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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 Commission File Number 1-8226
DI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2144774
(State or 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
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 [ ]
The number of shares of the Registrant's Common Stock, par value $.10 per share,
outstanding at November 11, 1996, was 123,230,734.
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Page 1 of 23
<PAGE>
DI INDUSTRIES, INC.
QUARTERLY REPORT IN FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports in Form 8-K 21
Signatures 22
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<PAGE>
DI INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 24,081 $ 1,859
Restricted cash - insurance deposits ........................ 1,000 1,612
Accounts receivable, net of allowance of $2,099
and $1,951, respectively .................................. 16,936 19,423
Rig inventory and supplies .................................. 2,435 2,498
Assets held for sale ........................................ 2,299 2,398
Prepaids and other current assets ........................... 4,840 3,806
--------- --------
Total current assets ................................ 51,591 31,596
--------- --------
Property and equipment:
Land, buildings and improvements ............................ 3,296 3,523
Drilling and well service equipment ......................... 65,958 39,039
Furniture and fixtures ...................................... 1,118 1,136
--------- --------
70,372 43,698
Less: Accumulated depreciation and amortization ............. (17,735) (17,788)
--------- --------
Net property and equipment .............................. 52,637 25,910
--------- --------
Other non current assets ....................................... 277 277
--------- --------
$ 104,505 $ 57,783
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........................ $ 6,942 $ 1,315
Trade accounts payable ...................................... 9,460 12,529
Accrued workers' compensation ............................... 3,150 3,357
Payroll and related employee costs .......................... 2,858 3,172
Customer advances ........................................... 623 116
Other accrued liabilities ................................... 3,404 3,604
--------- --------
Total current liabilities .............................. 26,437 24,093
Long-term debt less current maturities ......................... 8,663 11,146
--------- --------
Other long-term liabilities and minority interest .............. 4,157 1,950
--------- --------
Series A Preferred stock - mandatory redeemable ................ 764 900
--------- --------
Commitments and contingent liabilities
Stockholders' equity:
Series B Preferred stock, $1 par value; 10 shares authorized;
4 shares subscribed ..................................... -- 4,000
Common stock, $.10 par value; 300,000 shares authorized
117,730 and 38,669 issued and outstanding at
September 30, 1996 and December 31, 1995, respectively .. 11,772 3,867
Additional paid-in capital .................................. 88,306 46,458
Deficit ..................................................... (35,190) (34,631)
Cumulative translation adjustments .......................... (404) --
--------- --------
Total stockholders' equity ......................... 64,484 19,694
--------- --------
$ 104,505 $ 57,783
========= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
DI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Contract drilling ....................... $ 22,031 $ 27,106 $ 61,316 $ 72,603
-------- -------- -------- --------
Costs and expenses:
Drilling operations ..................... 18,887 26,658 57,205 71,260
Depreciation and amortization ........... 1,159 1,254 3,380 3,604
General and administrative .............. 877 759 2,672 2,064
Employment severance .................... -- -- 602 --
-------- -------- -------- --------
Total costs and expenses .......... 20,923 28,671 63,859 76,928
-------- -------- -------- --------
Operating income (loss) .................... 1,108 (1,565) (2,543) (4,325)
-------- -------- -------- --------
Other income (expense):
Gain on currency exchange ............... -- 521 -- 521
Interest income ......................... 45 77 149 229
Interest expense ........................ (322) (392) (788) (1,150)
Gain (loss) on sale of assets ........... 23 164 2,972 424
Minority interest ....................... (46) (39) 51 (274)
-------- -------- -------- --------
Other income (expense), net .......... (300) 331 2,384 (250)
-------- -------- -------- --------
Net income (loss) from continuing operations 808 (1,234) (159) (4,575)
Discontinued operations:
Income (loss) from oil and gas operations -- -- -- (4)
Loss from sale of oil and gas properties -- (116) -- (666)
-------- -------- -------- --------
Income (loss) from discontinued operations . -- (116) -- (670)
-------- -------- -------- --------
Net income (loss) before income taxes ...... 808 (1,350) (159) (5,245)
-------- -------- -------- --------
Income taxes ............................... -- -- -- --
-------- -------- -------- --------
Net income (loss) .......................... 808 (1,350) (159) (5,245)
Series B Preferred stock subscription
dividend requirement .................... (100) -- (400) --
-------- -------- -------- --------
Net income (loss) applicable to common stock $ 708 $ (1,350) $ (559) $ (5,245)
-------- -------- -------- --------
Income (loss) per common share:
Income (loss) from continuing operations $ .01 $ (.03) $ (.01) $ (.12)
Loss from discontinued operations ....... -- -- -- (.02)
-------- -------- -------- --------
Net income (loss) per share ................ $ .01 $ (.03) $ (.01) $ (.14)
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding ........... 68,853 38,669 48,812 38,669
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
DI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Series B
Common Preferred
Stock Stock Additional Cumulative
$.10 par $1 par Paid-in Translation
VALUE VALUE CAPITAL DEFICIT ADJUSTMENTS TOTAL
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ..................... $ 3,867 -- $ 46,458 $(21,184) -- $ 29,141
Net loss ................................... -- -- -- (5,245) -- (5,245)
------- ------- -------- -------- -------- --------
Balance, September 30, 1995 .................... $ 3,867 -- $ 46,458 $(26,429) -- $ 23,896
======= ======= ======== ======== ======== ========
Balance, December 31, 1995 ..................... $ 3,867 $ 4,000 $ 46,458 $(34,631) -- $ 19,694
Issuance of shares in merger
transactions .......................... 7,885 -- 41,673 -- -- 49,558
Exercise of stock options .................. 20 -- 188 -- -- 208
Redemption of Series A
Preferred Stock ........................ -- -- (13) -- -- (13)
Net loss ................................... -- -- -- (159) -- (159)
Series B Preferred Stock dividend
