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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1994 COMMISSION FILE NUMBER 0-16703
CLIFFS DRILLING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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)
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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. /X/
The aggregate market value of the Registrant's common stock, $.01 par
value, held by nonaffiliates, as of March 1, 1995, was $46,409,426. 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 1, 1995, was 4,091,997.
DOCUMENTS INCORPORATED BY REFERENCE
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REFERENCED IN THIS
DOCUMENTS REPORT
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Certain portions of the Registrant's definitive proxy statement for
the 1995 Annual Meeting of Shareholders Part III
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(Exhibit Index Located on Pages 54 to 57)
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TABLE OF CONTENTS TO FORM 10-K
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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................................................... 11
Government Regulation.................................................... 11
Risks and Insurance...................................................... 12
Employees................................................................ 13
Other Properties......................................................... 13
3. Legal Proceedings........................................................ 13
4. Submission of Matters to a Vote of Security Holders...................... 14
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.... 14
6. Selected Financial Data.................................................. 16
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
8. Financial Statements and Supplementary Data.............................. 24
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................. 24
PART III
10. Directors and Executive Officers of the Registrant....................... 24
11. Executive Compensation................................................... 24
12. Security Ownership of Certain Beneficial Owners and Management........... 25
13. Certain Relationships and Related Transactions........................... 25
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 25
SIGNATURES.............................................................................. 27
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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,
engineering 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 were contracted to Dresser-Rand Company
("Dresser-Rand") under two-year contracts with an aggregate dayrate of $52,500
and were used as portable compression units ("portacompressors") in Lake
Maracaibo, Venezuela. The contracts expired during May and September, 1994 with
2 of the units, the "FRANKLIN" and "FORRESTAL," being purchased by the charterer
during December, 1994 for $4.0 million. 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, mobilized another rig for turnkey drilling operations in
the Bay of Tampico, Mexico during 1994, and bareboat chartered the remaining
unit during 1994 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, 5 land
rigs and 6 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
In February, 1995, the Company received a commitment for a contract for the
MARLIN NO. 4. The term of the contract will be six months commencing at the date
the MOPU is delivered to the charterer's location, which is expected to occur
during May, 1995. Renewals are at the option of the operator on a month-to-month
basis.
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In February, 1995, the Company received a commitment for a contract to
drill 2 wells on a daywork basis in Venezuela for Total Oil and Gas Venezuela
B.V. ("Total"). The Company intends to purchase, upgrade and mobilize a 3000 HP
rig to Venezuela to work on this project. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Drilling activities are expected to commence in the third
quarter of 1995. Renewals are at the option of Total.
Contracts for the Company's 2 jack-up drilling rigs operating in Venezuela
expired February 28, 1995. The 2 jack-up rigs will continue drilling operations
on a well-to-well basis in Venezuela at reduced dayrates from those received in
1994. The Company is currently marketing the rigs to others for use in
Venezuela. No assurance can be given that the Company will be able to secure a
contract for the operation of these units. If contracts are not obtained,
Maraven, S.A. ("Maraven") is required to demobilize the rigs to the U.S. Gulf of
Mexico.
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. 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 13 of Notes to
Consolidated Financial Statements.
Daywork Drilling. In response to the downturn in 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 sold its 4 barge drilling rigs effective January 1, 1993. The
Company mobilized another domestic land drilling rig to Venezuela to work under
a daywork drilling contract for a three-year term which commenced in the first
quarter of 1994. The Company also mobilized an idle domestic jack-up drilling
rig during 1994 to the Bay of Tampico, Mexico to drill 2 turnkey wells for
Cliffs Neddrill Central Turnkey International ("CNCTI"), a joint venture among
Cliffs Drilling International, Inc. ("International"), a wholly-owned subsidiary
of the Company, Neddrill Turnkey Drilling B.V. and Perforadora Central, S.A. de
C.V.
Engineering Services. 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 reduce the risks
inherent in turnkey drilling operations. From 1982 through December 31, 1994,
the Company completed 242 turnkeys with aggregate revenues of $567.4 million,
direct income before depreciation and allocated overhead of $81.3 million, and
operating income of $51.5 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. The Company began providing well engineering and
management services during 1993. Under these arrangements, the Company is
responsible for well design and well site supervision.
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
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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.
Oil and Gas. The Company, from time to time, enhances the marketing of its
turnkey contract drilling operations by participating in oil and gas exploration
and development activities through its contract drilling support ("CDS")
program. In the past, this strategy was instrumental in increasing the Company's
contract drilling operations and enabled the Company to participate in the
exploration and development of oil and gas. In 1993, the Company began to
de-emphasize its CDS program due to marginal financial performance of the
segment in recent years. See Note 16 of Notes to Consolidated Financial
Statements.
CONTRACT DRILLING AND MOPU OPERATIONS
Daywork Drilling. The Company currently owns and operates 8 drilling rigs,
consisting of 3 jack-up drilling rigs and 5 land drilling rigs. Two of the
Company's jack-up drilling rigs are working for 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 expired on February 28, 1995. The
2 jack-up rigs will continue drilling operations on a well-to-well basis in
Venezuela at reduced dayrates from those received in 1994. The Company is
currently marketing the rigs to others for use in Venezuela. No assurance can be
given that contracts will be obtained, or if obtained, at rates comparable to
those received in 1994. If contracts are not obtained, Maraven is required to
demobilize the rigs to the U.S. Gulf of Mexico. The Company operated 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 was
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 Petroleos de Mexico S.A. ("PEMEX"). These operations completed during
the fourth quarter of 1994, and the rig was demobilized back to the U.S. Gulf of
Mexico in November, 1994. The rig, Cliffs No. 12, is currently stacked and
awaiting contract. The Company's land rig fleet consists of 3 diesel/electric
rigs and 2 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, S.A. ("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, commenced drilling operations in Venezuela during 1994. The remaining
2 land rigs are currently drilling wells included in 2 turnkey packages for
Corpoven. In February, 1995, the Company received a commitment for a contract to
drill 2 wells in Venezuela for Total. The Company intends to purchase, upgrade
and mobilize a 3000 HP rig to Venezuela to work on this project. Operations are
expected to commence in the third quarter of 1995.
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 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
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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.
Engineering Services. 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 15 turnkey drilling contracts for the year ended
December 31, 1994, and 6 turnkey drilling contracts for the year ended December
31, 1993, with revenues of $33.9 million and $17.0 million, respectively. Five
and 2 of the turnkey contracts completed in 1994 and 1993, respectively, related
to the Company's interest in CNCTI. One turnkey contract completed in 1994
related to the Company's interest in Cliffs-Neddrill Turnkey International
("CNTI"), a 50/50 joint venture between the Company and Neddrill Nederland B.V.
of the Netherlands ("Neddrill"). These turnkey contracts were accounted for
under the equity method in the Company's consolidated financial statements. See
Note 4 of Notes to Consolidated Financial Statements. No turnkey drilling
contracts have been completed since December 31, 1994. The Company currently has
3 turnkey drilling contracts in progress with contract revenues of $16.5
million. The Company, through its interest in CNCTI, currently has one turnkey
drilling contract in progress with contract revenues of $5.0 million to its
share.
The Company also provides well engineering and management services. Under
these agreements, the Company is responsible for well design and well site
supervision. The Company has provided these services both domestically and
internationally since 1993.
MOPU Operations. The Company currently owns 6 MOPUs capable of operating in
both domestic and foreign waters. Included in the 6 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 bareboat chartered the other unit in 1994 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 for use as portable compression units. Each of these units
completed operations in Lake Maracaibo, Venezuela during 1994, with 2 of the
units being purchased by the charterer in December, 1994. The remaining unit,
the LANGLEY, is currently being marketed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The contract on another of the Company's MOPUs, the MARLIN
NO. 4, expired during the second quarter of 1994. Subsequent to refurbishment,
the Company received a commitment during February, 1995 for a contract for the
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operation of this unit. 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, Cliffs No. 8,
which commenced operations in July, 1993 for a three-year term. Another MOPU
converted during 1993, Cliffs No. 10, is currently being marketed.
MOPU contracts are generally on a dayrate basis and are normally Iong-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."
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, 1994, 7 of the Company's 8
drilling rigs were either under contract or preparing for contracts and only one
was stacked. In addition, 4 of the Company's 6 MOPUs were under contract, one
was contracted subsequent to year-end, and one was stacked. However, the
contract option on Cliffs No. 10 was canceled during February, 1995, and the
Company has renewed marketing efforts on this unit. The Company believes that
its stacking procedures minimize stacking and maintenance costs, and that the
stacked rigs could be placed in service with minimal cost and delay should it
become attractive to do so.
