<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 0-16703
CLIFFS DRILLING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 76-0248934
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1200 SMITH STREET, SUITE 300 77002
HOUSTON, TEXAS
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
Registrant's telephone number, including area code: (713) 651-9426
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
$2.3125 Convertible Exchangeable Preferred Stock
(Title of 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 the 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. / /
The aggregate market value of the Registrant's common stock, $.01 par
value, held by nonaffiliates, as of March 3, 1994, was $48,979,429. All
executive officers and directors of the Registrant are treated as if they may be
deemed affiliates of the Registrant.
Number of shares of Common Stock, $.01 par value, of the Registrant
outstanding at March 3, 1994, was 4,458,104.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
REFERENCED IN THIS
DOCUMENTS REPORT
- ---------------------------------------------------------------------- ----------------------
<S> <C>
Certain portions of the Registrant's definitive proxy statement for
the 1994 Annual Meeting of Shareholders Part III
</TABLE>
(Exhibit Index Located on Pages 61 to 64)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS TO FORM 10-K
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
PART I
1. and 2. Business and Properties.................................................. 2
General.................................................................. 2
Recent Developments...................................................... 2
Industry Conditions and Company Strategy................................. 3
Contract Drilling and MOPU Operations.................................... 4
Oil and Gas Operations................................................... 9
Environmental Controls................................................... 13
Government Regulation.................................................... 14
Risks and Insurance...................................................... 14
Employees................................................................ 15
Other Properties......................................................... 15
3. Legal Proceedings........................................................ 15
4. Submission of Matters to a Vote of Security Holders...................... 16
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.... 16
6. Selected Financial Data.................................................. 18
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 19
8. Financial Statements and Supplementary Data.............................. 25
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................. 25
PART III
10. Directors and Executive Officers of the Registrant....................... 26
11. Executive Compensation................................................... 26
12. Security Ownership of Certain Beneficial Owners and Management........... 26
13. Certain Relationships and Related Transactions........................... 26
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 26
SIGNATURES.............................................................................. 28
</TABLE>
1
<PAGE> 3
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
Cliffs Drilling Company (the "Company") is an international oil service and
engineering company. The Company is engaged in daywork and turnkey drilling
services and the operation of mobile offshore production units ("MOPUs"). MOPUs
are offshore production systems, usually converted jack-up rigs from which the
drilling equipment is removed and production equipment is installed, and, like
jack-up rigs and other mobile drilling rigs, are moveable and re-usable. The
Company's domestic operations are concentrated in the Texas/Louisiana Gulf Coast
region and its foreign operations are concentrated in Venezuela and Mexico.
The Company (including its predecessors) has been in the contract drilling
business since 1978. Recognizing the economic conditions which have adversely
affected the domestic contract drilling business, the Company undertook a
strategic plan in 1989 to diversify its scope of operations beyond the
traditional domestic daywork contract drilling markets. To achieve its strategic
objective, the Company continued its emphasis on turnkey drilling operations,
expanded its well engineering and management services, became a leader in the
development and operation of MOPUs, pursued foreign drilling and production
opportunities, and sold a majority of its land rigs. In addition, the Company
sold its four inland posted barge drilling rigs effective January 1, 1993. As a
result of the implementation of this strategy, the Company is no longer
dependent on the highly competitive U.S. daywork drilling market and has
positioned itself as a niche player in higher margin segments of drilling and
production operations. In 1991, the Company contracted 2 jack-up rigs and 2 land
rigs to work in Venezuela, and in addition, purchased 3 jack-up rigs and
converted them to MOPUs. The 3 MOPUs are contracted to Dresser-Rand Company
("Dresser-Rand"), with an aggregate dayrate of $52,500, and are being used as
portable compression units ("portacompressors") in Lake Maracaibo, Venezuela.
The Company purchased 5 jack-up drilling rigs during the fourth quarter of 1992.
The Company converted 2 of the 5 rigs to MOPUs during 1993, is using one unit as
a mobile offshore supply unit in the Bay of Campeche, Mexico, has mobilized
another rig for turnkey drilling operations in the Bay of Tampico, Mexico, and
presently expects to bareboat charter the remaining unit to a third party for
use as a workover rig in the U.S. Gulf of Mexico. The Company currently owns and
operates 3 offshore jack-up rigs, 6 land rigs and 8 MOPUs.
Prior to June 21, 1988, the Company was a wholly-owned subsidiary of
Cleveland-Cliffs Inc ("Cleveland"). On such date, as a part of a corporate
restructuring of Cleveland, all of the shares of Common Stock of the Company
were distributed to the shareholders of Cleveland (the "Distribution"). The
Company was incorporated in Delaware on April 14, 1988 to own the contract
drilling and oil and gas businesses previously conducted by Cliffs Resources,
Inc., a wholly-owned subsidiary of Cleveland formerly named "Cliffs Drilling
Company". In connection with the Distribution, all of the assets and liabilities
of Cliffs Resources, Inc. (except intercompany indebtedness owed to Cleveland)
were transferred to and assumed by the Company. In this document the term
"Company" includes Cliffs Drilling Company, its subsidiaries and its
predecessors as if the Company had been in existence since 1978. The term
"Cleveland" includes any subsidiary or any predecessor of Cleveland-Cliffs Inc.
RECENT DEVELOPMENTS
The Company was the successful bidder for 10 wells to be drilled on a
turnkey basis in Venezuela and Mexico which should generate approximately $50
million in revenues to the Company upon successful completion of the contracts
during 1994 and 1995. A total of 6 wells to be drilled for Corpoven, S.A.
("Corpoven") are estimated to generate approximately $36 million in revenues.
The Company will mobilize 2 idle land drilling rigs to Eastern Venezuela during
the first
2
<PAGE> 4
quarter of 1994 to drill these wells, which are expected to be completed over
the next fifteen to eighteen months. An additional award of 2 turnkey contract
packages by Petroleos de Mexico S.A. ("PEMEX") to Cliffs Neddrill Central
Turnkey International ("CNCTI"), a joint venture among Cliffs Drilling
International, Inc., a wholly owned subsidiary of the Company, Neddrill Turnkey
Drilling B.V. and Perforadora Central, S.A., de C.V. for the drilling of a total
of 4 wells in the Bay of Campeche and the Bay of Tampico is estimated to
generate $42 million in revenues, the Company's share of which approximates $14
million. The Company has mobilized an idle jack-up drilling rig to the Bay of
Tampico to drill 2 of the 4 wells. All 4 wells are expected to be completed
during 1994.
In the fourth quarter of 1993, the Company began providing well engineering
and management services to Corpoven for the 2 land drilling rigs currently
operating under daywork contracts for Corpoven. The Company will provide these
services to Corpoven for a third drilling rig which commenced daywork operations
during the first quarter of 1994. Under this arrangement, the Company is
responsible for well design and well site supervision. The Company provided
similar well engineering and management services for a major oil and gas company
in the domestic market during 1993.
The Company has received a commitment from Internationale Nederlanden
(U.S.) Capital Corporation ("INCC"), formerly International Nederlanden Bank
N.V., to amend the terms of its working capital credit facility. The $10 million
working capital credit facility will be converted to a $20 million revolving
line of credit, subject to certain borrowing base limitations. The revolving
line of credit will mature on January 1, 1996.
INDUSTRY CONDITIONS AND COMPANY STRATEGY
Demand for the Company's services depends primarily upon the level of
spending by oil and gas companies for exploration, development and production
activities. Significant increases in foreign exploration and production activity
have resulted in a gradual improvement in the market for oilfield services which
began in the late 1980's; however, energy industry spending for U.S. exploration
and production activities has been reduced by volatility in oil prices and
depressed natural gas prices. As a result, activity in the contract drilling
industry and related oil service businesses has been severely depressed since
1982, which has resulted in an oversupply of drilling equipment, decreased rig
utilization, declining dayrates and intense competition for drilling contracts.
Recognizing the economic conditions which have adversely affected the
domestic contract drilling business, the Company undertook a strategic plan in
1989 to diversify its scope of operations beyond the traditional domestic
daywork contract drilling market. The Company's management adopted a proactive
approach to identify, develop and exploit several market segments which the
Company believes provide higher margins and more reliable operating income and
cash flow than the traditional domestic daywork drilling contract market. As a
result of its actions, the Company is now positioned in 4 different business
segments. See Note 15 of Notes to Consolidated Financial Statements.
Daywork Drilling. In response to the downturn in the domestic daywork
drilling contract activity, the Company sold 10 of its 16 land rigs in 1989,
deployed 2 jack-up rigs and 2 land rigs to Venezuela in 1991 to work under
daywork drilling contracts and stacked its 4 barge drilling rigs in 1991 and
1992 in order to reduce operating costs prior to selling the 4 barge rigs
effective January 1, 1993. The Company has mobilized another domestic land
drilling rig to Venezuela to work under a daywork drilling contract for a
three-year term commencing in the first quarter of 1994. The Company has
mobilized an idle domestic jack-up drilling rig to the Bay of Tampico, Mexico to
drill 2 wells for CNCTI during 1994.
Turnkey Drilling. Turnkey drilling has been a key element in the Company's
long-term strategy since 1982. The Company believes that its downhole
engineering expertise, extensive operating experience, veteran personnel and
risk management capabilities have allowed the Company to
3
<PAGE> 5
reduce the risks inherent in turnkey drilling operations. From 1982 through
December 31, 1993, the Company completed 227 turnkeys with aggregate revenues of
$511.9 million, direct income before depreciation and allocated overhead of
$78.7 million, and operating income of $45.2 million. In recent years, the
turnkey drilling market has become more competitive as more companies entered
the market and margins were reduced. The Company believes its expertise has
enabled it to be more selective in its turnkey drilling operations and to
achieve profitable turnkey drilling operating results.
MOPU Operations. Since 1989, the Company has emphasized the development and
operation of MOPUs, which represent a growing source of revenues to the Company
with minimal operating cost requirements and higher profit margins. The
conversion of offshore drilling rigs into MOPUs has become one of the attractive
niches in which the Company has diversified its operations. The Company also
believes that its engineering expertise and experience with MOPUs give it a
competitive advantage which will allow the Company to take advantage of
opportunities in both domestic and foreign markets. The Company converted 2
additional jack-up drilling rigs to MOPUs during 1993. One of the new MOPUs is
operating under contract in the Gulf of Mexico and the other is currently being
marketed.
Oil and Gas. The Company generates additional cash flow in conjunction with
marketing its turnkey contract drilling operations by participating in oil and
gas exploration and development activities through its contract drilling support
("CDS") program. This strategy has been instrumental in increasing the Company's
contract drilling operations and has enabled the Company to participate in the
exploration and development of oil and gas. Since 1986, the Company has invested
$29.9 million in oil and gas operations, resulting in $6.1 million of operating
income from the drilling of associated wells and $16.7 million of net revenues
from the production of oil and gas. At December 31, 1993, the Company had $8.0
million of estimated future net revenue from production of the remaining proved
reserves. The Company has begun to de-emphasize its CDS program due to marginal
financial performance of the segment in recent years. See Note 18 of Notes to
Consolidated Financial Statements.
CONTRACT DRILLING AND MOPU OPERATIONS
Daywork Drilling. The Company currently owns and operates 9 drilling rigs,
consisting of 6 land drilling rigs and 3 jack-up drilling rigs. Two of the
Company's jack-up drilling rigs are working for Maraven, S.A. ("Maraven") in
Lake Maracaibo, Venezuela and are capable of drilling to depths of 25,000 feet.
Both units are cantilevered, which allows for extension of a portion of the
drilling rig platform over fixed production platforms, and are equipped with
"top drive" drilling systems. The contracts for these rigs expire on March 9,
1994 and March 15, 1994, respectively. The Company is currently renegotiating
these contracts. No assurance can be given that the contracts will be renewed,
or if renewed, at rates comparable to those received in 1993. If the contracts
are not renewed, Maraven is required to demobilize the rigs to the U.S. Gulf of
Mexico. The Company will operate a third jack-up drilling rig in the Bay of
Tampico, Mexico during 1994. The rig is a mat-supported unit capable of drilling
to a depth of 20,000 feet. The rig is under contract to CNCTI, a joint venture
in which the Company has a one-third ownership percentage, for the duration of
drilling a 2 well package awarded CNCTI by PEMEX. The Company's land rig fleet
consists of 3 diesel/electric rigs and 3 mechanical rigs, all of which are
capable of drilling to a depth of 25,000 feet. During the second quarter of
1991, 2 of these land rigs commenced operations under contracts with Corpoven in
eastern Venezuela. These contracts expire in September, 1995. Three additional
land rigs, one of which is contracted on a daywork basis for a three-year term
with Corpoven, and 2 of which will drill each of 2 turnkey packages for
Corpoven, will commence drilling operations in Venezuela during 1994.
Under daywork drilling contracts, the Company provides a drilling rig with
required personnel to the operator, who supervises the drilling of the
contracted well. Compensation to the Company is based on a negotiated rate per
day that the rig is utilized. Daywork drilling contracts generally
4
<PAGE> 6
specify the type of equipment to be used, the size of the hole and the depth of
the proposed well. Under a daywork drilling contract, the Company generally
bears no part of the costs due to downhole losses (such as time delays for
various reasons, including stuck drill stem and blowout).
Most of the Company's drilling contracts are obtained through competitive
bids. Generally, domestic drilling contracts are for a single well while foreign
drilling contracts are for multiple wells, with the terms and rates varying
depending upon the nature and duration of the work, the equipment and services
supplied and other matters. The contracts typically obligate the Company to pay
certain operating expenses, including wages of drilling personnel, maintenance
expenses, incidental rig supplies, equipment and local office facilities.
Domestic drilling contracts are typically subject to termination by the customer
on short notice, usually upon payment of a fee. Foreign drilling contracts
generally require longer notice periods for termination and also may require
that the customer pay to the Company demobilization expenses to redeliver the
rig to the United States Gulf of Mexico.
Turnkey Drilling. Under a turnkey drilling contract, the Company contracts
to drill a well to a contract depth under specified conditions for a fixed
price. In addition, the Company provides technical expertise and engineering
services, as well as most of the equipment required for the well, and is
compensated when the contract terms have been satisfied. On a turnkey well, the
Company from time to time operates rigs subcontracted from other drilling
contractors on a dayrate basis. The Company also subcontracts substantially all
of the related services and manages the drilling process. The risks to the
Company on a turnkey drilling contract are substantially greater than on a well
drilled on a daywork basis because the Company assumes most of the risks
associated with drilling operations generally assumed by the operator in a
daywork contract, including risk of blowout, loss of hole, stuck drill stem,
machinery breakdowns, abnormal drilling conditions and risks associated with
subcontractors' services, supplies and personnel. The Company employs a
technically proficient and experienced engineering staff that examines the
available seismic, geologic and drilling data to identify and minimize many of
the drilling risks assumed by the Company. The Company believes that the
application of this expertise allows it to evaluate the risks of a proposed
contract and bid accordingly. When possible, the Company seeks fixed price
contracts from its subcontractors to minimize or eliminate cost fluctuations.
The Company also maintains insurance coverage against certain drilling hazards.
See "Business and Properties -- Risks and Insurance."
The Company completed 12 turnkey drilling contracts for the year ended
December 31, 1992, and 6 turnkey drilling contracts for the year ended December
31, 1993, with revenues of $37.0 million and $17.0 million, respectively. Two of
the turnkey contracts completed in 1993 related to the Company's interest in
CNCTI. These 2 turnkey contracts were accounted for under the equity method in
the Company's consolidated financial statements. See Note 5 of Notes to
Consolidated Financial Statements. One turnkey drilling contract has been
completed since December 31, 1993 with contract revenues of $2.3 million. The
Company, through its interest in CNCTI, currently has 3 turnkey drilling
contracts in progress with contract revenues of $10.6 million.
MOPU Operations. The Company currently owns 8 MOPUs capable of operating in
both domestic and foreign waters. Included in the 8 MOPUs are 4 of the 5 jack-up
drilling rigs which the Company purchased during the fourth quarter of 1992. The
Company converted 2 of the 5 rigs to MOPUs, is using one unit as a supply unit
in the Bay of Campeche, Mexico, and presently expects to bareboat charter the
other unit to a third party for use as a workover rig in the U.S. Gulf of
Mexico. The Company's MOPUs are jack-up rigs which have been modified to
accommodate production or compression, rather than drilling, equipment. During
the fourth quarter of 1991, the Company acquired 3 jack-up drilling rigs and
converted the rigs to MOPUs to be used as portable compression units. Each of
these units is now operating in Lake Maracaibo, Venezuela in the final year of
two-year contracts with Dresser-Rand. The contracts for each of the 3 MOPUs in
Venezuela are subject to early termination upon exercise by the charterer of
certain purchase options. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources". Another
of the Company's MOPUs, the MARLIN NO. 4, recently
5
<PAGE> 7
completed the final year of a three-year dayrate contract in the Gulf of Mexico.
The MOPU is currently on a month-to-month contract. The MARLIN NO. 3, which was
in the first year of a three-year dayrate contract in the Gulf of Mexico, was
declared a constructive total loss as a result of damage sustained in Hurricane
Andrew during August, 1992. The Company was awarded a contract with Union
Pacific Resources Corporation to replace MARLIN NO. 3 with a newly converted
MOPU which commenced operations in July, 1993 for a three-year term. Another
MOPU converted during 1993 is currently being marketed.
MOPU contracts are generally on a dayrate basis and are normally long-term,
either for a period of years or a period of time sufficient to obtain the
economic production from an offshore oil and gas field or wells within such
field. It is not unusual for such contracts to contain renewal provisions at the
option of the customer. Under such contracts, the Company is generally
responsible for maintenance, operation and repair of the MOPU hull structure.
The Company is generally not responsible for risk of pollution or for damage to
or replacement of the customer's production equipment, although the Company
generally is responsible for damage to its production equipment. The Company
maintains insurance coverage against risk of damage to or loss of the MOPUs and
related equipment as is customary in the industry. See "Business and
Properties -- Risk and Insurance."
In August, 1992, Hurricane Andrew caused substantial damage to drilling and
production equipment in the Gulf of Mexico. As a result, governmental agencies
such as the Minerals Management Service and the U.S. Coast Guard, as well as
classification societies such as the American Bureau of Shipping, may implement
new and higher standards for MOPUs operating in the Gulf of Mexico. See
"Business and Properties -- Government Regulation."
Revenues from the Company's MOPU operations were $21.7 million, $9.2
million and $2.2 million for the fiscal years ended 1993, 1992, and 1991,
respectively, with operating income margins during the same periods of 63%, 70%,
and 74%, respectively.
Utilization. The Company's rigs are inactive from time to time.
Historically, the drilling industry reaches its peak level of activity during
the period October through January. At December 31, 1993, 8 of the Company's 9
drilling rigs were either under contract or preparing for contracts and only one
was stacked. In addition, 6 of the Company's MOPUs were under contract, one was
being marketed, and one was stacked. In order to reduce the losses incurred in
domestic daywork drilling operations, the Company stacked and discontinued
marketing 2 of its inland posted barge rigs in the third quarter of 1991 and its
2 remaining inland posted barge rigs in the first quarter of 1992. After
remaining stacked during the remainder of 1992, the 4 barge rigs were sold
effective January 1, 1993. The Company believes that its stacking procedures
minimize stacking and maintenance costs, and that one of its 2 stacked rigs
could be placed in service with minimal cost and delay should it become
attractive to do so.
6
<PAGE> 8
The following table provides information about the drilling rigs and MOPUs
owned and operated by the Company as of December 31, 1993:
<TABLE>
<CAPTION>
RATED DEPTH
YEAR ---------------- AREA OF TYPE OF
EQUIPMENT TYPE BUILT WATER DRILLING OPERATION CONTRACT CUSTOMER
- ------------------ -------- ----- ----- -------- ------------------ ---------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DRILLING RIGS
VENEZUELA
MARQUETTE......... Jack-up 1982 150' 25,000' Lake Maracaibo Term Daywork Maraven
LASALLE........... Jack-up 1982 150' 25,000' Lake Maracaibo Term Daywork Maraven
40................ Land 1980 N/A 25,000' Eastern Venezuela Term Daywork Corpoven
43................ Land 1981 N/A 25,000' Eastern Venezuela Term Daywork Corpoven
UNITED STATES
28................ Land 1977 N/A 25,000' Louisiana Mobilization to N/A
Venezuela
30................ Land 1978 N/A 25,000' Louisiana Stacked N/A
41................ Land 1981 N/A 25,000' Louisiana Mobilization to N/A
Venezuela
42................ Land 1981 N/A 25,000' Louisiana Mobilization to N/A
Venezuela
Cliffs No. 12..... Jack-up 1980 200' 20,000' Gulf of Mexico Mobilization to N/A
Mexico
MOBILE OFFSHORE PRODUCTION UNITS
VENEZUELA
LANGLEY........... MOPU 1965 350' N/A Lake Maracaibo Term Daywork Dresser-Rand
FRANKLIN.......... MOPU 1969 250' N/A Lake Maracaibo Term Daywork Dresser-Rand
FORRESTAL......... MOPU 1971 350' N/A Lake Maracaibo Term Daywork Dresser-Rand
UNITED STATES
MARLIN NO. 4...... MOPU 1967 150' N/A Gulf of Mexico Term Daywork Union Pacific Resources Co.
Cliffs No. 8...... MOPU 1977 250' N/A Gulf of Mexico Term Daywork Union Pacific Resources Co.
Cliffs No. 10..... MOPU 1979 250' N/A Gulf of Mexico Awaiting N/A
Contract
Cliffs No. 11..... MOPU 1980 200' N/A Gulf of Mexico Stacked N/A
MEXICO
Cliffs No. 14..... MOPU 1980 200' N/A Bay of Campeche, Term Daywork CNCTI
Mexico
</TABLE>
Foreign Operations. For the fiscal years ended December 31, 1993, 1992 and
1991, 64%, 38% and 23%, respectively, of the Company's consolidated revenues
were derived from foreign operations, principally in Venezuela. See Note 16 of
Notes to Consolidated Financial Statements.
The Company currently operates 2 jack-up drilling rigs in Lake Maracaibo,
Venezuela pursuant to daywork drilling contracts with Maraven, an affiliate of
Petroleos de Venezuela S.A. ("PDVSA"). The Company also operates 3 of its land
rigs in eastern Venezuela under daywork drilling contracts with Corpoven, an
affiliate of PDVSA. Three of the Company's MOPUs are currently operating in Lake
Maracaibo, Venezuela, pursuant to two-year contracts with Dresser-Rand. One of
the Company's jack-up drilling rigs acquired in the fourth quarter of 1992 is
currently operating as a mobile offshore supply unit in Mexico under a contract
with CNCTI. During 1994, 2 additional land rigs will be operating in Eastern
Venezuela under turnkey drilling contracts with Corpoven and a jack-up drilling
rig will be operating in the Bay of Tampico, Mexico for CNCTI to drill turnkey
wells awarded to the joint venture by PEMEX. The Company will continue to bid
other foreign drilling and MOPU projects.
In 1987, the Company formed Cliffs-Neddrill Turnkey International, a
three-year 50/50 joint venture with Neddrill Nederland B.V. of the Netherlands
("Neddrill"), for the marketing of turnkey drilling services in foreign markets.
Neddrill is part of the Royal Nedlloyd Group N.V., a Dutch transport and energy
organization. The joint venture terminated in June, 1993.
CNCTI was formed in 1992 and was awarded a contract for one of 4 turnkey
bid packages to drill 4 turnkey wells in the Bay of Campeche, Mexico. Drilling
operations commenced in February, 1993. In addition, the Company contracted a
mobile offshore supply unit to CNCTI to facilitate turnkey operations. In
January, 1994, 2 additional turnkey packages were awarded to CNCTI by PEMEX for
the drilling of a total of 4 wells in the Bay of Campeche and the Bay of
Tampico. The
7
<PAGE> 9
Company has mobilized a jack-up drilling rig to the Bay of Tampico to drill 2 of
the 4 wells recently awarded.
Operations of the Company which are conducted in foreign countries are
subject to certain political, economic and other uncertainties not encountered
by purely domestic drillers, including risk of expropriation, nationalization,
labor disputes, foreign taxation, foreign and domestic monetary policies and
regulations which may limit operations in areas by foreign companies and/or
personnel. Generally, the Company purchases insurance to protect against some or
all losses due to events of political risks, such as nationalization,
expropriation, war, confiscation and deprivation. Occasionally, customers will
indemnify the Company against such losses. With respect to its contracts with
Maraven and Corpoven, the Company has taken steps to reduce its exposure to
foreign currency risks by acquiring a limited amount of inconvertibility
insurance coverage. See "Business and Properties -- Government Regulation."
