|
Previous: REEVES TELECOM LTD PARTNERSHIP, 10-Q, 1999-11-12 |
Next: ENSCO INTERNATIONAL INC, 10-Q, 1999-11-12 |
UNITED STATES
|
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 |
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 |
DELAWARE (State or other jurisdiction of incorporation or organization) 2700 Fountain Place 1445 Ross Avenue Dallas, Texas (Address of principal executive offices) |
76-0232579 (I.R.S. Employer Identification No.) 75202-2792 (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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No There were 137,307,670 shares of Common Stock, $.10 par value, of the registrant outstanding as of November 4, 1999. |
ENSCO INTERNATIONAL INCORPORATEDINDEX TO FORM 10-QFOR THE QUARTER ENDED SEPTEMBER 30, 1999 |
|
PAGE |
---|
PART I FINANCIAL INFORMATION | |
ITEM 1. FINANCIAL STATEMENTS | |
Review Report of Independent Accountants | 3 |
Consolidated Statement of Operations Three Months Ended September 30, 1999 and 1998 |
4 |
Consolidated Statement of Operations Nine Months Ended September 30, 1999 and 1998 |
5 |
Consolidated Balance Sheet September 30, 1999 and December 31, 1998 |
6 |
Consolidated Statement of Cash Flows Nine Months Ended September 30, 1999 and 1998 |
7 |
Notes to Consolidated Financial Statements | 8 |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 2 |
10 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
19 |
PART II OTHER INFORMATION | |
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K | 20 |
SIGNATURES | 21 |
PART I - FINANCIAL INFORMATION |
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
|
Three Months Ended | |||||||
---|---|---|---|---|---|---|---|
September 30, | |||||||
1999 | 1998 | ||||||
OPERATING REVENUES | $ 76 | .4 | $ 179 | .8 | |||
EXPENSES | |||||||
Operating expenses | 62 | .1 | 80 | .5 | |||
Depreciation and amortization | 25 | .2 | 20 | .9 | |||
General and administrative | 2 | .8 | 3 | .8 | |||
90 | .1 | 105 | .2 | ||||
OPERATING INCOME (LOSS) | (13 | .7) | 74 | .6 | |||
OTHER INCOME (EXPENSE) | |||||||
Interest income | 3 | .1 | 4 | .0 | |||
Interest expense, net | (4 | .6) | (6 | .2) | |||
Other, net | -- | 10 | .0 | ||||
(1 | .5) | 7 | .8 | ||||
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST | (15 | .2) | 82 | .4 | |||
PROVISION (BENEFIT) FOR INCOME TAXES | |||||||
Current income tax | (13 | .5) | 1 | .3 | |||
Deferred income tax | 9 | .6 | 21 | .0 | |||
(3 | .9) | 22 | .3 | ||||
MINORITY INTEREST | ( | .3) | 1 | .1 | |||
NET INCOME (LOSS) | $ (11 | .0) | $ 59 | .0 | |||
EARNINGS (LOSS) PER SHARE | |||||||
Basic | $ ( | .08) | $ | .42 | |||
Diluted | ( | .08) | .42 | ||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||
Basic | 136 | .6 | 139 | .0 | |||
Diluted | 136 | .6 | 139 | .5 | |||
CASH DIVIDENDS PER SHARE | $ | .025 | $ | .025 |
The accompanying notes are an integral part of these financial statements. |
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
|
Nine Months Ended | |||||||
---|---|---|---|---|---|---|---|
September 30, | |||||||
1999 | 1998 | ||||||
OPERATING REVENUES | $ 283 | .5 | $ 660 | .2 | |||
EXPENSES | |||||||
Operating expenses | 191 | .9 | 247 | .8 | |||
Depreciation and amortization | 73 | .7 | 60 | .9 | |||
General and administrative | 8 | .6 | 11 | .5 | |||
274 | .2 | 320 | .2 | ||||
OPERATING INCOME | 9 | .3 | 340 | .0 | |||
OTHER INCOME (EXPENSE) | |||||||
Interest income | 10 | .7 | 10 | .5 | |||
Interest expense, net | (14 | .8) | (20 | .4) | |||
Other, net | ( | .1) | 10 | .0 | |||
(4 | .2) | .1 | |||||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST | 5 | .1 | 340 | .1 | |||
PROVISION (BENEFIT) FOR INCOME TAXES | |||||||
Current income tax | (20 | .7) | 67 | .3 | |||
Deferred income tax | 26 | .4 | 43 | .1 | |||
5 | .7 | 110 | .4 | ||||
MINORITY INTEREST | .2 | 2 | .9 | ||||
NET INCOME (LOSS) | $ ( | .8) | $ 226 | .8 | |||
EARNINGS (LOSS) PER SHARE | |||||||
Basic | $ ( | .01) | $ 1 | .61 | |||
Diluted | ( | .01) | 1 | .60 | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | |||||||
Basic | 136 | .5 | 140 | .6 | |||
Diluted | 136 | .5 | 141 | .6 | |||
CASH DIVIDENDS PER SHARE | $ | .075 | $ | .075 |
The accompanying notes are an integral part of these financial statements. |
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
|
September 30, | December 31, | ||||
---|---|---|---|---|---|
1999 | 1998 | ||||
(Unaudited) | |||||
ASSETS | |||||
CURRENT ASSETS | |||||
Cash and cash equivalents | $ 194 | .3 | $ 330 | .1 | |
Accounts receivable, net | 80 | .9 | 118 | .4 | |
Prepaid expenses and other | 23 | .1 | 27 | .8 | |
Total current assets | 298 | .3 | 476 | .3 | |
PROPERTY AND EQUIPMENT, AT COST | 2,029 | .4 | 1,799 | .2 | |
Less accumulated depreciation | 479 | .2 | 409 | .8 | |
Property and equipment, net | 1,550 | .2 | 1,389 | .4 | |
OTHER ASSETS, NET | 123 | .2 | 127 | .1 | |
