<PAGE> 1
================================================================================
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 March 31, 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 April 27, 1995: 4,095,525
(Exhibit Index Located on Page 13)
Page 1 of 14 Pages
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<PAGE> 2
CLIFFS DRILLING COMPANY
Form 10-Q
For the Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations (Unaudited) -
CLIFFS DRILLING COMPANY
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . 3
Consolidated Balance Sheets -
CLIFFS DRILLING COMPANY
March 31, 1995 (Unaudited) and December 31, 1994. . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three Months Ended March 31, 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 . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1995 1994
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
REVENUES:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,278 $ 16,480
Income (Loss) from Equity Investments . . . . . . . . . . . . . . . . . . . . . 4 (3)
--------- ---------
14,282 16,477
COSTS AND EXPENSES:
Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,429 7,670
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . . . . . 2,073 3,587
Contract Termination Provision . . . . . . . . . . . . . . . . . . . . . . . . . - 1,615
Exploration Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 21
General and Administrative Expense . . . . . . . . . . . . . . . . . . . . . . . 1,352 1,251
--------- ---------
12,864 14,144
--------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418 2,333
OTHER INCOME (EXPENSE):
Gain (Loss) on Disposition of Assets . . . . . . . . . . . . . . . . . . . . . 7 (54)
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 215
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) (161)
Exchange Rate Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (126) (212)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (68) (428)
--------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,493 1,693
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 273
--------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120 1,420
DIVIDENDS APPLICABLE TO PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . (665) (665)
--------- ---------
NET INCOME APPLICABLE TO COMMON AND
COMMON EQUIVALENT SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 455 $ 755
========= =========
NET INCOME PER SHARE:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.17
========= =========
Assuming Full Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.11 $ 0.17
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,092 4,461
========= =========
Assuming Full Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,092 4,461
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE> 4
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 4,470 $ 11,320
Accounts Receivable, net of allowance for doubtful accounts of
$408 at March 31, 1995 and December 31, 1994, respectively . . . . . . 13,556 8,499
Notes and Other Receivables - Current . . . . . . . . . . . . . . . . . . 3,371 2,366
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,284 5,726
Drilling Contracts in Progress . . . . . . . . . . . . . . . . . . . . . 6,643 5,074
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,440 577
Other Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 2,928 5,486
------------- -------------
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . 37,692 39,048
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment . . . . . . . . . . . . . . . . . . . . . . . 150,681 148,085
Oil and Gas Properties ("successful efforts" method) . . . . . . . . . . 22,849 22,699
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,114 3,079
------------- -------------
176,644 173,863
Less: Accumulated Depreciation, Depletion and Amortization . . . . . . . (104,748) (102,615)
------------- -------------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . . 71,896 71,248
NOTES AND OTHER RECEIVABLES - LONG-TERM . . . . . . . . . . . . . . . . . . 4,889 5,017
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES . . . . . . . . . 2,640 4,036
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 692 818
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,809 $ 120,167
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,500 $ 14,808
Accrued Expenses, Including Interest . . . . . . . . . . . . . . . . . . 4,370 4,909
------------- -------------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . 16,870 19,717
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481 516
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 March 31, 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 4,094,424 and 4,089,447 shares outstanding at
March 31, 1995 and December 31, 1994, respectively . . . . . . . . . . 45 45
Paid-In Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,140 99,135
Retained Earnings (Deficit) . . . . . . . . . . . . . . . . . . . . . . . (22,440) (22,895)
Less: Notes Receivable from Officers for Restricted Stock . . . . . . . (232) (232)
Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . (50) (57)
Treasury Stock, at cost, 423,680 and 428,657 shares at March 31,
1995 and December 31, 1994, respectively . . . . . . . . . . . . (5,058) (5,115)
------------- -------------
Total Shareholders' Equity . . . . . . . . . . . . . . . . . . . . 71,405 70,881
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . $ 117,809 $ 120,167