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The following table provides the current status of and information about
the drilling rigs and MOPUs owned and operated by the Company:
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RATED DEPTH
YEAR ---------------- AREA OF TYPE OF
EQUIPMENT TYPE BUILT WATER DRILLING OPERATION CONTRACT CUSTOMER
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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
28............ Land 1977 N/A 25,000' Eastern Venezuela Term Daywork Cliffs Turnkey
40............ Land 1980 N/A 25,000' Eastern Venezuela Term Daywork Corpoven
41............ Land 1981 N/A 25,000' Eastern Venezuela Term Daywork Cliffs Turnkey
42............ Land 1981 N/A 25,000' Eastern Venezuela Term Daywork Corpoven
43............ Land 1981 N/A 25,000' Eastern Venezuela Term Daywork Corpoven
UNITED STATES
Cliffs No. 12. Jack-up 1980 200' 20,000' Gulf of Mexico N/A Awaiting contract
MOBILE OFFSHORE PRODUCTION UNITS
UNITED STATES
LANGLEY....... MOPU 1965 350' N/A Gulf of Mexico N/A Awaiting contract
MARLIN NO. 4.. MOPU 1967 150' N/A Gulf of Mexico Term Daywork Vastar Resources, Inc.
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 N/A Awaiting contract
Cliffs No. 11. MOPU 1980 200' N/A Gulf of Mexico Term Daywork Hercules Offshore
Corporation
MEXICO
Cliffs No. 14. MOPU 1980 200' N/A Bay of Campeche Term Daywork CNCTI
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Foreign Operations. For the fiscal years ended December 31, 1994, 1993 and
1992, 78%, 64% and 38%, respectively, of the Company's consolidated revenues
were derived from foreign operations, principally in Venezuela and Mexico. See
Note 14 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. During 1994, 2 additional land rigs began operating in
eastern Venezuela under turnkey drilling contracts with Corpoven. Three of the
Company's MOPUs completed operations in Lake Maracaibo, Venezuela during 1994.
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. Another of the Company's jack-up drilling rigs operated in
the Bay of Tampico, Mexico for CNCTI during 1994 drilling 2 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 CNTI, a three-year 50/50 joint venture with
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 agreement was extended through June, 1996.
CNCTI was formed in 1992 and was awarded a contract to drill 4 turnkey
wells in the Bay of Campeche, Mexico. Drilling operations commenced in February,
1993. CNCTI was subsequently awarded 2 additional turnkey bid packages for 2
wells each in the Bay of Campeche, Mexico and the Bay of Tampico, Mexico. These
operations are expected to complete during the second quarter of 1995.
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.
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Occasionally, customers will indemnify the Company against such losses. See
"Business and Properties -- Government Regulation."
Customers. The Company's 4 largest customers for the year ended December
31, 1994, Corpoven, Maraven, Dresser-Rand and CNCTI, accounted for approximately
78% of the Company's consolidated revenues. The Company's 3 largest 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 customers for the year ended December 31, 1992, Maraven
and Marathon Oil Company, accounted for approximately 36% 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 13 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 in 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 turnkey
drilling and MOPU operations are concentrated in the Texas/Louisiana Gulf Coast
area, and its foreign daywork and turnkey drilling operations are 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.
Historically, there have been 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.
However, in recent years, the turnkey drilling market has become more competi-
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tive as more companies entered the market and margins were reduced. 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, 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 were refurbished, converted to MOPUs and 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, one of
which is currently under contract, is currently using one as a mobile offshore
supply unit in the Bay of Campeche, Mexico, used one unit during 1994 for
turnkey drilling operations in the Bay of Tampico, Mexico and during 1994,
bareboat chartered 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. Pursuant to buyout options exercised by the
charterer during the fourth quarter of 1994, the Company sold 2 of the 3
portacompressors which worked in Lake Maracaibo, Venezuela.
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%. In 1993, the Company began to de-emphasize its CDS
program due to marginal financial performance of the segment in recent years.
See Note 16 of Notes to Consolidated Financial Statements.
The Company's oil and gas operations did not meet applicable disclosure
requirements at or for the year ended December 31, 1994. Information concerning
the Company's 1992 and 1993 oil and gas operations, including estimates of
proven oil and gas reserves prepared by Huddleston & Co., Inc., independent
petroleum consultants, is presented under the caption "Supplemental Information
on Oil and Gas Operations (Unaudited)" in Note 16 of Notes to Consolidated
Financial Statements.
9
<PAGE> 11
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
------- -------
<S> <C> <C>
Sales Price:
Natural gas (per MCF)........................................ $ 2.31 $ 2.08
Crude oil and condensate (per Bbl)........................... $ 18.39 $ 18.65
Production (lifting) costs per equivalent barrel............... $ 3.33 $ 2.76
</TABLE>
The following table shows the Company's interest in productive oil and gas
wells at December 31, 1993, all of which are in the United States.
<TABLE>
<CAPTION>
GROSS NET
--- ----
<S> <C> <C>
Productive oil wells(1)............................................ 9 0.72
Productive gas wells(1)............................................ 19 2.67
</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 net profits interests. 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, 1994.
<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>
<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>
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, as set forth below:
<TABLE>
<CAPTION>
OIL AND
CONDENSATE GAS
(BBL) (MCF)
---------- ----------
<S> <C> <C>
Proved reserves............................................ 124,064 3,326,000
Proved developed reserves.................................. 88,846 3,308,100
</TABLE>
10
<PAGE> 12
"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 non-producing 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 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.
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 substantial 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.
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
11
<PAGE> 13
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, blowouts, 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 contract
indemnity and workmen's 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 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, 1994, and is
scheduled for renewal on June 1, 1995. 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
12
<PAGE> 14
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, and $75 million coverage
per occurrence for Outer Continental Shelf Lands Act statutory obligations and
for control of well, cratering and seepage and pollution associated with foreign
operations. The amount of coverage per occurrence provided by the Company's
current insurance program for domestic land, coastal and inland water, and
offshore operations is $10 million, $20 million and $30 million, respectively,
for control of well, cratering and seepage and pollution. 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, 1994, the Company employed 62 persons domestically, all of
whom were salaried. There were no collective bargaining contracts covering the
Company's domestic employees in effect as of December 31, 1994. As of December
31, 1994, the Company employed 395 persons in Venezuela, approximately 36% 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, 1994, the Company employed 20
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, 1994.
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 yard in Lafayette, Louisiana and 2 field offices in Venezuela.
ITEM 3. LEGAL PROCEEDINGS
In February, 1994, the Company 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 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 June, 1993, a partial summary judgment awarded the Company
$1.8 million, together with interest and attorneys fees, for 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, awarding
Diamond M $3.5 million, plus court costs, offset by the partial summary judgment
13
<PAGE> 15
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 12 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 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq Stock Market ("Nasdaq")
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>
1994 1993
--------------- -----------------
MARKET VALUE MARKET VALUE
--------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW
--------------------------------------------------- ---- ------ ------ ------
<S> <C> <C> <C> <C>
March 31........................................... $ 14 $11 1/4 $14 1/4 $11 1/2
June 30............................................ $ 13 $11 1/2 $17 1/4 $12 3/4
September 30....................................... $ 13 $11 1/2 $15 $11 1/2
December 31........................................ $ 13 $10 1/2 $13 1/4 $11
</TABLE>
On March 1, 1995, the closing sale price of the Company's Common Stock, as
reported by Nasdaq, was $12 3/4 per share. On that date, there were 2,028
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 Internationale
Nederlanden (U.S.) Capital Corporation ("INCC"), formerly Internationale
Nederlanden Bank N.V., the Company is restricted from declaring, making, or
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 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>
1994 1993
----------------- -----------------
MARKET VALUE MARKET VALUE
----------------- -----------------
QUARTER ENDED HIGH LOW HIGH LOW
-------------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
March 31.......................................... $28 $25 3/4 $31 $27
June 30........................................... $28 $25 3/4 $33 $29 1/8
September 30...................................... $27 1/2 $25 3/4 $31 $26 3/4
December 31....................................... $27 1/4 $25 1/4 $29 $26 1/2
</TABLE>
On February 28, 1995, the closing sale price of the Company's Preferred
Stock, as reported by Nasdaq, was $26 13/64 per share. On that date, there were
33 holders of record of the Company's Preferred Stock.
