<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
_____________________________________________
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue, Dallas Texas 75202 - 2792
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 922-1500
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 twelve 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 [ ]
There were 60,376,836 shares of Common Stock, $.10 par value, of the
registrant outstanding as of April 28, 1995. <PAGE>
ENERGY SERVICE COMPANY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PAGE
____
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
March 31, 1995 and December 31, 1994 3
Consolidated Statement of Operations
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 - 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
1995 1994
________ ________
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $120,260 $148,209
Short-term investments........................ 5,869 5,869
Accounts receivable, net...................... 46,368 40,137
Prepaid expenses and other.................... 14,125 18,155
Total current assets.................... 186,622 212,370
INVESTMENTS..................................... 6,984 6,970
PROPERTY AND EQUIPMENT, AT COST................. 708,570 666,363
Less accumulated depreciation................. 150,989 137,342
Property and equipment, net............. 557,581 529,021
OTHER ASSETS
Goodwill...................................... 20,947 21,159
Other......................................... 6,479 5,863
Total other assets...................... 27,426 27,022
$778,613 $775,383
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................. $ 17,734 $ 12,742
Accrued liabilities........................... 46,304 34,718
Current maturities of long-term debt.......... 41,797 40,750
Total current liabilities............... 105,835 88,210
LONG-TERM DEBT.................................. 148,967 162,466
DEFERRED INCOME TAXES........................... 22,529 22,989
OTHER LIABILITIES............................... 12,479 13,768
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 125.0 million<PAGE>
shares authorized, 66.6 million shares
issued...................................... 6,658 6,657
Additional paid-in capital.................... 612,372 612,318
Accumulated deficit........................... (64,035) (71,657)
Restricted stock (unearned compensation)...... (5,268) (5,518)
Cumulative translation adjustment............. (1,209) (1,210)
Treasury stock at cost, 6.2 million and 5.6
million shares.............................. (59,715) (52,640)
Total stockholders' equity ............. 488,803 487,950
$778,613 $775,383
</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
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1995 1994
________ ________
(In thousands, except
per share data)
<S> <C> <C>
OPERATING REVENUES........................... $ 65,219 $ 65,365
OPERATING EXPENSES
Operating costs............................ 39,501 35,740
Depreciation and amortization.............. 14,146 12,702
General and administrative................. 2,143 2,151
55,790 50,593
OPERATING INCOME............................. 9,429 14,772
OTHER INCOME (EXPENSE)
Interest income............................ 2,153 1,064
Interest expense........................... (4,391) (2,706)
Income from equity affiliates.............. 150 244
Other, net................................. 902 36
(1,186) (1,362)
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST......... 8,243 13,410
PROVISION FOR INCOME TAXES................... 39 1,175
MINORITY INTEREST............................ 582 838
NET INCOME................................... 7,622 11,397
PREFERRED STOCK DIVIDEND REQUIREMENTS........ - 1,065
INCOME APPLICABLE TO COMMON STOCK............ $ 7,622 $10,332
INCOME PER COMMON SHARE...................... $ 0.13 $ 0.18
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 60,648 56,002
</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
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1995 1994
________ ________
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 7,622 $ 11,397
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 14,146 12,702
Provision for deferred income taxes.......... (727) 740
Amortization of debt discount and
other assets............................... 742 694
Undistributed income from equity affiliates.. (150) (244)
Other adjustments............................ 356 195
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable. (4,886) 1,943
Decrease in prepaid expenses and other..... 3,981 145
Increase (decrease) in accounts payable and
accrued liabilities...................... (83) 4,060
Net cash provided by operating
activities........................... 21,001 31,632
INVESTING ACTIVITIES
Additions to property and equipment............... (28,771) (73,174)
Net proceeds from sales of discontinued
operations...................................... - 399
Proceeds from disposition of assets............... 443 690
Other............................................. (981) 472
Net cash used by investing activities......... (29,309) (71,613)
FINANCING ACTIVITIES
Long-term borrowings.............................. - 10,448
Reduction of long-term borrowings................. (12,603) (8,876)
Repurchase of common stock........................ (7,042) -
Preferred stock dividends......................... - (1,065)
Other............................................. 4 192
Net cash provided (used) by financing
activities.................................... (19,641) 699
DECREASE IN CASH AND CASH EQUIVALENTS............... (27,949) (39,282)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 148,209 128,060
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $120,260 $ 88,778
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
ENERGY SERVICE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Energy Service Company, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission and in
accordance with generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (which consist of normal
recurring adjustments) which are necessary for a fair statement of the
results of operations for the interim periods presented.
