FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from ___________________ to ___________________
Commission File Number 0-9953
BONRAY DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1086424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4701 N. E. 23rd Street, Oklahoma City, OK 73121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 405/424-4327
Securities registered pursuant to Section 12(b) of the Act: None
Title of Each Class: Name of each exchange on which registered:
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Title of Common Stock class
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 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. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant at August 30, 1996 was $3,877,335.
The number of shares of common stock, $1.00 par value, outstanding at
August 30, 1996 was 423,540.
Part III incorporates information by reference from the Proxy
Statement for the Annual Meeting of Stockholders on November 6, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
Bonray Drilling Corporation, a Delaware corporation formed in March
1980, is successor to a contract drilling business which has been in
operation since 1957. The term "Company" includes Bonray Drilling
Corporation and its predecessor corporate and divisional operations
unless the context otherwise requires.
The Company is engaged in domestic onshore contract drilling of oil
and gas wells. It currently owns and has available for operation fifteen
drilling rigs in Oklahoma, having depth capabilities ranging from 7,000
to 25,000 feet. The Company will extend its geographical area of
operation if appropriate opportunities are presented.
Industry conditions and utilization rates
The Company's contract drilling revenues depend upon the utilization
of, and contract rates for, its drilling rigs. These factors are
affected by a number of variables, including competitive conditions in
the drilling industry and the amount of exploration and development
activity conducted by oil and gas producers.
The level of domestic drilling activity has historically fluctuated
widely and cannot be predicted because of the uncertainty of numerous
factors affecting the petroleum industry, including oil and gas selling
prices and the degree of government regulation of the industry. The
demand for rigs has greatly declined since the fourth quarter of 1982 due
to the decline in the exploration for and development of oil and gas
reserves, which resulted from the decrease in the sales price of oil and
gas. Lower rig utilization rates have caused intense price competition
in the industry. During the month of July 1996, the Company operated at
approximately 49.5% of capacity.
The following table sets forth certain information with respect to the
drilling activities of the Company. The utilization rate represents the
number of days during which a rig was operating or being made ready to
operate in a given period, expressed as a percentage of the number of
days that the rig was owned by the Company and available for work during
that same period.
<TABLE>
<CAPTION>
Years ended June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Utilization rate (1) 43.4% 43.4% 38.6% 41.9% 28.0%
Rigs available for work at
end of period 15 15 14 14 14
Wells drilled 58 62 59 61 43
Footage drilled (thousands) 544 505 489 547 344
</TABLE>
(1) Rigs being dismantled, moved and assembled were treated as utilized
if the Company was paid by a customer or if the Company allowed for
such activity in determining the price under a related drilling
contract.
Contracts
The terms and rates of the Company's drilling contracts vary depending
upon the location, duration and complexity of the drilling, the equipment
and services provided, and other factors. As of August 31, 1996, eight
rigs were under contract for the drilling of twelve wells. As of that
date, five of the Company's rigs were operating on a daywork basis,
pursuant to which the Company is paid monthly a specified amount per day
based on the depth capability of the rig. The Company is paid for all
days during the term of the contracts except days for which the rigs are
not in operation because of repairs or maintenance. Daywork contracts
generally specify the type of equipment to be used, the size of the hole
and the depth of the well to be drilled, and provide for payment by the
customer of certain costs and expenses of transporting, assembling and
dismantling the rigs. While working under daywork contracts, the Company
bears no part of the costs due to in-hole losses such as time delays for
various reasons, including stuck drill strings and blowouts.
The Company also enters into footage and turnkey contracts. Footage
and turnkey contracts, as opposed to daywork contracts, shift the risk of
loss in drilling from the customer to the drilling contractor and, as a
consequence, result in greater variation in profitability. As of August
31, 1996, two rigs were operating under footage contracts. Footage
contracts usually provide for payment of an agreed price per foot of hole
drilled to a specified depth regardless of the time required or the
problems encountered. Turnkey contracts, of which none were in process
at August 31, 1996, provide for payment of an agreed price upon the
attainment of a specified objective. Turnkey contracts require more
services of the contractor and, consequently, result in additional risks,
costs and higher revenues which are not inherent in footage or daywork
contracts. Turnkey contracts include costs for casing, cementing,
drilling mud, and logging services. The Company determines the manner of
drilling and type of equipment to be used, subject to customer
specifications.
The Company prefers to work on a daywork basis, as it does not believe
the potentially higher profit margins of footage and turnkey contracts
justify the associated increased risks. However, in periods of lesser
demand, the Company is generally required to work on a footage or turnkey
basis, particularly with respect to shallow drilling.