14
<PAGE> 16
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 in 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 1994, 1993 and 1992 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.
15
<PAGE> 17
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, 1994 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,
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues........................... $ 83,693 $ 65,538 $ 76,838 $ 84,503 $ 78,754
Costs and Expenses:
Operating Expenses.............. 50,635 34,983 57,505 70,178 65,783
Depreciation, Depletion and
Amortization.................. 14,008 17,438 12,883 9,369 9,720
Contract Termination
Provision..................... 5,193 577 -- -- --
Writedown in Carrying Value of
Oil Gas Properties............ -- -- 1,500 4,000 --
Exploration Costs............... 272 188 141 547 2,876
General and Administrative
Expense....................... 5,114 4,807 4,512 4,352 4,771
-------- --------- --------- --------- ---------
Operating Income (Loss)......... 8,471 7,545 297 (3,943) (4,396)
Other Income (Expense)(1)....... (2,415) (3,919) 2,721 61 542
-------- --------- --------- --------- ---------
Net Income (Loss)............... 6,056 3,626 3,018 (3,882) (3,854)
Dividends Applicable to
Preferred Stock............... (2,659) (2,659) (2,659) (2,660) (2,659)
-------- --------- --------- --------- ---------
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares........................ $ 3,397 $ 967 $ 359 $ (6,542) $ (6,513)
======== ========= ========= ========= =========
Net Income (Loss) per Share..... $ 0.80 $ 0.21 $ 0.11 $ (2.19) $ (2.18)
Weighted Average Number of
Common and Common Equivalent
Shares Outstanding............ 4,223 4,514 3,257 2,992 2,981
SUMMARY BALANCE SHEET DATA:
Working Capital.................... $ 19,331 $ 20,402 $ 24,830 $ 5,637 $ 13,599
Property and Equipment, Net........ 71,248 86,506 101,178 99,023 80,188
Total Assets....................... 120,167 133,523 150,203 143,283 124,372
Notes Payable-Long-Term............ -- 13,108 28,348 27,000 --
Obligations Under Capital Leases
(including current
maturities)..................... -- -- -- 2,682 4,677
Redeemable Preferred Stock......... 28,750 28,750 28,750 28,750 28,750
Total Shareholders' Equity(2)...... $ 70,881 $ 72,494 $ 71,446 $ 52,229 $ 58,497
</TABLE>
- ---------------
(1) Includes exchange rate losses of $1.2 million in 1994, litigation settlement
and expenses of $3.7 million in 1993 and gains on disposition of assets of
$5.0 million in 1992.
(2) The Company has not paid any cash dividends on its Common Stock.
16
<PAGE> 18
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 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 have fallen to levels not experienced since 1991. 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
Year 1994 Versus 1993
The Company recognized net income, before preferred dividends, of $6.1
million in 1994 compared to net income of $3.6 million in 1993. Operating income
increased $.9 million from 1993 to 1994. The improvement in operating income was
primarily due to an increase in foreign daywork drilling operating income of
$5.3 million, a reduction in domestic daywork drilling operating losses of $2.3
million, an increase in engineering services operating income of $1.9 million,
and a reduction in oil and gas operating losses of $.9 million, offset in part
by a reduction in MOPU operating income of $9.2 million and an increase in
corporate overhead of $.3 million.
<TABLE>
<CAPTION>
INCREASE
1994 1993 (DECREASE)
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic..................................... $ 19 $ 1,195 $ (1,176)
Foreign...................................... 32,462 21,023 11,439
Engineering Services............................ 36,079 16,961 19,118
MOPU Operations................................. 16,020 21,673 (5,653)
Oil and Gas..................................... 2,470 4,686 (2,216)
Eliminations.................................... (3,357) -- (3,357)
------- ------- ----------
Consolidated............................ $83,693 $65,538 $ 18,155
======== ======== =========
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
INCREASE
1994 1993 (DECREASE)
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Income (Loss):
Daywork Drilling:
Domestic..................................... $ (62) $(2,417) $ 2,355
Foreign...................................... 7,162 1,902 5,260
Engineering Services............................ 3,581 1,685 1,896
MOPU Operations................................. 4,415 13,566 (9,151)
Oil and Gas..................................... (1,439) (2,303) 864
Corporate Office................................ (5,184) (4,888) (296)
Eliminations.................................... (2) -- (2)
------- ------- ----------
Consolidated............................ $ 8,471 $ 7,545 $ 926
======== ======== =========
</TABLE>
Daywork Drilling
Domestic daywork drilling results in 1994 reflect the Company's strategy to
diversify away from this volatile market. As a result of rig deployments out of
the United States, domestic daywork drilling operating losses decreased by $2.3
million from 1993 to 1994. Operating losses incurred in 1993 were due primarily
to stacked rig costs associated with the Company's domestic land rigs. One of
the Company's land drilling rigs was mobilized to Venezuela during the first
quarter of 1994 and began daywork drilling operations for Corpoven for a
three-year term. Two of the Company's land drilling rigs, which were stacked
during all of 1993, were mobilized to Venezuela during the first quarter of 1994
and are currently drilling turnkey wells for Corpoven.
Foreign daywork drilling revenues increased $11.4 million from 1993 to
1994. Foreign daywork drilling operating income increased $5.3 million during
the same period. Foreign daywork drilling operating results reflect increased
revenues and operating income primarily due to contributions from one of the
Company's jack-up drilling rigs which was mobilized to the Bay of Tampico,
Mexico during the first quarter of 1994. This jack-up drilling rig completed
operations for CNCTI during the fourth quarter of 1994. The Company has stacked
the rig until another contract is awarded. No assurance can be given that the
Company will be able to secure a contract for the operation of this unit. Also
contributing to the improved results were increased operating income from the
Company's 2 jack-up drilling rigs working in Venezuela, primarily due to reduced
operating expenses, and contributions from the 3 additional land rigs mobilized
to Venezuela during 1994.
Contracts for the Company's 2 jack-up drilling rigs operating in Venezuela
were re-negotiated in the first quarter of 1994 and expired in February, 1995.
The contract rates were adjusted quarterly based upon fluctuations in oil prices
from the base oil price in effect at the contract renewal date. The 2 jack-up
rigs will continue drilling operations on a well-to-well basis in Venezuela at
reduced dayrates from those received in 1994. The Company is currently marketing
the rigs to others for use in Venezuela. No assurance can be given that the
Company will be able to secure a contract for the operation of these units. If
contracts are not obtained, Maraven is required to demobilize the rigs to the
U.S. Gulf of Mexico. 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 $19.1 million from 1993 to 1994.
Engineering services operating income increased $1.9 million during the same
period. Fifteen turnkey contracts were completed in 1994 compared to 6 turnkey
contracts completed in 1993. Five of the 15 turnkey wells completed in 1994 and
2 of the 6 turnkey wells completed in 1993 were drilled by CNCTI and recorded
under the equity method. One of the 15 turnkey wells completed in 1994 was
drilled by CNTI and also recorded under the equity method. See Note 4 of Notes
to Consolidated Financial
18
<PAGE> 20
Statements. Two of the wells completed in 1994 encountered downhole problems. As
a result, the Company recorded losses of $3.2 million in the 1994 results of
operations on these contracts. The Company provided well engineering and
management services during 1993 and 1994, primarily in Venezuela and Mexico.
These activities contributed operating income of $1.0 million and $.1 million in
1994 and 1993, respectively.
The Company is currently drilling the fourth and fifth wells included in 2
packages of 3 turnkey wells for Corpoven. The Company expects these 2 wells and
the last contracted well to be completed in 1995 with revenues of approximately
$18.0 million. The Company mobilized 2 land rigs to Venezuela during the first
quarter of 1994 to work on these projects. In addition to the 2 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.
MOPU Operations
MOPU revenues decreased $5.7 million from 1993 to 1994. MOPU operating
income decreased $9.2 million during the same period. The decrease in revenues
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 decreased revenues were
offset in part by contributions from Cliffs No. 8, which began operations during
the third quarter of 1993. Operating income decreased primarily due to the
non-cash deferral of income recognition of $5.2 million on the 2 MOPUs which
worked in Venezuela through September, 1994. The expiration of the contracts on
the 3 MOPUs which worked in Venezuela also contributed to the decrease in
operating income. The 3 MOPUs which worked in Venezuela contributed revenues of
$11.9 million and $19.2 million and operating income of $1.6 million and $12.0
million during 1994 and 1993, respectively. The LANGLEY was demobilized back to
the United States during the second quarter of 1994 and is currently being
marketed. No assurance can be given that the Company will be able to secure a
contract for the operation of this unit. 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 commitment for a contract for operations
which are expected to commence in the second quarter of 1995. The Company
secured a bareboat charter for Cliffs No. 11 from a third party for use as a
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. Renewed marketing efforts
have commenced subsequent to the cancellation. No assurance can be given that
the Company will be able to secure a contract for the operation of this unit.