============= =============
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE> 5
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,120 $ 1,420
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . . . 2,073 3,587
Contract Termination Provision . . . . . . . . . . . . . . . . . . . . . . . - 1,615
Mobilization Expense Amortization . . . . . . . . . . . . . . . . . . . . . . 127 160
(Gain) Loss on Disposition of Assets . . . . . . . . . . . . . . . . . . . . (7) 54
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (205)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,062) (3,624)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 (629)
Drilling Contracts in Progress . . . . . . . . . . . . . . . . . . . . . . (1,568) (759)
Prepaid Expenses and Other Current Assets . . . . . . . . . . . . . . . . . 1,695 (683)
Investments in and Advances to Unconsolidated Affiliates . . . . . . . . . 1,396 1,675
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (1,147)
Accounts Payable and Other Accrued Liabilities . . . . . . . . . . . . . . (2,760) 2,517
------------ ------------
Net Cash Provided By (Used In) Operating Activities . . . . . . . . . . (4,495) 3,981
INVESTING ACTIVITIES:
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,881) (4,769)
Proceeds from Sale of Property and Equipment . . . . . . . . . . . . . . . . . 63 16
Collection of Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . 1,128 334
------------ ------------
Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . (1,690) (4,419)
FINANCING ACTIVITIES:
Payments on Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (3,993)
Acquisition of Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . - (1,811)
Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . (665) (665)
------------ ------------
Net Cash Used In Financing Activities . . . . . . . . . . . . . . . . . (665) (6,469)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . (6,850) (6,907)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . . . . 11,320 10,615
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . . $ 4,470 $ 3,708
============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE> 6
CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 months ended March
31, 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. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior year to
make them conform with the current year presentation.
6
<PAGE> 7
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. Crude oil prices declined significantly during the first
quarter of 1994 and have currently returned to higher levels, while natural gas
prices fell significantly during the first quarter of 1995, but have shown signs
of recent recovery. This continued price volatility creates an uncertain
domestic market and competition, therefore, remains intense within the contract
drilling industry. 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.
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 March 31, 1995 and 1994
The Company recognized net income, before preferred dividends, of $1.1 million
during the first quarter of 1995 compared to net income of $1.4 million in the
first quarter of 1994. Operating income decreased $.9 million in the first
quarter of 1995 compared to the same period in 1994. The decrease in operating
income was primarily due to a reduction in MOPU operating income of $1.5
million, a reduction in foreign daywork drilling operating income of $1.0
million and an increase in corporate overhead of $.1 million, offset in part by
an increase in engineering services operating income of $1.3 million, a
reduction in oil and gas operating losses of $.3 million and a reduction in
domestic daywork drilling operating losses of $.1 million.
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
------------ -------------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . . $ - $ 8 $ (8)
Foreign . . . . . . . . . . . . . . . . . . . . 6,653 7,204 (551)
Engineering Services . . . . . . . . . . . . . . 7,048 2,914 4,134
MOPU Operations . . . . . . . . . . . . . . . . . 1,285 5,779 (4,494)
Oil and Gas . . . . . . . . . . . . . . . . . . . 390 574 (184)
Eliminations . . . . . . . . . . . . . . . . . . (1,094) (2) (1,092)
------------ -------------- -------------
Consolidated . . . . . . . . . . . . . . . . . $ 14,282 $ 16,477 $ (2,195)
============ ============== =============
Operating Income (Loss):
Daywork Drilling:
Domestic . . . . . . . . . . . . . . . . . . . $ - $ (65) $ 65
Foreign . . . . . . . . . . . . . . . . . . . . 501 1,500 (999)
Engineering Services . . . . . . . . . . . . . . 1,773 426 1,347
MOPU Operations . . . . . . . . . . . . . . . . . 565 2,083 (1,518)
Oil and Gas . . . . . . . . . . . . . . . . . . . (46) (336) 290
Corporate Office . . . . . . . . . . . . . . . . (1,375) (1,275) (100)
Eliminations . . . . . . . . . . . . . . . . . . - - -
------------ -------------- -------------
Consolidated . . . . . . . . . . . . . . . . . $ 1,418 $ 2,333 $ (915)
============ ============== =============
</TABLE>
7
<PAGE> 8
Daywork Drilling
Domestic daywork drilling operating results reflect the Company's strategy to
diversify away from the volatile domestic market. Three of the Company's land
drilling rigs were mobilized to Venezuela during the first quarter of 1994, one
of which began daywork drilling operations for Corpoven S.A. ("Corpoven")
for a three-year term and 2 of which are currently drilling turnkey wells for
Corpoven.