requirement ............................ -- 400 -- (400) -- --
Recision of Series B Preferred
Stock Subscription ..................... -- (4,400) -- -- -- (4,400)
Translation of foreign operations .......... -- -- -- -- $ (404) $ (404)
------- ------- -------- -------- -------- --------
Balance, September 30, 1996 .................... $11,772 -- $ 88,306 $(35,190) $ (404) $ 64,484
======= ======= ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
DI INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (159) $(5,245)
Adjustments to reconcile net loss to net
cash provided by
(used in) operating activities:
Depreciation and amortization ................. 3,380 3,604
Gain on sale of assets ........................ (2,972) (424)
Provision for doubtful accounts ............... 200 255
Net effect of changes in assets and liabilities
related to operating accounts ............... 691 6,551
Discontinued operations ....................... -- 3,158
-------- -------
Cash provided by (used in)
operating activities ...................... 1,140 7,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions .................. (31,532) (4,487)
Proceeds from sale of property and equipment ...... 4,397 825
-------- -------
Cash provided by (used in) investing activities . (27,135) (3,662)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common Stock .......................... 49,558 --
Recision of Series B Preferred
stock subscriptions ............................. (4,400) --
Redemption of Series A Preferred Stock ............ (149) --
Debt borrowings ................................... 5,869 2,142
Debt repayments ................................... (2,725) (3,369)
Exercise of stock options ......................... 208 --
-------- -------
Cash provided by (used in) financing activities .. 48,361 (1,227)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............. (144) --
Net increase (decrease) in cash and cash equivalents 22,222 3,010
Cash and cash equivalents, beginning of period ...... 1,859 1,628
-------- -------
Cash and cash equivalents, end of period ............ $ 24,081 $ 4,638
======== =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
DI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The accompanying unaudited consolidated financial statements have been
prepared by DI Industries, Inc. (the "Company" or "DI") in accordance with the
rules and regulations of the Securities and Exchange Commission and they include
the accounts of the Company and its subsidiaries. In the opinion of management,
the accompanying unaudited consolidated financial statements contain all
adjustments, which are of a normal recurring nature, necessary to present fairly
the Company's financial position as of September 30, 1996, and the results of
operations and cash flows for the periods indicated. All significant
intercompany transactions have been eliminated. The results of operations for
the three and nine months ended September 30, 1996 and 1995 are not necessarily
indicative of the results for any other period or for the year as a whole. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K/A for the year ended December 31,
1995.
(2) INCOME (LOSS) PER COMMON STOCK SHARE
The following table presents the weighted average number of shares of
common stock and common stock equivalents outstanding for the three and nine
months ended September 30, 1996 and 1995.
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
(In thousands) (In thousands)
Weighted average shares of
common stock outstanding .......... 68,853 38,669 48,812 38,669
Stock options (treasury method) ..... -- -- -- --
------ ------ ------ ------
68,853 38,669 48,812 38,669
====== ====== ====== ======
Stock options are not included in the computation for the three and nine
months ended September 30, 1996 and 1995 since such inclusion would be
antidilutive or not significant to the computation.
(3) ACCOUNTING FOR INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return. The Company records current income taxes based on its estimated actual
tax liability or benefit for the period.
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. Deferred income taxes reflect the
gross tax effect of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and tax reporting
purposes, and (b) operating loss and tax credit carryforwards. 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, was met
and the deferred tax asset was used to offset the deferred tax liability that
would have been recognized in the recording of the equipment purchased in the
recent merger transactions. See footnote 5 for a further discussion.
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<PAGE>
DI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENT LIABILITIES
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.
The Company was proceeding against Charlestown Industries, Inc. (a 50%
"Partner"), who was a co-defendant, along with the Company, in the joint venture
to recover their respective portion ($1,800,000) of the OFS 1987, Mid-Year et al
v DI Exploration Lawsuit. In 1994, a judgment was rendered in favor of the
Company against the Partner in the state of Oklahoma. The Partner, subsequent to
the judgement, filed for protection under the US Bankruptcy Act and the
Company's claim was ruled on by the bankruptcy court in October of 1996. The
bankruptcy court ruled against the Company. The Company has determined not to
pursue other appeals. Since the future recovery of the amount and term of
recovery was uncertain no amount had been recorded by the Company.
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 and South America.
Historically, the Company has not required collateral or other security to
support the related receivables from its customers.
Four of the Company's rigs in Argentina were imported into that country
under a temporary importation arrangement that expires in late 1996. One of
these rigs is currently working and the temporary importation status can be
extended at no additional cost to the Company. The other three rigs are not
currently working and as such they will be subject to a permanent importation
fee totaling approximately $1,000,000. The Company is pursing an extension to
the temporary importation arrangement, as the Company's new management studies
the Company's future plans in Argentina. The extension is subject to government
approval. If the rigs are moved out of Argentina by the end of the year, no
import fee will be due. No liability has been recorded as of September 30, 1996
based on management's belief that either an extension will be approved, or the
rigs will be moved out of the country to the Company's other operational markets
in the United States or Venezuela, or the rigs may be sold.
(5) MERGER TRANSACTIONS
On May 7, 1996 the Company entered into two separate definitive merger
agreements to effect a $25 million equity infusion and the acquisition of deep
drilling equipment. These mergers were closed on August 29, 1996.