Oil and Gas
Oil and gas revenues decreased $2.2 million from 1993 to 1994, primarily
due to reduced gas revenues resulting from a net revenue interest reduction upon
payout of a significant well. Operating losses in 1994 decreased $.9 million
when compared to 1993, primarily because decreased depreciation, depletion and
amortization and operating expenses more than offset the revenue decrease.
Corporate Overhead
Corporate overhead increased $.3 million from 1993 to 1994. The increase
was primarily due to an overall increase in employment costs and other expenses.
19
<PAGE> 21
Other Income (Expense)
The Company recognized $2.4 million of other expense during 1994 compared
to $3.9 million of other expense during 1993. The net decrease in other expense
resulted primarily from the litigation settlement and expenses of $3.7 million
recorded in 1993, compared to none in 1994, offset in part by decreased gains on
disposition of assets and increased exchange rate losses incurred during 1994.
Income tax expense for 1994 was consistent with income tax expense for 1993 due
primarily to the recognition of a $.4 million net deferred tax asset during the
third quarter of 1994. See "Liquidity and Capital Resources."
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 an increase in MOPU
operating income of $7.1 million, an increase in foreign daywork drilling
operating income of $1.7 million, and a decrease in domestic daywork drilling
operating losses of $.4 million, offset in part by a decrease in engineering
services operating income of $1.1 million, an increase in oil and gas operating
losses of $.5 million, and an increase in 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)
Engineering Services............................ 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
Engineering Services............................ 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>
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. Cost savings resulting from the sale of the 4
inland posted barge drilling rigs
20
<PAGE> 22
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. 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 land drilling rigs began 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
expired on March 9, 1994 and March 15, 1994, respectively. The Company
re-negotiated the contracts through February, 1995. Contracts on the 2 land
drilling rigs working in eastern Venezuela on daywork contracts for Corpoven
expire in September, 1995.
Engineering Services
Engineering services 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 4 of Notes to Consolidated Financial
Statements. Engineering services operating income decreased $1.1 million in 1993
when compared to 1992, primarily due to fewer completed contracts in 1993.
The Company was awarded 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 mobilized 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 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 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
21
<PAGE> 23
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $.7 million from $10.6
million at December 31, 1993 to $11.3 million at December 31, 1994. The increase
resulted from $23.7 million provided by operating activities, $17.0 million from
borrowings, $5.9 million received from the sale of property and equipment, and
$1.0 million received from the collection of notes receivable, partially offset
by $9.1 million used to fund capital expenditures and $37.8 million used to make
payments on borrowings, preferred stock dividends and purchases of Treasury
Stock.
Cash provided by operating activities of $23.7 million included $.6 million
used for working capital and other requirements, primarily to fund the Company's
foreign daywork drilling and engineering services operations. "Accounts
Receivable" decreased from December 31, 1993 to December 31, 1994 due primarily
to the collection of receivables associated with the Company's MOPU operations
in Venezuela. "Inventories" increased from December 31, 1993 to December 31,
1994 due primarily to the purchase of casing and other supplies for turnkey and
daywork drilling operations in Venezuela. The increases in "Drilling Contracts
in Progress" and "Accounts Payable" were due primarily to the Company's expanded
turnkey operations. The decrease in "Property and Equipment" from December 31,
1993 to December 31, 1994 was due primarily to the sale of 2 MOPUs which worked
in Venezuela.
Cash was used during 1994 to fund $9.1 million of capital expenditures,
which primarily related to the upgrade of 3 land drilling rigs prior to
mobilization to Venezuela, renovation of a jack-up drilling rig, Cliffs No. 12,
which was mobilized for drilling operations in Mexico, modifications to Cliffs
No. 11 in preparation for workover operations in the U.S. Gulf of Mexico, and
drill pipe purchases for the expanded drilling operations in Venezuela.
In February, 1995, the Company received a commitment for a contract to
drill 2 wells on a daywork basis in Venezuela for Total. The Company intends to
purchase, upgrade and mobilize a 3000 HP rig to Venezuela at a cost of
approximately $8.6 million to work on this project. Drilling activities are
expected to commence in the third quarter of 1995. The Company has plans for
other
22
<PAGE> 24
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.
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 first
unit, Cliffs No. 8, was converted to a MOPU and commenced operations on July 19,
1993. The second of the 5 rigs acquired was also converted to a MOPU. The
Company secured a contract option for this unit, Cliffs No. 10, during 1994. The
option on this contract was canceled during February, 1995. Renewed marketing
efforts have commenced subsequent to the cancellation. Cliffs No. 14 is
currently being used as a mobile offshore supply unit to facilitate the
Company's joint venture turnkey drilling operations in Mexico. The Company
upgraded and mobilized Cliffs No. 12 into Mexico during the first quarter of
1994 for turnkey drilling operations in the Bay of Tampico. The Company secured
a bareboat charter on the final unit, Cliffs No. 11, from a third party for use
as a workover rig in the U.S. Gulf of Mexico. The Company refurbished this rig
during 1994 at a cost of $1.4 million. Operations commenced during the second
quarter of 1994.
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. No assurance can be given that the
Company will be able to secure a contract for operation of this unit. Each of
the 2 remaining MOPUs which worked in Venezuela had an initial contract term 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 associated with these units could have a material adverse
effect on the Company's future results of operations. Because the Company
believed there was a reasonable likelihood that the buyout options on the 2
units would be exercised in 1994 or 1995, the Company deferred income
recognition on these 2 units to the extent of losses that would occur upon
exercise of the options. As a result, no gain or loss was recognized when the
buyout options were exercised.
Approximately 78% of the Company's revenues and a substantial portion of
its operating income were sourced from its Venezuelan and Mexican operations
during 1994. See Note 14 of Notes to Consolidated Financial Statements. 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 compared to 1993 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 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.
In conjunction with the redelivery 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. Following a trial in February, 1994, a judgment was entered in the
United States District Court, Southern District of Texas, Houston Division,
awarding Diamond M $3.5 million, plus court costs, offset by a partial summary
judgment of $1.8 million. The Company reported this litigation settlement and
expenses in the Consolidated Statements of Operations during the fourth quarter
of 1993. The Company paid Diamond M $1.7 million in February, 1994 as a final
settlement of all disputed issues.
At December 31, 1993, the Company's credit agreement with INCC provided for
a $10.0 million working capital credit facility which had a maturity date of
January 1, 1995 and a $30.0 million term
23
<PAGE> 25
loan which matured January 1, 1995. The Company executed the Second Restated
Credit Agreement with INCC during March, 1994, thereby converting its $10.0
million working capital credit facility to a $20.0 million revolving line of
credit subject to certain borrowing base limitations. The revolving line of
credit matures on January 1, 1996. As of December 31, 1994, the Company had no
outstanding balance on the revolving line of credit with INCC. The $30.0 million
term loan was repaid in full during October, 1994.
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.
A total of 5,000 shares, at an aggregate purchase price of $.1 million, or
approximately $11.38 per share, was acquired in the fourth quarter of 1993.
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.
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 30 through 52 hereof and are incorporated by reference into this
Item 8. Selected quarterly financial data is set forth in Note 15 of Notes to
Consolidated Financial Statements, which is incorporated herein by reference.
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.
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 1995
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
1995 Annual Meeting of Shareholders, which is to be
24
<PAGE> 26
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 1995 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 1995 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 "lndex to Consolidated Financial Statements and Schedules" on
Page 28.
(3) Exhibits. See Exhibit Index on pages 54 to 57.
The management contracts and compensatory plans or arrangements required to
be filed as Exhibits to this report are as follows:
<TABLE>
<C> <S>
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 (incorporated by reference to Exhibit
10.7.1 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
10.7.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling Company
1988 Incentive Equity Plan (incorporated by reference to Exhibit
10.7.2 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
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 (incorporated by reference to
Exhibit 10.9.1 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
10.9.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling Company
Retention Plan for Salaried Employees (incorporated by reference to
Exhibit 10.9.2 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
</TABLE>
25
<PAGE> 27
<TABLE>
<C> <S>
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 (incorporated by reference to Exhibit 10.11.2 to the
Company's Form 10-K for the fiscal year ended December 31, 1993).
