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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (fee required)
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee required)
For the Fiscal Year Ended December 31, 1995
Commission file number 1-8226
_____________________
DI INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-2144774
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
450 GEARS ROAD
SUITE 625
HOUSTON, TEXAS 77067
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 713-874-0202
___________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, Par Value $0.10 American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 under the Securities Exchange Act of 1934)
is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
At May 9, 1996, 38,669,378 shares of the Registrant's common stock
were outstanding. The aggregate market value of the Registrant's voting stock
held by non-affiliates (based upon the closing price on the American Stock
Exchange on May 9, 1996 of $1.3125) was approximately $24,847,295. The
calculation of such market value should not be construed as an admission or
conclusion by the Registrant that any person is in fact an affiliate of the
Registrant.
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PART I
ITEM 1. BUSINESS
DI Industries, Inc. (the "Company"), a Texas corporation formed in 1980, is
engaged primarily in the business of providing onshore contract drilling and
well workover services to firms in the oil and gas industry. The Company
conducts operations in Texas, Louisiana, Oklahoma, Ohio, Pennsylvania, New York,
Michigan, Montana, Utah, North Dakota, and other states; and currently has
international operations in Argentina, Venezuela and Mexico. As used herein,
the term "Company" refers to DI Industries, Inc. and its subsidiaries, unless
the context otherwise indicates. The Company's principal office is located at
450 Gears Road, Suite 625, Houston, Texas 77067, and its telephone number is
(713) 874-0202.
The Company's principal operating strategy is to continue its focus on oil
and gas contract drilling in targeted regions in the United States, particularly
those with existing and potential gas production, and selected foreign
opportunities, especially in Central and South America. The Company plans to
pursue this strategy through aggressive marketing of its best equipment and
refurbishing other existing equipment. In addition, the Company may make
acquisitions of drilling equipment and oil and gas producing properties that
open new markets and present the potential for attractive rates of return.
DISCONTINUED AND SUSPENDED OPERATIONS
On June 7, 1995 the Company entered into an agreement to sell its producing
oil and gas properties, effective April 1, 1995, for a cash sales price of $4.2
million, subject to certain adjustments. The sale was closed August 9, 1995.
Proceeds from this transaction were used to pay off the Company's production
term note which had an outstanding balance of approximately $1.5 million,
purchase two certificates of deposit totaling approximately $1.4 million as
collateral for two letters of credit that were then outstanding under the
Company's revolving line of credit, with the remainder of the proceeds,
approximately $1.3 million used for working capital purposes.
The December 31, 1994 Consolidated Balance Sheet has been restated with all
assets and liabilities associated with the oil and gas properties identified as
Discontinued Operations.
The Consolidated Statements of Operations for the periods presented
identifies the income (loss) from producing oil and gas operations. As a result
of the sale of the oil and gas properties, the Company has recorded a $768,000
non-cash loss.
The Company has, in the past, provided shaft drilling equipment for
commercial drilling operations (large diameter shaft drilling, mining, and
water/disposal wells). No such activities were carried out in 1995 and there
are no current plans for
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activating this business segment unless there is increased demand for such
specialized drilling technology.
INDUSTRY SEGMENTS
Reference is made to Note 8 of the Notes to Consolidated Financial
Statements for information regarding the Company's industry segments.
INDUSTRY CONDITIONS
Operating Results. The Company reported a net loss of $13,447,000,
------------------
$2,209,000 and $2,658,000 for the year ended December 31, 1995; the nine months
ended December 31, 1994; and the year ended March 31, 1994, respectively. The
future profitability of the Company is substantially dependent upon improvement
in the utilization of, and contract rates earned by, its oil and gas drilling
and workover rigs. No assurance can be given that the Company's operation will
obtain profitable levels in the future.
Oil and Gas Industry. The Company's oil and gas contract drilling
---------------------
operations, which have historically focused on the domestic market, have been
severely depressed for the past several years, largely as a result of
significant declines in oil and gas prices and associated reductions of oil and
gas drilling activities and the oversupply of drilling equipment. These
conditions have resulted in both low contract rates and low levels of rig
utilization; although demand for land drilling rigs has shown improvement during
the past quarter, 1995. The Company's future success will depend in large part
upon a general economic improvement in the oil and gas and contract drilling
industries, which cannot be predicted with certainty.
In response to the depressed domestic activity, the Company has focused on
foreign opportunities, especially the Central and South American markets where
the Company's International Division has in recent years conducted drilling
operations in Argentina, Guatemala, El Salvador, Venezuela and Mexico. There
has been an increase in oil and gas drilling activities in South America due to
privatization efforts and geothermal drilling in Mexico and Central America. The
Company will consider expansion into selected international markets.
There is a general shortage in the industry of used drill pipe, and the
cost of obtaining new and used drill pipe is substantially higher than in prior
periods and is currently escalating. At present, the Company has an adequate,
but not a surplus, supply of drill pipe and drill collars and has begun a
gradual replacement program in the last half of 1995 that will continue in 1996.
Also, depending on rig utilization, the Company may need to purchase additional
drill pipe for rigs in service or placed in service.
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Oilfield Service and Supply Industry. The Company has a major repair and
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fabrication yard. This facility is currently utilized for the primary purpose
of servicing the Company's own rig and equipment requirements but has
capabilities for third party services if industry conditions improve.
CONTRACT DRILLING AND WORKOVER
Drilling/Workover Operations. At December 31, 1995, the Company owned
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or operated 87 drilling and workover rigs located in ten states, eight drilling
rigs in Argentina, ten drilling and workover rigs in Venezuela, and four
drilling rigs in Mexico. Under a typical oil and gas drilling contract, the
Company provides its customers with drilling rigs and related equipment, as well
as field personnel. The Company considers a rig which is presently working to be
an "active" rig. Rigs which are not working but which are currently being
actively marketed are viewed as "idle." "Inactive" rigs are rigs which are not
working and are not currently being actively marketed. Inactive rigs may require
additional capital expenditures to reactivate them for service. The Company
estimates that the costs required to reactivate its inactive rigs may range
between $20,000 to $500,000 per rig. The Company's contract drilling and well
workover operations are conducted through four operating divisions in the United
States organized by geographic location and the nature of the business
conducted, one operating division in Argentina, one operating division in
Venezuela and one operating division in Mexico.
Mid-Continent Division. The Company's Mid-Continent Division is
-----------------------
headquartered in Houston, Texas, with district offices in Houston and Midland,
Texas and Shreveport, Louisiana, and provides oil and gas contract drilling
services primarily in the states of Texas, Louisiana, Arkansas and Oklahoma. Of
the Mid-Continent Division's 33 rigs, 29 have rated depth capacities of over
10,000 feet, eight of which are rated at 20,000 feet or deeper.
Eastern Division. The Eastern Division is headquartered in Midvale, Ohio,
-----------------
and drills gas wells in Ohio, Pennsylvania and New York, principally at depths
of 7,000 feet or less. The Eastern Division operates nine rigs. Historically,
the Eastern Division contracts to drill packages of several wells. The Eastern
Division's operations are limited during the spring of each year due to "frost
laws" of the jurisdictions in which it operates which restrict movement of
equipment on public roads during such period.
Northern Division. The Northern Division is headquartered in Mt. Pleasant,
------------------
Michigan, and drills oil and gas wells principally in Michigan, at depths of
1,000 to 18,000 feet. Of the Northern Division's nine rigs, five are rated
6,000 to 8,500 feet, three are rated at up to 20,000 feet and one up to 2,500
feet. The Northern Division's operations are also limited during the spring of
each year due to "frost laws" of the jurisdictions in which it operates
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which restrict movement of equipment on public roads during such periods.
On March 28, 1996, the Company completed the formation of a Joint Venture,
IN/Drillers, Inc., between its wholly-owned subsidiary, Drillers, Inc., and Dart
Energy Corp. to combine the Michigan contract drilling operations of
Drillers,Inc. with the Michigan contract drilling operations of Indril, a
subsidiary of Dart Energy Corp. Drillers, Inc. and Dart Energy will each
contribute five drilling rigs to the Joint Venture with Drillers, Inc. having a
65% interest and Dart Energy having a 35% interest in the Joint Venture which
will be carried out as a jointly-owned Michigan Limited Liability Company.
Drillers, Inc. and Indril are the two leading deep well drilling
contractors in Michigan, and the formation of this Joint Venture is expected to
result in more efficient scheduling of drilling equipment and improved operating
and cost efficiencies with the increase in rig fleet size.
International Division. The International Division is headquartered in
-----------------------
Houston, Texas, with offices in Buenos Aires and Neuquen, Argentina; Barinas,
Valle De La Pascua, El Tigre, and Guasdualito, Venezuela; and Morelia, Mexico.
The international Division has active drilling operations in Argentina,
Venezuela and Mexico.
Argentina Division. The Company owns and operates seven active drilling
-------------------
rigs in Argentina, including four drilling rigs that were shipped to Argentina
from the US in November, 1994, and owns one rig held for parts. The Argentina
Division provides oil and gas contract drilling services, primarily in the
Neuquen area, on daywork and turnkey contracts. The Argentina drilling rigs
have rated depths of 6,000 to 12,000 feet.
Venezuela Division. The Company owns four land-based drilling rigs and two
-------------------
land-based workover rigs in Venezuela. In addition, the Company operates four
drilling rigs under a labor contract. Two of the drilling rigs and the two
workover rigs were acquired in an acquisition effective September 1, 1994. Two
drilling rigs were shipped to Venezuela from the US in September and November,
1994. The Venezuela Division provides oil and gas contract drilling services
under daywork contracts and workover services under hourly contracts. The
Venezuela drilling rigs have rated depths of 10,500 to 15,000 feet.
Mexico Division. In November, 1994, the Company, through its 90% owned
----------------
subsidiary, DI/Perfensa Inc., commenced a geothermal project in Mexico with four
drilling rigs. One of the drilling rigs was shipped to Mexico from El Salvador
and three of the drilling rigs were shipped to Mexico from the US. This
geothermal project was completed in November, 1995. A new geothermal drilling
project requiring one drilling rig began in December 1995 and is expected to
extend for approximately fifteen months. The other
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three rigs in Mexico are currently stacked. The Mexico drilling rigs have rated
depths of 10,000 to 16,000 feet.
Western Division (Workover Operations). The Company's Western Division is
---------------------------------------
headquartered in Glendive, Montana, with a district office in Roosevelt, Utah,
and provides well workover services in Montana, Utah and North Dakota. The
Western Division operates 22 carrier-mounted workover rigs and has one rig
stacked for parts. A workover is a repair, maintenance or modification of a
producing well designed to remedy mechanical problems in the well, productivity
problems in the formation or other difficulties in extracting oil and gas.
Workover services are vital to the oil and gas producing industry as most
producing wells eventually encounter these problems. Workover services include
repairing and replacing down-hole production equipment, opening additional
productive intervals, re-completion of wells to new producing zones, completing
newly drilled wells, drilling out of plugs and packers, and the converting
producing wells to injection wells during enhanced recovery operations.
Drilling and Workover Equipment. A land drilling rig of the general type
--------------------------------
operated by the Company consists of engines, drawworks, mast, pumps, blowout
preventers, drill pipe and related equipment. The size and type of rig utilized
depends, among other factors, upon well depth and site conditions. An active
maintenance and replacement program during the life of a drilling rig permits
upgrading of components on an individual basis. Over the life of a typical rig,
due to the normal wear and tear of operating up to 24 hours a day, several of
the major components, such as engines, mud pumps and drill pipe, are replaced or
rebuilt on a periodic basis as required, while other components, such as the
substructure, mast and drawworks, can be utilized for extended periods of time
with proper maintenance. The Company considers its drilling rigs to be well-
maintained and capable of performing contracts undertaken competitively within
the industry.
A workover rig is a mobile carrier-mounted rig designed to perform routine
maintenance and remedial operations on existing oil and gas wells. The type of
workover rig operated by the Company consists of a portable engine, drawworks
and a mast supported by portable skid-mounted pumps, tanks and hydraulic-powered
drilling equipment. As with other rigs, maintenance and replacement of the
major components due to normal wear are necessary to maintain the equipment in
operable condition throughout the life of the rig.
The Company also owns various vehicles and other ancillary equipment used in
the operation of its rigs. This equipment consists of bulldozers, trucks, large
air compressors and other support equipment.
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The following table describes the oil and gas rigs owned and operated by the
Company at March 25, 1996, and the status of each rig during the preceding 45
days:
<TABLE>
<CAPTION>
YEAR BUILT/ RATED
RIG NO. REBUILT DRAWWORKS DEPTH LOCATION STATUS
- ------- ----------- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
MID-CONTINENT DIVISION
- ----------------------
1 1957/1980 Brewster N-85 15,000' N-Louisiana Active
2 1957/1981 Brewster N-85 15,000' N-Louisiana Idle
3 1960/1982 Cont-Emsco A-550 13,500' E-Texas Active
4 1956/1983 Brewster N-75 12,500' N-Louisiana Inactive
6 1957/1980 Brewster N-85 15,000' N-Louisiana Active
7 1978 National 55 12,500' N-Louisiana Active
8 1979 Gard-Denver 1500 20,000' N-Louisiana Inactive
9 1955/1986 Brewster N-95 26,000' S-Texas Idle
10 1964/1989 Gard-Denver 800 14,000' N-Louisiana Active
12 1980 Gard-Denver 700 12,500' N-Louisiana Active
13 1981 Brewster N-75B 15,000' N-Louisiana Active
15 1965/1989 National 610 14,000' N-Louisiana Active
17 1981 Mac 400 5,000' N-Louisiana Inactive
23 1960 Mid-Cont U-15 9,000' Oklahoma Inactive
24 1955/1980 Brewster N-55 11,000' E-Texas Idle
25 1960/1978 Brewster N-46 11,000' Texas Inventoried
26 1958/1979 Cont-Emsco GB-500 10,000' N-Louisiana Inventoried
27 1958/1981 Cont-Emsco GB-500 10,000' W-Texas Inactive
30 1960/1983 Mid-Cont U-15 11,000' Oklahoma Inactive
36 1957/1978 Cont-Emsco GB-350 8,500' Oklahoma Inactive
37 1979 Failing 8000 10,000' Utah Inactive
39 1980/1989 Gard-Denver 800 14,000' E-Texas Active
40 1979 Gard-Denver 1100E 20,000' S-Texas Active
42 1981 Cont-Emsco Elec. hst.II 25,000' S-Texas Active
43 1981 Ideco 1200E 20,000' S-Texas Active
44 1982 Gard-Denver 1500E 25,000' S-Texas Idle
46 1981 Gard-Denver 1100-UE 20,000' E-Texas Inventoried
48 1981 Ideco 3000-UE 30,000' Oklahoma Inventoried
61 1954/1980 Bethlemen S-45-E 9,000' W-Texas Idle
62 1978 Ideco Hydrair H-35 10,500' S-Louisiana Idle
63 1976/1982 Gard-Denver 700 13,000' E-Texas Idle
66 1982 Ideco-Hydrair H-35 10,500' S-Texas Idle
93 (C) 1981 Mid-Continent 712-UE 16,000' S-Texas Active
EASTERN DIVISION
- ----------------
202 1981 Wilson Mogul 42 8,000' N/W Penn. Active
203 1980 Wilson Mogul 42 8,000' N/E Ohio Active
204 1979 Wilson Mogul 42 6,500' N/E Ohio Active
206 1979 Wilson 65 10,000' N/E Ohio Idle
207 1969/1983 Wilson Mogul 38 5,300' N/E Ohio Idle
208 1980 Wilson Mogul 42 6,500' N/W Penn. Active
209 1965/1984 Wilson Mogul 42 6,500' N/E Ohio Idle
212 1981 Wilson 120 18,000' N/E Ohio Inactive
215 1980 Wilson Mogul 42 6,500' N/W Penn. Active
NORTHERN DIVISION
- -----------------
41 1981 Ideco 1200E 20,000' Michigan Idle
47 1982 Ideco 1200E 20,000' Michigan Idle
49 1982 Ideco 1200E 20,000' Michigan Active
53 1976 Cabot 1287 6,500' Michigan Active
56 1980 Ideco DIR 700 8,500' Michigan Idle
57 1977 Ideco DIR 700 6,000' Michigan Active
58 1977 Ideco DIR 700 8,500' Michigan Active
116 1980 Speedstar 55-40 2,500' Indiana Idle
211 1971/1985 Wilson Mogul 42 6,100' Michigan Idle
</TABLE>
6
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<TABLE>
<CAPTION>
YEAR BUILT/ RATED
RIG NO. REBUILT DRAWWORKS DEPTH LOCATION STATUS
- ------- ---------- ---------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
DRILLERS INTERNATIONAL S.A. (ARGENTINA)
- ---------------------------------------
448 1958 Ideco H-525 7,500' Argentina Inactive/Parts
449 1960/1993 Ideco H-40 6,000' Argentina Idle
454 1981 Ideco BIR 800 12,000' Argentina Idle
455 1981 Ideco BIR 800 12,000' Argentina Active
450 1980/1994 Ideco DIR 700 8,500' Argentina Active
459 1980/1994 Ideco DIR 700 8,500' Argentina Active
472 1981/1994 Cabot 750 10,500' Argentina Active
473 1981/1994 Cabot 900 12,000' Argentina Active
DI/PERFENSA INC. (MEXICO)
- ------------------------
19 1981/1994 National 80 B 16,000' Mexico Idle
20 1980/1994 BDW-800 16,000' Mexico Idle
31 1978/1994 Cabot 750 10,000' Mexico Idle
69 1981 Ideco BIR 800 12,000' Mexico Active
DRILLERS INC. D.I. DE VENEZUELA, C. A.