It is recommended that these statements be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year
ended December 31, 1994 included in the Company's Annual Report to the
Securities and Exchange Commission on Form 10-K.
NOTE 2 - ACQUISITION
On March 23, 1995, the Company purchased a jackup rig located in the North
Sea and simultaneously entered into a bareboat charter agreement with the
seller for an approximate 125 day period. The purchase price consisted of
$12.8 million paid at closing and an additional $13.0 million to be paid at
the end of the bareboat charter agreement.
NOTE 3 - STOCKHOLDERS' EQUITY
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
March 31, 1995, the Company had repurchased 741,100 shares of its common
stock at an average price of $11.78 per share, of which 539,700 shares were
repurchased in the first three months of 1995.
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<PAGE>
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.
NOTE 4 - PROVISION FOR INCOME TAXES
The provisions for income taxes for the three months ended March 31, 1995
and 1994 primarily include U.S. alternative minimum taxes and current and
deferred foreign taxes related to the Company's operations in Venezuela.
The income tax provision was decreased by $1.6 million during the three
months ended March 31, 1995 due to a reduction in the deferred tax asset
valuation allowance as management considers it more likely than not that
certain additional U.S. net operating loss carryforwards will be utilized
prior to their expiration. No provision for regular U.S. federal income
taxes has been recorded for the three months ended March 31, 1995 due to
the utilization of net operating loss carryforwards to offset taxes
currently payable.
At March 31, 1995, the Company had regular and alternative minimum tax net
operating loss and investment tax credit carryforwards of approximately
$286.9 million, $166.0 million, and $2.7 million, respectively.
NOTE 5 - MINORITY INTEREST
On March 29, 1995, a wholly owned subsidiary of the Company purchased an
additional 15% equity interest in ENSCO Drilling (Caribbean), Inc.
("Caribbean") from the minority interest partner in Caribbean. The
purchase, which was effective January 1, 1995, increases the wholly owned
subsidiary's interest in Caribbean from 70% to 85%. In consideration for
the additional 15% interest in Caribbean acquired, the wholly owned
subsidiary will make future payments to the minority interest partner that
will be based upon, in general, the utilization of existing Caribbean rigs.
In addition, in the event of a future sale of any rigs currently owned by
Caribbean, the minority interest partner is entitled to an additional 15%
of the net proceeds upon sale. <PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT
The Company's primary operating areas are the Gulf of Mexico, the North Sea
and Venezuela. Day rates for the Company's Gulf of Mexico rigs declined in
the first three months of 1995 due to an increase in the industry's
available rigs in the Gulf of Mexico and decreased activity levels.
Management anticipates that average day rates in the Gulf of Mexico will
continue to decline for the remainder of the first half of 1995 with an
increase in activity and day rates in the second half of 1995. An
improvement in oil prices in 1994 and continuing into 1995, and a reduction
in the number of available rigs, have been contributing factors to
increased industry utilization levels in the North Sea during the first
three months of 1995. Day rates in the North Sea increased significantly
in the first three months of 1995 compared to the latter part of 1994 due
to the increased utilization levels. Management anticipates, based on
current market conditions, that North Sea day rates will improve further in
1995. The Company's barge drilling rigs in Venezuela generally operate
under long term contracts.