10.17 -- Form of Executive Agreement dated as of July 20, 1994 (incorporated
by reference to Exhibit 10.20 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1994).
</TABLE>
(b) Reports on Form 8-K.
None.
26
<PAGE> 28
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 2, 1995 CLIFFS DRILLING COMPANY
By: /s/ DOUGLAS E. SWANSON
---------------------------------
Douglas E. Swanson
Chairman of the Board and President
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/ DOUGLAS E. SWANSON Chairman of the Board March 2, 1995
- --------------------------------------------- and President
Douglas E. Swanson (Principal Executive Officer)
/s/ RANDOLPH NEWCOMER Executive Vice President and March 2, 1995
- --------------------------------------------- Director
Randolph Newcomer
/s/ M. M. CONE Director March 2, 1995
- ---------------------------------------------
M. M. Cone
/s/ ROBERT M. MCINNES Director March 2, 1995
- ---------------------------------------------
Robert M. McInnes
/s/ JOSEPH E. REID Director March 2, 1995
- ---------------------------------------------
Joseph E. Reid
/s/ JOHN D. WEIL Director March 2, 1995
- ---------------------------------------------
John D. Weil
/s/ H. ROBERT HIRSCH Director March 2, 1995
- ---------------------------------------------
Robert Hirsch
/s/ EDWARD A. GUTHRIE Vice President-Finance March 2, 1995
- --------------------------------------------- (Principal Financial Officer)
Edward A. Guthrie
/s/ CINDY B. TAYLOR Corporate Controller March 2, 1995
- --------------------------------------------- (Principal
Cindy B. Taylor Accounting Officer)
</TABLE>
27
<PAGE> 29
FORM 1O-K ITEM 14A (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Auditors................................... 29
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1994.......................... 30
Consolidated Balance Sheets, December 31, 1994 and 1993.......... 31
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1994.......................... 32
Consolidated Statements of Changes in Shareholders' Equity
for Each of the Three Years in the Period Ended
December 31, 1994.............................................. 33
Notes to Consolidated Financial Statements....................... 34
</TABLE>
Schedule:
For Each of the Three Years in the Period Ended December 31, 1994:
<TABLE>
<C> <S> <C>
II Valuation and Qualifying Accounts................... 53
</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.
28
<PAGE> 30
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, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Houston, Texas
February 17, 1995
29
<PAGE> 31
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Revenues.............................................. $ 81,508 $ 64,936 $ 76,838
Income from Equity Investments........................ 2,185 602 --
-------- -------- --------
83,693 65,538 76,838
COSTS AND EXPENSES:
Operating Expenses.................................... 50,635 34,983 57,505
Depreciation, Depletion and Amortization.............. 14,008 17,438 12,883
Contract Termination Provision........................ 5,193 577 --
Writedown in Carrying Value of Oil and Gas
Properties......................................... -- -- 1,500
Exploration Costs..................................... 272 188 141
General and Administrative Expense.................... 5,114 4,807 4,512
-------- -------- --------
75,222 57,993 76,541
-------- -------- --------
OPERATING INCOME........................................ 8,471 7,545 297
OTHER INCOME (EXPENSE):
Litigation Settlement and Expenses.................... -- (3,703) --
Gain on Disposition of Assets......................... 665 2,016 4,965
Interest Income....................................... 815 858 139
Interest Expense...................................... (826) (1,356) (1,365)
Exchange Rate Loss.................................... (1,168) (443) (132)
Other, net............................................ (1,111) (606) (886)
-------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 6,846 4,311 3,018
INCOME TAX EXPENSE...................................... 790 685 --
-------- -------- --------
NET INCOME.............................................. 6,056 3,626 3,018
DIVIDENDS APPLICABLE TO PREFERRED STOCK................. (2,659) (2,659) (2,659)
-------- -------- --------
NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT
SHARES................................................ $ 3,397 $ 967 $ 359
======== ======== ========
NET INCOME PER SHARE:
Primary............................................... $ 0.80 $ 0.21 $ 0.11
======== ======== ========
Assuming Full Dilution................................ $ 0.80 $ 0.21 $ 0.11
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary............................................... 4,223 4,514 3,257
======== ======== ========
Assuming Full Dilution................................ 4,223 4,514 3,257
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents........................................ $ 11,320 $ 10,615
Accounts Receivable, net of allowance for doubtful accounts of
$408 and $697 at December 31, 1994 and 1993, respectively..... 8,499 15,743
Notes and Other Receivables -- Current........................... 2,366 3,812
Inventories...................................................... 5,726 2,478
Drilling Contracts in Progress................................... 5,074 485
Prepaid Insurance................................................ 577 1,098
Other Prepaid Expenses........................................... 5,486 3,798
--------- ---------
Total Current Assets..................................... 39,048 38,029
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment....................................... 148,085 168,059
Oil and Gas Properties ("successful efforts" method)............. 22,699 24,888
Other............................................................ 3,079 2,534
--------- ---------
173,863 195,481
Less: Accumulated Depreciation, Depletion and Amortization....... (102,615) (108,975)
--------- ---------
Net Property and Equipment................................ 71,248 86,506
NOTES AND OTHER RECEIVABLES -- LONG-TERM........................... 5,017 7,044
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES........... 4,036 1,852
OTHER ASSETS....................................................... 818 92
--------- ---------
TOTAL ASSETS............................................. $ 120,167 $ 133,523
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable................................................. $ 14,808 $ 8,679
Accrued Expenses, Including Interest............................. 4,909 7,248
Accrued Litigation Settlement and Expenses....................... -- 1,700
--------- ---------
Total Current Liabilities................................ 19,717 17,627
NOTES PAYABLE -- LONG-TERM......................................... -- 13,108
OTHER LIABILITIES.................................................. 516 659
DEFERRED INCOME.................................................... 303 885
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, 1994 and 1993, 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 4,089,447 and 4,513,104 shares
outstanding at December 31, 1994 and 1993, respectively....... 45 45
Paid-In Capital.................................................. 99,135 99,133
Retained Earnings (Deficit)...................................... (22,895) (26,292)
Less: Notes Receivable from Officers for Restricted Stock........ (232) (232)
Restricted Stock.......................................... (57) (103)
Treasury Stock, at cost, 428,657 and 5,000 shares at
December 31, 1994 and 1993, respectively............... (5,115) (57)
--------- ---------
Total Shareholders' Equity............................... 70,881 72,494
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 120,167 $ 133,523
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 33
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income............................................... $ 6,056 $ 3,626 $ 3,018
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization.............. 14,008 17,438 12,883
Contract Termination Provision........................ 5,193 577 --
Writedown in Carrying Value of Oil and Gas
Properties.......................................... -- -- 1,500
Mobilization Expense Amortization..................... 544 1,930 1,846
Litigation Settlement and Expenses.................... -- 3,703 --
Gain on Disposition of Assets......................... (665) (2,016) (4,965)
Other................................................. (829) (232) 638
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable................................. 9,690 (853) (3,153)
Inventories......................................... (3,597) (487) (53)
Drilling Contracts in Progress...................... (4,722) 682 4,405
Prepaid Expenses and Other Current Assets........... (1,583) (1,472) 3,155
Investments in and Advances to Unconsolidated
Affiliates....................................... (2,184) (1,852) --
Other Assets........................................ (854) (13) (72)
Accounts Payable and Other Accrued Liabilities...... 2,667 (3,810) (9,393)
Deferred Income..................................... -- -- (1,718)
--------- --------- ---------
Net Cash Provided By Operating Activities........ 23,724 17,221 8,091
INVESTING ACTIVITIES:
Capital Expenditures..................................... (9,100) (12,668) (21,878)
Proceeds from Sale of Property and Equipment............. 5,917 6,847 335
Insurance Proceeds from Loss of Rig and Related
Equipment............................................. -- -- 10,000
Collection of Notes Receivable........................... 1,027 1,456 --
--------- --------- ---------
Net Cash Used In Investing Activities............ (2,156) (4,365) (11,543)
FINANCING ACTIVITIES:
Proceeds from Borrowings................................. 17,000 -- 12,500
Payments on Borrowings................................... (30,108) (15,240) (11,152)
Payments Under Capital Lease Obligations................. -- -- (2,682)
Acquisition of Treasury Stock............................ (5,096) (57) --
Proceeds from Issuance of Common Stock................... -- 18 18,416
Preferred Stock Dividends................................ (2,659) (2,659) (2,659)
--------- --------- ---------
Net Cash Provided By (Used In) Financing
Activities..................................... (20,863) (17,938) 14,423
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 705 (5,082) 10,971
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD................................................ 10,615 15,697 4,726
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 11,320 $ 10,615 $ 15,697
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 34
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, 1991....... $ 30 $80,409 $(27,618) $ -- $ (592) $ --
Net Income....................... -- -- 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....................... -- -- 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)
======= ======== ========= ====== ====== ========
Net Income....................... -- -- 6,056 -- -- --
Treasury Stock Acquired.......... -- -- -- -- -- (5,096)
Preferred Stock Dividends
Declared...................... -- -- (2,659) -- -- --
Amortization of Restricted
Stock......................... -- -- -- -- 46 --
Employer Contributions to 401(k)
Savings Plan.................. -- 2 -- -- -- 38
------ ------- -------- ------ ------ -------
BALANCE AT DECEMBER 31, 1994....... $ 45 $99,135 $(22,895) $ (232) $ (57) $(5,115)
======= ======== ========= ====== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 35
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 subsidiaries, Cliffs Oil and Gas
Company ("COGC") and Cliffs Drilling International, Inc. ("International") and
the Company's Venezuelan activities, which are organized as a foreign branch.
