<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-16703
CLIFFS DRILLING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0248934
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 651-9426
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Number of shares of Common Stock outstanding as of November 3, 1995: 4,109,000
(Exhibit Index Located on Page 16)
Page 1 of 17 Pages
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CLIFFS DRILLING COMPANY
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Statements of Operations (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets -
CLIFFS DRILLING COMPANY
September 30, 1995 (Unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Nine Months Ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
1995 1994 1995 1994
--------- ---------- ---------- ----------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,252 $ 24,397 $ 48,987 $ 56,352
Income (Loss) from Equity Investments . . . . . . . . . . . . . . . (216) 1,153 (716) 2,222
--------- ---------- ---------- ----------
20,036 25,550 48,271 58,574
COSTS AND EXPENSES:
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . 16,335 16,781 38,089 31,931
Depreciation, Depletion and Amortization . . . . . . . . . . . . . 1,473 3,571 4,929 10,671
Contract Termination Provision . . . . . . . . . . . . . . . . . . -- 1,816 -- 5,193
General and Administrative Expense . . . . . . . . . . . . . . . . 1,311 1,379 3,928 3,898
--------- ---------- ---------- ----------
19,119 23,547 46,946 51,693
--------- ---------- ---------- ----------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 917 2,003 1,325 6,881
OTHER INCOME (EXPENSE):
Gain (Loss) on Disposition of Assets . . . . . . . . . . . . . . . (6) 81 (47) 617
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . 216 197 782 574
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . (77) (233) (142) (656)
Exchange Rate Gain (Loss) . . . . . . . . . . . . . . . . . . . . . 1,083 (119) 1,385 (1,114)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 (203) (662) (866)
--------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . 2,194 1,726 2,641 5,436
INCOME TAX EXPENSE (BENEFIT) . . . . . . . . . . . . . . . . . . . . 548 (278) 660 494
--------- ---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,646 2,004 1,981 4,942
DIVIDENDS APPLICABLE TO PREFERRED STOCK . . . . . . . . . . . . . . . (665) (665) (1,995) (1,995)
--------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON AND
COMMON EQUIVALENT SHARES . . . . . . . . . . . . . . . . . . . . . $ 981 $ 1,339 $ (14) $ 2,947
========= ========== ========== ==========
NET INCOME PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.32 $ 0.00 $ 0.69
========= ========== ========== ==========
Assuming Full Dilution . . . . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.32 $ 0.00 $ 0.69
========= ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,114 4,128 4,102 4,260
========= ========== ========== ==========
Assuming Full Dilution . . . . . . . . . . . . . . . . . . . . . . 4,114 4,128 4,102 4,260
========= ========== ========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
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CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------- --------------
(Unaudited)
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 761 $ 11,320
Accounts Receivable, net of allowance for doubtful accounts of $407 and
$408 at September 30, 1995 and December 31, 1994, respectively . . . . 11,449 8,499
Notes and Other Receivables -- Current . . . . . . . . . . . . . . . . . . 2,603 2,366
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,531 5,726
Drilling Contracts in Progress . . . . . . . . . . . . . . . . . . . . . . 16,149 5,074
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818 577
Other Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,439 5,486
-------------- --------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 39,750 39,048
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment . . . . . . . . . . . . . . . . . . . . . . . . 159,096 148,085
Oil and Gas Properties ("successful efforts" method) . . . . . . . . . . . 23,453 22,699
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,141 3,079
-------------- --------------
185,690 173,863
Less: Accumulated Depreciation, Depletion and Amortization . . . . . . . . (107,429) (102,615)
-------------- --------------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . . 78,261 71,248
NOTES AND OTHER RECEIVABLES LONG-TERM . . . . . . . . . . . . . . . . . . . . 4,636 5,017
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES . . . . . . . . . . 420 4,036
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564 818
-------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,631 $ 120,167
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,382 $ 14,808
Accrued Expenses, Including Interest . . . . . . . . . . . . . . . . . . . 4,665 4,909
-------------- --------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . 23,047 19,717
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 516
DEFERRED INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 303
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 September 30, 1995
and December 31, 1994, respectively ($28,750 liquidation value) . . . . . 28,750 28,750
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 15,000,000 shares authorized; 4,518,104 shares
issued and 4,106,951 and 4,089,447 shares outstanding at
September 30, 1995 and December 31, 1994, respectively 45 45
Paid-In Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,169 99,135
Retained Earnings (Deficit) . . . . . . . . . . . . . . . . . . . . . . . . (22,909) (22,895)
Less: Notes Receivable from Officers for Restricted Stock . . . . . . . . (232) (232)
Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . (38) (57)
Treasury Stock, at cost, 411,153 and 428,657 shares at
September 30, 1995 and December 31, 1994, respectively . . . . . . (4,913) (5,115)
-------------- --------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . 71,122 70,881
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . $ 123,631 $ 120,167
============== ==============
</TABLE>
See accompanying notes to interim consolidated financial statements.
