==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-5587
READING & BATES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-0642271
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
901 Threadneedle, Suite 200, Houston, Texas 77079
(Address of principal executive offices)(Zip Code)
(713)496-5000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed
since last report.)
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___
NUMBER OF SHARES OF COMMON STOCK OF REGISTRANT OUTSTANDING
AT JULY 15, 1994 : 55,484,888
Exhibit Index
==============================================================================
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Company or Group of Companies for Which Report is Filed:
Reading & Bates Corporation and Subsidiaries
The financial statements for the three and six month periods ended June 30,
1994 and 1993, include, in the opinion of the Company, all adjustments (which
consist only of normal recurring adjustments) necessary to present fairly the
financial position and results of operations for such periods. The financial
data for the three and six month periods ended June 30, 1994 included
herein have been subjected to a limited review by Arthur Andersen &
Co., the registrant's independent public accountants, whose report is
included herein. Results of operations for the three and six month periods
ended June 30, 1994 are not necessarily indicative of results of operations
which will be realized for the year ending December 31, 1994. The financial
statements should be read in conjunction with the Company's Form 10-K for the
year ended December 31, 1993.
READING & BATES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands)
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
---------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 74,045 $ 80,385
Accounts receivable:
Trade, net 35,571 36,536
Other 3,138 3,880
Materials and supplies inventory 9,281 8,709
Other current assets 6,349 4,842
--------- ---------
Total current assets 128,384 134,352
--------- ---------
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED INVESTEES 234 212
--------- ---------
PROPERTY AND EQUIPMENT:
Drilling 739,114 746,418
Other 5,913 5,778
--------- ---------
745,027 752,196
Accumulated depreciation and amortization (290,337) (277,534)
--------- ---------
Net property and equipment 454,690 474,662
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS 2,828 3,248
--------- ---------
TOTAL ASSETS $ 586,136 $ 612,474
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
READING & BATES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
(in thousands)
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
--------- ---------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term obligations $ 6,907 $ 2,735
Long-term obligations due within one year 20,734 20,234
Accounts payable - trade 10,910 7,656
Accrued liabilities 26,640 21,066
Income taxes 5,124 4,931
--------- ---------
Total current liabilities 70,315 56,622
LONG-TERM OBLIGATIONS 86,927 96,562
OTHER NONCURRENT LIABILITIES 62,534 68,433
DEFERRED INCOME TAXES 2,938 2,807
--------- ---------
Total liabilities 222,714 224,424
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 53,483 68,507
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value 2,990 2,990
Common stock, $.05 par value 2,774 2,774
Capital in excess of par value 313,127 312,916
Retained earnings (deficit) from March 31, 1991 (7,938) 2,021
Other (1,014) (1,158)
--------- ---------
Total stockholders' equity 309,939 319,543
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 586,136 $ 612,474
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
READING & BATES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 39,493 $ 48,307 $ 81,850 $ 84,246
--------- --------- --------- ---------
COSTS AND EXPENSES:
Operating expenses 30,973 30,296 59,598 55,008
Depreciation and amortization 7,121 7,298 14,041 13,919
General and administrative 4,555 4,424 8,970 8,434
--------- --------- --------- ---------
42,649 42,018 82,609 77,361
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (3,156) 6,289 (759) 6,885
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (3,204) (3,695) (6,317) (7,176)
Interest income 1,052 314 1,803 671
Equity in losses of unconsolidated
investees (66) (121) (200) (122)
Other, net (301) 249 (559) (173)
--------- --------- --------- ---------
