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, 1998
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 142,279,328 shares of Common Stock, $.10 par value, of the registrant
outstanding as of April 30, 1998.
<PAGE>
ENSCO INTERNATIONAL INCORPORATED
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Review Report of Independent Accountants 3
Consolidated Statement of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Balance Sheet
March 31, 1998 and December 31, 1997 5
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
<PAGE>
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 and its subsidiaries as of March 31, 1998 and the
related consolidated statements of income and of cash flows for the three month
periods ended March 31, 1998 and 1997. 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, 1997, 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, 1998 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, 1997, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
/s/ Price Waterhouse LLP
- -------------------------
Dallas, Texas
April 29, 1998
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share data)
(Unaudited)
Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
OPERATING REVENUES ............................ $ 246.4 $ 161.6
OPERATING EXPENSES
Operating costs............................. 83.7 70.1
Depreciation and amortization............... 19.8 24.2
General and administrative.................. 3.6 3.1
------- -------
107.1 97.4
OPERATING INCOME............................... 139.3 64.2
OTHER INCOME (EXPENSE)
Interest income............................. 2.7 1.4
Interest expense, net....................... (7.6) (5.8)
Other, net.................................. (.1) .1
------- -------
(5.0) (4.3)
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST.................................... 134.3 59.9
PROVISION FOR INCOME TAXES
Current income taxes........................ 34.8 9.2
Deferred income taxes....................... 11.0 13.5
-------- -------
45.8 22.7
MINORITY INTEREST.............................. 1.3 .9
-------- -------
NET INCOME..................................... $ 87.2 $ 36.3
======== =======
EARNINGS PER SHARE
Basic....................................... $ .62 $ .26
Diluted..................................... .61 .25
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic....................................... 141.5 140.8
Diluted..................................... 142.9 142.6
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In millions, except for share amounts)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents..................... $ 318.5 $ 262.2
Accounts receivable, net...................... 166.4 157.2
Prepaid expenses and other.................... 21.0 27.7
-------- --------
Total current assets................... 505.9 447.1
-------- --------
PROPERTY AND EQUIPMENT, AT COST................. 1,636.7 1,534.1
Less accumulated depreciation................. 374.8 357.0
-------- --------
Property and equipment, net............ 1,261.9 1,177.1
-------- --------
OTHER ASSETS, NET............................... 139.8 147.8
-------- --------
$1,907.6 $1,772.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................. $ 13.1 $ 7.8
Accrued liabilities........................... 137.1 93.8
Current maturities of long-term debt.......... 25.7 29.3
-------- --------
Total current liabilities.............. 175.9 130.9
-------- --------
LONG-TERM DEBT.................................. 395.2 400.8
DEFERRED INCOME TAXES........................... 139.3 128.2
OTHER LIABILITIES............................... 23.9 24.4
MINORITY INTEREST............................... 12.3 11.0
COMMITMENTS AND CONTINGENCIES................... - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 250.0 million
shares authorized and 155.2 million shares
issued...................................... 15.5 15.5
Preferred stock, $1 par value, 20.0 million
shares authorized and none issued........... - -
Additional paid-in capital.................... 841.7 841.3
Retained earnings............................. 382.2 298.6
Restricted stock(unearned compensation) ...... (6.4) (6.8)
Cumulative translation adjustment............. (1.1) (1.1)
Treasury stock at cost, 13.0 million shares... (70.9) (70.8)
-------- --------
Total stockholders' equity.............. 1,161.0 1,076.7
-------- --------
$1,907.6 $1,772.0
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
OPERATING ACTIVITIES
Net income......................................... $ 87.2 $ 36.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 19.8 24.2
Deferred income tax provision.................. 11.0 13.5
Amortization of other assets................... 2.4 1.4
Other.......................................... (.2) -
Changes in operating asset and liabilities:
Increase in accounts receivable.............. (9.3) (13.1)
Decrease in prepaid expenses and other....... 11.4 .5
Increase(decrease)in accounts payable........ 5.3 (.8)
Increase(decrease)in accrued liabilities..... 21.3 (2.0)
------- -------
Net cash provided by operating activities. 148.9 60.0
------- -------
INVESTING ACTIVITIES
Additions to property and equipment................ (81.0) (31.7)
Other.............................................. .7 .3
------- -------
Net cash used by investing activities...... (80.3) (31.4)
------- -------
FINANCING ACTIVITIES
Reduction of long-term borrowings.................. (9.1) (22.5)
Cash dividends..................................... (3.6) -
Reduction in restricted cash....................... - 1.1
Other.............................................. .4 (.4)
------- -------
Net cash used by financing activities ..... (12.3) (21.8)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS................. 56.3 6.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 262.2 80.7
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 318.5 $ 87.5
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 (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) which are necessary for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented.
