condition or results of operations.<PAGE>
14. SEGMENT INFORMATION
The following shows industry segment and geographic region information
for the years ended December 31, 1994, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
INDUSTRY SEGMENT
------------------------------------------------------------
MARINE
CONTRACT TRANS- TECHNICAL CORPORATE
DRILLING PORTATION SERVICES & OTHER TOTAL
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . $207,781 $ 37,670 $ 16,522 $ -- $261,973
Operating income (loss) . . . . . . . . 44,597 5,455 2,045 (634) 51,463
Income (loss) from equity affiliates . 700 (93) -- -- 607
Identifiable assets . . . . . . . . . . 553,205 56,142 10,155 155,881 775,383
Capital expenditures . . . . . . . . . 142,848 6,951 2,807 559 153,165
Depreciation and amortization . . . . . 45,421 5,815 2,403 562 54,201
1993
Revenues . . . . . . . . . . . . . . . $192,120 $ 35,290 $ 18,825 $ -- $246,235
Operating income (loss) . . . . . . . . 34,921 3,458 672 (2,884) 36,167
Income (loss) from equity affiliates . 561 (129) -- -- 432
Identifiable assets . . . . . . . . . . 532,045 59,210 10,044 89,714 691,013
Capital expenditures . . . . . . . . . 79,664 1,920 1,206 212 83,002
Depreciation and amortization . . . . . 34,452 5,449 2,577 1,279 43,757
1992
Revenues . . . . . . . . . . . . . . . $ 49,002 $ 18,166 $ 15,160 $ 17,103 $ 99,431
Operating income (loss) . . . . . . . . 3,522 (4,680) (4,954) (9,108) (15,220)
Loss from equity affiliates . . . . . . (5,152) -- -- -- (5,152)
Identifiable assets . . . . . . . . . . 172,350 48,555 11,447 30,678 263,030
Capital expenditures . . . . . . . . . 1,080 317 1,858 120 3,375
Depreciation and amortization . . . . . 7,678 4,153 2,363 707 14,901
/TABLE
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC REGION
------------------------------------------------------------------------
NORTH SOUTH NORTH MIDDLE EAST CORPORATE
AMERICA AMERICA SEA & OTHER & OTHER TOTAL
--------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
1994
Revenues . . . . . . . . . . . . . . . $171,640 $ 52,532 $ 30,635 $ 7,166 $ --- $261,973
Operating income (loss) . . . . . . . . 30,883 20,954 4,868 (4,608) (634) 51,463
Income (loss) from equity affiliates . 700 --- --- (93) --- 607
Identifiable assets . . . . . . . . . . 340,888 163,042 104,669 10,903 155,881 775,383
1993
Revenues . . . . . . . . . . . . . . . $163,357 $ 42,794 $ 27,384 $ 12,700 $ --- $246,235
Operating income (loss) . . . . . . . . 30,333 15,024 (1,364) (4,942) (2,884) 36,167
Income (loss) from equity affiliates . 561 --- --- (129) --- 432
Identifiable assets . . . . . . . . . . 398,177 121,254 59,678 22,189 89,715 691,013
1992
Revenues . . . . . . . . . . . . . . . $ 54,820 $ 13,874 $ --- $ 13,634 $ 17,103 $ 99,431
Operating income (loss) . . . . . . . . (9,104) 4,130 --- (1,138) (9,108) (15,220)
Income (loss) from equity affiliates . (5,102) 601 316 (967) --- (5,152)
Identifiable assets . . . . . . . . . . 161,744 26,508 21,509 22,592 30,677 263,030
</TABLE>
Revenues in corporate and other in 1992 consists of revenues
recognized in the Company's role as general contractor for the construction
of four barge drilling rigs. Corporate and other assets consist primarily
of cash, investments, notes receivable and furniture and fixtures.
Identifiable assets excluded net assets of discontinued operations of
$399,000 and $12.0 million at December 31, 1993 and 1992, respectively.
During 1994, revenues from two customers were in excess of 10% of the
Company's total revenues. Revenues from one customer were $48.2 million,
or 18%, of total revenues, all of which were from the contract drilling
segment. Revenues from another customer were $35.3 million, or 13%, of
total revenues. Of such amount, $33.7 million was from the contract
drilling segment, $1.4 million was from the marine transportation segment
and the remainder was from the technical services segment.
During 1993, revenues from one customer were $29.0 million, or 12% of
total revenues, all of which was from the contract drilling segment.
During 1992, revenues from two customers were in excess of 10% of the
Company's total revenues. Revenues from one customer were $17.1 million,
or 17%, of total revenues, all of which was from the corporate and other
segment. Revenues from another customer were $12.5 million, or 13%, of
total revenues. Of such amount, $8.9 million was from the marine
transportation segment, $2.6 million was from the contract drilling segment
and the remainder was from the technical services segment. <PAGE>
15. TRANSACTIONS WITH RELATED PARTIES
During 1994 and 1993, four of the Company's marine transportation
vessels had bareboat charter agreements with a joint venture in which the
Company had a 50% interest. Charter revenues from the joint venture of
$365,000 and $648,000 are included in Operating Revenues in the Company's
consolidated statement of operations for the years ended December 31, 1994
and 1993, respectively. The Company terminated the joint venture and the
related charter agreements in May 1994.
During 1993, the Company recorded $500,000 of Other Income related to
fees received from a partnership, owned 42% by a wholly owned subsidiary of
the Company, for management services provided by the Company.
The Company has paid or accrued legal fees to a firm of which a
director of the Company was a partner in 1993 and 1992. The Company paid
or accrued fees for legal services from this firm of $369,000 and $432,000
during 1993 and 1992, respectively. The Company has a $675,000 note
receivable from a director of the Company in connection with the sale of
675,000 shares (168,750 shares after the reverse stock split) of restricted
common stock in 1988. The note is due July 1997 and is noninterest bearing
as long as the payor remains a director of the Company. At December 31,
1994 and 1993, the note was recorded as a reduction of additional paid-in
capital.
During 1992, the Company paid Rainwater, Inc., which is owned by one
of the Company's larger stockholders, a fee of $150,000 for providing
financial advisory and consulting services to the Company. The Company
made no payments to Rainwater, Inc. during 1994 or 1993.
16. SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET INFORMATION. Accounts receivable, net
at December 31, 1994 and 1993 consists of the following (in thousands):
1994 1993
------- -------
Trade . . . . . . . . . . . . . . . . . $37,944 $51,473
Other . . . . . . . . . . . . . . . . . 3,400 1,336
------- -------
41,344 52,809
Allowance for doubtful accounts . . . . (1,207) (1,577)
------- -------
$40,137 $51,232 <PAGE>
Prepaid expenses and other at December 31, 1994 and 1993 consists of
the following (in thousands):
1994 1993
------- -------
Prepaid expenses . . . . . . . . . . . $ 5,358 $ 3,825
Inventory . . . . . . . . . . . . . . . 3,236 3,350
Other . . . . . . . . . . . . . . . . . 9,561 6,524
------- -------
$18,155 $13,699
Accrued liabilities at December 31, 1994 and 1993 consists of the
following (in thousands):
1994 1993
------- -------
Operating expenses . . . . . . . . . . $ 9,396 $10,881
Payroll . . . . . . . . . . . . . . . . 6,424 5,009
Insurance . . . . . . . . . . . . . . . 6,789 7,698
Taxes . . . . . . . . . . . . . . . . . 6,250 3,475
Other . . . . . . . . . . . . . . . . . 5,859 5,661
------- -------
$34,718 $32,724
CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION. Maintenance and
repairs and taxes, other than payroll and income taxes for the years ended
December 31, 1994, 1993 and 1992 are as follows (in thousands):
1994 1993 1992
------- ------- ------
Maintenance and repairs . . . . . . . $18,790 $22,516 $7,395
Taxes, other than payroll and
income taxes . . . . . . . . . . 751 897 913
CONSOLIDATED STATEMENT OF CASH FLOWS INFORMATION. The consolidated
statement of cash flows excludes noncash activities related to the
conversion of the $1.50 Preferred Stock into common stock of the Company as
described in Note 7 "Preferred Stock", adjustments to goodwill as described
in Note 1 "Summary of Significant Accounting Policies" and noncash
consideration received related to the sale of the United States land rig
operation as described in Note 4 "Property and Equipment".
Cash paid for interest and income taxes for the years ended December
31, 1994, 1993 and 1992 is as follows (in thousands):
1994 1993 1992
------- ------- -------
Interest . . . . . . . . . . . . . . $ 9,940 $ 5,682 $ 3,809
Income taxes . . . . . . . . . . . . 3,104 232 419 <PAGE>
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgement is
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. The carrying amounts and estimated fair values at December 31,
1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
---------------------- ----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . $ 5,869 $ 5,862 $ -- $ --
Liabilities - long-term debt, including current maturities . . . . . 203,216 200,557 153,181 153,181
Nonfinancial instruments - other liabilities . . . . . . . . . . . . 13,768 13,768 17,785 17,785
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 70,977 73,107
</TABLE>
The estimated fair values were determined as follows:
Short-term investments --- The estimated fair value of short-term
investments is based on current interest rates for investments with
similar characteristics.
Long-term debt --- Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities
are used to estimate fair value for debt issues.
Other liabilities --- The fair value of other liabilities was determined by
discounting the expected future cash outflows relating to the other
liabilities using long-term borrowing rates available to the Company.
Preferred stock --- The fair value of the preferred stock at December 31,
1993 was based on a quoted market price at that time. The preferred stock
was converted/redeemed in 1994.<PAGE>
17. DISCONTINUED OPERATIONS
In 1993, the Company completed a series of transactions that resulted
in the sale of substantially all of the Company's supply business conducted
by its wholly owned subsidiary ENSCO Tool and Supply Company.
The Company sold substantially all of the assets of the international
supply, tubular services and engineered products business lines of its
supply operations segment to an unrelated party under an agreement
consummated July 1, 1993. The purchase price consisted of $1.0 million in
cash and approximately $3.9 million in notes issued by the purchaser. The
notes were repaid in full in December 1993. In a separate transaction
consummated June 30, 1993, the Company sold to another unrelated party all
of the shares of capital stock of Petroil Services Corporation, ENSCO Tool
and Supply (Peru) S.A. and the Egyptian American Technical Services Company
owned by the Company. The Company received $5.0 million in cash from the
purchaser. Additionally, substantially all of the Company's remaining
supply operations segment real estate was sold in 1993 to unrelated
purchasers for approximately $2.4 million in cash, net of sales costs.
As a result of these transactions, the Company's financial statements
have been reclassified to present the net assets and operating results of
the Company's supply operations segment as discontinued operations. Prior
years have been reclassified for comparative purposes. Included in the
1993 Income (Loss) from Discontinued Operations is a gain on the sales
discussed above of $2.1 million (which includes a provision of $1.3 million
for operations during the phase out period which began July 1, 1993) and
income from operations for the six months ended June 30, 1993 of $200,000.
Revenues from the supply operations segment were $22.2 million and $62.6
million in 1993 and 1992, respectively. Substantially all of the remaining
assets and liabilities of the supply business were sold, liquidated or
settled in 1994.
18. SUBSEQUENT EVENTS
On January 25, 1995, a wholly owned subsidiary of the Company entered
into a letter of intent with the 30% minority interest partner in Caribbean
under which the wholly owned subsidiary of the Company will purchase half
of the minority interest partner's shareholdings in Caribbean. The
purchase price to be paid for the 15% interest in Caribbean is based on
Caribbean's future operating activity and proceeds from any future sale of
Caribbean's rigs. The agreement, which is effective January 1, 1995,
increases the wholly owned subsidiary's interest in Caribbean from 70% to
85%.
On February 21, 1995, the Board of Directors of the Company adopted a
shareholder rights plan and declared a dividend of one preferred share
purchase right (a "Right") for each share of the Company's common stock
outstanding on March 6, 1995. Each Right initially entitles its holder to
purchase 1/100th of a share of the Company's Series A Junior Participating
Preferred Stock for $50.00, subject to adjustment. The Rights generally
will not become exercisable until 10 days after a public announcement that
a person or group has acquired 15% or more of the Company's common stock<PAGE>
(thereby becoming an "Acquiring Person") or the commencement of a tender or
exchange offer upon consummation of which such person or group would own
15% or more of the Company's common stock (the earlier of such dates being
called the "Distribution Date"). Rights will be issued with all shares of
the Company's common stock issued between March 6, 1995, and the
Distribution Date. Until the Distribution Date, the Rights will be
evidenced by the certificates representing the Company's common stock and
will be transferrable only with the Company's common stock. If any person
or group becomes an Acquiring Person, each Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become
void), will thereafter entitle its holder to purchase, at the Right's then
current exercise price, shares of the Company's common stock having a
market value of two times the exercise price of the Right. If, after a
person or group has become an Acquiring Person, the Company is acquired in
a merger or other business combination transaction or 50% or more of its
assets or earning power are sold, each Right (other than Rights owned by an
Acquiring Person which will have become void) will entitle its holder to
purchase, at the Rights then current exercise price, that number of shares
of common stock of the person with whom the Company has engaged in the
foregoing transaction (or its parent) which at the time of such transaction
will have a market value of two times the exercise price of the Right.
