<PAGE> 1
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 SEPTEMBER 30, 1997
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
ENSCO INTERNATIONAL INCORPORATED
(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 142,282,699 shares of Common Stock, $.10 par value, of the registrant
outstanding as of October 31, 1997.
<PAGE> 2
ENSCO INTERNATIONAL INCORPORATED
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Review Report of Independent Accountants 3
Consolidated Statement of Income
Three Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Income
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Balance Sheet
September 30, 1997 and December 31, 1996 6
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 22
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of ENSCO International Incorporated
We have reviewed the accompanying consolidated balance sheet of ENSCO
International Incorporated as of September 30, 1997 and the related consolidated
statements of income and of cash flows for the three and nine month periods
ended September 30, 1997 and 1996. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1996, and the related
consolidated statements of income and of cash flows for the year then ended (not
presented herein), and in our report dated January 28, 1997 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet
information as of December 31, 1996, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Dallas, Texas
October 31, 1997
3
<PAGE> 4
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING REVENUES ............................ $ 223,325 $ 134,588
EXPENSES
Operating expenses .......................... 80,391 64,801
Depreciation and amortization ............... 27,012 23,653
General and administrative .................. 3,555 2,768
--------- ---------
110,958 91,222
--------- ---------
OPERATING INCOME .............................. 112,367 43,366
OTHER INCOME (EXPENSE)
Interest income ............................. 1,460 1,051
Interest expense ............................ (5,006) (6,319)
Other, net .................................. (105) 2,803
--------- ---------
(3,651) (2,465)
--------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST .................................... 108,716 40,901
PROVISION FOR INCOME TAXES
Current income taxes ........................ 27,940 1,937
Deferred income taxes ....................... 12,461 11,042
--------- ---------
40,401 12,979
MINORITY INTEREST ............................. 511 710
--------- ---------
NET INCOME .................................... $ 67,804 $ 27,212
========= =========
NET INCOME PER COMMON SHARE ................... $ .48 $ .19
========= =========
DIVIDENDS PER COMMON SHARE .................... $ .025 $ --
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .... 142,090 141,558
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING REVENUES ............................ $ 580,343 $ 316,383
EXPENSES
Operating expenses .......................... 227,659 157,552
Depreciation and amortization ............... 76,977 57,907
General and administrative .................. 10,441 7,933
--------- ---------
315,077 223,392
--------- ---------
OPERATING INCOME .............................. 265,266 92,991
OTHER INCOME (EXPENSE)
Interest income ............................. 4,161 3,385
Interest expense ............................ (15,669) (14,755)
Other, net .................................. 55 10,525
--------- ---------
(11,453) (845)
--------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST .................................... 253,813 92,146
PROVISION FOR INCOME TAXES
Current income taxes ........................ 55,533 2,898
Deferred income taxes ....................... 39,684 23,697
--------- ---------
95,217 26,595
MINORITY INTEREST ............................. 2,289 2,068
--------- ---------
NET INCOME .................................... $ 156,307 $ 63,483
========= =========
NET INCOME PER COMMON SHARE ................... $ 1.10 $ .49
========= =========
DIVIDENDS PER COMMON SHARE .................... $ .025 $ --
========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .... 141,874 129,523
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ...................... $ 121,697 $ 80,698
Accounts and notes receivable, net ............. 162,937 111,033
Prepaid expenses and other ..................... 19,210 19,668
----------- -----------
Total current assets ..................... 303,844 211,399
----------- -----------
PROPERTY AND EQUIPMENT, AT COST .................. 1,387,727 1,248,873
Less accumulated depreciation .................. 330,708 257,284
----------- -----------
Property and equipment, net .............. 1,057,019 991,589
----------- -----------
OTHER ASSETS, NET ................................ 126,059 112,432
----------- -----------
$ 1,486,922 $ 1,315,420
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................... $ 12,032 $ 11,447
Accrued liabilities ............................ 77,890 57,490
Current maturities of long-term debt ........... 32,778 34,943
----------- -----------
Total current liabilities ................ 122,700 103,880
----------- -----------
LONG-TERM DEBT ................................... 209,259 258,635
DEFERRED INCOME TAXES ............................ 113,234 72,963
OTHER LIABILITIES ................................ 41,322 33,991
COMMITMENTS AND CONTINGENCIES .................... -- --
STOCKHOLDERS' EQUITY
First preferred stock, $1 par value, 5.0
million shares authorized, none issued ....... -- --
Preferred stock, $1 par value, 15.0 million
shares authorized, none issued ............... -- --
Common stock, $.10 par value, 250.0 million