Offshore rig and marine vessel industry utilization for the three months
ended March 31, 1995 and 1994 is summarized below:
INDUSTRY WIDE AVERAGES *
1995 1994
OFFSHORE RIGS ______ ______
Gulf of Mexico:
All Rigs:
Rigs Under Contract 118 125
Total Rigs Available 179 167
% Utilization 66% 75%
Jackup Rigs:
Rigs Under Contract 96 99
Total Rigs Available 141 129
% Utilization 68% 77%
Worldwide:
All Rigs:
Rigs Under Contract 523 537
Total Rigs Available 653 658
% Utilization 80% 82%
Jackup Rigs:
Rigs Under Contract 311 322
Total Rigs Available 390 391
% Utilization 80% 82%
MARINE VESSELS:
Gulf of Mexico:
Vessels Under Contract 233 220
Total Vessels Available 277 249
% Utilization 84% 88%
* Industry utilization based on data published by
OFFSHORE DATA SERVICES, INC.<PAGE>
RESULTS OF OPERATIONS
The following analysis highlights the Company's operating results for the
three months ended March 31, 1995 and 1994 (in thousands):
1995 1994
________ ________
OPERATING RESULTS
Operating revenues $ 65,219 $ 65,365
Operating margin 25,718 29,625
Operating income 9,429 14,772
Other income (expense) (1,186) (1,362)
Provision for income tax 39 1,175
Minority interest 582 838
Net income 7,622 11,397
Preferred stock dividend requirements - 1,065
Income applicable to common stock 7,622 10,332
Revenues and operating margin (defined as revenues less operating expenses
excluding depreciation and general and administrative expenses) for each of
the Company's operating segments are provided below for the three months
ended March 31, 1995 and 1994 (in thousands):
1995 1994
________ ________
OPERATING REVENUES
Contract drilling
Jackup rigs
United States $ 27,722 $ 26,756
International 10,681 9,511
Total jackup rigs 38,403 36,267
Barge drilling rigs - Venezuela 15,497 9,303
Total offshore rigs 53,900 45,570
Land rigs (1) - 6,445
Total contract drilling 53,900 52,015
Marine transportation
AHTS (2) 2,793 2,558
Supply 3,932 5,119
Mini-supply 505 444
Sub total 7,230 8,121
Utility (3) - 383
Total marine transportation 7,230 8,504
Technical services 4,089 4,846
Total $ 65,219 $ 65,365
OPERATING MARGIN
Contract drilling
Jackup rigs
United States $ 10,281 $ 13,571
International 3,520 4,098
Total jackup rigs 13,801 17,669
Barge drilling rigs - Venezuela 9,734 6,355
Total offshore rigs 23,535 24,024
Land rigs (1) (114) 695
Total contract drilling 23,421 24,719<PAGE>
1995 1994
________ ________
Marine transportation
AHTS (2) 1,085 969
Supply 545 2,093
Mini-supply (16) 178
Sub total 1,614 3,240
Utility (3) - (136)
Total marine transportation 1,614 3,104
Technical services 683 1,802
Total $ 25,718 $ 29,625
(1) United States and international land rigs are combined. The
Company sold all but one of its land rigs in 1994.
(2) Anchor handling tug supply vessels.
(3) As of December 31, 1994, the Company no longer has utility
vessels available for work.
The following is an analysis of certain operating information of the
Company for the three months ended March 31, 1995 and 1994:
1995 1994
________ ________
OFFSHORE DRILLING
Rig utilization:
Jackup rigs
United States 88% 82%
International 60% 68%
Total jackup rigs 82% 78%
Barge drilling rigs - Venezuela 98% 100%
Total 87% 83%
Average day rates:
Jackup rigs
United States $ 19,989 $ 24,214
International 39,206 25,321
Total jackup rigs 23,200 24,489
Barge drilling rigs - Venezuela 17,490 15,815
Total offshore rigs $ 21,187 $ 22,157
MARINE TRANSPORTATION (1)
Fleet utilization:
AHTS (2) 70% 66%
Supply 72% 87%
Mini-supply 41% 99%
Total 65% 85%
Average day rates:
AHTS (2) $ 7,001 $ 8,184
Supply 2,875 3,544
Mini-supply 1,715 1,663
Total $ 3,473 $ 4,050<PAGE>
1995 1994
________ ________
TECHNICAL SERVICES INFORMATION
Job Days:
Drilling 590 564
Guidance 563 667
Total 1,153 1,231
Average revenue per job day:
Drilling $ 4,204 $ 4,840
Guidance 2,856 3,168
Total $ 3,546 $ 3,937
(1) Excludes utility vessels. As of December 31, 1994, the Company
no longer has utility vessels available for work.