- --------------------------------------
407 1980 Wilson Mogul 42 8,000' Venezuela Active
408 (C) 1980 Cabot 1,000 12,000' Venezuela Active
412 (C) 1980 National 610-E 12,000' Venezuela Active
417 (C) 1981 Cont.-Emsco D-3 14,000' Venezuela Active
421 (C) 1978 Cont.-Emsco C-1 15,000' Venezuela Active
423 1981/1996 Mid-Continent 712-U 15,000' Venezuela Active
441 1980 Wilson Mogul 42 8,000' Venezuela Active
451 1981 Cabot 900 12,000' Venezuela Active
452 1975/1994 Cabot 900 12,000' Venezuela Active
453 1982/1994 Ideco-Hydrair H-35 10,500' Venezuela Active
</TABLE>
(C) Rig operated by the Company under a labor contract with owner.
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The following table describes the Western Division's workover rigs owned and
operated by the Company at March 25, 1996, and the status of each rig during the
preceding 45 days:
<TABLE>
<CAPTION>
YEAR BUILT/ RATED
RIG NO. REBUILT UNIT DRAWWORKS DEPTH LOCATION STATUS
- ------ ---------- ---- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
304 1983 Cooper (Self-propelled) Cooper LTO 350 12,000' E-Montana Idle
306 1969/1985 Hopper (Self-propelled) Hopper GXXTA 14,000' E-Montana Active
307 1983 Cooper (Self-propelled) Cooper LTO 350 12,000' E-Montana Active
308 1974 Franks 300 Explorer III Cooper LTO 350 12,000' E-Montana Active
309 1981 Franks 400 Explorer III Franks 1287-160 14,000' N-Dakota Active
310 1981 Cooper (Self-propelled) Cooper LTO 350 12,000' E-Montana Inactive
311 1981 Franks 300 Explorer III Franks 1287-160 12,000' E-Montana Active
312 1976 Franks 500 Explorer III Franks 1287-160 18,000' N/E Utah Active
314 1977 Franks 400 Explorer III Franks 1287-160 14,000' E-Montana Idle
315 1978 Franks 400 Explorer III Franks 1287-160 14,000' E-Montana Active
316 1981 Franks 500 Explorer III Franks 1287-160 18,000' E-Montana Idle
318 1975 Wilson Mogul Wilson-Mogul 42 18,000' N/E Utah Active
319 1975 Hopper (Self-propelled) Hopper GXXTA 18,000' N/E Utah Active
320 1978 Franks 400 Explorer III Franks 1287-160 17,000' N/E Utah Active
321 1978 Franks 400 Explorer III Franks 1287-160 14,000' E-Montana Active
322 1979 Franks 400 Explorer III Franks 1287-160 17,000' N/E Utah Active
323 1979 Franks 400 Explorer III Franks 1287-160 14,000' N-Dakota Active
324 1980 Franks 400 Explorer III Franks 1287-160 14,000' N/E Utah Active
326 1981 Franks 300 Explorer III Franks 1287-160 17,000' E-Montana Active
327 1982 Franks 300 Explorer III Franks 1287-160 12,000' E-Montana Active
328 1982 Franks 300 Explorer III Franks 1287-160 14,000' N-Dakota Active
329 1982 Franks 400 Explorer III Franks 1287-160 17,000' N/E Utah Active
331 1982 Hopper (Self-propelled) Hopper GXHTA 14,000' E-Montana Active
</TABLE>
The following table describes the status of the commercial drilling rigs owned
or operated by the Company at March 25, 1996, and the status of each rig during
the preceding 45 days:
<TABLE>
<CAPTION>
YEAR BUILT/ RATED DEPTH/
RIG NO. REBUILT DRAWWORKS DIAMETER LOCATION STATUS
- ------- ---------- --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C>
111 1969/1982/1994 Hydraulic-2-Man Rig 14,000' Oklahoma Idle
112 1971/1986 DI/Hughes CSD-820 12'-15' dia Texas Idle
114 1981/1988 DI/Hughes CSD-820 12'-15' dia Ohio Idle
118 1969/1980 DI/Hughes CSD-820 12'-15' dia Ohio Idle
ADDITIONAL IDLE RIGS HELD FOR SALE
- ----------------------------------
260 1957 Wilson Mogul 42 6,500' Ohio Inventoried
261 1966 Wilson Mogul 42 6,500' Ohio Inventoried
262 1972 Wilson Mogul 42 6,500' Ohio Inventoried
263 1972 Wilson Mogul 42 6,500' Ohio Inventoried
264 1973 Wilson Mogul 42 6,500' Ohio Inventoried
265 1978 Wilson Mogul 42 6,500' Ohio Inventoried
267 1956 Mayhew 3,000 2,500' Ohio Inventoried
268 1978 IDECO H-37 5,000' Texas Inventoried
</TABLE>
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Contracts. The Company's contracts for drilling oil and gas wells and
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workover operations are obtained either through competitive bidding or as a
result of negotiations with customers. The Company's oil and gas drilling
contracts provide for compensation on a "daywork," "footage" or "turnkey" basis.
Under daywork contracts, the Company receives a fixed amount per day for
drilling the well, and the customer bears a major portion of out-of-pocket costs
of drilling. Under footage contracts, the Company is paid a fixed amount for
each foot drilled, regardless of the time required or the problems encountered
in drilling the well. The Company pays more of the out-of-pocket costs
associated with footage contracts than with daywork contracts. Under turnkey
contracts, the Company agrees to drill a well to a specified depth for a fixed
price, regardless of the time required or the problems encountered in drilling
the well. Footage and turnkey contracts generally involve a higher degree of
risk to the Company than daywork contracts because the Company bears the cost of
unanticipated down-hole problems and price escalation. "Hourly" contracts call
for the Company to provide a rig and crew, for which it is paid on an hourly
basis. The work currently conducted by the Mid-Continent Division is primarily
daywork with some turnkey contracts. Almost all of the wells drilled by the
Eastern Division are drilled pursuant to footage contracts. The Northern
Division's wells are drilled under footage and daywork contracts. Almost all of
the work conducted by the Western Division is on an hourly basis. The
International Division's wells are drilled under daywork, footage and turnkey
contracts.
The Company primarily markets its oil and gas drilling and workover rigs on a
regional basis through employee salesmen located in Houston, Texas; Shreveport,
Louisiana; Mt. Pleasant, Michigan; Glendive, Montana; Midvale, Ohio; Neuquen and
Buenos Aires, Argentina; Barinas, Venezuela and Morelia, Mexico. These salesmen
utilize personal contacts and industry periodicals and publications to determine
which operators are planning to drill oil and gas wells or need workover
services in the immediate future. Once the Company has been placed on the "bid
list" for a particular operator, the Company will normally be given the
opportunity to bid on all future wells for that operator on an area basis.
Repeat business from previous customers accounts for a substantial portion of
the Company's business.
Competition. The contract oil and gas drilling business is highly competitive
------------
and, in recent years, has suffered from a substantial oversupply of rigs
resulting in severe price competition. Companies generally compete on the basis
of price, workforce experience, equipment suitability and availability,
reputation, expertise and financial capability. While competition is primarily
on a regional basis, rigs can be moved from one region to another in response to
changes in levels of drilling activity, subject to crew availability and
mobilization expenses. The Company's ability to obtain drilling contracts is
dependent primarily on the level of domestic oil and gas exploration and
development activity, as well as the Company's ability to acquire
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and retain qualified personnel. The Company's ability to continue to generate
business in the future will depend, in part, on its ability to adapt to new
technology and drilling techniques as they become available. A number of the
Company's competitors have substantially greater financial resources than the
Company.
Customers. The Company's oil and gas contract drilling customers include
----------
large and small independent producers and major oil companies. A significant
portion of the Company's international drilling contracts are with national
utility or national petroleum companies in Mexico, Central America and South
America.
GENERAL
Employees. At March 1, 1996, the Company had approximately 1,168 employees.
----------
The Company believes that its relationship with its employees is satisfactory.
Governmental Regulations. Many aspects of the Company's operations are
-------------------------
affected by political developments and by federal, state, foreign and local laws
and regulations relating to the energy industry. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas for
economic and other policy related reasons would adversely affect the Company's
operations by limiting demand for contract drilling and exploration and
production. The Company cannot determine to what extent future operations and
earnings of the Company may be affected by new legislation, new regulations or
changes in existing regulations.
The Company's activities are also subject to laws and regulations relating to
environmental protection and pollution control. Although the Company's cost of
compliance with such legislation and regulations has not been material to date,
such laws and regulations may substantially increase the cost of the Company's
activities and may prevent or delay the commencement or continuance of a given
operation. The Company believes that such legislation and regulations have not
had a materially adverse effect on its present method of operations. In the
future, federal, state and local government environmental controls may require
the Company to make significant expenditures, although the magnitude of such
expenditures cannot be predicted.
The Company is subject to the requirements of the Occupational Safety and
Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the Environmental Protection Agency "community right-to-
know" regulations under Title III of the Federal Superfund Amendment and
Reauthorization Act and comparable state statutes require the Company to
organize information about the hazardous materials used in its operations. The
Company will likely be required to increase its expenditures during the next
several years to comply with higher industry and regulatory safety standards
such as those
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described above. Such expenditures cannot be accurately estimated at this time.
International Operations and Risks.
-----------------------------------
An increasingly significant portion of the Company's revenues are attributable
to international operations. Risks associated with operating in international
markets include foreign exchange restrictions and currency fluctuations, foreign
taxation, changing political conditions and foreign and domestic monetary
policies, expropriation, nationalization, nullification, modification or
renegotiation of contracts, war and civil disturbances or other risks that may
limit or disrupt markets. For example, the Company currently operates in three
countries in Latin America, each of which has experienced major currency
fluctuations in the recent past. The ability of the Company to compete in the
international well servicing and drilling markets may be adversely affected by
foreign governmental regulations that favor or require the awarding of such
contracts to local contractors, or by regulations requiring foreign contractors
to employ citizens of, or purchase supplies from, a particular jurisdiction. No
predictions can be made as to what foreign governmental regulations may be
enacted in the future that could be applicable to the Company's operations.
The Company's primary international contract drilling operations are in South
America, Mexico and Central America. These international contract drilling
operations are primarily covered by drilling contracts which, in the case of
Venezuela, are structured where payment is split between partial payment is US
currency and the balance paid in local currency.
In the case of Argentina, the drilling contracts provide for payment in
Argentina Pesos, which are pegged at the same equivalent rate as the US dollar
at this time. The Company's Mexico contract is paid in Mexican Pesos, however,
the contract provides for an increase in contract payments under an indexed
basis to compensate for the devaluation of the Mexican Peso in December, 1994. A
significant portion of costs and expenses relating to the Company's
international operations are comprised of goods and services procured in the
respective foreign countries and paid for in the respective countries'
currencies.
The Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. Foreign
income tax returns of foreign subsidiaries are subject to examination by
foreign tax authorities. In the opinion of management, any provision ultimately
determined to be required as a result of such examinations or assessments will
not be material to the Company's financial position or operations.
To date, the Company has not incurred material currency fluctuation gains or
losses and, currently has not hedged for such.
Risks in Contract Drilling. Contract drilling of oil and gas wells are
---------------------------
subject to a number of risks and hazards including blowouts, cratering, fires
and explosions, any of which could cause personal injury or loss of life, damage
to property or equipment, and suspension of operations. In addition, there is
also the risk that damage to the environment could result from some of the
Company's operations, particularly through oil spillage or uncontrolled fires.
Insurance. The Company believes that it is adequately insured against normal
----------
and foreseeable risks in its operations in accordance with industry standards;
however, such insurance may not be adequate to protect the Company against
liability from all consequences of well disasters, extensive fire damage or
damage to the environment. The Company maintains appropriate insurance with
respect to workers' compensation liability. The contract drilling industry's
level of workers' compensation costs has increased over the past few years and
constitutes a substantial portion of the Company's direct labor operating costs.
The Company does not carry business interruption insurance. No assurance can be
given that the Company will be able to maintain adequate insurance in the future
at rates which are commercially reasonable.
At March 31, 1994, American Premier Underwriters, Inc. ("American Premier"),
formerly named the Penn Central Corporation, was the owner of 20,690,105
unregistered shares, 53.5%, of the Company's outstanding common stock. In June
1994, Norex Drilling Ltd. ("Norex Drilling"), a wholly-owned subsidiary of Norex
America, Inc. ("Norex America"), completed the purchase of all shares of the
Company's common stock owned by American Premier. Shortly thereafter and in
accordance with regulatory filings made at the
11
<PAGE>
time of the purchase transaction, Norex Drilling reduced its ownership to
18,730,105 shares, or less than 50% of the outstanding shares of the Company's
common stock. In October 1995, Norex Drilling transferred 8,300,000 shares to
Pronor Holdings Ltd. ("Pronor"). Norex America beneficially owns approximately
47% of Pronor.
Prior to June 2, 1994, certain of the Company's insurance coverage, including
workers' compensation and excess liability coverage, was arranged by American
Premier as part of a program which American Premier provided to its
subsidiaries. Subsequent to the sale of the Company's common shares, the
Company has obtained workers' compensation, excess liability coverage and
certain other insurance from other sources. The Company and American Premier
entered into an agreement pursuant to which the Company agreed to reimburse
American Premier for all amounts advanced by American Premier from time to time
on behalf of the Company in connection with American Premier's administration of
the Company's workers' compensation and certain other insurance programs for the
periods between July 20, 1989 and the closing of the common stock transaction.
The amounts reimbursable to American Premier at December 31, 1995 and December
31, 1994 relating to this program were $1,900,000, and $1,229,000, respectively.
Shares Eligible for Future Sale. Of the 38,669,378 shares of common stock
--------------------------------
currently outstanding as of March 25, 1996, approximately 20,487,106 shares are
either "restricted securities" or held by "affiliates" of the Company as such
terms are defined in Rule 144 adopted under the Securities Act of 1933. In
addition, 1,974,000 shares of the Company's authorized shares of common stock
are reserved for issuance upon the exercise by employees and directors of
outstanding options. No prediction can be made regarding the effect, if any,
that eventual market sales of the above-mentioned shares will have on the market
price for the common stock prevailing from time to time. There is a possibility
that a substantial number of such shares may be resold in the public market and
that such sales may adversely affect prevailing market prices of the common
stock.
12
<PAGE>
ITEM 2. PROPERTIES
DRILLING AND WORKOVER EQUIPMENT
For information regarding the Company's drilling and workover equipment, see
"Drilling and Workover Equipment" in Item 1. Business.
FACILITIES
The Company leases its principal executive office in Houston, Texas, for
approximately $9,000 per month pursuant to a lease extending through November
1996. In addition, the Company owns field locations in Fillmore, Louisiana; Mt.
Pleasant, Michigan; Glendive, Montana; Midvale, Ohio; Woodward and Oklahoma
City, Oklahoma; Edinburg, Houston and Midland, Texas; and Roosevelt, Utah.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or results
of operations.