shares authorized, 155.1 million and 77.2
million shares issued ........................ 15,509 7,718
Additional paid-in capital ..................... 835,314 835,475
Retained earnings .............................. 224,560 71,802
Restricted stock (unearned compensation) ....... (7,085) (4,929)
Cumulative translation adjustment .............. (1,086) (1,086)
Treasury stock, at cost, 12.8 million and
6.3 million shares ........................... (66,805) (63,029)
----------- -----------
Total stockholders' equity ............... 1,000,407 845,951
----------- -----------
$ 1,486,922 $ 1,315,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ........................................... $ 156,307 $ 63,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 76,977 57,907
Deferred income tax provision .................... 39,684 23,697
Amortization of other assets ..................... 4,714 2,729
Other ............................................ (595) (195)
Changes in operating assets and liabilities:
Increase in accounts receivable ................ (52,409) (12,519)
(Increase) decrease in prepaid expenses and
other ........................................ (6,794) 9,615
Increase in accounts payable ................... 585 1,546
Increase in accrued liabilities ................ 13,494 1,868
--------- ---------
Net cash provided by operating activities ..... 231,963 148,131
--------- ---------
INVESTING ACTIVITIES
Additions to property and equipment .................. (140,550) (106,288)
Proceeds from disposition of assets .................. 1,815 3,590
Sale of short-term investments ....................... -- 5,000
Net cash acquired in Dual acquisition ................ -- 8,529
Other ................................................ 500 2,889
--------- ---------
Net cash used by investing activities ............ (138,235) (86,280)
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term borrowings ................... -- 45,000
Reduction of long-term borrowings .................... (51,036) (77,061)
Pre-acquisition purchase of Dual debt ................ -- (18,112)
Dividends paid ....................................... (3,549) --
Reduction in restricted cash ......................... 1,631 --
Other ................................................ 225 779
--------- ---------
Net cash used by financing activities ............ (52,729) (49,394)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS .................. 40,999 12,457
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......... 80,698 77,064
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............... $ 121,697 $ 89,521
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of ENSCO International
Incorporated and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles and pursuant to the rules and
regulations of the Securities and Exchange Commission included in the
instructions to Form 10-Q and Article 10 of Regulation S-X. The financial
information included herein is unaudited but, in the opinion of management,
includes all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the financial position, results of operations and of
cash flows for the interim periods presented.
The financial data for the three and nine month periods ended September 30, 1997
included herein have been subjected to a limited review by Price Waterhouse LLP,
the registrant's independent accountants. The accompanying review report of
independent accountants is not a report within the meaning of Sections 7 and 11
of the Securities Act of 1933 and the independent accountant's liability under
Section 11 does not extend to it.
Results of operations for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results of operations that will be
realized for the year ending December 31, 1997. It is recommended that these
financial statements be read in conjunction with the Company's consolidated
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Annual Report filed with the Securities and Exchange
Commission on Form 10-K.
NOTE 2 - ACQUISITIONS
In May 1997, the Company acquired the remaining 51% interest in a jointly owned
premium jackup rig located in Southeast Asia. The Company's 49% interest in the
rig was previously acquired in the acquisition of DUAL DRILLING COMPANY ("Dual")
in June 1996.
NOTE 3 - LONG-TERM DEBT
On February 27, 1997, the Company amended and restated its $150.0 million
revolving credit facility with a group of international banks, increasing
availability under the amended and restated revolving credit facility (the
"Facility") to $200.0 million and reducing the interest rate margin and the
commitment fee. Availability under the Facility will be reduced by $14.0 million
on a semi-annual basis beginning April 1998. The final maturity date of the
Facility remains October 2001 and the Facility continues to be collateralized by
the majority of the Company's jackup rigs. The covenants under the Facility are
similar to the covenants that existed under the original revolving credit
facility and the interest rate continues to be tied to the London InterBank
Offered Rate. As of September 30, 1997, $100.0 million was outstanding and
$100.0 million was available for future borrowing under the Facility. On October
20, 1997, the Company repaid $25.0 million of debt outstanding under the
Facility that was not due currently.
8
<PAGE> 9
NOTE 4 - CAPITAL
On March 3, 1997, the Board of Directors of ENSCO amended the Shareholder Rights
Plan of the Company to increase the purchase price from $50.00 to $250.00 for
each one one-hundredth of a share of preferred stock purchasable upon the
exercise of a Right, subject to adjustment.