(2) Anchor handling tug supply vessels.
The Company's consolidated revenues for the three months ended March 31,
1995 were unchanged from the same period in 1994. However, the Company did
recognize increased revenues in the first three months of 1995 as compared
to the same period in 1994 from four barge drilling rigs which commenced
operations in the third quarter of 1994 and a full three months operation
in 1995 of two jackup rigs acquired in mid-February 1994. These revenue
increases were offset by decreased revenues associated with the sale of
substantially all of the Company's land rig operations in 1994, reduced
Gulf of Mexico contract drilling and marine transportation activity and day
rates and decreased technical services activity.
Operating income for the three months ended March 31, 1995 decreased from
the same period in 1994 due primarily to reduced Gulf of Mexico contract
drilling and marine transportation activity and day rates, decreased
technical services activity and increased depreciation. The above
decreases in operating income were partially offset by increases associated
with four barge drilling rigs added in the third quarter of 1994 and a full
three months operation in 1995 of two jackup rigs acquired in mid-February
1994.
CONTRACT DRILLING
The Company's U.S. jackup rig revenues increased by 4% and operating margin
decreased by 24% for the three months ended March 31, 1995 compared to the
same period in 1994. The revenue increase is primarily attributable to the
mobilization of a rig from Brazil that began operating in the Gulf of
Mexico in the fourth quarter of 1994 and increased utilization. The
increase in revenues for the three months ended March 31, 1995 was
partially offset by, and the operating margin decrease was primarily
attributable to, decreased average day rates from the same period in 1994.
For the three months ended March 31, 1995, revenues for the Company's
international jackup rigs increased by 12% and operating margin decreased
by 14% compared to the same period in 1994. The revenue increase is
primarily attributable to a full three months operation in 1995 of two
jackup rigs acquired in mid-February 1994 offset by reduced revenues
associated with the mobilization of two rigs to the Gulf of Mexico from
Brazil and Dubai in the third and fourth quarters of 1994, respectively,
upon completion of their contracts. The Company had five international
jackup rigs in operation for the first three months of 1995 as compared to
seven in the same period of 1994. The operating margin decrease is
primarily due to the two rigs mobilized to the Gulf of Mexico in 1994<PAGE>
offset partially by a full three months operation in 1995 of two jackup
rigs acquired in mid-February 1994.
In the fourth quarter of 1994 the Company began mobilizing a jackup rig to
the Gulf of Mexico from Dubai, which arrived in January 1995. The rig 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
approximately late June 1995.
Two of the Company's six 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 late May 1995 and late July 1995, respectively. Both of
these rigs are committed under contracts upon completion of the
modifications and enhancements. On March 23, 1995, the Company purchased a
jackup rig located in the North Sea and simultaneously entered into a
bareboat charter agreement with the seller for an approximate 125 day
period. See Note 2 to Consolidated Financial Statements.
The Company's barge drilling rigs are all located on Lake Maracaibo,
Venezuela. Revenues and operating margins from the Company's barges in
Venezuela improved substantially for the first three months of 1995 as
compared to the same period of 1994 primarily due to the addition of four
new barge drilling rigs in July through September of 1994 which operate
under separate five-year contracts with Lagoven, S.A. ("Lagoven"), a
subsidiary of the Venezuelan national oil company.
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, ENSCO Drilling
(Caribbean), Inc. ("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.
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.
