=============================================================================
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 September 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 of (I.R.S. Employer
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 OCTOBER 14, 1994 : 59,713,073
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 nine month periods ended
September 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 nine
month periods ended September 30, 1994 included herein have been
subjected to a limited review by Arthur Andersen LLP, the registrant's
independent public accountants, whose report is included herein.
Results of operations for the three and nine month periods ended
September 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>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 39,591 $ 80,385
Accounts receivable:
Trade, net 36,251 36,536
Other 3,001 3,880
Materials and supplies inventory 8,963 8,709
Other current assets 4,654 4,842
--------- ---------
Total current assets 92,460 134,352
--------- ---------
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED INVESTEES 706 212
--------- ---------
PROPERTY AND EQUIPMENT:
Drilling 772,320 746,418
Other 6,074 5,778
--------- ---------
778,394 752,196
Accumulated depreciation
and amortization (284,111) (277,534)
--------- ---------
Net property and equipment 494,283 474,662
--------- ---------
DEFERRED CHARGES AND OTHER ASSETS 3,717 3,248
--------- ---------
TOTAL ASSETS $ 591,166 $ 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>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Short-term obligations $ 3,377 $ 2,735
Long-term obligations due within one year 21,234 20,234
Accounts payable - trade 8,955 7,656
Accrued liabilities 23,962 21,066
Income taxes 6,145 4,931
-------- --------
Total current liabilities 63,673 56,622
LONG-TERM OBLIGATIONS 81,563 96,562
OTHER NONCURRENT LIABILITIES 68,959 68,433
DEFERRED INCOME TAXES 3,004 2,807
-------- --------
Total liabilities 217,199 224,424
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 44,766 68,507
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value 2,990 2,990
Common stock, $.05 par value 2,986 2,774
Capital in excess of par value 337,334 312,916
Retained earnings (deficit) from
March 31, 1991 (13,157) 2,021
Other (952) (1,158)
--------- ---------
Total stockholders' equity 329,201 319,543
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 591,166 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 42,773 $ 51,429 $ 124,623 $ 135,675
COSTS AND EXPENSES:
Operating expenses 30,703 30,452 90,301 85,460
Depreciation and amortization 7,302 8,152 21,343 22,071
General and administrative 4,271 3,817 13,241 12,251
-------- -------- --------- ---------
42,276 42,421 124,885 119,782
-------- -------- --------- ---------
OPERATING INCOME (LOSS) 497 9,008 (262) 15,893
-------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (3,443) (3,467) (9,760) (10,643)
Interest income 792 598 2,595 1,269
Equity in earnings (losses) of
unconsolidated investees 475 (75) 275 (197)
Other, net (1,830) (88) (2,389) (261)
-------- -------- --------- ---------
(4,006) (3,032) (9,279) (9,832)
-------- -------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE AND MINORITY INTEREST (3,509) 5,976 (9,541) 6,061
INCOME TAX EXPENSE 709 721 2,791 2,959
-------- -------- --------- ---------
INCOME (LOSS) AFTER INCOME TAX
EXPENSE AND BEFORE MINORITY
INTEREST (4,218) 5,255 (12,332) 3,102
MINORITY INTEREST INCOME
(EXPENSE) 213 (137) 798 2,067
-------- -------- --------- ---------
NET INCOME (LOSS) (4,005) 5,118 (11,534) 5,169
DIVIDENDS ON PREFERRED STOCK 1,214 837 3,644 837
-------- -------- --------- ---------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $ (5,219) $ 4,281 $ (15,178) $ 4,332
======== ======== ========= =========
NET INCOME (LOSS) PER
COMMON SHARE $ (.09) $ .08 $ (.27) $ .08
======== ======== ========= =========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1994 1993
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (11,534) $ 5,169
Adjustments to reconcile net income
(loss) to net cash provided
by operating activities:
Depreciation and amortization 21,343 22,071
Gain on dispositions of
property and equipment (1,267) (2,038)