At the Company's annual meeting of stockholders on May 13, 1997, the
stockholders approved an increase in the Company's authorized common stock from
125 million shares to 250 million shares.
In August 1997, the Company's Board of Directors approved a two-for-one stock
split of the Company's common stock and declared a $.025 per share cash
dividend, after giving effect to the stock split. The additional shares were
issued and the cash dividends were paid on September 15, 1997. Net income per
common share amounts for prior periods have been restated to give effect to the
two-for-one stock split.
NOTE 5 - RELATED PARTY TRANSACTION
In January 1997, a director of the Company settled a $675,000 note payable to
the Company. The note payable related to the director's purchase of 168,750
shares of restricted common stock of the Company in 1988. The note was settled
through the delivery to the Company of restricted shares of the Company's common
stock valued at a formula price provided for in the director's 1988 stock
purchase agreement. As a result, the director retained 132,998 net shares of
common stock and $238,000 cash after repayment of the note.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which establishes new standards for computing and
presenting earnings per share. The statement is effective for financial
statements issued for periods ending after December 15, 1997, and earlier
adoption is not permitted. For the quarters ended September 30, 1997 and 1996,
the calculation of earnings per share in accordance with the provisions of
Statement No. 128 would have resulted in basic earnings per share of $.48 and
$.19 and diluted earnings per share of $.47 and $.19, for the respective
periods. For the nine months ended September 30, 1997 and 1996, the calculation
of earnings per share in accordance with Statement No. 128 would have resulted
in basic earnings per share of $1.11 and $.49 and diluted earnings per share of
$1.09 and $.48, for the respective periods.
In June 1997, the Financial Accounting Standards Board released Statement No.
130, "Reporting Comprehensive Income" and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both statements become
effective for fiscal years beginning after December 15, 1997. These statements
require disclosure of certain components of changes in equity and certain
information about operating segments and geographic areas of operation. These
statements will not have any effect on the results of operations or financial
position of the Company.
9
<PAGE> 10
NOTE 7 - SUBSEQUENT EVENTS
The Company has signed a letter of intent with Smedvig asa to acquire the West
Omikron, a Marathon LeTourneau 150-88C Gorilla class jackup drilling rig. The
purchase price for the rig is approximately $103.0 million. The West Omikron,
which was built in 1987, is currently contracted to Phillips Petroleum Company
in Norway for water injection on the Ekofisk field. ENSCO will bareboat charter
the rig to Smedvig for the remaining term of the Phillips contract. The closing
of the transaction is expected to occur by December 1997.
On October 15, 1997, the Company filed a universal shelf registration statement
on Form S-3 with the Securities and Exchange Commission. The registration
statement provides for the issuance of up to $500 million of debt and/or equity
securities. The proceeds from any future offering of securities under the shelf
registration would be used for general corporate purposes, which may include
repayment of existing debt, working capital, acquisitions, capital expenditures,
and repurchase of securities of the Company.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties that could cause actual results
to differ materially from the results discussed in the forward-looking
statements. Generally, forward-looking statements include words or phrases such
as "management anticipates," "the Company believes," "the Company anticipates"
and words and phrases of similar impact, and include but are not limited to
statements regarding future operations and business environment. The
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The factors that could cause
actual results to differ materially include, but are not limited to: (i)
industry conditions and competition, (ii) the cyclical nature of the industry,
(iii) worldwide expenditures for oil and gas drilling, (iv) operational risks
and insurance, (v) risks associated with operating in foreign jurisdictions,
(vi) environmental liabilities which may arise in the future which are not
covered by insurance or indemnity, (vii) the impact of current and future laws
and governmental regulation, as well as repeal or modification of the same,
affecting the oil and gas industry and the Company's operations in particular,
and (viii) the risks described from time to time in the Company's reports filed
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
BUSINESS ENVIRONMENT
ENSCO International Incorporated is one of the leading international providers
of offshore drilling services and marine transportation services to the oil and
gas industry. The Company's operations are conducted in the geographic cores of
North America, Europe, Asia Pacific and South America.
Offshore drilling and marine transportation services are largely affected by the
supply and demand for available equipment. Currently, nearly all actively
marketed offshore rigs in the world are under contract and the demand for high
quality rigs exceeds supply in most areas. Based on current industry conditions
and projected capital spending levels of major oil and gas companies, the
Company believes the recent trend of increasing day rates and continued high
demand for offshore drilling equipment should continue for the near future.