(2,519) (3,253) (5,273) (6,800)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST (5,675) 3,036 (6,032) 85
INCOME TAX EXPENSE 1,174 955 2,082 2,238
--------- --------- --------- ---------
INCOME (LOSS) AFTER INCOME TAX EXPENSE
AND BEFORE MINORITY INTEREST (6,849) 2,081 (8,114) (2,153)
MINORITY INTEREST 811 158 585 2,204
--------- --------- --------- ---------
NET INCOME (LOSS) (6,038) 2,239 (7,529) 51
DIVIDENDS ON PREFERRED STOCK 1,215 - 2,430 -
--------- --------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ (7,253) $ 2,239 $ (9,959) $ 51
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE $ (.13) $ .04 $ (.18) $ .00
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
READING & BATES CORPORATION
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,529) $ 51
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 14,041 13,919
Gain on dispositions of property
and equipment (710) (1,562)
Recognition of deferred expenses 1,806 1,870
Equity in losses of unconsolidated investees 200 122
Minority interest in losses of consolidated
subsidiaries (585) (2,204)
Changes in assets and liabilities:
Accounts receivable 1,553 (8,550)
Materials and supplies inventory (572) (640)
Deferred charges and other assets (2,951) (1,758)
Accounts payable - trade 3,254 539
Accrued interest 2,491 2,052
Accrued lease expense (2,335) (2,585)
Deferred revenue 3,543 -
Income taxes 193 967
Deferred income taxes 131 144
Other, net 2,405 1,099
--------- ---------
Net cash provided by operating activities 14,935 3,464
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment 436 612
Capital expenditures (8,613) (3,662)
Business acquisitions (4,502) (12,254)
Increase in investments in and advances
to unconsolidated investees (221) (135)
--------- ---------
Net cash used in investing activities (12,900) (15,439)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term obligations - 11,624
Net proceeds from short-term obligations 4,172 935
Principal payments on long-term obligations (10,117) (18,117)
Dividends paid on preferred stock (2,430) -
--------- ---------
Net cash used in financing activities (8,375) (5,558)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,340) (17,533)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 80,385 53,122
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,045 $ 35,589
========= =========
Supplemental Cash Flow Disclosures:
Interest paid $ 3,404 $ 5,012
Income taxes paid $ 2,135 $ 1,280
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
READING & BATES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A) COMMITMENTS AND CONTINGENCIES
LITIGATION - In the first quarter of 1994, a judgment was entered
with respect to the Company's loss of hire claim relating to the damages
to the "JACK BATES" caused by the Hurricane Andrew and in April 1994,
the Company received approximately $3.2 million in full satisfaction of
that judgment. Approximately $2.4 million (net of $.8 million of
expenses) has been included in Operating Revenues for the six months
ended June 30, 1994.
B) INVESTMENT IN ARCADE
In June 1994, the Company completed a transaction which increased
its direct ownership in Arcade Drilling AS ("Drilling") to 68.2% and
included the sale of its entire ownership in Arcade Shipping AS
("Shipping"). The transaction consisted of the Company selling its
entire 82.6% ownership in Shipping for approximately $27.8 million,
purchasing from Shipping its entire 46.2% ownership in Drilling and
equity securities in Dragon Oil for approximately $45.4 million and
Shipping repaying a loan of approximately $12.9 million to the Company.
This transaction resulted in a net cash outflow of $4.7 million and had
no effect on the Company's consolidated results of operations.
C) OTHER NONCURRENT LIABILITIES
The components of "OTHER NONCURRENT LIABILITIES" were as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
--------- -----------
<S> <C> <C>
Long-term operating lease obligation $ 17,222 $ 19,558
Postretirement benefit obligations 15,623 15,256
Net liabilities associated with
discontinued operations 7,345 11,177
Pension obligations 9,304 9,382
Accrued interest expense related to
the 8% Senior Subordinated Convertible
Debentures due December 1998 9,675 8,930
Deferred income 2,192 3,072
Other 1,173 1,058
--------- ---------
Total $ 62,534 $ 68,433
========= =========
</TABLE>
D) DISCONTINUED OPERATIONS
SHIPPING - On June 22, 1994, the Company sold its entire ownership
in Shipping (see Note B).