$ 1,971 | .7 | $ 1,992 | .8 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
CURRENT LIABILITIES | |||||
Accounts payable | $ 6 | .7 | $ 9 | .1 | |
Accrued liabilities | 114 | .0 | 126 | .7 | |
Current maturities of long-term debt | 4 | .0 | 23 | .6 | |
Total current liabilities | 124 | .7 | 159 | .4 | |
LONG-TERM DEBT | 372 | .2 | 375 | .5 | |
DEFERRED INCOME TAXES | 206 | .4 | 180 | .0 | |
OTHER LIABILITIES | 15 | .5 | 17 | .1 | |
MINORITY INTEREST | 16 | .0 | 15 | .8 | |
COMMITMENTS AND CONTINGENCIES | |||||
STOCKHOLDERS' EQUITY | |||||
Preferred stock, $1 par value, 20.0 million shares authorized, | |||||
none issued | -- | -- | |||
Common stock, $.10 par value, 250.0 million shares authorized, | |||||
155.9 million and 155.6 million shares issued | 15 | .6 | 15. | 6 | |
Additional paid-in capital | 849 | .1 | 846 | .1 | |
Retained earnings | 527 | .3 | 538 | .4 | |
Restricted stock (unearned compensation) | (6 | .7) | (7 | .7) | |
Cumulative translation adjustment | (1 | .1) | (1 | .1) | |
Treasury stock, at cost, 18.6 million and | |||||
18.5 million shares | (147 | .3) | (146 | .3) | |
Total stockholders' equity | 1,236 | .9 | 1,245 | .0 | |
$ 1,971 | .7 | $ 1,992 | .8 | ||
The accompanying notes are an integral part of these financial statements. |
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
|
Nine Months Ended September 30, |
|||||
---|---|---|---|---|---|
1999 | 1998 | ||||
OPERATING ACTIVITIES | |||||
Net income (loss) | $ ( | .8) | $ 226 | .8 | |
Adjustments to reconcile net income (loss) to net cash | |||||
provided by operating activities: | |||||
Depreciation and amortization | 73 | .7 | 60 | .9 | |
Deferred income tax provision | 26 | .4 | 43 | .1 | |
Amortization of other assets | 8 | .0 | 8 | .1 | |
Gain on asset dispositions | ( | .2) | (11 | .5) | |
Other | 1 | .4 | 2 | .7 | |
Changes in operating assets and liabilities: | |||||
Decrease in accounts receivable | 37 | .5 | 29 | .1 | |
(Increase) decrease in prepaid expenses and other | (1 | .6) | 2 | .1 | |
Increase (decrease) in accounts payable | (2 | .5) | 8 | .6 | |
Increase (decrease) in accrued liabilities | (44 | .1) | 18 | .0 | |
Net cash provided by operating activities | 97 | .8 | 387 | .9 | |
INVESTING ACTIVITIES | |||||
Additions to property and equipment | (203 | .1) | (253 | .8) | |
Proceeds from disposition of assets | 1 | .1 | 1 | .9 | |
Net cash used by investing activities | (202 | .0) | (251 | .9) | |
FINANCING ACTIVITIES | |||||
Reduction of long-term borrowings | (22 | .6) | (25 | .1) | |
Cash dividends | (10 | .3) | (10 | .6) | |
Repurchase of common stock | -- | (69 | .6) | ||
Other | 1 | .3 | .7 | ||
Net cash used by financing activities | (31 | .6) | (104 | .6) | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (135 | .8) | 31 | .4 | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 330 | .1 | 262 | .2 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ 194 | .3 | $ 293 | .6 | |
The accompanying notes are an integral part of these financial statements. |
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
|
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, 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 December 31, 1998 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial data for the three and nine month periods ended September 30, 1999 and 1998 included herein have been subjected to a limited review by PricewaterhouseCoopers 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, 1999 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 1999. 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, 1998 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K. Note 2 - Earnings Per Share For the three and nine months ended September 30, 1999 and 1998, 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 and nine months ended September 30, 1999 and 1998 (in millions): |
Three Months | Nine Months | ||||||||
---|---|---|---|---|---|---|---|---|---|
Ended September 30, | Ended September 30, | ||||||||
1999 | 1998 | 1999 | 1998 | ||||||
Weighted average common shares-basic | 136 | .6 | 139 | .0 | 136 | .5 | 140 | .6 | |
Potentially dilutive common shares: | |||||||||
Restricted Stock Grants | -- | .1 | -- | .3 | |||||
Stock options | -- | .4 | -- | .7 | |||||
Weighted average common shares-diluted | 136 | .6 | 139 | .5 | 136 | .5 | 141 | .6 | |