Demand for the Company's services is significantly affected by worldwide
expenditures for oil and gas drilling. Expenditures for oil and gas drilling
activity fluctuate based upon many factors including world economic conditions,
the legislative environment in the U.S. and other major countries, production
levels and other activities of OPEC and other oil and gas producers and the
impact that those and other events have on the current and expected future
pricing of oil and natural gas.
11
<PAGE> 12
Offshore rig and marine vessel industry utilization for the three and nine
months ended September 30, 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1997 1996 1997 1996
-------- -------- ------- -------
<S> <C> <C> <C> <C>
INDUSTRY WIDE AVERAGES *
- ------------------------
Offshore Rigs
U.S. Gulf of Mexico:
All Rigs:
Rigs Under Contract 168 161 167 155
Total Rigs Available 176 180 179 179
% Utilization 95% 89% 93% 87%
Jackup Rigs:
Rigs Under Contract 125 124 125 120
Total Rigs Available 130 136 133 137
% Utilization 96% 91% 95% 88%
Platform Rigs:
Rigs Under Contract 23 19 21 19
Total Rigs Available 28 26 26 26
% Utilization 82% 73% 81% 73%
Worldwide:
All Rigs:
Rigs Under Contract 605 581 596 568
Total Rigs Available 636 640 635 640
% Utilization 95% 91% 94% 89%
Jackup Rigs:
Rigs Under Contract 364 351 361 344
Total Rigs Available 378 383 378 384
% Utilization 96% 92% 96% 90%
Platform Rigs:
Rigs Under Contract 114 113 113 110
Total Rigs Available 125 124 123 120
% Utilization 91% 91% 92% 92%
Marine Vessels
U.S. Gulf of Mexico:
Vessels Under Contract 288 258 281 261
Total Vessels Available 306 274 297 278
% Utilization 94% 94% 95% 94%
</TABLE>
* Industry utilization based on data published by Offshore Data Services, Inc.
12
<PAGE> 13
RESULTS OF OPERATIONS
The following analysis highlights the Company's operating results for the three
and nine months ended September 30, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
OPERATING RESULTS 1997 1996 1997 1996
- ----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 223,325 $ 134,588 $ 580,343 $ 316,383
Operating margin(1) 142,934 69,787 352,684 158,831
Operating income 112,367 43,366 265,266 92,991
Other income (expense) (3,651) (2,465) (11,453) (845)
Provision for income taxes 40,401 12,979 95,217 26,595
Minority interest 511 710 2,289 2,068
Net income 67,804 27,212 156,307 63,483
REVENUES
Contract drilling
Jackup rigs:
North America $ 100,652 $ 56,670 $ 255,263 $ 134,002
Europe 48,501 22,428 120,145 63,174
Asia Pacific(2) 22,788 11,828 53,932 13,761
--------- --------- --------- ---------
Total jackup rigs 171,941 90,926 429,340 210,937
--------- --------- --------- ---------
Barge rigs - South America 22,150 18,145 63,235 53,232
Platform rigs(2) 5,439 9,176 20,255 10,635
--------- --------- --------- ---------
Total contract drilling 199,530 118,247 512,830 274,804
--------- --------- --------- ---------
Marine transportation
AHTS(3) 5,590 4,146 15,675 11,776
Supply 15,326 10,078 43,655 24,484
Mini-supply 2,879 2,117 8,183 5,319
--------- --------- --------- ---------
Total marine transportation 23,795 16,341 67,513 41,579
--------- --------- --------- ---------
Total $ 223,325 $ 134,588 $ 580,343 $ 316,383
========= ========= ========= =========
OPERATING MARGIN(1)
Contract drilling
Jackup rigs:
North America $ 70,473 $ 31,411 $ 168,886 $ 67,870
Europe 34,010 9,837 78,899 25,858
Asia Pacific(2) 11,491 4,636 22,210 5,326
--------- --------- --------- ---------
Total jackup rigs 115,974 45,884 269,995 99,054
--------- --------- --------- ---------
Barge rigs - South America 11,509 11,863 36,619 34,976
Platform rigs(2) 1,681 2,328 5,667 2,837
Land rig(4) -- 798 -- 752
--------- --------- --------- ---------
Total contract drilling 129,164 60,873 312,281 137,619
--------- --------- --------- ---------
Marine transportation
AHTS(3) 3,023 2,096 8,605 6,100
Supply 9,046 5,789 27,179 12,678
Mini-supply 1,701 1,029 4,619 2,434
--------- --------- --------- ---------
Total marine transportation 13,770 8,914 40,403 21,212
--------- --------- --------- ---------
Total $ 142,934 $ 69,787 $ 352,684 $ 158,831
========= ========= ========= =========
</TABLE>
(1) Defined as revenues less operating expenses, exclusive of depreciation and
general and administrative expenses.