Under the first agreement, R. T. Oliver, Inc. ("RTO") and Land Rig
Acquisition Corporation ("LRAC") merged with a new subsidiary of the Company
with the capital stock of RTO and LRAC being exchanged for 39,423,978 shares of
the Company's common stock. In addition, warrants were issued to acquire up to
1,720,000 additional shares of DI common stock, the exercise of which is
contingent upon the occurrence of certain events. These mergers resulted in the
acquisition of 18 inactive, deep capacity land drilling rigs which includes five
3,000 horsepower and nine 2,000 horsepower land rigs which are rated for depths
of 25,000 feet or greater. The Company believes that these rigs can be brought
up to operating condition within a reasonable time on an economic basis and that
-8-
<PAGE>
DI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
this group of rigs represents a significant concentration of the relatively
small number of such deep drilling land rigs currently available in the market.
Subsequent to September 30, 1996, the Company has placed one of these rigs in
operation.
Under the second agreement, a subsidiary of Somerset Drilling
Associates, L.L.C. ("Somerset"), a privately-held investment limited liability
company, was merged into the Company. The stock of the subsidiary was exchanged
for 39,423,978 shares of DI common stock and warrants to acquire up to 1,720,000
shares of DI common stock, the exercise of which is contingent upon the
occurrence of certain events. This merger transaction resulted in a $25 million
equity infusion into the Company and it is anticipated that these funds will be
used for combined rig fleet refurbishment and general corporate purposes.
A definitive proxy statement was mailed to shareholders of record as of
July 15, 1996. The mergers were approved by the shareholders at a meeting on
August 27, 1996. These proposed mergers resulted in an ownership change in the
Company as defined by Section 382 of the Internal Revenue Code which limits the
ultimate utilization of the Company's net operating loss carry forward.
As part of the merger agreements the 1995 subscription by Norex
Drilling, Ltd. ("Norex") for 4,000 shares of Series B Preferred Stock and
related Series B Warrants was rescinded. The $4,000,000 subscription plus
accrued dividends was repaid to Norex by the Company with the proceeds from a
term loan that was made by Norex to the Company. The Norex $4,000,000 term loan
is due on August 29, 1997. Interest is at 12% and is payable on the last
business day of each calendar quarter.
The merger rigs had no historical operations as they were stacked while
owned by RTO and LRAC. The following unaudited consolidated pro forma balance
sheet data and results of operations assume the mergers had occurred at the
beginning of the periods presented and do not purport to be indicative of what
would have occurred had the mergers occurred at those dates or of results which
may occur in the future. The results of operations include additional expenses
for storing the merger rigs while the balance sheet adjustments are for the
consummation of the mergers (in thousands, except per share amounts):
As of
DECEMBER 31, 1995
-----------------
Working capital $ 27,349
Total assets 107,982
Shareholders' equity 64,739
For the year ended For the nine months ended
DECEMBER 31, 1995 SEPTEMBER 30,1996
----------------- -----------------
Total revenue $ 94,709 $ 61,316
Net income (loss)
applicable to common stock (13,560) (604)
Net income (loss) per share (.12) (.01)
-9-
<PAGE>
DI INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(6) OTHER EVENTS
On June 10, 1996, Norex Drilling, Ltd. advanced $1,000,000 to the
Company pursuant to a Promissory Note (the "Note") and Commercial Security
Agreement. The Note provided for interest at 12% per annum, and matured on the
Closing Date of the merger transactions. The Company's domestic accounts
receivable were pledged under the security agreement. The Company repaid this
loan, plus accrued interest, in early July 1996 with the proceeds from the sale
of the assets noted below.
On June 24, 1996, the Company closed a transaction whereby it sold all
of the operational assets of Western Oil Well Service Co. ("Western"), a
wholly-owned subsidiary of the Company, for $3.95 million in cash. Western
provided oil and gas well workover services principally in Montana, Utah and
North Dakota. Pursuant to the sale, the buyer assumed all of Western's existing
leases, primarily for vehicles, which totaled $251,000 at closing. The Company
recorded a gain of $2.8 million in the second quarter of 1996 as a result of the
sale.
(7) EVENTS SUBSEQUENT TO SEPTEMBER 30, 1996
On October 2, 1996 the Company announced that it had engaged KPMG Peat
Marwick LLP as principal accountants and the previous accountant's appointment
was terminated. The Company's previous principal accountants were Deloitte &
Touche LLP. There had been no disagreements with Deloitte & Touche LLP for the
previous two years.
On October 3, 1996 the Company acquired all of the South Texas
operational assets of Mesa Drilling, Inc. ("Mesa") in exchange for 5,500,000
shares of the Company's common stock. The assets acquired consist of six diesel
electric SCR drilling rigs, three of which are currently operating in South
Texas. The other three rigs are currently stacked. This acquisition will be
accounted for as a purchase and will be recorded in the fourth quarter of 1996.
On November 4, 1996 the Company announced the signing of a letter of
intent to acquire all of the South Texas operational assets of Diamond M
Onshore, Inc., a wholly owned subsidiary of Diamond Offshore Drilling, Inc. The
assets to be acquired include ten land based drilling rigs, all of which are
currently operating, 19 hauling trucks, a yard facility in Alice, Texas and
various other equipment. On November 12, 1996 a definitive asset purchase
agreement was signed by the parties. It is anticipated that the $26 million cash
acquisition will close by December 31, 1996 subject to review by federal
antitrust authorities, and satisfaction of other conditions contained in the
asset purchase agreement. The Company placed $2 million in escrow upon signing
the asset purchase agreement.
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DI INDUSTRIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of DI Industries, Inc. ("DI" or the "Company")
included elsewhere herein. All significant intercompany transactions have been
eliminated.
INDUSTRY OVERVIEW
The stabilization of working rig count that began in 1995 has continued
into 1996. The weekly national count of working land rigs in the United States
as reported by Baker Hughes Incorporated on November 1, 1996 was 838 compared to
764 on November 3, 1995.