The financial data for the three month period ended March 31, 1998 included
herein has 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 month period ended March 31, 1998 are not
necessarily indicative of results of operations which will be realized for the
year ending December 31, 1998. 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, 1997 included in the Company's Annual
Report to the Securities and Exchange Commission on Form 10-K.
Note 2 - Change in Depreciable Lives
During the latter part of 1997, the Company performed an engineering and
economic study of the Company's asset base. As a result of this study, the
Company, effective January 1, 1998, extended the depreciable lives of its
drilling rigs and marine vessels by an average of five to six years. The Company
believes that this change provides a better matching of the revenues and
expenses of the Company's assets over their anticipated useful lives. The effect
of this change on the Company's financial results for the three months ended
March 31, 1998 was to reduce depreciation expense by approximately $10.0
million, or $.07 per basic or diluted share.
The Company's drilling rigs and marine vessels and related equipment are
depreciated over useful lives determined by the original construction date or
major enhancement date of the asset. The useful lives of the Company's existing
drilling rigs and marine vessels currently range from 8 to 24 years.
<PAGE>
Note 3 - Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The adoption of this
Statement had no effect on the Company's financial statements as it has no
items, other than net income, which are considered in the determination of
comprehensive income. As a result, the Company's financial statements do not
include separate reporting of comprehensive income.
Note 4 - Earnings Per Share
For the three months ended March 31, 1998 and 1997, there were no adjustments to
net income for purposes of calculating basic and diluted earnings per share. The
following is a reconciliation of the weighted average common shares used in the
basic and diluted earnings per share computations for the three months ended
March 31, 1998 and 1997 (in millions).
1998 1997
------ ------
Weighted average common shares - basic 141.5 140.8
Potentially dilutive common shares:
Restricted stock grants .4 .5
Stock options 1.0 1.3
----- -----
Weighted average common shares - diluted 142.9 142.6
===== =====
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 regions
of North America, Europe, Asia Pacific and South America.
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 these and other events have on the current and expected future
pricing of oil and natural gas.
In the first quarter of 1998, demand continued to push day rates upward from
levels at the latter part of 1997. However, the decrease in oil prices, which
began in November 1997, has continued into 1998 resulting in some reductions in
day rates for the offshore drilling markets as evidenced by recent contract
rollovers. Although there are indications of decreasing day rates and
utilization levels, the Company believes the long-term fundamentals for the
offshore drilling industry remain strong. See "-Outlook and Forward-Looking
Statements" for how the changing business environment is expected to impact the
Company.
RESULTS OF OPERATIONS
The Company achieved its most profitable quarter in history during the three
months ended March 31, 1998. Compared with the same period in 1997, revenues
increased 52% to $246.4 million, operating income increased 117% to $139.3
million, and net income increased 140% to $87.2 million. The improved results
are due primarily to increased revenues from higher average day rates for the
Company's drilling rigs and marine vessels and to some improvement in
utilization for the Company's drilling rigs. The increase in revenues was
offset, in part, by higher operating expenses due to increasing costs and higher
utilization.