(2) The 1996 amounts for Asia Pacific and the platform rigs are comprised
exclusively of operations acquired in the Dual acquisition on June 12,
1996.
(3) Anchor handling tug supply vessels.
(4) The Company sold its remaining land rig in July 1996.
13
<PAGE> 14
The following is an analysis of certain operating information of the Company for
the three and nine months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
CONTRACT DRILLING
- -----------------
Utilization:
Jackup rigs:
North America 97% 95% 96% 92%
Europe 100% 83% 100% 85%
Asia Pacific 86% 98% 76% 96%
------- ------- ------- -------
Total jackup rigs 95% 94% 93% 91%
Barge rigs - South America 100% 99% 100% 88%
Platform rigs 56% 78% 60% 77%
------- ------- ------- -------
Total 91% 93% 90% 89%
======= ======= ======= =======
Average day rates:
Jackup rigs:
North America $51,005 $28,422 $44,194 $26,105
Europe 87,789 46,880 73,737 45,265
Asia Pacific 40,915 25,733 37,658 25,591
------- ------- ------- -------
Total jackup rigs 55,800 30,988 48,644 29,728
Barge rigs - South America 24,061 19,789 23,149 21,989
Platform rigs 20,954 16,612 18,394 16,375
------- ------- ------- -------
Total $47,224 $26,906 $40,709 $27,019
======= ======= ======= =======
MARINE TRANSPORTATION
- ---------------------
Utilization:
AHTS(1) 86% 81% 82% 80%
Supply 87% 93% 91% 91%
Mini-supply 95% 95% 97% 85%
------- ------- ------- -------
Total 88% 92% 91% 88%
======= ======= ======= =======
Average day rates:
AHTS(1) $14,098 $ 9,265 $12,305 $ 8,899
Supply 8,019 5,120 7,502 4,281
Mini-supply 4,101 3,020 3,879 2,838
------- ------- ------- -------
Total $ 7,905 $ 5,242 $ 7,336 $ 4,663
======= ======= ======= =======
</TABLE>
(1) Anchor handling tug supply vessels.
The Company's net income for the quarter ended September 30, 1997 increased to
$67.8 million, $.48 per share, from $27.2 million, $.19 per share, in the prior
year quarter. For the nine months ended September 30, 1997, net income increased
to $156.3 million, $1.10 per share, from $63.5 million, $.49 per share, in the
prior year period. These increases are due primarily to higher average day rates
for the Company's drilling rigs and marine vessels over 1996 levels and the
benefit from the drilling rigs acquired in the Dual acquisition in mid-June
1996.
14
<PAGE> 15
CONTRACT DRILLING
The following is an analysis of the Company's offshore drilling rigs at
September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Jackup rigs:
North America 22 23
Europe 6 6
Asia Pacific 7 5
---- ----
Total jackup rigs 35 34
Barge rigs - South America 10 10
Platform rigs 8* 8*
---- ----
Total 53 52
==== ====
</TABLE>
* Seven of the Company's platform rigs are located in the Gulf of Mexico and
one, which is not owned but operated under a management contract, is
located off the coast of China.
For the quarter ended September 30, 1997, revenues from the drilling segment
were up $81.3 million, or 69%, and operating margin increased $68.3 million, or
112%, from the prior year quarter. For the nine months ended September 30, 1997,
revenues were up $238.0 million, or 87%, and operating margin increased $174.7
million, or 127%, from the prior year period. The significantly improved 1997
results are primarily due to increased revenue from higher day rates offset, in
part, by higher operating expenses. In general, the Company's operating expenses
have increased due to rig fleet additions, higher wages, benefits and training
costs for offshore rig workers, and increased oilfield equipment and materials
costs. As the demand for offshore drilling services has increased, so has the
demand for qualified personnel and certain oilfield supply equipment which are
fundamental to the Company's operations. The Company places great importance on
managing its operations efficiently in order to minimize the effects of these
cost increases.