The significant decline in oil and gas prices in the mid-1980's
severely depressed oil and gas exploration activities and reduced demand for the
Company's oil and gas drilling services. Although industry conditions have
improved during 1995 and 1996, a reversal of this trend could have an ongoing
negative effect on the Company's future operating results. The decline in
drilling activity in the mid 1980's resulted in an oversupply of drilling
equipment and 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 for oil and gas, which is subject to conditions such as consumer
demand, events in the Middle East, 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 Venezuela. In response to this, the Company expanded into Venezuela
during 1994. The Company has also completed projects in South America and
Mexico. The Company will continue to market its services 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 does not have a
critical shortage of drill pipe or other equipment but, depending on rig
utilization, will need to purchase additional drill pipe for rigs in service. In
response to this shortage, the Company has formed an alliance with a drill pipe
manufacturer to ensure a steady supply of new drill pipe to outfit the 18 rigs
that were acquired through the merger transactions mentioned above and for its
existing rig fleet.
CHANGE IN BUSINESS STRATEGY AND MANAGEMENT
In early 1996, the Company began implementing a new business strategy
which involved new management and a recapitalization of the Company to provide
for growth capacity and redeployment of the Company's assets into higher margin
markets.
On April 9, 1996, the employment of the Company's chief executive
officer was terminated, signaling the beginning of significant management
changes. Since that date, the Company has hired a majority of its current senior
management team. Joining the Company in September of 1996 were Thomas P.
Richards, President and Chief Executive Officer, T. Scott O'Keefe, Senior Vice
President and Chief Financial Officer, Ronnie E. McBride, Senior Vice
President-Domestic Operations, and Forrest M. Conley, Jr., Senior Vice
President-International. David W. Wehlmann, Vice President and Controller,
joined the Company in July 1996, while Donald J. Guedry, Treasurer, began his
employment in October of 1996.
-11-
<PAGE>
On August 27, 1996, the shareholders of the Company elected a Board of
Directors comprised of five members, all but one of which were elected to the
Board for the first time. Returning to the Board as Chairman was Ivar Siem.
Directors Roy T. Oliver, Steven A. Webster, William R. Ziegler and Peter M. Holt
were newly elected to the Board of Directors of the Company. The shareholders
also approved the merger transactions (See Note 5 to "Notes to Consolidated
Financial Statements") which represented a significant step in accomplishing the
Company's new strategy in that the 18 ultra deep drilling rigs and the $25
million of capital to refurbish them will enable the Company to focus on higher
margin markets where drilling projects are of a longer duration than the
Company's current markets. The merger transactions closed on August 29, 1996.
As part of management's efforts to improve the Company's margins, the
Company has identified and is pursuing strategic acquisitions of complementary
assets and businesses. Two acquisitions have been completed since the Company's
change of management, and a third pending acquisition was announced by the
Company in November 1996. The Company has also withdrawn from certain low margin
domestic markets and is considering withdrawing from international markets in
Argentina and Mexico.
CAPITAL RESOURCES AND LIQUIDITY
During the first nine months of 1996, the Company funded its activities
(other than the purchase price of acquisitions) through a combination of cash
generated from operations, cash sales of non-strategic assets, short-term loans
from affiliates, a deferral of monthly payments otherwise due on debt, and
issuances of its common stock, and preferred stock in exchange for cash and
operating assets. Substantially all of the purchase price of the several
acquisitions accomplished by the Company during 1996 (other than transaction
costs) was paid by the issuance of the Company's common stock and common stock
purchase warrants. The merger transactions that occurred in August 1996,
described further below, significantly improved the Company's financial
position. In the merger transactions, the Company obtained net cash of
approximately $25.0 million and 18 inactive, deep capacity drilling rigs in
exchange for the issuance of common stock thus increasing working capital and
net property and equipment.
SIGNIFICANT TRANSACTIONS
The Company's financial condition, capital resources and liquidity were
substantially impacted during the first nine months of 1996 by several
transactions.
During the first nine months of 1996, the Company's liquidity
benefitted from the deferment of loan payments otherwise due under bank debt.
The Company's $10,000,000 NordlandsBanken AS term loan agreement was amended in
October 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. As of September
30, 1996, the Company was in compliance with all financial covenants under the
loan agreement.
The Company has an overdraft facility with a bank in Argentina. The
overdraft facility is payable on demand and bears interest at the current market
rate in Argentina. The facility is secured by two of the Company's drilling rigs
located in Argentina. The outstanding balance under the overdraft facility was
repaid during the third quarter of 1996. On December 31, 1995, the outstanding
balance under the overdraft facility was $149,000.
On June 10, 1996 the Company borrowed $1.0 million from Norex Drilling,
Ltd. ("Norex") pursuant to a promissory note bearing interest at 12% per annum
and secured by the Company's domestic accounts receivable. The proceeds of the
loan were used for working capital. The Company repaid the loan on July 1, 1996
using the proceeds from the sale of assets described in the following paragraph.
On June 24, 1996, the Company sold all of the operating assets of its
wholly-owned subsidiary, Western Oil Well Service Co. ("Western"), for $3.95
million in cash. Western provided oil and gas well workover services principally
-12-
<PAGE>
in Montana, Utah and North Dakota. Pursuant to the transaction, the purchaser
assumed all of Western's existing leases, primarily for vehicles, which totaled
$251,000 at closing. The Company reported a gain of $2.8 million in the second
quarter of 1996 as a result of the sale.