Recognition of deferred expenses 2,745 2,465
Equity in (earnings) losses of
unconsolidated investees (275) 197
Minority interest in losses of
consolidated subsidiaries (798) (2,067)
Changes in assets and liabilities:
Accounts receivable 1,142 (8,047)
Materials and supplies inventory (254) (831)
Deferred charges and other assets (4,116) (2,518)
Accounts payable - trade 1,299 1,192
Accrued interest 4,122 3,159
Accrued lease expense 3,344 (1,590)
Deferred revenue 785 -
Income taxes 1,214 498
Deferred income taxes 197 198
Other, net 3,805 2,077
------- --------
Net cash provided by operating activities 21,752 19,935
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment 598 817
Purchases of property and equipment,
net of noncash item (34,798) (6,122)
Business acquisitions (9,576) (14,751)
Decrease (increase) in investments in
and advances to unconsolidated investees (218) 241
--------- ---------
Net cash used in investing activities (43,994) (19,815)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from preferred stock offering - 71,337
Proceeds from long-term obligations - 11,624
Net proceeds from (payments on) short-term
obligations 642 (13,482)
Principal payments on long-term obligations (15,550) (35,175)
Dividends paid on preferred stock (3,644) (837)
--------- ---------
Net cash (used in) provided by financing
activities (18,552) 33,467
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (40,794) 33,587
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 80,385 53,122
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 39,591 $ 86,709
========= =========
Supplemental Cash Flow Disclosures:
Interest paid $ 5,808 $ 7,391
Income taxes paid $ 3,081 $ 2,456
Noncash investing activities:
Purchase of property and equipment
in exchange for equity $ 24,324 $ -
</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
OPERATING LEASES - In the third quarter of 1994, the
Company purchased the notes and interests in the lease debt out-
standing associated with the Continuing Leases (as defined in
footnote B of the Notes to Consolidated Financial Statements
included in the Company's 1993 Form 10-K), "GEORGE H. GALLOWAY" and
"C.E. THORNTON", and the secured contingent obligations associated
with the "F.G. McCLINTOCK" (previously recorded as a capital
lease). Total consideration for the transaction was approximately
$36.5 million which consists of cash of approximately $12.2 million
and the Company issuing 4,230,235 shares of the Company's Common
Stock, par value $.05 per share, totalling approximately $24.3
million at recent stock prices. Since through such purchases, the
Company now controls and has effective ownership of the three rigs,
it recorded the purchase of the notes and interests as purchases of
the rigs.
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 nine months ended September 30, 1994.
In August 1994, the actions filed by Kerr-McGee Corporation
and Murphy Exploration & Production Company against the Company for
damages to well platforms and related production equipment,
facilities and pipelines, caused by the "JACK BATES" being set
adrift by Hurricane Andrew in August 1992 were settled without any
admission of liability by the Company or the "JACK BATES", and
substantially all of the amounts paid in settlement by the Company
have been recovered from the Company's insurers and underwriters.
B) INVESTMENT IN ARCADE
In June 1994, the Company completed a transaction which
increased its direct ownership in Arcade Drilling AS ("Drilling")
and sold 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. Also in September 1994, the Company purchased an
additional 5.2% of Drilling's outstanding shares pursuant to a
mandatory tender offer in Norway required by the Oslo Stock
Exchange. As of September 30, 1994, the Company's direct ownership
in Drilling was 73.4%.
READING & BATES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C) DISCONTINUED OPERATIONS
SHIPPING - On June 22, 1994, the Company sold its entire
ownership in Shipping (see Note B).
D) INCOME TAXES
Income tax expense of $2.8 million was recognized in the first
nine months of 1994 despite a consolidated pretax loss of $9.5
million. The expense results primarily from income tax expense
incurred with respect to certain foreign operations.