MARINE TRANSPORTATION
The Company has a marine transportation operating fleet of 35 vessels of
which 31 are owned by the Company and four are leased under long-term
agreements. Of the 31 vessels owned by the Company, four were being
converted into larger 146-foot mini-supply vessels during the first three
months of 1995. Two of these converted mini-supply vessels became
available for work in late April 1995 and the remaining two vessels should
be completed and available for work by the end of the second quarter of
1995. The Company's marine transportation vessels are all currently
located in the Gulf of Mexico. The Company operated four vessels in
Singapore through a joint venture beginning in August 1993. The Singapore<PAGE>
joint venture was terminated in May 1994 and three of the vessels were
mobilized to the Gulf of Mexico and the remaining vessel, a utility boat,
was sold. The Company had one vessel working offshore Brazil at the
beginning of 1994 which returned to the Gulf of Mexico in February 1994.
The activity level for marine transportation vessels in the Gulf of Mexico,
which is generally tied to the level of oil and gas drilling activity,
remained fairly stable in 1994. However, Gulf of Mexico marine
transportation vessel activity has decreased in the first three months of
1995 as compared to the same period in 1994 due, in part, to lower domestic
natural gas prices. The decreased activity level in the first three months
of 1995 caused the Company's day rates to decrease. Management anticipates
a general increase in utilization throughout the remainder of 1995.
Primarily as a result of the decreased average day rates in the Gulf of
Mexico in the first three months of 1995 as compared to the comparable
period in 1994, the Company's marine transportation revenues and operating
margin decreased by 15% and 48%, respectively.
TECHNICAL SERVICES
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. Technical services activity of the Company for the three
months ended March 31, 1995 decreased from the same period in 1994 which
caused revenues and operating margin to decrease. The operating margin
decrease for the first three months of 1995 as compared to the same period
in 1994 was also due to the collection of a receivable in the first three
months of 1994 that had been fully reserved in a prior period.
To date in 1995, market conditions for the Company's technical services
segment have increased slightly in comparison to the average activity level
throughout 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
The increase in depreciation and amortization for the first three months of
1995 as compared to the same period in 1994 is primarily attributable to
depreciation on four barge drilling rigs delivered to Venezuela in July
through September of 1994 and a full three months depreciation in 1995 on
two jackup rigs acquired in mid-February 1994. The 1995 increased
depreciation was partially offset by reduced depreciation related to the
sale of substantially all of the Company's land rig operations in 1994.
OTHER INCOME (EXPENSE)
The Company's net other expense decreased for the first three months of
1995 as compared to the same period in 1994 due primarily to increased
interest income and increased other income offset, in part, by increased
interest expense. Interest income increased due primarily to higher
average cash levels and increased interest rates. Interest expense
increased due primarily to interest expense related to the financing of
four barge drilling rigs added in Venezuela in July through September of
1994 and increased interest rates. The increase in other income was
primarily attributable to a gain on sale of bonds, which were purchased at<PAGE>
a discount. Other income also increased due to a currency loss being
recorded in the first three months of 1994 related to a devaluation in the
Venezuelan currency.
PROVISION FOR INCOME TAXES
The 1995 and 1994 provisions primarily include U.S. alternative minimum
taxes and current and deferred foreign taxes related to the Company's
operations in Venezuela. The income tax provision was decreased during the
three months ended March 31, 1995 due to a reduction in the deferred tax
asset valuation allowance. See Note 4 to Consolidated Financial
Statements.
MINORITY INTEREST
Minority Interest for the first three months of 1995 decreased as compared
to the same period in 1994 due primarily to the reduction in Caribbean's
minority shareholder's interest from 30% to 15% offset by increased
earnings in Venezuela as discussed above in "Contract Drilling." See Note
5 to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES -
CASH FLOW AND CAPITAL EXPENDITURES
The Company's cash flow from operations and capital expenditures for the
three months ended March 31, 1995 and 1994 are as follows (in thousands):
1995 1994
________ ________
Cash flow from operations $ 21,001 $ 31,632
Capital expenditures 28,771 73,174
Cash flow from operations decreased $10.6 million in the first three months
of 1995 as compared to the same period in 1994. The decrease is primarily
a result of a decline in operating results and an increase in accounts
receivable due primarily to the Company now operating, effective January 1,
1995, two rigs acquired in mid-February 1994 that previously operated under
bareboat charter contracts.