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<PAGE> 5
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1995 1994 1995 1994
---------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,646 $ 2,004 $ 1,981 $ 4,942
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization . . . . . . . . . . . . . 1,473 3,571 4,929 10,671
Contract Termination Provision . . . . . . . . . . . . . . . . . . -- 1,816 -- 5,193
Mobilization Expense Amortization . . . . . . . . . . . . . . . . . 131 129 388 398
(Gain) Loss on Disposition of Assets . . . . . . . . . . . . . . . 6 (81) 47 (617)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31) (130) 84 (330)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . (1,707) 1,147 (4,187) 1,583
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 (254) 1,195 (3,940)
Drilling Contracts in Progress . . . . . . . . . . . . . . . . . (5,436) 2,562 (11,069) (7,786)
Prepaid Expenses and Other Current Assets . . . . . . . . . . . . 667 (300) 1,672 (1,678)
Investments in and Advances to Unconsolidated Affiliates . . . . 3,666 (4,052) 3,616 (4,221)
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . -- (185) -- (987)
Accounts Payable and Other Accrued Liabilities . . . . . . . . . 2,545 (2,600) 3,579 5,025
---------- ----------- ---------- ----------
Net Cash Provided By Operating Activities . . . . . . . . . . . 3,032 3,627 2,235 8,253
INVESTING ACTIVITIES:
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . (2,529) (1,654) (12,397) (8,109)
Proceeds from Sale of Property and Equipment . . . . . . . . . . . . 14 1,276 217 1,349
Collection of Notes Receivable . . . . . . . . . . . . . . . . . . . 144 256 1,381 846
---------- ----------- ---------- ----------
Net Cash Used In Investing Activities . . . . . . . . . . . . (2,371) (122) (10,799) (5,914)
FINANCING ACTIVITIES:
Proceeds from Borrowings . . . . . . . . . . . . . . . . . . . . . . 1,000 6,500 3,000 17,000
Payments on Borrowings . . . . . . . . . . . . . . . . . . . . . . . (3,000) (7,162) (3,000) (19,737)
Acquisition of Treasury Stock . . . . . . . . . . . . . . . . . . . . -- (698) -- (4,618)
Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . (665) (665) (1,995) (1,995)
---------- ----------- ---------- ----------
Net Cash Used In Financing Activities . . . . . . . . . . . . . . (2,665) (2,025) (1,995) (9,350)
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . (2,004) 1,480 (10,559) (7,011)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . 2,765 2,124 11,320 10,615
---------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 761 $ 3,604 $ 761 $ 3,604
========== =========== ========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
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CLIFFS DRILLING COMPANY
Notes to Interim Consolidated Financial Statements (Unaudited)
September 30, 1995
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) necessary to present a
fair statement of the results for the periods included herein have been made
and the disclosures contained herein are adequate to make the information
presented not misleading. Operating results for the three and nine months ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1994.
2. EARNINGS PER SHARE
Primary earnings per share computations are based on net income 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 periods. 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 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.
3. PROPERTY AND EQUIPMENT
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage during
demobilization from Venezuela to the U.S. Gulf of Mexico. During an inspection
of the hull damage by the Company and its insurance adjusters, other damage was
discovered which has been attributed to an earthquake in Venezuela in May,
1994. The Company and its underwriters are currently assessing the damage. The
Company has insurance to cover repair of the damage resulting from these
incidents.
4. SUBSEQUENT EVENT
Subsequent to September 30, 1995, the Company drew $4.0 million under its
revolving line of credit to fund its working capital requirements.
5. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior year to
make them conform with the current year presentation.
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ITEM 2. 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 shown signs of improvement over the last two years due to various market
consolidations. The financial condition and results of operations of the
Company and other drilling contractors are dependent upon the price of oil and
natural gas, as demand for their services is primarily dependent upon the level
of spending by oil and gas companies for exploration, development and
production activities. Crude oil and natural gas prices have continued to
fluctuate over the last two years. This price volatility creates an uncertain
domestic market and competition, therefore, remains intense within the contract
drilling industry.
The Company has endeavored to mitigate the effect of volatile product pricing
by diversifying its scope of operations beyond the 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
Three Months Ended September 30, 1995 and 1994
The Company recognized net income, before preferred dividends, of $1.6 million
during the third quarter of 1995 compared to net income of $2.0 million in the
third quarter of 1994. Operating income decreased $1.1 million in the third
quarter of 1995 compared to the same period in 1994. The decrease in operating
income was primarily due to a reduction in daywork drilling operating income of
$1.8 million, partially offset by an increase in engineering services operating
income of $.3 million, an increase in MOPU operating income of $.2 million, a
reduction in oil and gas operating losses of $.1 million, and a reduction in
corporate overhead of $.1 million.
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
------------- ------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . $ -- $ 4 $ (4)
Foreign . . . . . . . . . . . . . . . . . . . 4,806 9,459 (4,653)
Engineering Services . . . . . . . . . . . . . . . 16,108 12,327 3,781
MOPU Operations . . . . . . . . . . . . . . . . . . 1,318 4,281 (2,963)
Oil and Gas . . . . . . . . . . . . . . . . . . . . 359 603 (244)
Eliminations . . . . . . . . . . . . . . . . . . . (2,555) (1,124) (1,431)
------------- ------------- -------------
Consolidated . . . . . . . . . . . . . . . . $ 20,036 $ 25,550 $ (5,514)
============= ============= =============
Operating Income (Loss):
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . . . $ -- $ 76 $ (76)
Foreign . . . . . . . . . . . . . . . . . . . . 588 2,268 (1,680)
Engineering Services . . . . . . . . . . . . . . . . 836 490 346
MOPU Operations . . . . . . . . . . . . . . . . . . . 811 620 191
Oil and Gas . . . . . . . . . . . . . . . . . . . . . 17 (128) 145
Corporate Office . . . . . . . . . . . . . . . . . . (1,335) (1,393) 58
Eliminations . . . . . . . . . . . . . . . . . . . . -- 70 (70)
------------- ------------- -------------
Consolidated . . . . . . . . . . . . . . . . . $ 917 $ 2,003 $ (1,086)
============= ============= =============
</TABLE>
7
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Daywork Drilling
Domestic daywork drilling operating results reflect the Company's strategy to
diversify away from the volatile domestic market. The Company mobilized the
balance of its land rig fleet to Venezuela during the first quarter of 1994.
Foreign daywork drilling operating income decreased $1.7 million during the
third quarter of 1995 compared to the third quarter of 1994. Foreign daywork
drilling operating results reflect decreased operating income primarily due to
the stacking of one of the Company's jack-up drilling rigs which completed
operations in Mexico during the fourth quarter of 1994 for Cliffs Neddrill
Central Turnkey International ("CNCTI"), a joint venture in which the Company
holds a one-third ownership interest, and the expiration of the contracts on
the Company's 2 jack-up drilling rigs which worked in Venezuela. The Company's
2 jack-up drilling rigs which operated in Venezuela continued drilling
operations through April on a well-to-well basis at reduced dayrates from those
received in 1994. Subsequent to expiration of the contracts, one of the
jack-up rigs was demobilized to the U.S. Gulf of Mexico. The other jack-up rig
was demobilized to an offshore location outside Venezuela and contracted to
drill a turnkey well. The turnkey portion of the well was completed during the
third quarter of 1995, and the rig is currently working on a daywork basis.
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage during
demobilization from Venezuela to the U.S. Gulf of Mexico. During an inspection
of the hull damage by the Company and its insurance adjusters, other damage was
discovered which has been attributed to an earthquake in Venezuela in May,
1994. The Company and its underwriters are currently assessing the damage. The
Company has insurance to cover repair of the damage resulting from these
incidents. See "Liquidity and Capital Resources."