Customers. The Company's 3 largest unrelated customers for the year ended
December 31, 1993, Dresser-Rand, Maraven and Marathon Oil Company, accounted for
approximately 63% of the Company's consolidated revenues. The Company's 2
largest unrelated customers for the year ended December 31, 1992, Maraven and
Marathon Oil Company, accounted for approximately 36% of the Company's
consolidated revenues. The Company's 3 largest unrelated customers for the year
ended December 31, 1991, Marathon Oil Company, Maraven and Phillips Petroleum
Company, accounted for approximately 53% of the Company's consolidated revenues.
The loss of any major customer could have an adverse impact on the Company's
operations for such period of time as may be required to find other users for
the equipment. See Note 15 of Notes to Consolidated Financial Statements.
Equipment and Supplies. The Company obtains required supplies, services and
equipment from a variety of sources. The Company has not in the past experienced
shortages of such materials necessary to conduct the Company's business.
However, such shortages could occur in the future and could have a material
adverse effect on the Company's operations. There may be additional delays or
shortages associated with obtaining supplies, services, and equipment,
particularly with respect to the Company's foreign operations.
Competition. The drilling industry is highly competitive, and no one or few
drilling contractors is dominant. The Company competes with numerous other
drilling contractors, some of which are substantially larger than the Company
and possess appreciably greater financial and other resources. Depressed
economic conditions in the oil and gas industry have resulted in the supply of
domestic drilling equipment substantially exceeding demand. As a consequence,
there has been intense competition in securing available drilling contracts,
resulting in much equipment being idle for long periods of time coupled with
unfavorable prices for drilling contracts, particularly those drilled on a
daywork basis. Also, in recent years many drilling companies have sought
protection from creditors under bankruptcy laws, or have undertaken business
combinations with other companies as a result of the downturn in the contract
drilling industry. Although this has decreased the total number of competitors,
the Company believes that competition for drilling contracts will continue to be
intense for the foreseeable future.
Price competition is generally the major factor in the energy service
industry, but the technical capability of specialized drilling equipment and
personnel at the time and place required by customers is also important. Other
competitive factors include technical and engineering expertise, work force
experience, rig suitability, safety record, efficiency, condition of equipment,
reputation and customer relations. The Company believes that it competes
favorably with respect to all of these factors. If demand for drilling rigs
increases in the future, rig availability may also become a competitive factor.
Competition is usually on a regional basis; however, drilling rigs are mobile
and can be moved from one region to another in response to increased demand, and
an oversupply of rigs in any region may result. The Company's domestic drilling
and MOPU operations are concentrated in the Texas/Louisiana Gulf Coast area, and
its foreign drilling and MOPU operations are
8
<PAGE> 10
primarily in Venezuela and Mexico. In foreign markets, the Company competes with
many of the same competitors under the same factors as in the domestic markets.
Demand for onshore and offshore drilling and production equipment is also
dependent on the exploration and development programs of oil and gas companies,
which are in turn influenced by the financial condition of such companies,
general economic conditions, prices of oil and gas and political considerations
and policies.
There are relatively few drilling contractors specializing in turnkey
drilling contracts because of the extent of engineering and technical expertise
required to manage the risks inherent in turnkey drilling operations, the
magnitude of management commitment and the financial resources required. In
order to remain competitive in the current environment, the Company has expanded
its foreign operations, focused its domestic drilling operations on turnkey
drilling contracts, developed and marketed well engineering and management
services, taken a working interest position in certain oil and gas prospects in
conjunction with marketing its contract drilling services, and become active in
the development and operation of MOPUs. The Company believes that MOPUs offer
several economic advantages to oil and gas operators, namely, optimizing the use
of exploration budgets by avoiding the high capital costs of production
platforms, providing more flexibility than conventional fixed platforms in
producing oil and gas, and allowing for the economic development of smaller
reserves. Although the Company believes there is a market for additional MOPUs,
the Company can give no assurance that there will be sufficient demand for
contracting MOPUs at rates which are profitable. Currently, margins on MOPU
operations are high, which is likely to result in increased competition for
available opportunities. Moreover, MOPUs are not widely utilized, and most
companies that do utilize MOPUs own and operate their own units. The Company
believes that its experience in MOPU operations enables it to compete favorably
in the MOPU market. For these reasons, the Company views MOPUs as an attractive
opportunity to expand its offshore services.
Acquisitions and Dispositions of Assets. On January 17, 1989, the Company
acquired the offshore assets of Marlin Drilling Company, an indirect subsidiary
of Tenneco Inc., consisting of 6 offshore drilling rigs, one MOPU, and certain
other assets (the "Marlin Acquisition"). On May 24, 1989, the Company sold 2
jack-up rigs and a semi-submersible rig acquired in the Marlin Acquisition to
Loews San Antonio Hotel Corporation, now known as Diamond Offshore Company
("Diamond M"). In conjunction with the sale, the Company entered into two-year
bareboat charter agreements with Diamond M for each of the 3 rigs, all of which
have expired. During the fourth quarter of 1989, the Company sold at auction 10
land rigs which were no longer deemed to be economically viable, and converted
one of the jack-up rigs purchased in the Marlin Acquisition to a MOPU. On
October 31, 1991, the Company purchased 3 jack-up rigs from Chiles Offshore
Corporation. These rigs have been refurbished, converted to MOPUs, and are being
used as portacompressors in Venezuela. The Company purchased 5 jack-up drilling
rigs during the fourth quarter of 1992 and converted 2 of the 5 rigs to MOPUs,
is using one as a mobile offshore supply unit in the Bay of Campeche, Mexico,
has mobilized one unit to drill turnkey wells in the Bay of Tampico, Mexico, and
presently expects to bareboat charter the other unit to a third party for use as
a workover rig in the U.S. Gulf of Mexico. Effective January 1, 1993, the
Company sold its 4 inland posted barge drilling rigs.
OIL AND GAS OPERATIONS
Since 1987, the Company has engaged in oil and gas exploration and
production activities in conjunction with marketing the Company's contract
drilling services, primarily turnkey, under the Company's CDS program. Under
this program, the Company sometimes takes working interests in oil and gas
properties in connection with the award to the Company of a drilling contract.
The Company's policy is that its working interest in such CDS wells will
generally not exceed 25%. As of December 31, 1993, the Company had taken working
interests in 45 of 129 (35%) of the turnkey wells drilled since 1986, with the
actual interests in such wells generally held by COGC. The Company has begun to
de-emphasize its CDS program due to marginal financial performance of the
9
<PAGE> 11
segment in recent years. The Company took working interests in no wells drilled
under domestic daywork drilling contracts in 1993, and one and 2 of the wells
drilled under domestic daywork drilling contracts in 1992 and 1991,
respectively. See Note 18 of Notes to Consolidated Financial Statements.
Since 1986, in conjunction with obtaining turnkey drilling contracts, the
Company from time to time has been selected by the working interest owners to
operate the well to be drilled, typically in situations where none of the other
owners can meet the financial responsibility requirements imposed on offshore
operators by the OuterContinental Shelf Lands Act.
In order to provide funding for the Company's share of development and
completion costs of certain wells in which the Company has acquired a working
interest, the Company entered into an Exploration and Development Agreement (the
"Development Agreement"), effective as of May 25, 1988, with Mosbacher Offshore,
Inc. ("Mosbacher"). Under the terms of the Development Agreement, the Company
generally pays the lease acquisition costs and the costs to casing point
attributable to the interest it acquired in the initial test well drilled on a
property. Subject to maximum funding limits discussed below and the elections of
the other working interest owners in the wells with respect to particular
operations and certain other contingencies, Mosbacher pays the costs incurred
after the casing point of initial test wells (the "completion costs"), the
drilling and completion costs of subsequent wells located on the property
interests upon which the initial test well was drilled (the "development
costs"), and the platform, production facility and pipeline costs incurred with
respect to all wells located on such property interests (the "joint facilities
costs"). In all initial test wells in which Mosbacher pays the completion costs,
the Company and Mosbacher each own a working interest in the initial test well
based upon the amount of costs borne by each. With respect to the Company's
interest in property interests other than initial test wells, Mosbacher owns all
the working interest and the Company owns a net profits interest. Should
Mosbacher recoup its total costs borne with respect to all of its property
interests ("payout"), the Company's net profits interest percentage would
increase. However, the Company currently does not believe that payout will occur
under the Development Agreement. Under certain circumstances, the Company's net
profits interest converts to a working or cost bearing interest in all the
property interests. The obligation of Mosbacher to fund completion costs of
initial test wells expired February 15, 1992. Pursuant to an amendment to the
Development Agreement, Mosbacher's obligation to fund development and joint
facilities costs exists with respect to properties included under the
Development Agreement until Mosbacher has funded $25.0 million in the aggregate
of those costs. At December 31, 1993, Mosbacher had expended an aggregate of
approximately $21.6 million in completion costs on initial test wells and in
development and joint facilities costs.
Information concerning the Company's oil and gas operations, including
estimates of proved oil and gas reserves as of December 31, 1993, prepared by
Huddleston & Co., Inc., independent petroleum consultants, is presented under
the caption "Supplemental Information on Oil and Gas Operations (Unaudited)" in
Note 18 of Notes to Consolidated Financial Statements.
The following table shows the average sales prices received by the Company
for production of natural gas and crude oil and the average production (lifting)
costs per equivalent barrel produced during the periods indicated. All
production occurred in the United States.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Sales Price:
Natural gas (per MCF)............................ $ 2.31 $ 2.08 $ 1.66
Crude oil and condensate (per Bbl)............... $ 18.39 $ 18.65 $ 19.40
Production (lifting) costs per BOE................. $ 3.33 $ 2.76 $ 2.44
</TABLE>
10
<PAGE> 12
The following table shows the Company's interest in developed and
undeveloped oil and gas acreage in the United States as of December 31, 1993.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE (1) UNDEVELOPED ACREAGE (2)
------------------------ ------------------------
GROSS (3) NET (3) GROSS (3) NET (3)
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Louisiana..................... 2,648.88 564.34 42,670.08 5,976.91
Mississippi................... 80.00 8.00 80.00 8.00
Texas......................... 1,918.80 152.86 -- --
Offshore...................... 6,067.29 430.38 31,395.18 2,145.72
--------- -------- --------- --------
Total............... 10,714.97 1,155.58 74,145.26 8,130.63
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
- ---------------
(1) Developed acreage is acreage spaced or assigned to productive wells.
Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same
bore hole count as one well.
(2) Undeveloped acreage is acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves.
(3) The term "Gross" refers to acres in which a working interest is owned, and
the term "Net" refers to gross acres multiplied by the percentage of the
working interest owned.
The Company may determine that it is in the Company's best interest not to
pay delay rentals with respect to any undeveloped acreage, thereby permitting
the lease of such acreage to expire prior to termination of its primary term.
The following table shows the Company's interest in productive oil and gas
wells, all of which are in the United States.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
---------------- ----------------
GROSS NET GROSS NET
--- ---- --- ----
<S> <C> <C> <C> <C>
Productive oil wells (1)..................... 9 0.72 8 0.66
Productive gas wells (1)..................... 19 2.67 18 2.35
</TABLE>
- ---------------
(1) Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same
bore hole count as one well.
The following tables show the number of gross and net productive
exploratory and development wells in the United States in which the Company has
participated, and the number of gross and net wells abandoned as dry holes
(i.e., wells found to be incapable of producing oil or gas in sufficient
quantities to justify completion as an oil or gas well) excluding development
wells in which the Company owns a net profits interest under the Development
Agreement. A well is considered productive upon completion (i.e., upon the
installation of permanent equipment for the production of the oil and gas.) A
well is considered a dry hole upon reporting of abandonment to the appropriate
agency. There were no exploratory or development wells in progress at December
31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------------
PRODUCTIVE DRY TOTAL
--------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory......................... 1 0.06 2 0.16 3 0.22
Development......................... 1 0.45 1 0.12 2 0.57
----- ----- ----- ----- ----- -----
Total..................... 2 0.51 3 0.28 5 0.79
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
(Table continued on following page)
11
<PAGE> 13
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992
-------------------------------------------------------
PRODUCTIVE DRY TOTAL
--------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory......................... 1 0.04 -- -- 1 0.04
Development......................... 4 0.61 1 0.01 5 0.62
----- ----- ----- ----- ----- -----
Total..................... 5 0.65 1 0.01 6 0.66
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1991
-------------------------------------------------------
PRODUCTIVE DRY TOTAL
--------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory......................... 5 0.68 3 0.30 8 0.98
Development......................... 1 0.07 1 0.10 2 0.17
----- ----- ----- ----- ----- -----
Total..................... 6 0.75 4 0.40 10 1.15
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
At the request of the Company, Huddleston & Co., Inc. has estimated the
proved reserves attributable to the Company's oil and gas properties as of
December 31, 1993 and 1992, as set forth below:
<TABLE>
<CAPTION>
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- ---------
<S> <C> <C>
Proved reserves:
December 31, 1993........................................ 124,064 3,326,000
December 31, 1992........................................ 112,935 4,352,300
Proved developed reserves:
December 31, 1993........................................ 88,846 3,308,100
December 31, 1992........................................ 80,441 4,335,900
</TABLE>
"Proved reserves" are those estimated quantities of crude oil and natural
gas which geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known reservoirs based upon prices and
costs existing at the time the estimate is made. Proved reserves are estimates
of hydrocarbons to be recovered from a given date forward, and they may be
revised as hydrocarbons are produced, economic conditions change or additional
data becomes available. "Proved developed reserves" are proved reserves which
can be expected to be recovered through existing wells with existing equipment
and operating methods, including: (i) "developed producing reserves", which are
those proved developed reserves reasonably expected to be produced from existing
completion intervals now open for production in existing wells; and (ii)
"developed nonproducing reserves", which are those proved developed reserves
which (a) can exist behind the casing of existing wells which are reasonably
expected to be produced through these wells in the predictable future where the
cost of making such hydrocarbons available for production should be relatively
small compared to the cost of a new well or (b) are expected to be recovered
from completion intervals open at the time of the estimate, but which had not
started producing, or were shut in for market conditions or pipeline connection,
or were not capable of production for mechanical reasons, and the time when
sales will start is uncertain. "Proved undeveloped reserves" are proved reserves
which are expected to be recovered from new wells on undrilled acreage, from
deepening existing wells to a different reservoir or from existing wells where a
relatively major expenditure is required for completion.
There are numerous uncertainties inherent in estimating quantities of
proved reserves. The preceding information represents estimates only. Oil and
gas reserve engineering is a subjective process of estimating underground
accumulations of oil and gas that cannot be measured in an exact way, and
estimates of other persons might differ materially from those set out in the
preceding
12
<PAGE> 14
tables. The accuracy of any reserves estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of drilling, testing and production subsequent to the date of the
estimate may justify revision of such estimate, and as a general rule, reserve
estimates based upon volumetric analysis (as is the case with a portion of the
estimates set forth above) are inherently less reliable than those based on
production history. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered.
The following table shows the standardized measure of discounted future net
cash flows from the estimated proved oil and gas reserves attributable to the
Company's oil and gas properties and their discounted present value, as of
December 31, 1993.
<TABLE>
<S> <C>
Future cash inflows................................................... $ 9,642,000
Future production costs............................................... (1,549,000)
Future development costs.............................................. (133,000)
Future income taxes................................................... --
------------
Undiscounted future net cash flows.................................... 7,960,000
10% annual discount................................................... (1,622,000)
------------
Standardized measure of discounted future net cash flows $ 6,338,000
------------
------------
</TABLE>
In addition to the assumptions discussed above, the discounted present
value at December 31, 1993, was calculated by applying the Company's estimate of
prices as of that date, considering fixed and determinable price changes only to
the extent provided by contractual arrangements or law, to estimated future
production and future expenditures (based on current costs) to be incurred in
developing and producing such reserves. Such estimated prices averaged $12.86
per barrel of oil and condensate and $2.42 per Mcf of gas. Future income tax
expenses have not been included due to the effect of net operating loss
carryforwards. No value has been given to unproved properties and reserves not
yet established as proved by drilling, field development or production history.
While the method of calculating discounted present value is prescribed by
accounting rules and the rules of the Commission, such calculations are subject
to significant uncertainties inherent in estimating quantities of proved
reserves, projected rates of production, future prices and the timing and amount
of future costs. In particular, it is impossible to predict the occurrence or
amount of curtailments of gas production or the effects of the current gas
surplus, which may have an unfavorable effect on estimates of future net cash
flows. In addition, the method of valuation utilized, based on current prices
and costs and the use of a 10% discount rate, is not necessarily appropriate for
determining fair market value. Therefore, such calculations do not purport to
represent the fair market value of the oil and gas properties.
There have been no estimates of total proved oil or natural gas reserves of
the Company filed with or included in reports to any federal authority or agency
that differ from those set forth above.
ENVIRONMENTAL CONTROLS
The Company believes it is in material compliance with applicable federal,
state, local and foreign legislation and regulations relating to environmental
controls. Also, the existence of such laws and regulations has not had, nor at
this time is expected to have, any materially restrictive effect on the Company.
To date, the Company has not accounted for costs or capital expenditures
incurred for environmental control facilities separately from other costs
incurred in the operation of its businesses. The Company does not, however,
believe that any such costs or expenditures have been material and the Company
does not expect that under present conditions such costs or expenditures will
become material in the foreseeable future.
13
<PAGE> 15
GOVERNMENT REGULATION
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of removal
and damages arising out of a pollution incident to the extent set forth in the
Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990
and the Outer-Continental Shelf Lands Act. In addition, the Company may also be
subject to other civil claims arising out of any such incident. Certain of the
Company's facilities are also subject to regulations of the Environmental
Protection Agency ("EPA") that require the preparation and implementation of
spill prevention control and countermeasure plans relating to possible discharge
of oil into navigable waters. The Company supplements its activities in this
regard by membership in the Clean Gulf Association, which provides pollution
control facilities to its members. Other regulations of the EPA may require the
Company to take certain precautions in storing, handling and transporting
certain hazardous wastes. State statutory provisions relating to oil and natural
gas generally include requirements as to well spacing, waste prevention,
production limitations, pollution prevention and clean-up, obtaining drilling
permits and similar matters. The Company believes that it is in compliance in
all material respects with such laws, rules and regulations and that such
compliance has not had any material adverse effect on its operations or
financial condition.
The drilling industry is dependent on the demand for services from the oil
and gas exploration industry and, accordingly, is affected by changing tax laws,
price controls and other laws relating to the energy business. The Company's
business is affected generally by political developments and by federal, state,
local and foreign laws and regulations which may relate directly to the oil and
gas industry. The adoption of laws and regulations, both domestic and foreign,
which curtail exploration and development drilling for oil and gas for economic,
environmental and other policy reasons may adversely affect the Company's
operations by limiting available drilling and production opportunities. The
Company's foreign operations are subject to political, economic and other
uncertainties associated with foreign operations generally, as well as the
additional risks of fluctuating currency values and exchange controls.
Governments may from time to time suspend or curtail drilling operations or
leasing activities when such operations are considered to be detrimental to the
environment or to jeopardize public safety.
MOPUs and MOPU operations are subject to certain federal, state, local and
foreign laws and regulations relating to engineering, design, structural,
safety, operational and inspection standards or requirements, and changes in
such standards or requirements could adversely affect the Company's MOPU
operations.
RISKS AND INSURANCE
The Company's operations are subject to the many hazards inherent in the
drilling business, including, for example, blow-outs, cratering, fires,
explosions and adverse weather and seas. These hazards could cause personal
injury, suspend drilling operations or seriously damage or destroy the equipment
involved and could cause substantial damage to producing formations and
surrounding areas. Damage to the environment could also result from the
Company's operations, particularly through oil spillage and extensive,
uncontrolled fires. As a protection against operating hazards, the Company
maintains broad insurance coverage, including all-risk physical damage,
employer's liability, commercial general liability or commercial indemnity
contract and workers' compensation insurance. The Company's third party
liability insurance coverage is approximately $100 million per occurrence. The
Company believes that it is adequately insured for public liability and property
damage to others with respect to its operations. However, such insurance may not
be sufficient to protect the Company against liability for all consequences of
well disasters, extensive fire damage or damage to the environment. The Company
also carries insurance to cover physical damage to or loss of its drilling rigs
and MOPUs and a limited amount of insurance against loss of earnings resulting
from damage to its jack-up drilling rigs and MOPUs. In view of difficulties that
may be encountered in renewing such insurance at reasonable rates, no assurance
can be given that the
14
<PAGE> 16
Company will be able to maintain the type and amount of coverage that it
considers adequate. The occurrence of a significant event for which the Company
is not fully insured could have a material adverse effect on the Company's
financial position and results of operations.
The Company also maintains insurance coverage on an annual basis to protect
against certain hazards inherent in its turnkey contract drilling and oil and
gas operations. This insurance was most recently renewed on June 1, 1993, and is
scheduled for renewal again on June 1, 1994. This insurance, which is
principally through Underwriters at Lloyd's and Institute of London Underwriters
Companies, covers "control of well" (including blowouts above and below the
surface); cratering; seepage and pollution; and care, custody and control. Prior
to June 1, 1992, the Company carried insurance coverage for losses and claims
associated with "stuck drill stem" occurrences, which are normal operating risks
associated with drilling operations. Under the terms of a typical turnkey
drilling contract, the drilling contractor assumes the risk of stuck drill stem
incidents. The Company believes that few, if any, turnkey drilling contractors
carry insurance for such losses and claims. In prior years, the Company procured
such insurance after concluding that the expense of such coverage was reasonable
in relation to the coverage afforded, and the proceeds from such insurance
generally exceeded the premiums. Because of a significant increase in premiums,
the Company now believes that the expense of such insurance, if available, is
too great in relation to the coverage afforded, and has chosen not to insure
against such losses and claims. While the absence of this coverage increases the
financial risk of the Company's turnkey operations, the Company is attempting to
offset this increase in risk by shifting its marketing and operating strategies
toward lower risk operations. The Company believes that it continues to maintain
insurance in accordance with industry standards. The Company's current insurance
program provides $500,000 coverage per occurrence for care, custody and control,
$75 million coverage per occurrence for control of well, cratering and seepage
and pollution, and $35 million per occurrence for Outer-Continental Shelf Lands
Act statutory obligations. Each form of coverage provides for a deductible for
the account of the Company, as well as a maximum limit of liability. Each
casualty is an occurrence, and there may be more than one such occurrence on a
well, each of which would be subject to a separate deductible. No assurance can
be given that the Company will be able to maintain the types and amounts of
coverage that it considers adequate with respect to its turnkey drilling and oil
and gas operations.
EMPLOYEES
At December 31, 1993, the Company employed 84 persons domestically,
approximately 81% of whom were salaried and the remainder of which were hourly
employees. There were no collective bargaining contracts covering the Company's
domestic employees in effect as of December 31, 1993. As of December 31, 1993,
the Company employed 234 persons in Venezuela, approximately 37% of whom were
salaried and the remainder of whom were hourly employees. The employees in
Venezuela are covered by the Collective Labor Contract of the Venezuelan
Petroleum Industry. At December 31, 1993, the Company employed 8 persons in
Mexico, all of whom were salaried. There were no collective bargaining contracts
covering the Company's employees in Mexico as of December 31, 1993.
OTHER PROPERTIES
The Company owns an office building and warehouse on a 2.5 acre tract of
land in Lafayette Parish, Louisiana, and a training facility building in
Broussard, Louisiana, which is currently leased to a third party. The Company
leases additional properties, including its executive offices in Houston, Texas,
a field office and yard in Lafayette, Louisiana and 2 field offices in
Venezuela.
ITEM 3. LEGAL PROCEEDINGS
The Company recently settled litigation with Diamond M concerning various
matters relating to the sale and bareboat charter of 3 offshore drilling rigs.
Legal proceedings were instituted by the
15
<PAGE> 17
Company on August 29, 1991, and were consolidated with related legal proceedings
subsequently instituted by Diamond M in the United States District Court,
Southern District of Texas, Houston Division.
In May, 1989, the Company sold 3 rigs to Diamond M for $22 million, $15
million of which was payable in cash, and $7 million of which was payable
pursuant to three-year promissory notes. Simultaneously with the sale, the
Company bareboat chartered the rigs from Diamond M for a two-year period, with
charter hire payment dates pursuant to the charters coinciding with principal
and interest payment dates pursuant to the notes. In the litigation, Diamond M
alleged that the Company failed to properly maintain and repair the rigs during
the terms of the charters, that the rigs were not in compliance with certain
specified classifications and conditions at redelivery upon expiration of the
respective charters, and that as a result, Diamond M incurred substantial costs
to improve the conditions of the rigs. Diamond M also claimed the right to
receive additional charter hire attributable to the period during which its
repairs and improvements to the rigs were performed. In June, 1993, a partial
summary judgment awarded the Company $1.8 million, together with interest and
attorney's fees, for the notes payable by Diamond M to the Company, offset by
certain charter hire payments due Diamond M. Following a trial in February,
1994, a judgment was entered in the United States District Court, Southern
District of Texas, Houston Division. The judgment awarded Diamond M $3.5
million, plus court costs, offset by the partial summary judgment of $1.8
million. The Company paid Diamond M $1.7 million in February, 1994 as a final
settlement of all disputed issues. See Note 13 of Notes to Consolidated
Financial Statements.