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. The Company's one-third
( 1/3) interest in the operations of Cliffs Neddrill Central Turnkey
International ("CNCTI"), a joint venture consisting of International, Neddrill
Turnkey Drilling B.V. and Perforadora Central, S.A. de C.V., has been accounted
for under the equity method. The Company's interest in the operations of
Cliffs-Neddrill Turnkey International ("CNTI"), a 50/50 joint venture between
the Company and Neddrill Nederland B.V. of the Netherlands ("Neddrill") 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 revenues from its interests in producing wells based upon
the sales method.
34
<PAGE> 36
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Each of the 3 MOPUs which worked in Venezuela had an initial contract term
of two years expiring in 1994, subject to certain buyout options. The buyout
options could have been exercised at any time during the contract term. Because
the Company believed there was a reasonable likelihood that the buyout options
on 2 of the units would be exercised in 1994, the Company deferred 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 was reflected in "Deferred Income" in the Consolidated Balance Sheets until
the 2 MOPUs were sold during December, 1994.
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, depletion and amortization 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
35
<PAGE> 37
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on items recognized in different periods for financial and tax reporting
purposes. See Note 6 of Notes to Consolidated Financial Statements.
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 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 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.
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 AND NOTES AND OTHER
RECEIVABLES -- CURRENT AND 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. 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.
Effective January 1, 1993, the Company sold its 4 inland posted barge
drilling rigs and rights to certain oil and gas production payment proceeds
generated from the proceeds-of-production drilling program 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 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
36
<PAGE> 38
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 percent
(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.
3. PROPERTY AND EQUIPMENT
Buyout options on 2 MOPUs which previously worked in Venezuela were
exercised by the charterer during the fourth quarter of 1994. The Company
received total proceeds of $4,000,000 for the 2 units in December, 1994. No net
gain or loss on sale was recognized for financial reporting purposes.
Effective January 1, 1993, the Company sold its 4 inland posted barge
drilling rigs and rights to certain oil and gas production payment proceeds for
an aggregate sales price of $13,500,000.
During the fourth quarter of 1992, the Company purchased 5 jack-up drilling
rigs for $6,000,000 in cash. The Company 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 during 1994, and bareboat chartered the other unit in 1994
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 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 ClP until the units became
operational. No interest was capitalized during the years ended December 31,
1994 and 1993. Total interest capitalized during the year ended December 31,
1992 was $1,278,000. Costs to mobilize the rigs to Venezuela were reimbursed to
the Company by Dresser-Rand.
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
CNCTI was awarded a contract for one turnkey bid package to drill 4 turnkey
wells in the Bay of Campeche, Mexico. Drilling operations commenced in February,
1993. CNCTI was subsequently awarded 2 turnkey bid packages for 2 wells each in
the Bay of Campeche and the Bay of Tampico, Mexico. Five and 2 turnkey contracts
were completed by CNCTI in 1994 and 1993, respectively, and were recorded under
the equity method. The following information summarizes the unaudited Statements
of Operations and Balance Sheets of CNCTI:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $ 66,717 $ 23,718 $ --
Operating expenses.................................. 58,338 21,518 --
-------- -------- --------
Operating income.......................... 8,379 2,200 --
Other, net.......................................... (1,525) (395) --
-------- -------- --------
Net income..................................... $ 6,854 $ 1,805 $ --
======== ======== ========
</TABLE>
37
<PAGE> 39
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current assets................................................. $ 31,148 $ 13,739
Noncurrent assets.............................................. 225 209
-------- --------
Total assets......................................... $ 31,373 $ 13,948
======== ========
Current liabilities............................................ $ 17,532 $ 7,943
Noncurrent liabilities......................................... 1,433 450
Equity......................................................... 12,408 5,555
-------- --------
Total liabilities and equity......................... $ 31,373 $ 13,948
======== ========
</TABLE>
5. NOTES PAYABLE
In conjunction with the acquisition of 3 jack-up rigs 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.
The Company executed the Second Restated Credit Agreement with INCC during
the first quarter of 1994, thereby converting its $10,000,000 working capital
credit facility to a $20,000,000 revolving line of credit subject to certain
borrowing base limitations.
For the $30,000,000 Term Loan, the Company paid a fee equal to two percent
(2%) of the facility. The Company paid interest on the advances 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 two and three-quarters
percent (2 3/4%) per annum. Eighty-five percent (85%) of the cash flow
attributable to the contracts for the Company's 3 MOPUs working in Venezuela was
dedicated to debt repayment under the contracts and loan agreements relating to
such MOPUs. In addition, both notes were secured by an assignment of the
revenues due under the contract with Dresser-Rand. The Company paid the
outstanding balance under the Term Loan in October, 1994.
All advances to the Company from the $20,000,000 revolving line of credit
bear interest at three-quarters of one percent ( 3/4%) per annum plus the
greater of the prevailing Federal Funds Rate plus one-half percent ( 1/2%) or a
referenced average prime rate; or at the adjusted LlBOR rate plus two and
one-half percent (2 1/2%) per annum. The foregoing rates are subject to an
increase of one-half percent ( 1/2%) in the event certain financial thresholds
are exceeded. 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 revolving line of
credit matures on January 1, 1996. At December 31, 1994, the Company had no
outstanding borrowings on the $20,000,000 revolving line of credit.
38
<PAGE> 40
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The revolving line of credit note is secured by accounts receivable,
certain oil and gas properties, and a first preferred fleet mortgage on a
majority of the Company's rig inventory. Under the Second 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 $919,000, $1,536,000 and
$2,623,000 for the years ended December 31, 1994, 1993, and 1992, respectively.
6. INCOME TAXES
The Company incurred net operating losses in prior years resulting in tax
net operating loss carryforwards. The total carryforward is available to offset
taxable income in future years. At December 31, 1994, the net operating loss
carryforward is $8,607,000 for regular tax purposes. The Company also has a
percentage depletion carryover to 1995 of approximately $1,937,000. The majority
of these amounts have been realized in the financial statements as a reduction
of deferred taxes. In addition, the Company has $1,394,000 of unused investment
tax credit carryforwards and $2,186,000 of foreign tax credit carryforwards at
December 31, 1994. These carryforwards are available for use by the Company
through the following expiration dates:
<TABLE>
<CAPTION>
ALTERNATIVE
UNUSED REGULAR TAX MINIMUM TAX
FOREIGN INVESTMENT NET OPERATING NET OPERATING
TAX TAX LOSS LOSS
CREDITS CREDITS(1) CARRYFORWARDS CARRYFORWARDS
------ ---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995............................ $ -- $ 482 $ -- $ --
1996............................ -- 741 -- --
1997 - 2009..................... 2,186 171 8,607 8,947
------ ---------- ------------- -------------
Total................. $2,186 $1,394 $ 8,607 $ 8,947
====== ========= =========== ===========
</TABLE>
- ---------------
(1) The investment tax credits reflect the 35% reduction required by the Tax
Reform Act of 1986.