After any person or group has become an Acquiring Person, the Company's
Board of Directors may, under certain circumstances, exchange each Right
(other than Rights of the Acquiring Person) for shares of the Company's
common stock having a value equal to the difference between the market
value of the shares of the Company's common stock receivable upon exercise
of the Right and the exercise price of the Right. The Company will
generally be entitled to redeem the Rights for $.01 per Right at any time
until 10 days after a public announcement that a 15% position has been
acquired. The Rights expire on February 21, 2005. <PAGE>
19. UNAUDITED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly consolidated financial information for
1994 and 1993 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
1994 Quarter Quarter Quarter Quarter Total
---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Contract drilling . . . . . . . . . . . . $52,015 $54,048 $48,964 $52,754 $207,781
Marine transportation . . . . . . . . . . 8,504 9,149 10,128 9,889 37,670
Technical services . . . . . . . . . . . 4,846 3,878 4,075 3,723 16,522
65,365 67,075 63,167 66,366 261,973
Operating expenses
Contract drilling . . . . . . . . . . . . 27,296 28,607 26,606 27,715 110,224
Marine transportation . . . . . . . . . . 5,400 5,736 7,441 6,528 25,105
Technical services . . . . . . . . . . . 3,044 2,604 3,216 2,864 11,728
35,740 36,947 37,263 37,107 147,057
Operating margin . . . . . . . . . . . . . . . 29,625 30,128 25,904 29,259 114,916
Depreciation and amortization . . . . . . . . . 12,702 13,495 13,786 14,218 54,201
General and administrative . . . . . . . . . . 2,151 2,342 2,160 2,599 9,252
Operating income . . . . . . . . . . . . . . . 14,772 14,291 9,958 12,442 51,463
Other income (expense) . . . . . . . . . . . . (1,362) (2,064) (1,917) (2,228) (7,571)
Provision for income taxes . . . . . . . . . . (1,175) (1,047) (685) (852) (3,759)
Minority interest . . . . . . . . . . . . . . . (838) (645) (583) (896) (2,962)
Net income . . . . . . . . . . . . . . . . . . 11,397 10,535 6,773 8,466 37,171
Preferred stock dividend requirements . . . . . (1,065) (1,065) (5) -- (2,135)
Income applicable to common stock . . . . . . . $10,332 $ 9,470 $ 6,768 $ 8,466 $ 35,036
Income per common share . . . . . . . . . . . . $ .18 $ .17 $ .12 $ .14 $ .61
<CAPTION>
First Second Third Fourth
1993 Quarter Quarter Quarter Quarter Total
---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Contract drilling . . . . . . . . . . . . $40,281 $43,748 $51,479 $56,612 $192,120
Marine transportation . . . . . . . . . . 7,577 9,401 8,729 9,583 35,290
Technical services . . . . . . . . . . . 3,979 5,117 5,467 4,262 18,825
51,837 58,266 65,675 70,457 246,235
Operating expenses
Contract drilling . . . . . . . . . . . . 27,755 26,117 29,047 31,705 114,624
Marine transportation . . . . . . . . . . 6,467 6,900 5,533 5,932 24,832
Technical services . . . . . . . . . . . 3,509 4,110 4,530 2,980 15,129
37,731 37,127 39,110 40,617 154,585
Operating margin . . . . . . . . . . . . . . . 14,106 21,139 26,565 29,840 91,650
Depreciation and amortization . . . . . . . . . 9,711 10,271 11,569 12,206 43,757
General and administrative . . . . . . . . . . 3,133 3,350 2,925 2,318 11,726
Operating income . . . . . . . . . . . . . . . 1,262 7,518 12,071 15,316 36,167
Other income (expense) . . . . . . . . . . . . (1,173) (1,584) (688) (3,134) (6,579)<PAGE>
Provision for income taxes . . . . . . . . . . (1,279) (2,345) (2,139) (184) (5,947)
Minority interest . . . . . . . . . . . . . . . (1,136) (2,177) (2,008) (1,611) (6,932)
Income (loss) from continuing operations . . . (2,326) 1,412 7,236 10,387 16,709
Income (loss) from discontinued operations . . 240 2,913 (379) (450) 2,324
Cumulative effect of accounting change . . . . (2,542) -- -- -- (2,542)
Net income (loss) . . . . . . . . . . . . . . . (4,628) 4,325 6,857 9,937 16,491
Preferred stock dividend requirements . . . . . (1,065) (1,065) (1,065) (1,065) (4,260)
Income (loss) applicable to common stock . . . $(5,693) $ 3,260 $ 5,792 $ 8,872 $ 12,231
Income (loss) per common share . . . . . . . . $ (.19) $ .11 $ .13 $ .16 $ .30
/TABLE
<PAGE>
In January 1993, the Company and its Venezuelan partner agreed to
restructure the ownership of Caribbean, which had been owned 70% by the
Company and 30% by its Venezuelan partner. Under the new structure the
Company received a 50% common stock ownership interest in Caribbean plus
certain convertible participating preferred stock. As a result of the
ownership restructure, the Company began accounting for Caribbean under the
equity method effective January 1, 1993. In December 1993, the Company
exercised its conversion right and exchanged its shares of participating
preferred stock for shares of common stock. As a result, the Company's
common stock ownership interest increased to 70%. Accordingly, the
quarterly results for the first, second and third quarters of 1993 were
reclassified to reflect the consolidation of Caribbean for the entire year
of 1993. The first and second quarter results of 1993 were also
reclassified to include the consolidation of Penrod for the entire year of
1993. In addition, the first quarter results for 1993 were reclassified to
reflect the accounting for the supply operations as a discontinued
operation. The effect of these changes had no impact upon income (loss)
applicable to common stock or income (loss) per common share.
See Note 3 "Acquisition" and Note 17 "Discontinued Operations."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, ITEM 11. EXECUTIVE COMPENSATION,
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
AND ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information regarding the executive officers of the Company has
been presented in "Executive Officers of the Registrant" as included in
"Item 1. Business."
Pursuant to General Instruction G(3), the additional information
required by these items is hereby incorporated by reference to the
Company's definitive proxy statement, which involves the election of
directors and will be filed with the Commission not later than 120 days
after the end of the fiscal year ended December 31, 1994.<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedules and exhibits
filed as part of this report:
(1) Financial Statements of Energy Service Company, Inc Page
Report of Independent Accountants - Price Waterhouse . . 26
Report of Independent Accountants - Deloitte and Touche . 26
Consolidated Balance Sheet . . . . . . . . . . . . . . . 27
Consolidated Statement of Operations . . . . . . . . . . 28
Consolidated Statement of Cash Flows . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . 30
(2) Financial Statements of NGP No. I, L.P. Page
Report of Independent Accountants . . . . . . . . . . . . 52
Consolidated Statement of Operations . . . . . . . . . . 53
Consolidated Statement of Partners' Equity . . . . . . . 54
Consolidated Statement of Cash Flows . . . . . . . . . . 55
Notes to Consolidated Financial Statements . . . . . . . 56
Financial Statements of Penrod Partners L.P., formerly NGP
No. I, L.P. are presented pursuant to Rule 3-09 of
Regulation S-X of the Securities and Exchange Commission.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners of
NGP No. I, L.P.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(2) present fairly, in all material respects, the
results of operations and cash flows of NGP No. I, L.P. and its
subsidiaries for the year ended December 31, 1992 in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Partnership's management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Dallas, Texas
February 12, 1993<PAGE>
NGP NO. I, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
- ---------------------------------------------------------------------------
Revenues:
Contract drilling $ 79,356
Marine transportation 3,449
--------
82,805
--------
Operating expenses:
Contract drilling 63,689
Marine transportation 3,289
Depreciation 23,175
General and administrative 7,962
--------
98,115
--------
Operating loss (15,310)
--------
Other income (expense):
Interest expense (5,059)
Interest income 2,157
Other (467)
--------
Loss before income taxes and minority interest (18,679)
Income tax expense (benefit):
Current 1,000
Deferred (6,580)
--------
Loss before minority interest (13,099)
Minority interest in losses of subsidiary 6,288
--------
Net loss $(6,811)
========
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
NGP NO. I, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
- ---------------------------------------------------------------------------
General Limited
Partner Partners Total
------- -------- --------
Balance at December 31, 1991 $34,176 $69,214 $103,390
Net loss (2,321) (4,490) (6,811)
------- ------- --------
Balance at December 31, 1992$ $31,855 $64,724 $ 96,579
======= ======= ========
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
NGP NO. I, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1992
(Thousands of Dollars)
- ---------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (6,811)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 23,175
Amortization of deferred loan costs 1,043
Deferred income tax (6,580)
Minority interest in earnings of subsidiary (6,288)
Gain on sales of property and equipment (569)
Decrease (increase) in assets:
Accounts receivable (6,634)
Inventory 725
Prepaid expenses and other 1,592
Other assets and other, net 102
Decrease in liabilities:
Accounts payable (368)
Accrued maritime employer's liability (6,577)
Other liabilities (3,849)
--------
Net cash used in operating activities (11,039)
--------
Cash flows from investing activities:
Capital expenditures, net (3,378)
Proceeds from sales of property and equipment 2,787
--------
Net cash used in investing activities (591)
--------
Cash flows from financing activities:
Repayment of indebtedness (12,325)
--------
Net cash used in financing activities (12,325)
--------
Net decrease in cash and cash equivalents (23,955)
Balance in cash and cash equivalents at beginning
of period 56,217
--------
Balance in cash and cash equivalents at end of period $ 32,262
========
The accompanying notes are an integral part
of these consolidated financial statements.<PAGE>
NGP NO. I, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
(1) BACKGROUND AND ACQUISITION OF PENROD DRILLING CORPORATION
Two limited partnerships (NGP No. I, L.P. and NGP No. VIII, L.P.)
were formed on November 15, 1989 with ENSCO Engineering Company
(Engineering), a wholly-owned subsidiary of Energy Service Company,
Inc. (ENSCO), as the general partner. During 1990, NGP No. VIII,
L.P. was merged into NGP No. I, L.P. (the Partnership). Due to the
common ownership of the partnerships, the merger has been accounted
for as if it occurred upon inception.
The Partnership was formed to acquire certain debt and beneficial
interest in the common stock of Penrod, Inc. (Penrod), formerly
Penrod Drilling Corporation, from certain of Penrod's bank creditors.
In November 1989, the Partnership purchased $86,406,000 principal
amount of debt and the beneficial interest in 8.6% (17.2% after
giving effect to a 1990 agreement that cancelled the shares of
beneficial interest that were held by certain other shareholders) of
the common stock of Penrod for an aggregate purchase price of
$51,575,000. In 1990, the Partnership purchased additional debt and
beneficial interest, and in October 1990, various trusts affiliated
with R.D. Smith and Company (the Smith Trusts) along with the
Partnership (collectively referred to herein as the Investors)
acquired the remaining outstanding debt and beneficial interest from
the Penrod banks.
The acquisition of Penrod was accounted for by the purchase method.
The total purchase price of $180,235,000 was allocated first to the
current assets and liabilities of Penrod based upon their respective
fair values, with the remainder allocated to property and equipment.
In 1991, the allocation of the purchase price was adjusted within the
allocation period and primarily resulted in an increase of property
and equipment of $27,000,000, a decrease in assets held for sale of
$12,000,000 and an increase in deferred income taxes of $6,300,000.
Penrod Holding Corporation (Holding) was formed on November 13, 1990.
On November 14, 1990, the Investors exchanged their beneficial
interest and related Penrod debt, and a promissory note to an
affiliate of a limited partner in the Partnership for all the common
stock of Holding. As a result of these transactions, the
Partnership's share of the purchase price is $95,743,000 and
represents a 58.56% interest in Holding.
Pursuant to the Amended and Restated Agreement of Limited Partnership
dated November 9, 1990 of the Partnership, Engineering is the only
General Partner, and its General Partner interest is 34.0742%. This
agreement included five Class A Limited Partners and one Class B
Limited Partner. In March 1992, the stockholders of ENSCO approved
the acquisition by Engineering pursuant to purchase agreements dated
September 17, 1991, of the interests of two of the Class A Limited<PAGE>
Partners making Engineering a Limited Partner. The total of the
interests purchased was 8.3777%.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements are comprised of the
Partnership and Holding. Holding's wholly-owned subsidiary is
Penrod. Penrod's wholly-owned subsidiary is Penrod Drilling
Corporation (Drilling), formerly Penrod Offshore Corporation.
Drilling's subsidiaries, both of which are wholly-owned, are
Penrod International Drilling Company and Platan Financial
Corporation. All significant intercompany accounts and
transactions have been eliminated.
(b) Foreign Currency Translation
The Partnership's functional currency is the U.S. dollar.
Holding's foreign operations enter into foreign currency
transactions which are translated into U.S. dollars at rates
approximating those in existence at the date of the transactions,
except that revenues, costs and expenses are translated at
average rates during the reporting period. Inventories, property
and equipment, and other nonmonetary assets and liabilities
recorded in foreign currencies are translated at historical
rates. Gains and losses resulting from foreign currency
transactions and translation are included in income currently.
Net transaction and translation losses decreased net income in
1992 by $1,154,000.
(c) Property and Equipment
Property and equipment is recorded at cost. Depreciation of the
assets is computed using the straight-line method over their
estimated useful lives, as follows:
ASSET USEFUL LIVES (YEARS)
Land rigs 5
Offshore rigs 10
Marine vessels 10
Other 2 - 6
Costs associated with maintenance, repairs and minor replacements
are charged to expense, while costs of major replacements are
capitalized.
During 1992, a wholly-owned subsidiary of Penrod valued at
$2,168,000 was sold. <PAGE>
(d) Income Taxes
The Partnership is not a tax paying entity. Accordingly, no
provision is made in the accounts of the Partnership for income
taxes. Holding, however, follows the asset and liability
approach to accounting for income taxes. Deferred tax assets and
liabilities are determined using the tax rate for the period in
which those amounts are expected to be received or paid, based on
a scheduling of temporary differences between the tax basis of
assets and liabilities and their reported amounts.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective for years beginning
after December 15, 1992. The adoption of SFAS No. 109 occurring
in the first quarter of 1993 will have no significant effect on
Holding's provision for income taxes.
(e) Statement of Cash Flows
The Partnership considers all highly liquid investments,
including commercial paper and money markets funds, with original
maturities of three months or less to be cash equivalents.
Interest paid for the year ended December 31, 1992 was
$5,100,000.
There were no taxes paid for the year ended December 31, 1992.
(3) LONG-TERM DEBT
At December 31, 1992, Holding had term loans of $40,000,000 payable to
a group of four banks, one of which is an affiliate. Term loans
payable to an affiliate at December 31, 1992 were $8,333,000.
Interest expense paid to an affiliate in 1992 was $764,000. The loans
are secured by substantially all of Drilling's assets, guaranteed by
Holding. Mandatory prepayments of varying amounts are also required
under certain specified conditions. The notes bear interest at rates
which approximate the Eurodollar rate plus 2.5%. The rate for all
term loans was 6.94% at December 31, 1992. Under the terms of the
loan agreement, Holding and its subsidiaries agreed to comply with
certain financial covenants, and restrictions on indebtedness, liens,
sales of assets, capital expenditures, investments, advances and
dividends. In accordance with the loan agreement, Holding is
restricted from paying dividends until after 1993. Any dividends paid
subsequent to 1993 will be limited to 50% of cumulative net income
beginning January 1, 1993. The loan agreement requires that
administrative fees of $250,000 be paid annually. No compensating
balances are required.
At December 31, 1992, Holding had a revolving line of credit of
$15,000,000. The line of credit expires on November 14, 1995 and
provides for borrowings at the Eurodollar rate plus 2.5%. Commitment
fees are payable on the unused balance at 1.0% per annum, payable<PAGE>
quarterly. The line of credit may be withdrawn by the bank if Holding
fails to be in compliance with the factors discussed in the previous
paragraph with respect to the debt agreement. The line of credit is
also cancelable at the option of Holding.
The aggregate maturities of the term loans and future minimum payments
under capital leases subsequent to December 31, 1992 are as follows
(thousands of dollars):
TERM CAPITAL
YEAR LOANS LEASES
---- ------- -------
1993 $12,000 $409
1994 12,000 103
1995 16,000 -
------- -------
40,000 512
Less interest - 42
------- -------
$40,000 $470
======= =======
(4) ACCRUED MARITIME EMPLOYER'S LIABILITY
Since October 1990, Holding has had insurance coverage which limits
its maritime claims exposure to a maximum of the $25,000 deductible
for each claim, plus a fluctuating aggregate of $500,000 to $1,500,000
which is in excess of the $25,000 claim deductible for each policy
year. Prior to October 1990, Holding was self-insured for the
majority of its maritime claims exposure. During 1992, Holding
charged $3,679,000 to contract drilling expense for insurance premium
and claim costs.
(5) INCOME TAXES
The Partnership's loss before income taxes for the year ended December
31, 1992 included $15,604,000 of losses in the Unites States and
$3,075,000 of losses in foreign countries.
The income tax expense (benefit) for the year ended December 31, 1992
consisted of $1,000,000 of current foreign taxes and a benefit of
$6,580,000 related to deferred federal and state taxes.
A reconciliation of the income tax expense (benefit) at the U.S.
federal income tax rate of 34% to the income taxes reflected in the
consolidated statements of operations for the year ended December 31,
1992 is as follows (thousands of dollars):<PAGE>
Loss before income taxes and minority interest $(18,679)
--------
Statutory federal income tax benefit $ (6,351)
Non-U.S. taxes 1,661
Utilization of net operating loss carryforwards (661)
Federal benefit for deduction of foreign taxes (340)
Other 111
--------
Income tax benefit $ (5,580)
========
At December 31, 1992, Holding has total net operating loss
carryforwards of $211,400,000 for federal income tax purposes. The
utilization of the total net operating loss carryforwards is subject
to significant limitations because of Penrod's ownership change.
Federal income tax laws provide for a limitation on the utilization of
net operating loss carryforwards following a significant change in the
ownership of a company. The tax loss carryforwards, if unused, will
expire in various amounts in 2003 and 2004. Holding also has a
minimum tax credit carryforward of $1,782,000 available for future
taxable years.
(6) EMPLOYEE BENEFIT PLANS
(a) Employee Retirement Plan
Holding participates in a noncontributory defined benefit
employee retirement plan for all regular employees. In general,
Holding's policy is to fund the plan based on the minimum funding
requirements based on the Employee Retirement Income Security Act
and tax considerations. Holding ceased benefit accruals under
the plan effective December 31, 1990. Management intends to
terminate the plan when it is in the financial interest of
Holding. Net periodic pension expense for the year ended
December 31, 1992 was not material.