The Company is also party to a number of lawsuits which are ordinary,
routine litigation incidental to the Company's business, the outcome of which,
individually or in the aggregate, is not expected to have a material adverse
effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold a meeting of stockholders or otherwise submit any
matter to a vote of stockholders in the fourth quarter of 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "CLDR." The following table sets forth the range of high and
low closing sale prices per share of Common Stock as reported by NASDAQ for the
periods indicated.
<TABLE>
<CAPTION>
1993 1992
----------------- -----------------
MARKET VALUE MARKET VALUE
----------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW
-------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
March 31.......................................... $14 1/4 $11 1/2 $14 3/4 $ 9 3/4
June 30........................................... $17 1/4 $12 3/4 $15 1/4 $12 1/4
September 30...................................... $15 $11 1/2 $15 3/4 $13 1/4
December 31....................................... $13 1/4 $11 $15 1/8 $11 7/8
</TABLE>
On March 3, 1994, the closing sale price of the Company's Common Stock, as
reported by the NASDAQ, was $11 3/4 per share. On that date, there were 2,173
holders of record of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock, and it is
not anticipated that cash dividends will be paid to holders of Common Stock in
the foreseeable future. Under the Company's credit agreement with INCC, the
Company is restricted from declaring, making, or
16
<PAGE> 18
paying any cash dividend on any class of capital stock except for the quarterly
dividend applicable to the Company's Preferred Stock.
The Company's $2.3125 Convertible Exchangeable Preferred Stock ("Preferred
Stock") is also traded on the NASDAQ National Market System under the symbol
"CLDRP." The following table sets forth the range of high and low closing sale
prices per share of Preferred Stock as reported by NASDAQ for the periods
indicated.
<TABLE>
<CAPTION>
1993 1992
--------------- -----------------
MARKET VALUE MARKET VALUE
--------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW
--------------------------------------------------- ---- ------ ------ ------
<S> <C> <C> <C> <C>
March 31........................................... $ 31 $ 27 $ 28 3/4 $ 23
June 30............................................ $ 33 $ 29 1/8 $ 29 3/4 $ 26 1/2
September 30....................................... $ 31 $ 26 3/4 $ 31 $ 27
December 31........................................ $ 29 $ 26 1/2 $ 30 3/4 $ 27 1/2
</TABLE>
On March 3, 1994, the closing sale price of the Company's Preferred Stock,
as reported by NASDAQ, was $26 3/4 per share. On that date, there were 50
holders of record of the Company's Preferred Stock.
Holders of shares of Preferred Stock are entitled to receive, when, as, and
if declared by the Board of Directors out of funds of the Company legally
available therefor, cash dividends at an annual rate of $2.3125 per share,
payable quarterly on March 15, June 15, September 15 and December 15 in each
year, except that if any such date is a Saturday, Sunday or legal holiday, such
dividend is payable on the next day that is not a Saturday, Sunday or legal
holiday. Dividends are cumulative and are payable to holders of record as they
appear on the stock books of the Company on such record dates as are fixed by
the Board of Directors. Cash dividends paid on each of the quarterly dividend
dates in 1993, 1992 and 1991 were $665,000. The Preferred Stock is also
convertible into shares of Common Stock at the rate of 1.89394 shares of Common
Stock for each share of Preferred Stock and is subject to redemption at the
option of the Company at varying prices depending on the date called for
redemption. Under the credit agreement with INCC, the Company is restricted from
redeeming the Preferred Stock unless such redemption is mandatory.
17
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information of the Company. The amounts as of and for each of the five years in
the period ended December 31, 1993, have been derived from audited consolidated
financial statements of the Company. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere herein. The selected consolidated financial data
provided below are not necessarily indicative of the future results of
operations or financial performance of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1993 1992 1991 1990 1989
-------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues........................... $ 65,538 $ 76,838 $ 84,503 $ 78,754 $ 66,319
Costs and Expenses:
Operating Expenses................. 34,983 57,505 70,178 65,783 58,084
Depreciation, Depletion and
Amortization.................... 17,438 12,883 9,369 9,720 8,762
Contract Termination Provision..... 577 -- -- -- --
Writedown in Carrying Value of Oil
Gas Properties.................. -- 1,500 4,000 -- --
Exploration Costs.................. 188 141 547 2,876 1,106
General and Administrative
Expense......................... 4,807 4,512 4,352 4,771 5,566
-------- --------- --------- --------- ---------
Operating Income (Loss)............ 7,545 297 (3,943) (4,396) (7,199)
Other Income (Expense)(1).......... (3,919) 2,721 61 542 4,525
-------- --------- --------- --------- ---------
Net Income (Loss).................. 3,626 3,018 (3,882) (3,854) (2,674)
Dividends Applicable to Preferred
Stock........................... (2,659) (2,659) (2,660) (2,659) (2,548)
-------- --------- --------- --------- ---------
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares.......................... $ 967 $ 359 $ (6,542) $ (6,513) $ (5,222)
-------- --------- --------- --------- ---------
-------- --------- --------- --------- ---------
Net Income (Loss) per Share:
Primary......................... $ 0.21 $ 0.11 $ (2.19) $ (2.18) $ (1.77)
Assuming Full Dilution.......... $ 0.21 $ 0.11 $ (2.19) $ (2.18) $ (1.77)
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding..................... 4,514 3,257 2,992 2,981 2,944
SUMMARY BALANCE SHEET DATA:
Working Capital.................... $ 20,618 $ 24,830 $ 5,637 $ 13,599 $ 20,104
Property and Equipment, Net........ 86,506 101,178 99,023 80,188 80,545
Total Assets....................... 133,523 150,203 143,283 124,372 128,358
Notes Payable -- Long Term......... 13,108 28,348 27,000 -- --
Obligations Under Capital Leases
(including current
maturities)..................... -- -- 2,682 4,677 6,895
Redeemable Preferred Stock......... 28,750 28,750 28,750 28,750 28,750
Total Shareholders' Equity(2)...... $ 72,494 $ 71,446 $ 52,229 $ 58,497 $ 64,750
</TABLE>
- ---------------
(1) Includes litigation settlement and expenses of $3.7 million in 1993 and
gains of $5.0 million and $5.5 million on disposition of assets in 1992 and
1989, respectively.
(2) The Company has not paid any cash dividends on its Common Stock.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Activity in the contract drilling industry and related oil service
businesses has been severely depressed since 1982 due to volatility in oil and
natural gas prices. These conditions have resulted in an oversupply of drilling
equipment, decreased rig utilization, declining dayrates and intense competition
for drilling contracts. The financial condition and results of operations of the
Company and other drilling contractors have suffered, as demand for their
services is primarily dependent upon the level of spending by oil and gas
companies for exploration, development and production activities.
The Company has endeavored to mitigate the effect of these depressed market
conditions by diversifying its scope of operations beyond the traditional
domestic daywork contract drilling market. To achieve its strategic objective,
the Company established separate but related lines of business in turnkey
drilling and MOPU operations, and pursued foreign drilling and production
opportunities. Each of the Company's business segments will continue to be
affected, however, by the unsettled energy markets, which are influenced by a
variety of factors, including general economic conditions, the extent of
worldwide oil and gas production and demand therefor, government regulations,
and environmental concerns.
RESULTS OF OPERATIONS
Year 1993 Versus 1992
The Company recognized net income, before preferred dividends, of $3.6
million in 1993 compared to net income of $3.0 million in 1992. The 1993 results
include litigation settlement and expenses of $3.7 million, or $0.82 per share.
Excluding this charge in 1993, the Company would have reported net income of
$7.3 million, or $1.03 per common share. The 1992 results included a $1.5
million writedown in the carrying value of oil and gas properties and a $4.7
million gain on the disposition of one of the Company's MOPUs due to its
constructive total loss in Hurricane Andrew. Excluding these amounts in 1992,
the Company would have reported a net loss of $.2 million, or $0.86 per common
share. Operating income increased $7.2 million from 1992 to 1993. The
improvement in operating income was primarily due to increased MOPU operating
income of $7.1 million, increased foreign daywork drilling operating income of
$1.7 million, and decreased domestic daywork drilling operating losses of $.4
million, offset in part by reduced turnkey drilling operating income of $1.1
million, increased oil and gas operating losses of $.5 million, and increased
corporate overhead of $.4 million.
<TABLE>
<CAPTION>
INCREASE
1993 1992 (DECREASE)
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic...................................... $ 1,195 $ 5,451 $ (4,256)
Foreign....................................... 21,023 21,472 (449)
Turnkey Drilling................................. 16,961 37,014 (20,053)
MOPU Operations.................................. 21,673 9,178 12,495
Oil and Gas...................................... 4,686 3,723 963
-------- -------- ---------
Consolidated................................ $ 65,538 $ 76,838 $ (11,300)
-------- -------- ---------
-------- -------- ---------
Operating Income (Loss):
Daywork Drilling:
Domestic...................................... $ (2,417) $ (2,822) $ 405
Foreign....................................... 1,902 215 1,687
Turnkey Drilling................................. 1,685 2,720 (1,035)
MOPU Operations.................................. 13,566 6,466 7,100
Oil and Gas...................................... (2,303) (1,770) (533)
Corporate Office................................. (4,888) (4,512) (376)
-------- -------- ---------
Consolidated................................ $ 7,545 $ 297 $ 7,248
-------- -------- ---------
-------- -------- ---------
</TABLE>
19
<PAGE> 21
Daywork Drilling
Domestic daywork drilling revenues decreased $4.3 million from $5.5 million
in 1992 to $1.2 million in 1993. The decrease was primarily due to the stacking
of the majority of the Company's domestic land rigs in 1993 and the sale,
effective January 1, 1993, of the Company's 4 inland posted barge drilling rigs
together with rights to certain oil and gas production proceeds. Domestic
daywork drilling operating losses decreased by $.4 million from $2.8 million in
1992 to $2.4 million in 1993. Costs savings resulting from the sale of the 4
inland posted barge drilling rigs were partially offset by costs associated with
stacking the Company's domestic land rigs and the sale, effective January 1,
1993, of rights to certain oil and gas production proceeds. Three of the
Company's 4 domestic land drilling rigs will operate in Venezuela during 1994.
One of the Company's land drilling rigs was mobilized to Venezuela in 1994 and
began drilling operations for Corpoven for a three-year term. Two other domestic
land drilling rigs will begin drilling operations in 1994 in Venezuela to drill
turnkey wells awarded the Company by Corpoven.
Foreign daywork drilling revenues decreased $.5 million from $21.5 million
in 1992 to $21.0 million in 1993. Foreign daywork drilling operating income
increased $1.7 million during the same period. The increase in operating income
was primarily due to reduced labor costs and repair and maintenance expenses,
offset in part by decreased revenues during 1993 when compared to 1992. Foreign
operating results reflect decreased revenues primarily due to reduced cost
flow-throughs billed to the operators and devaluation of the Venezuelan Bolivar.
The contracts for the Company's 2 jack-up drilling rigs operating in Venezuela
expire on March 9, 1994 and March 15, 1994, respectively. The Company is
currently in the process of renegotiating the contracts. No assurance can be
given that the contracts will be renewed, and if renewed, at rates comparable to
those received in 1993. Contracts on the 2 land drilling rigs working in eastern
Venezuela expire in September, 1995.
Turnkey Drilling
Turnkey drilling revenues decreased $20.0 million from $37.0 million in
1992 to $17.0 million in 1993. Twelve turnkey contracts were completed during
1992 compared to 6 turnkey contracts completed in 1993, 2 of which related to
CNCTI and were accounted for under the equity method in the Company's
Consolidated Financial Statements. See Note 5 of Notes to Consolidated Financial
Statements. Turnkey drilling operating income decreased $1.1 million in 1993
when compared to 1992, primarily due to fewer completed contracts in 1993.
The Company anticipates improved turnkey drilling operating results in 1994
due to the award of approximately $50 million in international turnkey contracts
to be drilled in 1994 and 1995. The Company was awarded 2 packages with 3
turnkey wells in each package to be drilled for Corpoven with estimated revenues
of approximately $36 million. The Company will mobilize 2 of its idle domestic
land drilling rigs to Venezuela to work on these projects. In addition, CNCTI, a
joint venture in which the Company holds a one-third ownership percentage, was
awarded 2 drilling packages by PEMEX for the drilling of a total of 4 wells. The
Company has mobilized an idle jack-up drilling rig to the Bay of Tampico, Mexico
in the first quarter of 1994 to drill 2 of the 4 wells. The 2 packages are
expected to generate $42 million in revenues to CNCTI.
MOPU Operations
MOPU revenues increased $12.5 million from $9.2 million in 1992 to $21.7
million in 1993. MOPU operating income increased $7.1 million in 1993. The
Company's MOPUs contributed greater income in 1993 due to 3 MOPU units working
in Venezuela during all of 1993 while the 3 units worked only part of 1992. In
addition, the Company's mobile offshore supply unit operated in the Bay of
Campeche, Mexico during most of 1993 and none in 1992, and a new MOPU began
working during the third quarter of 1993. Partially offsetting these increased
revenues and operating income was the loss of income from the MARLIN NO. 3,
which was destroyed in a hurricane on August 25, 1992. The MARLIN NO. 3
contributed revenues of $.8 million and operating income of $.4 million in
20
<PAGE> 22
1992. Each of the 3 MOPUs working in Venezuela has an initial contract term of
two years, subject to certain buyout options which, if exercised, could have a
material adverse effect on the Company's future results of operations. See
"Liquidity and Capital Resources."
Oil and Gas
Oil and gas revenues increased $1.0 million from $3.7 million in 1992 to
$4.7 million in 1993, primarily due to increased natural gas production and
pricing. Operating losses from oil and gas exploration activities increased $.5
million during the same period. Increased depreciation, depletion and
amortization more than offset the revenue increases. Average daily natural gas
production volumes increased to 4,522 Mcf per day in 1993 from 3,363 Mcf per day
in 1992. Oil and condensate production decreased from 163 barrels per day in
1992 to 121 barrels per day in 1993. Average product pricing received in 1993
was $2.31 per Mcf of gas and $18.39 per barrel of oil and condensate compared to
$2.08 per Mcf and $18.65 per barrel in 1992.
Corporate Overhead
Corporate overhead increased $.4 million from $4.5 million during 1992 to
$4.9 million in 1993. The increase was primarily due to higher costs of certain
employee benefits.
Other Income (Expense)
The Company recognized $3.9 million of other expense in 1993 compared to
$2.7 million of other income in 1992. The $6.6 million decrease was primarily
due to a litigation settlement and expenses of $3.7 million in 1993, decreased
gains on disposition of assets of $2.9 million and increased income taxes of $.7
million, offset in part by increased interest income of $.7 million. See
"Liquidity and Capital Resources" for a discussion of the Diamond M litigation
settlement and expenses. The net decrease in gains on disposition of assets was
primarily related to the $4.7 million gain recorded in 1992 related to the
disposition of one of the Company's MOPUs as a result of its constructive total
loss in Hurricane Andrew, offset in part by net gains on assets disposed of in
1993. The Company recorded income taxes of $.7 million in 1993 in anticipation
of alternative minimum taxes in the United States and certain foreign taxes. The
increase in interest income was primarily due to interest on notes receivable
issued in connection with the sale of the 4 inland posted barge drilling rigs
together with rights to certain oil and gas production proceeds effective
January 1, 1993.
Year 1992 Versus 1991
The Company recognized net income, before preferred dividends, of $3.0
million in 1992 compared to a net loss of $3.9 million in 1991. The improvement
of $6.9 million was due to a $4.8 million increase in MOPU operating income, a
$3.2 million reduction in domestic daywork drilling operating losses, a $2.7
million increase in the recognition of other income and reduced oil and gas
operating losses of $2.3 million. These improvements were offset in part by a
$3.9 million
21
<PAGE> 23
reduction in turnkey drilling operating income, reduced foreign daywork drilling
operating income of $2.0 million and increased corporate overhead of $.2
million.
<TABLE>
<CAPTION>
INCREASE
1992 1991 (DECREASE)
-------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic...................................... $ 5,451 $ 15,866 $ (10,415)
Foreign....................................... 21,472 19,075 2,397
Turnkey Drilling................................. 37,014 44,457 (7,443)
MOPU Operations.................................. 9,178 2,213 6,965
Oil and Gas...................................... 3,723 2,892 831
-------- -------- ---------
Consolidated............................. $ 76,838 $ 84,503 $ (7,665)
-------- -------- ---------
-------- -------- ---------
Operating Income (Loss):
Daywork Drilling:
Domestic...................................... $ (2,822) $ (5,975) $ 3,153
Foreign....................................... 215 2,233 (2,018)
Turnkey Drilling................................. 2,720 6,582 (3,862)
MOPU Operations.................................. 6,466 1,632 4,834
Oil and Gas...................................... (1,770) (4,063) 2,293
Corporate Office................................. (4,512) (4,352) (160)
-------- -------- ---------
Consolidated............................. $ 297 $ (3,943) $ 4,240
-------- -------- ---------
-------- -------- ---------
</TABLE>
Daywork Drilling
Domestic daywork drilling revenues decreased $10.4 million from $15.9
million in 1991 to $5.5 million in 1992. The decrease in domestic daywork
drilling revenues was attributable to the movement of 2 land rigs to Venezuela,
the return to the owner of 3 leased offshore drilling rigs under long-term
charter, and the stacking of the Company's 4 barge rigs. Domestic daywork
drilling operating losses were reduced by $3.2 million from $6.0 million in 1991
to $2.8 million in 1992. The reduced operating loss was primarily attributable
to cost savings associated with barge rig operations and the return to the owner
of 3 leased offshore drilling rigs.
Foreign daywork drilling revenues increased $2.4 million from $19.1 million
in 1991 to $21.5 million in 1992. Foreign daywork drilling operating income
decreased $2.0 million during the same period. The increased foreign daywork
drilling revenues reflect the contribution during 1992 of the 2 land rigs
contracted to work in Venezuela, the impact of less downtime experienced in 1992
when compared to 1991, and cost flow-throughs to the operators. Foreign daywork
drilling operating results decreased due to increased jack-up rig repair and
maintenance expenses, contract rate reductions associated with the renewal of
contracts on the Company's 2 jack-up drilling rigs operating in Lake Maracaibo,
Venezuela, effective July 15, 1992 and August 9, 1992, and devaluation of the
Venezuelan Bolivar. Each of the jack-up contracts were renewed in January and
February, 1993 for one year terms at increased dayrates from that received
during the second half of 1992, and were subsequently extended to March 9, 1994
and March 15, 1994, respectively. The Company is currently negotiating renewals
of these contracts. Contracts on the 2 land drilling rigs working in eastern
Venezuela expired in June, 1993, and were renewed for a period of two years,
three months.
Turnkey Drilling
Turnkey drilling revenues decreased $7.4 million from $44.4 million in 1991
to $37.0 million in 1992. Nine turnkey contracts were completed during 1991 with
average revenues of $4.9 million compared to 12 turnkey contracts completed in
1992 with average revenues of $3.1 million. Turnkey
22
<PAGE> 24
drilling operating income decreased $3.9 million in 1992 when compared to 1991.
The decrease in turnkey drilling operating income resulted primarily from lower
margins on completed contracts. The decrease in average revenue per contract and
lower margins on completed contracts in 1992 is primarily due to offshore wells
contracted in 1992 at lower average revenues when compared to the offshore wells
drilled in 1991.
MOPU Operations
MOPU revenues increased $7.0 million from $2.2 million in 1991 to $9.2
million in 1992. MOPU operating income increased $4.8 million in 1992. The
Company's MOPUs contributed greater income due to the delivery into Venezuela of
the LANGLEY on May 8, 1992 and the FRANKLIN and FORRESTAL on September 26, 1992,
partially offset by the loss of income from the MARLIN NO. 3. Each of the MOPUs
working in Venezuela has an initial contract term of two years, subject to
certain buyout options.
One of the Company's MOPUs, the MARLIN NO. 3, was declared a constructive
total loss on September 2, 1992, as a result of hurricane damage sustained on
August 25, 1992. The MARLIN NO. 3 contributed revenues of $.8 million and $1.3
million and operating income of $.4 million and $1.0 million in 1992 and 1991,
respectively.
Oil and Gas
Oil and gas revenues increased $.8 million from $2.9 million in 1991 to
$3.7 million in 1992 due primarily to increased natural gas production and
pricing. The Company's oil and gas exploration and production activities reflect
an operating loss of $1.8 million in 1992, which was an improvement of $2.3
million over the 1991 operating loss of $4.1 million. Average daily natural gas
production volumes increased to 3,363 Mcf per day in 1992 from 2,530 Mcf per day
in 1991. Oil and condensate production decreased from 181 barrels per day in
1991 to 163 barrels per day in 1992. Average product pricing received in 1992
was $2.08 per Mcf of gas and $18.65 per barrel of oil and condensate compared to
$1.66 per Mcf and $19.40 per barrel in 1991. The reduced operating loss was
attributable to a $1.5 million writedown in the carrying value of oil and gas
properties in 1992 compared to a $4.0 million writedown in 1991 due to a decline
in reserve values.
Corporate Overhead
Corporate overhead increased $.2 million from $4.3 million during 1991 to
$4.5 million in 1992. The increase was primarily due to higher costs of certain
employee benefits, primarily group medical insurance, increased amortization of
restricted stock and other increased expenses.
Other Income (Expense)
The Company recognized $2.7 million of other income in 1992 compared to $.1
million of other income in 1991. The change resulted from a $3.6 million
increase in gains on disposition of assets due principally to the receipt of
insurance proceeds associated with the constructive total loss of the MARLIN NO.
3, partially offset by lower interest income, slightly higher interest expense
and an increase in other net expenses. The net increase in interest expense
resulted from an increase in interest expense associated with the Company's
Venezuelan MOPU project, due to interest no longer being capitalized following
completion of construction, partially offset by the elimination of interest
expense on a capital lease which expired in January 1992 and lower average
interest rates on the revolving line of credit. The increase in other net
expenses is primarily attributable to reserves established for potentially
uncollectible accounts receivable.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $5.1 million from $15.7
million at December 31, 1992 to $10.6 million at December 31, 1993. The decrease
resulted from $12.7 million used to fund capital expenditures and $17.9 million
used to make payments on borrowings and
23
<PAGE> 25
preferred stock dividends, partially offset by $17.2 million provided by
operating activities and $8.3 million of proceeds received from the sale of the
4 barge drilling rigs, certain oil and gas production payment proceeds, and
other excess property and equipment.
Cash provided by operating activities of $17.2 million included $7.8
million used for working capital and other requirements, primarily to fund the
Company's foreign daywork drilling and turnkey drilling operations. Accounts
receivable decreased from December 31, 1992 to December 31, 1993 due primarily
to the timing of customer payments. Partially offsetting this decrease in trade
receivables was a $1.9 million increase in other receivables due primarily to
increased insurance claims. In addition, cash was used to reduce accounts
payable and accrued expenses by $3.8 million.
Cash was used during 1993 to fund $12.7 million of capital expenditures,
consisting of $9.5 million related to MOPU projects, $1.6 million in oil and gas
exploration and development expenditures, $1.1 million for drill pipe to be used
in the Company's Venezuelan drilling operations, and $.5 million of other
expenditures.
During the fourth quarter of 1992, the Company acquired 5 jack-up drilling
rigs at a cost of $6.0 million, with plans to convert them to MOPUs. The
conversion of the first unit, which replaced the MARLIN NO. 3, cost
approximately $4.2 million and was funded by a portion of the insurance proceeds
received in connection with the constructive total loss of MARLIN NO. 3 in 1992.
The unit commenced operations on July 19, 1993 and is currently contracted to
Union Pacific Resources Company. The second of the 5 rigs acquired has been
converted to a MOPU at a cost of $4.5 million. The cost of this unit was funded
by a portion of the proceeds received from the sale of 1,500,000 shares of
Common Stock of the Company which was completed during October, 1992. This MOPU
is currently being marketed. No assurance can be given that the Company will be
able to secure a contract for the operation of the second unit. One of the
acquired rigs is currently being used as a mobile offshore supply unit to
facilitate the Company's joint venture turnkey drilling operations in Mexico.
The Company has mobilized another of the acquired rigs into Mexico where it will
be used in turnkey drilling operations in the Bay of Tampico, Mexico. The
Company presently expects to bareboat charter the other unit to a third party
for use as a workover rig in the U.S. Gulf of Mexico.