The Company's capital expenditures for the three months ended March 31,
1995 consisted principally of $12.8 million for the purchase of a jackup
rig located in the North Sea, $9.7 million for major modifications and
enhancements of three jackup rigs as discussed above in "Business
Environment - Contract Drilling," $2.1 million for enhancements of other
rigs and vessels, $2.9 million for contract drilling equipment, $744,000
for equipment used in the Company's technical services operations and
$565,000 for other equipment primarily for marine transportation vessels.
Management anticipates that capital expenditures in 1995 will total
approximately $20.0 million for routine existing operations, approximately
$75.0 million for enhancements of rigs and vessels and $25.8 million for
the purchase of a jackup rig located in the North Sea. See Note 2 to
Consolidated Financial Statements. The Company may spend additional funds
to acquire rigs or vessels in 1995 depending on market conditions and
opportunities.<PAGE>
FINANCING AND CAPITAL RESOURCES
The Company's long-term debt, total capital and debt to capital ratios at
March 31, 1995 and December 31, 1994 are summarized below (in thousands,
except percentages):
MARCH 31, DECEMBER 31,
1995 1994
________ ________
Long-term debt (excluding
current maturities) $148,967 $162,466
Total capital 637,770 650,416
Long-term debt to total capital 23% 25%
The decrease in long-term debt relates to scheduled repayments. The total
capital of the Company decreased due primarily to the decrease in long-term
debt and repurchases of common stock offset by the profitability of the
Company in the first three months of 1995. See Note 3 to Consolidated
Financial Statements.
The Company had a $38.0 million undrawn revolving line of credit at March
31, 1995. The revolver is reduced semi-annually by $1.0 million over five
years with the final $30.0 million line expiring in December 1998.
The Company's liquidity position at March 31, 1995 and December 31, 1994 is
summarized in the table below (in thousands, except ratios):
MARCH 31, DECEMBER 31,
1995 1994
________ ________
Cash and short-term investments $126,129 $154,078
Working capital 80,787 124,160
Current Ratio 1.8 2.4
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 facility and the Company's
working capital should be sufficient to fund the Company's required debt
service and capital additions for the next twelve months.
OTHER MATTERS
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS
121"). SFAS 121 establishes standards for measuring the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. This new standard is required
to be adopted in 1996 and is not expected to have a material effect on the
financial statements of the Company.<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Exhibit Index
EXHIBIT
NO.
* 27 Financial Data Schedule
____________________
* filed herewith
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K dated:
(i) February 21, 1995 with respect to the declaration of a
dividend of one preferred share purchase right for each
outstanding share of the Company's common stock, and
(ii) March 23, 1995 with respect to the purchase of a jackup
rig.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY SERVICE COMPANY, INC.
Date: [ May 1, 1995 ] [/s/ C. Christopher Gaut ]
_________________________________
C. Christopher Gaut
Chief Financial Officer
[/s/ H. E. Malone ]
_________________________________
H. E. Malone, Corporate Controller
and Chief Accounting Officer<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBIT DOCUMENT
NO. DOCUMENT PAGE
_______ _____________________________________________ ____________
27 Financial Data Schedule 19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<PAGE>
<LEGEND>
This schedule contains summary financial information extracted from
the March 31, 1995 financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> $120,260
<SECURITIES> 5,869
<RECEIVABLES> 47,737
<ALLOWANCES> 1,369
<INVENTORY> 3,744
<CURRENT-ASSETS> 186,622
<PP&E> 708,570
<DEPRECIATION> 150,989
<TOTAL-ASSETS> 778,613
<CURRENT-LIABILITIES> 105,835
<BONDS> 148,967
<COMMON> 6,658
0
0
<OTHER-SE> 482,145
<TOTAL-LIABILITY-AND-EQUITY> 778,613
<SALES> 0
<TOTAL-REVENUES> 65,219
<CGS> 0
<TOTAL-COSTS> 39,501
<OTHER-EXPENSES> 16,289
<LOSS-PROVISION> 163
<INTEREST-EXPENSE> 4,391
<INCOME-PRETAX> 8,243
<INCOME-TAX> 39
<INCOME-CONTINUING> 7,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,622
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13<PAGE>
</TABLE>