The Company is proceeding against Charlestown Industries, Inc., who was a co-
defendant and a 50% partner ("the partner") in the joint venture to recover
their respective portion of the OFS 1981, Mid-Year et al v. DI Exploration
Lawsuit of which $1,800,000 was paid by the Company. A judgment has been
rendered in favor of the Company against the partner in the State of Oklahoma.
Charlestown Industries filed for protection under the US Bankruptcy Act and the
Company's claim is scheduled to be ruled on by the court in April 1996. The
future recovery of the amount, and term of recovery, is uncertain and no credit
has been recorded as of December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to Security Holders during the quarter ended
December 31, 1995.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is listed on the American Stock
Exchange under the symbol "DRL." At March 25, 1996, there were approximately
650 shareholders of record of the common stock.
The following table sets forth the high and low sale prices of the common
stock reported by the American Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ------
<S> <C> <C>
Year Ended December 31, 1995:
Quarter ended March 31, 1995........ 1 5/8
Quarter ended June 30, 1995......... 1 1/16 11/16
Quarter ended September 30, 1995.... 7/8 5/8
Quarter ended December 31, 1995..... 7/8 5/8
HIGH LOW
---- -----
Twelve Months Ended December 31, 1994:
Quarter ended March 31, 1994........ 1 13/16 13/16
Quarter ended June 30, 1994......... 1 3/16 13/16
Quarter ended September 30, 1994.... 1 5/16 7/8
Quarter ended December 31, 1994..... 1 1/16 3/4
</TABLE>
On March 25, 1996, the last reported sale price of the Company's common
stock on the American Stock Exchange was $.625 per share.
The Company has never paid dividends on its common stock and has no plans
to pay dividends on its common stock in the foreseeable future.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------- --------------------
December 31, December 31, Year Ended March 31,
-------------------------- -------------------- ------------------------------
1995 1994 1994 1993 1994 1993 1992
------------- ----------- -------- ---------- ---------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Revenues $ 94,709 $65,393 $50,987 $53,449 $67,855 $62,242 $63,186
Loss from continuing
operations (12,675) (3,557) (2,260) (67) (1,384) (3,555) (3,066)
DISCONTINUED OPERATIONS:
Income (loss) from oil and
gas operations (4) 55 51 (1,298) (1,274) 60 104
Loss from sale of oil and
gas properties (768) - - - - - -
Net loss (13,447) (3,502) (2,209) (1,365) (2,658) (3,495) (2,962)
Loss per share of common
stock from continuing
operations (.33) (.09) (.06) - (.04) (.09) (.08)
Loss per share of common
stock from discontinued
operations (.02) - - (.04) (.03) - -
Net loss per
share of common
stock (.35) (.09) (.06) (.04) (.07) (.09) (.08)
Total assets(1) 57,783 62,860 62,860 43,717 40,325 41,937 47,317
Long-term debt(1) 11,146 10,224 10,224 204 198 223 151
Series A Preferred Stock -
Mandatory Redeemable 900 1,900 - - - - -
</TABLE>
(1) Total assets and long term debt have been restated to account for the
discontinued operations of DI Energy, effective April 1, 1995
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION AND LIQUIDITY
The Company had working capital of $7.5 million and $12.5 million at
December 31, 1995 and 1994, respectively. The Company's current ratio (current
assets to current liabilities) at December 31, 1995 and 1994, was 1.31 to 1.00
and 1.64 to 1.00, respectively. Cash and cash equivalents increased from $1.6
million at December 31, 1994 to $1.8 million at December 31, 1995, exclusive of
$1.6 million of restricted cash securing insurance deposits. Long-term debt was
56.6% and 35.1% of total Shareholders' Equity at December 31, 1995 and 1994,
respectively.
During the fourth quarter of 1995, Norex Drilling subscribed to, and
paid, $4,000,000 for Preferred Stock of the Company, to be issued subsequent to
December 31, 1995. This stock is in the form of 4,000 shares of authorized
Series B 15% senior Cumulative Redeemable Preferred Stock. This stock has
annual dividends of 15% per annum, payable through issuance of additional
Preferred Shares for the first three years. After December 31, 1998, dividends
are payable in cash, as declared by the Company's Board of Directors.
The $10,000,000 NordlandsBanken AS term loan agreement was amended October
1, 1995 to provide for deferral of monthly principal payments of $277,777 until
January 12, 1997 after which the balance of $9,444,000 will be amortized in 36
equal monthly installments commencing January 12, 1997.
The Company also had a $2.5 million revolving bank line of credit which had
an original maturity date of September 15, 1995. In connection with the sale of
the Company's producing oil and gas properties completed on August 9, 1995, a
portion of the cash proceeds was used to collateralize, with certificates of
deposit, $1.4 million of letters of credit securing insurance and other
deposits, of which $.3 million was subsequently released. In addition, the
$875,000 balance outstanding under the revolving Line of Credit on August 9,
1995 was converted to a term note; $300,000 which was due and paid October 18,
1995, and, the remaining outstanding principal balance of $575,000 at December
31, 1995 is payable in monthly installments through June 1996.
The Company has an overdraft facility with a bank in Argentina, which is
payable on demand, bearing interest at the current market rate in Argentina and
secured by two drilling rigs. The overdraft facility had an outstanding balance
of $149,000 and $375,000 at December 31, 1995 and 1994, respectively.
During the year ended December 31, 1995, the Company's debt repayments
included $1.7 million of the acquisition payable to An-Son Drilling Company of
Colombia, S.A. for partial payment of the Venezuelan drilling operations
acquired in 1994.
16
<PAGE>
Capital expenditures were approximately $5.9 million for the year ended
December 31, 1995, and approximately $14.5 million for the nine months ended
December 31, 1994. Capital expenditures primarily related to the Company's
foreign operations for both periods. For the nine months ended December 31,
1994, capital expenditures included $3 million for the acquisition of a
Venezuelan drilling and workover rig operating company effective September 1,
1994.
Cash provided by operating activity was $2.5 million for the year ended
December 31, 1995 as compared to cash used by operating activities of $1.9
million for the nine months ended December 31, 1994. The increase is primarily
due to changes in the accounts receivable, accounts payable, accrued
liabilities, inventory and prepaids generated from the increase in international
activity and the effect of discontinued operations of approximately $.6 million.
As of the current date, management believes the Company will need additional
capital to supplement cash resources available from working capital, cash flow
from operations, proceeds from non-strategic asset sales and existing, amended
or replacement credit facilities to satisfy cash requirements in the next twelve
months at current operating plan levels. Capital requirements for significant
new international projects would require funding from supplemental sources such
as joint venture partner participation, bank project financing or other
debt/equity sources; the availability of which is not assured at this time and
which would be subject to negotiated terms and conditions.
The Company has no derivative contracts related to its foreign currency
exposure in the countries that it operates. However, the Company generally
structures its foreign operations and related drilling contracts in such a
manner as to minimize any potential foreign currency exchange restrictions and
any exposure for foreign currency fluctuations. At December 31, 1995, the
Company believes that foreign currency exposure, if any, is not significant.
See further discussion in "International Risk: within Item 1. Business.
17
<PAGE>
RESULTS OF OPERATIONS
A comparison of revenues and operating expenses from continuing operations
(also expressed as a percentage of respective U.S. Domestic and International
Operations revenues) for the Company's U.S. Domestic and International
Operations follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------- --------------------
December 31, December 31,
------------------------- --------------------
1995 1994 1994 1993
----------- --------- ------ -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
- --------
Contract Drilling:
US $44,797 $49,530 $38,635 $45,398
International
Mexico and Central
America 12,617 1,706 1,706 3,159
South America 33,081 12,277 8,766 4,892
Export Sales and other 4,214 1,880 1,880 -
------- ------- ------- -------
Consolidated Totals 94,709 65,393 50,987 53,449
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSE/ (1)/
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract Drilling:
US 40,867 91.2% 47,722 96.3% 36,921 95.6% 41,374 91.1%
International
Mexico and Central
America 11,890 94.2% 1,727 101.2% 1,681 98.5% 1,819 57.6%
South America 36,387 110.0% 11,477 93.5% 8,346 95.2% 5,255 107.4%
Export Sales and other 4,681 111.1% 2,147 114.2% 2,040 108.5% 185 -
------- ------- ------- -------
Consolidated Total 93,825 63,073 48,988 48,633
------- ------- ------- -------
GROSS PROFIT $ 884 $ 2,320 $ 1,999 $4,816
======= ======= ======= =======
</TABLE>
/(1)/ Operating Expense exclude expenses for Depreciation and Amortization,
General and Administrative, Bad Debt and Legal.
Comparison of Fiscal Year Ended December 31, 1995
to Twelve Months Ended December 31, 1994
CONTINUING OPERATIONS
Consolidated revenues increased 44.8% to $94.7 million for the fiscal year
ended December 31, 1995 compared to $65.4 million for the twelve months ended
December 31, 1994. This increase was primarily due to the expansion in South
America, Mexico and Central America. Revenues from the Company's South American
operations increased by $6.7 million during the year ended December 31, 1995 due
to the start-up in Argentina, during January 1995, of four drilling rigs to
supplement the three rigs then operating in Argentina. The additional increase
of $14.1 million in 1995 revenues from South American operations resulted from
the acquisition of a Venezuelan operating company effective
18
<PAGE>
September 1, 1994. Revenues from the Company's Mexico and Central American
operation increased by $10.9 million for the year ended December 31, 1995 as
compared to the twelve months ended December 31, 1994. This increase resulted
from the expansion of Mexico from a one rig operation to a four rig operation
for the first three quarters of fiscal 1995. International export revenues for
the year ended December 31, 1995 were $4.2 million and resulted from materials
sold for export to Costa Rica. US Operations revenue decreased by $4.7 million
for the year ended December 31, 1995 compared to the twelve months ended
December 31, 1994. The decrease was the result of a $3.9 million decrease in the
Company's Gulf Coast district and a decrease of $1.4 million in the Eastern
Division due to decreased rig utilization in 1995. The Foundation Division had a
revenue decrease of $1.1 million due to the phase out of this division. The
decreases were offset by revenues from the Western Division increasing $1.3
million due to the utilization of a horizontal re-entry rig which was inactive
during the twelve months ended December 31, 1994. Also, revenues from the
Company's East Texas and Louisiana operations increased $3 million due to
increased rig utilization and certain large turnkey contract in 1995.
Consolidated operating expenses increased 48.8% to $93.8 million for the
year ended December 31, 1995 compared to $63.1 million for the twelve months
ended December 31, 1994. Operating expenses for the Company's South American
operations increased $24.9 million for the year ended December 31, 1995 compared
to the 1994 twelve month period as a result of the expansion of the Argentina
drilling rig fleet and acquisition of the Venezuela operating company discussed
above. The increase in percentage of South American operating expenses relative
to revenues for the year ended December 31, 1995 is due to start-up costs on the
four rigs added to Argentina and higher than expected repairs, maintenance and
rig move costs experienced on all Argentina rigs during 1995. Operating
expenses for the Mexico and Central American operations were $11.9 million for
the year ended December 31, 1995 compared to $1.7 million during the twelve
months ended December 31, 1994. This increase is due to the expansion of the
drilling fleet discussed above. International export operating and other
expenses for the year ended December 31, 1995 were $4.7 million, primarily
representing costs of materials sold for export to Costa Rica. US operating
expenses decreased by $1.8 million for the year ended December 31, 1995 as
compared to the twelve months ended December 31, 1994. Operating expenses from
the Company's East Texas and Louisiana operations increased by $2.6 million from
1994 to 1995 due to increased rig utilization and large turnkey contracts. A
decrease of $4.1 million in the Company's Gulf Coast District operations and $1
million in the Eastern Division was due to decreased rig utilization in 1995.
The Foundation Division's operating expenses decreased $2.5 million due to the
phase out of that division.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December
19
<PAGE>
15, 1995. As the FASB encourages earlier application, the Company adopted the
provisions of SFAS No. 121 during the fourth quarter, 1995. This new accounting
standard requires certain assets to be reviewed for impairment whenever events
or circumstances indicate the carrying amount may not be recoverable. The
Company has provided a non-cash impairment provision of $5,290,000 for certain
drilling rigs and equipment due to market indications that the carrying amounts
were not fully recoverable. Net realizable value was determined based upon
appraisal, comparable sale data and management estimates.
Depreciation and amortization increased 54.8% to $4.8 million for the year
ended December 31, 1995 compared to $3.1 million for the twelve months ended
December 31, 1994. This increase was due to the acquisition of drilling
equipment for the International Division.
General and administrative expenses increased to $2.9 million for the year
ended December 31, 1995 compared to $2.4 million for the twelve months ended
December 31, 1994, primarily due to the expanded scope of International
Operations.
Bad debt expenses increased to $291,000 for the year ended December 31, 1995
compared to $265,000 for the twelve months ended December 31, 1994 due to
additional reserves provided for increased receivable balances.
Legal costs increased to $387,000 for the year ended December 31, 1995
compared to $353,000 for the twelve months ended December 31, 1994, primarily
due to legal costs incurred in the Company's claims for partial recovery of the
$1.8 million judgment paid in 1993 (See Item 3, Legal Proceedings) and to manage
the International Operations.
Gain from foreign currency of $888,000 for the year ended December 31, 1995
is the result of currency exchange transactions derived from the Venezuelan
operations.
Interest expense increased to $1.4 million for the year ended December 31,
1995 compared to $425,000 for the twelve months ended December 31, 1994. The
increase was due to an increase in borrowings for expansion of the International
Operations.
DISCONTINUED OPERATIONS
The net loss from discontinued operations was $772,000 for the year ended
December 31, 1995 as compared to net income of $55,000 for the twelve months
ended December 31, 1994. The net loss in 1995 includes a $768,000 non-cash
provision resulting from the disposal of the Company's oil and gas properties in
August 1995.
CONSOLIDATED NET LOSS
The net loss for the year ended December 31, 1995 was $13.4 million
20
<PAGE>
compared to a net loss of $3.5 million for the twelve months ended December 31,
1994. Of this $9.9 million loss increase: $5.3 million was due to the 1995 non-
cash provision for SFAS #121 asset impairment of certain long-lived assets; $1.4
million was due to reduced consolidated operating margins resulting primarily
from start-up and higher operating costs incurred in Argentina, aggregating $3.7
million; $1.7 million was due to increased non-cash charges in 1995 for
depreciation and amortization resulting from increased capital investments in
drilling rigs and equipment; $.8 million was due to losses from discontinued
operations of producing oil and gas properties in 1995; and $.7 million was due
to other miscellaneous increased costs and expenses.
21
<PAGE>
Comparison of Nine Months Ended December 31, 1994
to Nine Months Ended December 31, 1993
BASIS FOR COMPARISON
In comparing the results of operations for the nine months ended
December 31, 1994 to the year ended March 31, 1994, other than what is discussed
in the comparison of the results of operations for the nine months ended
December 31, 1994 and 1993; nothing significant occurred that would require
further discussion.
CONTINUING OPERATIONS
Consolidated revenues decreased by 5% to $50.9 million for the nine months
ended December 31, 1994 compared to $53.4 million for the nine months ended
December 31, 1993. The International Divisions' revenues increased $4.3 million
and the Northern Division's revenue increased $263,000. The revenue increases
were offset by revenue decreases of $3.2 million in the Commercial Division;
$2.8 million in the Mid-Continent division and $474,000 in the Eastern Division;
and $515,000 in the Western Division. The revenue increase for the
International Division is due to an increase in rig utilization for the three
rigs then operating in Argentina, the purchase of the operating drilling rigs in
Venezuela and the sale of certain drilling materials to Costa Rica. The revenue
increase for the Northern Division is due to increased drilling activity in
Michigan. The revenue decrease for the Commercial Division is due to the
Company's phasing out of auger drilling. The revenue decrease for the Mid-
Continent Division and the Eastern Division is primarily due to lower drilling
activity due to lower than anticipated oil and gas prices. The revenue decrease
for the Western division is primarily due to lower oil prices reducing workover
requirements by operators.