North America Jackup Rigs
For the quarter ended September 30, 1997, revenues from North America jackup
rigs were up $44.0 million, or 78%, and operating margin increased by $39.1
million, or 124%, over the prior year quarter. For the nine months ended
September 30, 1997, revenues were up $121.3 million, or 90%, and operating
margin increased by $101.0 million, or 149%, from the prior year period. These
improvements are due primarily to average day rate increases of 79% and 69% for
the quarter and nine months ended September 30, 1997, respectively. The Dual
acquisition in mid-June 1996 added four jackup rigs to the North America fleet.
One of these jackup rigs was transferred from the Gulf of Mexico to the Asia
Pacific fleet in the first quarter of 1997.
Europe Jackup Rigs
For the quarter ended September 30, 1997,revenues from Europe jackup rigs were
up $26.1 million, or 116%, and operating margin increased $24.2 million, or
246%, over the prior year quarter. For the nine months ended September 30, 1997,
revenues were up $57.0 million, or 90%, and operating
15
<PAGE> 16
margin increased $53.0 million, or 205%, from the prior year. These improvements
are due primarily to increased average day rates of 87% and 63% for the quarter
and nine months ended September 30, 1997, respectively. Also, utilization
increased to 100% in the current year periods from 83% and 85% for the
comparable three and nine month periods in the prior year, respectively. In the
prior year, three of the Europe jackup rigs were undergoing modification and
enhancement for a portion of the first nine months of 1996, including one rig
that was in the shipyard for the entire third quarter.
Asia Pacific Jackup Rigs
The Asia Pacific operations were acquired in the June 1996 Dual acquisition.
Subsequent to the Dual acquisition, the Company purchased an additional jackup
rig located in Southeast Asia in November 1996, and relocated another jackup rig
from the Gulf of Mexico to Southeast Asia in the first quarter of 1997. In May
1997, the Company completed the acquisition of the remaining 51% interest in a
jointly owned jackup rig located in Southeast Asia. This rig was undergoing
modification and enhancement during most of the second quarter and all of the
third quarter of 1997 and is scheduled to return to work in the first part of
November. During the second quarter of 1997, two of the Company's Asia Pacific
jackup rigs that had previously been in the shipyard since late 1996 undergoing
modification and enhancement returned to work. For the quarter ended September
30, 1997, revenues from the Asia Pacific jackup rigs were up $11.0 million, or
93%, and operating margin increased $6.9 million, or 148%, from the prior year
quarter. These improvements are primarily attributable to a 59% increase in
average day rates from the prior year quarter offset, in part, by a decrease in
utilization, from 98% to 86%, due to shipyard downtime. For the nine months
ended September 30, 1997, revenues were up $40.2 million, or 292%, and operating
margin increased $16.9 million, or 317%, from the prior year period. These
increases are primarily due to a full period of operations from the rigs
acquired in the Dual acquisition. In the fourth quarter of 1997 the Company
plans to begin major modifications to two rigs currently operating off the India
coast. It is estimated that these two rigs will be in the shipyard until
mid-1998.
South America Barge Rigs
Revenues from South America barge rigs were up $4.0 million, or 22%, and
operating margin decreased by $0.4 million, or 3%, from the prior year quarter.
The increase in revenues is mostly due to a 22% increase in average day rates.
The increase in day rates results from inflation based increases that
effectively reimburse the Company for cost increases, thus, resulting in the
nearly level operating margin. For the nine months ended September 30, 1997,
revenues were up $10.0 million, or 19%, and operating margin increased $1.6
million, or 5%, from the prior year period. The increase in revenues and
operating margin is primarily due to the increase in utilization, to 100% for
the nine months ended September 30, 1997 compared to 88% for the prior year
period. The increase in utilization is attributable to two barge drilling rigs
returning to work in May and June of 1996 that had been under modification since
1995. In addition, revenues were up due to a 5% increase in average day rates
over the prior year period, principally related to the recovery of inflationary
cost increases.
16
<PAGE> 17
MARINE TRANSPORTATION
The following is an analysis of the Company's marine transportation vessels as
of September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
AHTS * 5 6
Supply 24 23
Mini-Supply 8 8
----- -----
Total 37 37
===== =====
</TABLE>
* Anchor handling tug supply vessels.