<PAGE>
The following analysis highlights the Company's operating results for the three
months ended March 31, 1998 and 1997 (in millions):
1998 1997
------ ------
Operating Results
-----------------
Revenues $246.4 $161.6
Operating margin (1) 162.7 91.5
Operating income 139.3 64.2
Other expense 5.0 4.3
Provision for income taxes 45.8 22.7
Minority interest 1.3 .9
Net income 87.2 36.3
Revenues
--------
Contract drilling
Jackup rigs:
North America $109.9 $ 67.7
Europe 57.8 32.2
Asia Pacific 22.6 12.9
------ ------
Total jackup rigs 190.3 112.8
Barge rigs - South America 23.0 20.6
Platform rigs 7.5 7.4
------ ------
Total contract drilling 220.8 140.8
------ ------
Marine transportation
AHTS (2) 5.3 4.7
Supply 17.2 13.5
Mini-supply 3.1 2.6
------ ------
Total marine transportation 25.6 20.8
------ ------
Total $246.4 $161.6
====== ======
Operating Margin(1)
-------------------
Contract drilling
Jackup rigs:
North America $ 77.2 $ 41.7
Europe 42.9 19.3
Asia Pacific 12.4 2.4
------ ------
Total jackup rigs 132.5 63.4
Barge rigs - South America 11.9 13.1
Platform rigs 3.0 2.3
------ ------
Total contract drilling 147.4 78.8
------ ------
Marine transportation
AHTS (2) 3.1 2.8
Supply 10.5 8.5
Mini-supply 1.7 1.4
------ ------
Total marine transportation 15.3 12.7
------ ------
Total $162.7 $ 91.5
====== ======
(1) Defined as revenues less operating expenses, exclusive of depreciation
and general and administrative expenses.
(2) Anchor handling tug supply vessels.
<PAGE>
The following is an analysis of certain operating information of the Company for
the three months ended March 31, 1998 and 1997:
1998 1997
--------- --------
Contract Drilling
-----------------
Rig utilization:
Jackup rigs:
North America 99% 93%
Europe 100% 100%
Asia Pacific 71% 61%
--------- --------
Total jackup rigs 94% 88%
Barge rigs - South America 100% 100%
Platform rigs 86% 61%
--------- --------
Total 94% 87%
========= ========
Average day rates:
Jackup rigs:
North America $ 56,174 $ 37,006
Europe 100,326 60,649
Asia Pacific 48,477 32,624
-------- --------
Total jackup rigs 63,120 41,084
Barge rigs - South America 25,246 22,813
Platform rigs 23,098 17,909
-------- --------
Total $ 52,288 $ 34,653
======== ========
Marine Transportation
---------------------
Fleet utilization:
AHTS* 73% 79%
Supply 90% 94%
Mini-supply 96% 96%
-------- --------
Total 89% 92%
======== ========
Average day rates:
AHTS* $ 16,232 $ 10,992
Supply 8,908 6,962
Mini-supply 4,455 3,726
-------- --------
Total $ 8,676 $ 6,791
======== ========
* Anchor handling tug supply vessels.
Discussions relative to each of the Company's operating segments and significant
changes in operating results for the three months ended March 31, 1998 as
compared with the prior year same period results are set forth below.
<PAGE>
Contract Drilling
The following is an analysis of the Company's offshore drilling rigs at March
31, 1998 and 1997:
1998 1997
------ ------
Jackup rigs:
North America 22 22
Europe 7 6
Asia Pacific 7(1) 7(1)
---- ----
Total jackup rigs 36 35
Barge rigs - South America 10 10
Platform rigs 8(2) 8(2)
---- ----
Total 54 53
==== ====
(1)Includes one jackup rig operated by the Company that was previously
49% owned. The Company acquired the remaining 51% interest in May
1997.