E) INCOME TAXES
Income tax expense of $2.1 million was recognized in the first six
months of 1994 despite a consolidated pretax loss of $6.0 million. The
expense results primarily from income tax expense incurred with respect
to certain foreign operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Reading & Bates Corporation
We have reviewed the accompanying consolidated balance sheet of
Reading & Bates Corporation (a Delaware corporation) and Subsidiaries as of
June 30, 1994, and the related consolidated statements of operations for the
three and six month periods ended June 30, 1994 and 1993 and the consolidated
statement of cash flows for the six month periods ended June 30, 1994 and
1993. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
/s/Arthur Andersen & Co.
Houston, Texas
July 19, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MATERIAL CHANGES IN FINANCIAL CONDITION
In June 1994, the Company completed a transaction which
increased its direct ownership in Arcade Drilling AS ("Drilling") to 68.2% and
included the sale of its entire ownership in Arcade Shipping AS ("Shipping").
The transaction consisted of the Company selling its entire 82.6% ownership in
Shipping for approximately $27.8 million, purchasing from Shipping its entire
46.2% ownership in Drilling and equity securities in Dragon Oil for
approximately $45.4 million and Shipping repaying a loan of approximately
$12.9 million to the Company. This transaction resulted in a net cash outflow
of $4.7 million and had no effect on the Company's consolidated results of
operations.
Liquidity of the Company should be considered in light of the
significant fluctuations in demand experienced by drilling contractors as
rapid changes in oil and gas producers' expectations, budgets and drilling
plans occur. These fluctuations can rapidly impact the Company's liquidity as
supply and demand factors directly affect utilization and dayrates, which are
the primary determinants of cash flow from the Company's operations. As of
June 30, 1994, approximately $22.7 million of total consolidated cash and cash
equivalents of $74.0 million are restricted from the Company's use outside of
Drilling. The Company's management currently expects that its cash flow from
operations, in combination with cash on hand, will be sufficient to satisfy
the Company's 1994 working capital needs, dividends on preferred stock,
capital expenditures on its existing fleet, debt, lease and other obligations.
The Company intends to continue to modernize its fleet, in order to meet
the requirements of competitive conditions and the changing needs of its
customers. The Company continues to consider the selective acquisition of
existing rigs, directly or through business combination transactions. The
Company's wholly owned subsidiary, Reading & Bates Development Co., is the
General Contractor for the provision of a semisubmersible floating production
system for the Liuhua 11-1 Project being jointly developed by Amoco Orient
Petroleum Company and China Offshore Oil Nanhai East Corporation in the South
China Sea. The Company is considering selective expansion in floating
production through additional management contracts, alliances with other
companies, and/or the acquisition of floating production equipment.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1993
The Company's net loss for the six months ended June 30, 1994 was $7.5
million ($.18 per share after preferred stock dividends of $2.4 million)
compared with net income of $.1 million ($.00 per share) for the same period
of 1993. The loss from operations for the six months ended June 30, 1994 was
$.8 million compared to income from operations of $6.9 million in 1993. The
Company's utilization for the six months ended June 30, 1994 and 1993 was 73%
and 79%, respectively.
Operating revenues are primarily a function of dayrates and utilization.
The decrease in operating revenues for the six months ended June 30, 1994 over
the same period in 1993 is primarily due to the decreased utilization of the
semisubmersible and jackup fleets. Included in operating revenues for the six
months ended June 30, 1994 is approximately $2.4 million due to the settlement
of the loss of hire claim relating to the "JACK BATES" casualty caused by
Hurricane Andrew in 1992.
Operating expenses do not necessarily fluctuate in proportion to changes
in operating revenues due to the continuation of personnel on board and
equipment maintenance when the Company's drilling units are stacked. It is
only during prolonged stacked periods that the Company is significantly able
to reduce labor costs and equipment maintenance expense. Additionally, labor
costs fluctuate due to the geographic diversification of the Company's
drilling units and the mix of labor between expatriates and nationals as
stipulated in the drilling contracts. Labor costs have increased over the
past years primarily due to higher salary levels, inflation and the decline of
the U.S. dollar relative to certain foreign currencies of countries where the
Company operates. Equipment maintenance expenses fluctuate depending upon the
type of activity the drilling unit is performing and the age and condition of
the equipment. Scheduled maintenance of equipment and overhauls are performed
in accordance with the Company's preventive maintenance program.