Charter hire payments commenced September, 1992 with respect to the first
of 3 MOPUs contracted to work in Venezuela. Charter hire payments commenced in
February, 1993 on the other 2 MOPUs working in Venezuela. Eighty-five percent
(85%) of the cash flow attributable to the contracts for the Company's 3 MOPUs
working in Venezuela is dedicated to debt repayment under the contracts and loan
agreements relating to such MOPUs, and the remaining 15% was deposited by the
charterer into a restricted joint account until a $1.0 million balance was
attained on June 4, 1993. Construction costs for refurbishment and conversion of
the 3 MOPUs contracted to work in Venezuela exceeded the original budget. In
accordance with the terms of an agreement between the Company and the charterer
of the MOPUs, the charterer paid these excess costs as they became due and
payable. The Company reached an agreement with the charterer during the third
quarter of 1993 whereby the Company paid the charterer approximately $.8 million
in satisfaction of all cost overruns and the charterer paid all outstanding
construction and mobilization receivables. Additionally, the restricted joint
account was terminated.
Each of the 3 MOPUs working in Venezuela has an initial contract term of
two years expiring in 1994, subject to certain buyout options. The buyout
options can be exercised at any time during the contract term. The loss of
future operating income associated with these units, should the buyout options
be exercised or contract renewals not be obtained, could have a material adverse
effect on the Company's future results of operations. Because the Company now
believes there is a reasonable likelihood that the buyout options on 2 of the
units will be exercised in 1994, the Company has elected to defer income
recognition prospectively on these 2 units to the extent of potential losses
that could occur upon exercise of the options. At December 31, 1993, the Company
24
<PAGE> 26
had provided $.6 million of reserves to offset potential losses on the units if
the buyout options were to be exercised on 2 of the units. The Company expects
to defer additional income recognition in the amounts of $1.6 million, $1.8
million, and $1.8 million, respectively, during the first 3 quarters of 1994.
Approximately 62% of the Company's revenues and a substantial portion of
its operating income were sourced from its Venezuelan operations in 1993. These
operations are subject to customary political and foreign currency risks in
addition to operational risks. The Company has attempted to reduce these risks
through insurance and the structure of its Venezuelan contracts.
In conjunction with the return to Diamond M of 3 offshore drilling rigs
under long-term charters, a dispute existed as to whether or not the Company
complied with the terms of the charters regarding maintenance and repair of the
rigs during the charter period, as well as the condition of the rigs upon
redelivery. Diamond M withheld payment of $1.7 million in notes payable by
Diamond M to the Company, representing a part of the purchase price for the
subject rigs. Diamond M also claimed additional damages associated with repairs
to the drilling rigs. In June 1993, a partial summary judgment awarded the
Company $1.8 million, together with interest and attorney's fees, for the notes
payable by Diamond M to the Company, offset by certain charter hire payments due
Diamond M. Following a trial in February, 1994, a judgment was entered in the
United States District Court, Southern District of Texas, Houston Division. The
judgment awarded Diamond M $3.5 million, plus court costs, offset by the partial
summary judgment of $1.8 million. The Company paid Diamond M $1.7 million in
February, 1994, as a final settlement of all disputed issues. See "Legal
Proceedings" and Note 13 of Notes to Consolidated Financial Statements.
The Company's credit agreement with INCC provides for a $10.0 million
working capital line of credit facility which matures January 1, 1995 and a
$30.0 million term loan which matures January 1, 1995. As of December 31, 1993,
the outstanding balance of the Company's term loan with INCC was $13.1 million.
The Company has $10.0 million currently available under the working capital line
of credit facility. The Company executed a commitment letter to amend the terms
of the credit facility to increase the amount available to $20.0 million,
subject to certain borrowing base limitations, and extend the maturity date to
January 1, 1996. See Note 14 of Notes to Consolidated Financial Statements.
The ability of the Company to fund working capital, capital expenditures,
debt service and dividends in excess of cash on hand will be dependent upon the
success of the Company's domestic and foreign operations. To the extent that
internal sources are insufficient to meet those cash requirements, the Company
can draw on its available credit facility or seek other debt or equity
financing; however, the Company can give no assurance that such other debt or
equity financing would be available on terms acceptable to the Company.
In any case, the satisfaction of long-term capital requirements will depend
upon successful implementation by the Company of its business strategy and
future results of operations. Management believes it has successfully
implemented the strategy to achieve results of operations commensurate with its
immediate and near-term liquidity requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
appear on pages 31 through 55 hereof and are incorporated by reference into this
Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with the Company's
accountants regarding accounting principles or practices for financial statement
disclosures.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Election of Directors" and
"Executive Officers" in the Company's definitive proxy statement for its 1994
Annual Meeting of Shareholders, which is to be filed with the Securities and
Exchange Commission (the "Commission"), describes the directors and executive
officers of the Company and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive
Officers -- Compensation" in the Company's definitive proxy statement for its
1994 Annual Meeting of Shareholders, which is to be filed with the Commission,
sets forth information regarding management compensation and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under captions "Principal Shareholders" and
"Election of Directors -- Security Ownership of Management" in the Company's
definitive proxy statement for its 1994 Annual Meeting of Shareholders, which is
to be filed with the Commission, describes the security ownership of certain
beneficial owners and management and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions" in the
Company's definitive proxy statement for its 1994 Annual Meeting of
Shareholders, which is to be filed with the Commission, sets forth information
regarding certain relationships and related transactions and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) and (2) Financial Statements and Schedules
See "Index to Consolidated Financial Statements and Schedules" on
Page 29.
(3) Exhibits. See Exhibit Index on pages 61 to 64
The management contracts and compensatory plans or arrangements required to
be filed as Exhibits to this report are as follows:
<TABLE>
<S> <C>
10.7 -- Cliffs Drilling Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement
on Form S-1, No. 33-23508, filed under the Securities Act).
10.7.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling Company
1988 Incentive Equity Plan.
10.7.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling Company
1988 Incentive Equity Plan.
10.8 -- Cliffs Drilling Company Incentive Bonus Plan (incorporated by
reference to Exhibit 10.9 to the Company's Registration Statement
on Form S-1, No. 33-23508, filed under the Securities Act).
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C>
10.9 -- Cliffs Drilling Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1, No. 33-23508, filed under the
Securities Act).
10.9.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling Company
Retention Plan for Salaried Employees.
10.9.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling Company
Retention Plan for Salaried Employees.
10.10 -- Form of Indemnification Agreement between the Company and its of-
ficers and directors (incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1, No. 33-23508,
filed under the Securities Act).
10.11 -- Form of Restricted Stock Award Agreement entered into between the
Company and certain key executive officers (incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement
on Form S-1, No. 33-23508, filed under the Securities Act).
10.11.1 -- Form of Restricted Stock Award Agreement dated as of December 31,
1992 entered into between the Company and certain key executive
officers (incorporated by reference to Exhibit 10.10.1 to the
Company's Form 10-K for the fiscal year ended December 31, 1992).
10.11.2 -- Form of Deferred Stock Award Agreement dated as of December 31,
1992 entered into between the Company and certain key executive
officers.
</TABLE>
(b) Reports on Form 8-K.
None.
27
<PAGE> 29
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.
March 4, 1994 CLIFFS DRILLING COMPANY
By: /s/ DOUGLAS E. SWANSON
-----------------------------
Douglas E. Swanson
President & Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING ON BEHALF OF THE REGISTRANT AND IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
/s/ M. M. CONE Chairman of the Board March 4, 1994
- ---------------------------------------------
M. M. Cone
/s/ DOUGLAS E. SWANSON President & Director March 4, 1994
- --------------------------------------------- (Principal
Douglas E. Swanson Executive Officer)
/s/ RANDOLPH NEWCOMER Executive Vice President and March 4, 1994
- --------------------------------------------- Director
Randolph Newcomer
/s/ ROBERT M. MCINNES Director March 4, 1994
- ---------------------------------------------
Robert M. McInnes
/s/ JOSEPH E. REID Director March 4, 1994
- ---------------------------------------------
Joseph E. Reid
/s/ JOHN D. WEIL Director March 4, 1994
- ---------------------------------------------
John D. Weil
/s/ H. ROBERT HIRSCH Director March 4, 1994
- ---------------------------------------------
Robert Hirsch
/s/ EDWARD A. GUTHRIE Vice President-Finance March 4, 1994
- --------------------------------------------- (Principal Financial
Edward A. Guthrie Officer)
/s/ CINDY B. TAYLOR Corporate Controller March 4, 1994
- --------------------------------------------- (Principal
Cindy B. Taylor Accounting Officer)
</TABLE>
28
<PAGE> 30
FORM 10-K ITEM 14A (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Auditors................................... 30
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1993.......................... 31
Consolidated Balance Sheets, December 31, 1993 and 1992.......... 32
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1993.......................... 33
Consolidated Statements of Changes in Shareholders' Equity
for Each of the Three Years in the Period Ended
December 31, 1993.............................................. 34
Notes to Consolidated Financial Statements....................... 35
</TABLE>
Schedules:
For Each of the Three Years in the Period Ended December 31, 1993:
<TABLE>
<C> <S> <C>
V Property and Equipment................................ 56
VI Accumulated Depreciation, Depletion and Amortization
of Property and Equipment............................. 57
VIII Valuation and Qualifying Accounts..................... 58
IX Short-Term Borrowings................................. 59
X Supplementary Statements of Operations Information.... 60
</TABLE>
All other schedules for which provision is made in the applicable rules and
regulations of the Securities and Exchange Commission have been omitted as the
schedules are not required under the related instructions, are not applicable or
the information required thereby is set forth in the Consolidated Financial
Statements or the Notes thereto.
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CLIFFS DRILLING COMPANY
We have audited the accompanying consolidated balance sheets of Cliffs
Drilling Company and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cliffs Drilling Company and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG
Houston, Texas
February 23, 1994
30
<PAGE> 32
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES................................................ $ 65,538 $ 76,838 $ 84,503
COSTS AND EXPENSES:
Operating Expenses.................................... 34,983 57,505 70,178
Depreciation, Depletion and Amortization.............. 17,438 12,883 9,369
Contract Termination Provision........................ 577 -- --
Writedown in Carrying Value of Oil and Gas
Properties......................................... -- 1,500 4,000
Exploration Costs..................................... 188 141 547
General and Administrative Expense.................... 4,807 4,512 4,352
-------- -------- --------
57,993 76,541 88,446
-------- -------- --------
OPERATING INCOME (LOSS)................................. 7,545 297 (3,943)
OTHER INCOME (EXPENSE):
Litigation Settlement and Expenses.................... (3,703) -- --
Gain on Disposition of Assets......................... 2,016 4,965 1,340
Interest Income....................................... 858 139 336
Interest Expense...................................... (1,356) (1,365) (1,347)
Other, net............................................ (1,049) (1,018) (268)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES....................... 4,311 3,018 (3,882)
INCOME TAX EXPENSE (BENEFIT)............................ 685 -- --
-------- -------- --------
NET INCOME (LOSS)....................................... 3,626 3,018 (3,882)
DIVIDENDS APPLICABLE TO PREFERRED STOCK................. (2,659) (2,659) (2,660)
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON AND COMMON
EQUIVALENT SHARES..................................... $ 967 $ 359 $ (6,542)
-------- -------- --------
-------- -------- --------
NET INCOME (LOSS) PER SHARE:
Primary............................................... $ 0.21 $ 0.11 $ (2.19)
-------- -------- --------
-------- -------- --------
Assuming Full Dilution................................ $ 0.21 $ 0.11 $ (2.19)
-------- -------- --------
-------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary............................................... 4,514 3,257 2,992
-------- -------- --------
-------- -------- --------
Assuming Full Dilution................................ 4,514 3,257 2,992
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents........................................ $ 10,615 $ 15,697
Accounts Receivable, net of allowance for doubtful accounts of
$697 and $307 in 1993 and 1992, respectively.................. 15,743 18,078
Other Receivables................................................ 4,673 2,786
Inventories...................................................... 2,478 1,991
Drilling Contracts in Progress................................... 485 1,141
Prepaid Insurance................................................ 1,098 674
Other Prepaid Expenses........................................... 2,937 3,691
--------- ---------
Total Current Assets..................................... 38,029 44,058
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment....................................... 168,059 198,794
Oil and Gas Properties ("successful efforts" method)............. 24,888 23,290
Other............................................................ 2,534 2,303
--------- ---------
195,481 224,387
Less: Accumulated Depreciation, Depletion and Amortization....... (108,975) (123,209)
--------- ---------
Net Property and Equipment.................................... 86,506 101,178
NOTES AND OTHER RECEIVABLES -- LONG TERM........................... 7,044 4,760
OTHER ASSETS....................................................... 1,944 207
--------- ---------
TOTAL ASSETS............................................. $ 133,523 $ 150,203
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable................................................. $ 10,557 $ 15,855
Accrued Expenses, Including Interest............................. 5,154 3,373
Accrued Litigation Settlement and Expenses....................... 1,700 --
--------- ---------
Total Current Liabilities................................ 17,411 19,228
NOTES PAYABLE -- LONG TERM......................................... 13,108 28,348
OTHER LIABILITIES.................................................. 659 806
DEFERRED INCOME.................................................... 1,101 1,625
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
$2.3125 Convertible Exchangeable Preferred Stock, 3,000,000
shares authorized; 1,150,000 shares issued and outstanding at
December 31, 1993 and 1992, respectively ($28,750,000
liquidation value)............................................ 28,750 28,750
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 15,000,000 shares authorized;
4,513,104 and 4,510,604 shares issued and outstanding at
December 31, 1993 and 1992, respectively...................... 45 45
Paid in Capital.................................................. 99,133 99,042
Retained Earnings (Deficit)...................................... (26,292) (27,259)
Less: Notes Receivable from Officers for Restricted Stock........ (232) (232)
Restricted Stock.......................................... (103) (150)
Treasury Stock, at cost, 5,000 shares at December 31,
1993...................................................... (57) --
--------- ---------
Total Shareholders' Equity................................. 72,494 71,446
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $ 133,523 $ 150,203
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss)........................................ $ 3,626 $ 3,018 $ (3,882)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization.............. 17,438 12,883 9,369
Contract Termination Provision........................ 577 -- --
Writedown in Carrying Value of Oil and Gas
Properties.......................................... -- 1,500 4,000
Mobilization Expense Amortization..................... 1,930 1,846 1,496
Litigation Settlement and Expenses.................... 3,703 -- --
Gain on Disposition of Assets......................... (2,016) (4,965) (1,340)
Abandonments of Oil and Gas Properties................ -- -- 493
Other................................................. (232) 638 304
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable................................. (853) (4,361) (2,602)
Inventories......................................... (487) (53) 37
Drilling Contracts in Progress...................... 682 4,405 1,886
Prepaid Expenses and Other Current Assets........... (1,472) 3,155 591
Notes and Other Receivables......................... -- 1,208 1,767
Other Assets........................................ (1,865) (72) (1,898)
Accounts Payable and Other Accrued Liabilities...... (3,810) (9,393) 7,927
Deferred Income..................................... -- (1,718) (2,622)
--------- --------- ---------
Net Cash Provided By (Used In) Operating
Activities..................................... 17,221 8,091 15,526
INVESTING ACTIVITIES:
Capital Expenditures..................................... (12,668) (21,878) (33,316)
Proceeds from Sale of Property and Equipment............. 6,847 335 275
Insurance Proceeds from Loss of Rig and Related
Equipment............................................. -- 10,000 --
Collection of Notes Receivable........................... 1,456 -- --
--------- --------- ---------
Net Cash Provided By (Used In) Investing
Activities..................................... (4,365) (11,543) (33,041)
FINANCING ACTIVITIES:
Proceeds from Borrowings................................. -- 12,500 29,000
Payments on Borrowings................................... (15,240) (11,152) (7,000)
Payments Under Capital Lease Obligations................. -- (2,682) (1,995)
Acquisition of Treasury Stock............................ (57) -- --
Proceeds from Issuance of Common Stock................... 18 18,416 --
Preferred Stock Dividends................................ (2,659) (2,659) (2,660)
--------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities..................................... (17,938) 14,423 17,345
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (5,082) 10,971 (170)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD................................................ 15,697 4,726 4,896
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 10,615 $ 15,697 $ 4,726
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM
OFFICERS
RETAINED FOR
COMMON PAID IN EARNINGS RESTRICTED RESTRICTED TREASURY
STOCK CAPITAL (DEFICIT) STOCK STOCK STOCK
------ ------- -------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990......... $ 30 $80,382 $(21,076) $ -- $ (839) $ --
Net Income (Loss).................. -- -- (3,882) -- -- --
Restricted Stock Issuance.......... -- 27 -- -- (27) --
Preferred Stock Dividends
Declared........................ -- -- (2,660) -- -- --
Amortization of Restricted Stock... -- -- -- -- 274 --
------ ------- -------- ------ ------ ------
BALANCE AT DECEMBER 31, 1991......... 30 80,409 (27,618) -- (592) --
------ ------- -------- ------ ------ ------
------ ------- -------- ------ ------ ------
Net Income (Loss).................. -- -- 3,018 -- -- --
Common Stock Issuance.............. 15 18,401 -- -- -- --
Restricted Stock Issuance.......... -- 232 -- (232) -- --
Preferred Stock Dividends
Declared........................ -- -- (2,659) -- -- --
Amortization of Restricted Stock... -- -- -- -- 442 --
------ ------- -------- ------ ------ ------
BALANCE AT DECEMBER 31, 1992......... 45 99,042 (27,259) (232) (150) --
------ ------- -------- ------ ------ ------
------ ------- -------- ------ ------ ------
Net Income (Loss).................. -- -- 3,626 -- -- --
Stock Options Exercised............ -- 18 -- -- -- --
Restricted Stock Issuance.......... -- 73 -- -- (73) --
Treasury Stock Acquired............ -- -- -- -- -- (57)
Preferred Stock Dividends
Declared........................ -- -- (2,659) -- -- --
Amortization of Restricted Stock... -- -- -- -- 120 --
------ ------- -------- ------ ------ ------
BALANCE AT DECEMBER 31, 1993......... $ 45 $99,133 $(26,292) $ (232) $ (103) $ (57)
------ ------- -------- ------ ------ ------
------ ------- -------- ------ ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 36
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure
On June 21, 1988, Cliffs Drilling Company (the "Company") became a separate
publicly-owned company as a result of the spin-off of the Company to
shareholders of Cleveland-Cliffs Inc ("Cleveland"). These statements include the
activities of the Company's wholly-owned subsidi-aries, Cliffs Oil and Gas
Company ("COGC") and Cliffs Drilling International, Inc. ("International"), the
Company's Venezuelan activities, which are organized as a foreign branch, and
the Company's one-third ( 1/3) interest in a joint venture in Mexico which was
organized to perform turnkey drilling services.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Activities of the Venezuelan
branch are also recorded in the accounts of the Company. Certain foreign turnkey
drilling operations conducted through International have been consolidated based
upon the Company's pro rata ownership. The Company's interest in the operations
of Cliffs Neddrill Central Turnkey International, a joint venture consisting of
Cliffs Drilling International, Inc., a wholly-owned subsidiary of the Company,
Neddrill Turnkey Drilling B.V. and Perforadora Central, S.A. de C.V. ("CNCTI")
has been accounted for under the equity method. All significant intercompany
transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents
The Company's policy is to invest cash in short-term investments.
Uninvested cash balances are kept at minimum levels. Investments are valued at
cost, which approximates market. The Company considers all highly liquid
investments with a maturity date of three months or less when purchased to be
cash equivalents.
Inventories
Inventories, consisting principally of tubular goods consumed in turnkey
drilling operations, and spare drilling parts, are carried at cost, specific
identification method.
Drilling Contracts in Progress
The Company recognizes revenues and expenses related to its turnkey
drilling contracts when all terms and conditions of the contract have been
fulfilled. Consequently, the costs related to in progress turnkey drilling
contracts are deferred as drilling contracts in progress until the contract is
completed and revenue is realized. The amount of drilling contracts in progress
is dependent on the volume of contracts, the duration of the contract at the end
of the reporting period and the contract amount. Provision for losses on
incomplete contracts is made when such losses are anticipated.
Revenue Recognition
The Company recognizes revenues from its daywork drilling and MOPU
operations based upon the contracted daily rate multiplied by the number of
operating days in the period. Turnkey drilling contract revenues are recognized
when all terms and conditions of the contract have been fulfilled. The Company
recognizes oil and gas revenue from its interests in producing wells based upon
the sales method.
Each of the 3 MOPUs working in Venezuela has an initial contract term of
two years expiring in 1994, subject to certain buyout options. The buyout
options can be exercised at any time during the
35
<PAGE> 37
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contract term. Because the Company now believes there is a reasonable likelihood
that the buyout options on 2 of the units will be exercised in 1994, the Company
defers income recognition on these 2 units to the extent of potential losses
that could occur upon exercise of the options. The deferral of income
recognition is reflected as "Contract Termination Provision" in the Consolidated
Statements of Operations and in "Deferred Income" in the Consolidated Balance
Sheets.
Property and Equipment
Property and equipment are carried at original cost or at adjusted net
realizable value, as applicable. Certain leases have been capitalized and the
leased assets have been included in property and equipment. Major renewals and
betterments are capitalized in the property accounts, while the cost of repairs
and maintenance is charged to operating expenses in the period incurred.
The Company records expenditures made on significant projects as
construction in progress ("CIP") until the assets are ready for their intended
use. No depreciation expense is recorded on amounts included in CIP.
Interest on funds borrowed for construction of qualifying assets is
capitalized during the construction period. Amortization of capitalized interest
is included in depreciation, depletion and amortization in the Consolidated
Statements of Operations.
Cost and accumulated depreciation are removed from the accounts when assets
are sold or retired and the resulting gains or losses are included in the
Consolidated Statements of Operations.
Depreciation of property and equipment is provided on the straight-line
basis at rates based upon expected useful lives of the various classes of
assets. Amortization of capital leases is included in depreciation, depletion
and amortization in the Consolidated Statements of Operations.
Costs related to the exploration and development of oil and gas properties
are accounted for under the "Successful Efforts" method of accounting. Lease
acquisition costs related to oil, gas and mineral properties are capitalized
when incurred. The acquisition costs of unproved properties, which are
individually significant, are assessed on a property-by-property basis and a
loss is recognized by provision of a valuation allowance when the assessment
indicates an impairment in value. Exploration costs, excluding exploratory
wells, are charged to expense as incurred. Costs of drilling exploratory wells
are capitalized pending determination as to whether the wells have proved
reserves which justify commercial development. If commercial reserves are not
found, the drilling costs are charged to dry hole expense. Tangible and
intangible drilling costs applicable to productive exploratory wells and to the
development of oil and gas reserves are capitalized.
The cost of productive leaseholds is amortized by field on the unit of
production basis by applying the ratio of produced oil and gas to estimated
proved reserves. Lease and well equipment and other intangible drilling costs
associated with productive wells are amortized based on proved developed
reserves. The carrying value of proved oil and gas properties is limited to the
undiscounted future net revenue from proved reserves, adjusted for income taxes,
on a company-wide basis.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes".
Deferred income taxes are provided on
36
<PAGE> 38
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
items recognized in different periods for financial and tax reporting purposes.
See Note 7 of Notes to Consolidated Financial Statements.
Earnings (Loss) Per Share
Primary earnings (loss) per share computations are based on net income
(loss) less dividends on the Company's $2.3125 Convertible Exchangeable
Preferred Stock (the "Preferred Stock"), divided by the average number of common
shares and equivalents outstanding during the respective years. Common stock
equivalents include the number of shares issuable upon exercise of stock
options, less the number of shares that could have been repurchased with the
exercise proceeds using the treasury stock method. The Preferred Stock is not
included in the primary earnings (loss) per share computation as it is not a
common stock equivalent. Fully diluted earnings per common share computations
are made after the assumption of conversion of the preferred stock when the
effect of such conversion is dilutive.
Foreign Currency Translation
The U.S. dollar is the functional currency for all of the Company's
operations. Foreign currency gains and losses are included in the Consolidated
Statements of Operations during the period incurred. Foreign currency losses for
1993, 1992 and 1991 amounted to $443,000, $132,000 and $112,000, respectively,
and are included in "Other, net" in the Consolidated Statements of Operations.
Concentration of Credit Risk
The market for the Company's services is the oil and gas industry, and the
Company's customers consist primarily of integrated and government-owned
international oil companies and independent oil and gas producers. Financial
instruments which potentially subject the Company to concentrations of credit
risk consist primarily of trade receivables. The Company has in place insurance
to cover certain exposure in its foreign operations and provides allowances for
potential credit losses, when necessary. Accordingly, management considers such
credit risk to be limited.
Change in Presentation
Certain financial statement items have been reclassified in prior years to
make them conform with the current year presentation.