(2)Seven 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 three months ended March 31, 1998, revenues for the Company's contract
drilling segment increased by $80.0 million, or 57%, and operating margin
increased by $68.6 million, or 87%, compared to the prior year period. The
significantly improved 1998 results were primarily driven by increased revenues
from higher day rates for the Company's drilling rigs and, to a lesser extent,
increased utilization. The Company's contract drilling operating margin was
negatively impacted by an increase in operating expenses of $11.4 million, or
18%, from the prior year period. The increase in operating expenses is primarily
due to higher wages, benefits and training costs for offshore rig workers and
increasing oilfield equipment and materials costs. In general, as the demand for
offshore drilling services has increased, so has the demand for qualified
personnel and materials and equipment, which has resulted in cost increases.
North America Jackup Rigs
Revenues and operating margin for the Company's North America jackup rigs
increased by $42.2 million, or 62%, and by $35.5 million, or 85%, respectively,
from the prior year period. These improvements are primarily attributable to a
52% increase in average day rates and an increase in utilization to 99% in the
current year period from 93% in the prior year period. In the prior year the
Company had two rigs in the shipyard for the majority of the period undergoing
enhancements and none in the current year period, which accounts for the
increase in utilization.
Europe Jackup Rigs
Revenues and operating margin for the Company's Europe jackup rigs increased by
$25.6 million, or 80%, and by $23.6 million, or 122%, respectively, from the
prior year period. These improvements are primarily due to a 65% increase in day
rates, and bareboat charter revenue from the ENSCO 100, which was acquired in
December 1997.
Asia Pacific Jackup Rigs
For the three months ended March 31, 1998, revenues increased by $9.7 million,
or 75%, and operating margin increased by $10.0 million, or 417%, from the
comparable prior year period. These improvements are primarily due to increased
revenues resulting from a 49% increase in day rates and an increase in
utilization to 71% in the current year period from 61% in the prior year period.
The increase in utilization is due to less shipyard downtime as four of the Asia
Pacific jackup rigs were in shipyards for all or a portion of the prior year
period undergoing enhancements, whereas during the current year period, only two
jackup rigs were in the shipyard for the entire period. The two jackup rigs
currently in the shipyard are anticipated to return to work in the second half
of 1998. In addition to increased day rates and utilization, in May 1997, the
Company acquired the remaining 51% interest in the ENSCO 57, which resulted in
increased revenues and operating margin in the current year period.
South America Barge Rigs
For the three months ended March 31, 1998, revenues for the Company's South
America barge rigs increased by $2.4 million, or 12%, and operating margin
decreased by $1.2 million, or 9%, from the prior year period. The increase in
revenues is primarily due to inflationary cost increases that the Company is
reimbursed for through day rate increases. In the prior year period, the Company
collected additional revenues related to catch-up adjustments for prior
inflationary cost increases, resulting in a negative impact on the change in
revenues and operating margin from the prior year period. The Company's
contracts with Petroleos de Venezuela, S.A. ("PDVSA") provide for the recovery
of inflationary cost increases through day rate adjustments. As a result,
revenue increases are generally a direct offset to corresponding cost increases.
The initial contract periods on two of the barge rigs expired in March and April
1998, and the initial contract periods on two more barge rigs will expire in
June 1998. Under the terms of the applicable contracts, PDVSA has the option to
purchase these four rigs, and four more rigs with initial contract periods
expiring in 1999. Currently, the two barge rigs whose initial contract periods
have expired continue to work for PDVSA under contract extensions, however,
PDVSA has expressed a desire to exercise its purchase option on these two rigs.
Management cannot predict whether or not PDVSA will actually purchase the rigs,
but believes that the rigs will continue to work for PDVSA under contract
extensions until a final decision is made. If PDVSA decides not to renew the
contracts or purchase the rigs, the Company believes that it will be able to
secure contracts for these rigs with another operator in Venezuela. If PDVSA
exercises their purchase option and consummates the purchase of any of the rigs,
the Company will recognize a gain on the sale.