E) OTHER NONCURRENT LIABILITIES
The components of "OTHER NONCURRENT LIABILITIES" were as follows
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Long-term operating lease obligation $ 22,901 $ 19,558
Postretirement benefit obligations 15,772 15,256
Net liabilities associated with
discontinued operations 7,381 11,177
Pension obligations 8,612 9,382
Accrued interest expense related
to the 8% Senior Subordinated
Convertible Debentures due
December 1998 10,047 8,930
Deferred income 1,745 3,072
Other 2,501 1,058
-------- --------
Total $ 68,959 $ 68,433
======== ========
</TABLE>
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 September 30, 1994, and the related consolidated statements of
operations for the three and nine month periods ended September 30, 1994
and 1993 and the consolidated statement of cash flows for the nine month
periods ended September 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 LLP
Houston, Texas
October 18, 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") and sold 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. Also in September 1994, the Company purchased an
additional 5.2% of Drilling's outstanding shares pursuant to a mandatory
tender offer in Norway required by the Oslo Stock Exchange. As of
September 30, 1994, the Company's direct ownership in Drilling was 73.4%.
In the third quarter of 1994, the Company purchased the notes and
interests in the lease debt outstanding associated with the Continuing
Leases (as defined in footnote B of the Notes to Consolidated Financial
Financial Statements included in the Company's 1993 Form 10-K), "GEORGE
H. GALLOWAY" and "C.E. THORNTON", and the secured contingent obligations
associated with the "F.G. McCLINTOCK" (previously recorded as a capital
lease). Total consideration for the transaction was approximately $36.5
million which consisted of the Company paying cash of approximately $12.2
million and issuing 4,230,235 shares of the Company's Common Stock, par
value $.05 per share, totalling approximately $24.3 million at recent
stock prices. In October 1994, the Company filed a shelf registration
registering such shares. Pursuant to the terms of agreements governing
the issuance of such shares and a registration rights agreement among the
Company and certain other holders of the Company's common stock, as
currently in effect, the Company is required to maintain continuously
effective shelf registration statements with respect to approximately 26
million shares of its common stock (including the 4,230,235 shares
referred to above) until the earlier to occur of (i) the sale of such
shares by the holders thereof or (ii) August 1, 1996 (in the case of
approximately 21.7 million shares) or September 14, 1996 (in the case of
the 4,230,235 shares referred to above).
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 September 30, 1994, approximately $18.2
million of total consolidated cash and cash equivalents of $39.6 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 and other sources, including short-term
loans, debt rescheduling, new debt, new equity, asset disposals and/or by
delaying a portion of planned capital or other expenditures, will be
sufficient to satisfy the Company's 1994 and 1995 working capital needs,
dividends on preferred stock, capital expenditures on its existing fleet,
debt, lease and other payment obligations.
The Company intends to continue to modernize and expand its fleet, in
order to meet the requirements of competitive conditions and the changing
needs of its customers. In this regard, the Company has from time to time
in the past engaged in, and currently continues to engage in, preliminary
discussions with other industry participants with respect to business
combinations that would potentially strengthen its competitive position in
the offshore drilling industry. Moreover, the Company continues to
consider the selective acquisition of existing rigs, directly or through
business combination transactions. In September 1994, the Company's
wholly owned subsidiary, Reading & Bates Development Co. ("Development"),
purchased the second-generation semisubmersible "BENVRACKIE" and currently
plans to contribute the drilling unit to a new joint venture company with
DeepTech International, Inc. The objective of the new joint venture
company will be to acquire and operate semisubmersible drilling units to
be converted for use as floating production systems. In addition,
Development 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 and
Development is the project manager for the conversion of a second-
generation semisubmersible to a floating production system in the U.S.
Gulf of Mexico for Tatham Offshore, Inc. The Company continues to
consider 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
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 1993
The Company's net loss for the nine months ended September 30, 1994
was $11.5 million ($.27 per share after preferred stock dividends of $3.6
million) compared with net income of $5.2 million ($.08 per share after
preferred stock dividends of $.8 million) for the same period of 1993. The
loss from operations for the nine months ended September 30, 1994 was $.3
million compared to income from operations of $15.9 million in 1993. The
Company's utilization for the nine months ended September 30, 1994 and
1993 was 73% and 84%, respectively.