2. PROCEEDS-OF-PRODUCTION DRILLING PROGRAM, OTHER RECEIVABLES, AND NOTES AND
OTHER RECEIVABLES -- LONG TERM
The Company entered into a proceeds-of-production drilling program in 1986
to drill and/or complete 25 oil and gas wells. The revenues due under this
arrangement were paid to the Company through an assignment of the proceeds of
production generated from the wells drilled. In addition, the Company entered
into separate agreements with other industry companies to provide goods and
services and were paid in a like manner from the proceeds received by the
Company. The revenues and costs associated with the services supplied directly
by the Company, including handling fees and interest income, were deferred,
resulting in income to be recognized in future periods. Revenues and expenses
were recognized in amounts equal to the portion of the cash payments applicable
to directly supplied services until all the Company's costs were recovered in
the fourth quarter of 1989.
During the years 1993, 1992, and 1991, net income of $0, $1,380,000, and
$1,240,000 respectively, was recognized from the proceeds-of-production drilling
program. At December 31,
37
<PAGE> 39
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 and 1992, amounts due the Company of $0 and $1,288,000, respectively, were
included in "Other Receivables" for the current portion and amounts of $0 and
$3,060,000, respectively, were included in "Notes and Other
Receivables -- Long-Term" for the noncurrent portion based upon the estimates of
future proceeds of production prepared by the Company's independent petroleum
consultants. At December 31, 1993 and 1992, amounts of $0 and $1,533,000,
respectively, were included in "Deferred Income." Outstanding accounts
receivable earned interest at the prime rate plus 2%.
On one of the program wells drilled, an alleged failure of the casing
provided by one of the industry companies ("Vendor") led the Company to, at the
direction of the operator, withhold proceeds due under the assignment agreement
pending legal determination of responsibility for the casing failure and
remedial costs. The dispute among the Company, the Vendor and the operator
regarding the alleged casing failure was referred to the American Arbitration
Association for settlement as provided in the agreement. The proceedings before
the panel failed to provide sufficient evidence to prove that the Vendor was
responsible for the alleged casing failure. On November 12, 1991, an award
totaling $1,740,000 was granted the Vendor by the arbitration panel, which
represented the amounts previously withheld plus accrued interest and legal
fees. The award was paid by the Company on December 16, 1991, and was
recoverable, along with the Company's legal fees of $131,000, from the proceeds
of production generated from the program wells drilled.
Effective January 1, 1993, the Company sold its interest in the
proceeds-of-production drilling program together with its 4 inland posted barge
drilling rigs, and paid the remaining industry companies for their interests in
the production.
Other Receivables are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Proceeds-of-production drilling program.................. $ -- $ 1,288
Insurance................................................ 3,527 818
Other.................................................... 1,146 680
------- -------
Total.......................................... $ 4,673 $ 2,786
------- -------
------- -------
</TABLE>
Notes and Other Receivables -- Long Term are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes receivable -- Cerrito Investment Corporation
(see Note 3)........................................... $ 7,044 $ --
Notes receivable -- Diamond M (see Note 4)............... -- 1,700
Proceeds-of-production drilling program.................. -- 3,060
------- -------
Total.......................................... $ 7,044 $ 4,760
------- -------
------- -------
</TABLE>
3. PROPERTY AND EQUIPMENT
Effective January 1, 1993, the Company sold its 4 inland posted barge
drilling rigs and rights to certain oil and gas production payment proceeds to
Cerrito Investment Corporation for an aggregate sales price of $13,500,000,
consisting of $5,000,000 in cash and $8,500,000 in notes. The first note has a
face amount of $1,000,000, bears interest at the base rate on corporate loans as
quoted
38
<PAGE> 40
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by the Wall Street Journal, and is due on or before December 31, 1995. Interest
is due and payable semi-annually and commenced June 30, 1993. The second note
has a face amount of $7,500,000, bears interest at the base rate on corporate
loans as quoted by the Wall Street Journal plus one and one-half (1-1/2%), and
matures on January 1, 1998. Principal and interest on the $7,500,000 note is
payable on a monthly basis solely from the proceeds of the oil and gas
production payment which secures the note. No net gain or loss on the sale was
recorded for financial reporting purposes.
During the fourth quarter of 1992, the Company purchased 5 jack-up drilling
rigs for $6,000,000 in cash. The Company has converted 2 of the 5 rigs to MOPUs,
converted one to a mobile offshore supply unit for use in the Bay of Campeche,
Mexico, mobilized one unit to the Bay of Tampico, Mexico in February, 1994, to
drill turnkey wells, and presently expects to bareboat charter the other unit to
a third party for use as a workover rig in the U.S. Gulf of Mexico.
On October 31, 1991, the Company purchased 3 jack-up drilling rigs from
Chiles Offshore Corporation ("Chiles") for $15,500,000 in cash. The Company
completed the process of refurbishing and converting the rigs for operation as
portable compression units in Lake Maracaibo, Venezuela in 1992. The 3 units
were contracted to Dresser-Rand Company ("Dresser-Rand") and mobilized to
Venezuela. Expenditures made in 1991 to acquire and modify the rigs, in addition
to the associated financing costs, were included in CIP until the units became
operational. No interest was capitalized during the year ended December 31,
1993. Total interest capitalized during the years ended December 31, 1992 and
1991 was $1,278,000 and $248,000, respectively. Costs to mobilize the rigs to
Venezuela were reimbursed to the Company by Dresser-Rand.
Capital leases related to 3 land drilling rigs expired in January, 1992,
resulting in the release of the lessors' security interests in such rigs. A
capital lease related to an inland posted barge rig expired in July, 1990. The
Company exercised its purchase option on the barge and its associated drill pipe
for $2,101,841. The rig was sold effective January 1, 1993.
4. DIAMOND M TRANSACTION
On May 24, 1989, the Company sold 2 jack-up rigs and a semisubmersible rig
to Diamond Offshore Company ("Diamond M"), formerly known as Loews San Antonio
Hotel Corporation, for a purchase price of $22,000,000 consisting of $15,000,000
in cash and three promissory notes totaling $7,000,000. Each promissory note was
for a term of three years, had an interest rate of 10% per annum and was
guaranteed by Loews Corporation, the parent of Diamond M. In connection with the
sale, the Company entered into bareboat charters with Diamond M at competitive
rates for the 3 rigs for a period of two years from the effective date of the
sale. Principal and interest payments by Diamond M to the Company were
structured to minimize cash outflow during the charter period.
A gain of $10,300,000 was recorded on the sale of the 3 rigs to Diamond M,
$4,500,000 of which was recognized in 1989 and $5,800,000 of which was deferred
and amortized to income over the charter hire period (1989-1991).
In conjunction with the return of the 3 rigs under the terms of the
respective bareboat charters with Diamond M, a dispute arose between the Company
and Diamond M over the amounts payable pursuant to the promissory notes executed
by Diamond M and the Company, among other matters. This dispute was settled in
February, 1994, with a payment to Diamond M of $1,700,000. See Note 13 of Notes
to Consolidated Financial Statements.
5. OTHER ASSETS
CNCTI was awarded a contract for one of 4 turnkey bid packages to drill 4
turnkey wells in the Bay of Campeche, Mexico. Drilling operations commenced in
February, 1993. Two turnkey contracts
39
<PAGE> 41
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were completed in 1993 and were accounted for by the Company under the equity
method. Equity in earnings of CNCTI of $602,000 is included in the Consolidated
Statements of Operations as "Revenues" for the year ended December 31, 1993. The
Company's investment in CNCTI of $1,852,000 is included in the Consolidated
Balance Sheets under the caption "Other Assets" at December 31, 1993.
The following information summarizes the unaudited Statements of Operations
and Balance Sheets of CNCTI:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $ 23,718 $ -- $ --
Operating expenses.................................. 21,518 -- --
-------- -------- --------
Operating income.......................... 2,200 -- --
Other, net.......................................... (395) -- --
-------- -------- --------
Net income................................ $ 1,805 $ -- $ --
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current assets................................................. $ 13,739 $ --
Noncurrent assets.............................................. 209 --
-------- --------
Total assets......................................... $ 13,948 --
-------- --------
-------- --------
Current liabilities............................................ $ 7,943 --
Noncurrent liabilities......................................... 450 --
Equity......................................................... 5,555 --
-------- --------
Total liabilities and equity......................... $ 13,948 $ --
-------- --------
-------- --------
</TABLE>
6. NOTES PAYABLE
In conjunction with the acquisition of 3 jack-up rigs from Chiles and the
related Dresser-Rand contracts, the Company entered into an interim financing
agreement with NMB Postbank Groep N.V., now known as Internationale Nederlanden
(U.S.) Capital Corporation ("INCC"), on October 31, 1991. The interim financing
provided $20,000,000 in available funding for the purchase, construction,
modification, mobilization and interest carry on the 3 jack-up rigs ("Term
Loan") and $10,000,000 in a working capital credit facility. On December 16,
1991, a permanent facility replaced the interim agreement and increased the
amount available under the Term Loan to $30,000,000.
For the $30,000,000 Term Loan, the Company paid a fee equal to two percent
(2%) of the facility. Advances to the Company bear interest at either two
percent (2%) per annum plus the greater of the prevailing Federal Funds Rate
plus one-half percent ( 1/2%) or INCC's prime rate; or at the adjusted LIBOR
rate plus three and three-quarters percent (3 3/4%) per annum during the period
prior to commencement of payments on all three charters from Dresser-Rand,
("Mobilization Period") and, thereafter, at one percent (1%) per annum plus the
greater of the prevailing Federal Funds Rate plus one-half percent ( 1/2%) or
INCC's prime rate; or at the adjusted LIBOR rate plus
40
<PAGE> 42
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
two and three-quarters percent (2 3/4%) per annum. The applicable lending rate
under the Term Loan was approximately six and three-eighths percent (6 3/8%) per
annum at December 31, 1993. The Term Loan matures on January 1, 1995.
All advances to the Company from the $10,000,000 working capital credit
facility bear interest at one and one-half percent (1 1/2%) per annum plus the
greater of the prevailing Federal Funds Rate plus one-half percent ( 1/2%) or
INCC's prime rate; or at the adjusted LIBOR rate plus three and one-quarter
percent (3 1/4%) per annum. The Company is also obligated to pay INCC (i) a
commitment fee equal to one-half percent ( 1/2%) per annum on the average daily
unadvanced portion of the commitments and (ii) a letter of credit fee of two
percent (2%) per annum on the average daily undrawn and unexpired amount of each
letter of credit during the period that sum remains outstanding. The working
capital credit facility expires January 1, 1995.
At December 31, 1993, the Company had outstanding borrowings amounting to
$13,108,000 of the $30,000,000 available under the Term Loan and $0 of the
$10,000,000 available under the working capital credit facility. Eighty-five
percent (85%) of the cash flow attributable to the contracts for the Company's 3
MOPUs working in Venezuela is dedicated to debt repayment under the contracts
and loan agreements relating to such MOPUs. The carrying amount of the Company's
notes payable approximates fair market value. See Note 14 of Notes to
Consolidated Financial Statements.
The notes are secured by accounts receivable, certain oil and gas
properties, and a first preferred fleet mortgage on a majority of the Company's
rig inventory. In addition, both notes are secured by an assignment of the
revenues due under the contract with Dresser-Rand. Under the First Restated
Credit Agreement with INCC, as amended, the Company is required to comply with
various covenants including, but not limited to, the maintenance of various
financial ratios, and is restricted from declaring, making, or paying any
dividends on the Common Stock.
Interest payments on all indebtedness amounted to $1,536,000, $2,623,000
and $894,000 for the years ended December 31, 1993, 1992, and 1991,
respectively. Of the totals, $751,000 related to capital leases for the year
ended December 31, 1991.
7. INCOME TAXES
The Company has incurred net operating losses in prior years resulting in
tax net operating loss carryforwards. Of the total carryforwards available,
$17,959,000 was utilized during 1993 to offset taxable income for the year. At
December 31, 1993, remaining net operating loss carryforwards are $7,684,000 for
regular tax purposes. The Company also has a percentage depletion carryover to
1994 of $506,000 and a charitable contribution carryover to 1994 of $24,000. The
majority of these amounts have been realized in the financial statements as a
reduction of deferred taxes. In addition, the Company has $2,353,000 of unused
investment tax credit carryforwards at December 31, 1993. These carryforwards
are available for use by the Company through the following expiration dates:
<TABLE>
<CAPTION>
ALTERNATIVE
UNUSED REGULAR TAX MINIMUM TAX
INVESTMENT NET OPERATING NET OPERATING
TAX LOSS LOSS
CREDITS(1) CARRYFORWARDS CARRYFORWARDS
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994.............................. $ 959 $ -- $ --
1995.............................. 482 -- --
1996.............................. 741 -- --
1997 - 2006....................... 171 7,684 8,855
---------- ------------- -------------
Total................... $ 2,353 $ 7,684 $ 8,855
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
- ---------------
(1) The investment tax credits reflect the 35% reduction required by the Tax
Reform Act of 1986.
41
<PAGE> 43
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company provided for $475,000 of U.S. federal income taxes for the year
ended December 31, 1993, due to the alternative minimum tax provisions of the
Internal Revenue Code. In addition, the Company provided for $210,000 of Mexican
taxes, which are available for credit in the U.S. through 1998.
The Company recognized no deferred tax assets or liabilities at December
31, 1993 or 1992, because the tax effects of operating loss carryforwards are
offset by the tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and for income tax
purposes and the valuation allowance applied to deferred tax assets. The
significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................... $ 9,270 $ 16,051
Safe harbor lease income............................. 3,024 4,429
-------- --------
Total deferred tax liabilities............... 12,294 20,480
-------- --------
Deferred tax assets:
Net operating loss carryforwards..................... 2,613 10,272
Safe harbor lease expense............................ 8,615 10,827
Unused investment tax credits........................ 2,353 2,937
Percentage depletion carryforward.................... 172 --
Charitable contribution carryforward................. 8 --
Minimum tax credit................................... 475 --
Foreign tax credit................................... 210 --
Other, net........................................... 991 499
-------- --------
Total deferred tax assets.................... 15,437 24,535
Valuation allowance for deferred tax assets............ (3,143) (4,055)
-------- --------
Net deferred tax assets.............................. 12,294 20,480
-------- --------
Net.......................................... $ -- $ --
-------- --------
-------- --------
</TABLE>
For financial reporting purposes, income (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
United States..................................... $ (6,348) $ 138 $ (5,062)
Foreign........................................... 10,659 2,880 1,180
-------- -------- --------
Total..................................... $ 4,311 $ 3,018 $ (3,882)
-------- -------- --------
-------- -------- --------
</TABLE>
42
<PAGE> 44
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1993 1992 1991
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $ 475 $ -- $ --
Foreign............................................... 210 -- --
----- ----- -----
Total......................................... $ 685 $ -- $ --
----- ----- -----
----- ----- -----
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates (34%)..................... $1,466 $1,026 $ (1,320)
Tax benefits not recognized due to net operating loss
carryforwards....................................... (610) (706) 1,320
Foreign taxes......................................... 210 -- --
Alternative minimum tax............................... 475 -- --
Change in valuation allowance......................... (912) (320) --
Other, net............................................ 56 -- --
------- ------- --------
Income tax expense (benefit)................ $ 685 $ -- $ --
------- ------- --------
------- ------- --------
</TABLE>
Income tax payments amounted to $658,000 for the year ended December 31,
1993. No income tax payments were made during the years ended December 31, 1992
and 1991.
8. TAX LEASES
The Company contracted for the construction of 2 jack-up drilling rigs in
the period 1980-1982 at a cost of $65,575,000. For tax purposes, both rigs were
sold in 1982 to third parties under lease back terms pursuant to Section
168(f)(8) of the Internal Revenue Code ("Safe Harbor Lease"). Cleveland received
a payment in the aggregate of $16,685,000 which represented the investment tax
credit and depreciable benefits attributable to the rigs. The interest income
and principal due the Company from the third parties is equal to the lease
payments by the Company to the third parties throughout the lease term.
The future net tax deductions associated with the Safe Harbor Leases are
$2,950,000, $3,732,000, $4,644,000 and $5,117,000 for the years 1994, 1995,
1996, and 1997, respectively.
9. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan ("401(k) Plan"). Under the
401(k) Plan, an employee who has reached age 21 and completed one year of
service is eligible to participate in the plan through contributions that range
in one percent multiples up to 16% of salary, with a 1993 dollar maximum of
$8,994. In addition, the Company contributes (or "matches") on behalf of each
participant an amount equal to 100% of the portion of each participant's
contribution which does not exceed 6% of the participant's annual salary.
Employer contributions for certain highly compensated
43
<PAGE> 45
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees may be further limited through the operation of the non-discrimination
requirements found in Sections 401(k) and 401(m) of the Internal Revenue Code.
Employee contributions can be invested in any or all of 3 funds in
multiples of 25%. Employer contributions are invested in the Company's Common
Stock. Employee contributions are 100% vested and non-forfeitable. Employer
contributions are subject to a graded vesting schedule, with participants
becoming fully vested upon completion of 5 years participation in the plan.
Distributions from the 401(k) Plan are made upon retirement, death, disability
or separation of service. Participants may borrow up to one-half ( 1/2) of their
vested interest in the plan, limited to a maximum of $50,000. Contributions to
the 401(k) Plan and earnings on contributions are not included in a
participant's gross income until distributed to the participant. Contributions
to the 401(k) Plan by the Company were $233,000, $266,000, and $393,000 for the
years 1993, 1992, and 1991, respectively.
10. LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES
Maturities of obligations under capital leases at December 31, 1991 were
$2,682,000. The interest portion of the obligation was $240,000 for the year.
The final payment under the capital lease obligation was made on January 2,
1992. Interest expense related to the capital leases incurred during 1991 was
$572,000.
11. CAPITAL STOCK
Changes in the number of issued and outstanding shares of the Company's
Common Stock are summarized as follows:
<TABLE>
<S> <C>
Balance at December 31, 1991..................................... 2,993,104
Common Stock issuance.......................................... 1,500,000
Restricted Stock grants, net................................... 17,500
---------
Balance at December 31, 1992..................................... 4,510,604
Stock options exercised........................................ 1,500
Restricted Stock grants........................................ 6,000
Treasury Stock acquired........................................ (5,000)
---------
Balance at December 31, 1993..................................... 4,513,104
---------
---------
</TABLE>
The Company has an Incentive Equity Plan under which stock options, stock
appreciation rights, restricted and deferred stock awards relating to the
Company's Common Stock may be awarded to officers, directors and key employees.
The Company's Incentive Equity Plan is designed to attract and reward key
executive personnel. The stock options granted under this plan expire not more
than 10 years from the date of grant.
At December 31, 1993, the following options were outstanding and
exercisable:
<TABLE>
<CAPTION>
SHARES SHARES EXERCISE
OUTSTANDING EXERCISABLE PRICE (PER SHARE)
- ----------- ----------- -----------------
<S> <C> <C>
5,000 5,000 $11.00-$11.99
77,500 2,000 $12.00-$12.99
127,100 109,100 $13.00-$13.99
56,100 56,100 $14.00-$14.99
- ----------- -----------
265,700 172,200
- ----------- -----------
- ----------- -----------
</TABLE>
44
<PAGE> 46
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options for 1,500 shares were exercised during 1993 while no options were
exercised in 1992 or 1991, respectively.
The Company's Board of Directors has awarded restricted stock to key
executives as follows:
<TABLE>
<CAPTION>
SHARES
YEAR AWARDED
--------------------------------------------------- -------
<S> <C>
1988............................................... 34,600
1989............................................... 40,800
1990............................................... 30,400
1991............................................... 2,000
1992............................................... --
1993............................................... 6,000
</TABLE>
Restrictions on the 1988 award lapse with respect to 20% of the entire
award after one year and after each of the succeeding 4 years. Restrictions
lapse with respect to 25% of the entire award after one year and after each of
the succeeding 3 years. Expense related to amortization of the restricted stock
was $120,000, $442,000, and $274,000 for the years 1993, 1992, and 1991,
respectively.
Deferred compensation expense relative to non-vested shares of restricted
stock, measured by the market value of the stock on the date of grant, is being
amortized on a straight-line basis over the restriction period. The unamortized
deferred compensation expense, which has been deducted from equity in the
Consolidated Balance Sheets, amounted to $103,000 and $150,000 at December 31,
1993 and 1992, respectively.
Effective December 31, 1992, the Company's Board of Directors awarded
restricted stock for 17,500 shares of Common Stock to certain key executives.
The price paid for the shares of the restricted stock was $13.25 per share. The
Company extended full-recourse, interest-bearing loans to the key executives in
the aggregate amount of $232,000. The promissory notes bear interest at seven
and one-half percent (7 1/2%) per annum payable quarterly as it accrues on the
last day of March, June, September and December until the notes are due on
December 31, 1997. Additional shares of deferred stock will be awarded on
December 31, 1997 if certain performance criteria are attained by the Company.
Compensation expense related to the deferred stock awards will be accrued in
future years if it becomes probable the Company performance criteria will be
met. No such compensation expense was accrued during the year ended December 31,
1993.
12. REDEEMABLE PREFERRED STOCK
On September 27, 1988, the Company completed a public offering of
$28,750,000 of $2.3125 Convertible Exchangeable Preferred Stock ("Preferred
Stock") which is traded in the over-the-counter market and quoted on the NASDAQ
National Market System under the symbol "CLDRP".
The Preferred Stock is redeemable at the option of the Company, in whole or
in part, at $26.16 per share if redeemed prior to September 15, 1994, and at
prices decreasing ratably annually to $25 per share from and after September 15,
1998, plus accrued and unpaid dividends to the redemption date. Any such
non-mandatory redemption would be subject to INCC approval according to the
terms of the First Restated Credit Agreement. Dividends on the Preferred Stock
are cumulative from the date of first issuance and are payable quarterly
commencing December 15, 1988 at the rate of $2.3125 per share per annum.
Pursuant to the First Restated Credit Agreement, dividends on Preferred Stock
cannot exceed the current dividend rate per share without the consent of INCC.
In case of the voluntary or involuntary liquidation, dissolution or winding
up of the Company, holders of shares of Preferred Stock are entitled to receive
a liquidation preference of $25 per share
45
<PAGE> 47
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plus an amount equal to any accrued but unpaid dividends to the payment date.
The Preferred Stock is also exchangeable in whole, but not in part, at the
option of the Company on any dividend payment date subsequent to September 15,
1990, for nine and one-quarter percent (9 1/4%) Convertible Subordinated
Debentures due 2013. The Preferred Stock is convertible into Common Stock of the
Company at the initial conversion rate of 1.89394 shares of Common Stock for
each share of Preferred Stock, subject to adjustment under certain
circumstances. The Preferred Stock has no voting rights except as described
below or as required by law.
The holders of the Preferred Stock have no voting rights to elect directors
except when dividends on the Preferred Stock or on any outstanding shares of
parity dividend stock have not been paid in the aggregate amount equal to at
least six quarterly dividends on such shares. The holders of the Preferred Stock
will then be entitled to elect two additional directors to the Board, at any
meeting of the shareholders of the Company at which directors are to be elected
held during the period such dividends remain in arrears. The voting rights, as
well as the term of office of all directors so elected, shall terminate when all
such dividends accrued and in default have been paid in full or set apart for
payment.
In addition, so long as any Preferred Stock is outstanding, the Company
shall not, without the affirmative vote or consent of the holders of sixty-six
and two-thirds percent (66 2/3%) of all outstanding shares of Preferred Stock
voting separately as a class, (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the By-Laws of the Company so as to adversely
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Preferred Stock, (ii) authorize, issue or increase the
authorized amount of any class or series of stock, or any security convertible
into stock of such class or series, ranking senior to the Preferred Stock as to
dividends or upon liquidation, dissolution or winding up of the Company or (iii)
effect any reclassification of the Preferred Stock.
The affirmative vote or consent of the holders of a majority of the
Preferred Stock, voting or consenting separately as a class, is required to (a)
authorize any sale, lease or conveyance of all or substantially all of the
assets of the Company, or (b) approve any merger, consolidation or compulsory
share exchange to which the Company is a party, unless (i) the terms of such
merger, consolidation or compulsory share exchange do not provide for a change
in the terms of the Preferred Stock and (ii) the Preferred Stock is on a parity
with or prior to (in respect of dividends and upon liquidation, dissolution or
winding up) any other class or series of capital stock authorized by the
surviving corporation, other than any class or series of stock of the Company
ranking senior to the Preferred Stock either as to dividends or upon
liquidation, dissolution or winding up of the Company and previously authorized
with the consent of the holders of Preferred Stock.
In the event (i) any person becomes the beneficial owner of more than fifty
percent (50%) of the Common Stock or the Company is a party to a business
combination, including a merger or consolidation or the sale of all or
substantially all of its assets, and (ii) either (a) as a result of such
acquisition of shares of Common Stock or business combination, the Preferred
Stock thereafter is not convertible into Common Stock of the Company or of the
ultimate parent of the Company, which Common Stock is traded on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market
System, or (b) all or substantially all of the consideration paid in such share
acquisition or business combination does not consist of Common Stock of the
ultimate parent of the Company, which Common Stock is traded on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market
System, then each holder of Preferred Stock shall have the option to require the
Company to redeem all the Preferred Stock owned by such holder at $25 per share
plus accrued and unpaid dividends to the redemption date.