For the three and nine months ended September 30, 1999, 1.5 million shares and 1.0 million shares, respectively, of restricted stock grants and stock options were excluded from the computation of diluted loss per share because their effect would have been antidilutive. Note 3 - Contract Expirations In January 1999, the Company and Petroleos de Venezuela, S.A. ("PDVSA") agreed upon the early expiration of the contracts on six of the Company's barge rigs in Venezuela. The six contracts were originally scheduled to expire from May to September of 1999. As a result of the early expiration of the contracts, the Company received lump sum payments totaling $18.4 million, all of which was recognized as revenue in the first quarter of 1999. The Company experienced early termination of the contracts of certain other rigs during the first quarter of 1999, and early termination proceeds of approximately $2.0 million related to these rigs is also included in revenue for the first quarter of 1999. Note 4 - Segment Information The Company's operations are categorized into two operating segments which are differentiated based on the core services provided by the Company, (1) contract drilling services and (2) marine transportation services. The Company's contract drilling segment owns a fleet of 52 offshore drilling rigs, including 36 jackup rigs, nine barge rigs and seven platform rigs. The Company's marine transportation segment owns a fleet of 36 oilfield support vessels. Operating income (loss) for each segment includes an allocation of general and administrative expenses of the Company's corporate office. Depreciation expense of the Company's corporate office is not allocated to the operating segments. Segment information for the three and nine month periods ended September 30, 1999 and 1998 is as follows (in millions): |
INDUSTRY SEGMENT | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contract Drilling |
Marine Transportation |
Corporate |
Total | ||||||||||||
Three Months Ended September 30, | |||||||||||||||
1999 | |||||||||||||||
Revenues | $ 67 | .6 | $ 8 | .8 | $ - | $ 76 | .4 | ||||||||
Operating loss | (12 | .4) | ( | .8) | ( | .5) | (13 | .7) | |||||||
1998 | |||||||||||||||
Revenues | $ 161 | .7 | $ 18 | .1 | $ - | $ 179 | .8 | ||||||||
Operating income (loss) | 69 | .0 | 6 | .0 | ( | .4) | 74 | .6 | |||||||
Nine Months Ended September 30, | |||||||||||||||
1999 | |||||||||||||||
Revenues | $ 256 | .1 | $ 27 | .4 | $ - | $ 283 | .5 | ||||||||
Operating income (loss) | 12 | .5 | (1 | .9) | (1 | .3) | 9 | .3 | |||||||
1998 | |||||||||||||||
Revenues | $ 593 | .6 | $ 66 | .6 | $ - | $ 660 | .2 | ||||||||
Operating income (loss) | 310 | .4 | 30 | .7 | (1 | .1) | 340 | .0 | |||||||
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of 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. Concern over excess oil supplies adversely impacted oil prices during 1998 and early 1999. As a result of the decrease in oil prices, oil companies curtailed or deferred exploration and development spending, which adversely impacted industry conditions during the first nine months of 1999. Oil prices have been increasing since early 1999, and recently prices for West Texas Intermediate crude oil have exceeded $23.00 per barrel. The increase in oil prices is due primarily to cutbacks in oil production by OPEC and to a more favorable outlook for worldwide oil demand. Whether or not the recent increase in oil prices will be sustained is not determinable at the present time. Although higher oil prices improves the likelihood of oil companies increasing their exploration and development spending, the timing of any exploration and development spending increase and the impact on the Company's operations and financial results are uncertain. In recent months, improvement in oil prices and in U.S. natural gas prices have increased demand for drilling rigs and marine vessels in domestic markets, and recently the Company has experienced some increase in domestic day rates and utilization. However, demand for drilling rigs in international markets remains depressed, and the Company currently expects no improvement in international markets in the near term. As a result, the Company anticipates that it will incur a net loss for the year ended December 31, 1999. See "Outlook and Forward-Looking Statements." RESULTS OF OPERATIONS The Company's results for the third quarter and nine months ended September 30, 1999 reflect the continuation of the negative trend that began in the second quarter of 1998. Throughout 1999, the Company has experienced decreases in day rates and utilization from comparable 1998 periods. During the first quarter of 1999, the Company received $20.4 million as a result of the early termination of various drilling contracts, accelerating the receipt of revenue which otherwise would have been realized over the course of 1999. The following analysis highlights the Company's consolidated operating results for the three and nine months ended September 30, 1999 and 1998 (in millions): |
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
1999 | 1998 | 1999 | 1998 | ||||||
Operating Results | |||||||||
Revenues | $ 76 | .4 | $ 179 | .8 | $ 283 | .5 | $ 660 | .2 | |
Operating expenses, including general and administrative | 64 | .9 | 84 | .3 | 200 | .5 | 259 | .3 | |
Depreciation and amortization | 25 | .2 | 20 | .9 | 73 | .7 | 60 | .9 | |