Operating revenues are primarily a function of dayrates and
utilization. The decrease in operating revenues for the nine months ended
September 30, 1994 over the same period in 1993 is primarily due to the
decreased utilization of the jackup and semisubmersible fleets. Included
in operating revenues for the nine months ended September 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.
Despite the decrease in operating revenues, operating expenses for the
nine months ended September 30, 1994 increased over the same period in
1993. Included in operating expenses for the nine months ended September
30, 1994 and 1993 is a credit of approximately $1.3 million due to the
recognition of the deferred gain on the sale/leaseback of the "SONNY
VOSS". Also, included in operating expenses for the nine months ended
September 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. 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.
Interest income increased $1.3 million for the nine months ended
September 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.
Other, net increased $2.1 million for the nine months ended September
30, 1994 compared to the same period in 1993 primarily due to the
recognition of a loss associated with interests in the exploration and
production of oil and gas.
Minority interest for the nine months ended September 30, 1994 was
income of $.8 million compared to income of $2.1 million for the same
period in 1993 as a result of the Company's increased ownership in
Drilling and Drilling incurring smaller losses in the nine months ended
September 30, 1994 than in the same period in 1993.
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1993
The Company's net loss for the three months ended September 30, 1994
was $4.0 million ($.09 per share after preferred stock dividends of $1.2
million) compared with net income of $5.1 million ($.08 per share after
preferred stock dividends of $.8 million) for the same period of 1993.
Income from operations for the three months ended September 30, 1994 was
$.5 million compared to income from operations of $9.0 million in 1993.
The Company's utilization for the three months ended September 30, 1994
and 1993 was 74% and 94%, respectively.
Operating revenues are primarily a function of dayrates and
utilization. The decrease in operating revenues for the three months ended
September 30, 1994 over the same period in 1993 is primarily due to the
decreased utilization of the jackup and semisubmersible fleets.
Despite the decrease in operating revenues, operating expenses for the
three months ended September 30, 1994 remained relatively stable over the
same period in 1993. Included in operating expenses for the three months
ended September 30, 1994 and 1993 is a credit of approximately $.4 million
due to the recognition of the deferred gain on the sale/leaseback of the
"SONNY VOSS". 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.
Other, net increased $1.7 million for the three months ended September
30, 1994 compared to the same period in 1993 primarily due to the
recognition of a loss associated with interests in the exploration and
production of oil and gas.
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 granted the Company's motion to transfer and
entered an order transferring this case to the U. S. District Court,
Western District of Louisiana. The Murphy action was subsequently
consolidated with the Kerr-McGee action.
In August 1994, the Kerr-McGee and Murphy actions were
settled without any admission of liability by the Company or the "JACK
BATES", and substantially all of the amounts paid in settlement by the
Company have been recovered from the Company's insurers and
underwriters. The Company is not aware of any other claim that may
arise against it as a result of Hurricane Andrew (other than the
Tennessee Gas Pipeline Company claim referred to above). The Company
believes it has adequate liability insurance to protect the Company
and its subsidiary from any material liability that might result from
the Tennessee Gas Pipeline Company claim referred to above.
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 6(a). Exhibits
Exhibit 11 - Computation of Earnings Per Common Share, Primary and
Fully Diluted.
Exhibit 15 - Letter regarding unaudited interim financial
information.
Exhibit 27 - Financial Data Schedule. (Exhibit 27 is being
submitted as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the Securities
and Exchange Commission.)