Contracts on 2 of the 5 land drilling rigs working for Corpoven S.A.
("Corpoven") have been extended for one year into September, 1996 at increased
dayrates. The other 3 land drilling rigs have contracts or agreements which
extend into February, 1997. The Company acquired, renovated and mobilized an
additional land rig to Venezuela which began drilling operations on the first
of 2 wells during September, 1995.
Engineering Services
Engineering services revenues increased $3.8 million in the third quarter of
1995 compared to the third quarter of 1994, while operating income increased
$.3 million during the same period. Four turnkey drilling contracts were
completed during the third quarter of 1995 compared to 6 turnkey drilling
contracts completed during the same period in 1994. Operating income of $.8
million reported in the third quarter of 1995 included an accrual of $1.0
million for expected losses on 2 turnkey drilling contracts in progress at
September 30, 1995. Two of the turnkey wells which were completed during the
third quarter in 1994 were drilled by CNCTI and recorded under the equity
method. In addition, one of the turnkey wells which was completed during the
third quarter of 1994 was drilled by Cliffs-Neddrill Turnkey International
("CNTI"), a 50/50 joint venture between the Company and Neddrill Nederland B.V.
of the Netherlands, and recorded under the equity method.
At September 30, 1995, the Company had 3 turnkey wells in progress in Venezuela
and 4 additional turnkey wells in progress in the United States.
MOPU Operations
MOPU revenues decreased $3.0 million in the third quarter of 1995 compared to
the third quarter of 1994. MOPU operating income increased $.2 million during
the same period. The decrease in revenues was primarily due to the expiration
in May, 1994 and September, 1994 of the two-year contracts on the 3 MOPUs which
worked in Venezuela. The 3 MOPUs which worked in Venezuela contributed revenues
of $3.2 million and an operating loss of $.2 million during the third quarter of
1994. One of the 3 MOPUs was demobilized to the United States during the second
quarter of 1994 and is currently being marketed. In the fourth quarter of 1994,
the charterer exercised
8
<PAGE> 9
options to purchase the other 2 MOPUs, which worked in Venezuela, for a total
of $4.0 million. See "Liquidity and Capital Resources."
The contract for MARLIN No. 4, which was operating in the Gulf of Mexico,
expired at the end of April, 1994. The Company renovated the unit during the
third quarter of 1994 and secured a contract for operations which commenced in
the second quarter of 1995. The option for a two-year contract on another MOPU,
Cliffs No. 10, was terminated by the charterer effective August 31, 1995. The
supply unit completed operations in the Bay of Campeche, Mexico during the third
quarter of 1995 and was demobilized to the U.S. Gulf of Mexico.
Oil and Gas
Oil and gas revenues decreased $.2 million in the third quarter of 1995 compared
to the third quarter of 1994, primarily due to reduced gas revenues resulting
from production declines and lower gas prices during the third quarter of 1995
compared to the same period in 1994. The Company recognized operating income
during the same period, primarily due to a reduction in depreciation, depletion
and amortization and operating expenses, partially offset by the decrease in
revenues.
Corporate Overhead
Corporate overhead was held constant during the third quarter of 1995 compared
to the third quarter of 1994.
Other Income (Expense)
The Company recognized $.7 million of other income during the third quarter of
1995. The net increase of $.7 million in other income from the third quarter of
1994 to the same period in 1995 resulted primarily from an increase in exchange
rate gains of $1.2 million, partially offset by an increase in income taxes of
$.8 million. See "Liquidity and Capital Resources."
9
<PAGE> 10
Nine Months Ended September 30, 1995 and 1994
The Company recognized net income, before preferred dividends, of $2.0 million
during the first nine months of 1995 compared to net income of $4.9 million in
the first nine months of 1994. Operating income decreased $5.6 million in the
first nine months of 1995 compared to the same period in 1994. The decrease in
operating income was primarily due to a reduction in foreign daywork drilling
operating income of $3.8 million, a reduction in MOPU operating income of $2.0
million, a reduction in engineering services operating income of $.1 million
and an increase in corporate overhead of $.1 million, offset in part by a
reduction in oil and gas operating losses of $.4 million.