Operating income (loss) | (13 | .7) | 74 | .6 | 9 | .3 | 340 | .0 | |
Other income (expense) | (1 | .5) | 7 | .8 | (4 | .2) | .1 | ||
Provision (benefit) for income taxes | (3 | .9) | 22 | .3 | 5 | .7 | 110 | .4 | |
Minority interest | ( | .3) | 1 | .1 | .2 | 2 | .9 | ||
Net income (loss) | $(11 | .0) | $ 59 | .0 | $ ( | .8) | $ 226 | .8 | |
Revenues | |||||||||
Contract drilling | |||||||||
Jackup rigs: | |||||||||
North America | $ 31 | .5 | $ 68 | .3 | $ 96 | .5 | $ 277 | .9 | |
Europe | 8 | .4 | 51 | .2 | 55 | .8 | 168 | .8 | |
Asia Pacific | 11 | .6 | 15 | .1 | 37 | .0 | 60 | .0 | |
Total jackup rigs | 51 | .5 | 134 | .6 | 189 | .3 | 506 | .7 | |
Barge rigs - South America | 11 | .1 | 16 | .0 | 40 | .7 | 59 | .4 | |
Platform rigs | 5 | .0 | 11 | .1 | 26 | .1 | 27 | .5 | |
Total contract drilling | 67 | .6 | 161 | .7 | 256 | .1 | 593 | .6 | |
Marine transportation | |||||||||
AHTS(1) | 4 | .4 | 5 | .4 | 13 | .3 | 14 | .5 | |
Supply | 4 | .1 | 10 | .9 | 13 | .0 | 44 | .5 | |
Mini-Supply | .3 | 1 | .8 | 1 | .1 | 7 | .6 | ||
Total marine transportation | 8 | .8 | 18 | .1 | 27 | .4 | 66 | .6 | |
Total | $ 76 | .4 | $ 179 | .8 | $ 283 | .5 | $ 660 | .2 | |
Operating Margin(2) | |||||||||
Contract drilling | |||||||||
Jackup rigs: | |||||||||
North America | $ 2 | .5 | $ 37 | .9 | $ 16 | .4 | $ 182 | .5 | |
Europe | 1 | .6 | 35 | .2 | 28 | .3 | 122 | .2 | |
Asia Pacific | 4 | .2 | 6 | .5 | 12 | .7 | 31 | .5 | |
Total jackup rigs | 8 | .3 | 79 | .6 | 57 | .4 | 336 | .2 | |
Barge rigs - South America | 4 | .0 | 8 | .0 | 20 | .1 | 30 | .3 | |
Platform rigs | 1 | .4 | 4 | .7 | 11 | .5 | 11 | .2 | |
Other | -- | ( | .6) | -- | ( | .6) | |||
Total contract drilling | 13 | .7 | 91 | .7 | 89 | .0 | 377 | .1 | |
Marine transportation | |||||||||
AHTS(1) | 1 | .8 | 2 | .8 | 5 | .2 | 7 | .4 | |
Supply | ( | .8) | 4 | .2 | (1 | .8) | 24 | .4 | |
Mini-Supply | ( | .4) | .6 | ( | .8) | 3 | .5 | ||
Total marine transportation | .6 | 7 | .6 | 2 | .6 | 35 | .3 | ||
Total | $ 14 | .3 | $ 99 | .3 | $ 91 | .6 | $ 412 | .4 | |
(1) Anchor handling tug supply vessels. (2)
Defined as revenues less operating expenses, exclusive of depreciation and amortization |
The following is an analysis of
certain operating information of the Company for the three and nine months ended
September 30, 1999 and 1998: |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1999 | 1998 | 1999 | 1998 | ||||||||||
Contract Drilling | |||||||||||||
Utilization: | |||||||||||||
Jackup rigs: | |||||||||||||
North America | 96% | 88% | 90% | 93% | |||||||||
Europe | 38% | 89% | 58% | 96% | |||||||||
Asia Pacific | 42% | 43% | 45% | 60% | |||||||||
Total jackup rigs | 74% | 80% | 75% | 87% | |||||||||
Barge rigs - South America | 33% | 100% | 30% | 100% | |||||||||
Platform rigs | 40% | 90% | 56% | 87% | |||||||||
Total | 63% | 85% | 66% | 90% | |||||||||
Average day rates: | |||||||||||||
Jackup rigs: | |||||||||||||
North America | $16,499 | $38,261 | $17,885 | $ 49,621 | |||||||||
Europe | 37,050 | 98,675 | 52,897 | 100,679 | |||||||||
Asia Pacific | 42,574 | 54,391 | 42,494 | 51,542 | |||||||||
Total jackup rigs | 20,517 | 51,594 | 24,790 | 59,578 | |||||||||
Barge rigs - South America | 37,695 | 19,346 | 33,280 | 22,368 | |||||||||
Platform rigs | 21,860 | 27,032 | 23,213 | 24,902 | |||||||||
Total | $22,313 | $42,014 | $25,130 | $ 48,571 | |||||||||
Marine Transportation | |||||||||||||
Utilization: | |||||||||||||
AHTS(1) | 62% | 73% | 68% | 66% | |||||||||
Supply | 78% | 82% | 74% | 87% | |||||||||
Mini-supply | 22% | 61% | 25% | 81% | |||||||||
Total | 63% | 76% | 63% | 83% | |||||||||
Average day rates: | |||||||||||||
AHTS(1) | $13,563 | $16,251 | $13,696 | $ 16,095 | |||||||||
Supply | 2,480 | 6,040 | 2,788 | 7,830 | |||||||||
Mini-supply | 1,761 | 3,978 | 2,084 | 4,294 | |||||||||
Total | $ 4,108 | $ 7,004 | $ 4,437 | $ 7,974 | |||||||||
(1) Anchor handling tug supply vessels. Discussions relative to each of the Company's operating segments and significant changes in operating results for the three and nine months ended September 30, 1999 compared with the results of the corresponding prior year periods are set forth below. See "Business Environment" and "Outlook and Forward-Looking Statements" for additional information about the Company's current expectations regarding future operations, day rates and utilization. |
Contract Drilling The following is an analysis of the Company's offshore drilling rigs at September 30, 1999 and 1998: |
Number of Rigs | |||||
---|---|---|---|---|---|
1999 | 1998 | ||||
Jackup rigs: | |||||
North America | 22 | 22 | |||
Europe | 7 | 7 | |||
Asia Pacific | 7 | 7 | |||
Total jackup rigs | 36 | 36 | |||
Barge rigs - South America(1) | 9 | 10 | |||
Platform rigs(2) | 7 | 8 | |||
Total | 52 | 54 | |||
(1)
The Company sold four barge rigs in October 1998 and completed construction (2) In April 1999,