Operating expenses increased $4.6 million for the six months ended June
30, 1994 compared to the same period in 1993 primarily due to the change in
the geographic location of the Company's fleet. During the six months ended
June 30, 1994, the Company's fleet operated in geographic locations with
higher operating costs. Included in operating expenses for the six months
ended June 30, 1993 is a credit of approximately $1.2 million due to the
recognition of a gain on the "JACK BATES" casualty caused by Hurricane Andrew
in 1992.
Interest income increased $1.1 million for the six months ended June 30,
1994 compared to the same period in 1993 due to interest earned on the
increased average outstanding cash and cash equivalents balance due to the
proceeds received from the preferred stock offering in July 1993.
Minority interest for the six months ended June 30, 1994 was income of
$.6 million compared to income of $2.2 million for the same period in 1993 as
a result of Arcade Drilling AS incurring smaller losses in the six months
ended June 30, 1994 than in the same period in 1993.
THREE MONTHS ENDED JUNE 30, 1994 COMPARED
TO THREE MONTHS ENDED JUNE 30, 1993
The Company's net loss for the three months ended June 30, 1994 was $6.0
million ($.13 per share after preferred stock dividends of $1.2 million)
compared with net income of $2.2 million ($.04 per share) for the same period
of 1993. The loss from operations for the three months ended June 30, 1994
was $3.2 million compared to income from operations of $6.3 million in 1993.
The Company's utilization for the three months ended June 30, 1994 and 1993
was 69% and 88%, respectively.
Operating revenues are primarily a function of dayrates and utilization.
The $8.8 million decrease in operating revenues for the three months ended
June 30, 1994 over the same period in 1993 is primarily due to lower average
dayrates and the decreased utilization of the semisubmersible and jackup
fleets.
Despite the decrease in operating revenues, operating expenses for the
three months ended June 30, 1994 increased over the same period in 1993.
Operating expenses do not necessarily fluctuate in proportion to changes in
operating revenues due to the continuation of personnel on board and equipment
maintenance when the Company's drilling units are stacked. It is only during
prolonged stacked periods that the Company is significantly able to reduce
labor costs and equipment maintenance expense. Additionally, labor costs
fluctuate due to the geographic diversification of the Company's drilling
units and the mix of labor between expatriates and nationals as stipulated in
the drilling contracts. Labor costs have increased over the past years
primarily due to higher salary levels, inflation and the decline of the U.S.
dollar relative to certain foreign currencies of countries where the Company
operates. Equipment maintenance expenses fluctuate depending upon the type of
activity the drilling unit is performing and the age and condition of the
equipment. Scheduled maintenance of equipment and overhauls are performed in
accordance with the Company's preventive maintenance program.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
LITIGATION - The Company is one of the defendants in certain
litigation brought in July 1984 by the Cheyenne-Arapaho Tribes of
Oklahoma in the U.S. District Court for the Western District of
Oklahoma, seeking to set aside two communitization agreements with
respect to three leases involving tribal lands in which the Company
previously owned interests and to have those leases declared expired. In
June 1989, the U.S. District Court entered an interim order in favor of
the plaintiffs. On appeal, the U.S. Court of Appeals for the Tenth
Circuit upheld the decision of the trial court and petitions for
rehearing of that decision were denied. Petitions for writs of
certiorari filed by the parties with the U.S. Supreme Court have been
denied, and the case has been remanded to the trial court for
determination of damages.