For the quarter ended September 30, 1997, revenues for the marine transportation
segment were up $7.5 million, or 46%, and operating margin increased $4.9
million, or 54%, from the prior year quarter. For the nine months ended
September 30, 1997, revenues were up $25.9 million, or 62%, and operating margin
increased $19.2 million, or 90%, from the prior year period. The 1997 results
improved significantly over the prior year periods due primarily to increased
average day rates of approximately 51% and 57% for the comparable three and nine
month periods, respectively. In the third quarter of 1997, one of the Company's
anchor handling tug supply vessels was converted to a straight supply vessel,
decreasing the number of vessels with anchor handling tug capabilities to five.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense increased for the quarter and nine months
ended September 30, 1997 as compared to the prior year periods due primarily to
personnel added in connection with the Dual acquisition and higher performance
based benefit costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the quarter ended September 30, 1997
increased by $3.4 million, or 14%, and for the nine months ended September 30,
1997 increased by $19.1 million, or 33%, from the prior year periods. These
increases are due primarily to depreciation and amortization from the drilling
rigs acquired and goodwill recorded in the June 1996 Dual acquisition,
additional drilling rigs acquired in November 1996 and May 1997, and major
modifications and enhancements to the Company's fleet in 1996 and the first part
of 1997.
17
<PAGE> 18
OTHER INCOME (EXPENSE)
Other income (expense) for the three and nine months ended September 30, 1997
and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income $ 1,460 $ 1,051 $ 4,161 $ 3,385
Interest expense (5,006) (6,319) (15,669) (14,755)
Other, net (105) 2,803 55 10,525
------- -------- -------- --------
$(3,651) $ (2,465) $(11,453) $ (845)
======= ======== ======== ========
</TABLE>
The Company's interest income increased for the quarter and nine month periods
ended September 30, 1997 over the comparable prior year periods due primarily to
higher average cash balances in the current year.
Interest expense decreased for the quarter ended September 30, 1997 as compared
to the prior year quarter primarily due to lower average debt balances as a
result of debt repayments. Interest expense increased for the nine month period
ended September 30, 1997 over the comparable prior year period due primarily to
the debt that was added in June 1996 in connection with the Dual acquisition.
"Other, net" decreased for the quarter ended September 30, 1997 as compared to
the prior year quarter due primarily to a $2.9 million gain recorded in the
third quarter of 1996 from the sale of securities that the Company had received
in the September 1995 disposition of assets of a discontinued operation. For the
nine months ended September 30, 1997, "Other, net" decreased primarily due to a
$6.4 million gain on a settlement with TransAmerican Natural Gas Corporation
recorded in the second quarter of 1996 and the $2.9 million gain recorded in the
third quarter of 1996.
PROVISION FOR INCOME TAXES
The Company's provisions for income taxes increased significantly for the three
and nine months ended September 30, 1997 as compared to the prior year periods
due primarily to the increased profitability of the Company and the recognition
of the remaining net operating losses for financial reporting purposes in 1996.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW AND CAPITAL EXPENDITURES
The Company's cash flow from operations and capital expenditures for the nine
months ended September 30, 1997 and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flow from operations $231,963 $148,131
======== ========
Capital expenditures
Sustaining $ 22,664 $ 10,755
Enhancements 96,210 82,262
Acquisitions 21,676 13,271
-------- --------
$140,550 $106,288
======== ========
</TABLE>
Cash flow from operations increased by $83.8 million for the nine months ended
September 30, 1997 as compared to the same period in the prior year. The
increase in cash flow from operations is primarily a result of increased
operating margin for the first nine months of 1997 offset, in part, by cash used
in the net change in working capital accounts.
Management anticipates that capital expenditures for the full year 1997,
excluding acquisitions, will be approximately $165.0 million to $185.0 million,
represented by approximately $30.0 million to $35.0 million for existing
operations and $135.0 million to $150.0 million for modifications and
enhancements of rigs and vessels. In addition, the Company has signed a letter
of intent with Smedvig asa to acquire the West Omikron, a Marathon LeTourneau
150-88C Gorilla class jackup drilling rig. The purchase price for the rig is
approximately $103.0 million and the transaction is expected to close by
December 1997. The Company may spend additional funds to acquire rigs or
vessels in 1997, depending on market conditions and opportunities.
FINANCING AND CAPITAL RESOURCES
The Company's long-term debt, total capital and debt to capital ratios at
September 30, 1997 and December 31, 1996 are summarized below (in thousands,
except percentages):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Long-term debt $ 209,259 $ 258,635
Total capital 1,209,666 1,104,586
Long-term debt to total capital 17.3% 23.4%
</TABLE>
The decrease in long-term debt is due to $51.0 million of debt repayments in the
first nine months of 1997. The total capital of the Company increased due
primarily to the profitability of the Company in the first nine months of 1997
offset, in part, by the $51.0 million of debt repayments in the first nine
months of 1997 and dividend payments of approximately $3.5 million in the third
quarter.