The following table indicates the percentage of drilling revenues
attributable to the foregoing types of contracts for the periods
indicated:
<TABLE>
<CAPTION>
Years ended June 30,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Type of Contract:
Daywork 78.0% 88.5% 77.0% 42.8% 70.5%
Footage 13.0% 10.5% 12.0% 18.4% 26.7%
Turnkey 9.0% 1.0% 11.0% 38.8% 2.8%
</TABLE>
Customers and competition
The Company's customers include major integrated oil companies and
independent oil and gas producers. The following table summarizes the
Company's sources of contract drilling revenue and wells drilled for each
of the three years in the period ended June 30, 1996:
<TABLE>
<CAPTION>
Years ended June 30,
(Dollars in thousands)
1996 1995 1994
----------------------- ---------------------- --------------------
Wells Wells Wells
Drld. Amount % Drld. Amount % Drld. Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Avalon
Exploration 5 $ 1,881 18 9 $2,561 30 13 $2,324 29
Sanguine, Ltd. 6 3,333 33 4 879 10 1 162 2
Marathon Oil 6 1,042 10 6 2,082 25 10 1,766 22
All Others 41 4,001 39 43 2,964 35 35 3,660 47
-- ------- --- -- ------ --- -- ------ ---
Totals 58 $10,257 100 62 $8,486 100 59 $7,912 100
== ======= === == ====== === == ====== ===
</TABLE>
The Company competes with a large number of companies in the
marketing of its drilling services, some of which have substantially
greater resources available than the Company. The Company believes that
competition is based principally on the availability of suitable drilling
rigs and related equipment, expertise, price and reputation, and believes
that it is able to compete effectively with respect to each of such
factors. Competition is primarily regional and may vary from time to
time by region. Rigs can be moved, however, from one region to another
in response to perceived demand.
Conditions in the industry remain very competitive. Maintenance of
on-going customer relationships is extremely important. However,
vigorous competition will make it difficult to maintain such
relationships.
The Company maintains four trucks in order to move some of its rigs
to drill sites on an economic basis but contracts with common carriers
and contractors for rig assembly and disassembly. The cost of
transportation is usually included in the daywork rate, with some
reimbursements generally allowed. Footage and turnkey contracts usually
require the Company to absorb these costs.
Regulatory matters
General - The production and sale of crude oil and natural gas are
currently subject to extensive regulation and significant taxation by
both federal and state authorities. Most states (including Oklahoma)
have regulations which pertain to spacing of wells, preventing waste of
oil and gas, limiting rates of production, proration of production,
prevention and clean-up of pollution and similar matters. These
regulations decrease producer profitability which in turn decreases the
demand for contract drilling.
Environmental regulation - The Company's operations are subject to
numerous federal, state and local laws and regulations controlling the
discharge of material into the environment or otherwise relating to the
protection of the environment. The Company believes that it complies
with those regulations and laws affecting its operations. Such
compliance has not had and is not currently expected to have, a material
effect upon the Company's capital expenditures, earnings or competitive
position.
Operating risks and insurance
Contract drilling by its nature involves numerous operating hazards
and risks, including blowouts, craterings, fires and explosions, any of
which can cause serious damage to property and equipment and personal
injuries or loss of life. There is also a risk that oil spillage, gas
leakage or fires could result in serious environmental damage. The
Company carries insurance customary for the industry but may not be fully
insured against all risks either because they are not fully insurable or
because premium costs are prohibitive. The occurrence of an event
against which the Company is not fully insured could cause the Company to
incur substantial costs and loss of revenue.
The Company insures its rigs for amounts substantially approximating
their replacement values (less $25,000 deductible per occurrence). The
Company purchases workers' compensation insurance under a loss rating
plan. This plan affords the Company the opportunity to pay less than
standard premium or the risk of paying more than standard premium
depending on losses incurred. The Company limits its exposure within the
plan to $100,000 ($250,000 prior to June 1995) per incident.
Employees
As of June 30, 1996, the Company had 24 salaried and approximately
130 hourly employees. The number of hourly employees varies, depending
upon the level of rig utilization.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Positions
- ---------------------- --- --------------------------------------
<S> <C> <C>
Raymond H. Hefner, Jr. 69 Chairman of the Board of Directors
Richard B. Hefner 36 President and Chief Executive Officer
</TABLE>
Officers are elected annually by the Board of Directors.
Raymond H. Hefner, Jr., was elected Chairman of the Board of
Directors of the Company upon its inception in March 1980. He served as
Chief Executive Officer from that time until June 30, 1993. He founded
Bonray Energy Corporation ("BEC"), a company engaged in oil and gas
exploration and production and the predecessor of the Company's
operations, in 1957. He served as Chairman of the Board, Chief Executive
Officer and Treasurer of BEC from 1957 until November 1, 1991, when BEC
was sold to Ensign Oil & Gas, Inc., and became EOG (Oklahoma) Inc. Mr.
Hefner also serves as President of Bonray, Inc., a privately held oil and
gas investment company, and President of HBH Holding Corporation, the
general partner of HBH Enterprises A Limited Partnership, an Oklahoma
limited partnership, a privately held investment company. He previously
served as Chairman of the Board of Liberty Bank and Trust Company of
Oklahoma City, N.A., a national bank; Vice Chairman of the Board of
Liberty Bancorp, Inc., a bank holding company; and currently serves as a
director of Liberty Bancorp, Inc., Liberty Bank and Trust Company of
Oklahoma City, N.A., Liberty Bank and Trust Company of Tulsa, N.A.,
Liberty Mutual Insurance Company, Liberty Mutual Life Insurance Company,
Liberty Financial Companies, Inc. and is a Southwest advisory director
for Liberty Mutual Insurance Company. Mr. Hefner joined the board of
directors for Gulf Canada Resources Limited January 25, 1995. He is the
father of Richard B. Hefner.