On August 29, 1996, the Company closed two separate merger transactions
in which it received a $25.0 million equity infusion and acquired 18 inactive
deep drilling rigs and related equipment. SEE Note 5 of Notes to the
Consolidated Financial Statements. The Company anticipates that the $25.0
million of cash will be used for rig fleet refurbishment and general corporate
purposes which may include funding part of the proposed acquisition of operating
assets from Diamond M Onshore, Inc. described below. In connection with the
closing of the merger transactions, the Company borrowed $4.0 million from
Norex. The Norex term loan is due August 29, 1997 with interest payable on the
last day of each calendar quarter at 12% per annum. The proceeds of the Norex
term loan were used to repay and cancel a subscription for the Company's
preferred stock. During the fourth quarter of 1995, Norex subscribed to, and
paid, $4.0 million for the issuance of a class of preferred stock of the Company
to be issued subsequent to December 31, 1995. The subscription called for the
issuance of 4,000 shares of Series B 15% senior cumulative redeemable preferred
stock. Accrued dividends of 15% per annum were to have been payable through the
issuance of additional shares of Series B preferred stock for the first three
years. On August 29, 1996 the Company paid Norex $4.4 million inclusive of the
15% dividend requirement for cancellation of the subscription agreement for the
Series B preferred stock which was never issued.
As a result of the Company's operations and the above-described
transactions, the Company's financial position at September 30, 1996 and
December 31, 1995 was as follows (dollars in thousands).
SEPTEMBER 30, 1996 DECEMBER 31, 1995
--------------- --------------
AMOUNT % AMOUNT %
------- ----- ----- -----
Working Capital .......................... $25,154 32% $7,503 22%
Net property & equipment ................. 52,637 68 25,910 77
Other non current assets ................. 277 -- 277 1%
------- ----- ----- -----
Total ............................ $78,068 100% $33,690 100%
======= ===== ===== =====
Long-term debt ........................... $ 8,663 11% $11,146 33%
Long-term liabilities, minority
interest and Series A Preferred Stock . 4,921 6 2,850 8
Shareholders' equity ..................... 64,484 83 19,694 59
------- ----- ----- -----
Total ..................... $78,068 100% $33,690 100%
======= ===== ===== =====
POST-THIRD QUARTER COMPLETED AND PENDING ACQUISITIONS
On October 3, 1996 the Company acquired all of the South Texas
operational assets of Mesa Drilling, Inc. ("Mesa") in exchange for 5,500,000
shares of the Company's common stock. The assets acquired consist of six diesel
electric SCR drilling rigs, three of which are currently operating in South
Texas. The other three rigs are currently stacked. This acquisition will be
accounted for as a purchase and will be recorded in the fourth quarter of 1996.
On November 4, 1996 the Company announced the signing of a letter of
intent to acquire all of the South Texas operational assets of Diamond M
Onshore, Inc., a wholly owned subsidiary of Diamond Offshore Drilling, Inc. The
assets to be acquired include ten land based drilling rigs, all of which are
currently operating, 19 hauling trucks, a yard facility in Alice, Texas and
various other equipment. On November 12, 1996 a definitive asset purchase
agreement was signed by the parties. It is anticipated that the $26 million cash
acquisition will close by December 31,
-13-
<PAGE>
1996 subject to review by federal antitrust authorities, and satisfaction of
other conditions contained in the asset purchase agreement. The Company placed
$2 million in escrow upon signing the asset purchase agreement.
As of the current date, management believes the Company has adequate
resources, with working capital of approximately $25 million, to satisfy the
Company's cash requirements for ongoing operations. The Company also has
adequate cash reserves to fund its expected capital expenditures and
refurbishment costs, however, to fund the acquisition noted above the Company
will be taking on additional indebtedness. Management is currently evaluating
various financing proposals which should be finalized in the near future.
POTENTIAL YEAR-END WRITE DOWN
The new senior management of the Company is currently studying the
future of the Company's operations in Mexico. The Company has moved three of the
four rigs that were in Mexico into the Company's new South Texas operational
area. The remaining Mexican rig is under contract. Management is not satisfied
with the performance under this contract and is reviewing possible alternatives.
Management is considering the possible sale of the Company's Mexican subsidiary
or the possibility of renegotiating the current contract with terms more
favorable to the Company. Management is also considering terminating all Mexican
operations and moving the rig back to the United States.
Due to poor historical performance in Argentina and the recent
expiration of certain contracts in that country, the Company is exploring
various alternatives to enhance its future performance in Argentina. The Company
is exploring the possible sale of some of the Argentine assets or the removal of
certain of the assets to other operational areas. The Company is also
considering closing down its Argentine operations. These alternatives are being
explored and a decision is expected during the fourth quarter of 1996.
Four of the Company's rigs in Argentina were imported into that country
under a temporary importation arrangement that expires in late 1996. One of
these rig is currently operational and the temporary importation status can be
extended at no additional cost to the Company. The other three rigs are not
currently working and as such they will be subject to a permanent importation
fee totaling approximately $1,000,000. The Company is pursing an extension to
the temporary importation arrangement, as the Company's new management studies
the Company's future plans in Argentina. The extension is subject to government
approval. If the rigs are moved out of Argentina by the end of the year, no
import fee will be due. No liability has been recorded at September 30, 1996 as
management believes that an extension will be approved or the rigs will moved
out of the country to the Company's other operational markets in the United
States or Venezuela.
Based upon the outcome of both the Mexican and Argentine situations
during the fourth quarter, management expects there to be a possible write down
or write off of these assets. At this time management is not able to quantify
the write down, if any, depending on the alternatives chosen for each country.
Management believes that additional write downs or write offs of assets are
likely in the fourth quarter. The amount of any such write downs will depend on
new management's evaluation and decisions concerning the retention or sale of
certain operating assets.
OTHER
The Company has no derivative contracts related to its foreign currency
exposure in the countries in which 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 to foreign currency fluctuations. The Company believes that its
foreign currency exposure, if any, is not significant.
The Company has not paid any cash dividends on the Company's Common
Stock and does not anticipate paying dividends on the Common Stock at any time
in the foreseeable future. Furthermore, the Nordlandsbanken Loan Agreement
prohibits the payment of dividends without their consent.
-14-
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The following tables highlight rig days worked, revenues and operating
expenses, for the Company's domestic and foreign operations for the three months
ended September 30, 1996 and 1995.