Operating expenses increased 1% to $48.9 million for the nine months ended
December 31, 1994, compared to $48.6 million for the nine months ended December
31, 1993. The International Division increased $4.8 million and the Northern
Division increased $256,000. The operating expense increases were offset by
operating expense decreases in the Commercial Division of $2 million; the Mid-
Continent Division decreased $2 million;the Eastern Division decreased $443,000;
and the Western Division decreased $59,000. The increases in the International
Divisions are due to increased rig utilization in Argentina; the purchase of the
operating rigs in Venezuela and the sale of certain drilling materials in Costa
Rica. The operating increase in the Northern Division is due to increased rig
utilization in Michigan. The operating expense decrease in the Commercial
Division is due to the phasing out of the auger drilling. The operating
decrease in the Mid-Continent and Eastern Divisions is primarily due to lower
drilling activity due to lower oil and gas sales prices. The operating expense
decrease in the Western Division is primarily due to less workover activity
resulting from customers who received lower oil prices. The operating expense
decrease for DI Energy is the result of the sale of certain oil and gas
properties.
Depreciation and amortization decreased 14% to $2.4 million for the nine
months ended December 31, 1994 compared to $2.8 million for the nine months
ended December 31, 1993. The decrease is primarily due to the Company's change
in depreciation policy for drilling rigs, effective January 1, 1994, which
includes a salvage value in the calculation of
22
<PAGE>
depreciation expenses.
General and administrative expense increased to $1.8 million for the nine
months ended December 31, 1994 compared to $1.7 million for the nine months
ended December 31, 1993. The slight increase was due to the increase in
International Operations.
Bad debt expense decreased to $122,000 for the nine months ended December
31, 1994 compared to $222,000 for the nine months ended December 31, 1993. The
decrease is due to lower credit risk drilling projects.
Legal costs increased to $143,000 for the nine months ended December 31,
1994 compared to $90,000 for the nine months ended December 31, 1993 due to
timing of legal services.
Interest income increased to $353,000 for the nine months ended December 31,
1994 compared to $86,000 for the nine months ended December 31, 1993. The
increase is primarily due to interest received as a result of the settlement of
a lawsuit.
Gain on sale of assets increased to $277,000 for the nine months ended
December 31, 1994 compared to $52,000 for the nine months ended December 31,
1993. The increase is primarily due to the disposition of unused oil field
equipment.
Interest expense increased to $322,000 for the nine months ended December
31, 1994 compared to $164,000 for the nine months ended December 31, 1993. The
increase is due to the increasing in borrowing for the International Operations.
Minority interest was a credit of to $17,000 expense for the nine months
ended December 31, 1994 compared to an expense of $209,000 income for the nine
months ended December 31, 1993 primarily due to less drilling activity and the
start-up of a project in Mexico for the majority owned subsidiary, DI/Perfensa
Inc.
Other expense, net decreased to $123,000 for the nine months ended December
31, 1994 compared to $177,000 for the nine months ended December 31, 1993.
DISCONTINUED OPERATIONS
Discontinued operations of producing oil and gas properties resulted in
income of $51,000 for the nine months ended December 31, 1994 compared to a loss
of $1,278,000 for the nine months ended December 31, 1993. The 1993 period loss
resulted from cost to the Company from the unsuccessful conclusion of a lawsuit.
CONSOLIDATED NET LOSS
The net loss for the nine months ended December 31, 1994 was $2.2 million
compared to a net loss of $1.4 million for the nine months ended
23
<PAGE>
December 31, 1993. The increased net loss in 1994 is primarily due to less
drilling activity in the Mid-Continent Division; less drilling activity and less
profitable drilling activity in the Company's majority owned subsidiary,
DI/Perfensa Inc., offset by the phase out of the auger drilling activities.
INCOME TAXES AND OTHER
The operations of the Company generated net operating loss ("NOL")
and investment tax credit ("ITC") carryforwards which expire at various times
through 2010 and 2000, respectively.
Under provisions of the federal income tax code, such carryforwards
generally can be utilized only to reduce future taxable income or income taxes
payable, if any, of the individual subsidiary that produced the tax NOL or ITC
carryforward. In addition, tax NOL and ITC carryforwards are subject to annual
limitations on the amount that the Company can utilize because of the change in
the ownership of the Company's principal stockholder in 1991 and the change in
the Company's principal stockholder on June 2, 1994. The Company estimates that
at December 31, 1995 its tax NOL and ITC carryforwards, before consideration of
the limitations, aggregated approximately $64 million and $2.4 million,
respectively. However, the ultimate utilization of the tax NOL and ITC
carryforwards, if any, will be substantially limited as a result of the change
in the ownership of the Company and a change in the ownership of the Company's
principal stockholder. NOL carryforwards generated since the last change of the
Company's ownership totals approximately $6.0 million and is not subject to the
annual limitations discussed above.
The Company accounts for income taxes based upon Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Based on an analysis of the
Company's gross deferred tax asset (taking into consideration applicable
statutory carryforward periods and other limitations), the Company has
determined that the recognition criteria set forth in SFAS No. 109, have not
been met and, accordingly, the gross deferred tax asset is reduced fully by a
valuation allowance.
Prior to the purchase of the Company's common shares by Norex Drilling on
June 2, 1994, certain of the Company's insurance coverage was arranged by
American Premier as part of a program provided to its subsidiaries. Subsequent
to the common shares purchase by Norex Drilling, the Company has obtained
workers' compensation, excess liability coverage and certain other insurance
from other sources. This change has not materially increased the cost of
insurance coverage to the Company, although liquidity has been adversely
impaired by
24
<PAGE>
requirements to post restricted cash deposits to secure potential claims.
The Company believes inflation has not had a material effect on its
operations or on its financial condition, but there can be no assurance that
future increases in the inflation rate would not have an adverse effect.
INDUSTRY TRENDS
During 1995, the weekly count of working rigs experienced some stability.
The weekly national count of working rigs in the United States as reported by
Baker Hughes Incorporated on March 15, 1996 was 693 compared to 687 on March 17,
1995. The 693 working rigs included 592 working land rigs which are in the
Company's area of competition.
The significant decline in oil and gas prices in the mid-1980s has severely
depressed oil and gas exploration activities and reduced demand for the
Company's oil and gas drilling services. A continuation of such deterioration
could have a negative effect on the Company's future operating results. The
decline in drilling activity has resulted in an oversupply of drilling equipment
and has created intense competition, particularly in the price received for
contract drilling services by drilling contractors. Demand for oil and gas
drilling services will continue to be dependent upon the present and anticipated
sales price of oil and gas, which is subject to conditions such as consumer
demand, events in the Middle East, weather and other factors that are not
controlled by the Company.
There has been an increase in the demand for oil and gas drilling services
in South America. In response to this, the Company commenced drilling activities
in Argentina during 1992 and in Venezuela during 1994. These operations were
substantially expanded during 1995. The Company also formed a majority-owned
subsidiary to perform geothermal drilling in Central America and has completed
projects in Guatemala, El Salvador, Mexico and is currently working on a project
in Mexico. The Company will continue to market its services to expand into
selected international markets.
Although certain consolidations have occurred within the drilling industry,
an oversupply of drilling rigs still exists. There is a general shortage in the
industry of used drill pipe, and the cost of obtaining new and used drill pipe
is substantially higher than in prior periods and is currently escalating.
The depressed conditions in the oil and gas drilling industry have also
caused a substantial portion of the labor force with drilling experience to
leave the industry. As a result of the continuing overcapacity in the drilling
industry and the Company's practice during recent years of first laying off
employees with the least amount of drilling experience, the Company has not
experienced significant shortages of trained labor. However, an increase in
demand for contract drilling services could cause shortages of trained
employees.
25
<PAGE>
In response to the downturn in the oil and gas contract drilling industry,
the Company diversified its drilling operations over the past several years to
expand to relatively large commercial drilling projects in various locations in
the United States. Projects were unique and require the development of
project-specific technologies and expertise which are generally awarded on a
turnkey contract basis. The combined effect of the foregoing subjects the
Company to a number of risks on a turnkey contract, including the risk of
unforeseen operational costs which are not anticipated. The Company at the
present time is not actively engaged in any commercial drilling contracts.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report............................ 28
Consolidated Balance Sheets as of December 31, 1995
and 1994.............................................. 29
Consolidated Statements of Operations for the Year
Ended December 31, 1995, the Nine Months Ended
December 31, 1994 and the Year Ended
March 31, 1994........................................ 31
Consolidated Statements of Cash Flows for the Year
Ended December 31, 1995, the Nine Months
Ended December 31, 1994 and the Year Ended
March 31, 1994........................................ 32
Consolidated Statements of Shareholders' Equity for the
Year Ended December 31, 1995, the Nine Months
Ended December 31, 1994 and the Year Ended
March 31, 1994........................................ 33
Notes to Consolidated Financial Statements.............. 34
Financial Statement Schedule:
Schedule VIII - Valuation and Qualifying Accounts..... 49
</TABLE>
Schedules other than those listed above are omitted because they are either not
applicable or not required or the information required is included in the
consolidated financial statements or notes thereto.
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of DI Industries, Inc.:
We have audited the accompanying consolidated balance sheets of DI
Industries, Inc. and its subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1995, the nine months ended
December 31, 1994 and the year ended March 31, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 8. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the year
ended December 31, 1995, the nine months ended December 31, 1994 and for the
year ended March 31, 1994 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/S/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 28, 1996
28
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------- -------------
1995 1994
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ 1,859 $ 1,628
Restricted cash - insurance deposits..... 1,612 -
Accounts receivable, net of allowance
of $1,951 and $2,066 at 1995 and 1994,
respectively............................ 19,423 16,864
Rig inventory and supplies............... 2,498 3,650
Assets held for sale..................... 2,398 2,516
Prepaids and other current assets........ 3,806 4,080
Discontinued operations.................. - 3,238
-------- --------
Total current assets.................... 31,596 31,976
-------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements......... 3,523 4,044
Drilling and well service equipment...... 39,039 36,179
Furniture and fixtures................... 1,136 1,017
-------- --------
Total property and equipment............ 43,698 41,240
Less: accumulated depreciation and
amortization............................ (17,788) (10,454)
-------- --------
Net property and equipment.............. 25,910 30,786
-------- --------
OTHER NONCURRENT ASSETS.................. 277 98
-------- --------
TOTAL.................................... $ 57,783 $ 62,860
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------- -------------
1995 1994
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........... $ 1,315 $ 5,585
Accounts payable - trade....................... 12,529 7,240
Accrued workers' compensation (including
$1,900 and $1,229 at December 31, 1995
and 1994, respectively, reimbursable to
American Premier)............................ 3,357 2,963
Payroll and related employee costs............. 3,172 1,081
Customer advances.............................. 116 1,349
Other accrued liabilities...................... 3,604 1,296
-------- --------
Total current liabilities.................... 24,093 19,514
-------- --------
LONG-TERM DEBT LESS CURRENT MATURITIES......... 11,146 10,224
-------- --------
OTHER LONG-TERM LIABILITIES AND
MINORITY INTEREST........................ 1,950 2,081
-------- --------
SERIES A PREFERRED STOCK - MANDATORY
REDEEMABLE............................... 900 1,900
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY:
Series B Preferred stock, $1 par value; 10,000
shares authorized, 4,000 shares subscribed... 4,000 -
Common stock, $.10 par value; 75,000,000
shares authorized; 38,669,000 issued
and outstanding at 1995 and 1994............. 3,867 3,867
Additional paid-in capital..................... 46,458 46,458
Deficit........................................ (34,631) (21,184)
-------- --------
Total shareholders' equity..................... 19,694 29,141
-------- --------
TOTAL.......................................... $ 57,783 $ 62,860
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine
Months
Year Ended Ended Year Ended
December December December
31, 1995 31, 1994 31, 1994
-------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Contract drilling......................... $ 94,709 $50,987 $67,855
-------- ------- -------
COSTS AND EXPENSES:
Drilling operations....................... 93,825 48,988 62,574
Depreciation and amortization............. 4,832 2,377 3,523
Provision for SFAS #121 asset impairment.. 5,290 - -
General and administrative................ 2,877 1,809 2,323
Bad debt expense.......................... 291 122 287
Legal costs............................... 387 143 300
-------- ------- -------
Total costs and expenses................ 107,502 53,439 69,007
-------- ------- -------
OPERATING LOSS............................... (12,793) (2,452) (1,152)
-------- ------- -------
OTHER INCOME (EXPENSE):
Interest income........................... 292 353 120
Gain on sale of assets.................... 466 277 126
Interest expense.......................... (1,472) (332) (257)
Minority interest......................... (56) 17 (189)
Gain from foreign currency, net........... 888 - -
Other, net................................ - (123) (32)
-------- ------- -------
Other income (expense), net............. 118 192 (232)
-------- ------- -------
LOSS FROM CONTINUING OPERATIONS.............. (12,675) (2,260) (1,384)
DISCONTINUED OPERATIONS:
Income (loss) from oil and
gas operations.......................... (4) 51 (1,274)
Loss from sale of oil and
gas properties.......................... (768) - -
-------- ------- -------
Income (loss) from discontinued
operations............................ (772) 51 (1,274)
-------- ------- -------
NET LOSS..................................... $(13,447) $(2,209) $(2,658)
======== ======= =======
LOSS PER SHARE OF COMMON STOCK
FROM CONTINUING OPERATIONS................ $(.33) $(.06) $(.04)
LOSS PER SHARE FROM DISCONTINUED
OPERATIONS................................. (.02) - (.03)
-------- ------- -------
Loss per share of common stock............... $(.35) $(.06) $(.07)
======== ======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING................ 38,669 38,641 38,416
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
----------
MARCH 31,
-----------
1994
-----------
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER DECEMBER DECEMBER
31, 1995 31, 1994 31, 1994
-------- -------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $(13,447) $(2,209) $(2,658)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 4,832 2,377 3,523
Provision for SFAS #121 asset
impairment....................... 5,290 - -
Gain on sale of assets............. (466) (277) (126)
Discontinued operations -
Loss from sale of oil and gas
properties....................... 768 - -
Provision for doubtful accounts........ 291 122 287
Net effect of changes in assets and
liabilities related to operating
accounts........................... 4,802 (3,056) 365
Discontinued operations................ 419 1,134 448
-------- ------- -------
Cash provided by (used in)
operating activities................. 2,489 (1,909) 1,839
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions....... (5,657) (9,250) (2,849)
Proceeds from sale of equipment........ 737 323 453
Proceeds from sale of discontinued
operations.......................... 4,200 - -
-------- ------- -------
Cash used in investing
activities........................... ( 720) (8,927) (2,396)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt borrowings........................ 2,066 18,703 -
Debt repayments........................ (5,490) (8,576) (2,022)
Debt (repayments) borrowing -
discontinued operations............. (2,114) (321) 2,880
Sale of preferred stock subscriptions.. 4,000 - -
-------- ------- -------
Cash provided by (used in)
financing activities................. (1,538) 9,806 858
-------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 231 (1,130) 301
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD.................. 1,628 2,658 2,357
-------- ------- -------
CASH AND CASH EQUIVALENTS:
END OF PERIOD........................ $ 1,859 $ 1,628 $ 2,658
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B
Common Stock Preferred
------------ Stock Additional
$.10 par --------- Paid-in
Value $1 par Value Capital Deficit Total
----------- ------------ --------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993..... $3,842 $ - $46,283 $(16,317) $ 33,808
Net loss.................... - - - (2,658) (2,658)
------ ------ ------- -------- --------
BALANCE, MARCH 31, 1994..... 3,842 - 46,283 (18,975) 31,150
Issuance of Common Stock.... 25 - 175 - 200
Net Loss.................... - - - (2,209) (2,209)
------ ------ ------- -------- --------
BALANCE, DECEMBER 31, 1994.. 3,867 - 46,458 (21,184) 29,141
Net Loss.................... - - - (13,447) (13,447)
Series B Preferred
Stock Subscribed......... - 4,000 - - 4,000
------ ------ ------- -------- --------
BALANCE, DECEMBER 31, 1995.. $3,867 $4,000 $46,458 $(34,631) $ 19,694
====== ====== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
- ------------------------------------------------------
The consolidated financial statements include the accounts of DI
Industries, Inc. and its majority-owned subsidiaries ("the Company"). All
significant intercompany accounts and transactions are eliminated in
consolidation. Accumulated earnings of the minority interest owner is shown as
separate items in the consolidated financial statements. At March 31, 1994,
American Premier Underwriters, Inc., ("American Premier"), formerly The Penn
Central Corporation ("Penn Central"), owned 20,690,105 shares (approximately
54%) of the unregistered common stock of DI Industries, Inc. In June 1994,
Norex Drilling Ltd. ("Norex Drilling"), a wholly-owned subsidiary of Norex
America, Inc. ("Norex America"), completed the purchase of all shares of the
Company's common stock owned by American Premier. Shortly thereafter and in
accordance with regulatory filings made at the time of the purchase transaction,
Norex Drilling reduced its ownership to 18,730,105 shares, or less than 50%, of
the outstanding shares of the Company's common stock. In October 1995, Norex
Drilling transferred 8,300,000 shares to Pronor Holdings Ltd. ("Pronor"). Norex
America beneficially owns approximately 47% of Pronor.
Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31 to enhance the comparability of the Company's results of
operations with other drilling companies. Accordingly, the accompanying
financial statements include the results of the Company's operations for the
nine months ended December 31, 1994 and the year ended March 31, 1994. See note
4 for results of the comparable nine months.
INVENTORY:
- ----------
Inventory consists primarily of drilling and support equipment and is stated
at the lower of specifically identified cost or market.
ASSETS HELD FOR SALE:
- ---------------------
Assets held for sale are primarily comprised of drilling rigs and equipment
and is stated at the Company's net book value. Management believes the carrying
value is less than net realizable value on the basis of purchase offers received
in 1995 and 1996 to date.
PROPERTY AND EQUIPMENT:
- -----------------------
Property and equipment are stated at cost. Depreciation is provided
principally using the straight-line method over the
34
<PAGE>
expected useful lives of the assets as follows: drilling rigs, 8 to 13 years
with assigned salvage values; other drilling and workover equipment, 2 to 13
years; buildings and improvements, 10 to 30 years; and furniture and fixtures, 5
to 12 years.
The Company's producing oil and gas properties were sold on August 9, 1995.
Such properties were recorded using the full-cost method of accounting. Under
this method, all costs incurred in connection with the exploration for and
development of oil and gas were capitalized. Depreciation, depletion and
amortization of oil and gas properties was computed on the basis of physical
units, with oil and gas converted to a common unit of measure based on the
approximate relative energy content. Unamortized costs were compared to the
present value of estimated future net revenues and any excess was charged to
expense during the period in which the excess occured.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December 15, 1995. As the FASB encourages
earlier application, the Company adopted the provisions of SFAS No. 121 during
the fourth quarter of 1995. This new accounting standard requires certain assets
to be reviewed for impairment whenever events or circumstances indicate the
carrying amount may not be recoverable. The Company has provided a non-cash
impairment provision of $5,290,000 for certain drilling rigs and equipment due
to market indications that the carrying amounts were not fully recoverable. Net
realizable value was determined based upon appraisal, comparable sale data and
management estimates.
REVENUE RECOGNITION:
- --------------------
Revenue from turnkey drilling contracts is recognized using the percentage-
of-completion method based upon costs incurred to date and estimated total
contract costs. Revenue from daywork, footage and hourly drilling contracts is
recognized based upon the provisions of the contract. Provision is made
currently for anticipated losses, if any, on uncompleted contracts.
FOREIGN CURRENCY TRANSLATION:
- -----------------------------
The functional currency of the Company's foreign operations is the U.S.
Dollar. Revenues and expenses of these foreign operations are remeasured into
U.S. dollars on the respective transaction dates and foreign currency
transaction gains or losses are included in the Consolidated Statements of
Operations. Unrealized translation gains or losses, if material, are recorded
as a component in Shareholders' Equity.
LOSS PER SHARE:
- ---------------
Loss per share of common stock is based upon the weighted average number of
shares of common stock outstanding. The
35
<PAGE>
Company's outstanding stock options and warrants are considered common stock
equivalents but are not included in the computation since their inclusion would
be either insignificant or antidilutive during the periods presented in the
accompanying financial statements.
INCOME TAXES:
- -------------
The Company accounts for income taxes based upon Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which
requires recognition of deferred income tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred
income tax liabilities and assets are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities and available tax credit carryforwards.
CASH FLOW INFORMATION:
- ----------------------
Cash flow statements are prepared using the indirect method. The Company
considers all unrestricted highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
RESTRICTED CASH:
- ----------------
Restricted cash consists of an investment in an interest bearing certificate
of deposit totaling $1.1 million as collateral for a letter of credit securing
insurance deposits with the remainder on deposit with a third party
administrator committed for future settlement of workers' compensation claims.
The carrying value of the investment approximates the current market value.
RECLASSIFICATION AND OTHER:
- ---------------------------
Certain prior year amounts were reclassified to conform to current year
presentation.
Dollar amounts shown in the tabulations in the notes to consolidated
financial statements are stated in thousands, unless otherwise indicated.
2. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan covering
substantially all of its employees. The Company matches individual employee
contributions up to 2% of the employee's compensation. Employer matching
contributions under the plan totaled $144,000 for the year ended December 31,
1995, $55,000 for the nine months ended December 31, 1994 and $132,000 for the
year ended March 31, 1994.
36
<PAGE>
3. PROPERTY TRANSACTIONS
As part of the Company's continued expansion into the international markets,
effective September 1, 1994, the Company purchased the Venezuelan drilling
operations of An-Son Drilling Company of Colombia S.A. ("An-Son"). This
acquisition included two oil and gas drilling rigs, two workover rigs, certain
other oilfield equipment, operating contracts for each of the rigs and a labor
contract to operate one drilling rig. The purchase price for this transaction
was $4,100,000 consisting of $300,000 in cash, an acquisition note payable of
$1,900,000, of which $1,700,000 was paid during 1995, and the remainder by
issuance during 1995 of the Company's Series A redeemable preferred stock (the
"Series A Preferred") valued at $1,900,000.
Pursuant to the Acquisition Agreement, the Company conducted a post-closing
audit of the acquired companies in 1995 and asserted claims for purchase price
credit from An-Son in the amount of $1,398,000. This claim was settled in
March, 1996 with the Company receiving credits of $1,213,000. At December 31,
1995, $200,000 of the Acquisition Note remained unpaid which was offset against
the settlement with the remaining credit of $1,013,000 recorded as reductions in
the accompanying financial statements as follows: Notes Receivable ($591,000);
Accounts Receivable-Allowance for Doubtful Accounts ($408,000); Drilling Rigs
and Equipment ($103,000); Accrued Liabilities ($111,000); Note Payable and
accrued interest ($213,000); and, Series A Preferred issued to An-Son of 100,000
shares or ($1,000,000).
In September 1994, the Company purchased three drilling rigs from McRae
Energy Corporation for a total purchase price of $1,500,000. The Company paid a
cash down payment of $200,000 with the remaining $1,300,000 to be paid from cash
flow as defined in the purchase agreement. The three rigs were refurbished in
1994 by the Company. Two of the drilling rigs were added to the Company's
drilling fleet in Argentina and one drilling rig was added to the Company's
drilling fleet in Venezuela.
37
<PAGE>
4. COMPARATIVE OPERATING RESULTS
The following financial information for the year ended December 31, 1995,
and for the nine months ended December 31, 1994 and 1993 is presented for
comparative purposes. The financial information for the year ended December 31,
1995 and the nine months ended December 31, 1993 is unaudited (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Twelve Months Nine Months Ended
Year Ended Ended December 31,
December 31, December 31, -------------------
1995 1994 1994 1993
-------- ---------- --------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 94,709 $65,393 $50,987 $53,449
Total costs and expenses (107,502) (69,183) (53,439) (53,263)
--------- ------- ------- -------
Operating income (loss) (12,793) (3,790) (2,452) 186
Other income (expense) 118 233 192 (273)
Discontinued operations (772) 55 51 (1,278)
--------- ------- ------- -------
Net loss $ (13,447) $(3,502) $(2,209) $(1,365)
========= ======= ======= =======
Loss per share of common stock $(.35) $(.09) $(.06) $(.04)
========= ======= ======= =======
Weighted average number of
shares of common stock
outstanding 38,669 38,641 38,641 38,416
========= ======= ======= =======
</TABLE>
5. INCOME TAXES
The provision for income taxes shown in the consolidated statements of
operations differs from the amount that would be computed if the loss before
income taxes were multiplied by the federal income tax rate (statutory rate)
applicable in each year. The reasons for this difference are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
---------- ------------ -----------
<S> <C> <C> <C>
Tax at statutory rate........... $(4,572) $(751) $(904)
Increase (decrease) in taxes
resulting from:
Provision for asset impairment.. 1,799
Discontinued operations-Sale of
oil and gas assets............. 1,559
Unrecognized net operating
loss carryforward............. 1,214 751 904
------- ----- ------
Provision for income taxes...... $ -- $ -- $ --
======= ===== ======
</TABLE>
For the year ended December 31, 1995, the Company had a pretax net loss of
$4,629,000 and $8,818,000 for its domestic and foreign operations, respectively.
For the nine months ended December 31, 1994, the Company had a pretax net loss
of $1,853,000 and $356,000 for its domestic and foreign operations,
respectively. For the year ended March 31, 1994, the Company had pretax net
losses of $3,213,000 and pretax net income of $555,000 for its domestic and
foreign operations respective.
The operations of the Company generated net operating loss ("NOL") and
investment tax credit ("ITC") carryforwards which
38
<PAGE>
expire at various times through 2010 and 2000, respectively. Under provisions
of the federal income tax code, such carryforwards generally can be utilized
only to reduce future taxable income or income taxes payable, if any, of the
individual subsidiary that produced the NOL or ITC carryforward. In addition,
NOL and ITC carryforwards are subject to annual limitations on the amount that
the Company can utilize because of the change in the ownership of the Company in
1989 and a change in the ownership of the Company's principal stockholder in
1991 and the change in the Company's principal stockholder on June 2, 1994. The
amounts of these limitations are presently undeterminable. The Company
estimates that at December 31, 1995 its tax NOL and ITC carryforwards, before
consideration of the limitations aggregated approximately $64 million and $2.4
million, respectively. However, the ultimate utilization of the NOL and ITC
carryforwards, if any, will be substantially limited as a result of the change
in the ownership of the Company and a change in the ownership of the Company's
principal stockholder. Tax NOL carryforwards generated since the last change of
the Company's ownership totals approximately $6 million and is not subject to
the annual limitations discussed above.
The Company accounts for income taxes based upon Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred income tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Based on an analysis of the
Company's gross deferred tax asset (taking into consideration applicable
statutory carryforward periods and other limitations), the Company has
determined that the recognition criteria set forth in SFAS No. 109, have not
been met and, accordingly, the gross deferred tax asset is reduced fully by a
valuation allowance.
Deferred income taxes reflect the gross tax effect of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
and tax reporting purposes, and (b) operating loss and tax credit carryforwards.
39
<PAGE>
The tax effects of the significant items comprising the Company's net
deferred tax asset as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ -------------
<S> <C> <C>
Deferred tax asset:
Reserves not currently deductible . . . $ 1,804 $ 1,902
Operating loss carryforwards . . . . . 10,438 9,134
Tax credit carryforwards . . . . . . . 2,400 2,400
-------- -------
14,642 13,436
Deferred tax liability:
Differences between book and tax basis
of property . . . . . . . . . . . . . (5,303) (5,984)
-------- --------
9,339 7,452
Valuation allowance . . . . . . . . . . (9,339) (7,452)
-------- --------
Net deferred tax asset . . . . . . . . $ -- $ --
======== ========
</TABLE>
The analysis of the likelihood of realizing the gross deferred tax asset will be
reviewed and updated periodically. Any required adjustments to the valuation
allowance will be made in the period in which the developments on which they are
based become known.
40
<PAGE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994
-------- ---------
<S> <C> <C>
$10,000 term loan agreement between the Company
and NordlandsBanken AS, secured by most of the
Company's US domestic oil and gas drilling
equipment; bearing interest at prime plus
2-1/8% (fixed at 8% through June 12, 1996), with
36 equal monthly principal installments
beginning June 12, 1995. (Amended
October 1, 1995, bearing interest at LIBOR
plus 2-1/8% with 36 equal monthly
installments beginning January 1997). The
Company has the option to pay interest
quarterly and/or semi-annually.................. $ 9,444 $10,000
Acquisition payable - An-Son Drilling............. - 1,900
Non-interest bearing note to McRae Energy
Corporation, payable from available
cash flow, as defined........................... 1,300 1,300
$2,500 revolving line of credit, which converted
to a term loan in 1995, with a bank,
secured by the Company's accounts receivable,
bearing interest at the bank's prime rate
plus 1% (9.75% at December 31, 1995
and 1994, respectively)......................... 575 975
Capital leases, secured by transportation
and other equipment, bearing interest
at 10% to 14%................................... 733 807
Insurance premium financed over 12 months with
certain insurance agencies due in equal
monthly installments............................ 270 680
Promissory note payable secured by trust
deed to certain land and building, bearing
interest at 4%, due in equal monthly
installments through July 15, 1997.............. 47 55
Promissory note payable secured by trust deed to
certain land and building, bearing interest at
9.75%, due in equal monthly installments
through September 1, 1997 92 92
------- -------
12,461 15,809
Less current maturities........................... 1,315 5,585
------- -------
Long-term debt.................................... $11,146 $10,224
======= =======
Discontinued operations:
- ------------------------
$3,000 term note with a bank, secured by all the
Company's oil and gas producing properties,
bearing interest at the bank's prime rate plus
1.25% (10% at December 31, 1994) payable in
monthly installments equal to 75% of the net
proceeds from production subject to minimum
semi-annual payments through March 10, 1997.
This loan was fully paid during 1995............ $ - $ 2,114
======= =======
</TABLE>
41
<PAGE>
The loan agreement with NordlandsBanken AS, contains both affirmative
and negative covenants. The Company is restricted, among other things, from
incurring additional debt, paying dividends, and selling or acquiring assets
except within permitted limitations.
The revolving $2,500,000 bank line of credit was converted to a term
loan in 1995 with the balance of $575,000 at December 31, 1995 being paid in
monthly installments through June 1996. The weighted average outstanding
balance for the year ended December 31, 1995 and the nine months ended December
31, 1994 was $867,000 and $508,000, respectively and bearing weighted average
interest of 10% and 8.85%, respectively.
The production loan, which was fully paid in 1995, had a weighted
average balance of $1,233,000 and $2,600,000 during the year ended December 31,
1995 and the nine months ended December 31, 1994, respectively, bearing weighted
average interest of 8.62% and 8.85%, respectively.
During 1995, the Company issued 190,000 shares, out of 200,000
authorized, of Series A Preferred valued at $1,900,000. The Series A Preferred
is redeemable in cash at a redemption price payable from available cumulative
Venezuelan positive net cash flows (as defined) commencing the first fiscal
quarter following the original issuance date. The Company may redeem, at any
time, the Series A Preferred upon consent of the holders or upon written notice
commencing five years from the original issuance date. At the election of the
Company dividends may be declared and payable in common stock equivalent to the
value of the dividends. Each Series A Preferred Holder of record has no voting
right on any matters voted on by stockholders of the Company. As referred to in
Note 3, during March 1996, 100,000 shares of Series A Preferred, totaling
$1,000,000, were returned to the Company in settlement of asserted claims
against An-Son. At December 31, 1995, the balance of the Series A Preferred has
been adjusted to reflect this settlement.
42
<PAGE>
Annual maturities of the debt outstanding at December 31, 1995 are as
follows (in thousands): 1996 - $1,315; 1997 - $3,398; 1998 - $3,299; 1999 -
$3,148; and 2000 - $0.
7. CAPITAL STOCK AND STOCK OPTION PLANS
On April 28, 1994, the Company retired a $400,000 promissory note by
issuing 251,429 shares of the Company's common stock and $200,000 of cash.
During the fourth quarter of 1995, Norex Drilling subscribed to and
paid $4,000,000 for a new Company issue of Series B Preferred Stock (the "Series
B Preferred"), to be issued subsequent to December 31, 1995. This stock is in
the form of 4,000 shares (10,000 shares authorized) of Series B 15% Senior
Cumulative Redeemable Preferred, par value $1. This stock has annual dividends
of 15% per annum, payable through issuance of additional preferred shares for
the first three years. After December 31, 1998, dividends are payable in cash,
as declared by the Company's Board of Directors. The Series B Preferred: (1)
have liquidation preferences senior to the Company's common shares and Series A
Preferred; (2) may be redeemed only in total after January 1, 1997, at the
option of the Company and (3) have a warrants feature permitting the holder to
convert $4,000,000 of Preferred Stock into common shares of the Company at $.75
per share, exercisable 20% as of January 1, 1996, increasing by 1.667% per month
thereafter through January 1, 1997 and 2.5% per month from February 1, 1997
through January 1, 1999.