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
-------------- --------------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . $ -- $ 19 $ (19)
Foreign . . . . . . . . . . . . . . . . . . . 19,783 25,019 (5,236)
Engineering Services . . . . . . . . . . . . . 28,301 18,798 9,503
MOPU Operations . . . . . . . . . . . . . . . . 3,793 14,870 (11,077)
Oil and Gas . . . . . . . . . . . . . . . . . . 1,150 1,968 (818)
Eliminations . . . . . . . . . . . . . . . . . (4,756) (2,100) (2,656)
------------- ------------- ------------
Consolidated . . . . . . . . . . . . . . . . $ 48,271 $ 58,574 $ (10,303)
============= ============= ============
Operating Income (Loss):
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . $ -- $ 14 $ (14)
Foreign . . . . . . . . . . . . . . . . . . . 2,104 5,878 (3,774)
Engineering Services . . . . . . . . . . . . . 1,576 1,655 (79)
MOPU Operations . . . . . . . . . . . . . . . . 1,768 3,817 (2,049)
Oil and Gas . . . . . . . . . . . . . . . . . . (123) (531) 408
Corporate Office . . . . . . . . . . . . . . . (4,000) (3,952) (48)
------------- ------------- ------------
Consolidated . . . . . . . . . . . . . . . . $ 1,325 $ 6,881 $ (5,556)
============= ============= ============
</TABLE>
Daywork Drilling
Domestic daywork drilling operating results reflect the Company's strategy to
diversify away from the volatile domestic market. The Company mobilized the
balance of its land rig fleet to Venezuela during the first quarter of 1994.
Foreign daywork drilling revenues decreased $5.2 million during the first nine
months of 1995 compared to the first nine months of 1994 while operating income
decreased $3.8 million during the same period. Foreign daywork drilling
operating results reflect decreased revenues and operating income primarily due
to the stacking of one of the Company's jack-up drilling rigs which completed
operations in Mexico during the fourth quarter of 1994 for CNCTI. The
Company's 2 jack-up drilling rigs operating in Venezuela continued drilling
operations through April on a well-to-well basis at reduced dayrates from those
received in 1994. Subsequent to expiration of the contracts, one of the
jack-up rigs was demobilized to the U.S. Gulf of Mexico. The other jack-up rig
was demobilized to an offshore location outside Venezuela and contracted to
drill a turnkey well. The turnkey portion of the well was completed during the
third quarter of 1995, and the rig is currently working on a daywork basis.
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage during
demobilization from Venezuela to the U.S. Gulf of Mexico. During an inspection
of the hull damage by the Company and its insurance adjusters, other damage was
discovered which has been attributed to an earthquake in Venezuela in May,
1994. The Company and its underwriters are currently assessing the damage. The
Company has insurance to cover repair of the damage resulting from these
incidents. See "Liquidity and Capital Resources."
10
<PAGE> 11
Contracts on 2 of the 5 land drilling rigs working for Corpoven have been
extended for one year into September, 1996 at increased dayrates. The other 3
land drilling rigs have contracts or agreements which extend into February,
1997. The Company acquired, renovated and mobilized an additional land rig to
Venezuela which began drilling operations on the first of 2 wells during
September, 1995.
Engineering Services
Engineering services revenues increased $9.5 million in the first nine months of
1995 compared to the first nine months of 1994, while operating income decreased
$.1 million during the same period. Seven turnkey drilling contracts were
completed during the first nine months of 1995 compared to 10 turnkey drilling
contracts completed during the same period in 1994. Operating income for the
first nine months of 1995 included $1.3 million of losses incurred on 2
completed turnkey drilling contracts and an accrual of $1.0 million for expected
losses on 2 turnkey drilling contracts in progress at September 30, 1995. One
of the turnkey wells which was completed during the first nine months of 1995
and 4 of the turnkey wells which were completed during the same period in 1994
were drilled by CNCTI and recorded under the equity method. In addition, one of
the turnkey wells which was completed during the first nine months of 1994 was
drilled by CNTI and recorded under the equity method.
At September 30, 1995, the Company had 3 turnkey wells in progress in Venezuela
and 4 additional turnkey wells in progress in the United States.