the Company completed the operating contract for a platform rig |
Third quarter 1999 revenue from the contract drilling segment decreased $94.1 million, or 58%, and operating margin decreased $78.0 million, or 85%, from the prior year quarter. The decrease in revenues and operating margin is primarily due to lower average day rates, which decreased 47% from the prior year quarter, and lower utilization, which decreased to 63% in the third quarter of 1999 from 85% in the third quarter of 1998. Third quarter 1999 operating expenses for the contract drilling segment decreased by $16.1 million, or 23%, from the prior year quarter due primarily to reduced utilization and the impact of cost reduction initiatives implemented by the Company. For the nine months ended September 30, 1999, revenues from the contract drilling segment decreased by $337.5 million, or 57%, and operating margin decreased by $288.1 million, or 76%, from the prior year period. The decrease in revenues and operating margin is primarily due to lower average day rates, which decreased 48% from the prior year period, and lower utilization, which decreased to 66% for the nine months ended September 30, 1999 from 90% for the nine months ended September 30, 1998. Operating expenses for the contract drilling segment for the nine months ended September 30, 1999, decreased by $49.4 million, or 23%, from the prior year period due to reduced utilization and the impact of cost reduction efforts, which include, among other things, reductions in personnel and decreases in performance based compensation and benefits. North America Jackup Rigs For the third quarter of 1999, revenues from North America jackup rigs decreased by $36.8 million, or 54%, and operating margin decreased by $35.4 million, or 93%, from the prior year quarter. The decrease in revenues and operating margin resulted primarily from a 57% decline in average day rates. Operating expenses decreased by $1.4 million, or 5%, from the prior year quarter, as reductions attributable to cost saving measures were partially offset by the impact of increased utilization, which improved to 96% in the third quarter of 1999 from 88% in the third quarter of 1998. For the nine months ended September 30, 1999, revenues from North America jackup rigs decreased by $181.4 million, or 65%, and operating margin decreased by $166.1 million, or 91%, from the prior year period. The decrease in revenues and operating margin resulted primarily from a 64% decline in average day rates. Operating expenses decreased by $15.3 million, or 16%, from the prior year period due primarily to cost saving measures and slightly lower utilization. Europe Jackup Rigs For the third quarter of 1999, revenues from Europe jackup rigs decreased by $42.8 million, or 84%, and operating margin decreased by $33.6 million, or 95%, from the prior year quarter. The decrease in revenues and operating margin is primarily due to a 62% decline in average day rates and to a decrease in utilization, to 38% in the current year quarter from 89% in the prior year quarter. Operating expenses decreased by $9.2 million, or 58%, from the prior year quarter due primarily to cost saving measures and substantially lower utilization. For the nine months ended September 30, 1999, revenues from Europe jackup rigs decreased by $113.0 million, or 67%, and operating margin decreased by $93.9 million, or 77%, from the prior year period. The decrease in revenues and operating margin is primarily due to a 47% decline in average day rates and to a decrease in utilization, to 58% in the current year period from 96% in the prior year period. Operating expenses decreased by $19.1 million, or 41%, from the prior year period due primarily to cost saving measures and significantly lower utilization. Asia Pacific Jackup Rigs For the third quarter of 1999, revenues from Asia Pacific jackup rigs decreased by $3.5 million, or 23%, and operating margin decreased by $2.3 million, or 35%, from the prior year quarter. The decrease in revenues and operating margin resulted primarily from a 22% decline in average day rates. Operating expenses decreased by $1.2 million, or 14%, from the prior year quarter due primarily to cost saving measures and slightly lower utilization. For the nine months ended September 30, 1999, revenues from Asia Pacific jackup rigs decreased by $23.0 million, or 38%, and operating margin decreased by $18.8 million, or 60%, from the prior year period. The decrease in revenues and operating margin is primarily due to an 18% decline in average day rates and to a decrease in utilization, to 45% in the current year period from 60% in the prior year period. Operating expenses decreased by $4.2 million, or 15%, from the prior year period due primarily to cost saving measures and lower utilization. South America Barge Rigs For the third quarter of 1999, revenues from South America barge