(b) Retired Employee Health Benefits
Holding participates in a self-insured, voluntary employee
benefit trust, which provides health care benefits and life
insurance benefits to eligible employees. Holding accounts for
and funds the majority of costs of such benefits as they are
incurred. During the year ended December 31, 1992, Holding
charged $495,000 to general and administrative expense for
retiree health benefits in the accompanying consolidated
statement of operations.
In December 1990, the Financial Accounting Standards Board issued
SFAS No. 106, "Employers Accounting for Postretirement Benefits
Other Than Pensions," effective for fiscal years beginning after
December 15, 1992. This statement requires the accrual, during
the year the employee renders service, of the expected cost of<PAGE>
providing postretirement health care benefits to the employee and
the employee's beneficiaries and covered dependents, rather than
the prevalent current practice of accounting for such benefits on
a "pay-as-you-go" basis.
Holding will adopt the new standard effective January 1, 1993.
The change will cause Holding to record a transition obligation
in the first quarter of 1993 of approximately $7,500,000.
Holding significantly changed its postretirement benefit program
starting January 1, 1993. The annual expense is not expected to
differ significantly from the annual expense prior to adoption of
SFAS No. 106. While the adoption of this standard will have an
unfavorable effect on reported net income in 1993, there will be
no adverse effect on cash flow.
(7) COMMITMENTS AND CONTINGENCIES
(a) Lease Agreements
Holding leases office space under noncancellable operating leases
expiring at various dates through 2001. Rent expense under
operating leases was $744,000 for 1992. The minimum future
annual rental commitments under all noncancellable operating
leases with lease terms in excess of one year as of December 31,
1992 are as follows (thousands of dollars):
Year
----
1993 $ 656
1994 656
1995 553
1996 420
1997 420
Thereafter 1,680
-------
$ 4,385
=======
(b) Penrod Litigation and Disputes
On February 22, 1991, Smith filed an action against the
Partnership and ENSCO in the Delaware Court of Chancery (the
Delaware Action). The action relates to the following agreements
entered into in connection with the acquisition of Penrod and its
affiliates by the Partnership and Smith: the Memorandum of
Agreement, dated as of April 10, 1990, as amended (the Memorandum
of Agreement) among Smith, the Partnership, ENSCO Engineering
Company, and certain other parties; the Stockholders Agreement,
dated as of November 14, 1990 (the Stockholders Agreement) among
Penrod, certain of its subsidiaries and the stockholders thereof;
and the Consulting Services Agreement, dated as of November 1,
1990 (the Consulting Services Agreement) between ENSCO and
Penrod.<PAGE>
The Memorandum of Agreement and Stockholders Agreement placed
certain obligations on the parties thereto to negotiate with
respect to matters involving Penrod and its affiliates, including
matters relating to the management and ownership of Penrod and
its affiliates. In the action, Smith alleged that it had
complied with its obligations under the Memorandum of Agreement
and Stockholders Agreement. Smith further requested the Court to
declare that Smith and its affiliates had not breached any
obligations under the Memorandum of Agreement and Stockholders
Agreement and to permanently enjoin the Partnership and ENSCO
from taking any action that would impair Smith's right "to the
benefits of good faith negotiation and cooperation" with respect
to any further matters contemplated by such agreements. No
monetary damages were claimed. On May 3, 1991, ENSCO filed a
counterclaim (the Counterclaim) in the Delaware Action in order
to enforce its rights under the Memorandum of Agreement regarding
the management of the day-to-day business of Penrod. On June 11,
1991, Smith filed an Amended and Supplemental Complaint in the
Delaware Action which, in addition to the relief previously
sought, requested orders declaring that the Partnership, ENSCO
and their affiliates had breached obligations owed by them to
Smith under the Memorandum of Agreement and the Stockholders
Agreement and sought damages for breaches of contract and of the
duties of good faith and fair dealing. On February 7, 1992,
ENSCO and the Partnership filed a motion for leave to amend their
answers in the Delaware Action in order to assert the affirmative
defense of failure to join ENSCO Engineering Company as a party,
and ENSCO asked for leave to amend its counterclaim to seek
damages for breach of the Memorandum of Agreement, tortuous
interference with the relationship of ENSCO and Penrod and its
affiliates and fraudulent inducement.
On August 20, 1991, ENSCO Engineering Company and the Partnership
filed an action against Smith in the District Court of Dallas
County, Texas (the Texas Action). In the Texas Action, ENSCO
Engineering Company and the Partnership sought damages due to
breach of the Memorandum of Agreement by Smith, the value of
services provided by ENSCO Engineering Company to Penrod which
have benefitted Smith, damages for tortuous interference with
business, damages for breaches of duties of good faith and fair
dealing and punitive damages. On December 18, 1991, the Delaware
Court of Chancery temporarily stayed the Texas Action.
All parties to this litigation agreed to settle the Delaware
Action and the Texas Action based on a settlement agreement dated
November 17, 1992 (the Settlement Agreement), pursuant to which
the Delaware Action and the Texas Action were dismissed with
prejudice and the parties released one another from any and all
claims, causes of action and damages of any nature whatsoever
which any of them have or had, or may ever have, arising out of
events or occurrences of all types occurring on or before the
settlement date.<PAGE>
In addition, the Settlement Agreement provided for amendments to
the Memorandum of Agreement to delete all provisions that would
require the parties to negotiate or agree on any matter in the
future including, among other things, exit rights or additional
management agreements. The Settlement Agreement also provided
that the parties to the Stockholders Agreement have no further
obligation to negotiate and enter into a further agreement
relating to the management, direction and share ownership of, and
other matters pertaining to Penrod.
On February 13, 1991, Penrod Drilling Corporation, et al. filed
an action against TransAmerican Natural Gas Corporation
(TransAmerican) et al. which is presently pending in the U.S.
District Court Southern District of Texas, Houston Division,
seeking damages for breach of contract. On August 21, 1991,
TransAmerican, et al. filed an action against Drilling in the
133rd Judicial District Court, Harris County, Texas, seeking
damages for breach of contract and tort claims. Drilling's
management believes that the outcome of this litigation may
result in a future gain, but, in any case, it anticipates that
the resolution will not have a material adverse impact on its
financial position or results of operations.
Drilling is also a defendant in numerous lawsuits including
lawsuits with certain of its insurers and the administrator of
its self-insurance program, and personal injury and maritime
liability lawsuits filed by present and former employees.
Drilling has provided reserves for such claims as management has
considered appropriate given the facts currently known.
(c) NGP Partners' Dispute
In September 1991 and December 1991, ENSCO Acquisition Company, a
wholly-owned subsidiary of ENSCO, acquired interests (the Smith
Trust Interests) in the Smith Trusts representing beneficial
ownership of approximately 11.4% of Penrod Holding's outstanding
common stock from various Smith Trust interest holders in
exchange for 14,885,757 shares of ENSCO's common stock valued at
approximately $24.5 million.
The Goldman Sachs Group, L.P. (Goldman) and Natural Gas Partners,
L.P. (Natural Gas Partners), both of which are limited partners
in the Partnership, notified ENSCO of their belief that ENSCO's
acquisition of the Smith Trust Interests in the eight December
transactions violated ENSCO Engineering Company's duties under
the Agreement of Limited Partnership of the Partnership (the
Partnership Agreement) and the terms of the Partnership Agreement
that relate to the right of partners to participate in the
acquisition of interests in Penrod Holding by another partner in
the Partnership. Further, Goldman and Natural Gas Partners
notified ENSCO of their belief that they had a right to acquire a
pro rata interest in the Smith Trust Interests acquired by ENSCO
in the eight December transactions in proportion to their
respective interests in the Partnership.<PAGE>
Beginning in January 1992, Goldman and Natural Gas Partners
purchased Smith Trust Interests representing beneficial ownership
of approximately 3.61% of the outstanding shares of the Penrod
Holding common stock. Engineering notified Goldman and Natural
Gas Partners that Engineering had elected to purchase its pro
rata portion of these interests in the Smith Trusts.
In December 1992, each of the partners agreed to waive all rights
to participate in the acquisitions of Smith Trust Interests
described above. In addition, they agreed to amend the
Partnership Agreement to clarify that future acquisitions of
Smith Trust Interests would be treated as an "Acquisition
Opportunity," and to permit the partners to pledge their
partnership interests if the pledgee permits the partners to
retain (i) their rights of first refusal upon any disposition of
such interests by the pledgee, and (ii) their rights to remove
the general partner after the disposition of the general
partner's interest by the pledgee. The partners also agreed that
any shares of ENSCO's common stock used to acquire any beneficial
interests in Penrod Holding would be valued for purposes of the
Partnership Agreement at an amount equal to the average closing
price of the common stock on the American Stock Exchange for the
five trading days immediately proceeding and following the date
of any such acquisition.
After giving effect to the agreements described above, the
Partnership owns of record 23,424,920 shares, or 58.5623% of the
40,000,000 outstanding shares of the Penrod Holding common stock,
and the Smith Trusts own 16,575,080 shares, or 41.4377%, of the
outstanding Penrod Holding common stock. Engineering has a
42.4519% interest in the Partnership, Natural Gas Partners has a
26.8503% interest in the Partnership, Goldman has a 17.0371%
interest in the Partnership, and Permian Equities, Inc. has a
13.6607% interest in the Partnership, which represent a
beneficial ownership in the underlying shares of Penrod Holding
common stock owned by the Partnership of 9,944,324 shares,
6,289,661 shares, 3,990,927 shares, and 3,200,008 shares,
respectively.
In addition, ENSCO, through ENSCO Acquisition Company, owns Smith
Trust Interests representing approximately 4,580,232 shares, or
approximately 11.45%, of the outstanding Penrod Holding common
stock, Natural Gas Partners owns Smith Trust Interests
representing approximately 649,195 shares, or approximately
1.62%, of the outstanding Penrod Holding Common Stock, and
Goldman owns Smith Trust Interests representing approximately
794,395 shares, or approximately 1.99%, of the outstanding Penrod
Holding common stock.<PAGE>
(8) BUSINESS AND CREDIT CONCENTRATIONS
Drilling and its subsidiaries engage in the contract drilling of oil
and gas wells for independent, major and government owned oil
companies. During 1992, the following customers accounted for 10% or
more of consolidated revenues.
Exxon Company, USA 21.1%
Conoco U.K. 15.6%
Petrobras 10.5%
Information about operations of the Partnership and its subsidiaries
for the year ended December 31, 1992 by geographic area follows
(thousands of dollars):
<TABLE>
<CAPTION>
NORTH LATIN UNITED THE
AMERICA AMERICA KINGDOM NETHERLANDS OTHER CONSOLIDATED
-------- ------- ------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 33,087 $8,716 $27,887 $11,747 $1,368 $ 82,805
Operating
income
(loss) $(14,787) $1,499 $5,719 $(5,339) $(2,402) $(15,310)
Identifiable
assets $114,902 $18,283 $38,855 $23,924 $6,687 $202,651
</TABLE>
(9) TRANSACTIONS WITH RELATED PARTIES
On November 1, 1990, Holding and ENSCO entered into an agreement that
required ENSCO to provide certain consulting services to Holding and
its subsidiaries. On June 28, 1991, the agreement was extended
without fee until October 11, 1991, when it was renewed on a month-to-
month basis under the same terms. In November 1992, pursuant to the
Settlement Agreement discussed in Note 7, the consulting agreement was
terminated. At this time, Holding paid $300,000 each to the
Partnership and the Smith Trusts as reimbursements of legal fees
related to the litigation. Also in connection with the Settlement
Agreement discussed previously, ENSCO forgave $305,000 of the 1991
charges to Holding under the consulting agreement.
During 1992, the Partnership's general and administrative expenses
include $307,000 of charges from ENSCO.<PAGE>
(3) Exhibits
The following instruments are included as exhibits to this Report.
Exhibits incorporated by reference are so indicated by parenthetical
information.
Exhibit No. Document
* 3.1 - Certificate of Incorporation of Energy Service Company,
Inc., as amended.
3.2 - Bylaws of Energy Service Company, Inc., as amended
(incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
3.3 - Certificate of Designation of $1.50 Cumulative Convertible
Exchangeable Preferred Stock (incorporated by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1988, File No. 1-8097).
4.1 - Indenture, dated as of July 1, 1980, among Blocker Energy
International N.V., Blocker Energy Corporation, as
Guarantor, and Morgan Guaranty Trust Company of New York, as
Trustee (incorporated by reference to Exhibit 4.1 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
4.2 - Purchase Agreement dated March 28, 1988 among Energy Service
Company, Inc., ENSCO Marine Company, Prudential-Bache Energy
Growth Fund, L.P. G-2 and Prudential-Bache Energy Growth
Fund, L.P. G-3 relating to $26,000,000 aggregate principal
amount of Senior Secured Notes of ENSCO Marine Company and
warrants to purchase 2,500,000 shares of the Company's
Common Stock (incorporated by reference to Exhibit 4.3 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 1-8097).
4.3 - Contract of Sale dated October 14, 1987 between
Manufacturers Hanover Trust Company and ENSCO Operating
Company relating to purchase of ENSCO I and ENSCO II
(incorporated by reference to Exhibit 4.4 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
4.4 - Certificate of Designation of $1.50 Cumulative Convertible
Preferred Stock (set forth as Exhibit 3.3).
4.5 - Form of 6% Convertible Subordinated Debenture due April 15,
2003 (incorporated by reference to Exhibit 4.10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1988, File No. 1-8097).<PAGE>
4.6 - Form of Indenture relating to Registrant's 6% Convertible
Subordinated Debentures (incorporated by reference to
Exhibit 4.4 to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended March 31, 1988, File No. 1-8097).
4.7 - Form of Rights Agreement dated as of February 21, 1995
between the Company and American Stock Transfer & Trust
Company, as Rights Agent, which includes as Exhibit A the
Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Energy Service Company,
Inc., as Exhibit B the Form of Right Certificate, and as
Exhibit C the Summary of Rights to Purchase Shares of
Preferred Stock of Energy Service Company, Inc.
(incorporated by reference to Exhibit 4 to Registrant's
Current Report on form 8-K dated February 21, 1995, File No.
1-8097).
10.1 - ENSCO Incentive Plan, as amended (incorporated by reference
to Exhibit 10.1 to the Registrant's Annual Report on form
10-K for the year ended December 31, 1993, File No. 1-8097).
10.2 - Employee Stock Purchase Plan of Energy Service Company, Inc.
(incorporated by reference to Exhibit 10.5 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988, File No. 1-8097).
10.3 - Restricted Stock Agreement effective as of June 10, 1987
between Morton H. Meyerson and Blocker Energy Corporation
(incorporated by reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
10.4 - Restricted Stock Agreement effective as of May 31, 1988
between Morton H. Meyerson and Energy Service Company, Inc.
(incorporated by reference to Exhibit 19.2 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1988, File No. 1-8097).
10.5 - Termination of Pledge Agreement and Amendment of Restricted
Stock Agreement, dated March 1, 1991, by and between Morton
H. Meyerson and Energy Service Company, Inc. (incorporated
by reference to Exhibit 10.108 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990,
File No. 1-8097).
10.6 - First Amendment, dated March 1, 1991, to the Promissory Note
dated July 19, 1988 in the original principal amount of
$675,000 between Morton H. Meyerson and Energy Service
Company, Inc. (incorporated by reference to Exhibit 10.109
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 1-8097).
10.7 - Bareboat Charter Party dated as of September 6, 1989 between
Chrysler Capital Corporation and Energy Service Company,<PAGE>
Inc. relating to one offshore supply vessel, the ENSCO
Cruiser. (incorporated by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 1-8097).
10.8 - Bareboat Charter Party dated October 6, 1989 between
Chrysler Capital Corporation and Energy Service Company,
Inc. relating to one offshore supply vessel, the ENSCO
Transport. (incorporated by reference to Exhibit 10.34 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, File No. 1-8097).