In November 1988, a lawsuit was filed in the U.S. District
Court for the Southern District of West Virginia against Reading & Bates
Coal Co., a wholly owned subsidiary of the Company, by SCW Associates,
Inc. claiming breach of an alleged agreement to purchase the stock of
Belva Coal Company, a wholly owned subsidiary of Reading & Bates Coal
Co. with coal properties in West Virginia. When those coal properties
were sold in July 1989 as part of the disposition of the Company's coal
operations, the purchasing joint venture indemnified Reading & Bates
Coal Co. and the Company against any liability Reading & Bates Coal Co.
might incur as the result of this litigation. A judgment for the
plaintiff of $32,000 entered in February 1991 was satisfied and Reading
& Bates Coal Co. was indemnified by the purchasing joint venture. On
October 31, 1990, SCW Associates, Inc., the plaintiff in the above-
referenced action, filed a separate ancillary action in the Circuit
Court, Kanawha County, West Virginia against the Company and a wholly
owned subsidiary of Reading & Bates Coal Co., Caymen Coal, Inc. (former
owner of the Company's West Virginia coal properties), as well as the
joint venture, Mr. William B. Sturgill personally (former President of
Reading & Bates Coal Co.), three other companies in which the Company
believes Mr. Sturgill holds an equity interest, two employees of the
joint venture, First National Bank of Chicago and First Capital
Corporation. The lawsuit seeks to recover compensatory damages of
$50 million and punitive damages of $50 million for alleged tortious
interference with the contractual rights of the plaintiff and to impose
a constructive trust on the proceeds of the use and/or sale of the
assets of Caymen Coal, Inc. as they existed on October 15, 1988. The
Company and its indirect subsidiary intend to defend their interests
vigorously. The Company believes the damages alleged by the plaintiff
in this action are highly exaggerated. In any event, the Company
believes that it has valid defenses and that it will prevail in this
litigation.
On January 26, 1993, Kerr-McGee Corporation ("Kerr-McGee")
filed an action against the Company and Reading & Bates Drilling Co., a
subsidiary of the Company, in the U.S. District Court, Western District
of Louisiana. On March 23, 1993, the complaint was amended to add Mobil
Oil Exploration & Producing Southeast, Inc. as an additional party
plaintiff in this action. In this action the plaintiffs are seeking to
recover an unspecified amount for damages to a two well platform and
related production equipment, facilities and pipelines, in South
Timbalier Island Block 34, allegedly caused by the Company's
semisubmersible drilling unit "JACK BATES" (ex "ZANE BARNES") after that
drilling unit had been set adrift in the Gulf of Mexico by Hurricane
Andrew in August 1992. The Company also has received notice that
Tennessee Gas Pipeline Company has asserted a claim with respect to
damage to a gas riser pipe and related equipment also located at Kerr-
McGee's platform in South Timbalier Island Block 34. On April 8, 1993,
Murphy Exploration & Production Company ("Murphy"), a subsidiary of
Murphy Oil Corporation, filed a similar claim in the U. S. District
Court, Eastern District of Louisiana, with respect to its 12 well
platform located in South Timbalier Island Block 86. The Court has
granted the Company's motion to transfer and has entered an order
transferring this case to the U. S. District Court, Western District of
Louisiana. The Murphy action has now been consolidated with the Kerr-
McGee action.
The Company and its subsidiary believe they have valid
defenses with respect to the claims asserted and intend to defend their
interests vigorously. In December 1992, the Company provided a $10
million letter of undertaking from the Company's protection and
indemnity association and a $34 million bond (secured to the extent of
approximately $32.3 million by indemnities from the Company's excess
liability underwriters and approximately $1.7 million by a standby
letter of credit issued for account of the Company) to Kerr-McGee and
Murphy to secure their claims and avoid the attachment of the "JACK
BATES" prior to its departure from the United States for a drilling
contract with Agip S.p.A. The Company is not aware of any other claims
that may arise against it as a result of Hurricane Andrew. The Company
believes it has adequate liability insurance to protect the Company and
its subsidiary from any material liability that might result from these
claims.
On April 13, 1993, the All American Marine Slip, acting as
managing general agent on behalf of the lead underwriters on the
Company's primary loss of hire insurance policy, denied the Company's
loss of hire claim with respect to the damages to the "JACK BATES"
caused by Hurricane Andrew amounting to approximately $9.1 million,
demanded arbitration under the policy with respect to the policy
coverage dispute and filed an action in the U. S. District Court,
Southern District of New York (the "New York action"), seeking a
declaratory judgment and order compelling the Company to arbitrate the
dispute. On April 16, 1993, the Company filed an action in the U. S.