For the Three Months Ended September 30, 1996
------------------------------------------
Mexico and
United Central South
States America America Total
------- ------- ------ -------
($ in thousands, except average revenue per day)
Rig days worked ............. 2,076 92 679 2,847
Average revenue per day ..... $ 6,921 $12,000 $9,660 $ 7,738
Drilling revenue ............ $14,368 $ 1,104 $6,559 $22,031
Operating expenses .......... 12,605 1,070 5,212 18,887
------- ------- ------ -------
Gross profit (loss) ......... $ 1,763 $ 34 $1,347 $ 3,144
======= ======= ====== =======
For the Three Months Ended September 30, 1995
---------------------------------------------
Mexico and
United Central South
States America America Total
------- ------- -------- -------
($ in thousands, except average revenue per day)
Rig days worked ............ 1,792 243 1,515 3,550
Average revenue per day .... $ 6,642 $18,074 $ 6,073 $ 7,182
Drilling revenue ........... $11,903 $ 4,392 $ 9,201 $25,496
Export Sales ............... 1,610
Operating expenses ......... 10,763 4,065 10,138 24,966
Export sales expenses ...... 1,692
------- ------- -------- -------
Gross profit (loss) ........ $ 1,140 $ 327 $ (937) $ 448
======= ======= ======== =======
Contract drilling revenues decreased approximately $5.1 million (19%) to
$22.0 million for the three months ended September 30, 1996 compared to $27.1
million for the three months ended September 30, 1995. This decrease was mainly
due to a decrease in revenue from Mexico and Argentina where rig utilization was
down and non-recurring export sales of $1.6 million during the third quarter of
1995. Revenues from domestic drilling increased by $2.5 million between the
third quarter of 1996 and 1995 due to an increase of 4% in average daily rates
and working 284 more rig days in 1996. South American revenues decreased by $2.6
million due to 836 fewer drilling days worked in 1996. This decrease was offset
by a 59% increase in the average daily rate. In Argentina, the Company had one
rig working during the
-15-
<PAGE>
majority of the third quarter of 1996 compared with as many as six rigs working
during the third quarter of 1995. In Venezuela, the demand for rigs has caused
the average rate to increase over 1995 and during the third quarter of 1996 the
Company recognized retroactive billings for additional labor costs. In Mexico
and Central America, revenues decreased by $3.3 million due to a decrease in the
days worked of 151 and a decrease in the average daily rate.
Drilling expenses decreased by 29% to $18.9 million for the three months
ended September 30, 1996 compared to $26.7 million for the three months ended
September 30, 1995 primarily due to a 20% decrease in the days worked in the
third quarter of 1996. U. S. expenses increased $1.8 million due to increased
utilization while Mexico and Central American expenses decreased by $3.0 million
and South American expenses decreased by $4.9 million. These international
decreases are due to lower utilization levels. Also during the third quarter of
1995, the Company incurred one-time cost of export sales of $1.7 million.
Depreciation and amortization expense decreased to $1.2 million for the
three months ended September 30, 1996 compared with $1.3 million for the
corresponding quarter of 1995. This decrease was primarily due to the reduction
in the depreciable asset base in 1996 resulting for the $5.3 million impairment
provision made during the fourth quarter of 1995 to reduce the carrying value of
certain drilling rigs and equipment as provided for in Statement of Financial
Accounting Standards No. 121. The rigs acquired in the merger transactions will
start to be depreciated as they are placed in service. None of the new rigs were
in service during the third quarter.
General and administrative expenses increased by $118,000 for the third
quarter of 1996 over the third quarter of 1995 due to the increased payroll
costs of the new management members who joined the Company during the third
quarter of 1996 and higher professional fees in 1996.
During the third quarter of 1995, the Company recognized a currency
exchange gain of $521,000 related to currency exchange transactions associated
with its Venezuelan operations.
Interest expense decreased by $70,000 for the three months ended
September 30, 1996 compared to the three months ended September 30, 1995. This
slight decrease is due to lower average outstanding debt levels for the first
two months of the third quarter of 1996 and lower outstanding levels on the
overdraft facility in Argentina in 1996.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The following tables highlight rig days worked, revenues and operating
expenses for the Company's domestic and foreign operations for the nine months
ended September 30, 1996 and 1995.
For The Nine Months Ended September 30,1996
-------------------------------------------
Mexico and
United Central South
States America America Total
------- -------- ------- -------
($ in thousands, except average revenue per day)
Rig days worked ..................... 5,033 260 2,935 8,228
Average revenue per day ............. $ 7,288 $ 12,981 $ 7,244 $ 7,452
Drilling revenue .................... 36,680 3,375 21,261 61,316
Operating expenses .................. 34,029 3,842 19,334 57,205
------- -------- ------- -------
Gross profit (loss) (In thousands) .. $ 2,651 $ (467) $ 1,927 $ 4,111
======= ======== ======= =======
-16-
<PAGE>
For The Nine Months Ended September 30, 1995
--------------------------------------------
Mexico and
United Central South
States America America Total
------- ------- -------- -------
($ in thousands, except average revenue per day)
Rig days worked .............. 4,431 909 3,924 9,264
Average revenue per day ...... $ 7,352 $13,297 $ 6,046 $ 7,382
Drilling revenue ............. 32,576 12,087 23,726 68,389
Export sales ................. 4,214
Operating expenses ........... 30,269 10,289 26,136 66,694
Export sales expenses ........ 4,566
------- ------- -------- -------
Gross profit (loss) .......... $ 2,307 $ 1,798 $ (2,410) $ 1,343
======= ======= ======== =======
Consolidated drilling revenues decreased by $11.3 million (16%) to $61.3
million for the nine months ended September 30, 1996 compared to $72.6 million
for the nine months ended September 30, 1995. This decrease is primarily due to
a decrease in utilization associated with the Company's Mexico and Central
American operations and non-recurring export sales of $4.2 million in 1995.