The Company provided for $790,000 of income taxes for the year ended
December 31, 1994. This amount is comprised of a current provision of $1,190,000
for the taxes paid in foreign jurisdictions and a deferred tax benefit of
$400,000 for alternative minimum taxes paid in prior years
39
<PAGE> 41
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which are available as credits indefinitely against regular tax liabilities. The
significant components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................... $ 9,575 $ 9,270
Safe harbor lease income............................. 1,868 3,024
------- -------
Total deferred tax liabilities............... 11,443 12,294
------- -------
Deferred tax assets:
Net operating loss carryforwards..................... 3,012 2,613
Safe harbor lease expense............................ 6,591 8,615
Unused investment tax credits........................ 1,394 2,353
Percentage depletion carryforward.................... 678 172
Charitable contribution carryforward................. -- 8
Minimum tax credits.................................. 400 475
Foreign tax credits.................................. 2,186 210
Other, net........................................... 259 991
------- -------
Total deferred tax assets.................... 14,520 15,437
Valuation allowance for deferred tax assets............ (2,677) (3,143)
------- -------
Net deferred tax assets.............................. 11,843 12,294
------- -------
Net.......................................... $ 400 $ --
======== ========
</TABLE>
For financial reporting purposes, income (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1994 1993 1992
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
United States....................................... $ 807 $(6,348) $ 138
Foreign............................................. 6,039 10,659 2,880
------ ------- ------
Total....................................... $6,846 $ 4,311 $3,018
====== ======== ======
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
----------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
United States........................................ $ -- $ 475 $ --
Foreign.............................................. 1,190 210 --
Deferred:
United States........................................ (400) -- --
Foreign.............................................. -- -- --
------ ------ ------
Total........................................ $ 790 $ 685 $ --
====== ====== ======
</TABLE>
40
<PAGE> 42
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax attributable to continuing operations
computed at the U.S. statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates........................... $ 2,396 $1,466 $1,026
Tax benefits not recognized due to net operating loss
carryforwards....................................... -- (610) (706)
Foreign tax provision................................. 1,190 210 --
Foreign tax credits available......................... (1,190) -- --
Foreign tax credits available from equity
investments......................................... (537) -- --
Alternative minimum tax provision..................... -- .... 475 --
Percentage depletion available........................ (506) -- --
Change in valuation allowance......................... (466) (912) (320)
Other, net............................................ (97) 56 --
------- ------ ------
Income tax expense.......................... $ 790 $ 685 $ --
======= ====== ======
</TABLE>
Income tax payments amounted to $982,000 and $685,000 for the years ended
December 31, 1994 and 1993. No income tax payments were made during the year
ended December 31, 1992.
7. 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.
Cleveland guarantees the Company's obligations to indemnify the tax lessors
against loss of tax benefits throughout the lease term ending in 1997.
The future net tax deductions associated with the Safe Harbor Leases are
$3,732,000, $4,644,000 and $5,117,000 for the years 1995, 1996 and 1997,
respectively.
8. 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 90 days of service
is eligible to participate in the plan through contributions that range in one
percent multiples up to 16% of salary, with a 1994 dollar maximum of $9,240. 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 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 6 investment
options in multiples of 5%. 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 five years employment
service with the Company. 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
41
<PAGE> 43
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $302,000, $233,000 and $266,000 for the years 1994, 1993 and 1992,
respectively.
9. LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES
Maturities of obligations under capital leases at December 31, 1991 were
$2,682,000. The final payment under the capital lease obligation was made on
January 2, 1992.
10. CAPITAL STOCK
On October 22, 1992, the Company completed a secondary public offering of
1,500,000 shares of common stock at a price to the public of $13.25 per share.
The Company received net proceeds of $18,780,000 on October 29, 1992 after
deducting underwriting discounts and commissions of $1,095,000, or $0.73 per
share. The common stock sold in the public offering has been recorded at par
value as Common Stock, with the remainder of the proceeds, after deducting
offering costs of $364,000, being recorded as paid-in capital.
Changes in the number of outstanding shares of the Company's Common Stock
are summarized as follows:
<TABLE>
<S> <C>
Outstanding Shares at December 31, 1991.......................... 2,993,104
Common Stock issuance.......................................... 1,500,000
Restricted Stock grants, net................................... 17,500
---------
Outstanding Shares at December 31, 1992.......................... 4,510,604
Stock options exercised........................................ 1,500
Restricted Stock grants........................................ 6,000
Treasury Stock acquired........................................ (5,000)
---------
Outstanding Shares at December 31, 1993.......................... 4,513,104
Treasury Stock contributed to employee savings plan............ 3,343
Treasury Stock acquired........................................ (427,000)
---------
Outstanding Shares at December 31, 1994.......................... 4,089,447
=========
</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 ten years from the date of grant.
At December 31, 1994, 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
84,500 39,500 $12.00-$12.99
122,100 120,850 $13.00-$13.99
50,600 50,600 $14.00-$14.99
------- -------
262,200 215,950
======= =======
</TABLE>
42
<PAGE> 44
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options for 1,500 shares were exercised during 1993 while no options were
exercised in 1994 or 1992, respectively.
The Company's Board of Directors has awarded restricted stock to the
Company's officers and key employees as follows:
<TABLE>
<CAPTION>
SHARES SHARES
YEAR AWARDED OUTSTANDING
------------------------------------------------------ ------- -----------
<S> <C> <C>
1988.................................................. 34,600 34,600
1989.................................................. 41,300 38,675
1990.................................................. 30,400 30,400
1991.................................................. 2,000 2,000
1992.................................................. -- --
1993.................................................. 6,000 6,000
1994.................................................. -- --
</TABLE>
Restrictions on the 1988 award lapsed 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 for all other awards. Expense related to amortization of
the restricted stock was $46,000, $120,000 and $442,000 for the years 1994,
1993, and 1992, 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 $57,000 and $103,000 at December 31,
1994 and 1993, respectively.
Effective December 31, 1992, the Company's Board of Directors approved the
sale of 17,500 shares of restricted Common Stock to certain key executives. The
price paid for 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 years ended December 31, 1994 and
1993.
11. REDEEMABLE PREFERRED STOCK
The Preferred Stock is redeemable at the option of the Company, in whole or
in part, at $25.93 per share if redeemed prior to September 15, 1995, 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 Second Restated Credit Agreement. Dividends on the Preferred Stock
are cumulative from the date of first issuance and are payable quarterly at the
rate of $2.3125 per share per annum. Pursuant to the Second 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
43
<PAGE> 45
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 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.
44
<PAGE> 46
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. 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 $583,000, $656,000 and $576,000 for the years ended 1994,
1993 and 1992, respectively. Minimum future obligations under non-cancelable
operating leases at December 31, 1994 for the following five years are $667,000,
$510,000, $515,000, $545,000 and $555,000, respectively, and $693,000
thereafter.
In conjunction with the return to Loews San Antonio Hotel Corporation, now
known as Diamond Offshore Company ("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 attorneys 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, awarding Diamond M
$3,500,000, plus court costs, offset by the partial summary judgment of
$1,800,000. The Company reported this litigation settlement and expenses in the
Consolidated Statements of Operations during the fourth quarter of 1993. 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.
13. BUSINESS SEGMENTS
During the three years ended December 31, 1994, 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.
Engineering Services -- 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 and foreign well engineering and
management services.
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.
45
<PAGE> 47
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OPERATING DEPRECIATION,
INCOME IDENTIFIABLE CAPITAL DEPLETION AND
REVENUES (LOSS) ASSETS EXPENDITURES AMORTIZATION
-------- --------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1994
Daywork Drilling............ $32,481 $ 7,100 $ 64,004 $ 5,692 $ 6,535
Engineering Services........ 36,079 3,581 19,195 -- 18
MOPU Operations............. 16,020 4,415 31,854 3,263 4,617
Oil and Gas................. 2,470 (1,439) 5,115 146 2,785
Corporate Office............ -- (5,184) -- -- 70
Eliminations................ (3,357) (2) (1) (1) (17)
------- ------- -------- -------- -------
Consolidated................ $83,693 $ 8,471 $120,167 $ 9,100 $14,008
======= ======= ======== ======== =======
December 31, 1993
Daywork Drilling............ $22,218 $ (515) $ 63,360 $ 1,576 $ 6,304
Engineering Services........ 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
Engineering Services........ 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
======= ======= ======== ======== =======
</TABLE>
Intersegment sales were $3,357,000, $147,000 and $3,082,000 for the years
ended December 31, 1994, 1993 and 1992, 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, 1994. The following
table summarizes information with respect to these major customers.