District Court, Southern District of Texas (the "Texas action"), seeking
compensatory and punitive damages for bad faith and unfair dealing by
the All American Marine Slip under the Texas Insurance Code and Texas
Deceptive Practices Act. On April 23, 1993, the All American Marine
Slip amended its complaint in the New York Action to seek damages for
alleged tortious interference with contract and abuse of process by the
Company's having filed the Texas action. On July 7, 1993, the Company
and the All American Marine Slip agreed to submit all claims in the New
York action and the Texas action to arbitration in New York, preserving
all rights of both parties (other than the right to a jury trial). As a
result the New York action and the Texas action (the latter having been
transferred to New York pursuant to court order) have been placed on the
suspense docket pending arbitration. On August 6, 1993, the Company
agreed with certain underwriters at Lloyds and ILU companies,
representing 57.5% of the insurers on the Company's primary loss of hire
insurance policy, to settle their respective shares of the Company's
loss of hire claim in exchange for payment to the Company of an
aggregate of approximately $3.4 million. The effect of that settlement
leaves the All American Marine Slip representing lead underwriters with
respect to the remaining 42.5% of the Company's loss of hire claim
subject to arbitration. On December 6, 1993, the arbitration panel
entered an interim award that the Company had proved a valid claim under
its loss of hire policy and on December 30, 1993 entered a final award
holding that the amount of the Company's claim under the policy was
$7,296,000 and that the amount owed by the remaining 42.5% of insurers
was $3,100,800, plus interest at the rate of 6.5% per annum from August
1, 1993 until paid. In its final award the arbitration panel also held
there was no bad faith on the part of the insurers and that each party
bear its own legal costs. The court in the New York action has entered
an order confirming the award and a judgment, and the Company has been
paid $3,236,712.52 (including accrued interest of $135,912.52) in full
satisfaction of that judgment.
The Company is involved in these and various other legal
actions arising in the normal course of business. After taking into
consideration the evaluation of such actions by counsel for the Company,
management is of the opinion that the outcome of known claims and
litigation will not have a material adverse effect on the Company's
business or consolidated financial position or results of operations.
Item 4. Results of Votes of Security Holders
At the annual meeting of stockholders of Reading & Bates
Corporation, held on May 10, 1994, three Class III directors were
elected by a vote of common stock shareholders, as outlined in the
Company's Proxy Statement relating to the annual meeting. Proxies for
the annual meeting were solicited pursuant to Regulation 14 under the
Securities and Exchange Act of 1934, there was no solicitation in
opposition to the management's nominees as listed in the Proxy Statement
and all of such nominees were elected, with 46,213,382, 46,687,712 and
46,687,714 votes for each of Mr. Chavkin, Mr. Loyd and Mr. Webster,
respectively, and 796,212, 321,883 and 321,880 votes withheld from each
of such nominees, respectively. In addition three proposals were voted
upon: i) a proposal to amend the Company's Charter so as to reclassify
each share of the Company's outstanding Class A Stock into ten shares of
Common Stock and to delete all references to such Class A Stock
therefrom, with 45,912,384 votes for the proposal, 979,395 votes against
the proposal and 117,815 abstentions, no Class A Stock was voted in
favor of the proposal, ii) a proposal to amend the Company's Charter to
update and simplify Article THIRD, to delete Articles FIFTH through
EIGHTH, to delete all references to the Company's Non-voting Convertible
Class B Common Stock therefrom and to restate the Charter in its
entirety, with 46,811,286 votes for the proposal, 76,872 votes against
the proposal and 121,441 abstentions and iii) a proposal to ratify and
approve the appointment of Arthur Andersen & Co. as independent public
accountants for the Company for its fiscal year 1994, with 46,969,473
votes for the proposal, 16,749 votes against the proposal and 23,413
abstentions. Consequently, proposal (i) was not approved and proposals
(ii) and (iii) were approved. The Company's Charter has been amended
and restated in accordance with proposal (ii).