MOPU Operations
MOPU revenues decreased $11.1 million in the first nine months of 1995 compared
to the first nine months of 1994. MOPU operating income decreased $2.0 million
during the same period. The decrease in revenues and operating income was
primarily due to the expirations in May and September, 1994 of the two-year
contracts on the 3 MOPUs which worked in Venezuela. The 3 MOPUs which worked in
Venezuela contributed revenues of $11.8 million and operating income of $1.8
million during the first nine months of 1994. One of the 3 MOPUs was
demobilized to the United States during the second quarter of 1994 and is
currently being marketed. In the fourth quarter of 1994, the charterer
exercised options to purchase the other 2 MOPUs, which worked in Venezuela, for
a total of $4.0 million. See "Liquidity and Capital Resources."
The contract for MARLIN No. 4, which was operating in the Gulf of Mexico,
expired at the end of April, 1994. The Company renovated the unit during the
third quarter of 1994 and secured a contract for operations which commenced in
the second quarter of 1995. The option for a two-year contract on another MOPU,
Cliffs No. 10, was terminated by the charterer effective August 31, 1995. The
supply unit completed operations in the Bay of Campeche, Mexico during the third
quarter of 1995 and was demobilized to the U.S. Gulf of Mexico.
Oil and Gas
Oil and gas revenues decreased $.8 million during the first nine months of 1995
compared to the same period in 1994, primarily due to reduced gas revenues
resulting from production declines and lower gas prices during the first nine
months of 1995 compared to the same period in 1994. Operating losses decreased
$.4 million during the same period, primarily due to a reduction in
depreciation, depletion and amortization and operating expenses, partially
offset by the decrease in revenues.
Corporate Overhead
Corporate overhead increased slightly during the first nine months of 1995
compared to the same period in 1994, due primarily to employment related costs.
11
<PAGE> 12
Other Income (Expense)
The Company recognized $.7 million of other income during the first nine months
of 1995 compared to $1.9 million of other expense during the same period in
1994. The net decrease in other expense resulted primarily from an increase in
exchange rate gains of $2.5 million. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $10.5 million from $11.3
million at December 31, 1994 to $.8 million at September 30, 1995. The
decrease resulted from $12.4 million used to fund capital expenditures and $2.0
million used for payments of preferred stock dividends, partially offset by
$2.3 million provided by operations and $1.6 million received from the
collection of notes receivable and the sale of property and equipment.
Cash of $2.3 million provided by operating activities included $5.2 million
used for working capital and other requirements, primarily the funding of the
Company's engineering services operations. "Accounts Receivable" increased
primarily due to the completion of a turnkey well in Venezuela at the end of
the third quarter of 1995. "Drilling Contracts in Progress" and "Accounts
Payable" increased from December 31, 1994 to September 30, 1995 due primarily
to the Company's domestic and Venezuelan turnkey operations. "Other Prepaid
Expenses" decreased from December 31, 1994 to September 30, 1995 due primarily
to the sale of Venezuelan tax deposits in the first quarter. "Investments in
and Advances to Unconsolidated Affiliates" decreased from December 31, 1994 to
September 30, 1995 due primarily to distributions received from CNCTI.
Cash was used during the first nine months of 1995 to fund $12.4 million of
capital expenditures, which primarily related to the purchase and renovation of
a 3000 HP land rig, Cliffs Drilling Rig 54, for an initial contract to drill 2
wells on a daywork basis in Venezuela. The contract commenced during the third
quarter of 1995. The Company has plans for other capital expenditures totaling
approximately $2.0 million during the last three months of 1995. The Company
intends to fund these remaining capital expenditure requirements with
internally-generated cash flow and amounts currently available under its
revolving line of credit.
Two of the Company's jack-up drilling rigs operating in Venezuela continued
drilling operations through April, 1995 on a well-to-well basis at reduced
dayrates from those received in 1994. Subsequent to expiration of the
contracts, one of the jack-up rigs was demobilized to the U.S. Gulf of Mexico.