The Company's 1982 Stock Option and Long-Term Incentive Plan for Key
Employees (the "1982 Plan") reserves 2,500,000 shares of the Company's common
stock for issuance upon the exercise of options. At December 31, 1995, options
to purchase 515,900 shares of common stock were available for grant under the
1982 Plan. The Company's 1987 Stock Option Plan for Non-Employee Directors (the
"1987 Director Plan") reserves 250,000 shares of common stock for issuance upon
the exercise of options and provides for the automatic grant of options to
purchase shares of common stock to any non-employee who becomes a director of
the Company. At December 31, 1995, options under the 1987 Director Plan to
purchase 174,100 shares of common stock were available for grant until June 30,
1997. The exercise price of stock options under both the 1982 Plan and the 1987
Director Plan approximates the fair market value of the stock at the time the
option is granted. Options become exercisable in 20% increments over a five-year
period and expire on the tenth anniversary of the date of grant.
43
<PAGE>
Stock option activity for both plans was as follows:
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Number Option
of Shares Price Range
---------- -----------
<S> <C> <C>
OUTSTANDING MARCH 31, 1993: 1,814 $.88-$3.63
Granted 291 $.94-$1.25
Canceled (70) $.94-$3.63
- ---------------------------------- ----- ----------
OUTSTANDING MARCH 31, 1994: 2,035 $.88-$2.38
Granted 103 $.88-$ .94
Exercised (2) $.88
Canceled (148) $.88-$1.63
- ---------------------------------- ----- ----------
OUTSTANDING DECEMBER 31, 1994: 1,988 $.88-$2.38
Granted 253 $.69-$ .88
Canceled (267) $.94-$2.38
- ---------------------------------- ----- ----------
OUTSTANDING DECEMBER 31, 1995: 1,974 $.69-$1.63
- ---------------------------------- ----- ----------
EXERCISABLE AT DECEMBER 31, 1995 1,509 $.88-$1.63
- ---------------------------------- ----- ----------
</TABLE>
8. BUSINESS SEGMENT INFORMATION
The following table sets forth the Company's operations according to the
industry segments in which it operates.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER DECEMBER 31, MARCH 31,
CONTINUING OPERATIONS 1995 1994 1994
- --------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Revenues........................ $ 94,709 $50,987 $67,855
======== ======= =======
Operating loss.................. $(12,675) $(2,260) $(1,384)
======== ======= =======
Identifiable assets:
Contract drilling............. $ 57,783 $62,838 $40,303
Corporate cash equivalents.... - 22 22
-------- ------- -------
$ 57,783 $62,860 $40,325
======== ======= =======
Capital expenditures:
Contract drilling............. $ 5,949 $13,197 $ 2,292
Other......................... - 228 127
-------- ------- -------
$ 5,949 $13,425 $ 2,419
======== ======= =======
Depreciation and amortization:
Contract drilling............. $ 4,832 $ 2,217 $ 3,346
Other......................... - 160 177
-------- ------- -------
$ 4,832 $ 2,377 $ 3,523
======== ======= =======
</TABLE>
44
<PAGE>
DISCONTINUED OPERATIONS: (OIL AND GAS PROPERTIES)
- -------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS YEAR ENDED
------------- -------------- -----------
DECEMBER 31, DECEMBER 31, MARCH 31,
------------- -------------- -----------
1995 1994 1994
------------- -------------- -----------
<S> <C> <C> <C>
Revenues..................... $ 462 $1,732 $2,549
Operating income (loss)...... (4) 86 186
Identifiable assets.......... - 6,837 6,588
Capital Expenditures......... - 1,391 799
Depreciation, depletion and
amortization.............. 166 642 1,040
</TABLE>
Revenues reported by industry segments consist principally of domestic and
foreign revenues from unaffiliated customers as reported in the consolidated
statements of operations since intersegment revenues are not significant.
Revenues from the Company's foreign operations in Mexico, Central America,
Argentina and Venezuela were $49,912,000 for the year ended December 31, 1995,
$10,472,000 for the nine months ended December 31, 1994; and $11,562,000 for the
year ended March 31, 1994, resulting in an operating loss of $8,818,000 for the
year ended December 31, 1995, $88,000 for the nine months ended December 31,
1994; and $1,046,000 for the year ended March 31, 1994. Assets identified to
these foreign operations totaled $18,714,000 at December 31, 1995; $15,336,000
at December 31, 1994; and $6,237,000 at March 31, 1994.
During the year ended December 31, 1995, the nine months ended December 31,
1994 and the year ended March 31, 1994; no customer accounted for more than 10%
of the Company's consolidated revenues.
9. RELATED-PARTY TRANSACTIONS
Prior to June 2, 1994, certain of the Company's insurance coverage,
including workers' compensation and excess liability coverage, was arranged by
American Premier as part of a program which American Premier provided to its
subsidiaries. Subsequent to the sale of the Company's common shares, the
Company has obtained workers' compensation, excess liability coverage and
certain other insurance from other sources. The Company and American Premier
entered into an agreement pursuant to which the Company agreed to reimburse
American Premier for all amounts advanced by American Premier from time to time
on behalf of the Company in connection with American Premier's administration of
the Company's workers' compensation and certain other insurance programs for the
periods between July 20, 1989 and the closing of the common stock transaction.
The amounts reimbursable to American Premier at December 31, 1995 and December
31, 1994 relating to this program were $1,900,000, and $1,229,000, respectively.
Subsequent to the common shares purchase by Norex Drilling, the Company obtained
workers' compensation, excess liability coverage and certain other insurance
from other sources.
During the year ended March 31,1994, Thermal Drilling, Inc.
45
<PAGE>
("Thermal"), the minority interest owner of the Company's majority-owned
subsidiary, DI/Perfensa Inc. ("DI/Perfensa"), borrowed and repaid with interest
certain sums from DI/Perfensa. At December 31, 1995 and 1994 no amounts were
due. At December 31, 1995, $60,000 was due to DI/Perfensa from the President of
Thermal.
10. SUPPLEMENTAL CASH FLOW INFORMATION
The effects of the changes in operating accounts on cash flows from
operating activities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1994 1994
------------- ------------------ -----------
<S> <C> <C> <C>
Restricted cash............... $ (1,612) $ - $ -
Accounts and notes receivable.. (3,558) (5,334) 4
Inventory...................... 1,152 (1,214) 250
Assets held for sale........... 118 - -
Other current assets........... 274 (2,222) 222
Other noncurrent assets........ (179) (1) -
Accounts payable............... 5,289 3,418 (700)
Accrued workers' compensation.. 394 (800) (60)
Customer advances.............. (1,233) 985 (420)
Other current liabilities...... 4,288 503 (520)
Other noncurrent liabilities... - 1,800 -
Minority interest.............. (131) (17) 189
------- ------- -----
Net effects.................. $ 4,802 $(2,882) $ 365
======= ======= =====
</TABLE>
During the year ended December 31, 1995, the Company entered into
capital leases which totaled $265,000. During the nine months ended December
31, 1994, the Company entered into capital leases which totaled $640,000 and
exchanged $1,900,000 of acquisition note payable, $1,900,000 of Series A
Preferred and a $1,300,000 note payable, for property (see Note 3). During the
year ended March 31, 1994 the Company entered into capital leases which totaled
$289,000. The Company made interest payments of $1,472,000 for the year ended
December 31, 1995, $332,000 for the nine months ended December 31, 1994, and
$257,000 for the year ended March 31, 1994.
11. LEASE COMMITMENTS
The Company leases certain office space under noncancellable lease
agreements accounted for as operating leases. At December 31, 1995, lease
commitments under noncancellable operating leases with an initial term of more
than one year are $96,000 for the year ended December 31, 1996. Rental expense
under operating leases was $101,000 for the year ended December 31, 1995,
$77,000 for the nine months ended December 31, 1994; and $109,000 for the year
ended March 31, 1994.
Leases, which transfer substantially all the risks and
46
<PAGE>
benefits of ownership associated with the underlying property to the Company,
are accounted for as capital leases. The present value of the required lease
payments is recorded as property and equipment, and the related debt is recorded
as obligations under capital leases. The debt is amortized as each lease
payment is made. Property under capital leases, consisting of field trucks and
automobiles aggregating approximately $732,000 at December 31, 1995, $807,000 at
December 31, 1994, and $457,000 at March 31, 1994, respectively, is included in
drilling and well service equipment.
Lease payments under these capital leases totaled approximately
$280,000 for the year ended December 31, 1995 and $175,000 for the nine months
ended December 31, 1994, with annual payments due of $368,000 in 1996, $210,000
in 1997 and $149,000 in 1998.
12. CONTINGENCIES
The Company is proceeding against Charlestown Industries, Inc., (a 50%
"Partner") who was a co-defendant in the joint venture to recover their
respective portion of the OFS 1987, Mid-Year et al v DI Exploration Lawsuit of
which $1,800,000 was paid by the Company. A judgment has been rendered in
favor of the Company against the Partner in the state of Oklahoma. The future
recovery of the amount, and term of recovery, is uncertain and no credit has
been recorded as of December 31, 1995. Charlestown Industries filed for
protection with the US Bankruptcy Act and the Company's claim is scheduled to be
ruled on by the Court in April 1996.
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or results
of operations.
Substantially all of the Company's contract drilling activities are
conducted with independent oil and gas companies in the United States or with
national utility or national petroleum companies in Mexico, Central America and
South America. Historically, the Company has not required collateral or other
security to support the related receivables from such customers. However, the
Company has required certain customers to deposit funds in escrow prior to the
commencement of drilling. Actions typically taken by the Company in the event
of nonpayment include filing a lien on the customer's producing properties and
filing suit against the customer.
47
<PAGE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for year ended December 31, 1995,
the nine months ended December 31, 1994 and the year ended March 31, 1994 are
set forth below:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1995 1995 1995 1995 TOTAL
-------------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues......................... $22,344 $23,151 $27,106 $ 22,108 $ 94,709
Gross profit (loss) /(1)/........ (180) (814) 448 1,430 884
Operating loss................... (180) (814) (1,565) (10,234) (12,793)
Net loss-continuing operations... (2,219) (1,122) (1,234) (8,100) (12,675)
Discontinued operations.......... (11) (543) (116) 102 (772)
Net loss......................... (2,230) (1,665) (1,350) (8,202) (13,447)
Net loss per common share........ (.06) (.04) (.03) (.22) (.35)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
JUNE SEPTEMBER DECEMBER
1994 1994 1994 TOTAL
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues......................... $14,331 $17,215 $19,441 $ 50,987
Gross profit /(1)/............... 29 545 1,425 1,999
Operating loss................... (1,292) (837) (323) (2,452)
Net loss-continuing operations... (935) (872) (453) (2,260)
Discontinued operations.......... 14 49 (12) 51
Net loss......................... (921) (823) (465) (2,209)
Net loss per common share........ (.03) (.02) (.01) (.06)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
JUNE SEPTEMBER DECEMBER MARCH
1993 1993 1993 1994 TOTAL
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................... $15,494 $20,402 $17,553 $ 14,406 $ 67,855
Gross profit /(1)/............... 1,557 2,245 1,014 465 5,281
Operating income (loss).......... 16 834 (541) (1,461) (1,152)
Net income (loss)-continuing
operations...................... (31) 551 (597) (1,307) (1,384)
Discontinued operations.......... 56 (1,385) 31 24 (1,274)
Net income (loss)................ 25 (834) (566) (1,283) (2,658)
Net loss per common share........ - (.02) (.01) (.04) (.07)
</TABLE>
/(1)/Gross Profit is computed as consolidated revenues less operating
expenses (which excludes expenses for Depreciation and Amortization,
General and Administrative, Bad Debt and Legal).
Certain reclassification have been made to the quarterly financial data to
conform with the amounts presented in the Consolidated Statements of Operations.
48
<PAGE>
SCHEDULE VIII
DI INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS COLLECTIONS BALANCE AT
BEGINNING CHARGED TO AND END OF
OF PERIOD ALLOWANCE WRITE-OFFS PERIOD
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Year Ended March 31, 1994:
Allowance for doubtful accounts
receivable. . . . . . . . $2,400 $287 $(516) $2,171
====== ==== ===== ======
Nine Months Ended December 31, 1994:
Allowance for doubtful accounts
receivable. . . . . . . . $2,171 $122 $(227) $2,066
====== ==== ===== ======
Year Ended December 31, 1995:
Allowance for doubtful accounts
receivable. . . . . . . . $2,066 $291 $(406) $1,951
====== ==== ===== ======
</TABLE>
49
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Board of
Directors of the Company.
DIRECTORS:
- ----------
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AGE POSITION WITH COMPANY DIRECTOR
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Ivar Siem 50 Chairman of the Board, President 1995
and Chief Executive Officer
Douglas Y. Bech 50 Director 1994
Michael J. Delouche 39 Director 1994
Max M. Dillard 60 Director 1980
William C. Walker 72 Director 1992
</TABLE>
IVAR SIEM has been an international consultant in energy, technology and
finance since 1985. He is a member of the Board of Directors of several
privately held and publicly traded companies including Chairman of Blue Dolphin
Energy Company, an oil and gas exploration company; Director of Norex America,
Inc., a company with certain investments in the oil and gas, cruise and shipping
industries, since 1992; and Director of DSND ASA, a Norwegian service company
which operates dynamically positioned specialty vessels and provides subsea
engineering services, since 1993. Norex America is an affiliate of the Company
by reason of its beneficial ownership of 26.97% of the Company's issued and
outstanding common stock through its wholly-owned subsidiary, Norex Drilling,
Ltd. See Item 12, "Security Ownership of Certain Beneficial Owners and
Management."
DOUGLAS Y. BECH has been a partner in the law firm of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., Houston, Texas since October 1994. From May 1993 to July
1994, Mr. Bech was a partner in the law firm of Gardere & Wynne, L.L.P.,
Houston, Texas and from 1977 to 1993 he was a partner of the law firm of Andrews
& Kurth, L.L.P., Houston, Texas. Mr. Bech was previously a director of the
Company from 1980 to 1985 and from 1988 to 1989. Mr. Bech currently serves as a
director of Pride Refining, Inc., the managing general partner of Pride
Companies, L.P., an oil refining company, and Wainoco Oil Corporation, an oil
and gas production and oil refining company.
MICHAEL J. DELOUCHE has served on a contractual basis in the Controllership
function of Norex America, Inc. and Norex Drilling, Ltd. since 1991. For two
years prior to such time, Mr. Delouche was a Manager with KPMG Peat Marwick.
MAX M. DILLARD served as President and Chief Executive Officer of the
Company from 1980 until his resignation on April 9, 1996.
WILLIAM C. WALKER has been an independent management consultant since 1985
and served as President of Loffland Brothers Company until his retirement in
1989. Mr. Walker currently also
50
<PAGE>
serves as a director of Aztec Manufacturing Company, a publicly held diversified
manufacturing company.
DIRECTOR COMPENSATION
Non-employee directors are entitled to a fee of $1,000 for each meeting
attended and are reimbursed for travel and related expenses incurred in
connection therewith.
The Company's 1987 Director Plan currently reserves 250,000 shares of
Common Stock for issuance upon the exercise of options. The 1987 Director Plan
was adopted to further the growth, development and financial success of the
Company by focusing the attention of the participants toward improving the
Company's consolidated long-range performance by affording participants an
opportunity to acquire a proprietary interest in the Company. The 1987 Director
Plan is administered by the Stock Option Committee and eligibility is limited to
persons who are elected and serve as directors of the Company and who are not
officers or employees of the Company. All determinations of the Stock Option
Committee are made by a quorum of Stock Option Committee members. Awards under
the 1987 Director Plan are non-discretionary and the 1987 Director Plan only
provides for non-qualified stock options. Under the 1987 Director Plan, options
to purchase 15,000 shares are awarded to each non-employee director upon initial
election or appointment to the Board.
The Company maintains directors' and officers' liability insurance and its
Bylaws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Texas Law.