10.9 - Bareboat Charter Party dated February 26, 1990 between
Chrysler Capital Corporation and Energy Service Company,
Inc. relating to one offshore supply vessel, the ENSCO
Galleon. (incorporated by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 1-8097).
10.10 - Bareboat Charter Party dated April 12, 1990 between Chrysler
Capital Corporation and Energy Service Company , Inc.
relating to one offshore supply vessel, the ENSCO Schooner
(incorporated by reference to Exhibit 28.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1990, File No. 1-8097).
10.11 - Lease Agreement between Energy Service Company, Inc. as
tenant and Freeman Ross, Ltd. as landlord for the Company's
corporate office space at First Interstate Bank Tower at
Fountain Place, 1445 Ross Avenue, Dallas, Texas
(incorporated by reference to Exhibit 28.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1990, File No. 1-8097).
10.12 - Lease Agreement between Energy Service Company, Inc. as
tenant and Peter Kurts Properties, U.S., Inc. as landlord
for the Company's division office space at 1776 Yorktown,
Houston, Texas (incorporated by reference to Exhibit 28.6 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, File No. 1-8097).
10.13 - Supplemental Compensation Agreement, dated March 1, 1991,
between Morton H. Meyerson and Energy Service Company, Inc.
(incorporated by reference to Exhibit 10.110 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-8097).
10.14 - First Restated Credit Agreement between the ENSCO Companies
and NationsBank of Texas, N.A. dated February 3, 1992
(incorporated by reference to Exhibit 10.125 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, File No. 1-8097).
10.15 - First Amendment, dated November 12, 1992, to the Credit<PAGE>
Agreement between the ENSCO Companies and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.54 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 1-8097).
10.16 - Second Amendment, dated November 13, 1992, to the Credit
Agreement between the ENSCO Companies and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.55 of
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, File No. 1-8097).
10.17 - Loan Agreement, dated March 2, 1993, among ENSCO Drilling
Company, as Borrower, Energy Service Company, Inc., as
Guarantor, and Christiania Bank OG Kreditkasse (incorporated
by reference to Exhibit 10.56 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992,
File No. 1-8097).
10.18 - First Amendment, dated March 9, 1992, to the Lease Agreement
between Energy Service Company, Inc. and Peter Kurts
Properties U.S., Inc. (incorporated by reference to Exhibit
10.57 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, File No. 1-8097).
10.19 - Agreement among the partners of NGP No. I, L.P. dated
November 11, 1992 (incorporated by reference to Exhibit
10.59 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, File No. 1-8097).
10.20 - Construction and Purchase Agreement dated as of February 3,
1992 between Nissho Iwai Hong Kong Corporation Limited as
Purchaser and ENSCO Drilling Company as Contractor
(incorporated by reference to Exhibit 10.21 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8097).
10.21 - Sale and Financing Agreement dated as of February 3, 1992
between ENSCO Drilling Venezuela, Inc. as Purchaser and
Nissho Iwai Hong Kong Corporation Limited as Seller
(incorporated by reference to Exhibit 10.22 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8097).
10.22 - Shelf Registration Agreement by and among Energy Service
Company, Inc., SOLVation Inc., Energy Management
Corporation, SEGA Associates, L.P., Smith Factors Inc., The
Summit Trust Company, as Trustee, Natural Gas Partners,
L.P., The Goldman Sachs Group, L.P., Permian Equities Inc.,
and others dated as of May 6, 1993 (incorporated by
reference to Exhibit 28.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993,
File No. 1-8097).<PAGE>
10.23 - Stock Exchange Agreement by and among Energy Service
Company, Inc., ENSCO Engineering Company, SOLVation Inc.,
Natural Gas Partners, L.P., Goldman Sachs Group, L.P.,
Permian Equities Inc., NGP No. I, L.P., and the Summit Trust
Company, as Trustee dated as of May 6, 1993 (incorporated by
reference to Exhibit 28.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993,
File No. 1-8097).
10.24 - Asset Purchase Agreement dated June 30, 1993, between Energy
Ventures, Inc. and ENSCO Tool & Supply Company (incorporated
by reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K dated July 1, 1993, File No. 1-8097).
10.25 - Purchase Agreement dated June 30, 1993, between CAMCO
International Inc. and ENSCO Tool & Supply Company
(incorporated by reference to Exhibit 10.2 to Registrant's
Current Report on Form 8-K dated July 1, 1993, File No. 1-
8097).
10.26 - Loan Agreement dated October 14, 1993, by and among ENSCO
Marine Company and The CIT Group/Equipment Financing, Inc.
(incorporated by reference to Exhibit 10.27 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8097).
10.27 - Construction and Purchase Agreement dated November 12, 1993,
by and between ENSCO Drilling Company and Nissho Iwai Hong
Kong Corporation Limited (incorporated by reference to
Exhibit 10.28 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 1-8097).
10.28 - Sale and Financing Agreement dated November 12, 1993, by and
between Nissho Iwai Hong Kong Corporation Limited and ENSCO
Drilling Venezuela, Inc. (incorporated by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 1-8097).
10.29 - Credit Facility Agreement dated December 15, 1993, by and
among ENSCO Offshore Company and ENSCO Offshore U.K.
Limited, as borrowers, and Christiania Bank OG Kreditkasse,
London Branch, den Norske Bank A.S., New York Branch, Banque
Indosuez, and Meespierson N.V., as the Banks (incorporated
by reference to Exhibit 10.30 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993,
File No. 1-8097).
*10.30 - Partial Satisfaction of Mortgage, dated November 29, 1994,
between Wilmington Trust Company, as trustee for the benefit
of The CIT Group/Equipment Financing, Inc., and ENSCO Marine
Company.
*10.31 - Modification and Amendment of First Preferred Fleet Ship
Mortgage, dated January 23, 1995, by ENSCO Marine Company<PAGE>
and Wilmington Trust Company, as trustee for the benefit of
The CIT Group/Equipment Financing, Inc.
*10.32 - Amendment No. 1, dated November 1, 1994, to Credit Facility
Agreement dated December 15, 1993 among ENSCO Offshore
Company and ENSCO Offshore U.K. Limited, as borrowers, and
Christiana Bank OG Kreditkasse, London Branch, den Norske
Bank A.S., New York Branch, Banque Indosuez and Meespierson
N.V., as the banks.
* 21 - Subsidiaries of the Registrant
* 23.1 - Consent of Price Waterhouse LLP
* 23.2 - Consent of Deloitte & Touche LLP
* 27 - Financial Data Schedule
___________________
* Filed Herewith<PAGE>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans and
arrangements required to be filed as an exhibit to this Form 10-K:
1. ENSCO Incentive Plan, as amended (filed as Exhibit 10.1 hereto and
incorporated by reference to Exhibit 10.1 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993,
File No. 1-8097).
2. Employee Stock Purchase Plan of Energy Service Company, Inc. (filed
as Exhibit 10.2 hereto and incorporated by reference to Exhibit
10.5 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 1-8097).
3. Restricted Stock Agreement effective as of June 10, 1987 between
Morton H. Meyerson and Energy Service Company, Inc. (filed herewith
as Exhibit 10.3 and incorporated by reference to Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992, File No. 1-8097).
4. Restricted Stock Agreement effective as of May 31, 1988 between
Morton H. Meyerson and Energy Service Company, Inc. (filed as
Exhibit 10.4 hereto and incorporated by reference to Exhibit 19.2
to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1988, File No. 1-8097).
5. Termination of Pledge Agreement and Amendment of Restricted Stock
Agreement, dated March 1, 1991, by and between Morton H. Meyerson
and Energy Service Company, Inc. (filed as Exhibit 10.5 hereto and
incorporated by reference to Exhibit 10.108 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990,
File No. 1-8097).
6. First Amendment, dated March 1, 1991, to the Promissory Note dated
July 19, 1988 in the original principal amount of $675,000 between
Morton H. Meyerson and Energy Service Company, Inc. (filed as
Exhibit 10.6 hereto and incorporated by reference to Exhibit 10.109
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990, File No. 1-8097).
7. Supplemental Compensation Agreement, dated March 1, 1991, between
Morton H. Meyerson and Energy Service Company, Inc. (filed as
Exhibit 10.13 hereto and incorporated by reference to Exhibit
10.110 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 1-8097).
The Company will furnish to the Securities and Exchange Commission upon
request, all constituent instruments defining the rights of holders of
long-term debt of the Company not filed herewith as permitted by paragraph
4(iii)(A) of Item 601 of Regulation S-K.<PAGE>
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company during the
fourth quarter of the year ended December 31, 1994.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) and Form S-3 under the Securities Act of
1933, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8 Nos. 33-40282 filed May 2, 1991, 33-
41294 filed June 19, 1991, 33-35862 filed July 13, 1990, 33-32447 filed
December 5, 1989 and 33-14714 filed June 1, 1987 and Form S-3 Nos. 33-
64642, 33-49590 filed July 13, 1992 (as amended by Amendment No. 1 filed
July 31, 1992), 33-46500 filed March 18, 1992 (as amended by Amendment No.
1 filed May 7, 1992), 33-43756 filed November 12, 1991 (as amended by
Amendment No. 1 filed December 19, 1991) and 33-42965 filed September 25,
1991 (as amended by Amendment No. 1 and 2 filed October 29, 1991 and
November 18, 1991, respectively):
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue. <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
March 16, 1995.
ENERGY SERVICE COMPANY, INC.
(Registrant)
By /s/ CARL F. THORNE
------------------------------------
Carl F. Thorne
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.
SIGNATURES TITLE DATE
/S/ CARL F. THORNE Chairman, President,
Carl F. Thorne Chief Executive Officer
and Director
/S/ RICHARD A. WILSON Senior Vice President,
Richard A. Wilson Chief Operating Officer
and Director
/S/ C. CHRISTOPHER GAUT Vice President, Chief
C. Christopher Gaut Financial Officer and
Treasurer
/S/ H. E. MALONE Vice President, Chief
H. E. Malone Accounting Officer and
Controller
/S/ CRAIG I. FIELDS Director
Craig I. Fields
March 16, 1995
/S/ ORVILLE D. GAITHER, SR. Director
Orville D. Gaither, Sr.
/S/ GERALD W. HADDOCK Director
Gerald W. Haddock
/S/ DILLARD S. HAMMETT Director
Dillard S. Hammett
/S/ THOMAS L. KELLY, II Director
Thomas L. Kelly, II<PAGE>
/S/ MORTON H. MEYERSON Director
Morton H. Meyerson<PAGE>
<PAGE>
EXHIBIT NO. 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
____________________________
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT
COPY OF THE RESTATED CERTIFICATE OF THE "ENERGY SERVICE COMPANY,
INC.", FILED IN THIS OFFICE ON THE TENTH DAY OF JUNE, A.D. 1994,
AT 2 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO
THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/S/ WILLIAM T. QUILLEN
____________________________
William T. Quillen,
Secretary of State
AUTHENTICATION: 7147242
DATE: 06-13-94<PAGE>
ENERGY SERVICE COMPANY, INC.
RESTATED CERTIFICATE OF INCORPORATION
Energy Service Company, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that:
(i) The Corporation was incorporated on August 14, 1987 and its
original certificate of incorporation (the "Original Certificate of
Incorporation") was filed on such date with the Secretary of State of
the State of Delaware.
(ii) The Original Certificate of Incorporation was amended by
certificates of amendment filed with the Secretary of State of the
State of Delaware on June 21, 1990, June 25, 1991, August 10, 1993,
and May 27, 1994.
(iii) This Restated Certificate of Incorporation (the
"Certificate of Incorporation") has been duly adopted in accordance
with the applicable provisions of Section 245 of the General
Corporation Law of the State of Delaware, and only restates and
integrates, and does not further amend, the Corporation's certificate
of incorporation as heretofore amended, there being no discrepancy
between those provisions and the provisions of this Certificate of
Incorporation. Accordingly, the Corporation's Certificate of
Incorporation is hereby restated in its entirety to read as follows:
ARTICLE ONE
The name of the corporation is Energy Service Company, Inc.
ARTICLE TWO
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware 19801. The registered agent in charge
thereof is The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware.
ARTICLE THREE
The nature of the business or purpose to be conducted or promoted
by the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.<PAGE>
ARTICLE FOUR
The aggregate number of shares of stock which the corporation
shall have the authority to issue is 171,497,488 shares, of which 5,000,000
shall be First Preferred Stock, par value $1.00 per share ("First Preferred
Stock"), 15,000,000 shares shall be Serial Preferred Stock, par value $1.00
per share ("Serial Preferred Stock"), and 151,497,488 shares shall be
Common Stock, par value $.10 per share ("Common Shares"), divided into two
classes, of which 125,000,000 shares shall be designated "Common Stock" and
26,497,488 shall be designated "Convertible Common Stock."
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof, in respect of the shares of First Preferred Stock, Serial
Preferred Stock, Common Stock and Convertible Common Stock or any series of
any class of stock of the corporation, and of the authority expressly
granted hereby for the Board of Directors of the corporation to fix by
resolution or resolutions any of such designations and powers, preferences
and rights, and qualifications, limitations and restrictions thereof that
may be desired but which shall not be fixed by this Certificate of
Incorporation.
A. COMMON SHARES
Common Shares, upon issuance, shall be fully paid and
nonassessable. Such dividends (payable in cash, stock or otherwise) as may
be determined by the Board of Directors may be declared and paid on the
Common Shares from time to time out of any funds legally available
therefor. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation, the remaining
assets and funds of the corporation available for distribution to holders
of Common Shares shall be distributed to holders of the Common Shares
according to their respective shares.
Common Stock. The Board of Directors of the corporation is
hereby expressly vested with authority to issue 125,000,000 shares of
Common Stock, par value $.10 per share, from time to time.
Convertible Common Stock. The Board of Directors of the
corporation is hereby expressly vested with authority to issue 26,497,488
shares of Convertible Common Stock, par value $.10 per share, from time to
time. In addition to, and in no way in limitation of, the rights of the
Convertible Common Stock, the shares of Convertible Common Stock shall have
the designations, powers, preferences, and rights, and the qualifications,
limitations and restrictions, as follows:
(i) Designation; Authorized Shares. This class of Common Stock
shall be called the "Convertible Common Stock." The number of
authorized shares of the Convertible Common Stock shall be 26,497,488.
(ii) Dividends. Holders of shares of the Convertible Common
Stock shall be entitled to receive dividends when, as, and if declared
by the Board of Directors of the corporation in an amount per share
equal to the result obtained by multiplying (i) the per share<PAGE>
dividend, if any, paid upon the Common Stock by (ii) the Conversion
Rate (as defined below). The holders of shares of the Convertible
Common Stock shall not be entitled to any dividends other than the
cash dividends provided in this Clause (ii). Such dividends shall be
payable each time dividends are paid to holders of the Common Stock,
and the corporation shall not pay dividends on its Common Stock unless
contemporaneously therewith dividends are paid on the Convertible
Common Stock. Dividends on shares of the Convertible Common Stock
shall be noncumulative. Each such dividend shall be paid to the
holders of record of shares of the Convertible Common Stock as they
appear on the stock register of the corporation on such record date,
not exceeding 30 days preceding the payment date thereof, as shall be
fixed by the Board of Directors of the corporation, which record date
shall be the same as for the holders of the Common Stock.
(iii) Conversion.
(a) Holders of shares of Convertible Common Stock will have the
right, exercisable at any time, to convert each share of the
Convertible Common Stock into 0.25 of a share of Common Stock, subject
to adjustment as described below (such rate or adjusted rate being
referred to herein as the "Conversion Rate"). If any shares of the
Convertible Common Stock are converted between the record date with
respect to any dividend payment and the next succeeding dividend
payment date, such shares of the Convertible Common Stock must be
accompanied by funds equal to the dividend payable on such dividend
payment date on the shares of the Convertible Common Stock so
converted.