The other jack-up rig was demobilized to an offshore location outside Venezuela
and contracted to drill a turnkey well. The turnkey portion of the well was
completed during the third quarter of 1995, and the rig is currently working
on a daywork basis. On July 2, 1995, the jack-up drilling rig MARQUETTE
suffered hull damage during demobilization from Venezuela to the U.S. Gulf of
Mexico. During an inspection of the hull damage by the Company and its
insurance adjusters, other damage was discovered which has been attributed to
an earthquake in Venezuela in May, 1994. The Company and its underwriters are
currently assessing the damage. The Company has insurance to cover repair of
the damage resulting from these incidents.
The LANGLEY, one of 3 MOPUs which worked in Venezuela, ended its two-year
contract in May, 1994, and the contract was not extended. The rig was
demobilized back to the United States, and the demobilization costs were
reimbursed to the Company by the charterer. Each of the 2 remaining MOPUs
which worked in Venezuela had initial contract terms of two years which expired
in September, 1994, subject to certain buyout options. The charterer exercised
its option to purchase the 2 remaining MOPUs effective December, 1994 for total
proceeds of $4.0 million.
Approximately 75% of the Company's revenues and a substantial portion of its
operating income were sourced from its Venezuelan operations during the first
nine months of 1995. 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
contracts. Exchange losses increased substantially in 1994 due to significant
devaluation of the
12
<PAGE> 13
Venezuelan Bolivar during the second quarter of 1994. Venezuela instituted
currency exchange controls during June, 1994 in response to this devaluation.
These exchange controls continue in effect and have substantially eliminated
exchange losses attributable to the Company's Venezuelan operations during the
first nine months of 1995. However, the Company continues to be exposed to
future foreign currency losses if the currency becomes volatile. Despite the
political and economic risks in Venezuela, the Company believes that the country
continues to be a favorable market for its services.
During March, 1995, the Company sold 500 million Bolivars of Venezuelan tax
deposits at a 17.5% discount and received $2.4 million in equivalent Bolivars,
resulting in an exchange loss of $.5 million. This loss is offset by $2.0
million in gains recorded in connection with currency swaps and Venezuela Brady
Bond transactions. The effects of these transactions are reported as "Exchange
Rate Gain (Loss)" in the Consolidated Statements of Operations.
The Company's $20.0 million revolving line of credit agreement with
Internationale Nederlanden (U.S.) Capital Corporation ("INCC") matures on
January 1, 1996 and is expected to be renewed prior to its expiration. As of
September 30, 1995, the Company had no outstanding balance on the revolving line
of credit with INCC. Subsequent to September 30, 1995, the Company drew $4.0
million under its revolving line of credit to fund its working capital
requirements.
The Company from time to time purchases its Common Stock in the open market.
During 1994, the Company purchased 427,000 shares of its Common Stock at an
aggregate purchase price of $5.1 million, or approximately $11.93 per share.
Management of the Company believes that the Common Stock is trading at prices
which do not reflect the value of the Company and has determined that the
acquisition of such stock would be in the best interest of the Company and its
shareholders. All of the acquired shares are held as Common Stock in treasury,
less shares issued under certain benefit plans. No treasury stock was purchased
during the first nine months of 1995.
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.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLIFFS DRILLING COMPANY
Date: November 3, 1995 By: /s/ Edward A. Guthrie
------------------------------ ------------------------------------
Edward A. Guthrie
Vice President - Finance
Date: November 3, 1995 By: /s/ Cindy B. Taylor
------------------------------ ------------------------------------
Cindy B. Taylor
Corporate Controller
15
<PAGE> 16
EXHIBIT INDEX
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations and the Consolidated Balance Sheets and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 761
<SECURITIES> 0
<RECEIVABLES> 14,459
<ALLOWANCES> 407
<INVENTORY> 4,531
<CURRENT-ASSETS> 39,750
<PP&E> 185,690
<DEPRECIATION> 107,429
<TOTAL-ASSETS> 123,631
<CURRENT-LIABILITIES> 23,047
<BONDS> 0
<COMMON> 45
28,750
0
<OTHER-SE> 71,077
<TOTAL-LIABILITY-AND-EQUITY> 123,631
<SALES> 48,271
<TOTAL-REVENUES> 48,271
<CGS> 38,089
<TOTAL-COSTS> 46,946
<OTHER-EXPENSES> (1,458)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 2,641
<INCOME-TAX> 660
<INCOME-CONTINUING> 1,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,981
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