51
<PAGE>
EXECUTIVE OFFICERS:
The following table sets forth certain information regarding the Executive
Officers of the Company (as of May 9, 1996):
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- -------------------------------------------------------------------------------
<S> <C> <C>
Ivar Siem 50 Chairman of the Board, President
and Chief Executive Officer
James R. Bigard 66 Sr. Vice President - Operations
Thomas L. Easley 50 Vice President and Chief Financial Officer
Bill R. Merchant 52 Treasurer and Secretary
Michael Parrish 52 Chief Operating Officer - International
Operations
William G. Poplin 61 Sr. Vice President, Sales and Marketing
Terrell L. Sadler 46 Vice President - Domestic Drilling
</TABLE>
JAMES R. BIGARD joined the Company in 1990 as Vice President. Mr. Bigard
has spent more than 45 years directly involved in the oil and gas drilling
industry. Mr. Bigard is a director of Isabella Bank & Trust, the Michigan Oil
and Gas Association and the International Association of Drilling Contractors.
THOMAS L. EASLEY joined the Company in May 1995 as Vice President and Chief
Financial Officer. From 1992 through 1995 he was Vice President and Chief
Financial Officer of Huthnance International, Inc. From 1984 through 1991, he
served as Vice President and Chief Financial Officer of Granada Foods
Corporation and Granada Biosciences, Inc., publicly-held corporations engaged in
agribusiness activities including; food processing and distribution, livestock
production and management, and applied biotechnology.
BILL R. MERCHANT joined the Company in 1986 as Chief Accounting Officer and
has been Treasurer of the Company since 1990 and the Secretary of the Company
since 1994.
MICHAEL PARRISH joined the Company in June 1995 as Chief Operating Officer
of International Operations. From 1993 through 1995 he was Vice President -
Incentive Drilling for Santa Fe
52
<PAGE>
International Corporation having responsibility for worldwide development of
international land and marine incentive drilling operations. From 1968 through
1992 he was involved in international land and marine contract drilling
management responsibilities as Executive Vice President with Sedco Forex.
WILLIAM G. POPLIN joined the Company in November 1990 as Vice President and
has been Vice President of Sales and Marketing since 1994. He has also served
as President of DI International, Inc., a wholly-owned subsidiary of the
Company, since 1992.
TERRELL L. SADLER joined the Company in 1989 as the Ark-La-Tx District
Manager and became Vice President - Domestic Drilling in 1996.
SECTION 16 (A) COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission ("SEC") Regulations, the Company's directors,
executive officers, and shareholders, whose ownership is greater than 10
percent, are required to file reports of stock ownership and changes in
ownership with the SEC and the American Stock Exchange and to furnish the
Company with copies of all such reports they file.
Based on its review of such reports from reporting persons, the Company
believes that during the applicable fiscal year all filing requirements
applicable to its directors, executive officers and greater than 10 percent
shareholders were complied with except as follows: Form 4 filings covering
grants of stock options in November 1994 and November 1995 to Messrs. Merchant
and Poplin were filed, although not timely, and a Form 3 filing covering grant
of stock options to Mr. Easley in May, 1995 was filed, although not timely.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer:
<TABLE>
<CAPTION>
Long Term Compensations
------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- ------------------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Restricted Securities
and Annual Stock Underlying LTIP All Other
Principal Compen- Award(s) Options/ Payouts Compen-
Position(1) Year Salary($) Bonus($) sation($) $ SARs(#) ($) sation($)(3)
- ----------------- ------- --------- --------- ----------- ------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Max M. Dillard 1995 $212,180 $-0- $-0- $-0- -0- $-0- $4,244
Pres. and 1994(4) 155,500 -0- -0- -0- -0- -0- 3,111
Chief Executive 1994(5) 201,667 -0- -0- -0- -0- -0- 4,033
Officer 1993(5) 189,000 -0- -0- -0- -0- -0- 3,780
</TABLE>
(1) No executive officer of the Company, other than the Chief Executive
Officer, earned an aggregate salary and bonus of
53
<PAGE>
more than $100,000 during the periods indicated.
(2) Mr. Dillard resigned as President and Chief Executive Officer on April 9,
1996.
(3) Consists of amounts contributed by the Company to match a portion of Mr.
Dillard's contributions under the Company's 401(k) Savings Incentive Plan.
(4) For the nine-month transition period ended December 31.
(5) For the fiscal year ended March 31.
EMPLOYMENT ARRANGEMENTS
The Company and the Chief Executive Officer were parties to a two-year
employment agreement which was automatically renewed each month unless a two-
year notice of termination was given by either party. In the event notice of
termination was given, Mr. Dillard would be obligated to complete the two-year
term of employment without any reduction of salary and benefits. In addition,
in the event of Mr. Dillard's death or disability during his employment and in
the event of certain other terminations, including termination by the Company
other than for cause and termination by Mr. Dillard within 12 months following
the acquisition by any person of 35% or more of the Company's voting securities,
Mr. Dillard would be entitled to severance in the form of salary continuation
payments equal to 24 months of his salary and benefits and an assignment of his
$500,000 face amount Key Man Life Insurance Policy which has a cash surrender
value of $182,826.
A management fee of $10,000 per month has been billed to and accrued by the
Company for Mr. Siem's services to the Company starting July 1995.
OPTION/SAR GRANTS TABLE
There were no stock options or stock appreciation rights granted to the
Chief Executive Officer during 1995.
AGGREGATE OPTION/SAR EXERCISES IN 1995 AND YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning the number of
unexercised options and the value of unexercised options outstanding at December
31, 1995 with respect to the Chief Executive Officer. No options were exercised
by the Chief Executive Officer during 1995. Pursuant to the terms of the stock
option plan, options expire upon termination of employment. Mr. Dillard's
employment terminated on April 9, 1996; however, Mr. Dillard is taking the
position that by virtue of the severance provisions in his employment agreement,
that he will continue as an employee for two years after termination. The
Company disagrees with Mr. Dillard's interpretation and considers him to no
longer be an employee thus his stock option expired effective April 9, 1996.
54
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of securities unexercised in-the-Money Options
Shares Options Held at December 31, 1995 Held at December 31, 1995 (1)
acquired on Value --------------------------------- -------------------------------
Name Exercise(#) realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ----------- ---------- ------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Max M. Dillard 1,000,000 -0- $-0- $-0-
</TABLE>
(1) The exercise price of the unexercised options was greater than the market
value of the Common Stock on December 31, 1995.
55
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------- -----------
MANAGEMENT
- ----------
As indicated below, the directors and certain principal shareholders
beneficially own in the aggregate 11,438,206 or 29.6% of the Common Stock
outstanding.
56
<PAGE>
The following table reflects the beneficial ownership of the Company's
Common Stock as of May 9, 1996 with respect to (i) all persons known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, (ii) shareholder directors of the Company and (iii) directors and
officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Beneficial Number Percent
Owner, Identity of Group of Shares of Class
- ------------------------------------------------------------- -------------- --------
<S> <C> <C>
Norex America, Inc. 10,430,105(1) 26.97
P. O. Box HM 429
Hamilton, HM BX, Bermuda
Pronor Holdings Ltd. 8,300,000(2) 21.46
% Morgan and Morgan Trust Corp. Ltd.
Road Town, Pasca Estate
Tortola, British Virgin Islands
Shareholder Directors (3)
Douglas Y. Bech 4,200(4) *
Max M. Dillard 1,005,801 2.6
Ivar Siem 10,433,105(4)(5) 26.98
William C. Walker 10,000(4) *
Directors and Executive Officers
as a group (11 persons) 11,599,406(5) 30.0
</TABLE>
* Indicates less than one percent.
(1) Includes 10,430,105 shares owned by Norex Drilling, Ltd., a wholly-owned
subsidiary of Norex America.
(2) Includes 8,300,000 shares as owned by Pronor Holdings Ltd., which Norex
America owns a beneficial interest of approximately 47%, but disclaims
control.
(3) The directors of the Company who are not listed do not own a beneficial
interest in any shares of Common Stock.
(4) Includes the following shares that may be purchased upon the exercise of
options granted under the Company's 1987 Stock Option Plan for Non-Employee
Directors (the "1987 Director Plan") that are currently exercisable or that
will become exercisable within 60 days: 3,000 for Mr. Bech; 3,000 for Mr.
Siem; and 9,000 for Mr. Walker.
(5) Includes 3,000 exercisable stock options granted under the Company's 1987
Director Plan and 10,430,105 shares of the Company's common stock owned by
Norex America. Mr. Siem is one of five potential beneficiaries in a trust
which controls Norex America.
(6) Includes 161,200 shares that may be purchased upon the exercise of options
granted under the 1982 Employee Plan and the 1987 Director Plan that are
currently exercisable or that will become exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At March 31, 1994, American Premier Underwriters, Inc. ("American
Premier"), formerly named The Penn Central Corporation, was the owner of
20,690,105 unregistered shares, 53.5%, of the Company's outstanding common
stock. In June 1994, Norex Drilling
57
<PAGE>
Ltd. ("Norex Drilling"), a wholly-owned subsidiary of Norex America, Inc.
("Norex America"), completed the purchase of all shares of the Company's common
stock owned by American Premier. Shortly thereafter and in accordance with
regulatory filings made at the time of the purchase transaction, Norex Drilling
reduced its ownership to 18,730,105 shares, or less than 50% of the outstanding
shares of the Company's common stock. In October 1995, Norex Drilling
transferred 8,300,000 shares to Pronor Holdings, Ltd. ("Pronor"). Norex America
beneficially owns approximately 47% of Pronor, however disclaims control.
Prior to June 2, 1994, the Company was included in an insurance and bonding
program that American Premier provided for its subsidiaries. Under the program,
American Premier paid for all of the expenses associated with the program and
invoiced its subsidiaries for their proportionate share of the program costs.
The amount reimbursable to American Premier at December 31, 1995 relating to
this program was $1,900,000.
During 1995, Mr. Bech was a partner in a law firm that performed legal
services for the Company.
During the fourth quarter of 1995, Norex Drilling subscribed to and paid
$4,000,000 for a new Company issue of Series B Preferred Stock (the "Series B
Preferred"), to be issued subsequent to December 31, 1995. This stock will be
the form of 4,000 shares (10,000 authorized) of Series B 15% Senior Cumulative
Redeemable Preferred, par value $1. This stock has annual dividends of 15% per
annum, payable through issuance of additional preferred shares for the first
three years. After December 31, 1998, dividends are payable in cash, as declared
by the Company's Board of Directors. The Series B Preferred: (1) have
liquidation preferences senior to the Company's common shares and Series A
Preferred; (2) may be redeemed only in total after January 1, 1997, at the
option of the Company and (3) will have a warrants feature permitting the holder
to convert $4,000,000 of Preferred Stock into common shares of the Company at
$.75 per share, exercisable 20% as of January 1, 1996, increasing by 1.667% per
month thereafter through January 1, 1997 and 2.5% per month from February 1,
1997 through January 1, 1999.
58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) and (2) Financial Statements and Schedule.
The consolidated financial statements and supplemental schedule of DI
Industries, Inc. and Subsidiaries are included in Part II, Item 8 and are
listed in the Index to Consolidated Financial Statements and Financial
Statement Schedule therein.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
+3.1 --Articles of Incorporation of DI Industries, Inc., as
amended.
+3.2 --By-Laws of DI Industries, Inc., as amended.
+3.3 --Statement of Resolutions Establishing the Series A
Convertible Redeemable Preferred Stock.
+4.2 --$1,450,000 Loan by and between DI Energy, Inc. et al and
Charter National Bank-Colonial dated April 29, 1987. (Filed
as Exhibit 4.12 to Annual Report on Form 10-K for
March 31, 1987.)
+4.3 --First Supplemental Loan Agreement executed effective as of
July 15, 1988 between DI Energy, Inc. et al and Charter
National Bank-Colonial. (Filed as Exhibit 4.2 to Annual
Report on Form 10-K for March 31, 1989).
+4.4 --Promissory Note dated effective July 15, 1988 of Drillers
Inc. of Texas, as Maker, to Charter National Bank-Colonial.
(Filed as Exhibit 4.2 to Annual Report on Form 10-K for
March 31, 1989.)
+4.5 --Extension letter dated March 31, 1989 from Charter National
Bank-Colonial. (Filed as Exhibit 4.2 to Annual Report on
Form 10-K for March 31, 1989.)
+4.6 --Letter agreement regarding $3,000,000 Revolving Credit
Agreement effective March 19, 1990 between DI Industries,
Inc. and Charter National Bank-Colonial.
+4.7 --Stock Registration Agreement dated July 20, 1989 among DI
Industries, Inc., the Pennsylvania Company, Hamilton
Robinson &
</TABLE>
59
<PAGE>
Company, Incorporated, Spinnaker Investor Partners, L.P.,
Spinnaker Partners, Hamilton Robinson & Co., Inc. Managed
Account No. 1 and Max M. Dillard. (Filed as Exhibit 4.6 to
Registration Statement No. 33-33270.)
+4.8 --$3,000,000 Loan by and between DI Industries, Inc. et al and
Charter National Bank-Colonial dated September 5, 1991.
(Filed as Exhibit 4.8 to Annual Report on Form 10-K for
March 31, 1992).
+4.9 --Second Supplemental Loan Agreement executed effective as of
November 11, 1991 between DI Energy, Inc. et al and Charter
National Bank-Colonial. (Filed as Exhibit 4.9 to Annual
Report on Form 10-K for March 31, 1992).
+4.10 --First Restated and Amended Loan Agreement dated March 15,
1994, by and between DI Energy, Inc. et al and Charter
National Bank-Colonial.
+4.11 --$10,000,000 Loan Agreement dated December 12, 1994, between
Drillers, Inc. and NordlandsBanken AS.
+4.12 --$2,500,000 Loan Agreement dated September 15, 1994, payable
to Charter National Bank.
*4.13 --Amendment No. 1 dated October 1, 1995, to $10,000,000 Loan
Agreement dated December 2, 1994 between Drillers, Inc. and
NordlandsBanken A.S.
*4.14 --$574,998 Term Note dated December 13, 1995, between
Drillers, Inc. and Charter National Bank - Colonial.
+10.3 --IADC Model Form "Footage" Drilling Contract (February 1986).
(Filed as Exhibit 10.3 to Registration Statement No. 33-
33270.)
+10.4 --IADC Model Form "Daywork" Drilling Contract (February 1986).
(Filed as Exhibit 10.4 to Registration Statement No. 33-
33270.)
+10.5 --IADC Model Form "Turnkey" Drilling Contract (February 1988.)
(Filed as Exhibit 10.5 to Registration Statement No. 33-
33270.)
+10.8 --Drillers Inc. 1982 Stock Option and Long-Term Incentive Plan
for Key Employees. (Filed with Drillers Inc. 1982 Annual
Meeting definitive proxy solicitation materials.)
+10.8.1 --Drillers Inc. Stock Option Plan for Non-Employee Directors.
(Filed with Drillers Inc. 1982 Annual Meeting definitive
proxy solicitation materials.)
+10.9 --DI Industries, Inc. 1987 Stock Option Plan for Non-Employee
Directors. (Filed with DI Industries, Inc. 1987 Annual
Meeting definitive proxy solicitation materials.)
60
<PAGE>
--Stock Purchase Agreement dated June 23, 1989 by and among DI
Industries, Inc., The Penn Central Corporation, the
Pennsylvania Company and Holden Rig Company. (Filed as
Exhibit 0.6 to Annual Report on Form 10-K for March 31,
1989.)
+10.10 --Employment Agreement dated November 17, 1994, between the
Company and Max M. Dillard.
*11.1 --Statement regarding computation of per share earnings.
*22.1 --List of Subsidiaries of DI Industries, Inc.
*24.1 --Consent of Deloitte & Touche, LLP.
*27 --Financial Data Schedule
______
*Filed herewith.
+Incorporated by reference herein.
(b) Reports on Form 8-K.
No reports on Form 8-K were required to be filed during the year ended
December 31, 1995.
61
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this thirteenth
(13th) day of May, 1996.
DI Industries, Inc.
By /s/ Ivar Siem
_____________________________
Ivar Siem, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Ivar Siem Chairman of the Board,
- --------------------------- President and Chief May 13, 1996
(IVAR SIEM) Executive Officer
/s/ Thomas L. Easley Vice President and Chief May 13, 1996
- --------------------------- Financial Officer
(THOMAS L. EASLEY)
/s/ Bill R. Merchant Chief Accounting Officer May 13, 1996
- ---------------------------
(BILL R. MERCHANT)
/s/ Douglas Y. Bech Director May 13, 1996
- ---------------------------
(DOUGLAS Y. BECH)
/s/ Max M. Dillard Director May 13, 1996
- ---------------------------
(MAX M. DILLARD)
/s/ Michael J. Delouche Director May 13, 1996
- ---------------------------
(MICHAEL J. DELOUCHE)
/s/ William C. Walker Director May 13, 1996
- ---------------------------
(WILLIAM C. WALKER)
</TABLE>
62
<PAGE>
ADDENDUM NO. I
to
the USD 10,000,000 - loan agreement
DATED 12TH OF DECEMBER 1994
(the "Loan Agreement")
between
DRILLERS, INC.