46
<PAGE> 48
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 20, 1992, the staff of the Securities and Exchange Commission
(the "Commission") advised the Company of a change in the staff's previous
interpretation of a Commission rule regarding the classification of the
Company's Preferred Stock as Shareholders' Equity. Accordingly, the Preferred
Stock is not presented as a component of Shareholders' Equity.
13. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases its headquarters office, office equipment and other
items under operating leases expiring at various dates during the next five
years. Management expects that, in the normal course of business, leases that
expire will be renewed or replaced by other leases. Total rent expense under
operating leases was $656,000, $576,000, and $536,000, for the years ended 1993,
1992 and 1991, respectively. Minimum future obligations under non-cancelable
operating leases at December 31, 1993 for the following five years are $724,000,
$525,000, $506,000, $514,000 and $544,000, respectively, and $1,248,000
thereafter.
In conjunction with the spin-off of the Company from Cleveland, the Company
and Cleveland and certain of their subsidiaries entered into a Reorganization
and Distribution Agreement (the "Distribution Agreement"). The Distribution
Agreement provides, among other things, that the guarantee obligations of
Cleveland under the following financing arrangement will continue after the
Distribution until the underlying obligations of the Company are satisfied: (i)
the Company's lease financing of 3 land rigs with a balance at the Distribution
of approximately $8,400,000 which expired in 1992, (ii) the Company's lease
financing of one inland posted barge rig with a balance at the Distribution of
approximately $2,000,000 which expired in 1990, and (iii) 2 tax benefit transfer
lease transactions involving 2 of the Company's offshore jack-up rigs, under
which Cleveland guarantees, among other things, the Company's obligations to
indemnify the tax lessors against loss of tax benefits thereunder throughout the
lease terms ending in 1992 and 1997. Pursuant to the Distribution Agreement, the
Company granted to Cleveland a first preferred ship mortgage on BARGE NO. 3 to
secure Cleveland's rights to repayment of any amounts that may be paid by
Cleveland under either of the guaranties referred to in the foregoing clauses
(i) and (ii). Subsequent to the purchase by the Company of BARGE NO. 1 on July
20, 1990 and the final land rig lease payment on January 2, 1992, Cleveland
released the first preferred ship mortgage on BARGE NO. 3 effective March 9,
1992. All 4 of the Company's inland posted barge rigs were sold effective
January 1, 1993. See Note 3 of Notes to Consolidated Financial Statements.
In conjunction with the return to Diamond M of 3 offshore drilling rigs
under long-term charters, a dispute existed as to whether or not the Company
complied with the terms of the charters regarding maintenance and repair of the
rigs during the charter period, as well as the condition of the rigs upon
redelivery. Diamond M withheld payment of $1,700,000 in notes payable to the
Company, representing a part of the purchase price for the subject rigs. Diamond
M also claimed additional damages associated with repairs to the drilling rigs.
In June, 1993, a partial summary judgment awarded the Company $1,800,000,
together with interest and attorney's fees, for the notes payable owed by
Diamond M to the Company, offset by certain charter hire payments due Diamond M.
Following a trial in February, 1994, a judgment was entered in the United States
District Court, Southern District of Texas, Houston Division. The judgment
awarded Diamond M $3,500,000, plus court costs, offset by the partial summary
judgment of $1,800,000. The Company paid Diamond M $1,700,000 in February, 1994,
as a final settlement of all disputed issues.
The Company has other contingent liabilities resulting from litigation,
claims and commitments incidental to the ordinary course of business. Management
believes that the probable resolution of such contingencies will not materially
affect the financial position or results of operations of the Company.
47
<PAGE> 49
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
The Company executed a commitment letter with INCC to amend the terms of
the working capital credit facility. The $10,000,000 working capital credit
facility will be converted to a $20,000,000 revolving line of credit subject to
certain borrowing base limitations. The revolving line of credit will mature on
January 1, 1996.
15. BUSINESS SEGMENTS
During the three years ended December 31, 1993, the Company conducted the
following business activities:
Daywork Drilling -- domestic and foreign drilling of oil and gas wells
on a dayrate basis for major and independent oil and gas companies on land,
inland waters and offshore.
Turnkey Drilling -- domestic and foreign drilling of oil and gas wells
on a turnkey basis for major and independent oil and gas companies on land,
inland waters and offshore.
MOPU Operations -- domestic and foreign operation of mobile offshore
production units on a dayrate basis for major and independent oil and gas
companies.
Oil and Gas -- domestic exploration, development and production of
hydrocarbon reserves.
<TABLE>
<CAPTION>
OPERATING DEPRECIATION,
INCOME IDENTIFIABLE CAPITAL DEPLETION AND
REVENUES (LOSS) ASSETS EXPENDITURES AMORTIZATION
-------- --------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1993
Daywork Drilling............ $22,218 $ (515) $ 63,360 $ 1,576 $ 6,304
Turnkey Drilling............ 16,961 1,685 10,625 -- 1
MOPU Operations............. 21,673 13,566 49,487 9,494 5,523
Oil and Gas................. 4,686 (2,303) 10,051 1,598 5,529
Corporate Office............ -- (4,888) -- -- 81
-------- --------- ------------ ------------ -------------
Consolidated................ $65,538 $ 7,545 $133,523 $ 12,668 $17,438
-------- --------- ------------ ------------ -------------
-------- --------- ------------ ------------ -------------
December 31, 1992
Daywork Drilling............ $26,923 $(2,607) $ 78,304 $ 391 $ 8,002
Turnkey Drilling............ 37,014 2,720 9,494 -- 321
MOPU Operations............. 9,178 6,466 47,428 16,025 2,230
Oil and Gas................. 3,723 (1,770) 14,977 5,462 2,330
Corporate Office............ -- (4,512) -- -- --
-------- --------- ------------ ------------ -------------
Consolidated................ $76,838 $ 297 $150,203 $ 21,878 $12,883
-------- --------- ------------ ------------ -------------
-------- --------- ------------ ------------ -------------
December 31, 1991
Daywork Drilling............ $34,941 $(3,742) $ 86,785 $ 5,439 $ 7,176
Turnkey Drilling............ 44,457 6,582 16,218 -- 337
MOPU Operations............. 2,213 1,632 28,864 20,757 447
Oil and Gas................. 2,892 (4,063) 11,416 7,120 1,409
Corporate Office............ -- (4,352) -- -- --
-------- --------- ------------ ------------ -------------
Consolidated................ $84,503 $(3,943) $143,283 $ 33,316 $ 9,369
-------- --------- ------------ ------------ -------------
-------- --------- ------------ ------------ -------------
</TABLE>
48
<PAGE> 50
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were intersegment sales for the year ended December 31, 1993 of
$147,000 compared to $3,082,000 and $2,353,000 for the years ended December 31,
1992 and 1991, respectively. Such intersegment sales were accounted for at
prices comparable to unaffiliated customer sales.
Identifiable assets by industry segment include assets directly identified
with those operations.
The Company derived a significant amount of its revenues from a few
customers in each of the three years ended December 31, 1993. The following
table summarizes information with respect to these major customers.
<TABLE>
<CAPTION>
% OF
REPORTING CONSOLIDATED
CUSTOMER SEGMENT REVENUES
-------------------------------------------------- ----------------- ------------
<S> <C> <C>
December 31, 1993
Dresser-Rand.................................... MOPU Operations 29%
Maraven, S.A.................................... Daywork Drilling 24%
Marathon Oil Company............................ Turnkey Drilling 10%
December 31, 1992
Maraven, S.A.................................... Daywork Drilling 20%
Marathon Oil Company............................ Turnkey Drilling 16%
December 31, 1991
Marathon Oil Company............................ Turnkey Drilling 23%
Maraven, S.A.................................... Daywork Drilling 19%
Phillips Petroleum Company...................... Turnkey Drilling 11%
</TABLE>
16. DISTRIBUTION OF EARNINGS AND ASSETS
The following table sets forth financial information with respect to the
Company and its subsidiaries on a consolidated basis by geographical area.
49
<PAGE> 51
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
UNITED SOUTH
STATES AMERICA MEXICO TOTAL
------- ------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1993
Revenues................................... $23,579 $40,361 $1,598 $ 65,538
------- ------- ------ --------
------- ------- ------ --------
Operating Income........................... $(3,062) $13,965 $1,449 12,352
------- ------- ------
------- ------- ------
Corporate Overhead.................... (4,807)
--------
$ 7,545
--------
--------
Identifiable Assets at December 31, 1993... $55,797 $73,657 $4,069 $133,523
------- ------- ------ --------
------- ------- ------ --------
December 31, 1992
Revenues................................... $48,013 $28,825 -- $ 76,838
------- ------- ------ --------
------- ------- ------ --------
Operating Income........................... $ (701) $ 5,510 $ -- 4,809
------- ------- ------
------- ------- ------
Corporate Overhead.................... (4,512)
--------
$ 297
--------
--------
Identifiable Assets at December 31, 1992... $59,363 $90,840 $ -- $150,203
------- ------- ------ --------
------- ------- ------ --------
December 31, 1991
Revenues................................... $65,428 $19,075 $ -- $ 84,503
------- ------- ------ --------
------- ------- ------ --------
Operating Income........................... $(1,825) $ 2,234 $ -- 409
------- ------- ------
------- ------- ------
Corporate Overhead.................... (4,352)
--------
$ (3,943)
--------
--------
Identifiable Assets at December 31, 1991... $92,873 $50,410 $ -- $143,283
------- ------- ------ --------
------- ------- ------ --------
</TABLE>
50
<PAGE> 52
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for years ended December 31, 1993, 1992, and
1991 are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE QUARTER ENDED
-----------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- --------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1993:
Revenues............................ $ 17,817 $ 12,219 $ 18,229 $ 17,273
Operating Income (Loss)............. 1,178 2,415 2,344 1,608
Net Income (Loss)................... 1,094 2,035 2,159 (1,662)(1)
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares............................ 429 1,370 1,494 (2,326)(1)
Net Income (Loss) per Share:
Primary........................... $ 0.10 $ 0.30 $ 0.33 $ (0.52)(1)
Assuming Full Dilution............ $ 0.10 $ 0.30 $ 0.32 $ (0.52)(1)
1992:
Revenues............................ $ 20,352 $ 17,477 $ 16,044 $ 22,965
Operating Income (Loss)............. 516 431 (454) (196)(2)
Net Income (Loss)................... 337 124 3,683 (1,126)(2)
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares............................ (328 ) (541) 3,018 (1,790)(2)
Net Income (Loss) per Share:
Primary........................... $ (.11 ) $ (.18) $ 1.01 $ (0.44)(2)(3)
Assuming Full Dilution............ $ (.11 ) $ (.18) $ .71 $ (0.44)(2)(3)
1991:
Revenues............................ $ 26,972 $ 16,898 $ 30,938 $ 9,695
Operating Income (Loss)............. 746 (588) 659 (4,760)(4)
Net Income (Loss)................... 345 (531) 711 (4,407)(4)
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares............................ (320 ) (1,196) 46 (5,072)(4)
Net Income (Loss) per Share:
Primary........................... $ (.11 ) $ (.40) $ .02 $ (1.70)(4)
Assuming Full Dilution............ $ (.11 ) $ (.40) $ .02 $ (1.70)(4)
</TABLE>
- ---------------
(1) Fourth quarter 1993 results include a charge of $3,703,000 related to the
Diamond M litigation settlement and expenses.
(2) Fourth quarter 1992 results include a $1,500,000 writedown in the carrying
value of oil and gas properties.
(3) Net Income (Loss) per share for the year ended December 31, 1992 differs
from the summation of the individual quarters within that year due to the
impact of the public offering of Common Stock completed during the fourth
quarter of 1992.
(4) Fourth quarter 1991 results include a $4,000,000 writedown in the carrying
value of oil and gas properties.
51
<PAGE> 53
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
COGC conducts exploration and production activities in conjunction with the
marketing of the Company's contract drilling services. This approach is referred
to as the contract drilling support ("CDS") program. Under this program, COGC
participates as a working interest owner in oil and gas exploration activities
when it directly or indirectly results in the award of a drilling contract.
In order to provide funding for the Company's share of development and
completion costs of the CDS wells in which the Company has acquired or will
acquire a working interest, the Company entered into an Exploration and
Development Agreement (the "Development Agreement"), effective as of May 25,
1988, with Mosbacher Offshore, Inc. ("Mosbacher"). Under the terms of the
Development Agreement, the Company generally pays the lease acquisition costs
and the costs to casing point attributable to the interest it acquired in the
initial test well drilled on a property. Subject to maximum funding limits
discussed below and the elections of the other working interest owners in the
wells with respect to particular operations and certain other contingencies,
Mosbacher pays the costs incurred after the casing point of initial test wells
(the "completion costs"), the drilling and completion costs of subsequent wells
located on the property interest upon which the initial test well was drilled
(the "development costs"), and the platform production facility and pipeline
costs (the "joint facilities costs") incurred with respect to all wells located
on the property interests. Each party owns a working interest in the test well
based upon the amount of costs borne by each. With respect to property interests
other than the initial test wells, Mosbacher owns all the working interest and
the Company owns net profits interests. Should Mosbacher recoup its total costs
borne with respect to all of its property interests ("payout"), the Company's
net profits interest percentage would increase. However, the Company currently
does not believe that payout will occur under the Development Agreement. Under
certain circumstances, the Company's net profits interest converts to a working
or cost bearing interest in all the property interest. At December 31, 1993,
Mosbacher had expended $4,590,000 of completion costs on initial test wells and
$16,993,000 in development and joint facilities costs. The obligation of
Mosbacher to fund completion costs expired on February 15, 1992; however,
Mosbacher will continue to be obligated to fund development and joint facilities
costs up to the $25,000,000 limit on properties included under the Development
Agreement. Approximately 24%, 19%, and 37% of the future net revenues at
December 31, 1993, 1992 and 1991, respectively, were subject to the Development
Agreement.
A $1,500,000 writedown in the carrying value of oil and gas properties was
recorded during the year ended December 31, 1992 due to a decline in estimated
future net revenues, caused principally by downward revisions of reserve
quantities. A $4,000,000 writedown in the carrying value of oil and gas
properties was recorded during the year ended December 31, 1991 due to a decline
in estimated future net revenues, caused principally by a decrease in the value
of reserves associated with the Development Agreement and lower product prices.
The decrease in the Development Agreement value was due principally to a delay
in the expected occurrence of payout in the development drilling program due to
an increase in the level of third party investment, coupled with a decrease in
the estimated proved reserves.
52
<PAGE> 54
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate capitalized costs related to the Company's oil and gas
exploration and production activities are summarized in the following table:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized costs --
Properties not being amortized................... $ 476 $ 629 $ 662
Properties being amortized....................... 24,412 22,661 17,166
--------- -------- --------
Total capitalized costs.................. 24,888 23,290 17,828
Accumulated depreciation, depletion and
amortization..................................... (13,039) (7,510) (5,180)
Accumulated writedowns in carrying value of oil
and gas properties............................... (5,500) (5,500) (4,000)
--------- -------- --------
Net capitalized costs.................... $ 6,349 $ 10,280 $ 8,648
--------- -------- --------
--------- -------- --------
</TABLE>
Costs incurred in oil and gas property acquisition, exploration and
development activities are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs............................. $ 63 $ 638 $ 672
Exploration costs...................................... 285 542 3,614
Development costs...................................... 1,250 4,282 2,834
------- ------- -------
Total costs incurred......................... $ 1,598 $ 5,462 $ 7,120
------- ------- -------
------- ------- -------
</TABLE>
The results of operations for oil and gas exploration and production
activities are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues(1)......................................... $ 4,686 $ 3,723 $ 2,892
Production costs.................................... 1,064 1,119 538
Exploration costs................................... 188 141 547
Depreciation, depletion and amortization............ 5,529 2,330 1,409
Writedown in carrying value of oil and
gas properties.................................... -- 1,500 4,000
-------- -------- --------
$ (2,095) $ (1,367) $ (3,602)
Income tax expense (benefit)........................ -- -- --
-------- -------- --------
Results of operations from producing activities
(excluding corporate overhead and
interest costs)................................ $ (2,095) $ (1,367) $ (3,602)
-------- -------- --------
-------- -------- --------
</TABLE>
- ---------------
(1) Includes $63,000, $158,000, and $79,000 attributable to a net profits
interest for the years ended December 31, 1993, 1992, and 1991,
respectively.
53
<PAGE> 55
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net quantities of proved reserves, all of which are located in the United
States are summarized in the following table:
<TABLE>
<CAPTION>
OIL AND CONDENSATE
(MBL) NATURAL GAS (MMCF)
-------------------- -----------------------------
1993 1992 1991 1993 1992 1991
---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES:
Beginning of year.......................... 113 193 193 4,352 4,874 4,982
Effect of Development Agreement......... (1 ) 2 (58 ) (18) 38 (1,686)
Revisions of previous estimates......... 37 (36 ) 27 580 (891) 1,011
Extensions and discoveries.............. 19 14 97 63 1,562 1,490
Production.............................. (44 ) (60 ) (66 ) (1,651) (1,231) (923)
---- ---- ---- ------- ------- -------
End of year................................ 124 113 193 3,326 4,352 4,874
---- ---- ---- ------- ------- -------
---- ---- ---- ------- ------- -------
PROVED DEVELOPED RESERVES.................... 89 80 180 3,308 4,336 3,490
---- ---- ---- ------- ------- -------
---- ---- ---- ------- ------- -------
</TABLE>
The standardized measure of discounted future net cash flows and major
components of that calculation relating to proved oil and gas reserves at
December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows................................. $ 9,642 $ 11,981 $ 13,220
Future costs:
Production........................................ (1,549) (1,869) (2,632)
Development....................................... (133) (48) (1,535)
-------- -------- --------
Future net inflows before income taxes.............. 7,960 10,064 9,053
Future income taxes................................. -- -- --
-------- -------- --------
Undiscounted future net cash flows.................. 7,960 10,064 9,053
10% annual discount................................. (1,622) (1,362) (1,849)
-------- -------- --------
Standardized measure of discounted future net cash
flows............................................. $ 6,338 $ 8,702 $ 7,204
-------- -------- --------
-------- -------- --------
</TABLE>
The standardized measure of discounted future net cash flows from
production of proved reserves was developed as follows:
1. Estimates were made of quantities of proved reserves and the future
periods in which they are expected to be produced based on year-end
economic conditions.
2. The estimated future gross revenues of proved reserves were priced
on the basis of year-end prices.
3. The future gross revenue streams were reduced by estimated future
costs to develop and to produce the proved reserves, based on year-end cost
estimates. Future income taxes have not been included due to the effect of
net operating loss carryforwards.
The standardized measure of discounted future net cash flows does not
purport to present the fair market value of the Company's oil and gas reserves.
A market value determination would include, among other things, anticipated
future changes in oil and gas prices and production and development costs; the
value of additional estimated reserves, not considered proved at present,
54
<PAGE> 56
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which may be recovered as a result of further exploration and development
activities; and other business risks.
The standardized measure of discounted future net cash flows as of December
31, 1993 was calculated using prices in effect at December 31, 1993, which
averaged $12.86 per Bbl of oil and $2.42 per Mcf of natural gas.
The following are principal sources of changes in the standardized measure
of discounted net cash flows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STANDARDIZED MEASURE-BEGINNING OF YEAR............. $ 8,702 $ 7,204 $ 9,881
Sales, net of production costs................... (3,622) (2,604) (2,354)
Effect of Development Agreement.................. (41) 69 (3,116)
Net changes in sales prices, net of production
costs......................................... (306) (23) (1,768)
Extensions, discoveries and improved
recovery, net of future production and
development costs............................. 267 3,034 1,756
Future development costs incurred................ -- 1,823 --
Revisions of previous quantity estimates......... 1,505 (1,443) 1,795
Accretion of discount............................ 870 720 988
Changes in production rates (timing)............. (1,005) -- --
Other............................................ (32) (78) 22
-------- -------- --------
Net Change............................... (2,364) 1,498 (2,677)
-------- -------- --------
STANDARDIZED MEASURE-END OF YEAR................... $ 6,338 $ 8,702 $ 7,204
-------- -------- --------
-------- -------- --------
</TABLE>
55
<PAGE> 57
SCHEDULE V
CLIFFS DRILLING COMPANY
PROPERTY AND EQUIPMENT
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE
AT BALANCE
BEGINNING ADDITIONS OTHER AT END
OF YEAR AT COST RETIREMENTS CHANGES OF YEAR
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
1993:
Rigs and related equipment.......... $ 198,794 $ 8,120 $ (41,540) $ 2,685 $ 168,059
Construction in progress............ -- 2,676 -- (2,676) --
Oil and gas properties.............. 23,290 1,598 -- -- 24,888
Other............................... 2,303 274 (34) (9) 2,534
--------- -------- --------- --------- ---------
Total....................... $ 224,387 $ 12,668 $ (41,574) $ -- $ 195,481
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
1992:
Rigs and related equipment.......... $ 169,196 $ 6,874 $ (5,986) $ 28,710 $ 198,794
Construction in progress............ 19,421 9,289 -- (28,710) --
Oil and gas properties.............. 17,828 5,462 -- -- 23,290
Other............................... 2,108 253 (58) -- 2,303
--------- -------- --------- --------- ---------
Total....................... $ 208,553 $ 21,878 $ (6,044) $ -- $ 224,387
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
1991:
Rigs and related equipment.......... $ 159,684 $ 6,487 $ (576) $ 3,601 $ 169,196
Construction in progress............ 3,601 19,421 -- (3,601) 19,421
Oil and gas properties.............. 11,200 7,120 (492) -- 17,828
Other............................... 1,852 288 (32) -- 2,108
--------- -------- --------- --------- ---------
Total....................... $ 176,337 $ 33,316 $ (1,100) $ -- $ 208,553
--------- -------- --------- --------- ---------
--------- -------- --------- --------- ---------
</TABLE>
56
<PAGE> 58
SCHEDULE VI
CLIFFS DRILLING COMPANY
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEDUCTIONS
FROM
RESERVES
BALANCE CHARGED RETIREMENTS
AT TO COSTS RENEWALS BALANCE
BEGINNING AND AND OTHER AT END
OF YEAR EXPENSES REPLACEMENTS CHANGES OF YEAR
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
1993:
Rigs and related equipment....... $ 108,784 $ 11,662 $ (31,681) $ 26 $ 88,791
Oil and gas properties........... 13,010 5,529 -- -- 18,539
Other............................ 1,415 247 (17) -- 1,645
--------- -------- --------- ------ ---------
Total.................... $ 123,209 $ 17,438 $ (31,698) $ 26 $ 108,975
--------- -------- --------- ------ ---------
--------- -------- --------- ------ ---------
1992:
Rigs and related equipment....... $ 99,106 $ 10,319 $ (641) $ -- $ 108,784
Oil and gas properties........... 9,180 3,830 -- -- 13,010
Other............................ 1,244 173 (2) -- 1,415
--------- -------- --------- ------ ---------
Total.................... $ 109,530 $ 14,322 $ (643) $ -- $ 123,209
--------- -------- --------- ------ ---------
--------- -------- --------- ------ ---------
1991:
Rigs and related equipment....... $ 91,065 $ 8,350 $ (547) $ 238 $ 99,106
Oil and gas properties........... 4,000 5,418 -- (238) 9,180
Other............................ 1,084 168 (5) (3) 1,244
--------- -------- --------- ------ ---------
Total.................... $ 96,149 $ 13,936 $ (552) $ (3) $ 109,530
--------- -------- --------- ------ ---------
--------- -------- --------- ------ ---------
</TABLE>
57
<PAGE> 59
SCHEDULE VIII
CLIFFS DRILLING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
OF AND OF
YEAR EXPENSES DEDUCTIONS YEAR
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts:
1993.............................................. $ 307 $ 390 $ -- $ 697
----- ----- ---- -----
----- ----- ---- -----
1992.............................................. $ 7 $ 300 $ -- $ 307
----- ----- ---- -----
----- ----- ---- -----
1991.............................................. $ 7 $ -- $ -- $ 7
----- ----- ---- -----
----- ----- ---- -----
</TABLE>
58
<PAGE> 60
SCHEDULE IX
CLIFFS DRILLING COMPANY
SHORT-TERM BORROWINGS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WEIGHTED
MAXIMUM AVERAGE AVERAGE
AMOUNT AMOUNT INTEREST
CATEGORY OF WEIGHTED OUTSTANDING OUTSTANDING RATE
AGGREGATE BALANCE AT AVERAGE DURING DURING DURING
SHORT-TERM END INTEREST THE THE THE
BORROWINGS OF YEAR RATE(1) YEAR YEAR(2) YEAR(3)
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
1993:
Bank credit agreement................... $ -- N/A $ -- $ -- N/A
------- ---- ------- ------- ------
------- ---- ------- ------- ------
1992:
Bank credit agreement................... $ -- N/A $ 8,500 $ 6,102 7.85%
------- ---- ------- ------- ------
------- ---- ------- ------- ------
1991:
Bank credit agreement................... $ -- N/A $ 9,000 $ 3,419 10.60%
------- ---- ------- ------- ------
------- ---- ------- ------- ------
</TABLE>
- ---------------
Notes:
(1) Interest expressed as rate per annum.