Item 6(b). Reports on Form 8-K
There were 5 Current Reports on Form 8-K filed during the three
months ended September 30, 1994. A Current Report on Form 8-K was
filed July 19, 1994 disclosing the Company's second quarter 1994
earnings; filed August 9, 1994 disclosing the Supplement No. 3 to
the Prospectus dated October 20, 1993 and the contract for the
"JACK BATES" with Mobil Petroleum Malaysia Inc.; filed August 10,
1994 disclosing that the Company has entered into a joint venture
with F. J. Brown & Associates, Inc. to offer turnkey drilling
services; filed September 7, 1994 disclosing that the Company had
reached an agreement to purchase certain obligations related to
three of its leased rigs; filed September 26, 1994 disclosing the
Supplement No. 4 to the Prospectus dated October 20, 1993 and that
the Company had purchased a second-generation semisubmersible for
the joint venture with DeepTech International, Inc.
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 undersigned thereunto duly authorized.
READING & BATES CORPORATION
Date: October 27, 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.
27 Financial Data Schedule. (Exhibit 27 is being submitted as an
exhibit only in the electronic format of this Quarterly Report
on Form 10-Q being submitted to the Securities and Exchange
Commission.)
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1994 1993 1994 1993
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Weighted average number of
common shares outstanding 56,864,290 55,497,016 55,591,631 55,499,649
========== ========== ========== ==========
Net income (loss) $ (4,005) $ 5,118 $ (11,534) $ 5,169
Less dividends paid on
$1.625 Convertible
Preferred Stock (1,214) (837) (3,644) (837)
---------- ---------- ---------- ----------
Adjusted net income (loss)
applicable to common
shares outstanding-
assuming no dilution $ (5,219) $ 4,281 $ (15,178) $ 4,332
========== ========== ========== ==========
Net income (loss) per common
share - assuming
no dilution $ (.09) $ .08 $ (.27) $ .08
=========== ========= ========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of
common shares outstanding 56,864,290 55,497,016 55,951,631 55,499,649
Assume conversion of securities:
$1.625 Convertible Preferred
Stock 8,668,010 6,029,920 8,668,010 2,032,061
8% Senior Subordinated
Convertible Debentures 743,497 703,326 743,497 703,326
8% Convertible Subordinated
Debentures 16,661 16,661 16,661 16,661
---------- ---------- ---------- ----------
Adjusted common shares
outstanding - fully diluted 66,292,458 62,246,923 65,379,799 58,251,697
========== ========== ========== ==========
Adjusted net income (loss)
applicable to common shares
outstanding - assuming no
dilution $ (5,219) $ 4,281 $ (15,178) $ 4,332
Adjustments:
Interest on 8% Senior
Subordinated Convertible
Debentures 700 603 2,003 1,725
Interest on 8% Convertible
Subordinated Debentures 541 508 1,563 1,470
Dividends paid on $1.625
Convertible Preferred Stock 1,214 837 3,644 837
---------- ---------- ---------- ----------
Adjusted net income (loss)
applicable to common shares
outstanding - assuming full
dilution $ (2,764) $ 6,229 $ (7,968) $ 8,364
========== ========== ========== ==========
Net income (loss) per common
share - assuming full
dilution (antidiluive) $ (.05) $ .10 $ (.12) $ .14
========== ========== ========== ==========
</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 , No.
33-50565 and No. 33-56029 its Form 10-Q for the quarter ended September
30, 1994, which includes our report dated October 18, 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 LLP
Houston, Texas
October 18, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Reading & Bates Corporation and Subsidiaries for the
nine months ended September 30, 1994.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 39,591
<SECURITIES> 0
<RECEIVABLES> 36,624
<ALLOWANCES> 373
<INVENTORY> 8,963
<CURRENT-ASSETS> 92,460
<PP&E> 778,394
<DEPRECIATION> 284,111
<TOTAL-ASSETS> 591,166
<CURRENT-LIABILITIES> 63,673
<BONDS> 0
<COMMON> 2,986
2,990
0
<OTHER-SE> 323,225
<TOTAL-LIABILITY-AND-EQUITY> 591,166
<SALES> 0
<TOTAL-REVENUES> 124,623
<CGS> 0
<TOTAL-COSTS> 90,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,760
<INCOME-PRETAX> (9,541)
<INCOME-TAX> 2,791
<INCOME-CONTINUING> (11,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,534)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.12)
</TABLE>