rigs decreased by $4.9 million, or 31%, and operating margin decreased by $4.0 million, or 50%, from the prior year quarter. The decrease in revenues and operating margin is primarily attributable to reduced utilization. Four of the ten barge rigs that operated during the prior year quarter were sold in October 1998, and the remaining six barge rigs were idle during the current year quarter. These decreases in revenue and operating margin were partially offset by the operating results of three newly constructed barge rigs that commenced operations in March, April and June of 1999. Operating expenses decreased by $0.9 million, or 11%, from the prior year quarter, as cost reductions attributable to cost saving measures, the four barge rigs sold in October 1998, and the six barge rigs idle during the third quarter of 1999 were only partially offset by the costs associated with the three newly constructed barge rigs. For the nine months ended September 30, 1999, revenues from South America barge rigs decreased by $18.7 million, or 31%, and operating margin decreased by $10.2 million, or 34%, from the prior year period. The decrease in revenues and operating margin is primarily attributable to reduced utilization. Four of the ten barge rigs that operated during the prior year period were sold in October 1998, and utilization of the remaining six barge rigs that operated during the prior year period decreased from 100% to 8% in the current year period. The decreases in revenue and operating margin were partially offset by the operating results of three newly constructed barge rigs that commenced operations in March, April and June of 1999, and by lump-sum early contract termination payments totaling $18.4 million in January 1999. Operating expenses decreased by $8.5 million, or 29%, from the prior year period, as cost reductions attributable to cost saving measures, the four barge rigs sold in October 1998, and the reduced utilization of the remaining six barge rigs during the current year period were only partially offset by the costs associated with the three newly constructed barge rigs. Platform Rigs For the third quarter of 1999, revenues from platform rigs decreased by $6.1 million, or 55%, and operating margin decreased by $3.3 million, or 70%, from the prior year quarter. The decrease in revenues and operating margin is primarily due to a 19% decline in average day rates and to a decrease in utilization, to 40% in the current year quarter from 90% in the prior year quarter. Operating expenses decreased by $2.8 million, or 44%, from the prior year quarter due primarily to cost saving measures and lower utilization. For the nine months ended September 30, 1999, revenues from platform rigs decreased by $1.4 million, or 5%, and operating margin increased by $0.3 million, or 3%, from the prior year period. Current period revenues and operating margin were more or less in line with the prior year period, as the impact of reduced utilization, from 87% in the prior year period to 56% in the current year period, and a slight, 7% decrease in average day rates was offset by the receipt of a lump-sum contract cancellation payment in the first quarter of 1999. Operating expenses decreased by $1.7 million, or 10%, from the prior year period due primarily to lower utilization. Marine Transportation The following is an analysis of the Company's marine transportation vessels as of September 30, 1999 and 1998: |
Number of Vessels | |||||
---|---|---|---|---|---|
1999 | 1998 | ||||
AHTS(1)(2)(3) | 6 | 4 | |||
Supply(2) | 23 | 24 | |||
Mini-Supply | 8 | 8 | |||
Total(4) | 37 | 36 | |||
(1) Anchor handling tug supply vessels. (2) During the fourth quarter of 1998, the Company added towing
capabilities to one (3) During the third quarter of 1999, the Company added a 196 foot, 6,000 (4) All of the Company's marine transportation vessels are
located in the Gulf of |
For the third quarter of 1999, revenues from the marine transportation segment decreased by $9.3 million, or 51%, and operating margin decreased by $7.0 million, or 92%, from the prior year quarter. The decrease in revenues and operating margin is primarily due to a 41% decline in average day rates and to a decrease in utilization, to 63% in the current year quarter from 76% in the prior year quarter. Operating expenses decreased by $2.3 million, or 22%, from the prior year quarter due primarily to cost saving measures and lower utilization. For the nine months ended September 30, 1999, revenues from the marine transportation segment decreased by $39.2 million, or 59%, and operating margin decreased by $32.7 million, or 93%, from the prior year period. The decrease in revenues and operating margin is primarily due to a 44% decline in average day rates and to a decrease in utilization, to 63% in the current year period from 83% in the prior year