(2) Calculated by taking the amount of borrowings outstanding multiplied by
the number of days outstanding divided by the number of days in the
year.
(3) Calculated as total interest expense on the credit agreement divided by
the weighted average amount of principal outstanding.
59
<PAGE> 61
SCHEDULE X
CLIFFS DRILLING COMPANY
SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Year ended December 31, 1993:
Maintenance and repairs.......................................................... $ 2,019
Taxes, other than payroll and income taxes....................................... 1,651
Year ended December 31, 1992:
Maintenance and repairs.......................................................... $ 4,327
Taxes, other than payroll and income taxes....................................... 1,657
Year ended December 31, 1991:
Maintenance and repairs.......................................................... $ 7,260
Taxes, other than payroll and income taxes....................................... 1,685
</TABLE>
60
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1 -- Reorganization and Distribution Agreement dated as of June 8, 1988 among
Cleveland-Cliffs Inc ("Cleveland"), The Cleveland-Cliffs Iron Company
("Iron"), Cliffs Drilling Company, now Cliffs Resources, Inc.
("Drilling's Predecessor"), Cliffs Exploration Company, now Cliffs Oil
and Gas Company ("COGC"), Cliffs Drilling International, Inc.
("International"), and New Cliffs Drilling Company, now Cliffs Drilling
Company, the Registrant (the "Company") (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on Form S-1, No.
33-23508, filed under the Securities Act).
3.1 -- Certificate of Incorporation of the Company, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1, No. 33-23508, filed under the Securities Act).
3.2 -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, No. 33-23508, filed under
the Securities Act).
4.1 -- Certificate of Incorporation of the Company (filed as Exhibit 3.1).
4.2 -- Bylaws of the Company (filed as Exhibit 3.2).
4.3 -- Certificate of Designations of the Company's $2.3125 Convertible
Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.3
to the Company's Form 10-K for the fiscal year ended December 31, 1988).
4.4 -- Form of Indenture between the Company and MTrust Corp., N.A., as
Trustee, relating to the Company's 9 1/4% Convertible Subordinated
Debentures due 2013 (incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form S-1, No. 33-23508, filed under
the Securities Act).
4.5 -- Specimen form of 9 1/4% Convertible Subordinated Debenture due 2013
(incorporated by reference to pages 13 to 20 of Exhibit 4.6 to the
Company's Registration Statement on Form S-1, No. 33-23508, filed under
the Securities Act).
10.1 -- Reorganization and Distribution Agreement dated as of June 8, 1988
(incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1, No. 33-23508, filed under the Securities Act).
10.2 -- Tax Sharing Agreement dated as of June 21, 1988 between Cleveland,
Drilling's Predecessor, COGC, International and the Company
(incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1, No. 33-23508, filed under the Securities Act).
10.3 -- Benefits Agreement dated as of June 21, 1988 between Cleveland,
Drilling's Predecessor and the Company (incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on Form S-1, No.
33-23508, filed under the Securities Act).
10.4 -- Drilling Agreement dated January 17, 1986 between Drilling's Predecessor
and TransAmerican Natural Gas Corporation, Debtor and Debtor-in-Posses-
sion and Certain of its Affiliates (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form 10, File No.
0-16703).
10.5 -- Agreement dated April 28, 1987, as amended by Additional Agreements
dated August 26, 1987, and February 12, 1988, between Drilling's
Predecessor and Neddrill Nederland B.V. (incorporated by reference to
Exhibit 10.7 in the Company's Registration Statement on Form 10, File
No. 0-16703).
</TABLE>
61
<PAGE> 63
<TABLE>
<S> <C>
10.6 -- Agreement dated June 1, 1990, between International and Neddrill Turnkey
Drilling B.V. (incorporated by reference to Exhibit 10.7.3 to the
Company's Form 10-K for the fiscal year ended December 31, 1990).
10.7 -- Cliffs Drilling Company 1988 Incentive Equity Plan (incorporated by
reference to Exhibit 10.8 to the Company's Registration Statement on
Form S-1,
No. 33-23508, filed under the Securities Act).
*10.7.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling Company 1988
Incentive Equity Plan.
*10.7.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling Company 1988
Incentive Equity Plan.
10.8 -- Cliffs Drilling Company Incentive Bonus Plan (incorporated by reference
to Exhibit 10.9 to the Company's Registration Statement on Form S-1,
No. 33-23508, filed under the Securities Act).
10.9 -- Cliffs Drilling Company Retention Plan for Salaried Employees
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1, No. 33-23508, filed under the
Securities Act).
*10.9.1 -- Amendment No. 1 dated May 17, 1990 to the Cliffs Drilling Company
Retention Plan for Salaried Employees.
*10.9.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling Company
Retention Plan for Salaried Employees.
10.10 -- Form of Indemnification Agreement between the Company and its officers
and directors (incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1, No. 33-23508, filed under
the Securities Act).
10.11 -- Form of Restricted Stock Award Agreement entered into between the Com-
pany and certain key executive officers (incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on Form S-1, No.
33-23508, filed under the Securities Act).
10.11.1 -- Form of Restricted Stock Award Agreement dated as of December 31, 1992
entered into between the Company and certain key executive officers
(incorporated by reference to Exhibit 10.10.1 to the Company's Form 10-K
for the fiscal year ended December 31, 1992).
*10.11.2 -- Form of Deferred Stock Award Agreement dated as of December 31, 1992
entered into between the Company and certain key executive officers.
10.12 -- Exploration and Development Agreement dated as of May 25, 1988 among the
Company, Mosbacher Offshore, Inc. and COGC (incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on Form S-1, No.
33-23508, filed under the Securities Act).
10.12.1 -- Letter Agreement dated February 15, 1991 extending Exploration and
Development Agreement (incorporated by reference to Exhibit 10.13.1 to
the Company's Form 10-K for the fiscal year ended December 31, 1990).
10.13 -- Letter of intent dated March 30, 1989 between the Company and Loews
Corporation, and its wholly-owned subsidiary Loews San Antonio Hotel
Corporation (incorporated by reference to Exhibit 10.16 to the Company's
Form 10-K for the fiscal year ended December 31, 1988).
10.13.1 -- Agreement of Purchase and Sale dated May 24, 1989 between the Company,
Loews San Antonio Hotel Corporation and Loews Corporation (incorporated
by reference to Exhibit 10.16.1 to the Company's Form 10-K for the
fiscal year ended December 31, 1989).
</TABLE>
62
<PAGE> 64
<TABLE>
<S> <C>
10.13.2 -- Bareboat Charter Party Agreement (MARLIN NO. 6) dated May 24, 1989
between the Company and Loews San Antonio Hotel Corporation (incorpo-
rated by reference to Exhibit 10.16.2 to the Company's Form 10-K for the
fiscal year ended December 31, 1989).
10.13.3 -- Bareboat Charter Party Agreement (MARLIN NO. 7) dated May 24, 1989
between the Company and Loews San Antonio Hotel Corporation (incorpo-
rated by reference to Exhibit 10.16.3 to the Company's Form 10-K for the
fiscal year ended December 31, 1989).
10.13.4 -- Bareboat Charter Party Agreement (MARLIN NO. 17) dated May 24, 1989
between the Company and Loews San Antonio Hotel Corporation (incorpo-
rated by reference to Exhibit 10.16.4 to the Company's Form 10-K for the
fiscal year ended December 31, 1989).
10.14 -- Credit Agreement as of October 31, 1991 by and among the Company, COGC,
International and NMB Postbank Groep N.V. ("NMB") (incorporated by
reference to Exhibit 10.20 to the Company's Form 10-Q, No. 0-16703, for
the fiscal quarter ended September 30, 1991).
10.14.1 -- First Restated Credit Agreement as of December 13, 1991 by and among the
Company, COGC, International and NMB (incorporated by reference to Ex-
hibit 10.20.1 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.14.2 -- First Amendment to First Restated Credit Agreement dated as of July 1,
1992, by and among the Company, COGC, International and NMB
(incorporated by reference to Exhibit 10.16.2 to the Company's
Registration Statement on Form S-1, No. 33-51780, filed under the
Securities Act).
10.14.3 -- Second Amendment to First Restated Credit Agreement dated as of October
8, 1992, by and among the Company, COGC, International and Interna-
tionale Nederlanden Bank N.V., formerly NMB (incorporated by reference
to Exhibit 10.16.3 to the Company's Registration Statement on Form S-1,
No. 33-51780, filed under the Securities Act).
*10.14.4 -- Third Amendment to First Restated Credit Agreement dated as of December
23, 1993, by and among the Company, COGC, International and Interna-
tionale Nederlanden (U.S.) Capital Corporation ("INCC"), assignee of
Internationale Nederlanden Bank N.V.
10.15 -- Bareboat Charter Agreement (LANGLEY) dated as of December 13, 1991,
between the Company and Dresser-Rand Company ("Dresser-Rand") (in-
corporated by reference to Exhibit 10.22 to the Company's Form 10-K for
the fiscal year ended December 31, 1991).
10.15.1 -- Bareboat Charter Agreement (FRANKLIN) dated as of December 13, 1991,
between the Company and Dresser-Rand (incorporated by reference to
Exhibit 10.22.1 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.15.2 -- Bareboat Charter Agreement (FORRESTAL) dated as of December 13, 1991,
between the Company and Dresser-Rand (incorporated by reference to
Exhibit 10.22.2 to the Company's Form 10-K for the fiscal year ended
December 31, 1991).
10.15.3 -- Maintenance, Moving and Jacking Agreement (LANGLEY) dated as of De-
cember 13, 1991 between the Company and Dresser-Rand (incorporated by
reference to Exhibit 10.22.3 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
</TABLE>
63
<PAGE> 65
<TABLE>
<S> <C>
10.15.4 -- Maintenance, Moving and Jacking Agreement (FRANKLIN) dated as of
December 13, 1991 between the Company and Dresser-Rand (incorporated by
reference to Exhibit 10.22.4 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.15.5 -- Maintenance, Moving and Jacking Agreement (FORRESTAL) dated as of
December 13, 1991 between the Company and Dresser-Rand (incorporated by
reference to Exhibit 10.22.5 to the Company's Form 10-K for the fiscal
year ended December 31, 1991).
10.15.6 -- Multiparty Agreement and Limited Performance Guaranty dated as of Decem-
ber 13, 1991 by and among the Company, Dresser-Rand and NMB (incorpo-
rated by reference to Exhibit 10.22.6 to the Company's Form 10-K for the
fiscal year ended December 31, 1991).
10.15.7 -- Letter of Agreement dated as of December 13, 1991 between the Company
and Dresser-Rand (incorporated by reference to Exhibit 10.22.7 to the
Company's Form 10-K for the fiscal year ended December 31, 1991).
10.16 -- Contract for Sale of Vessels dated October 16, 1992 among the Company,
Storm Drilling Company and the United States of America, as represented
by the Secretary of Transportation, acting by and through the Maritime
Administration (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1, No. 33-51780, filed under
the Securities Act).
10.17 -- Contract for Sale of Vessels dated December 14, 1992 among the Company,
Storm Drilling Company and the United States of America, as represented
by the Secretary of Transportation, acting by and through the Maritime
Administration (incorporated by reference to Exhibit 10.21 to the
Company's Form 10-K for the fiscal year ended December 31, 1992).
10.18 -- Cliffs Neddrill Central Turnkey International Joint Venture Agreement
dated December 15, 1992, by and among Cliffs Drilling International,
Inc., Neddrill Turnkey Drilling B.V. and Perforadora Central S.A. de
C.V. (incorporated by reference to Exhibit 10.22 to the Company's Form
10-K for the fiscal year ended December 31, 1992).
10.19 -- Asset Purchase and Sale Agreement dated March 30, 1993, between the
Company, as seller, and Cerrito Investment Corporation (incorporated by
reference to Exhibit 10.23 to the Company's Form 10-Q, File No. 0-16703,
for the fiscal quarter ended March 31, 1993).
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of Ernst & Young.
*23.2 -- Consent of Huddleston & Co., Inc.
</TABLE>
- ---------------
* Filed herewith
All other exhibits are omitted because they are not applicable, or not
required, or because the required information is included in the Consolidated
Financial Statements or Notes thereto.
64
<PAGE> 1
EXHIBIT 10.7.1
AMENDMENT NO. 1
TO THE
CLIFFS DRILLING COMPANY
1988 INCENTIVE EQUITY PLAN
Pursuant to the terms and provisions of Section 10 of the Cliffs
Drilling Company 1988 Incentive Equity Plan (the "Plan"), Cliffs Drilling
Company, a Delaware corporation (the "Company"), hereby adopts the following
Amendment No. 1 to the Plan (the "Amendment No. 1").
1.
The first sentence of Section 5 of the Plan is hereby amended in its
entirety by substituting the following therefor:
"The total number of shares of Stock reserved and
available for distribution pursuant to Stock Options or other
awards hereunder shall be 380,000 shares. Such shares may
consist, in whole or in part, of authorized and unissued
shares or treasury shares."
2.
Each amendment made by this Amendment No. 1 to the Plan has been
effected in conformity with the provisions of the Plan. This Amendment No. 1
was adopted by the Board of Directors of the Company on April 9, 1990 and
approved by the shareholders of the Company on May 17, 1990.
3.
At the time of the adoption of this Amendment No. 1 to the Plan,
2,963,079 shares of the Company's common stock, $0.01 par value per share, were
outstanding and entitled to vote, 2,412,159 were represented in person or by
proxy, of which 1,531,848 shares were voted for this Amendment No. 1, and
558,837 shares were voted against this Amendment No. 1.
Dated: May 17, 1990.
CLIFFS DRILLING COMPANY
BY: /s/ JAMES E. MITCHELL, JR.
____________________________
James E. Mitchell, Jr.,
Secretary
<PAGE> 1
EXHIBIT 10.7.2
AMENDMENT NO. 2
TO THE
CLIFFS DRILLING COMPANY
1988 INCENTIVE EQUITY PLAN
Pursuant to the terms and provisions of Section 10 of the Cliffs
Drilling Company 1988 Incentive Equity Plan (the "Plan"), Cliffs Drilling
Company, a Delaware corporation (the "Company"), hereby adopts the following
Amendment No. 2 to the Plan (the "Amendment No. 2").
4.
The first sentence of Section 5 of the Plan is hereby amended in its
entirety by substituting the following therefor:
"The total number of shares of Stock reserved and
available for distribution pursuant to Stock Options or other
awards hereunder shall be 490,000 shares. Such shares may
consist, in whole or in part, of authorized and unissued
shares or treasury shares."
5.
Each amendment made by this Amendment No. 2 to the Plan has been
effected in conformity with the provisions of the Plan. This Amendment No. 2
was adopted by the Compensation Committee of the Board of Directors of the
Company on March 3, 1993 and approved by the shareholders of the Company on May
20, 1993.
6.
At the time of the adoption of this Amendment No. 2 to the Plan,
4,510,604 shares of the Company's common stock, $0.01 par value per share, were
outstanding and entitled to vote, 3,852,646 were represented in person or by
proxy, of which 3,457,153 shares were voted for this Amendment No. 2, and
213,982 shares were voted against this Amendment No. 2.
Dated: May 20, 1993.
CLIFFS DRILLING COMPANY
BY: /s/ JAMES E. MITCHELL, JR.
____________________________
James E. Mitchell, Jr.,
Secretary
<PAGE> 1
EXHIBIT 10.9.1
AMENDMENT NO. 1 TO THE
CLIFFS DRILLING COMPANY
RETENTION PLAN FOR SALARIED EMPLOYEES
Pursuant to the terms and provisions of Section 7.1 of the Cliffs
Drilling Company Retention Plan for Salaried Employees (the "Plan"), Cliffs
Drilling Company, a Delaware corporation (the "Company"), hereby adopts the
following Amendment No. 1 to the Plan (the "Amendment No. 1").
I.
A. The last sentence of the Introduction of the Plan is hereby
deleted and replaced in its entirety with the following:
"If such an event does not occur on or before June 21, 1992, this
Plan will terminate automatically."
B. The first sentence of Section 1.6 of the Plan is hereby deleted
and replaced in its entirety with the following:
"1.6 "Effective Date" shall mean the date on or before June 21,
1992, on which any of the following is effective:"
C. The first sentence of Section 7.2 of the Plan is hereby deleted
and replaced in its entirety with the following:
"7.2 Automatic Termination. This Plan shall terminate
automatically as of June 21, 1992, if there is no Effective Date
on or before that date."
II.
Each amendment made by this Amendment No. 1 to the Plan has been
effected in conformity with the provisions of the Plan. This Amendment No. 1
was adopted by the Compensation Committee of the Board of Directors of the
Company on May 17, 1990.
Dated: May 17, 1990.
CLIFFS DRILLING COMPANY
BY: /s/ JAMES E. MITCHELL, JR.
------------------------------------
JAMES E. MITCHELL, JR., SECRETARY
<PAGE> 1
EXHIBIT 10.9.2
AMENDMENT NO. 2 TO THE
CLIFFS DRILLING COMPANY
RETENTION PLAN FOR SALARIED EMPLOYEES
Pursuant to the terms and provisions of Section 7.1 of the Cliffs
Drilling Company Retention Plan for Salaried Employees (the "Plan"), Cliffs
Drilling Company, a Delaware corporation (the "Company"), hereby adopts the
following Amendment No. 2 to the Plan (the "Amendment No. 2").
I.
A. The last sentence of the Introduction of the Plan is hereby
deleted and replaced in its entirety with the following:
"If such an event does not occur on or before June 21, 1994, this
Plan will terminate automatically."
B. The first sentence of Section 1.6 of the Plan is hereby deleted
and replaced in its entirety with the following:
"1.6 "Effective Date" shall mean the date on or before
June 21, 1994, on which any of the following is effective:"
C. Section 2.1 of the Plan is hereby deleted and replaced in its
entirety with the following:
"2.1 Who is a Covered Employee. Any employee of the Company who
upon the occurrence of an Effective Date, concurrently holds any
of the employment positions depicted in Category One, Two or
Three of Section 3.1 below and who has a Termination of
Employment during the Term of this Plan, shall be a Covered
Employee and eligible to receive the benefits described in this
Plan."
D. Section 3.1 of the Plan is hereby deleted and replaced in its
entirety with the following:
"3.1 Amount of Severance Pay. The Company shall pay Severance
Pay to a Covered Employee in an amount equal to the greater of
(a) or (b):
(a) his weekly Base Salary times each of his Years
of Continuous Service; or
(b) a payment as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Category Payment
-------- -------
<S> <C> <C>
One: President, Executive Vice President, Vice 12 months' Base Salary
President-Operations, Vice President-
Finance, and Vice President-Business
Development
Two: General Manager-MOPU Operations, Manager- 9 months' Base Salary
Turnkey Operations, Manager-Turnkey
Engineering, General Manager-Oil & Gas,
Controller, and Treasurer
Three: Drilling Engineer, Drilling Superintendent, 6 months' Base Salary
Drilling Operations Manager, Director-
Safety, Manager-Land, Manager-Materials,
Assistant Treasurer, Manager-Financial
Planning, Controller-Contract Drilling
Operations, and Controller-MOPU Operations"
</TABLE>
E. Section 4.1 of the Plan is hereby deleted and replaced in its
entirety with the following:
"4.1 Reemployment with the Company. Except to the extent he has
already received benefits under the Plan, a Covered Employee who
recommences employment with the Company will be immediately
entitled to any benefits under the Plan."
F. The first sentence of Section 7.2 of the Plan is hereby deleted
and replaced in its entirety with the following:
"7.2 Automatic Termination. This Plan shall terminate
automatically as of June 21, 1990 or such other extended
termination date duly adopted in accordance with the provisions
of Section 7.1 above, if there is no Effective Date on or before
that date."
II.
Each amendment made by this Amendment No. 2 to the Plan has been
effected in conformity with the provisions of the Plan. This Amendment No. 2
was adopted by the Compensation Committee of the Board of Directors of the
Company on May 21, 1992.
- 2 -
<PAGE> 3
Dated: May 21, 1992.
CLIFFS DRILLING COMPANY
BY: /S/ JAMES E. MITCHELL, JR.
------------------------------------
JAMES E. MITCHELL, JR., SECRETARY
- 3 -
<PAGE> 1
EXHIBIT 10.11.2
December 31, 1992
Cliffs Drilling Company
1200 Smith Street
300 Citicorp Center
Houston, Texas 77002
Re: Deferred Stock Award Agreement
Dear Sirs:
In acceptance of a Deferred Stock Award of _________________ (______)
shares of common stock, $.01 par value per share ("Common Stock"), of Cliffs
Drilling Company (the "Company"), made on December 31, 1992 by the Compensation
Committee of the Board of Directors (the "Compensation Committee") of the
Company, pursuant to the Company's 1988 Incentive Equity Plan (the "1988
Plan"), the undersigned employee of the Company, _________________________,
("Recipient"), agrees as follows:
1. Limitations. The award of shares of Deferred Stock is subject
to the terms of the 1988 Plan and this Agreement.
2. Price. The price to be paid for shares of Restricted Stock as
to which the deferral conditions and limitations described herein have been
satisfied and which ultimately vest in the Recipient shall be $.01 per share,
representing the par value of the Common Stock. The purchase price shall be
payable in cash upon the issuance of stock certificates as described in Section
5 hereof.
3. Forfeiture.
(a) Each share of Deferred Stock awarded to Recipient hereunder shall
immediately be forfeited in the event Recipient ceases to be employed by the
Company or any Subsidiary or Affiliate of the Company, unless such cessation of
employment is by reason of the Recipient's death, Disability (as defined in the
1988 Plan), termination without Cause (as defined in the 1988 Plan), or
termination other than for Nonperformance (as defined below), in which case the
shares of Deferred Stock shall vest or be forfeited as set forth in Section 6
below.
<PAGE> 2
Cliffs Drilling Company
December 31, 1992
Page 2
(b) "Nonperformance" shall mean (i) the Recipient's refusal,
without reasonable cause, to render services during his employment on a
substantially full-time basis, or (ii) a determination by the Compensation
Committee that he is not performing the duties assigned to him by the Company
to the best of his ability.
(c) For purposes of this Agreement, Recipient shall not be deemed to
have ceased to be an employee of the Company or any Subsidiary or Affiliate, by
reason of a transfer of his employment among the Company and any Subsidiary or
Affiliate, or by reason of a leave of absence approved by the Compensation
Committee for illness, military or governmental service, or other reason.
4. Covenants.
(a) The Recipient represents and covenants that: (i) prior to the
termination of the deferral period, the Recipient will not sell, transfer,
pledge, assign, or otherwise encumber shares of Deferred Stock, other than a
disposition by will or intestate distribution as a result of death, to a
successor in interest to the shares, subject to the restrictions in the 1988
Plan, and (ii) if the shares have not been registered under the Securities Act
of 1933, the Recipient will not dispose of the shares in violation of the Act.
(b) The Recipient and each successor in interest shall fulfill the
obligations imposed by the 1988 Plan, as applicable, and the rules of the
Compensation Committee under the 1988 Plan applicable to the Recipient and each
successor in interest.
5. Stock Certificates. Stock certificates evidencing shares of
Deferred Stock which have vested pursuant to the terms of this Restricted Stock
Award Agreement shall be delivered to Recipient as soon as practicable
following the determination of such vesting.