Richard B. Hefner was elected Chief Executive Officer effective June
30, 1993. He has served as President, Chief Operating Officer and
Director of the Company since October 1990. Mr. Hefner serves as Vice
President of Bonray, Inc., a privately held oil and gas investment
company, and Vice President of HBH Holding Company, the general partner
of HBH Enterprises A Limited Partnership, an Oklahoma limited
partnership, a privately held investment company. He has served as Vice
President and General Manager of Canadian Valley Ranch, Inc., a pure-bred
livestock production company, since 1982. He is the son of Raymond H.
Hefner, Jr.
ITEM 2. PROPERTIES
The Company owns approximately forty acres of land located in
Oklahoma City, Oklahoma, on which an office building and repair, support
and storage facilities for the Company's operations are located. These
facilities include a repair shop (8,000 square feet) and three
warehouses. The office building (3,600 square feet) was renovated in
fiscal year 1992 to be used by office personnel.
The Company presently owns and operates fifteen drilling rigs.
Although four of these drilling rigs have been "mothballed", thus
requiring major expenditures in order to become productive, the remaining
eleven rigs are in good operating condition. Although the rigs with less
depth capacity have had greater utilization in recent years, the Company
has experienced an increased utilization of the rigs with deeper capacity
over the last few months. (See "Item 1. Business" for utilization rates,
drilling contracts and customers.) The following table sets forth
certain information relating to the Company's drilling rigs presently
available for operation:
<TABLE>
<CAPTION>
Depth
Rig Capability Customer at
Number (feet)* Type August 31, 1996
- ------ ---------- ----------- ---------------
<S> <C> <C> <C>
1 16,000 Oilwell 760 Marathon
2 20,000 Oilwell 860 mothballed
3 10,000 Ideco 525 mothballed
4 12,000 Unit U-40 Oryx
5 9,000 National 50-A **
6 9,000 National 50-A mothballed
7 7,000 Cooper 550 **
8 10,000 Cooper LTO 750 **
10 12,000 National 55 Oryx
21 12,000 Ideco 750 Revere
30 20,000 National 1320-M mothballed
31 25,000 National 1320-M **
32 20,000 National 110-M Avalon
33 20,000 Mid Continent U914 Sanguine
34 25,000 Gardner Denver 1500 Sanguine
</TABLE>
* Depth capabilities are based upon the use of 4.5 inch or 5 inch drill
pipe and normal casing designs. The capabilities may vary as a result of
the use of different drill pipe or unusual casing designs.
** Not operating at August 31, 1996.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company is a
party or any of its property is subject.
There are no material administrative or judicial proceedings arising
under any federal, state, or local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of
the environment. No such proceedings are known to be contemplated by
governmental authorities. No material legal proceedings were terminated
during the fourth quarter ended June 30, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders through the
solicitation of proxies or otherwise during the fourth quarter of the
year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded over-the-counter under the
NASDAQ symbol BNRY. The following is the range of prices for the
Company's common stock for each of the quarters in the two year period
ended June 30, 1996:
<TABLE>
<CAPTION>
1996 Bids* 1995 Bids*
--------------- ----------------
Quarter High Low High Low
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First $ 8.75 $ 8.50 $ 7.50 $ 7.00
Second $10.50 $ 8.75 $ 8.25 $ 7.75
Third $11.25 $10.25 $ 8.50 $ 8.50
Fourth $12.75 $10.25 $ 8.50 $ 8.50
</TABLE>
* Bid quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
No dividends have been paid since the inception of the Company. At
present, the Company intends to maintain a policy of retaining any
earnings for its operations.
At August 30, 1996, Bonray Drilling Corporation had approximately 542
stockholders of record, not including individual stockholders whose
shares are held in street name by brokerage, nominee or depository firms.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended June 30,
(Dollars in thousands, except per share data)
----------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Operating
revenues $10,257 $ 8,486 $ 7,912 $ 9,631 $ 5,145
======= ======= ======= ======= =======
Net income (loss) $ (142) $ 866 $ (575) $(1,551) $(1,179)*
======== ======= ======== ======== =========
Net income (loss)
per share $ (.34) $ 2.05 $ (1.36) $ (3.66) $ (2.78)*
======== ======= ======== ======== =========
Weighted average
shares outstanding 423,540 423,540 423,540 423,540 423,540
Total assets $10,311 $10,647 $ 8,896 $ 9,419 $10,295
======= ======= ======= ======= =======
Obligations due
after one year $ 103 $ 693 $ 214 $ 388 $ -
======= ======= ======= ======= =======
</TABLE>
No cash dividends were declared or paid during the periods.