period. Operating expenses decreased by $6.5 million, or 21%, from the prior year period due primarily to cost saving measures and lower utilization. Depreciation and Amortization For the third quarter and nine months ended September 30, 1999, depreciation and amortization expense increased by $4.3 million, or 21%, and by $12.8 million, or 21%, respectively, compared with the same periods in the prior year. These increases are due primarily to rig enhancement projects that were completed during 1998 and construction of three new barge rigs that commenced operations in 1999, offset in part by the sale of four barge rigs in October 1998. Other Income (Expense) Other income (expense) for the third quarter and nine months ended September 30, 1999 and 1998 was as follows (in millions): |
Three Months Ended September 30, |
Nine Months Ended September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
1999 | 1998 | 1999 | 1998 | ||||||
Interest income | $ 3 | .1 | $ 4 | .0 | $ 10 | .7 | $ 10 | .5 | |
Interest expense, net | (4 | .6) | (6 | .2) | (14 | .8) | (20 | .4) | |
Other, net | -- | 10 | .0 | ( | .1) | 10 | .0 | ||
$ (1 | .5) | $ 7 | .8 | $ (4 | .2) | $ | .1 | ||
Interest expense decreased for the third quarter and nine months ended September 30, 1999 from the comparable prior year periods due to lower average debt balances and an increase in capitalized interest resulting from ongoing and recently completed construction projects. Capitalized interest for the third quarter of 1999 was $2.7 million, a $0.8 million increase over the prior year quarter. Capitalized interest for the nine months ended September 30, 1999, was $8.1 million, a $3.9 million increase over the prior year period. "Other, net" for the third quarter and nine months ended September 30, 1998 includes a non-recurring gain of $10.0 million ($6.5 million, or $.05 per basic and diluted share, net of tax) resulting from the loss of the Kodiak II marine vessel, which sank in September 1998. The gain represents the insurance proceeds received in excess of the net book value of the vessel. Provision for Income Taxes The Company's income tax provisions for the third quarter and nine months ended September 30, 1999, decreased from the comparable prior year periods by $26.2 million and $104.7 million, respectively, due to the reduced profitability of the Company. 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, 1999 and 1998 were as follows (in millions): |
1999 | 1998 | ||||
---|---|---|---|---|---|
Cash flow from operations | $ 97 | .8 | $ 387 | .9 | |
Capital expenditures: | |||||
Sustaining | $ 7 | .5 | $ 34 | .3 | |
Enhancements | 19 | .3 | 136 | .2 | |
Construction | 176 | .3 | 83 | .3 | |
$ 203 | .1 | $ 253 | .8 | ||
Cash flow from operations decreased by $290.1 million for the nine months ended September 30, 1999 as compared to the prior year period. The decrease in cash flow from operations is primarily a result of reduced operating margins and reduced cash flow from working capital changes. Management anticipates that capital expenditures for the full year 1999 will be approximately $270 million, including $230 million for new construction projects, $25 million for enhancements and $15 million for ongoing operations. The Company has two rigs under construction, the ENSCO 7500 and the ENSCO 101. The ENSCO 7500 is a semisubmersible rig, and is being constructed under a contract for Burlington Resources. The total cost of the ENSCO 7500 is projected to be approximately $200 million, plus an additional $25 million for spare capital equipment. The expected construction completion date of the ENSCO 7500 is in the fourth quarter of 2000, and precedes the date under which the Company would be subject to late delivery penalties by approximately five months. The ENSCO 101 is an international class, harsh environment, jackup rig, and is scheduled for delivery during the first quarter of 2000. Currently, the Company does not have a contract for the ENSCO 101. Financing and Capital Resources The Company's long-term debt, total capital and debt to capital ratios at September 30, 1999 and December 31, 1998 are summarized below (in millions, except percentages): |
September 30, 1999 |
December 31, 1998 | ||||
---|---|---|---|---|---|
Long-term debt | $ 372 | .2 | $ 375 | .5 | |
Total capital | 1,609 | .1 | 1,620 | .5 | |
Long-term debt to total capital | 23 | .1% | 23 | .2% |