6. Performance Tiers, Forfeiture and Vesting.
(a) The deferral period shall expire on the earlier to occur of (x)
December 31, 1997, or (y) the cessation of the Recipient's employment with the
Company or any Subsidiary or Affiliate of the Company if such cessation of
employment is due to Recipient's death, Disability (as defined in the 1988
Plan), termination without Cause (as defined in the 1988 Plan), or termination
other than for Nonperformance (any such cessation of employment being referred
to herein as a "Qualifying Cessation of Employment"), and the shares of
Deferred Stock awarded to Recipient shall either vest or be forfeited on such
date as follows:
<PAGE> 3
Cliffs Drilling Company
December 31, 1992
Page 3
(i) if the Company's compounded annual increase in book value
per share for the period beginning January 1, 1993 and ending December
31, 1997 (or December 31 of the year immediately preceding a
Qualifying Cessation of Employment) is less than 10%, such that the
Company fails to attain the compounded annual rate of return
contemplated by the "Tier I Performance Level" described below, the
performance goals established as deferral conditions and limitations
for such Deferred Stock awards shall not have been attained and all of
such shares of Deferred Stock shall be forfeited without any further
action on the part of the Recipient;
(ii) if the Company's compounded annual increase in book value
per share for the period beginning January 1, 1993 and ending December
31, 1997 (or December 31 of the year immediately preceding a
Qualifying Cessation of Employment) is 10% or more but less than 15%,
such that the Company attains the compounded annual rate of return
contemplated by the "Tier I Performance Level," but fails to attain
the compounded annual rate of return as contemplated by the "Tier II
Performance Level," the performance goals established as deferral
conditions and limitations for such Deferred Stock awards shall be
deemed to have been partially attained, and the deferral conditions
and limitations shall lapse as to 60% of such shares of Deferred
Stock, which shall vest in the Recipient, and the remaining 40% of
such shares of Deferred Stock shall be forfeited without any further
action on the part of the Recipient; and
(iii) if the Company's compounded annual increase in book
value per share for the period beginning January 1, 1993 and ending
December 31, 1997 (or December 31 of the year immediately preceding a
Qualifying Cessation of Employment) is 15% or more, such that the
Company attains the compounded annual rate of return contemplated by
the "Tier II Performance Level" described below, the performance goals
established as deferral conditions and limitations for such Deferred
Stock awards shall be deemed to have been fully attained, and the
deferral conditions and limitations shall lapse as to 100% of such
shares of Deferred Stock and such shares of Deferred Stock shall fully
vest in the Recipient.
(b) For purposes of such calculation, the performance tiers consist
of the following:
"Tier I Performance Level" shall have been attained if
(Ending Book Value Per Share divided by Beginning Book
Value Per Share) greater than or equal to (1.10)n
<PAGE> 4
Cliffs Drilling Company
December 31, 1992
Page 4
"Tier II Performance Level" shall have been attained if
(Ending Book Value Per Share divided by Beginning Book
Value Per Share) greater than or equal to (1.15)n
where "Ending Book Value Per Share" equals the Company's consolidated
shareholder's equity as of December 31, 1997 (or December 31 of the
year immediately preceding a Qualifying Cessation of Employment)
divided by the total number of shares of Common Stock outstanding on
such date; "Beginning Book Value Per Share" equals the Company's
consolidated shareholder's equity as of January 1, 1993 divided by the
total number of shares of Common Stock outstanding on January 1, 1993;
and "n" equals the number of full fiscal years included within such
period.
7. Dividends. Any cash dividends and other cash distributions
that would have been paid on unvested shares of Deferred Stock during the
deferral period, if such shares had been outstanding, shall be automatically
deferred and deemed to be reinvested in additional Deferred Stock, subject to
the same deferral conditions and limitations as the underlying award.
8. Change of Control. Notwithstanding anything herein to the
contrary, in the event of a "Change in Control" as defined in Section 9(b) of
the 1988 Plan or a "Potential Change in Control" as defined in Section 9(c) of
the 1988 Plan, the deferral conditions and limitations applicable to the
Deferred Stock awarded to Recipient shall lapse, and the shares shall be fully
vested.
9. Withholding.
(a) Notwithstanding the provisions of Section 5 of this Agreement,
no unrestricted certificates representing shares of Deferred Stock which have
vested pursuant to the terms hereof shall be issued or caused to be issued by
the Company unless and until the Company withholds or makes arrangements, to
its satisfaction, with the Recipient or any successor in interest, for
withholding the appropriate amount of any taxes that may be required to be
withheld by the Company with respect to such shares.
(b) In order that the Company may satisfy its withholding
obligations with respect to the compensation income resulting from the
termination of deferral conditions on any shares of Deferred Stock, the Company
is authorized and directed as follows:
(i) to withhold from any amounts otherwise payable to the
Recipient or any successors in interest, the amount of taxes with
respect to the income attributable to the Deferred Stock and at such
time or times as may be required to be withheld, including, without
<PAGE> 5
Cliffs Drilling Company
December 31, 1992
Page 5
limitation, taxes required to be withheld by reason of the
compensation required to be reported for Federal income and employment
tax purposes by the Recipient or any successor in interest, by reason
of the expiration of the deferral conditions on the Deferred Stock or
on any disposition of the Deferred Stock, all as determined in good
faith in the sole judgment of the Company;
(ii) if there are no such amounts otherwise payable to the
Recipient or any successors in interest, or if such amounts are
insufficient, the Recipient or successors in interest will reimburse
or indemnify the Company or make provisions satisfactory to the Board
of Directors or Compensation Committee, or to any officer authorized
for that purpose by the Board of Directors or the Compensation
Committee, to reimburse or indemnify the Company for the amounts of
taxes at such time and from time to time, as the Company may make
demand for the reimbursement or indemnity; and
(iii) if and to the extent that in the sole judgment of the Board of
Directors or the Compensation Committee, or any officer authorized for
that purpose by the Board of Directors or the Compensation Committee,
it appears advisable to do so, in order to enforce the Company's
rights under the 1988 Plan and this Agreement, the Company shall not
issue or cause to be issued to the Recipient or to any successor in
interest, any new certificate without a legend referring to the
deferral conditions imposed by the 1988 Plan with respect to the
shares as to which deferral conditions have expired, unless and until
such amounts of taxes have been withheld from amounts otherwise
payable to the Recipient or any successors in interest, or the
Recipient or successor in interest reimburses or indemnifies the
Company for such amounts of such taxes, or makes other provisions for
reimbursement or indemnification to the Company of the taxes
satisfactory in the sole judgment of the Board of Directors or
Compensation Committee, or such officer, exercised in good faith.
(c) The Recipient will not make the election under Section 83(b)
of the Internal Revenue Code of 1986, as amended, to include in income for
Federal income tax purposes the fair market value of all of the shares of
Deferred Stock received by the Recipient, in the year such shares are initially
transferred to the Recipient, where the fair market value is determined for
this purpose without regard to the restrictions, unless the Recipient makes
arrangements satisfactory to the Company for the withholding by the Company by
reason of the election and inclusion in income, or otherwise provides to the
Company in cash, the amounts of the taxes required to be withheld by it, all as
determined by and in the good faith judgment of the Company.
<PAGE> 6
Cliffs Drilling Company
December 31, 1992
Page 6
10. Registration. In order to become entitled to receive a
transfer of the Deferred Stock pursuant to the resolutions under which such
award was made:
(a) the Recipient acknowledges that he has been advised and
understands and agrees that (i) the Deferred Stock will be registered under the
Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form S-8 filed on October 4, 1990, as amended, and
the Recipient has received a copy of the Prospectus governing such
registration; (ii) any routine sale of the shares made in reliance upon Rule
144 of the Act, if so required, can only be made in limited amounts in
accordance with the terms and conditions of that Rule; and (iii) any sale of
the shares shall be subject to the rules and regulations promulgated under
Section 16 of the Securities Exchange Act of 1934, which may require a
six-month holding period in order to avoid short-swing profit/insider trading
liability.
(b) The Recipient agrees that none of the shares will be sold or
otherwise disposed of, nor will any of the same be offered for sale by the
Recipient except pursuant to a currently effective registration statement by
which the shares are duly registered under the Act, or in accordance with an
opinion of counsel satisfactory to the Company, which shall have been approved
by the Company and be to the effect that the contemplated transaction (which
shall be described therein) may be legally effected, and the shares so
transferred may subsequently be resold, without registration under the Act.
11. Employment Rights. Nothing contained herein shall confer upon
the Recipient any right to continued employment with the Company or any
Subsidiary or Affiliate, nor shall it interfere in any way with the right of
the Company or any Subsidiary or Affiliate to terminate the employment of the
Recipient or to adjust the compensation of the Recipient.
12. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the 1988 Plan, unless the context
clearly indicates otherwise.
13. Administration. The Compensation Committee shall have
authority to interpret the provisions of this Deferred Stock Award Agreement
and the 1988 Plan, to adopt, alter and repeal the administrative rules,
guidelines and practice governing the 1988 Plan as it shall, from time to time,
deem advisable, and to otherwise supervise the administration of the 1988 Plan.
All decisions made by the Compensation Committee pursuant to the provisions in
this Deferred Stock Award Agreement shall be made in the Compensation
Committee's sole discretion and shall be final and binding on all persons.
<PAGE> 1
EXHIBIT 10.14.4
THIRD AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO FIRST RESTATED CREDIT AGREEMENT (herein called
this "Amendment") made as of the 23rd day of December, 1993 by and between
Cliffs Drilling Company, a Delaware corporation ("Borrower"), Cliffs Oil and
Gas Company, a Delaware corporation ("COG"), Cliffs Drilling International,
Inc., a Delaware corporation ("CDI"), and Internationale Nederlanden (U.S.)
Capital Corporation ("Lender"),
W I T N E S S E T H:
WHEREAS, Borrower, COG, CDI and Internationale Nederlanden Bank N.V.,
New York Branch (formerly known as NMB Postbank Groep N.V.) (the "Bank")
entered into that certain First Restated Credit Agreement dated as of December
13, 1991, as amended by that certain First Amendment to First Restated Credit
Agreement dated as of July 1, 1992, and that certain Second Amendment to First
Restated Credit Agreement dated as of October 8, 1992 (as so amended, the
"Original Agreement") for the purposes and consideration therein expressed,
pursuant to which Lender became obligated to make loans to Borrower as therein
provided; and
WHEREAS, pursuant to that certain Assignment and Assumption dated as
of September 8, 1993, between the Bank and Lender, the Bank assigned to Lender
all of the Bank's rights, interests and obligations under the Original
Agreement and the Loan Documents; and
WHEREAS, Borrower, COG, CDI and Lender desire to amend the Original
Agreement to provide for the extension of the Revolving Credit Termination
Date;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lender to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
Section 1.1 Terms Defined in the Original Agreement. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
<PAGE> 2
"Amendment" means this Third Amendment to First Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as amended
hereby.
"Original Revolving Credit Note" means the Revolving Credit
Note referred to and defined as such in the Original Agreement.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Defined Terms. The definition of "Revolving Credit
Termination Date" in Section 1.1 of the Original Agreement is hereby amended by
changing each and every reference to the date "January 1, 1994" contained
therein to read "January 1, 1995."
Section 2.2. Revolving Credit Note. Exhibit 1.8 to the Original
Agreement is hereby amended in its entirety to read as set forth in Annex I
attached hereto.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become effective
as of the date first above written when and only when (i) Lender shall have
received, at Lender's office, a counterpart of this Amendment executed and
delivered by Borrower, (ii) Borrower shall have issued and delivered to Lender
a promissory note with appropriate insertions in the form of Annex I attached
hereto payable to the order of Lender on or before January 1, 1995 (such note
being herein called the "Renewal Revolving Credit Note"), and (iii) Lender
shall have additionally received all of the following documents, each document
(unless otherwise indicated) being dated the date of receipt thereof by Lender,
duly authorized, executed and delivered, and in form and substance satisfactory
to Lender:
(a) Officer's Certificate. A certificate of a duly authorized
officer of Borrower to the effect that all of the representations and
warranties set forth in Article IV hereof are true and correct at and
as of the time of such effectiveness.
(b) Supporting Documents. (i) A certificate of the Secretary
of Borrower dated the date of this Amendment certifying that the
resolutions adopted by the Board of Directors of Borrower, as attached
as Exhibit A to that certain Secretary's Certificate of Borrower dated
October 31, 1991 (the "Original Secretary's Certificate") have not
been amended, modified or revoked in any respect and are in full
2
<PAGE> 3
force and effect on the date hereof and authorize the execution,
delivery and performance of this Amendment and the other Amendment
Documents and certifying that attached thereto are the names and
signatures of the officers of Borrower authorized to sign this
Amendment and the other Amendment Documents, and (ii) such supporting
documents as Lender may reasonably request.
(c) Opinion of Counsel for Borrower. A written opinion of
Messrs. Griggs & Harrison, counsel for Borrower, dated as of the date
of this Amendment, addressed to Lender, to the effect that this
Amendment and the Renewal Revolving Credit Note have been duly
authorized, executed and delivered by Borrower, COG and CDI, to the
extent each is a party thereto.
ARTICLE IV.
Representations and Warranties
Section 4.1. Representations and Warranties of Borrower. In order to
induce Lender to enter into this Amendment, Borrower represents and warrants to
Lender that:
(a) The representations and warranties contained in
Subsections 4.1, 4.2, 4.7, 4.21 and 4.31 of Article 4 of the Original
Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Borrower, COG and CDI are each duly authorized to
execute and deliver this Amendment and the Renewal Revolving Credit
Note to the extent each is a party thereto, and Borrower will continue
to be duly authorized to borrow and to perform its obligations under
the Credit Agreement. Borrower, COG and CDI have each duly taken all
corporate action necessary to authorize the execution and delivery of
this Amendment and to authorize the performance of the respective
obligations of Borrower, COG and CDI.
(c) The execution and delivery by Borrower, COG and CDI of
this Amendment and the Renewal Revolving Credit Note, the performance
by Borrower, COG and CDI of their respective obligations hereunder and
thereunder and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with any provision of
law, statute, rule or regulation or of the articles of incorporation
and bylaws of Borrower, COG or CDI, or of any material agreement,
judgment, license, order or permit applicable to or binding upon
Borrower, COG or CDI, or result in the creation of any lien, charge or
encumbrance upon any assets or properties of Borrower, COG or CDI.
Except for those which have been duly obtained, no consent, approval,
authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by
Borrower, COG and CDI of this Amendment and the Renewal Revolving
Credit
3
<PAGE> 4
Note to the extent each is a party thereto, or to consummate the
transactions contemplated hereby and thereby.
(d) When duly executed and delivered, each of this
Amendment, the Credit Agreement and the Renewal Revolving Credit Note
will be a legal and binding instrument and agreement of each of
Borrower, COG and CDI, enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency and similar laws applying
to creditors' rights generally and by principles of equity applying to
creditors' rights generally.
ARTICLE V.
Miscellaneous
Section 5.1. Amendment Documents. Each of Borrower, COG and CDI
hereby agrees, upon request by Lender within ninety (90) days from the date
hereof, to furnish Lender amendments to the deeds of trust, which are recorded
in the State of Texas to reflect of record that (i) the Renewal Revolving
Credit Note is part of the Obligations and (ii) the maturity date of the
Renewal Revolving Credit Note.
Section 5.2. Ratification of Agreements. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. Any reference
to the Credit Agreement in any Loan Document shall be deemed to refer to this
Amendment also. Any reference to the Original Revolving Credit Note in any
Loan Document shall be deemed to be a reference to the Renewal Revolving Credit
Note. The execution, delivery and effectiveness of this Amendment and the
Renewal Revolving Credit Note shall not, except as expressly provided herein or
therein, operate as a waiver of any right, power or remedy of Lender under the
Credit Agreement or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement or any other Loan Document.
Section 5.3. Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower herein shall survive the
execution and delivery of this Amendment and the performance hereof, including
without limitation the making or granting of the Loan and the issuance and
delivery of the Renewal Revolving Credit Note, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by any Related Person
hereunder or under the Credit Agreement to Lender shall be deemed to constitute
representations and warranties by, or agreements and covenants of, such Related
Person under this Amendment and under the Credit Agreement.
Section 5.4. Loan Documents. This Amendment and the Renewal
Revolving Credit Note are each a Loan Document, and all provisions in the
Credit Agreement pertaining to Loan Documents apply hereto and thereto.
4
<PAGE> 5
Section 5.5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING
CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 5.6. Counterparts. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
Section 5.7. AMENDMENT SUPERSEDING. THIS AMENDMENT CONSTITUTES THE
ENTIRE AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS
AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL
AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
5
<PAGE> 6
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
CLIFFS DRILLING COMPANY
By: /s/ EDWARD A. GUTHRIE
__________________________
Edward A. Guthrie
Vice President - Finance
CLIFFS OIL AND GAS COMPANY
By: /s/ EDWARD A. GUTHRIE
__________________________
Edward A. Guthrie
Vice President - Finance
CLIFFS DRILLING
INTERNATIONAL, INC.
By: /s/ EDWARD A. GUTHRIE
__________________________
Edward A. Guthrie
Vice President - Finance
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By: /s/ TROND O. ROKHOLT
__________________________
Trond O. Rokholt
Vice President
6
<PAGE> 7
CONSENT AND AGREEMENT
Cliffs Oil and Gas Company, a Delaware corporation, hereby consents to
the provisions of this Amendment and the transactions contemplated herein
(including without limitation the execution and delivery of the Renewal
Revolving Credit Note), and hereby ratifies and confirms the First Restated
Guaranty dated as of December 13, 1991, made by it for the benefit of Lender,
and agrees that its obligations and covenants thereunder are unimpaired hereby
and shall remain in full force and effect.
CLIFFS OIL AND GAS COMPANY
By: /s/ EDWARD A. GUTHRIE
_____________________________
Edward A. Guthrie
Vice President - Finance
7
<PAGE> 8
CONSENT AND AGREEMENT
Cliffs Drilling International, Inc., a Delaware corporation, hereby
consents to the provisions of this Amendment and the transactions contemplated
herein (including without limitation the execution and delivery of the Renewal
Revolving Credit Note), and hereby ratifies and confirms the First Restated
Guaranty dated as of December 13, 1991 made by it for the benefit of Lender,
and agrees that its obligations and covenants thereunder are unimpaired hereby
and shall remain in full force and effect.
CLIFFS DRILLING INTERNATIONAL, INC.
By: /s/ EDWARD A. GUTHRIE
_______________________________
Edward A. Guthrie
Vice President - Finance
8
<PAGE> 9
ANNEX I
9
<PAGE> 10
REVOLVING CREDIT NOTE
$15,000,000 New York, New York December 23, 1993
FOR VALUE RECEIVED, the undersigned, CLIFFS DRILLING COMPANY, a
Delaware corporation (herein called "Borrower"), hereby promises to pay to the
order of INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION (herein called
"Lender"), the principal sum of Fifteen Million Dollars ($15,000,000) or, if
less, the aggregate unpaid principal amount of the Revolving Credit Loans
outstanding under this Note by Lender to Borrower pursuant to the terms of the
Credit Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of Lender, 135 East 57th Street, New York, New York or at such
other place as from time to time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain First
Restated Credit Agreement dated as of December 13, 1991, between Borrower,
Cliffs Oil and Gas Company ("COG"), Cliffs Drilling International, Inc.("CDI"),
and Internationale Nederlanden Bank N.V. (formerly known as NMB Postbank Groep
N.V.) (the "Bank") as amended by that certain First Amendment to First Restated
Credit Agreement dated as of July 1, 1992, as further amended by that certain
Second Amendment to First Restated Credit Agreement dated as of October 8,
1992, and as further amended by that certain Third Amendment to First Restated
Credit Agreement dated of even date herewith among Borrower, COG, CDI and
Lender, as assignee of the Bank, as so amended and as from time to time further
supplemented, amended or restated, called the "Credit Agreement"), and is the
Revolving Credit Note as defined therein, (b) is subject to the terms and
provisions of the Credit Agreement, which contains provisions for payments and
prepayments hereunder and acceleration of the maturity hereof upon the
happening of certain stated events, and (c) is secured by and entitled to the
benefits of certain Security Instruments (as identified and defined in the
Credit Agreement). Payments on this Note shall be made and applied as provided
herein and in the Credit Agreement. Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Instruments for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto. Pursuant to an Assignment and Assumption dated
as of September 8, 1993, the Bank assigned to Lender all of its rights,
interests and obligations under the Loan Documents. This Note is given in
renewal, extension and restatement of (but not in extinguishment or novation
of) that certain promissory note dated October 8, 1992 made by Borrower payable
to the order of the Bank, in the stated principal amount of $15,000,000, which
note was given in renewal, extension and restatement of (but not in
extinguishment or novation of) that certain promissory note dated December 13,
1991, made by Borrower payable to the order of the Bank in the stated principal
amount of $15,000,000, which note was given in
10
<PAGE> 11
renewal, extension and restatement of (but not in extinguishment or novation
of) that certain promissory note dated October 31, 1991, made by Borrower
payable to the order of the Bank in the stated principal amount of $15,000,000.
For the purpose of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each calendar
quarter, beginning December 31, 1993, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms hereof or
of the Credit Agreement provide that payments of interest or principal hereon
shall be deferred from one Base Rate Payment Date to another day, such other
day shall also be a Base Rate Payment Date.
"Maximum Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, may then be charged on this Note.
If such maximum rate of interest changes after the date hereof, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective time of each change in
such maximum rate.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on January 1, 1995.
The Base Rate Portion of the Revolving Credit Loans (exclusive of any
past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the Base Rate in effect on such day. On
each Base Rate Payment Date Borrower shall pay to the holder hereof all unpaid
interest which has accrued on the Base Rate Portion to but not including such
Base Rate Payment Date. Each Fixed Rate Portion of the Revolving Credit Loan
(exclusive of any past due principal or interest) from time to time outstanding
shall bear interest on each day during the related Interest Period at the
related Fixed Rate in effect on such day. On each Fixed Rate Payment Date
relating to such Fixed Rate Portion Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Fixed Rate Portion to but not
including such Fixed Rate Payment Date. All past due principal of and past due
interest on the Revolving Credit Loan shall bear interest on each day
outstanding at the Default Rate in effect on such day, and such interest shall
be due and payable daily as it accrues. Notwithstanding the foregoing
provisions of this paragraph, if at any time the rate at which interest is
payable on this Note (considering together all portions of the Revolving Credit
Loan and the interest payable thereon) exceeds the Maximum Rate, this Note
shall bear interest at the Maximum Rate only but shall continue to bear
interest at the Maximum Rate until such time as the total amount of interest
accrued hereon equals (but does not exceed) the total amount of interest which
would have accrued hereon had there been no Maximum Rate applicable hereto.
11
<PAGE> 12
Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how
interest accrues hereon.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment, notice of demand and of dishonor
and nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY APPLICABLE FEDERAL LAW.
CLIFFS DRILLING COMPANY
By: /s/ EDWARD A. GUTHRIE
____________________________
Edward A. Guthrie
Vice President - Finance
12
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
1. CLIFFS DRILLING INTERNATIONAL, INC., a Delaware Corporation wholly
owned by Cliffs Drilling Company.
2. CLIFFS OIL AND GAS COMPANY, A Delaware corporation wholly owned by
Cliffs Drilling Company (f/k/a Cliffs Exploration Company, f/k/a
Cliffs Offshore, Inc.)
3. CLIFFS DRILLING VENEZUELA, INC., a Delaware corporation wholly owned
by Cliffs Drilling Company.
4. CLIFFS DRILLING DE VENEZUELA, S.A., a Venezuelan corporation wholly
owned by Cliffs Drilling Company.
5. CLIFFS OIL AND GAS INTERNATIONAL, N.V., a Curacao-Netherlands Antilles
corporation wholly owned by Cliffs Drilling International, Inc.
6. CLIFFS DRILLING COMPANY, N.V., a Curacao-Netherlands Antilles
corporation wholly owned by Cliffs Drilling International, Inc.
7. CLIFFS DRILLING INTERNATIONAL, N.V., a Curacao-Netherlands Antilles
corporation wholly owned by Cliffs Drilling International, Inc.
8. CLIFFS NEDDRILL TURNKEY INTERNATIONAL, a joint venture between Cliffs
Drilling International, Inc. and Neddrill Turnkey Drilling B.V., in
which Cliffs Drilling International, Inc. owns a fifty percent (50.0%)
interest.
9. CLIFFS DRILLING DE MEXICO, S.A. DE C.V., a Mexican corporation wholly
owned by Cliffs Drilling International, Inc.
10. CLIFFS NEDDRILL CENTRAL TURNKEY INTERNATIONAL, a joint venture among
Cliffs Drilling International, Inc., Neddrill Turnkey Drilling B.V.
and Perforadora Central, S.A. de C.V., in which Cliffs Drilling
International, Inc. owns a one-third (33 1/3%) interest.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-29915, 33-37163/33-37162, and 33-71778)
pertaining to the 1988 Incentive Equity Plan of Cliffs Drilling Company
of our report dated February 23, 1994, with respect to
the consolidated financial statements and schedules of Cliffs Drilling Company
included in the Annual Report (Form 10-K) for the year ended December 31, 1993.
/s/ ERNST & YOUNG
Houston, Texas
March 4, 1994
<PAGE> 1
EXHIBIT 23.2
CONSENT OF HUDDLESTON & CO., INC.
We hereby consent to the incorporation by reference in Cliffs Drilling
Company's Registration Statements on Form S-8 (Nos. 33-29915,
33-37163/33-37162, and 33-71778) and in the related prospectuses of our report
dated January 1, 1994, with respect to the excerpts and estimates of Cliffs Oil
and Gas Company in the Annual Report on Form 10-K for the year ended December
31, 1993, and to the use of our name, and the statements with respect to us,
under the caption "Experts".
HUDDLESTON & CO., INC.
By: /s/ B.P. HUDDLESTON
____________________________
B.P. Huddleston
Chairman
Houston, Texas
March 3, 1994