* Includes cumulative effect on prior years of $100,000 ($.24 per share)
due to change in method of accounting for income taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
References to 1996, 1995 and 1994 refer to the Company's fiscal years
ended June 30, 1996, June 30, 1995 and June 30, 1994, respectively.
Liquidity and capital resources
The Company reported net working capital on June 30, 1996 of $166,000
and a ratio of current assets to current liabilities of 1.07 to 1. The
$342,000 decrease in working capital as compared to June 30, 1995, was
largely a result of the increased amount of workers' compensation costs
due within the next fiscal year compared to June 30, 1995. This increase
is due to the contractual terms of the Company's workers' compensation
insurance policies.
Due to the depressed status of the energy industry, some of the
Company's customers pay for services on a basis of sixty to ninety days.
Due to the delay in collecting receivables, it became necessary to obtain
a line of credit with a local bank. The credit agreement provides for a
maximum of $750,000 at an interest rate of 1/2% above the national prime
lending rate recognized by the bank and is collateralized by accounts
receivable. The agreement expires October 31, 1996, unless renewed. At
June 30, 1996, the Company had $555,000 of borrowings under this
agreement.
The Company expects to be able to continue to maintain its drilling
rig fleet in good operating condition and to meet its financing
obligations through the use of working capital generated from operations.
In connection with the purchase of drilling equipment, a note payable
was issued to the seller for $828,000, payable in monthly installments of
principal and interest in the amount of $50,000 until paid in full with
interest at a rate of 1% above the national prime lending rate (aggregate
rate of 9.25% at June 30, 1996), and is secured by the equipment
purchased. The balance of the note is $189,000 at June 30, 1996 and
matures October, 1996.
Over the last several years, the Company generated additional net
operating losses for tax purposes due primarily to its use of accelerated
depreciation which exceeds accumulated book depreciation. The Company
was able to utilize a portion of these losses in its current year tax
return. The remaining net operating losses are available for use in
future periods due to carryover provisions. These carryover provisions
will begin to expire in the year 2001.
At the end of the year, the Company had no material commitments for
capital expenditures.
Results of operations
Revenues from drilling operations were $10,257,000 in 1996, an
increase of 21% from $8,486,000 in 1995 and an increase of 30% from
$7,912,000 reported in 1994. The increase from 1995 and 1994 is
represented by an increase in the number of operating days. Unstable
natural gas prices and fluctuating crude oil prices have continued to
depress the drilling industry. Competition for contracts remains strong.
However, the Company's attempts to raise rates have been somewhat
successful.
The Company's ability to operate on a large percentage of daywork
contracts as opposed to footage and turnkey contracts, along with a
reduction in workers' compensation expense in 1996, resulted in gross
profit on drilling contracts (drilling operations revenue less drilling
operations' cost and depreciation) of $784,000 compared to a gross profit
of $491,000 reported in 1995 and a gross profit of $51,000 reported in
1994. Gross profit for 1996 was reduced due to a greater amount of
depreciation sustained on mothballed rigs due to a change in the
estimated salvage value of such equipment. Depreciation expense for this
equipment was $269,000 in 1996 compared to $36,000 and $131,000
respectively, in 1995 and 1994. At June 30, 1996, this equipment is
carried at its estimated salvage value.
Operations for 1996 resulted in a net loss of $142,000 compared to net
income of $866,000 in 1995 and a net loss of $575,000 in 1994. The
change in results of 1996 compared to 1995 is principally due to a pre-
tax gain of approximately $1,000,000 from the sale of one of the
Company's rigs and related equipment in 1995. This gain also accounts
for most of the change in the results of operations for 1995 compared to
1994. Although the Company improved its gross profit from contract
drilling, its results of operations did not reflect this improvement due
to additional general and administrative costs, increased interest
expense, and a reduction in interest and other income. The Company is
continuing to monitor means for improving its results of operations
through improved gross margins and monitoring other applicable costs of
its business and operations.
Workers' compensation insurance costs and claims for self-insured
risks account for the Company's highest cash expense other than labor.
These costs were $597,000 in 1996, $979,000 in 1995 and $876,000 in 1994
or 16%, 25% and 23%, respectively, of payroll expenditures. Of the
amount expended in 1995, and 1994 for workers' compensation insurance
costs, 4% and 11%, respectively, were due to revisions in estimates of
claims from prior fiscal years. Workers' compensation costs in 1996 were
reduced by $48,000 due to favorable changes in estimated claims costs
from prior years which were settled during 1996. To place greater
emphasis on safety, the Company implemented a tenure and drug screening
program in 1991 to help reduce these costs. The tenure program was
changed to the Safety Award Program in 1994 and the Company began a pre-
employment job related physical ability evaluation program in 1995.
Because workers' compensation law and insurance coverage allow claims to
remain open after a policy year ends, it is difficult to determine the
Company's total liability for any given year.