Marine Transportation
The following is an analysis of the Company's marine transportation vessels as
of March 31, 1998 and 1997:
1998 1997
------ ------
AHTS * 5 6
Supply 24 23
Mini-Supply 8 8
---- ---
Total 37 37
==== ===
* Anchor handling tug supply vessels.
Revenues and operating margin for the Company's marine transportation segment
for the three months ended March 31, 1998 increased by $4.8 million, or 23%, and
by $2.6 million, or 20%, respectively, as compared to the prior year period. The
1998 results improved significantly from the prior year due to higher average
day rates for the Company's marine transportation vessels, offset, in part, by a
slight reduction in utilization as compared to the prior year period. Average
day rates for the Company's marine transportation vessels increased by
approximately 28% from the prior year period and utilization decreased to 89% in
the current year period from 92% in the prior year period due primarily to
scheduled drydockings for the Company's AHTS vessels.
Depreciation and Amortization
Depreciation and amortization expense decreased by $4.4 million, or 18%, for the
three months ended March 31, 1998 as compared to the prior year period. This
decrease is due primarily to a change in the depreciable lives of the Company's
drilling rigs and marine vessels effective January 1, 1998, offset, in part, by
an increase in property and equipment balances from the prior year. Based on a
recent engineering and economic study of the Company's asset base, the
depreciable lives of the Company's drilling rigs and marine vessels have been
extended by an average of five to six years. The effect of this change on the
Company's financial results for the three months ended March 31, 1998 was to
reduce depreciation expense by $10.0 million, or $.07 per basic or diluted
share.
Other Income (Expense)
Other income (expense) for the three months ended March 31, 1998 and 1997
was as follows (in millions):
1998 1997
------ ------
Interest income $ 2.7 $ 1.4
Interest expense, net (7.6) (5.8)
Other, net (.1) .1
----- -----
$(5.0) $(4.3)
===== =====
Interest income increased due primarily to higher average cash balances in the
current period. Interest expense increased due to higher average debt balances
primarily resulting from the Company's $300.0 million public debt offering in
November 1997.
Provision for Income Taxes
The Company's provision for income taxes increased by $23.1 million for the
three months ended March 31, 1998 as compared to the prior year period, due to
the increased profitability of the Company.
<PAGE>
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, 1998 and 1997 are as follows (in millions):
1998 1997
------ ------
Cash flow from operations $148.9 $ 60.0
====== ======
Capital expenditures
Enhancements $ 43.5 $ 24.0
Construction 27.8 -
Sustaining 9.7 7.7
------ ------
$ 81.0 $ 31.7
====== ======
Cash flow from operations increased by $88.9 million for the three months ended
March 31, 1998 as compared to the prior year period. The increase in cash flow
from operations is primarily due to increased operating results in the
first three months of 1998 and from changes in working capital.
Management anticipates that capital expenditures for the remainder of 1998 will
be approximately $295.0 million, including $30.0 million for existing
operations, $150.0 million for enhancements to rigs and vessels, and $135.0
million for the construction of a new harsh-environment jackup rig and three new
barge rigs. The Company may spend additional funds to acquire or to build new
rigs or vessels in 1998, depending on market conditions and opportunities.
Financing and Capital Resources
The Company's long-term debt, total capital and debt to capital ratios at March
31, 1998 and December 31, 1997 are summarized below (in millions, except
percentages):
March 31, December 31,
1998 1997
------------ ------------
Long-term debt $ 395.2 $ 400.8
Total capital 1,556.2 1,477.5
Long-term debt to total capital 25% 27%
The decrease in long-term debt is a result of debt repayments during the first
quarter of 1998. The total capital of the Company increased primarily due to
equity increases resulting from the profitability of the Company for the three
months ended March 31, 1998.