(b) Any holder of shares of the Convertible Common Stock
electing to convert such shares or any portion thereof in accordance
with subparagraph (a) of this Clause (iii) shall deliver the
certificates therefor to the principal office of any transfer agent
for the Common Stock, with the form of notice of election to convert
endorsed on such certificates fully completed and duly executed. The
conversion right with respect to any such shares of the Convertible
Common Stock shall be deemed to have been exercised at the date upon
which the certificates therefor with such notice of election duly
executed shall have been so delivered, and the person or persons
entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such Common
Stock upon said date.
(c) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the
Convertible Common Stock. Any fractional interest that would result
from conversion shall be rounded up or down to the nearest whole share
and there shall be no cash paid by or to the corporation in respect of
such fractional interest.
(d) If a holder converts shares of the Convertible Common Stock,
the corporation shall pay any documentary, stamp or similar issue or
transfer tax due on the issue of shares or Common Stock upon the
conversion. The holder, however, shall pay any such tax which is due<PAGE>
because the shares are issued in a name other than the name of such
holder.
(e) The corporation shall reserve out of its authorized but
unissued Common Stock or its Common Stock held in treasury enough
shares of Common Stock to permit the conversion of all the shares of
the Convertible Common Stock. For the purposes of this subparagraph
(e), the full number of shares of Common Stock then issuable upon the
conversion of all outstanding shares of the Convertible Common Stock
shall be computed as if at the time of computation of such number of
shares of Common Stock all outstanding shares of the Convertible
Common Stock were held by a single holder. The corporation shall from
time to time, in accordance with the laws of the State of Delaware,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued and its
Common Stock held in treasury shall not be sufficient to permit the
conversion of all shares of the Convertible Common Stock at the time
outstanding. If any shares of Common Stock required to be reserved
for issuance upon conversion of shares of the Convertible Common Stock
hereunder require registration with or approval of any governmental
authority under any federal or state law before such shares may be
issued upon such conversion, the corporation will in good faith and as
expeditiously as possible endeavor to cause such shares to be so
registered or approved.
(f) The Conversion Rate in effect at any time shall be subject
to adjustment as follows:
If the corporation:
(1) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(3) combines its outstanding shares of Common Stock
into a smaller number of shares;
(4) makes a distribution on its Common Stock in shares
of its capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any
shares of its capital stock;
then the conversion privilege and the Conversion Rate in effect
immediately prior to such action shall be adjusted so that the holder
of shares of the Convertible Common Stock thereafter converted may
receive the number of shares of capital stock of the corporation that
the holder would have owned immediately following such action if the
holder had converted the shares of the Convertible Common Stock
immediately prior to such action.<PAGE>
The adjustment shall become effective immediately after the
record date in the case of a dividend or distribution and immediately
after the effective date in the case of a subdivision, combination or
reclassification.
If after an adjustment a holder of shares of the Convertible
Common Stock upon conversion of such shares may receive shares of two
or more classes of capital stock of the corporation, the corporation
shall determine the allocation of the adjusted Conversion Rate between
the classes of capital stock. After such allocation, the conversion
privilege and the Conversion Rate of each class of capital stock
thereafter shall be subject to adjustment on terms comparable to those
applicable to Common Stock.
(g) If the corporation takes any action that would require an
adjustment in the Conversion Rate pursuant to Clause (iii)(f), the
corporation shall mail to all holders of the Convertible Common Stock
a notice thereof stating the proposed record date for the dividend or
distribution or the proposed effective date of the subdivision,
combination or reclassification. The corporation shall mail the
notice at least 15 days before such date. Failure to mail the notice
or any defect in it shall not affect the validity of the transaction.
(h) If the corporation is a party to a transaction in which the
corporation consolidates or merges with or into, or transfers or
leases all or substantially all of its assets to, any person, or a
merger which reclassifies or changes its outstanding Common Stock,
upon consummation of such transaction the shares of the Convertible
Common Stock shall automatically become convertible into the kind and
amount of securities, cash or other assets which the holder of shares
of the Convertible Common Stock would have owned immediately after the
consolidation, merger, transfer or lease if the holder had converted
the shares of the Convertible Common Stock immediately before the
effective date of the transaction.
(i) Each outstanding share of the Convertible Common Stock
shall, on December 1, 1995, without any action on the part of the
holder thereof, automatically be converted into and become a right to
receive, and holders thereof shall be entitled to receive therefor
upon surrender of the certificate representing such Convertible Common
Stock as hereinafter provided, the number of shares of Common Stock as
is equal to the product obtained by multiplying (i) the number of
shares of Convertible Common Stock surrendered by (ii) the Conversion
Rate. From and after December 1, 1995, each holder of a certificate
theretofor evidencing outstanding shares of Convertible Common Stock
shall be entitled to receive and exchange therefor a certificate or
certificates representing the number of full shares of Common Stock
determined as provided above. A certificate evidencing shares of
Common Stock in a name other than that in which the certificate
surrendered in exchange therefor is registered may be issued if the
certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and the person requesting such exchange shall
pay any transfer or other taxes required by reason of the issuance of
a certificate for shares of Common Stock in any name other than that<PAGE>
of the registered holder of the certificate surrendered or establish
to the satisfaction of the corporation that such tax has been paid or
is not payable. Until so surrendered, each outstanding certificate
which prior to December 1, 1995, represented Convertible Common Stock
shall until surrendered for exchange pursuant to this Clause (iii)(i)
be deemed for all purposes to evidence only the right to receive
Common Stock pursuant to the provisions hereof; provided, however,
that each outstanding certificate which prior to December 1, 1995,
represented Convertible Common Stock shall be deemed for all corporate
purposes of the corporation to evidence ownership of the number of
full shares of Common Stock into which the shares of the Convertible
Common Stock represented thereby were converted pursuant to provisions
hereof; and provided further, until such outstanding certificates
formerly representing Convertible Common Stock are so surrendered, no
dividend payable to holders of record of Common Stock as of any date
subsequent to December 1, 1995, shall be paid to holders of such
outstanding certificates in respect thereof. Upon surrender of
certificates of Convertible Common Stock, there shall be paid (without
interest) to the holder of the certificates of Common Stock issued in
exchange therefor (a) on or as soon as practicable after such date of
surrender, the amount of dividends, if any, which as of any date
subsequent to December 1, 1995 became payable and were not paid to
such holder with respect to such shares of Common Stock, unless the
amount of such dividends has theretofore been paid to a public
official pursuant to applicable abandoned property laws, and (b) on
the appropriate payment date, if any, occurring subsequent to such
date of surrender, the amount of such dividends if the record date in
respect thereof occurred after December 1, 1995 but prior to the date
of surrender. There shall be no registry of transfers on the records
of the corporation of shares of Convertible Common Stock, and, if a
certificate representing such shares is presented to the corporation,
it shall be cancelled and exchanged for a certificate representing
shares of Common Stock as herein provided.
(iv) Voting Rights. Holders of shares of the Convertible Common
Stock shall be entitled to the number of votes per share equal to the
result obtained by multiplying (i) each share by (ii) the Conversion
Rate, and shall vote together on all matters with the holders of
Common Stock as a single class.
B. FIRST PREFERRED STOCK. The Board of Directors of the
corporation is hereby expressly vested with authority to issue 5,000,000
shares of First Preferred Stock, par value $1.00 per share, in series, and
by filing a certificate of designation pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares
to be included in each such series, and to fix the designations, powers,
preferences, and rights of each such series, and the qualifications,
limitations or restrictions thereof. The authority of the Board of
Directors with respect to each series shall include, but not be limited to,
determination of the following:<PAGE>
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment
of shares of that series;
(h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of First Preferred Stock shall be paid
or declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the shares of Common Stock or any
subordinate and inferior series of Serial Preferred Stock with respect to
the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to
holders of shares of First Preferred Stock of all series shall be
insufficient to pay such holders the full preferential amount to which they
are entitled, then such assets shall be distributed ratably among the
shares of all series of First Preferred Stock in accordance with the
respective preferential amounts (including unpaid cumulative dividends, if
any) payable with respect thereto.
Shares of First Preferred Stock which have been redeemed or converted,
or which have been issued and reacquired in any manner and retired, shall
have the status of authorized and unissued First Preferred Stock and may be<PAGE>
reissued by the Board of Directors as shares of the same or any other
series, unless otherwise provided with respect to any series in the
resolution or resolutions of the Board of Directors creating such series.
There are presently outstanding 2,839,110 shares of the corporation's
$1.50 Cumulative Convertible Exchangeable Preferred Stock (the "$1.50
Preferred Stock") and no outstanding shares of the corporation's Series A
8% Non-Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock"), each of which is a series of First Preferred Stock, and the number
of shares, designations, powers, preferences and rights of each such series
were not changed in any respect by the amendments to this Article Four
approved by the stockholders of the corporation on June 5, 1990 (the "1990
Certificate Amendment"). The terms and provisions of Section C of Article
Four of the Certificate of Incorporation of the corporation filed with the
Secretary of State of the State of Delaware (the "Secretary") on August 14,
1987, and the terms and provisions of the corporation's Certificate of
Designation filed with the Secretary on April 29, 1988, are each hereby
incorporated herein by this reference for all purposes as if set forth
herein in full and, any other provision herein notwithstanding, were not
amended or repealed in any respect by the 1990 Certificate Amendment except
for the designation of the class. Certificates evidencing shares of Series
A Preferred Stock and $1.50 Preferred Stock outstanding at the time the
1990 Certificate Amendment became effective continued to evidence such
shares notwithstanding the redesignation of the class of such shares.
C. SERIAL PREFERRED STOCK. The Board of Directors of the
corporation is hereby expressly vested with authority to issue 15,000,000
shares of Serial Preferred Stock, par value $1.00 per share, in series, and
by filing a certificate of designation pursuant to the applicable law of
the State of Delaware, to establish from time to time the number of shares
to be included in each such series, and to fix the designations, powers,
preferences, and rights of each such series, and the qualifications,
limitations or restrictions thereof. The authority of the Board of
Directors with respect to each series shall include, but not be limited to,
determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series; provided, the payment of any dividends on
any series of Serial Preferred Stock shall be junior and subordinate
to the payment, or the setting apart of a sum sufficient for the
payment, of all accrued and current dividends on all outstanding
shares of the $1.50 Preferred Stock, the Series A Preferred Stock and
any other series of First Preferred Stock which by its terms is senior
to the shares of Serial Preferred Stock;
(c) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such
10<PAGE>
voting rights; provided, that any series may be allowed to vote
together with the shares of Common Stock (and with the shares of any
other series of Serial Preferred Stock or First Preferred Stock which
has the right to vote as a single class with the Common Stock) as a
single class on any matter except as provided by applicable law;
(d) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment
of shares of that series; provided, that rights of any series of
Serial Preferred Stock to receive any distribution upon any such event
shall be junior and subordinate to the payment, or the setting apart
of a sum sufficient for the payment, of the liquidation preference of
all outstanding shares of the $1.50 Preferred Stock, the Series A
Preferred Stock and any other series of First Preferred Stock which by
its terms is senior to the shares of Serial Preferred Stock;
(h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Serial Preferred Stock shall
be paid or declared and set apart for payment before any dividends shall be
paid or declared and set apart for payment on the shares of Common Stock
with respect to the same dividend period.
Shares of Serial Preferred Stock which have been redeemed or
converted, or which have been issued and reacquired in any manner and
retired, shall have the status of authorized and unissued Serial Preferred
Stock and may be reissued by the Board of Directors as shares of the same
or any other series, unless otherwise provided with respect to any series
in the resolution or resolutions of the Board of Directors creating such
11<PAGE>
series. Further, the number of authorized shares of Serial Preferred Stock
may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the
stock of the corporation entitled to vote.
Notwithstanding the above, the Board of Directors may grant
powers, preferences and rights to any series of Serial Preferred Stock
which are on a parity with, or senior to, the powers, preferences and
rights of any series of First Preferred Stock, or the class of First
Preferred Stock, provided, that such series or class of First Preferred
Stock shall have approved such powers, preferences and rights by the vote
specified in the terms and provisions of such series of First Preferred
Stock or, if no such vote is specified, by the vote of such series or class
required by applicable law, if any.
D. GENERAL. The Board of Directors may in its discretion issue
from time to time authorized but unissued shares for such consideration as
it may determine, and holders of Common Stock, First Preferred Stock and
Serial Preferred Stock shall have no preemptive rights, as such holders, to
purchase any shares or securities of any class, including treasury shares,
which may at any time be issued or sold or offered for sale by the
corporation.
At each election of directors, every stockholder entitled to vote
at any meeting shall have the right to vote, in person or by proxy, the
number of shares owned by him for as many persons as there are directors to
be elected. Cumulative voting of shares of stock of the corporation,
whether Common Stock, First Preferred Stock or Serial Preferred Stock, is
hereby prohibited.
The corporation shall be entitled to treat the person in whose
name any share or other security is registered as the owner thereof, for
all purposes, and shall not be bound to recognize any equitable or other
claim to or interest in such share or other security on the part of any
other person, whether or not the corporation shall have notice thereof.
ARTICLE FIVE
A. The name and address of the incorporator of the corporation
has been omitted in accordance with Section 245 of the General Corporation
Law of the State of Delaware.
ARTICLE SIX
A. The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors. The number of directors
of the corporation shall be not less than three nor more than fifteen. The
number of directors shall be fixed within the foregoing limits from time to
time by resolution duly adopted by the Board of Directors. The directors
of the corporation need not be stockholders therein.
12<PAGE>
B. The directors of the corporation, other than the directors
elected pursuant to the special voting rights of any class or series of
preferred stock or indebtedness then outstanding, shall be classified, with
respect to the time for which they severally hold office, into three (3)
classes, as nearly equal in number as possible, as shall be provided in the
Bylaws of the corporation; one class whose initial term expires at the
annual meeting of stockholders to be held in 1992; another class whose
initial term expires at the annual meeting of stockholders to be held in
1993; and another class whose initial term expires at the annual meeting of
stockholders to be held in 1994; with each class to hold office until its
successors are duly elected and qualified. At each annual meeting of
stockholders beginning with the annual meeting for 1992, the number of
directors equal to the number of the class whose term expires at such
meeting shall be elected to hold office until the third succeeding annual
meeting of stockholders.
C. In the event of any change in the authorized number of
directors, the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors
among the classes of directors so as to maintain such classes as nearly
equal as possible.
D. Notwithstanding any of the foregoing provisions of this
Article Six and subject to the rights, if any, of the holders of any then
outstanding class or series of preferred stock or indebtedness of the
corporation with special rights to elect directors, each director shall
serve until his successor is elected and qualified or until his death,
retirement, resignation or removal for cause. Should a vacancy on the
Board of Directors occur or be created, whether arising through death,
retirement, resignation or removal of a director for cause, or through an
increase in the number of directors of any class, such vacancy shall be
filled by the majority vote of the remaining directors of all classes,
whether or not a quorum, or by a sole remaining director. A director so
elected to fill a vacancy shall serve for the remainder of the then present
term of office of the class to which he was elected.
E. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the corporation, or any provision of law
which might otherwise permit a lesser vote or no vote, the provisions set
forth in this Article Six may not be amended or repealed in any respect,
unless such action is approved by the affirmative vote of the holders of at
least two-thirds of the voting power of all of the then outstanding shares
of the corporation entitled to vote generally in the election of directors,
voting together as a single class.
ARTICLE SEVEN
The corporation is to have a perpetual existence.
13<PAGE>
ARTICLE EIGHT
The Board of Directors may exercise all such powers and do all
such lawful acts and things as are not by statute, the Bylaws, or this
Certificate of Incorporation directed or required to be exercised and done
by the stockholders.
ARTICLE NINE
The initial Bylaws of the corporation shall be adopted by the
Board of Directors. The power to alter, amend or repeal the corporation's
Bylaws, and to adopt new Bylaws, is hereby vested in the Board of
Directors, subject, however, to repeal or change by the affirmative vote of
the holders of at least two-thirds of the outstanding shares entitled to
vote thereon. Notwithstanding any other provisions of this Certificate of
Incorporation, or any provision of law which might otherwise permit a
lesser vote or no vote, the affirmative vote of the holders of at least
two-thirds of the voting power of all of the then outstanding shares of the
voting stock, voting together as a single class, shall be required to
alter, amend, or repeal this Article Nine.