The following table indicates the percentage of the Company's drilling
revenues attributable to the various types of contracts for each of the
three years ended June 30, 1996:
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Type of Contract:
Daywork 78.0% 88.5% 77.0%
Footage 13.0% 10.5% 12.0%
Turnkey 9.0% 1.0% 11.0%
</TABLE>
Gross profit, excluding indirect costs associated with contract
drilling operations and depreciation of mothballed drilling rigs,
attributable to the various types of contracts for the same three years
are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Type of Contract:
Daywork 87.5% 91.0% 80.1%
Footage 7.2% 8.2% 12.6%
Turnkey 5.3% .8% 7.3%
</TABLE>
Inflation
The effect of inflation on the Company's operations has been
insignificant because of the low rate of inflation in recent years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, together with the report
thereon of Ernst & Young LLP, are set forth on pages 13 through 22
hereof. (See Item 14 for Index.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by Item 304 of Regulation S-K is not
applicable to the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the identification, business experience,
and directorships of each director and nominee for director of the
Company required by Item 401 of Regulation S-K and presented in the
section entitled "Information Concerning Nominees and Directors" of the
Company's Proxy Statement for the annual meeting of Stockholders on
November 6, 1996, is hereby incorporated by reference. (See Item 1 for
information relating to the identification and business experience of the
Company's executive officers). The information required by Item 405 of
Regulation S-K does not require disclosure by the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to the remuneration of directors and officers
required by Item 402 of Regulation S-K and presented in the section
entitled "Executive Compensation" of the Company's Proxy Statement for
the annual meeting of Stockholders on November 6, 1996, is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership required by Item 403 of
Regulation S-K and presented in the section entitled "Voting Securities
Outstanding, Security Ownership of Management and Principal
Stockholders," of the Company's Proxy Statement for the annual meeting of
Stockholders on November 6, 1996, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to transactions with management and business
relationships required by Item 404 of Regulation S-K and presented in the
section entitled "Transactions With Management" of the Company's Proxy
Statement for the annual meeting of Stockholders on November 6, 1996, is
hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1 and 2. Index to Financial Statements and Financial Statement
Schedules.
<TABLE>
Page
----
<S> <C>
Report of independent auditors 13
Covered by report of independent auditors:
Balance sheets at June 30, 1996 and 1995 14
Statements of operations and accumulated deficit
for each of the three years in the period
ended June 30, 1996 15
Statements of cash flows for each of the three
years in the period ended June 30, 1996 16 & 17
Notes to financial statements 18-22
</TABLE>
All financial statement schedules are inapplicable or the required
information is included in the financial statements or the notes thereto.
3. Exhibits
The following documents are exhibits to this Form 10-K. Each
document marked by an asterisk is hereby incorporated herein by reference
to same document previously filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Exhibit
Number Document
- ---------------------------------------------------------------------------
<S> <C>
3(a) Registrant's Certificate of Incorporation and all amendments
(filed as Exhibit 19(a) to Form 10-Q for the six months ended
December 31,1986).*
3(b) Registrant's Restated By-Laws (dated May 6, 1981, as amended
November 25, 1986)(filed as Exhibit 19(b) to Form 10-Q for the
six months ended December 31, 1986).*
10(a) 1981 Incentive Stock Option Plan for Bonray Drilling Corporation
and its Subsidiaries (filed as Exhibit 10(a) to Form 10-K for the
fiscal year ended June 30, 1995).*
10(b) Commercial Promissory Note - Fixed or Variable Rate by and between
Bonray Drilling Corporation and BancFirst (filed as Exhibit 10(b)
to Form 10-K for the fiscal year ended June 30, 1995).*
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three months ended June 30,
1996.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Bonray Drilling Corporation
We have audited the accompanying balance sheets of Bonray Drilling
Corporation as of June 30, 1996 and 1995, and the related statements of
operations and accumulated deficit and cash flows for each of the three
years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Bonray
Drilling Corporation at June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Ernst & Young LLP
Oklahoma City, Oklahoma
August 16, 1996
<PAGE>
<TABLE>
BONRAY DRILLING CORPORATION
BALANCE SHEETS
June 30, 1996 and 1995
<CAPTION>
1996 1995
------- ------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 187 $ 160
Accounts receivable (Note 3) 2,172 2,139
Drilling contracts in progress 20 21
Prepaid expenses 89 94
------- -------
Total current assets 2,468 2,414
Properties and equipment:
Drilling equipment (Note 3) 20,411 20,766
Land 110 110