The Company's liquidity position at March 31, 1998 and December 31, 1997 is
summarized in the table below (in millions, except ratios):
March 31, December 31,
1998 1997
------------ -----------
Cash and short-term investments $ 318.5 $ 262.2
Working capital 330.0 316.2
Current ratio 2.9 3.4
The Company utilizes a conservative investment philosophy with respect to its
cash and cash equivalents and does not use derivative financial instruments for
investment or trading purposes.
Based on the current financial condition of the Company, management believes
that cash flow from operations and the Company's working capital should be
sufficient to fund the Company's ongoing liquidity needs for the foreseeable
future. In addition, the Company is currently in the process of arranging a new
unsecured revolving line of credit with a group of banks for the purpose of
supplementing the cash available for capital expenditure requirements. The
available credit line is expected to be in the range of $150.0 to $200.0 million
and is anticipated to be completed in the second quarter of 1998.
MARKET RISK
The Company uses financial instruments to hedge against its exposure to changes
in foreign currencies. The Company does not use financial instruments for
trading purposes. Management believes that the Company's hedging activities do
not expose the Company to any material interest rate risk, foreign currency
exchange rate risk, commodity price risk or any other market rate or price risk.
OUTLOOK AND FORWARD-LOOKING STATEMENTS
With the recent decline in oil prices, management anticipates that the Company
will experience reduced day rates and utilization. The Company's management
believes that the projected reduction in day rates and utilization is directly
tied to lower oil prices and related factors, which have led to the deferral of
some drilling programs. As a result of the negative impact on day rates and
utilization for the Company's drilling rigs and marine vessels and the
short-term nature of the Company's contracts, management believes that the
Company's financial results will be adversely affected through the remainder of
1998 in comparison to the results for the first three months of 1998. As day
rates and utilization for the Company's drilling rigs and marine vessels are
dependent on the market conditions in which the Company operates, the extent of
such adverse change cannot be accurately predicted.
Progress on the construction of the Company's three barge rigs for Venezuela and
a harsh-environment jackup rig is proceeding as scheduled. The barge rigs, which
are being constructed against a long-term contract with Chevron, are expected to
be delivered in early 1999, and the harsh-environment jackup rig is scheduled
for delivery in early 2000. The Company has an option to build a second
harsh-environment jackup rig that expires early in the third quarter of 1998.
The Company continues to work on the final design phase of a semisubmersible
drilling rig that it is actively marketing.
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 to the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed with this Report
Exhibit No.
15.1 Letter of Independent Accountants regarding Awareness
of Incorporation by Reference.
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
<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.
ENSCO INTERNATIONAL INCORPORATED
Date: May 7, 1998 /s/ C. Christopher Gaut
---------------- ------------------------
C. Christopher Gaut
Chief Financial Officer
/s/ H. E. Malone
------------------------
H. E. Malone, Corporate Controller
and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 1998 financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000314808
<NAME> ENSCO INTERNATIONL INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 318,500
<SECURITIES> 0
<RECEIVABLES> 166,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 505,900
<PP&E> 1,636,700
<DEPRECIATION> 374,800
<TOTAL-ASSETS> 1,907,600
<CURRENT-LIABILITIES> 175,900
<BONDS> 395,200
0
0
<COMMON> 15,500
<OTHER-SE> 1,145,500
<TOTAL-LIABILITY-AND-EQUITY> 1,907,600
<SALES> 0
<TOTAL-REVENUES> 246,400
<CGS> 0
<TOTAL-COSTS> 83,700
<OTHER-EXPENSES> 23,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,600
<INCOME-PRETAX> 134,300
<INCOME-TAX> 45,800
<INCOME-CONTINUING> 87,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,200
<EPS-PRIMARY> 0.62<F1>
<EPS-DILUTED> 0.61
<FN>
<F1> Represents basic earnings per share.
</FN>
</TABLE>
April 29, 1998
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 April 29, 1998 (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, 333-03575 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