Foreign daywork drilling revenues decreased $.6 million during the first quarter
of 1995 compared to the first quarter of 1994. Foreign daywork drilling
operating income decreased $1.0 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 for Cliffs Neddrill Central Turnkey International
("CNCTI") during the fourth quarter of 1994.
Subsequent to completing one-year contract extensions during the first quarter
of 1995, the Company's 2 jack-up drilling rigs operating in Venezuela continued
drilling operations on a well-to-well basis at reduced dayrates from those
received in 1994. Contracts have not been renewed, and the Company expects to
demobilize the 2 rigs back to the U.S. Gulf of Mexico in the second quarter of
1995. The operator is required to pay a demobilization fee which should
completely offset all demobilization costs. See "Liquidity and Capital
Resources." Contracts on 2 of the 3 land drilling rigs working in eastern
Venezuela on daywork contracts for Corpoven expire in September, 1995, and the
other contract expires in February, 1997.
Engineering Services
Engineering services revenues increased $4.1 million in the first quarter of
1995 compared to the first quarter of 1994, while operating income increased
$1.3 million during the same period. One turnkey contract was completed during
the first quarter of both 1995 and 1994. The contract completed during the
first quarter of 1995 was an international contract in Venezuela and generated
significantly greater operating income than the 1994 domestic contract that was
completed.
The Company has completed 4 of 6 turnkey wells for Corpoven and expects to
complete the final 2 contracted wells during the remainder of 1995. In addition
to the turnkey wells being drilled in Venezuela, the Company is currently in the
process of drilling an additional turnkey well in Mexico and one turnkey well in
the United States.
The Company and Corpoven have entered into a letter agreement whereby Corpoven
will continue to contract the 2 land rigs mobilized to Venezuela in 1994 on
either a turnkey or daywork basis through February, 1997.
MOPU Operations
MOPU revenues decreased $4.5 million in the first quarter of 1995 compared to
the first quarter of 1994. MOPU operating income decreased $1.5 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 $4.7 million and operating income of $1.5 million
during the first quarter of 1994. The LANGLEY was demobilized back to the
United States during the second quarter of 1994 and is currently being
marketed. The charterer exercised buyout options and purchased the other 2
units which worked in Venezuela for a total of $4.0 million in the fourth
quarter of 1994. No gain or loss was recognized upon buyout of the 2 units.
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 has secured a contract for operations which are
expected to commence in the second quarter of 1995. The Company secured a
bareboat charter during 1994 for Cliffs No. 11 from a third party for use as a
8
<PAGE> 9
workover rig in the U.S. Gulf of Mexico. Operations commenced on this charter
during the second quarter of 1994. The contract option on another of its MOPUs,
Cliffs No. 10, was canceled during February, 1995; however, the Company has
secured an option for a contract on this unit commencing in the second quarter
of 1995. The supply unit currently operating in the Bay of Campeche, Mexico is
expected to complete operations during the second quarter of 1995.
Oil and Gas
Oil and gas revenues decreased $.2 million in the first quarter of 1995 compared
to the first quarter of 1994, primarily due to lower gas prices during the first
quarter of 1995 compared to the same period in 1994. Operating losses decreased
$.3 million during the same period, primarily because decreased depreciation,
depletion and amortization and operating expenses more than offset the revenue
decrease.
Corporate Overhead
Corporate overhead increased $.1 million in the first quarter of 1995 compared
to the first quarter of 1994. The increase was primarily due to an overall
increase in employment costs.
Other Income (Expense)
The Company recognized $.3 million of other expense during the first quarter of
1995 compared to $.9 million of other expense during the same period in 1994.