Buildings 356 356
Other equipment 1,145 1,093
------ ------
22,022 22,325
Less accumulated depreciation 14,179 14,092
------ ------
Net properties and equipment 7,843 8,233
------ ------
$10,311 $10,647
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 689 $ 965
Notes payable (Note 3):
Short term line of credit 555 -
Other 189 551
Accrued liabilities:
Salaries and wages 246 163
Payroll and other taxes 57 61
Workers' compensation insurance
(Note 4) 446 66
Other 120 100
------- -------
Total current liabilities 2,302 1,906
Obligations due after one year:
Workers' compensation insurance (Note 4) 75 447
Notes payable (Note 3) - 191
Other 28 55
Stockholders' equity (Note 5):
Common stock, $1.00 par value; 800,000
shares authorized, 432,740 shares
issued 433 433
Capital in excess of par value 12,497 12,497
Accumulated deficit (4,932) (4,790)
------- -------
7,998 8,140
Less 9,200 shares of treasury stock,
at cost 92 92
------- -------
Total stockholders' equity 7,906 8,048
------- -------
$10,311 $10,647
======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
BONRAY DRILLING CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended June 30, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues:
Contract drilling operations
(Note 6) $10,257 $ 8,486 $ 7,912
Gain (loss) from sale of assets (66) 1,029 (3)
Interest and other income 89 172 137
------- ------- -------
10,280 9,687 8,046
Costs and expenses (Note 4):
Contract drilling operations 8,189 6,865 6,649
General and administrative 864 752 687
Interest and other expense 85 39 73
Depreciation 1,284 1,130 1,212
------- ------- -------
10,422 8,786 8,621
======= ======= =======
Income (loss) before provision for
income taxes (142) 901 (575)
Provision for income taxes (Note 2) - 35 -
------- ------- -------
Net income (loss) (142) 866 (575)
Accumulated deficit at beginning
of year (4,790) (5,656) (5,081)
------- ------- -------
Accumulated deficit at end of year $(4,932) $(4,790) $(5,656)
======== ======== ========
Net income (loss) per share $ (.34) $ 2.05 $ (1.36)
======== ======== ========
Weighted average shares outstanding 423,540 423,540 423,540
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
BONRAY DRILLING CORPORATION
STATEMENTS OF CASH FLOWS
Years ended June 30, 1996, 1995 and 1994
(Dollars in thousands)
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $10,628 $10,910 $10,492
Cash paid to suppliers and
employees (9,662) (10,178) (10,285)
Interest received 5 36 -
Interest paid (66) (27) (31)
Income taxes paid (5) (30) -
Other cash receipts 85 152 124
-------- -------- --------
Net cash provided by
operating activities 985 863 300
Cash flows from investing activities:
Proceeds from sales of assets 27 1,659 4
Capital expenditures (987) (2,120) (424)
-------- -------- --------
Net cash used by investing
activities (960) (461) (420)
Cash flows from financing activities:
Payments on notes payable (553) (86) -
Net increase (decrease) in
borrowings on short-term line
of credit 555 (165) 65
-------- -------- --------
Net cash provided (used) by
financing activities 2 (251) 65
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 27 151 (55)
Cash and cash equivalents at
beginning of year 160 9 64
-------- -------- --------
Cash and cash equivalents at
end of year $ 187 $ 160 $ 9
======= ======= =======
Reconciliation of net income (loss)
to net cash provided by
operating activities:
Net income (loss) $ (142) $ 866 $ (575)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 1,284 1,130 1,212
(Gain) loss on sales of assets 66 (1,029) 3
Change in assets and liabilities:
Decrease (increase) in
current assets:
Accounts receivable (33) (434) (578)
Drilling contracts in
progress 1 13 196
Prepaid expenses 5 9 (14)
Increase (decrease) in
current liabilities:
Accounts payable (276) 68 107
Accrued liabilities 479 (48) 54
Accrued workers' compensation
insurance and other due after
one year (399) 288 (174)
Other - - 69
-------- -------- --------
Total adjustments 1,127 (3) 875
-------- -------- --------
Net cash provided by operating
activities $ 985 $ 863 $ 300
======== ======== ========
</TABLE>
Disclosure of noncash investing and financing activities:
During the year ended June 30, 1995, the Company acquired property,
plant and equipment by issuing a note payable of $828,050.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
BONRAY DRILLING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Years ended June 30, 1996, 1995 and 1994
1. Basis of financial statements and significant accounting policies
Nature of operations - The Company is engaged in domestic onshore
contract drilling of oil and gas wells. It currently owns and has
available for operation fifteen drilling rigs located in Oklahoma, having
depth capabilities ranging from 7,000 to 25,000 feet.
Cash and cash equivalents - Cash and cash equivalents include cash
deposits in banks and short-term investments with original maturities of
three months or less from the date of purchase by the Company.
Contract drilling operations - Revenue earned from footage and turnkey
contracts is recognized by the completed contract method, while revenue
earned from daywork contracts is recognized by the percentage-of-completion
method. Provision is made for the entire amount of expected losses on con-
tracts, if any, in the period in which such losses are first determined.