Revenues from Mexico and Central America decreased by $8.7 million due to a
decrease in the number of days worked of 649 for the first three quarters of
1996 compared with the corresponding period of 1995 coupled with a slight
decrease in the average daily drilling rate. During 1996 only one rig had been
operational in Mexico compared to four operational rigs during the corresponding
period of 1995. Revenues from South American operations decreased by $2.4
million due to a decrease of 25% in the number of days worked in the nine months
ended September 30, 1996 compared with the first three quarters of 1995 offset
by a 20% increase in the average daily rate between the same periods. In
Venezuela, the demand for rigs has caused the average rate to increase over 1995
and during the third quarter of 1996 the Company recognized retroactive billings
for additional labor costs. The drop in utilization is attributed to a slow down
in the Company's Argentine operations. Domestic operations saw a $4.1 million
increase in revenue due a 14% increase in utilization for the first three
quarters of 1996 over the first three quarters of 1995.
Drilling expenses decreased by $14.1 million to $57.2 million for the nine
months ended September 30, 1996 from $71.3 million for the nine months ended
September 30, 1995. The main reasons for the decrease is the decrease in
utilizations noted above and the one-time cost of export sales of $4.6 million.
Operating expenses increased for domestic operations by $3.8 million due the
increase in days worked for the 1996 period compared to the 1995 period. Mexico
and Central American drilling expenses decreased by $6.4 million and South
American operating expenses decrease by $6.8 million due to the lower
utilization levels in 1996.
Depreciation and amortization expense decreased to $3.4 million for the nine
months ended September 30, 1996 compared with $3.6 million for the corresponding
quarter of 1995. This decrease was primarily due to the reduction in the
depreciable asset base in 1996 resulting for the $5.3 million impairment
provision made during the fourth quarter of 1995 to reduce the carrying value of
certain drilling rigs and equipment as provided for in Statement of Financial
Accounting Standards No. 121.
General and administrative expenses increased by $608,000 for the first
three quarters of 1996 over the first three quarters of 1995 due to bad debt
expense of $200,000 recognized during the first half of 1996, higher
professional fees in 1996 and the increased payroll costs of the new management
members who joined the Company during the third quarter of 1996.
-17-
<PAGE>
Employment severance expense of $602,000 for the 1996 period represents an
accrual of the contractual severance cost to be paid over a two year period to
the former chief executive officer of the Company.
During the third quarter of 1995, the Company recognized a currency exchange
gain of $521,000 related to currency exchange transactions associated with its
Venezuelan operations.
Interest expense decreased by $362,000 for the nine months ended September
30, 1996 compared to the nine months ended September 30, 1995. This decrease is
due to lower average outstanding debt levels for the 1996 period and lower
outstanding levels on the overdraft facility in Argentina in 1996.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 4 of the "Notes to Consolidated Financial Statements" is incorporated
herein by reference.
ITEM 2. CHANGES IN SECURITIES
Thomas P. Richards, President and Chief Executive Officer of the Company,
was issued options to purchase 2,000,000 shares of the Company's common stock on
September 3, 1996. The exercise price is $1.50 per share and the options vest
over a four year period with 20% becoming exercisable on December 31, 1996 and
an additional 20% becoming exercisable on each of the following four anniversary
dates of the date of grant. The shares were registered for resale under a shelf
registration statement on Form S-3 registration statement that became effective
November 12, 1996.
The following stock options were issued under the 1996 Employee Stock Option
Plan to the following officers of the Company.
Date of Options Number of
Officer Grant Price Options Vesting
------- ----- ----- ------- -------
Ronnie E. McBride 09/03/96 $ 1.125 100,000 (1)
Ronnie E. McBride 09/03/96 1.625 300,000 (1)
T. Scott O'Keefe 09/03/96 1.500 175,000 (2)
T. Scott O'Keefe 09/03/96 1.500 175,000 (3)
Forrest M. Conely, Jr. 09/03/96 1.750 150,000 (1)
Terrell L. Sadler 10/01/96 1.500 400,000 (1)
Donald J. Guedry, Jr. 10/07/96 1.750 20,000 (4)
- -----------
(1) Options vest over a four year period with 20% becoming exercisable on
December 31, 1996 and an additional 20% becoming exercisable on each of
the following four anniversary dates of the date of grant.
(2) Half of the options vest on each of the following two anniversary dates
of the date of grant.
(3) One-third of the options become exercisable on the third, fourth and
fifth anniversary dates of the date of grant.
(4) The options vest over a five year period with 20% becoming exercisable
on the following five anniversary dates of the date of grant.
The 1996 Employee Stock Option Plan was approved by the shareholders of the
Company on August 27, 1996. The Company expects to file a Form S-8 during the
fourth quarter of 1996 covering the exercise of the options and the resale of
the common stock upon exercise.
On October 3, 1996, the company issued 5,500,000 shares of common stock in
exchange for all the South Texas operational assets of Mesa Drilling, Inc. The
shares were issued to Mesa Drilling, Inc. and affiliates. These shares were
subsequently registered for resale under a shelf registration statement on Form
S-3 registration statement that became effective November 12, 1996.
-19-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 27, 1996 the annual meeting of shareholders was held and the
following items were voted on by the shareholders:
1. To adopt and approve the Agreement and Plan of Merger, dated May 7,
1996, by and among the Company, RTO and LRAC.
2. To adopt and approve the Agreement and Plan of Merger, dated May 7,
1996, by and among the Company and Somerset.
3. To adopt and approve the 1996 Employee Stock Option Plan and the
reservation of an aggregate of 7,000,000 shares of common stock for
issuance thereunder.