ARTICLE TEN
The corporation reserves the right to amend, alter or repeal any
provisions contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon officers,
directors, and stockholders herein are granted subject to this reservation.
ARTICLE ELEVEN
Special meetings of the stockholders of the corporation for any
purpose or purposes may be called at any time by the Board of Directors,
the Chairman of the Board of Directors or the President. Special meetings
of the stockholders may not be called by any other person or persons.
ARTICLE TWELVE
Meetings of stockholders may be held within or without the State
of Delaware as the Bylaws may provide. Elections of directors need not be
by written ballot.
ARTICLE THIRTEEN
Subject to the rights, if any, of the holders of any then
outstanding class or series of preferred stock or indebtedness of the
corporation with special rights to elect directors, any or all of the
directors of the corporation may be removed from office at any time, but
14<PAGE>
only with cause and only by the affirmative vote of the holders of a
majority of the outstanding shares of the corporation then entitled to vote
generally in the election of directors, voting together as a single class.
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the corporation, or any provision of law which might
otherwise permit a lesser vote or no vote, the provisions set forth in this
Article Thirteen may not be amended or repealed in any respect, unless such
action is approved by the affirmative vote of the holders of at least
two-thirds of the voting power of all of the then outstanding shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class.
ARTICLE FOURTEEN
The officers of the corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as
are determined solely by the Board of Directors, subject to the right of
the Board of Directors to remove any officer or officers at any time with
or without cause.
ARTICLE FIFTEEN
A. The corporation shall indemnify to the full extend
authorized or permitted by law (as now or hereafter in effect) any person
made, or threatened to be made, a defendant or witness to any action, suit
or proceeding (whether civil or otherwise) by reason of the fact that he,
his testator or intestate, is or was a director of officer of the
corporation or by reason of the fact that such director of officer, at the
request of the corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, in any capacity. Nothing contained herein shall affect any
rights to indemnification to which employees other than directors and
officers may be entitled by law. No amendment or repeal of this Section A
of Article Fifteen shall apply to or have any effect on any right to
indemnification provided hereunder with respect to any acts or omissions
occurring prior to such amendment or repeal.
B. No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for any breach of
fiduciary duty by such a director as a director. Notwithstanding the
foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which such director derived an improper
personal benefit. No amendment to or repeal of this Section B of Article
Fifteen shall apply to or have any effect on the liability or alleged
liability of any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or
15<PAGE>
repeal.
C. In furtherance and not in limitation of the powers conferred
by statute:
(i) the corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of law; and
(ii) the corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation,
letters of credit, surety bonds and/or other similar arrangements), as
well as enter into contracts providing indemnification to the full
extent authorized or permitted by law and including as part thereof
provisions with respect to any or all of the foregoing to ensure the
payment of such amounts as may become necessary to effect
indemnification as provided therein, or elsewhere.
ARTICLE SIXTEEN
(a) Purpose and Effectiveness. The purpose of this Article
Sixteen is to limit ownership and control of shares of any class of capital
stock of the corporation by Aliens in order to permit the corporation to
hold, obtain or reinstate a license or franchise from a governmental agency
necessary to conduct its business as a U.S. Maritime Company. The
effectiveness of this Article Sixteen shall terminate one year after the
corporation and each Subsidiary and Controlled Person cease to be a U.S.
Maritime Company unless, at or prior to that time, either the corporation
or a Subsidiary or a Controlled Person has reinstated itself as a U.S.
Maritime Company or has contracted to reinstate itself as a U.S. Maritime
Company. The Board of Directors is hereby authorized to adopt all such
Bylaws and resolutions, and to effect any and all other measures reasonably
necessary or desirable and consistent with applicable law and the
provisions of this Certificate of Incorporation, to fulfill the purpose and
implement the provisions of this Article Sixteen.
(b) Restrictions on Transfers.
(i) Any transfer, or attempted or purported transfer, of any
shares of Common Stock issued by the corporation or any interest therein or
right thereof, which would result in the ownership or control by one or
more Aliens of an aggregate percentage of the shares of Common Stock of the
corporation or of any interest therein or right thereof in excess of the
Permitted Percentage shall, to the full extent permitted by law, and for so
long as such excess shall exist, be void and shall be ineffective as
16<PAGE>
against the corporation and the corporation shall not recognize, to the
extent of such excess, the purported transferee as a shareholder of the
corporation for any purpose whatsoever except for the purpose of making a
further transfer to a person not an Alien; provided, however, that such
shares, to the extent of such excess, may nevertheless be deemed to be
Alien owned shares for the purposes of the other provisions of this Article
Sixteen.
(ii) The Board of Directors is hereby authorized to adopt a Bylaw
or Bylaws and to take such other action as it may deem necessary or
desirable to implement the restriction set forth in subsection (i) above,
including, without limitation, (A) requiring, as a condition to transfer,
representations and other proof as to the identity of existing or
prospective stockholders and persons on whose behalf shares of stock of the
corporation or any interest therein or right thereof are or are to be held
and as to whether or not such persons are Aliens, and (B) establishing and
maintaining a dual stock certificate system under which different forms of
stock certificates, representing outstanding shares of Common Stock of the
corporation, are issued to the holders of record of the shares represented
thereby to indicate whether or not such shares or any interest therein or
right thereof is owned or controlled by an Alien.
(c) Suspension of Voting and Dividend and Distribution Rights
With Respect to Alien Owned Stock. With respect to shares of the
outstanding capital stock of the corporation or any class thereof
determined to be in excess of the Permitted Percentage in accordance with
this section (c) of this Article Sixteen, the corporation may, to the full
extent permitted by law, so long as such excess exists, withhold the
payment of dividends and other distributions of assets in respect of such
excess Alien owned shares and suspend the voting rights of such excess
Alien owned shares. If Alien ownership of the outstanding capital stock of
the corporation or any class thereof shall be in excess of the Permitted
Percentage, the shares deemed included in such excess for purposes of this
section (c) of this Article Sixteen shall be those Alien owned shares that
the Board of Directors determine became so owned most recently.
(d) Definitions.
(i) "Alien" shall mean (1) any person (including an individual,
a partnership, a corporation or an association) who is not a United States
citizen within the meaning of Section 2 of the Shipping Act, 1916, as an
amended or as it may hereafter be amended; (2) any foreign government or
representative thereof; (3) any corporation, the president, chief executive
officer or chairman of the board of directors of which is an Alien, or of
which more than a minority of the number of its directors necessary to
constitute a quorum are Aliens; (4) any corporation organized under the
laws of any foreign government; (5) any corporation of which 25% or greater
interest is owned beneficially or of record, or may be voted by, an Alien
or Aliens, or which by any other means whatsoever is controlled by or in
which control is permitted to be exercised by an Alien or Aliens (the Board
of Directors being authorized to determine reasonably the meaning of
"control" for this purpose); (6) any partnership or association which is
17<PAGE>
controlled by an Alien or Aliens; or (7) any person (including an
individual, partnership, corporation or association) who acts as
representative of or fiduciary for any person described in clauses (1)
through (6) above.
(ii) "Controlled Person" shall mean any corporation or
partnership of which the corporation or any Subsidiary owns or controls an
interest in excess of 25%.
(iii) "Permitted Percentage" shall mean 2% less than the
lawful maximum percentage of the outstanding shares of capital stock of the
corporation, or any class thereof (as evidenced by a resolution of the
Board of Directors), which, if shares in excess of such percentage were
held by Aliens, would prevent the corporation (or any Subsidiary or
Controlled Person) from being a U.S. Maritime Company.
(iv) "Subsidiary" shall mean any corporation more than 50% of the
outstanding stock of which is owned by the corporation or any Subsidiary of
the corporation.
(v) "U.S. Maritime Company" shall mean any corporation or other
entity which, directly or indirectly (1) owns or operates vessels in the
United States foreign trade; (2) owns any vessel on which there is a
preferred mortgage issued in connection with Title XI of the Merchant
Marine Act, 1936, as amended; (3) operates vessels under agreement with the
United States Government (or any agency thereof); (4) conducts any
activity, takes any action or receives any benefit which would be adversely
affected under any provision of the U.S. Maritime, shipping or vessel
documentation laws by virtue of Alien ownership of its stock; or (5)
maintains a Capital Construction Fund under the provisions of Section 607
of the Merchant Marine Act, 1936, as amended.
ARTICLE SEVENTEEN
Subject to the rights, if any, of the holders of any then
outstanding class or series of preferred stock or indebtedness of the
corporation with special rights to elect directors, any action required or
permitted to be taken by the stockholders of the corporation must be
effected at a duly called annual or special meeting of the stockholders or
by unanimous written consent of stockholders, and stockholders may not
otherwise act by written consent. Notwithstanding any other provisions of
this Certificate of Incorporation or the Bylaws of the corporation, or any
provision of law which might otherwise permit a lesser vote or no vote, the
provisions set forth in this Article Seventeen may not be amended or
repealed in any respect, unless such action is approved by the affirmative
vote of the holders of at least two-thirds of the voting power of all of
the then outstanding shares of the corporation entitled to vote generally
in the election of directors, voting together as a single class."
18<PAGE>
IN WITNESS WHEREOF, Energy Service Company, Inc. has caused this
certificate to be signed by Carl F. Thorne, its President, and attested to
by William S. Chadwick, Jr., its Secretary, as of May ________, 1994.
ENERGY SERVICE COMPANY, INC.
By: /s/ Carl F. Thorne
__________________________
Carl F. Thorne,
President
Attested: /s/ William S. Chadwick, Jr.
____________________________
William S. Chadwick, Jr.
Secretary
19<PAGE>
<PAGE>
Exhibit No. 10.30
PARTIAL SATISFACTION OF MORTGAGE
Wilmington Trust Company, A Delaware banking corporation
("Mortgagee"), with an office at Rodney Square North, Wilmington, Delaware
19890, as Trustee for the benefit of The CIT Group/Equipment Financing,
Inc., a New York corporation ("Lender"), with an office at 1211 Avenue of
the Americas, 21st Floor, New York, New York 10036, under the Master Vessel
Trust Agreement dated December 22, 1989 between the Mortgagee and Lender,
said Trustee being the sole Mortgagee, does hereby certify that a First
Preferred Ship Mortgage, made and dated October 14, 1993, recorded in the
office of the documentation officer at New Orleans, Louisiana on October
15, 1993 in Book PM-246, Page I-81 on October 15, 1993 at 10:41 a.m., made
and executed by ENSCO Marine Company filed with the office of the
documentation officer at New Orleans, Louisiana in the original aggregate
amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00) on the
whole of the Vessels attached hereto as Exhibit A plus other Vessels set
forth in said Mortgage, all home ported at New Orleans, Louisiana, is
satisfied as to only those Vessels set forth on Exhibit A hereto and does
consent that the same Mortgage be discharged of record only as to those
Vessels set forth on Exhibit A hereto.
Said Mortgage shall remain in full force and effect with all its terms
and conditions as to the remaining Vessels set forth in said Mortgage.
DATED the 29th day of November, 1994.
WILMINGTON TRUST COMPANY
BY: /s/ JAMES LAWLER
______________________
JAMES LAWLER, V.P.<PAGE>
THE STATE OF NEVADA :
COUNTY OF CLARK :
I, the undersigned, Notary Public, in and for the State of Nevada,
County of Clark, hereby certify that James Lawler, personally appeared
before me in said district, being personally known to me as the person who
executed the aforesaid instrument and acknowledged the same to be his act
and deed as said officer.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 29th day of November,
1994.
/s/ DIANE A. MOHLER
__________________________________
NOTARY PUBLIC
Seal<PAGE>
EXHIBIT "A"
VESSEL NAME OFFICIAL NO. HOME PORT
- ----------- ------------ ---------
ENSCO ADVENTURER 606730 New Orleans
ENSCO CRUSADER 613095 New Orleans
ENSCO HUNTER 605365 New Orleans
ENSCO SEARCHER 628633 New Orleans<PAGE>
<PAGE>
Exhibit No. 10.31
UNITED STATES OF AMERICA MODIFICATION AND AMENDMENT
STATE OF TEXAS OF FIRST PREFERRED FLEET SHIP
COUNTY OF DALLAS MORTGAGE BY ENSCO MARINE COMPANY
(Interest 100%) AND
TOTAL AMOUNT: $25,000,000.00 WILMINGTON TRUST COMPANY,
exclusive of interest AS TRUSTEE
(Interest 100%)
BE IT KNOWN, that on this 23rd day of January, 1995, before me, a
notary public duly commissioned and qualified in and for the State of
Texas, therein residing and in the presence of the witnesses hereinafter
named and undersigned:
PERSONALLY CAME AND APPEARED:
ENSCO Marine Company, a Delaware Corporation with its
principal places of business at: 2700 Fountain Place, 1445
Ross Avenue, Dallas, Texas 75202, and 620 Moulin Road,
Broussard, Louisiana 70518, appearing herein through C.
Christopher Gaut, its duly authorized Vice President and
Treasurer (hereinafter referred to as "Mortgagor");
who declared that, pursuant to a certain loan agreement dated October 14,
1993 between Mortgagor (as "Borrower") and CIT Group/ Equipment Financing,
Inc. (as "Lender") (the "Loan Agreement"), Mortgagor became indebted to
Lender under that certain Promissory Note dated October 15, 1993 made by
Mortgagor payable to the order of Lender in the principal sum of TWENTY-
FIVE MILLION AND NO/100THS DOLLARS ($25,000,000.00), (the "Note"); and
THE APPEARER further declared that, in order to secure the payment
of the Note, and the performance of the obligations of Mortgagor under the
Loan Agreement, Mortgagor did execute in favor of WILMINGTON TRUST COMPANY,
a Delaware banking corporation with an office at: Rodney Square North,
Wilmington, Delaware 19890, as Trustee for the benefit of the CIT
Group/Equipment Financing, Inc. (the "Lender") a New York corporation with
an office at:<PAGE>
1211 Avenue of the Americas, 21st Floor, New York, New York 10036, under
the Master Vessel Trust Agreement dated December 22, 1989 between the
Mortgagee and the Lender, said Trustee being the sole Mortgagee ("Mort-
gagee"), a First Preferred Fleet Ship Mortgage dated October 14, 1993 (the
"Preferred Mortgage") covering the whole of the Vessels which are described
on Exhibit "A", attached hereto, and recorded with the Eighth Coast Guard
District, Port of New Orleans, Louisiana in Preferred Mortgage Book No.
246, Inst. 81, on October 15, 1993 at 10:41 a.m.; and
IT WAS FURTHER declared that, by Partial Satisfaction of Mortgage
executed on November 30, 1994 and recorded with the Eighth Coast Guard
District, Port of New Orleans, Louisiana in Preferred Mortgage Book No.
9412, Inst. 17, on December 1, 1994 at 11:24 a.m. the Mortgagee did release
and discharge of record the whole of the Vessels, but only those Vessels,
which are described on Exhibit "B", attached hereto.
NOW THEREFORE, in order to further secure the payment of the Note,
together with the performance of the Obligations provided for in the
Preferred Mortgage, Mortgagor, for good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, does hereby
specially mortgage in favor of Mortgagee the vessel:
VESSEL NAME: OFFICIAL NO.: HOME PORT:
---------------- ------------- ----------------------
M/V ENSCO MASTER 642291 New Orleans, Louisiana
and does hereby agree to amend the Preferred Mortgage to include such
vessel and to include it within the defined term "Vessel" in the Preferred
Mortgage.