The decrease in long-term debt is due primarily to debt repayments in the first nine months of 1999. The total capital of the Company decreased due primarily to reductions in long-term debt and the payment of dividends. During the first quarter of 1999, the Company repaid $19.6 million of term loans outstanding at December 31, 1998. These loans were secured by four Venezuela barge rigs and were required to be repaid as a result of the early termination of the drilling contracts of the four rigs. In June 1999, the Company received a commitment from the United States Maritime Administration ("MARAD") for the guarantee of approximately $195 million of long-term debt for the construction of the ENSCO 7500, the Company's new semisubmersible rig. The MARAD guarantee covers interim construction financing, as well as 15 year bonds to be issued upon completion of construction, which is projected to occur in the fourth quarter of 2000. The Company expects to complete the financing in the fourth quarter of 1999 and begin drawing funds in the first quarter of 2000. In order to ensure the Company has adequate liquidity and resources for growth, the Company continues to maintain its $185 million unsecured revolving line of credit (the "Credit Agreement") with a syndicate of banks. As of June 30, 1999, the Company had the full $185 million available for borrowings under the Credit Agreement. The Credit Agreement matures in May 2003. The Company's liquidity position at September 30, 1999 and December 31, 1998 is summarized in the table below (in millions, except ratios): |
September 30, 1999 |
December 31, 1998 | ||||
---|---|---|---|---|---|
Cash and cash equivalents | $ 194 | .3 | $ 330 | .1 | |
Working capital | 173 | .6 | 316 | .9 | |
Current ratio | 2 | .4 | 3 | .0 |
Management believes that cash flow from operations, the ENSCO 7500 financing guaranteed by MARAD, the Company's existing Credit Agreement and the Company's working capital should be sufficient to fund the Company's short and long-term liquidity needs. MARKET RISK The Company occasionally uses derivative financial instruments to hedge against its exposure to changes in foreign currencies. The Company does not use derivative financial instruments for trading purposes. The Company predominantly structures its drilling rig contracts in U.S. dollars to mitigate its exposure to fluctuations in foreign currencies. The Company will, however, from time to time, hedge its known liabilities or projected payments in foreign currencies to reduce the impact of foreign currency gains and losses in its financial results. At September 30, 1999, the Company had foreign currency exchange contracts outstanding to exchange U.S. dollars for Dutch guilders and Singapore dollars totaling $21.2 million. At September 30, 1999, there were no material unrealized gains or losses on open foreign currency exchange derivative hedges. 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. YEAR 2000 UPDATE The Company has completed its assessment of its critical information technology (IT) systems and non-IT systems and has corrected all deficiencies identified. The Company believes it has completed all required system implementations and equipment modifications necessary to make the Company's critical systems Year 2000 compliant. The Company's critical IT systems are comprised primarily of a general ledger accounting software package and related application modules, a fixed asset system, a payroll system and a procurement and purchasing system. The assessment of the Company's IT systems found that some of the IT systems were not Year 2000 compliant. Changes to make these systems Year 2000 compliant were made in conjunction with the Company's planned upgrade cycle, which was completed in June 1999. Non-IT systems are comprised primarily of computer controlled equipment and electronic devices, including equipment with embedded microprocessors, which are used to operate equipment on the Company's drilling rigs and marine vessels. With respect to drilling rig and marine vessel based systems, the Company's assessment indicated that while there were certain systems that were not Year 2000 compliant, there would be no disruption in the operations of its drilling rigs and marine vessels as a result of the Year 2000 problem. The Company conducted testing of its drilling rig based equipment with manufacturer representatives during the fourth quarter of 1998 which verified the Company's assessment. Changes to make certain drilling rig and marine vessel based systems Year 2000 compliant are being made in conjunction with the Company's ongoing equipment upgrades, and are scheduled to be completed in December 1999. The Company's non-IT systems also include telephone systems and other office based electronic equipment. With respect to office based non-IT systems, the Company's assessment indicated that it would be necessary to replace or modify some existing equipment. The Company completed the necessary replacements and modifications to its office based non-IT systems in June 1999. |
PART II - OTHER INFORMATION |
SIGNATURESPursuant 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: November 9, 1999 | /s/ C. Christopher Gaut C. Christopher Gaut Chief Financial Officer | ||||
/s/ H. E. Malone H. E. Malone Corporate Controller and Chief Accounting Officer |
|