19
<PAGE> 20
In September 1997, the Company paid a cash dividend on its common stock of $.025
per share, after adjustment for a two-for-one stock split which was also
effected in September. This dividend was the first cash dividend ever paid on
the Company's common stock. The Company currently intends to continue to pay
such dividends in the foreseeable future. However, the final determination of
the timing, amount and payment of dividends on the common stock is at the
discretion of the Board of Directors and will depend on, among other things, the
Company's profitability, liquidity, financial condition, and capital
requirements.
On February 27, 1997, the Company amended and restated its $150.0 million
revolving credit facility with a group of international banks, increasing
availability under the amended and restated revolving credit facility (the
"Facility") to $200.0 million and reducing the interest rate margin and the
commitment fee. Availability under the Facility will be reduced by $14.0 million
on a semi-annual basis beginning April 1998. The final maturity date of the
Facility remains October 2001 and the Facility continues to be collateralized by
the majority of the Company's jackup rigs. The covenants under the Facility are
similar to the covenants that existed under the original revolving credit
facility and the interest rate continues to be tied to the London InterBank
Offered Rate. As of September 30, 1997, $100.0 million was outstanding and
$100.0 million was available for future borrowing under the Facility. On October
20, 1997, the Company repaid $25.0 million of debt outstanding under the
Facility that was not due currently, increasing the amount available for future
borrowing to $125.0 million.
The Company's liquidity position at September 30, 1997 and December 31, 1996 is
summarized in the table below (in thousands, except ratios):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $121,697 $ 80,698
Working capital 181,144 107,519
Current ratio 2.5 2.0
</TABLE>
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 short and long-term liquidity
needs.
On October 15, 1997, the Company filed a universal shelf registration statement
on Form S-3 with the Securities and Exchange Commission. The registration
statement provides for the issuance of up to $500 million of debt and/or equity
securities. The proceeds from any future offering of securities under the shelf
registration would be used for general corporate purposes, which may include
repayment of existing debt, working capital, acquisitions, capital expenditures,
and repurchase of securities of the Company. The Company is continuing to assess
market conditions and its financing options in connection with a possible
offering of debt securities under the shelf registration statement.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed with this Report
Exhibit No.
15.1 Letter regarding unaudited interim financial
information.
27.1 Financial Data Schedule. (Exhibit 27.1 is being
submitted as an exhibit only in the electronic
format of this Quarterly Report on Form 10-Q
submitted to the Securities and Exchange
Commission.)
(b) Reports on Form 8-K
None
21
<PAGE> 22
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.
ENSCO INTERNATIONAL INCORPORATED
Date: October 31, 1997 /s/ C. Christopher Gaut
-----------------------------------
C. Christopher Gaut
Chief Financial Officer
/s/ H. E. Malone
-----------------------------------
H. E. Malone, Corporate Controller
and Chief Accounting Officer
22
<PAGE> 23
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
15.1 Letter regarding unaudited interim financial information.
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted as an
exhibit only in the electronic format of this Quarterly Report on
Form 10-Q submitted to the Securities and Exchange Commission.)
<PAGE> 1
EXHIBIT NO. 15.1
October 31, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that ENSCO International Incorporated has included our report
dated October 31, 1997 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Company's Registration Statements on Form
S-3 (Nos. 33-42965, 33-46500, 33-49590, 33-43756, 33-64642, 333-3575 and
333-37897), and any existing amendments thereto, and Form S-8 (Nos.
33-14714, 33-32447, 33-35862, 33-40282 and 33-41294). We are also aware of our
responsibilities under the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
- ------------------------
Dallas, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 121,697
<SECURITIES> 0
<RECEIVABLES> 166,216
<ALLOWANCES> 3,279
<INVENTORY> 3,135
<CURRENT-ASSETS> 303,844
<PP&E> 1,387,727
<DEPRECIATION> 330,708
<TOTAL-ASSETS> 1,486,922
<CURRENT-LIABILITIES> 122,700
<BONDS> 209,259
0
0
<COMMON> 15,509
<OTHER-SE> 984,898
<TOTAL-LIABILITY-AND-EQUITY> 1,486,922
<SALES> 0
<TOTAL-REVENUES> 580,343
<CGS> 0
<TOTAL-COSTS> 227,659
<OTHER-EXPENSES> 87,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,669
<INCOME-PRETAX> 253,813
<INCOME-TAX> 95,217
<INCOME-CONTINUING> 156,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,307
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
</TABLE>