EXCEPT AS OTHERWISE PROVIDED HEREIN, all other provisions of the
First Preferred Fleet Ship Mortgage, as modified by the Partial Satisfac-
tion of Mortgage, hereinabove referred to, shall remain in full force and
effect with respect to the obligations of Mortgagor and Mortgagee. It is
expressly understood and agreed that this Modification and Amendment of
First Preferred Fleet Ship Mortgage does not constitute a novation or
renewal of the Preferred Mortgage or of the Obligations secured thereby,
and that this amendment and modification is solely for the purpose of
adding to the collateral provided therein the Vessel M/V ENSCO MASTER,
Official No. 642291.<PAGE>
THUS DONE AND PASSED in Dallas, Texas, on the day, month and year
hereinabove first written, in the presence of the undersigned competent
witnesses, who herein sign their names with said Appearer and me, notary,
after reading of the whole.
WITNESSES: ENSCO Marine Company
/s/ Kent Brooks /s/ C. Christopher Gaut
______________________________ ______________________________
By: C. Christopher Gaut
/s/ Tandra Scheller Its: Vice President/Treasurer
______________________________
ACKNOWLEDGMENT
--------------
STATE OF TEXAS
COUNTY OF DALLAS
BE IT KNOWN, that on this 24th day of January, 1995, personally
came and appeared before me, the undersigned Notary, C. Christopher Gaut,
who being duly sworn, deposed and said that he is the duly authorized Vice
President and Treasurer of ENSCO Marine Company; that he signed, executed
and acknowledged the foregoing Modification and Amendment of First Pre-
ferred Fleet Ship Mortgage on behalf of said corporation as the free act
and deed of said corporation and for the uses and purposes therein set
forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and seal this
24th day of January, 1995.
/s/ Donna S. Spearman
____________________________
Notary Public in and for the
State of Texas, U.S.A.
My Commission Expires:1/22/96
Seal<PAGE>
EXHIBIT "A"
VESSEL OFFICIAL NO. HOME PORT
ENSCO PRESIDENT 677079 New Orleans, LA
ENSCO PILOT 674684 New Orleans, LA
ENSCO NAVIGATOR 674683 New Orleans, LA
ENSCO COMMANDER 663405 New Orleans, LA
ENSCO ADMIRAL 663404 New Orleans, LA
ENSCO CAPTAIN 663403 New Orleans, LA
ENSCO SAILOR 676805 New Orleans, LA
ENSCO CHIEF 663407 New Orleans, LA
ENSCO MATE 663406 New Orleans, LA
ENSCO EXPLORER 640712 New Orleans, LA
ENSCO DISCOVERER 640022 New Orleans, LA
ENSCO ENDEAVOR 638621 New Orleans, LA
ENSCO CONQUEROR 635893 New Orleans, LA
ENSCO VOYAGER 634734 New Orleans, LA
ENSCO SEARCHER 628633 New Orleans, LA
ENSCO CRUSADER 613095 New Orleans, LA
ENSCO ADVERTURER 606730 New Orleans, LA
ENSCO SEEKER 617320 New Orleans, LA
ENSCO HUNTER 605365 New Orleans, LA
ENSCO RAM 643791 New Orleans, LA
ENSCO SAIL 612997 New Orleans, LA
ENSCO SCOUT 578990 New Orleans, LA
ENSCO TENDER 620473 New Orleans, LA
ENSCO CARRIER 615719 New Orleans, LA
ENSCO COASTER 643475 New Orleans, LA
ENSCO CUTTER 643910 New Orleans, LA
ENSCO TARTAN 642942 New Orleans, LA
ENSCO TITAN 569686 New Orleans, LA
ENSCO TROJAN 561982 New Orleans, LA
ENSCO GIANT 570064 New Orleans, LA<PAGE>
EXHIBIT "B"
VESSEL OFFICIAL NO. HOME PORT
ENSCO ADVENTURER 606730 New Orleans
ENSCO CRUSADER 613095 New Orleans
ENSCO HUNTER 605365 New Orleans
ENSCO SEARCHER 628633 New Orleans<PAGE>
<PAGE>
Exhibit 10.32
AMENDMENT NO. 1
TO
CREDIT FACILITY AGREEMENT
AMENDMENT NO. 1 dated as of November 1, 1994 ("Amendment No. 1") to
the Credit Facility Agreement (hereinafter referred to as the "Credit
Agreement") dated as of December 15, 1993 among ENSCO OFFSHORE COMPANY, a
corporation of the State of Delaware ("ENSCO Offshore"), ENSCO OFFSHORE
U.K. LTD., a corporation organized and existing under the laws of England
("ENSCO U.K.", collectively the "Borrowers" and individually a "Borrower"),
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH, a Norwegian bank, DEN
NORSKE BANK AS, NEW YORK BRANCH, a Norwegian bank, BANQUE INDOSUEZ, a
French bank and MEESPIERSON N.V., a Dutch bank, (the "Banks") with
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH and DEN NORSKE BANK AS, NEW
YORK BRANCH as Agents for the Banks (collectively the "Agents" and
individually an "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement the Banks agreed to provide
to the Borrowers three credit facilities in a total amount of up to USD
100,000,000 to be used by the Borrowers to refinance certain of their
existing long term indebtedness and for additional working capital; and
WHEREAS, the Borrowers, the Banks and the Agents wish to amend the
Credit Agreement in order to, among other things, lower the Margin, lower
the commitment fee and amend certain covenants contained in the ENSCO
Guaranty;<PAGE>
NOW, THEREFORE, in consideration of the above recitals, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. In Section 1, the definition of "Margin" is hereby amended to
read as follows:
"Margin" means one and three-quarter percent (1 3/4%) per annum.
2. Section 10.1 (c) is hereby amended to read as follows:
"The Borrowers jointly and severally agree to pay to the Agents
for distribution to the Banks pro rata a commitment fee of one-
half of one percent per annum on the average daily undrawn
portion of the Commitments so long as this Agreement is in effect
as follows:
(i) on January 15, 1995 for the period beginning as of the date
of this Amendment No. 1 and ending January 15, 1995, and
(ii) thereafter, in arrears, on each April 15, July 15, October
15 and January 15 for each preceding three (3) month period.
3. The ENSCO Guaranty, the form of which is attached to the Credit
Agreement as Exhibit B shall be amended as of this date hereof by adding it
to Amendment NO. 1 to ENSCO Guaranty, the form of which is attached to this
Amendment NO. 1 as Exhibit A.
4. The U.S. Mortgage shall be amended as soon as possible to reflect
the amendments made to the Credit Agreement and the ENSCO Guaranty, all in
the form and substance satisfactory to the Agents.<PAGE>
5. Wherever and in each such place the term "Agreement" is used
throughout the Credit Agreement (including its inclusion in the defined
term "Loan Documents"), such term shall be read to mean the Credit
Agreement as amended by this Amendment No. 1.
6. Except as specifically amended by this Amendment NO. 1, all of
the terms and provisions of the Credit Agreement shall remain in full force
and effect.
7. All capitalized terms used herein but not defined herein shall
have the meanings given to them in the Credit Agreement.
8. THIS AMENDMENT NO. 1 TO CREDIT FACILITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
IN WITNESS HEREOF, the parties hereby have duly executed this
Amendment No. 1 as of the date first written above.
ENSCO OFFSHORE COMPANY
By: /s/ C. CHRISTOPHER GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT
ENSCO OFFSHORE U.K. LTD.
By: /s/ C. CHRISTOPHER GAUT
________________________
Name: C. CHRISTOPHER GAUT
` Title: DIRECTOR<PAGE>
CHRISTIANIA BANK OG KREDITKASSE,
LONDON BRANCH, as agent
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER
DEN NORSKE BANK AS, NEW YORK BRANCH
as agent
By: /s/ T.S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
CHRISTIANIA BANK OG KREDITKASSE,
LONDON BRANCH
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER
DEN NORSKE BANK AS, NEW YORK BRANCH
By: /s/ T.S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
BANK INDOSUEZ
By: /s/ HANS JORGEN WIESTAD
________________________
Name: HANS JORGEN WIESTAD
Title: ACCOUNT MANAGER<PAGE>
MEESPIERSON N.V.
By: /s/ G. SCHOT
________________________
/s/ H.L.MATTHIJSSEN
________________________
Name: G. SCHOT
H.L. MATTHIJSSEN
Title: DRS. G. SCHOT 453
CH. H.L. MATTHIJSSEN 351
Agreed to and Accepted
this 30th day of December, 1994.
ENERGY SERVICE COMPANY, INC.
By: /s/ C.C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT
PENROD, INC.
By: /s/ C.C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: PRESIDENT<PAGE>
Exhibit "A" to Amendment No.1
to Credit Facility Agreement
AMENDMENT NO. 1
TO
ENSCO GUARANTY
Amendment No. 1 dated as of November 1, 1994 to the ENSCO Guaranty
(the "ENSCO Guaranty"), dated as of December 17, 1993, made jointly and
severally by ENERGY SERVICE COMPANY, INC. ("ENSCO"), a corporation
organized and existing under the laws of the State of Delaware and PENROD,
INC. ("PENROD"), a corporation organized and existing under the laws of the
State of Delaware, (collectively, the "Guarantors") in favor of CHRISTIANIA
BANK OG KREDITKASSE, London Branch and DEN NORSKE BANK AS, New York Branch,
BANQUE INDOSUEZ and MEESPIERSON N.V. (the "Banks").
WHEREAS, pursuant to the ENSCO Guaranty, the Guarantors guaranteed
certain obligations of its affiliates, ENSCO OFFSHORE COMPANY, a Delaware
corporation and ENSCO OFFSHORE U.K. LTD., a corporation organized and
existing under the laws of the United Kingdom, (the "Borrowers"), under (i)
a Credit Facility Agreement dated as of December 15, 1993 among the
Borrowers, the Banks and the Agents, (the "Credit Agreement") (ii) the
promissory notes of the Borrowers in favor of the Agents on behalf of the
Banks dated December 17, 1993 and (III) the other Loan Documents; and
WHEREAS, the Borrower, the Banks and the Agents wish to amend the
Credit Agreement in order to, among other things, lower the Margin and
lower the commitment fee; and
WHEREAS, in order to induce the Banks to enter into Amendment No. 1 to
Credit Agreement dated the date hereof, the Guarantors, as affiliates of
the Borrowers, have agreed pursuant to this Amendment No. 1 to ENSCO
Guaranty to (i) amend certain of their financial covenants and (II)
reaffirm their guarantee to the Banks of the due and punctual payment of
the Borrowers' obligations under the Credit Agreement, the Notes and the
other Loan Documents as provided in the ENSCO Guaranty.<PAGE>
NOW, THEREFORE, in consideration of the premises, the Guarantors
hereby agree as follows:
1. Each reference in the ENSCO Guaranty to the term "Guaranty" shall mean
the ENSCO Guaranty, as amended by this Amendment No. 1, as the same
shall be further amended, supplemented or extended in the future.
2. Each reference in the ENSCO Guaranty, as amended hereby, to the Credit
Agreement shall mean the Credit Agreement, as amended by Amendment No.
1 to Credit Agreement dated as of the date hereof.
3. The Representations and Warranties contained in Section 7 of the ENSCO
Guaranty made by the Guarantors in favor of the Banks are correct on
and as of the date of this Amendment No. 1 to ENSCO Guaranty as though
made on and as of such date.
4. Section 8(j) of the ENSCO Guaranty is hereby amended to read as
follows:
"(j) Not permit Net Working Capital of the ENSCO Consolidated
Group to be less than USD 35,000,000 at any time."
5. Section 8(k) of the ENSCO Guaranty is hereby amended to read as
follows:
"(k) Not permit available cash and Cash Equivalents of the ENSCO
Consolidated Group to be less than USD 25,000,000 at any time."
6. Section 8 (1) of the ENSCO Guaranty is hereby amended to read as
follows:
"(1) Not permit the Total Debts of the ENSCO Consolidated Group
to be greater than 40% of the Total Assets of the ENSCO
Consolidated Group."<PAGE>
7. Except as specifically amended by this Amendment No. 1, all of the
terms and provisions of the ENSCO Guaranty shall remain in full force
and effect and each Guarantor hereby confirms the validity and
enforceability of its guarantee hereunder and thereunder.
8. All capitalized terms used but not defined herein shall have the
meanings given to them in the ENSCO Guaranty.
9. THIS AMENDMENT NO. 1 TO ENSCO GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
IN WITNESS HEREOF, the parties hereto have caused this Amendment NO.
1 to ENSCO Guaranty to be executed by their duly authorized officers, all
as of the date noted above.
ENERGY SERVICE COMPANY, INC.
By: /s/ C. C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT
PENROD, INC.
By: /s/ C. C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT<PAGE>
ACCEPTED this 9th day of January, 1995.
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER
DEN NORSKE BANK AS, NEW YORK BRANCH
By: /s/ T. S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
BANK INDOSUEZ
By: /s/ HANS JORGEN WIESTAD
________________________
Name: HANS JORGEN WIESTAD
Title: ACCOUNT MANAGER
MEESPIERSON N.V.
By: /s/ G. SCHOT
________________________
Name: G. SCHOT
Title: DRS. G. SCHOT 453<PAGE>
Amendment No. 1
to First Preferred Fleet Mortgage
Amendment No. 1 dated January 5, 1995 to the First Preferred Fleet
Mortgage dated December 17, 1993 (the "Original Mortgage"), from ENSCO
OFFSHORE COMPANY, a corporation organized under the laws of the State of
Delaware, with its business address at 2700 Fountain Place, 1445 Ross
Avenue, Dallas, Texas 75202, (the "Shipowner") to Bankers Trust Company, a
New York banking corporation, not in its individual capacity, but solely as
Trustee, with its business address at Four Albany Street, Fourth Floor, New
York, New York 10006, and any successor to it (the "Trustee") pursuant to
the Trust Indenture dated as of December 17, 1993.
WHEREAS, the Shipowner is the owner of 100% of the following U.S. flag
drilling rigs (the "Vessels"):
NAME OFFICIAL NO. HOME PORT
ENSCO 63 589096 New Orleans, LA
ENSCO 68 574668 New Orleans, LA
ENSCO 81 606512 New Orleans, LA
ENSCO 82 602912 New Orleans, LA
ENSCO 83 605536 New Orleans, LA
ENSCO 84 637544 New Orleans, LA
ENSCO 86 643110 New Orleans, LA
ENSCO 87 648969 New Orleans, LA
ENSCO 88 645637 New Orleans, LA
ENSCO 89 652440 New Orleans, LA
ENSCO 90 647859 New Orleans, LA
ENSCO 93 651385 New Orleans, LA
ENSCO 94 638685 New Orleans, LA
ENSCO 95 642112 New Orleans, LA
ENSCO 99 682070 New Orleans, LA<PAGE>
which Vessels have been duly registered in the name of the Shipowner in
accordance with the laws of the United States of America.
WHEREAS, the Original Mortgage was received for record at 10:30 a.m.
on December 17, 1993, at the U.S. Coast Guard Vessel Documentation Office
at New Orleans, Louisiana and was recorded in Book No. PM-247 at Inst. No.
109; and
WHEREAS, the Original Mortgage mortgaged one hundred percent (100%) of
the Vessels, together with all of their boilers, engines, machinery, masts,
spars, sails, rigging, boats, anchors, chains, tackle, apparel, furniture,
fittings, equipment, drilling equipment, pumps, drill pipes, collars,
racking, housing, spare parts and supporting inventory, vehicles and living
quarters (excluding equipment aboard the Vessels which is not owned by the
Shipowner) and all other appurtenances to the Vessels appertaining or
belonging, whether now owned or hereafter acquired, whether on board or
not, and all additions, improvements and replacements made in or to such
Vessels; and
WHEREAS, the Original Mortgage was granted by the shipowner to the
Trustee for the purpose of securing the obligation of the Shipowner to pay
to the Banks and the Agents all amounts due and payable under that certain
Credit Facility Agreement dated as of December 15, 1993 among the
Shipowner, the other Borrower named therein, the Banks and the Agents (the
"Credit Agreement"); and
WHEREAS, a true and accurate copy of the Credit Agreement is attached
to the Original Mortgage as Exhibit A and forms a part thereof; and
WHEREAS, pursuant to Amendment No. 1 to Credit Facility Agreement
dated as of November 1, 1994 among the shipowner, the other Borrower and
the Banks ("Amendment No. 1"), certain terms of the Credit Agreement were
amended; and<PAGE>
WHEREAS, the Shipowner and the Trustee wish to amend the Original
Mortgage to reflect the changes made by Amendment No. 1.