Valuation of properties and equipment - Drilling equipment is stated
at amounts representing historical cost adjusted by prior year write-downs
based on the expected future economic value of such equipment. This value was
determined by projecting the estimated future undiscounted cash flows
generated by drilling equipment based on the Company's historical utilization
rates and profit margins as well as consideration of the economic conditions of
the industry. However, due to the uncertainty of such factors it is reasonably
possible that the estimated future cash flows may change. Additions to drilling
equipment, land, buildings and other equipment are reported at cost.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under
the new rules long-lived assets must be reviewed for impairment and any
impairment would be measured based on the fair value of the assets and
would be reported in the year in which the statement is initially
adopted. The statement is required to be adopted by the Company during
the first quarter of fiscal year 1997. The financial statement impact
has not yet been determined; however, management does not expect the
impact, if any, will be material to the financial position or results of
operations of the Company.
Depreciation - Depreciation of drilling equipment is computed on an
operating day basis (net of estimated salvage value), except for drilling
rigs and related equipment which are "mothballed" or otherwise not
expected to be used for an extended period of time. During fiscal year
1996 there was a decrease in the estimated salvage value of these
inactive drilling rigs and equipment. As a result, depreciation on this
equipment was increased in 1996 to reduce the net book value of these
assets to their estimated salvage value. The net book value of such
drilling equipment is $457,000 and $733,000 at June 30, 1996 and 1995,
respectively. The Company recorded $269,000 of depreciation in 1996,
$36,000 in 1995 and $131,000 in 1994 on these inactive rigs and related
equipment, or $.64 per share, $.08 per share, and $.31 per share,
respectively.
Depreciation of buildings and other equipment is computed by the
straight-line method over the estimated useful lives of the assets.
Income (loss) per share - Income (loss) per share is computed on the
basis of weighted average number of shares of common stock and dilutive
common stock equivalents outstanding.
Credit risk - The Company operates its rigs in the state of Oklahoma
and grants credit, which is generally unsecured, to its customers (Note
6). At June 30, 1996 approximately 85% of the Company's accounts
receivable were from four customers. The Company has not experienced any
significant credit losses in 1996, 1995 or 1994 and is not aware of any
significant uncollectible accounts at June 30, 1996.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Fair Value of Financial Instruments - The following methods and
assumptions were used by the Company in estimating their fair values of
financial instruments: Cash and cash equivalents, accounts receivable,
drilling contracts in progress, prepaid expenses, accounts payable,
accrued liabilities, and workers' compensation insurance due after one
year are each estimated to have a fair value approximating the carrying
amount due to the short maturity of those instruments. Notes payable
have variable interest rates with carrying values approximating fair
values.
2. Income taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets as of June 30, 1996 and 1995 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax liability - tax
depreciation over book
depreciation and write-downs $ 658 $ 807
======= =======
Deferred tax assets:
Net revenues and expenses recognized for
tax purposes which are deferred for
financial purposes $ 25 $ 7
Net operating loss carryforwards 2,073 2,216
------- -------
Total deferred tax assets
before valuation allowance 2,098 2,223
Less: Valuation allowance recognized 1,440 1,416
------- -------
Net deferred tax assets $ 658 $ 807
======= =======
</TABLE>
The deferred tax assets and liability are offset and, therefore, no
deferred tax asset or liability is reflected in the Company's balance
sheets at June 30, 1996 and 1995.
The difference between the amount of the credit for income taxes and
the amount which would result from the application of the statutory rate
to income (loss) before provision (credit) for income taxes is analyzed
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Provision (credit) for income taxes
at statutory rate $ (48) $ 306 $ (201)
Difference resulting from:
Increase (decrease) in valuation
allowance for net deferred
tax assets 24 (330) 215
Alternative minimum tax - 35 -
Other 24 24 (14)
------- ------- -------
Provision for income taxes $ - $ 35 $ -
======= ======= =======
</TABLE>
At June 30, 1996, the Company has net operating loss carryforwards for
federal tax purposes of approximately $4,800,000 which will expire
beginning in the year 2001 if not used. At June 30, 1996, the net
operating loss carryforwards for state tax purposes amounted to
approximately $12,300,000.
3. Notes Payable
During the year ended June 30, 1995, the Company acquired drilling and
other equipment by issuing a note payable of $828,000 to the seller of
the equipment. The note is payable in monthly installments of principal
and interest in the amount of $50,000 until paid in full with interest at
a rate of 1% above the national prime lending rate (aggregate rate of
9.25% at June 30, 1996) and is secured by the equipment purchased. The
balance due under the agreement at June 30, 1996 was $189,000, which is
due within one year. The balance at June 30, 1995 was $742,000 of which
$551,000 was expected to be due within one year. The note also contains
a prepayment option for the Company and allows the Company to defer up to
four of the monthly payments.
The Company has a revolving line of credit agreement (the "credit
agreement") with a bank. Credit availability is subject to a monthly
borrowing base determination calculated as 75% of the Company's accounts
receivable less than 90 days old, not to exceed $750,000. At June 30,
1996, $555,000 of borrowings were outstanding under the revolving line of
credit (none at June 30, 1995). The credit agreement, which expires
October 31, 1996 unless renewed, provides for monthly interest payments
which accrue at a rate of 1/2 of 1% over the lender's national prime rate
(aggregate rate of 8.75% at June 30, 1996). Outstanding advances and
accrued interest are due in full upon expiration of the credit agreement.