(as Borrower)
and
NORDLANDSBANKEN AS
(as Lender)
WHEREAS:
A. The parties entered into the Loan Agreement on 12th of December 1994 for
the purpose set forth therein.
B. The Lender has agreed to waive payment of installments due in respect of
the Loan for the period from 1 August 1995 through 31 December 1996 and
extend the Final Repayment Date until 12 December 1999 on terms and
conditions set out herein.
IT IS HEREBY AGREED:
1. All terms shall have the same meaning in this Addendum as in the Loan
Agreement, unless otherwise stated.
2. The Loan Agreement shall be amended as follows:
(i) The definition of Final Repayment Date in Clause 2 of the Loan
Agreement shall read: "the date falling 60 months after the first
Drawdown Date";
(ii) the definition of Installment Dates in Clause 2 of the Loan Agreement
shall read: "the dates falling 6, 7 and 25 months after the first
Drawdown Date and each of the dates falling at monthly intervals
thereafter up to and including the Final Repayment Date";
(iii) the definition of Promissory Note in Clause 2 of the Loan Agreement
shall read: "a promissory note issued by the Borrower in favor of the
Lender as set out in Schedule 4 hereto, and any promissory note
issued in modification, extension or rearrangement of the
indebtedness evidenced thereby or in replacement thereof"; and
<PAGE>
(iv) Clause 7.1 of the Loan Agreement shall be amended to read as follows:
----------
"The Loan shall be repaid in 38 installments on the Installment Dates,
of which the 2 first installments shall be in the amount of USDA
277,777.78 each and the remaining 36 installments shall be in the
amount of USD 262,345.68 each. If any Installment Date is not a
Banking Day, repayment shall be made on the next succeeding Banking
Day in the same calendar month, or if none, the preceding Banking
Day."
3. With respect to payments due on Installment Dates prior to the date of this
Addendum (and prior to the amendments to the Loan Agreement pursuant to
this Addendum): (i) the parties acknowledge that the Borrower made a
repayment of the principal of the Loan in the amount of USD 277,777.78 on
12 June 1995, a second repayment of the principal of the Loan in the amount
of USD 277,777.78 on 12 July 1995 and no other repayment of the principal
of the Loan; and (ii) the Lender waives any Event of Default arising as a
result of the failure by the Borrower to make any repayment of the
principal of the Loan in respect of the Installment Dates falling on 12
August 1995 and 12 September 1995.
4. The Borrower represents and warrants that, except for such Events of
Default as are identified and waived in Clause 3 of this Addendum, no Event
-
of Default has occurred and is continuing under the Loan Agreement.
5. This Addendum shall be effective upon:
(i) Issuance by the Borrower to the Lender of a new Promissory Note as
set out in Schedule 1 to this Addendum;
(ii) execution and delivery of this Addendum by the Borrower and the
Lender and of the Confirmation of Guarantees attached hereto by DI
and Norex;
(iii) payment by the Borrower of a restructuring fee of 0.25% of the
principal amount of the Loan as of the date of this Addendum;
(iv) receipt by the Lender of a legal opinion as to matters of US law
acceptable to the Lender; and
(v) payment by the Borrower of all sums due under Clause 6 of this
Addendum.
6. The Borrower agrees to pay all reasonable costs, charges and expenses,
including legal fees, incurred by the Lender in connection with the
preparation and execution of this Addendum.
7. All references in the Loan Agreement and the Security Documents to the Loan
Agreement shall henceforth be references to the Loan Agreement as amended
by this Addendum.
2
<PAGE>
8. This Addendum shall be governed by and construed in accordance with the
Laws of Norway, venue as in the Loan Agreement.
9. With respect to the Security Agreement, the parties affirm that the liens
and security interests of the Security Agreement secure the Obligations (as
defined in the Security Agreement) as modified hereby.
IN WITNESS WHEREOF the parties hereto have caused this Addendum to be duly
executed by their duly authorized officers as of 1 October 1995.
The Borrower: The Lender:
DRILLERS, INC. NORDLANDSBANKEN AS
Max M. Dillard Johnny Johnson
President Deputy General Manager
CONFIRMATION OF GUARANTEES
The undersigned DI Industries, Inc. and Norex America, Inc. have caused this
Confirmation of Guarantees to be duly executed by their duly authorized officers
as of 1 October 1995 to evidence: (i) Their consent to the amendments to the
Loan Agreement (as defined therein) pursuant to the Addendum to which this
Confirmation of Guarantees is attached; (ii) the agreement of DI Industries,
Inc. that the Guarantee Joint and several) dated 12th of December 1994 issued by
it in connection with the Loan Agreement remains in FULL force and effect; and
(iii) the agreement of Norex America, Inc. that the Guarantee Joint and several)
dated 12th of December 1994 issued by it in connection with the Loan Agreement
remains in FULL force and effect, subject to reduction of the maximum amount
thereof as a result of the payments of principal of the Loan referred to in
Clause 3 of such Addendum.
DI INDUSTRIES, INC. NOREX AMERICA, INC.
Max M. Dillard Name:
President Title:
3
<PAGE>
Schedule I
----------
PROMISSORY NOTE
The undersigned, Drillers, Inc., a Texas corporation, 625 Paragon Center One,
450 Gears Road, H Houston, Texas 77067-4581, hereby acknowledge to be liable to
Nordlandsbanken AS or order
the principal amount of USD 9,444,444.44.
The debt to be repaid in 36 equal monthly installments. First installment
falling on 12th of January 1997.
Interest shall be calculated at a rate applicable according to loan agreement
between Drillers, Inc. and Nordlandsbanken AS of 12th of December 1994, as
amended by Addendum No. 1 of even date herewith (the loan agreement, as so
amended, being the "Loan Agreement").
-----------------
The undersigned hereby accept forced collection of the principal amount, the
interest and all costs relating to the collection of the debt without legal
process, in accordance with the Norwegian Enforcement Act of June 26, 1992 no 86
art. 7-2.
This Promissory Note shall be governed by and construed in accordance with the
laws of the kingdom of Norway, and the undersigned agree that any legal action
or proceeding shall be brought into Norwegian courts. Venue shall be Oslo City
Court.
This Promissory Note is issued in modification and extension, but not
extinguishment, of the indebtedness evidenced by that certain Promissory Note
dated 12th of December, 1994, in the principal amount of USD 10,000,000 issued
by the undersigned, Drillers, Inc. to Nordlandsbanken AS or order pursuant to
the Loan Agreement.
lst of October 1995
Drillers, Inc.
By: /s/ Max M. Dillard
-------------------
Max M. Dillard
President
4
<PAGE>
PROMISSORY NOTE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$574,998.19 12-13-1995 06-15-1996 12755-003 41 20 TCS01
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: Lender: CHARTER NATIONAL BANK - COLONIAL
DI INDUSTRIES, INC.; DI SERVICES P. 0. BOX 4525
INC. DBA ALAMO RIG AND EQUIPMENT HOUSTON, TX T7210-4625
COMPANY; DI ENERGY, INC.; DRILLERS,
INC.; CUBBY DRILLING INC.; WESTERN
OIL WELL SERVICE CO.; BUTLER-JOHNSON,
INC.; DI DRILLING INC.; DI
INTERNATIONAL, INC.; AND DRILLERS INC.
OF FLORIDA, HEREIN COLLECTIVELY
CALLED "MAKER" (TIN: 74-2144774)
450 GEARS RD.,SUITE 62S
HOUSTON, TX 77067
Principal Amount: $574,998.19 Interest Rate: 9.750% Date of Note:
December 13, 1995
PROMISE TO PAY. DI Industries, Inc.; DI Services Inc. dba Alamo Rig and
Equipment Company; DI Energy, Inc.; Drillers, Inc.; Cubby Drilling Inc.; Western
Oil Well Service Co.; Butler-Johnson, Inc.; DI Drilling Inc.; DI International,
Inc.; and Drillers Inc. of Florida, herein collectively called "Maker"
("Borrower") promises to pay to Charter National Bank - Colonial ("Lender"), or
order, In lawful money of the United States of America, the principal amount of
Five Hundred Seventy Four Thousand Nine Hundred Ninety Eight & 19/100 Dollars
($574,998.19), together with Interest at the rate of 9.750% per annum on the
unpaid principal balance from December 13,1995, until maturity.
PAYMENT. Borrower will pay this loan on demand, or If no demand Is made, In 5
principal payments of $9S,833.03 each and one final principal and Interest
payment of $96,637.64. Borrower's first principal payment Is due January 1S,
1996, and all subsequent principal payments are due on the same day of each
month after that. In addition, Borrower will pay regular monthly payments of
all accrued unpaid Interest due as of each payment date. Borrower's first
Interest payment Is due January 15, 1996, and all subsequent Interest payments
are due on the same day of each month after that. Borrower's final payment due
June 15, 1996, will be for all principal and accrued Interest not yet paid.
interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding, unless such calculation would
result in a usurious rate, in which case interest shall be calculated on a per
them basis of a year of 365 or 366 days, as the case may be. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
Notwithstanding any other provision of this Note, Lender will not charge
interest on any undisbursed loan proceeds. No scheduled installment, whether of
principal or interest or both, will be due unless sufficient loan funds have
been disbursed by the scheduled installment date to justify the payment.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments under the payment schedule. Rather, they will reduce the principal
balance due and may result in Borrower making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is 18.000% per annum.
Borrower will pay interest on all sums due after final maturity, whether by
acceleration or otherwise, at that rate, with the exception of any amounts added
to the principal balance of this Note based on Lender's payment of insurance
premiums, which will continue to accrue interest at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement. or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with
Lender. (g) Any of the events described in this default section occurs with
respect to any guarantor of this Note. (h) A material adverse change occurs in
Borrower's financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is Impaired. (I) Lender in good faith deems
itself insecure.
If any default, other than a default in payment, is curable, it may be cured
(and no event of default will have occurred) if Borrower, after receiving
written notice from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen (15)
days, immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDERS RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
Interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, Immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges received
In connection with the sale of authorized insurance. This Note has been
delivered to Lender and accepted by Lender In the State of Texas. If there Is a
lawsuit, and If the transaction evidenced by this Note occurred In Harris
County, Borrower agrees upon Lender's request to submit to the jurisdiction of
<PAGE>
the courts of Harris County, the State of Texas This Note shall be governed by
and construed In accordance with the laws of the State of Texas and applicable
Federal laws.
12-13-1995 PROMISSORY NOTE Page 2
Loan No. 12755-003
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), Including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on this Note against any and all such
accounts.
RENEWAL AND EXTENSION. This Note is given in renewal and extension and not in
novation of the following described indebtedness: RENEWAL OF PROMISSORY NOTE
DATED SEPTEMBER 15, 1994, IN THE ORIGINAL PRINCIPAL AMOUNT OF $2,500,000.00,
EXECUTED BY DI INDUSTRIES, INC.; DI SERVICES INC. DBA ALAMO RIG AND EQUIPMENT
COMPANY; DI ENERGY, INC.; DRILLERS, INC.; CUBBY DRILLING INC.; WESTERN OIL WELL
SERVICE CO.; BUTLER-JOHNSON, INC.; DI DRILLING INC.; DI INTERNATIONAL, INC.; AND
DRILLERS INC OF FLORIDA PAYABLE TO THE ORDER OF CHARTER NATIONAL BANK-COLONIAL.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. NOTICE: Under no circumstances (and
notwithstanding any other provisions of this Note) shall the interest charged,
collected, or contracted for on this Note exceed the maximum rate permitted by
law. The term "maximum rate permitted by law" as used in this Note means the
greater of (a) the maximum rate of interest permitted under federal or other law
applicable to the indebtedness evidenced by this Note, or (b) the higher, as of
the date of this Note, of the "Indicated Rate Ceiling" or the "Quarterly
Ceiling" as referred to in Article 5069-1.04 (a)(1) and Article 5069-1.04 (a)(2)
respectively, V.T.C.S. If any part of this Note cannot be enforced, this fact
will not affect the rest of the Note. In particular, this section means (among
other things) that Borrower does not agree or intend to pay, and Lender does not
agree or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
DI Industries, Inc.; DI Services Inc. dba Alamo Rig and Equipment Company; DI
Energy, Inc.; Drillers, Inc.; Cubby Drilling Inc.; Western Oil Well Service
Co.; Butler-Johnson, Inc.; DI Drilling Inc.; DI International, Inc.; and
Drillers Inc. of Florida, herein collectively called "Maker".
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
/s/ Thomas L. Easley
By:___________________________________________________________
Thomas L. Easley, Vice President & Chief Financial Officer
<PAGE>
Exhibit 11
DI INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED LOSS PER SHARE
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended
December 31, March 31, December 31,
1995 1994 1994
------------ ---------- ------------
<S> <C> <C> <C>
Weighted average shares of
common stock outstanding... 38,669 38,641 38,416
Stock options (treasury
stock method).............. --/(A)/ 26 /(A)/ 6 /(A)/
------ -------- -------
Weighted average shares for
primary loss per
share calculation.......... 38,669 38,667 38,422
Stock options (treasury
stock method).............. --/(B)/ --/(B)/ --/(B)/
Weighted average shares for
fully diluted loss
per share calculation...... 38,669 38,667 38,422
======= ======= =======
Net loss.................... $(13,447) $(2,209) $(2,658)
========= ======= =======
Loss per share:
Primary................. $ (.35) $ (.06) $ (.07)
========= ======= ======
Fully diluted............ $ (.35) $ (.06) $ (.07)
======== ======= ======
</TABLE>
Note: Reference is made to Note 1 to Consolidated Financial Statements
regarding computation of per share amounts.
/(A)/ Included in accordance with Regulation S-K Item 601(b)(11) although not
required to be provided for by Accounting Principles Board Opinion No.
15 because the effect is insignificant.
/(B)/ Closing price less than average price, therefore not included in
accordance with Regulation S-K Item 601(b) (11).
<PAGE>
EXHIBIT 22.1
DI INDUSTRIES, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State/Country of
Subsidiary Incorporation
---------- ---------------
<S> <C>
Drillers, Inc. Texas
DI Energy, Inc. Texas
DI International, Inc. Texas
DI Drilling, Inc. Delaware
Western Oil Well Service Co. Montana
Cubby Drilling, Inc. Delaware
Butler-Johnson, Inc. Delaware
DI Services, Inc. Texas
DI/Perfensa Inc. (90%-Owned) Texas
Drillers de Mexico Mexico
Drillers International, S.A. Argentina
Perforaciones Andinas S.A. Panama
Drillers Inc. D.I. de Venezuela, C. A. Venezuela
</TABLE>
<PAGE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
Nos. 33-34590 and 33-75338 of DI Industries, Inc. on Form S-8 of our report
dated March 28, 1996, appearing in this Amendment No. 1 of the Annual Report on
Form 10-K/A of DI Industries, Inc. for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Houston, Texas
May 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STTEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 APR-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 1,859 1,628
<SECURITIES> 0 0
<RECEIVABLES> 19,423 16,864
<ALLOWANCES> 1,951 2,066
<INVENTORY> 2,498 3,650
<CURRENT-ASSETS> 31,596 31,976
<PP&E> 43,698 41,240
<DEPRECIATION> 17,788 10,454
<TOTAL-ASSETS> 57,783 62,860
<CURRENT-LIABILITIES> 24,093 19,514
<BONDS> 0 0
3,867 3,867
900 1,900
<COMMON> 4,000 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 57,783 62,860
<SALES> 94,709 50,987
<TOTAL-REVENUES> 94,709 50,987
<CGS> 93,825 48,988
<TOTAL-COSTS> 107,502 53,439
<OTHER-EXPENSES> (56) 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,472 332
<INCOME-PRETAX> (13,447) (2,209)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (12,675) (2,260)
<DISCONTINUED> (772) 51
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (13,447) (2,209)
<EPS-PRIMARY> (.35) (.06)
<EPS-DILUTED> 0 0
</TABLE>