NOW, THEREFORE, in consideration of the above recitals, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged the Shipowner and the Trustee hereby agree to amend the
Original Mortgage as follows:
A. Exhibit A to the Original Mortgage is hereby amended by
Amendment No. 1 in the form of Exhibit A attached hereto.
B. Hereinafter each reference in the Original Mortgage, as amended,
to the Credit Agreement shall refer to the Credit Agreement as amended by
Amendment No. 1.
C. For purposes of recording this Amendment No. 1 to First Preferred
Fleet Mortgage pursuant to 46 U.S.C. Sec. 31321, it amends mortgage covenants.
The total amount of the Original Mortgage is unchanged.
D. Except as specifically amended herein, the Original Mortgage
shall remain in full force and effect.
All capitalized terms used herein but not defined herein shall have
the meanings given to them in the Original Mortgage.
THIS AMENDMENT NO. 1 TO FIRST PREFERRED FLEET MORTGAGE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE UNITED
STATES OF AMERICA AND, TO THE EXTENT THEY DO NOT APPLY, TO THE INTERNAL
LAWS OF THE STATE OF NEW YORK.<PAGE>
IN WITNESS HEREOF, the parties hereto have duly executed this
Amendment No. 1 to First Preferred Fleet Mortgage on the date first written
above.
ENSCO OFFSHORE COMPANY
By: /s/ ROBERT O. ISAAC
___________________________
Name: ROBERT O. ISAAC
Title: Assistant Secretary
BANKERS TRUST COMPANY, not in its
individual capacity but solely as
Trustee
By: /s/ JENNA ROSSHEIM
___________________________
Name: JENNA ROSSHEIM
Title: Assistant Vice President<PAGE>
Exhibit "A" to Amendment No. 1
to First Preferred Fleet Mortgage
AMENDMENT NO. 1
TO
CREDIT FACILITY AGREEMENT
AMENDMENT NO. 1 dated as of November 1, 1994 ("Amendment No. 1") to
the Credit Facility Agreement (hereinafter referred to as the "Credit
Agreement") dated as of December 15, 1993 among ENSCO OFFSHORE COMPANY, a
corporation of the State of Delaware ("ENSCO Offshore"), ENSCO OFFSHORE
U.K. LTD., a corporation organized and existing under the laws of England
("ENSCO U.K.", collectively the "Borrowers" and individually a "Borrower"),
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH, a Norwegian bank, DEN
NORSKE BANK AS, NEW YORK BRANCH, a Norwegian bank, BANQUE INDOSUEZ, a
French bank and MEESPIERSON N.V., a Dutch bank, (the "Banks") with
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH and DEN NORSKE BANK AS, NEW
YORK BRANCH as Agents for the Banks (collectively the "Agents" and
individually an "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement the Banks agreed to provide
to the Borrowers three credit facilities in a total amount of up to USD
100,000,000 to be used by the Borrowers to refinance certain of their
existing long term indebtedness and for additional working capital; and
WHEREAS, the Borrowers, the Banks and the Agents wish to amend the
Credit Agreement in order to, among other things, lower the Margin, lower
the commitment fee and amend certain covenants contained in the ENSCO
Guaranty;<PAGE>
NOW, THEREFORE, in consideration of the above recitals, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree to amend the Credit Agreement as follows:
1. In Section 1, the definition of "Margin" is hereby amended to
read as follows:
"Margin" means one and three-quarter percent (1 3/4%) per annum.
2. Section 10.1 (c) is hereby amended to read as follows:
"The Borrowers jointly and severally agree to pay to the Agents
for distribution to the Banks pro rata a commitment fee of one-
half of one percent per annum on the average daily undrawn
portion of the Commitments so long as this Agreement is in effect
as follows:
(i) on January 15, 1995 for the period beginning as of the date
of this Amendment No. 1 and ending January 15, 1995, and
(ii) thereafter, in arrears, on each April 15, July 15, October
15 and January 15 for each preceding three (3) month period.
3. The ENSCO Guaranty, the form of which is attached to the Credit
Agreement as Exhibit B shall be amended as of this date hereof by adding it
to Amendment NO. 1 to ENSCO Guaranty, the form of which is attached to this
Amendment NO. 1 as Exhibit A.
4. The U.S. Mortgage shall be amended as soon as possible to reflect
the amendments made to the Credit Agreement and the ENSCO Guaranty, all in
the form and substance satisfactory to the Agents.
5. Wherever and in each such place the term "Agreement" is used
throughout the Credit Agreement (including its inclusion in the defined
term "Loan Documents"), such term shall be read to mean the Credit
Agreement as amended by this Amendment No. 1.<PAGE>
6. Except as specifically amended by this Amendment NO. 1, all of
the terms and provisions of the Credit Agreement shall remain in full force
and effect.
7. All capitalized terms used herein but not defined herein shall
have the meanings given to them in the Credit Agreement.
8. THIS AMENDMENT NO. 1 TO CREDIT FACILITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK.
IN WITNESS HEREOF, the parties hereby have duly executed this
Amendment No. 1 as of the date first written above.
ENSCO OFFSHORE COMPANY
By: /s/ C. CHRISTOPHER GAUT
________________________
Name: C. CHRISTOPHER GAUT
` Title: VICE PRESIDENT
ENSCO OFFSHORE U.K. LTD.
By: /s/ C. CHRISTOPHER GAUT
________________________
Name: C. CHRISTOPHER GAUT
` Title: DIRECTOR
CHRISTIANIA BANK OG KREDITKASSE,
LONDON BRANCH, as agent
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER<PAGE>
DEN NORSKE BANK AS, NEW YORK BRANCH
as agent
By: /s/ T.S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
CHRISTIANIA BANK OG KREDITKASSE,
LONDON BRANCH
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER
DEN NORSKE BANK AS, NEW YORK BRANCH
By: /s/ T.S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
BANK INDOSUEZ
By: /s/ HANS JORGEN WIESTAD
________________________
Name: HANS JORGEN WIESTAD
Title: ACCOUNT MANAGER
MEESPIERSON N.V.
By: /s/ G. SCHOT
/s/ H.L.MATTHIJSSEN
________________________
Name: G. SCHOT
H.L. MATTHIJSSEN
Title: DRS. G. SCHOT 453
CH. H.L. MATTHIJSSEN 351<PAGE>
Agreed to and Accepted
this 30th day of December, 1994.
ENERGY SERVICE COMPANY, INC.
By: /s/ C.C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT
PENROD, INC.
By: /s/ C.C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: PRESIDENT<PAGE>
Exhibit "A" to AmendmentNo.1
to Credit Facility Agreement
AMENDMENT NO. 1
TO
ENSCO GUARANTY
Amendment No. 1 dated as of November 1, 1994 to the ENSCO Guaranty
(the "ENSCO Guaranty"), dated as of December 17, 1993, made jointly and
severally by ENERGY SERVICE COMPANY, INC. ("ENSCO"), a corporation
organized and existing under the laws of the State of Delaware and PENROD,
INC. ("PENROD"), a corporation organized and existing under the laws of the
State of Delaware, (collectively, the "Guarantors") in favor of CHRISTIANIA
BANK OG KREDITKASSE, London Branch and DEN NORSKE BANK AS, New York Branch,
BANQUE INDOSUEZ and MEESPIERSON N.V. (the "Banks").
WHEREAS, pursuant to the ENSCO Guaranty, the Guarantors guaranteed
certain obligations of its affiliates, ENSCO OFFSHORE COMPANY, a Delaware
corporation and ENSCO OFFSHORE U.K. LTD., a corporation organized and
existing under the laws of the United Kingdom, (the "Borrowers"), under (i)
a Credit Facility Agreement dated as of December 15, 1993 among the
Borrowers, the Banks and the Agents, (the "Credit Agreement") (ii) the
promissory notes of the Borrowers in favor of the Agents on behalf of the
Banks dated December 17, 1993 and (III) the other Loan Documents; and
WHEREAS, the Borrower, the Banks and the Agents wish to amend the
Credit Agreement in order to, among other things, lower the Margin and
lower the commitment fee; and
WHEREAS, in order to induce the Banks to enter into Amendment No. 1 to
Credit Agreement dated the date hereof, the Guarantors, as affiliates of
the Borrowers, have agreed pursuant to this Amendment No. 1 to ENSCO
Guaranty to (i) amend certain of their financial covenants and (II)
reaffirm their guarantee to the Banks of the due and punctual payment of
the Borrowers' obligations under the Credit Agreement, the Notes and the
other Loan Documents as provided in the ENSCO Guaranty.<PAGE>
NOW, THEREFORE, in consideration of the premises, the Guarantors
hereby agree as follows:
1. Each reference in the ENSCO Guaranty to the term "Guaranty" shall mean
the ENSCO Guaranty, as amended by this Amendment No. 1, as the same
shall be further amended, supplemented or extended in the future.
2. Each reference in the ENSCO Guaranty, as amended hereby, to the Credit
Agreement shall mean the Credit Agreement, as amended by Amendment No.
1 to Credit Agreement dated as of the date hereof.
3. The Representations and Warranties contained in Section 7 of the ENSCO
Guaranty made by the Guarantors in favor of the Banks are correct on
and as of the date of this Amendment
No. 1 to ENSCO Guaranty as though made on and as of such date.
4. Section 8(j) of the ENSCO Guaranty is hereby amended to read as
follows:
"(j) Not permit Net Working Capital of the ENSCO Consolidated
Group to be less than USD 35,000,000 at any time."
5. Section 8(k) of the ENSCO Guaranty is hereby amended to read as
follows:
"(k) Not permit available cash and Cash Equivalents of the ENSCO
Consolidated Group to be less than USD 25,000,000 at any time."
6. Section 8 (1) of the ENSCO Guaranty is hereby amended to read as
follows:
"(1) Not permit the Total Debts of the ENSCO Consolidated Group
to be greater than 40% of the Total Assets of the ENSCO
Consolidated Group."<PAGE>
7. Except as specifically amended by this Amendment No. 1, all of the
terms and provisions of the ENSCO Guaranty shall remain in full force
and effect and each Guarantor hereby confirms the validity and
enforceability of its guarantee hereunder and thereunder.
8. All capitalized terms used but not defined herein shall have the
meanings given to them in the ENSCO Guaranty.
9. THIS AMENDMENT NO. 1 TO ENSCO GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
IN WITNESS HEREOF, the parties hereto have caused this Amendment NO.
1 to ENSCO Guaranty to be executed by their duly authorized officers, all
as of the date noted above.
ENERGY SERVICE COMPANY, INC.
By: /s/ C. C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT
PENROD, INC.
By: /s/ C. C. GAUT
________________________
Name: C. CHRISTOPHER GAUT
Title: VICE PRESIDENT<PAGE>
ACCEPTED this 9th day of January, 1995.
CHRISTIANIA BANK OG KREDITKASSE, LONDON BRANCH
By: /s/ FINN AMUND NORDYE
________________________
Name: FINN AMUND NORDYE
Title: SENIOR MANAGER
DEN NORSKE BANK AS, NEW YORK BRANCH
By: /s/ T. S. JADICK, JR.
________________________
Name: T.S. JADICK, JR.
Title: SENIOR VICE PRESIDENT
BANK INDOSUEZ
By: /s/ HANS JORGEN WIESTAD
________________________
Name: HANS JORGEN WIESTAD
Title: ACCOUNT MANAGER
MEESPIERSON N.V.
By: /s/ G. SCHOT
________________________
Name: G. SCHOT
Title: DRS. G. SCHOT 453<PAGE>
<PAGE>
Exhibit No. 21
SUBSIDIARIES OF THE REGISTRANT
The following list sets forth the name and jurisdiction of
incorporation of each subsidiary of the Registrant (other than certain
subsidiaries that, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary) and the percentage of voting
securities owned by each subsidiary's immediate parent. Each such
subsidiary is included in the Consolidated Financial Statements.
PERCENTAGE
PERCENTAGE OF VOTING
OF VOTING SECURITIES
SECURITIES OWNED BY
OWNED BY IMMEDIATE
REGISTRANT PARENT
---------- ----------
ENSCO Drilling Company (Delaware) 100%
ENSCO Drilling (Caribbean), Inc. (Cayman Islands) 70%
ENSCO Drilling Venezuela, Inc. (Cayman Islands) 100%
ENSCO Engineering Company (Delaware) 100%
Penrod Holding Corporation (Delaware) 100%
Penrod, Inc. (Delaware) 100%
ENSCO Offshore Company (Delaware) 100%
ENSCO Offshore U.K. Limited (U.K.) 100%
ENSCO Incorporated (Texas) 100%
ENSCO Limited (Cayman Islands) 100%
ENSCO Marine Company (Delaware) 100%
ENSCO JAYA Marine Pte. Ltd. (Singapore) 50%
ENSCO International Company (Delaware) 100%
P&P Drilling Ltd. (Bahamas) 50%
ENSCO Netherlands Ltd. (Cayman Islands) 100%
ENSCO Technology Company (Delaware) 100%
ENSCO Technology Canada, Inc. (Canada) 100%
ENSCO Acquisition Company (Delaware) 100%
ENSCO Tool & Supply (Delaware) 100%
ENSCO International N.V. (Netherlands Antilles) 100%<PAGE>
<PAGE>
Exhibit No. 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting parts of the Registration Statements on Form S-3 (Nos. 33-
42965, 33-46500, 33-49590, 33-43756 and 33-64642), and any existing
amendments thereto, and Form S-8 (Nos. 33-14714, 33-32447, 33-35862, 33-
40282 and 33-41294) of Energy Service Company, Inc. of our report for
Energy Service Company, Inc. dated February 21, 1995 as referenced by Item
14 (a) (1) of this Form 10-K and our report for NGP No. I, L.P. dated
February 12, 1993 as referenced by Item 14 (a)(2) of this Form 10-K.
PRICE WATERHOUSE LLP
/S/ PRICE WATERHOUSE LLP
Dallas, Texas
March 13, 1995<PAGE>
<PAGE>
Exhibit No. 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 33-42965, 33-46500, 33-49590, 33-43756 and 33-64642 on Form S-3, and
Nos. 33-14714, 33-32447, 33-35862, 33-40282 and 33-41294 on Form S-8 of
Energy Service Company, Inc. of our report dated March 2, 1993 (except for
Note 11 as to which the date is May 12, 1993), which report includes an
explanatory paragraph concerning the Company's change in its method of
accounting for income taxes to conform with Statement of Financial
Accounting Standards No. 109, appearing in this Annual Report on Form 10-K
of Energy Service Company, Inc. for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
/S/ DELOITTE & TOUCHE LLP
Dallas, Texas
March 13, 1995<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<PAGE>
<LEGEND>
This schedule contains summary financial information extracted from the
December 31, 1994 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> $148,209
<SECURITIES> 5,869
<RECEIVABLES> 41,344
<ALLOWANCES> 1,207
<INVENTORY> 3,236
<CURRENT-ASSETS> 212,370
<PP&E> 666,363
<DEPRECIATION> 137,342
<TOTAL-ASSETS> 775,383
<CURRENT-LIABILITIES> 88,210
<BONDS> 162,466
<COMMON> 6,657
0
0
<OTHER-SE> 481,293
<TOTAL-LIABILITY-AND-EQUITY> 775,383
<SALES> 0
<TOTAL-REVENUES> 261,973
<CGS> 0
<TOTAL-COSTS> 147,057
<OTHER-EXPENSES> 63,453
<LOSS-PROVISION> 655
<INTEREST-EXPENSE> 13,377
<INCOME-PRETAX> 43,892
<INCOME-TAX> 3,759
<INCOME-CONTINUING> 37,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,171
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61<PAGE>
</TABLE>