4. To adopt and approve an amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of common stock
from 75,000,000 shares to 300,000,000 shares.
5. To adopt and approve an amendment to the Company's Articles of
Incorporation providing that any action requiring the consent of more
than a majority of the issued and outstanding stock of the company only
require a consent of the majority.
The vote on these time items was as follows:
FOR AGAINST ABSTAINED
---------- ------- -------
1. Approval of rig merger ............... 27,109,455 209,745 36,525
2. Approval of Somerset merger .......... 26,901,630 409,845 44,250
3. Approval of Stock Option Plan ........ 26,715,825 435,925 203,975
4. Approval to increase authorized shares 34,168,446 634,705 162,858
5. Approval of change in majority ....... 27,736,366 531,425 137,650
The following five directors were elected to serve until the next annual meeting
of shareholders or until his successor is elected and qualified.
FOR WITHHELD
---------- --------
Ivar Siem ........ 36,398,809 58,370
Roy T. Oliver .... 36,398,809 58,370
Steven A. Webster 36,398,809 58,370
William R. Ziegler 36,398,809 58,370
Peter M. Holt .... 36,398,809 58,370
ITEM 5. OTHER INFORMATION
On November 12, 1996 the Company signed a definitive asset purchase
agreement to acquire all of the South Texas operational assets of Diamond M
Onshore, Inc., a wholly owned subsidiary of Diamond Offshore Drilling, Inc. The
assets to be acquired for approximately $26 million in cash consist of ten land
drilling rigs, all of which are currently working, 19 hauling trucks, a yard
facility in Alice, Texas and various other equipment and drill pipe. It is
anticipated that the acquisition will close by December 31, 1996 subject to
review of the transaction by federal antitrust authorities, and satisfaction of
other conditions contained in the definitive asset purchase agreement. The
Company placed $2 million in escrow upon the signing the definitive agreement
and management expects the remained of the acquisition price will be funded
primarily by new indebtedness and cash on hand. Currently, management is
evaluating various financing proposals which should be finalized in the near
term.
-20-
<PAGE>
This Quarterly Report on Form 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this report
including, without limitation, statement regarding the Company's business
strategy, plans, objectives and beliefs of management for future operations, the
anticipated closing and methods of financing the proposed acquisition of assets
from Diamond M Onshore, Inc. are forward-looking statements. Although the
company believes the expectations and beliefs reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview and the preceding paragraph concerning the
Company's proposed acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A current report on Form 8-K (Item 2), dated June 24, 1996, was filed
with the Securities and Exchange Commission on July 8, 1996. This Current Report
reported the sale of all the operating assets of Western Oil Well Service Co., a
wholly owned subsidiary of the Company.
A current report on Form 8-K (Item 4), was filed with the Securities
and Exchange Commission on October 2, 1996. This current report addressed the
Company's change in principal accountants.
A current report on Form 8-K (Item 5), was filed with the Securities
and Exchange Commission on November 4, 1996, announcing the signing of a letter
of intent to acquire the South Texas operational assets of Diamond M Onshore,
Inc.
(a) Exhibit 11 - Computation of Net Income (Loss) per Common Stock Share.
(b) Exhibit 27 - Financial Data Schedule.
-21-
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
COMPANY HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DI INDUSTRIES, INC.
Date: November 13, 1996 By: /S/ T. SCOTT O'KEEFE
---------------------
T. Scott O'Keefe
Senior Vice President and
Chief Financial Officer
Date: November 13, 1996 By: /S/ DAVID W. WEHLMANN
---------------------
David W. Wehlmann
Vice President and Controller
-22-
EXHIBIT 11
DI INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER COMMON STOCK SHARE
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary earnings (loss) per share:
Weighted average shares of common stock outstanding ... 68,853 38,669 48,812 38,669
Stock options (treasury stock method)(a) .............. -- -- -- --
-------- -------- -------- --------
Weighted average shares of common stock outstanding for
per share computation ............................ 68,853 38,669 48,812 38,669
======== ======== ======== ========
Net income (loss) ..................................... $ 808 $ (1,350) $ (159) $ (5,245)
Less: Series B Preferred Stock subscription
dividend requirement ............................. (100) -- (400) --
-------- -------- -------- --------
Net income (loss) applicable to common stock .......... $ 708 $ (1,350) $ (559) $ (5,245)
======== ======== ======== ========
Income (loss) per common share:
Income (loss) from continuing operations ......... $ .01 $ (.03) $ (.01) $ (.12)
Income (loss) from discontinued operations ....... -- -- -- (.02)
-------- -------- -------- --------
Net income (loss) per share ........................... $ .01 $ (.03) $ (.01) $ (.14)
======== ======== ======== ========
</TABLE>
Note: Reference is made to Note 2 to Consolidated Financial Statements
regarding computation of per common stock share amounts.
(a) Stock options are not included since inclusion would be either
antidilutive or not significant for all the periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM DI INDUSTRIES, INC. 10-Q DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,081
<SECURITIES> 0
<RECEIVABLES> 19,035
<ALLOWANCES> 2,099
<INVENTORY> 2,435
<CURRENT-ASSETS> 51,591
<PP&E> 70,372
<DEPRECIATION> 17,735
<TOTAL-ASSETS> 104,505
<CURRENT-LIABILITIES> 26,437
<BONDS> 0
764
0
<COMMON> 11,772
<OTHER-SE> 52,712
<TOTAL-LIABILITY-AND-EQUITY> 104,505
<SALES> 61,316
<TOTAL-REVENUES> 61,316
<CGS> 57,205
<TOTAL-COSTS> 63,859
<OTHER-EXPENSES> (3,172)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 788
<INCOME-PRETAX> (159)
<INCOME-TAX> 0
<INCOME-CONTINUING> (159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