The net decrease in other expense resulted primarily from a reduction in
interest expense and a decrease in other net expenses, offset in part by
increased income taxes. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $6.8 million from $11.3
million at December 31, 1994 to $4.5 million at March 31, 1995. The decrease
resulted from $4.5 million used to fund operating activities, $2.9 million used
to fund capital expenditures and $.7 million used for payments of preferred
stock dividends, partially offset by $1.2 million received from the collection
of notes receivable and the sale of property and equipment.
Cash of $4.5 million used to fund operating activities included $7.9 million
used for working capital and other requirements, primarily the funding of the
Company's engineering services operations. "Accounts Receivable" increased from
December 31, 1994 to March 31, 1995 due primarily to the completion of a turnkey
well at the end of the first quarter of 1995.
Cash was used during the first quarter of 1995 to fund $2.9 million of capital
expenditures, which primarily related to the purchase of a 3000 HP rig and
initial renovation activities. The Company expects to spend an additional $6.2
million on this rig, Cliffs Drilling Rig 54, during the second and third
quarters of 1995 in preparation for a contract to drill 2 wells on a daywork
basis in Venezuela. Drilling activities are expected to commence in the third
quarter of 1995. The Company has plans for other capital expenditures totaling
approximately $3.4 million during 1995. The Company intends to fund these
capital expenditure requirements with internally-generated cash flow and amounts
currently available under its revolving line of credit.
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 FRANKLIN and FORRESTAL effective December, 1994 for total
proceeds of $4.0 million. The loss of future operating income and cash flows
associated with these units could have a material adverse effect on the
Company's future results of operations and liquidity.
9
<PAGE> 10
Subsequent to completing one-year contract extensions during the first quarter
of 1995, the Company's 2 jack-up drilling rigs operating in Venezuela continued
drilling operations on a well-to-well basis at reduced dayrates from those
received in 1994. Contracts have not been renewed, and the Company expects to
demobilize the 2 rigs back to the U.S. Gulf of Mexico in the second quarter of
1995. The operator is required to pay a demobilization fee which should
completely offset all demobilization costs. The loss of future operating income
and cash flows generated from these units could have a material adverse effect
on the Company's future results of operations and liquidity.
Approximately 93% of the Company's revenues and a substantial portion of its
operating income were sourced from its Venezuelan and Mexican operations during
the first quarter 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 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 could
impair the Company's ability to convert its Venezuelan cash flow into U.S.
dollars in the future. Despite the current economic volatility in Venezuela,
the Company believes that the country continues to be a favorable market for
its services.
During the first quarter of 1995, the Company sold 500 million Bolivars of
prepaid Venezuelan taxes at a 17.5% discount and received $2.4 million in
equivalent Bolivars, resulting in an exchange loss of $.5 million. This loss
was partially offset by $.4 million in gains recorded in connection with
currency swap transactions, and is reflected in "Exchange Rate Loss" in the
Consolidated Statements of Operations for the current quarter.
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
March 31, 1995, the Company had no outstanding balance on the revolving line of
credit with INCC.
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 quarter 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.
10
<PAGE> 11
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.
11
<PAGE> 12
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: April 27, 1995 By: /s/ Edward A. Guthrie
Edward A. Guthrie
Vice President - Finance
Date: April 27, 1995 By: /s/ Cindy B. Taylor
Cindy B. Taylor
Corporate Controller
12
<PAGE> 13
EXHIBIT INDEX
27 Financial Data Schedule
13
<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 financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,470
<SECURITIES> 0
<RECEIVABLES> 17,335
<ALLOWANCES> 408
<INVENTORY> 5,284
<CURRENT-ASSETS> 37,692
<PP&E> 176,644
<DEPRECIATION> 104,748
<TOTAL-ASSETS> 117,809
<CURRENT-LIABILITIES> 16,870
<BONDS> 0
<COMMON> 45
28,750
0
<OTHER-SE> 71,360
<TOTAL-LIABILITY-AND-EQUITY> 117,809
<SALES> 14,282
<TOTAL-REVENUES> 14,282
<CGS> 9,429
<TOTAL-COSTS> 12,864
<OTHER-EXPENSES> (107)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> 1,493
<INCOME-TAX> 373
<INCOME-CONTINUING> 1,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,120
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