The credit agreement is secured by the Company's accounts receivable.
4. Contingency
Workers' Compensation - The Company is covered by a workers'
compensation insurance plan for its employees under which the Company is
responsible for claims up to $100,000 ($250,000 prior to June 1995) per
incident.
At June 30, 1996 and 1995, the Company has an estimated net liability
for accrued workers' compensation costs totaling $521,000 and $513,000
respectively. Under the plan, the Company is to reimburse the
administrator for costs as those costs are paid by the administrator,
normally over a five year period. Accordingly, at June 30, 1996 and
1995, $75,000 and $447,000 respectively, were classified as due after one
year, in the accompanying balance sheets.
Total workers' compensation costs incurred by the Company were
$597,000, $979,000 and $876,000 for the years ended June 30, 1996, 1995
and 1994 respectively, and were based on actual and estimated claims
incurred. For the year ended June 30, 1996, workers' compensation
expense was reduced by $48,000 ($.11 per share) for changes in estimates
of claims relating to prior fiscal years. Workers' compensation expense
for the years ended June 30, 1995 and 1994 was increased by $40,000 and
$99,000 ($.09 and $.23 per share) respectively, for changes in the
estimated costs of claims that occurred in prior fiscal years.
The Company accrues losses for workers' compensation based on
management's estimate of the expected cost of claims incurred. The
estimates are based upon known information, historical experiences and
consideration of risk reduction techniques, when applicable, such as stop
loss insurance on individual claims. Due to uncertainties inherent in
the estimation process, it is reasonably possible that these estimates
will be revised in the future; however, management does not expect that
such changes will be material to the financial position or results of
operations of the Company.
5. Incentive stock option plan
In September 1981, the Company established the 1981 Incentive Stock
Option Plan under which the Company was authorized to award options on up
to 5,000 shares of common stock to certain officers and key employees of
the Company. The 1981 Incentive Stock Option Plan expired in September
1991, and was not renewed, however outstanding options may be exercised
any time through June 1999. There has been no activity in outstanding
options during the past three fiscal years. At June 30, 1996, options
for 1,000 shares (at an exercise price of $14.875) were outstanding.
6. Major customers
Contract drilling operations revenues include revenues from certain
customers which individually account for 10% or more of these contract
drilling operations revenues as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Customer
A $3,333,000 $ 879,000 $ -
B 1,881,000 2,561,000 2,324,000
C - - 871,000
D 1,042,000 2,082,000 1,766,000
---------- ---------- ----------
$6,256,000 $5,522,000 $4,961,000
========== ========== ==========
</TABLE>
<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, on September 27, 1996.
BONRAY DRILLING CORPORATION
BY: RICHARD B. HEFNER
Richard B. Hefner
President, Chief Executive Officer
and Director
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 indicated on September 27, 1996.
RAYMOND H. HEFNER, JR. Chairman of the Board of Directors
Raymond H. Hefner, Jr.
RICHARD B. HEFNER President, Chief Executive Officer
Richard B. Hefner and Director
PHILIP C. DAY Treasurer and Chief Financial Officer
Philip C. Day
JOANNE BELCHER Controller and Chief Accounting Officer
Joanne Belcher
WILLIAM B. CLEARY Director
William B. Cleary
HOBART A. SMITH Director
Hobart A. Smith
JAMES R. TOLBERT III Director
James R. Tolbert III
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
EXHIBIT PAGE NUMBER OF INCORPORATION
NO. DESCRIPTION OR METHOD OF FILING
<S> <C> <C>
3(a) Registrant's Certificate Form 10-Q for the six months
of Incorporation and all ended December 31, 1986,
amendments Exhibit 19(a)
3(b) Registrant's Restated Form 10-Q for the six months
By-laws (dated May 6, ended December 31, 1986,
1981, as amended Exhibit 19(b)
November 25, 1986)
10(a) 1981 Incentive Stock Form 10-K for the fiscal year
Option Plan for Bonray ended June 30, 1995,
Drilling Corporation and Exhibit 10(a)
its Subsidiaries
10(b) Commercial Promissory Form 10-K for the fiscal year
Note - Fixed or Variable ended June 30, 1995,
Rate by and between Exhibit 10(b)
Bonray Drilling Corpora-
tion and BancFirst
27 Financial Data Schedule Filed herewith electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000351693
<NAME> BONRAY DRILLING CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 187
<SECURITIES> 0
<RECEIVABLES> 2,172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,468
<PP&E> 22,022
<DEPRECIATION> 14,179
<TOTAL-ASSETS> 10,311
<CURRENT-LIABILITIES> 2,302
<BONDS> 0
0
0
<COMMON> 433
<OTHER-SE> 7,473
<TOTAL-LIABILITY-AND-EQUITY> 10,311
<SALES> 10,257
<TOTAL-REVENUES> 10,280
<CGS> 8,189
<TOTAL-COSTS> 8,189
<OTHER-EXPENSES> 2,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> (142)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> 0.00
</TABLE>