Item 6(a). Exhibits
Exhibit 11 - Computation of Earnings Per Common Share, Primary and
Fully Diluted.
Exhibit 15 - Letter regarding unaudited interim financial information.
Item 6(b). Reports on Form 8-K
There were 4 Current Reports on Form 8-K filed during the three
months ended June 30, 1994. A Current Report on Form 8-K was filed
April 21, 1994 disclosing the Company's first quarter 1994 earnings;
filed May 12, 1994 disclosing the Supplement No. 2 to the Prospectus
dated October 20, 1993; filed June 2, 1994 disclosing that the Company
had reached an agreement on a transaction to sell the Company's entire
ownership in Arcade Shipping AS and to increase the Company's ownership
in Arcade Drilling AS; filed June 27, 1994 disclosing that the Company
completed the transaction to sell its entire ownership in Arcade
Shipping AS and to increase its ownership in Arcade Drilling AS.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
READING & BATES CORPORATION
Date: July 26, 1994 By /s/T. W. Nagle
T. W. Nagle
Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Earnings Per Common Share, Primary and Fully Diluted.
15 Letter re: unaudited interim financial information.
Exhibit 11
READING & BATES CORPORATION
AND SUBSIDIARIES
<TABLE>
COMPUTATION OF EARNINGS PER COMMON SHARE, PRIMARY AND FULLY DILUTED
(in thousands except share and per share amounts)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of
common shares outstanding 55,486,915 55,535,778 55,487,738 55,537,206
========== ========== ========== ==========
Net income (loss) $ (6,038) $ 2,239 $ (7,529) $ 51
Less dividends paid on
$1.625 Convertible Preferred
Stock (1,215) - (2,430) -
---------- ---------- ---------- ----------
Adjusted net income (loss)
applicable to common shares
outstanding - assuming no
dilution $ (7,253) $ 2,239 $ (9,959) $ 51
========== ========== ========== ==========
Net income (loss) per common
share - assuming no
dilution $ (.13) $ .04 $ (.18) $ .00
========== ========== ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of
common shares outstanding 55,486,915 55,535,778 55,487,738 55,537,206
Assume conversion of securities:
$1.625 Convertible Preferred
Stock 8,668,010 - 8,668,010 -
8% Senior Subordinated
Convertible Debentures 743,457 703,326 743,457 703,326
8% Convertible Subordinated
Debentures 16,661 16,661 16,661 16,661
---------- ---------- ---------- ----------
Adjusted common shares
outstanding - fully diluted 64,915,043 56,255,765 64,915,866 56,257,193
========== ========== ========== ==========
Adjusted net income (loss)
applicable to common shares
outstanding - assuming no
dilution $ (7,253) $ 2,239 $ (9,959) $ 51
Adjustments:
Interest on 8% Senior
Subordinated
Convertible Debentures 667 574 1,303 1,122
Interest on 8% Convertible
Subordinated Debentures 521 490 1,023 962
Dividends paid on $1.625
Convertible Preferred
Stock 1,215 - 2,430 -
---------- ---------- ---------- ----------
Adjusted net income (loss)
applicable to common
shares outstanding -
assuming full dilution $ (4,850) $ 3,303 $ (5,203) $ 2,135
========== ========== ========== ==========
Net income (loss) per
common share - assuming full
dilution (antidiluive) $ (.07) $ .06 $ (.08) $ .04
========== ========== ========== ==========
</TABLE>
Exhibit 15
Reading & Bates Corporation
We are aware that Reading & Bates Corporation has incorporated by
reference in its Registration Statements No. 33-44237, No. 33-50828 and No.
33-50565 its Form 10-Q for the quarter ended June 30, 1994, which includes our
report dated July 19, 1994 covering the unaudited interim financial
information contained therein. Pursuant to Regulation C of the Securities Act
of 1933, that report is not considered a part of the registration statement
prepared or certified by our firm or a report prepared or certified by our
firm within the meaning of Sections 7 and 11 of the Act.
/s/Arthur Andersen & Co.
Houston, Texas
July 19, 1994