46
<PAGE> 48
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
% OF
REPORTING CONSOLIDATED
CUSTOMER SEGMENT REVENUES
--------------------------- ------------------------------------------- ------------
<S> <C> <C>
December 31, 1994
Corpoven, S.A............ Daywork Drilling and Engineering Services 32%
Maraven, S.A............. Daywork Drilling 18%
Dresser-Rand............. MOPU Operations 14%
CNCTI.................... Daywork Drilling and Engineering Services 14%
December 31, 1993
Dresser-Rand............. MOPU Operations 29%
Maraven, S.A............. Daywork Drilling 24%
Marathon Oil Company..... Engineering Services 10%
December 31, 1992
Maraven, S.A............. Daywork Drilling 20%
Marathon Oil Company..... Engineering Services 16%
</TABLE>
14. 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.
<TABLE>
<CAPTION>
UNITED SOUTH
STATES AMERICA MEXICO TOTAL
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1994
Revenues................................. $18,092 $53,816 $11,785 $ 83,693
======== ======== ======== =========
Operating Income......................... $ 1,523 $ 4,417 $ 7,645 $ 13,585
======== ======== ========
Corporate Overhead.................. (5,114)
--------
$ 8,471
=========
Identifiable Assets at December 31,
1994.................................. $55,034 $53,623 $11,510 $120,167
======== ======== ======== =========
December 31, 1993
Revenues................................. $23,579 $40,361 $ 1,598 $ 65,538
======== ======== ======== =========
Operating Income (Loss).................. $(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 (Loss).................. $ (701) $ 5,510 $ -- 4,809
======== ======== ========
Corporate Overhead.................. (4,512)
--------
$ 297
=========
Identifiable Assets at December 31,
1992.................................. $59,363 $90,840 $ -- $150,203
======== ======== ======== =========
</TABLE>
47
<PAGE> 49
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for years ended December 31, 1994, 1993 and
1992 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>
1994:
Revenues............................ $ 16,477 $ 16,547 $ 25,550 $ 25,119
Operating Income.................... 2,333 2,545 2,003 1,590
Net Income.......................... 1,420 1,518 2,004 1,114
Net Income Applicable to Common and
Common Equivalent Shares.......... 755 853 1,339 450
Net Income per Share:
Primary........................... $ 0.17 $ 0.20 $ 0.32 $ 0.11
Assuming Full Dilution............ $ 0.17 $ 0.20 $ 0.32 $ 0.11
1993:
Revenues............................ $ 17,817 $ 12,219 $ 18,229 $ 17,273
Operating Income.................... 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........................... $ (0.11) $ (0.18) $ 1.01 $ (0.44)(2)(3)
Assuming Full Dilution............ $ (0.11) $ (0.18) $ 0.71 $ (0.44)(2)(3)
</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.
48
<PAGE> 50
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
COGC, from time to time, 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. The Company's oil and gas operations did not meet
applicable disclosure requirements at or for the year ended December 31, 1994.
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.
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
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Capitalized costs --
Properties not being amortized.............................. $ 476 $ 629
Properties being amortized.................................. 24,412 22,661
--------- --------
Total capitalized costs............................. 24,888 23,290
Accumulated depreciation, depletion and amortization.......... (13,039) (7,510)
Accumulated writedowns in carrying value of oil and gas
properties.................................................. (5,500) (5,500)
--------- --------
Net capitalized costs............................... $ 6,349 $ 10,280
========= ========
</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
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Property acquisition costs.................................... $ 63 $ 638
Exploration costs............................................. 285 542
Development costs............................................. 1,250 4,282
--------- --------
Total costs incurred................................ $ 1,598 $ 5,462
========= ========
</TABLE>
49
<PAGE> 51
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues(1).................................................... $ 4,686 $ 3,723
Production costs............................................... 1,064 1,119
Exploration costs.............................................. 188 141
Depreciation, depletion and amortization....................... 5,529 2,330
Writedown in carrying value of oil and gas properties.......... -- 1,500
-------- --------
(2,095) (1,367)
Income tax expense (benefit)................................... -- --
-------- --------
Results of operations from producing activities (excluding
corporate overhead and interest costs).................... $ (2,095) $ (1,367)
======== ========
</TABLE>
- ---------------
(1) Includes $63,000 and $158,000 attributable to net profits interests for the
years ended December 31, 1993 and 1992, respectively.
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 NATURAL GAS
(MBI) (MMCF)
------------- -----------------
1993 1992 1993 1992
---- ---- ------ ------
<S> <C> <C> <C> <C>
PROVED RESERVES:
Beginning of year..................................... 113 193 4,352 4,874
Effect of Development Agreement.................... (1 ) 2 (18) 38
Revisions of previous estimates.................... 37 (36 ) 580 (891)
Extensions and discoveries......................... 19 14 63 1,562
Production......................................... (44 ) (60 ) (1,651) (1,231)
---- ---- ------ ------
End of year........................................... 124 113 3,326 4,352
==== ==== ====== ======
PROVED DEVELOPED RESERVES............................... 89 80 3,308 4,336
==== ==== ====== ======
</TABLE>
50
<PAGE> 52
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The standardized measure of discounted future net cash flows and major
components of that calculation relating to proved oil and gas reserves are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Future cash inflows.................................................... $ 9,642 $11,981
Future costs:
Production........................................................... (1,549) (1,869)
Development.......................................................... (133) (48)
------- -------
Future net inflows before income taxes................................. 7,960 10,064
Future income taxes.................................................... -- --
------- -------
Undiscounted future net cash flows..................................... 7,960 10,064
10% annual discount.................................................... (1,622) (1,362)
------- -------
Standardized measure of discounted future net cash flows............... $ 6,338 $ 8,702
======== ========
</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, which
may be recovered as a result of further exploration and development activities;
and other business risks.
51
<PAGE> 53
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
------- -------
(IN THOUSANDS)
<S> <C> <C>
STANDARDIZED MEASURE-BEGINNING OF YEAR....................... $ 8,702 $ 7,204
Sales, net of production costs............................. (3,622) (2,604)
Effect of Development Agreement............................ (41) 69
Net changes in sales prices, net of production costs....... (306) (23)
Extensions, discoveries and improved recovery, net of
future production and development costs................. 267 3,034
Future development costs incurred.......................... -- 1,823
Revisions of previous quantity estimates................... 1,505 (1,443)
Accretion of discount...................................... 870 720
Changes in production rates (timing)....................... (1,005) --
Other...................................................... (32) (78)
------- -------
Net Change......................................... (2,364) 1,498
------- -------
STANDARDIZED MEASURE-END OF YEAR............................. $ 6,338 $ 8,702
======== ========
</TABLE>
52
<PAGE> 54
SCHEDULE II
CLIFFS DRILLING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1994
(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:
1994............................................ $ 697 $ 200 $ (489) $ 408
===== ===== ====== =====
1993............................................ $ 307 $ 390 $ -- $ 697
===== ===== ====== =====
1992............................................ $ 7 $ 300 $ -- $ 307
===== ===== ====== =====
</TABLE>
53
<PAGE> 55
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. ("
Predecessor"), Cliffs Exploration Company, now Cliffs Oil and Gas
Company ("COGC"), Cliffs Drilling International, Inc. ("lnternational")
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 -- By-Laws 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 -- By-Laws 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,
Predecessor, COGC, International and the Company (incorporated by refer-
ence 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,
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 Predecessor and Trans-
American Natural Gas Corporation, Debtor and Debtor-in-Possession 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 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>
54
<PAGE> 56
<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 (incorporated by reference to Exhibit 10.7.1 to
the Company's Form 10-K for the fiscal year ended December 31, 1993).
10.7.2 -- Amendment No. 2 dated May 20, 1993 to the Cliffs Drilling Company 1988
Incentive Equity Plan (incorporated by reference to Exhibit 10.7.2 to
the Company's Form 10-K for the fiscal year ended December 31, 1993).
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 (incorporated by reference to
Exhibit 10.9.1 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
10.9.2 -- Amendment No. 2 dated May 21, 1992 to the Cliffs Drilling Company
Retention Plan for Salaried Employees (incorporated by reference to
Exhibit 10.9.2 to the Company's Form 10-K for the fiscal year ended
December 31, 1993).
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
(incorporated by reference to Exhibit 10.11.2 to the Company's Form 10-K
for the fiscal year ended December 31, 1993).
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).
</TABLE>
55
<PAGE> 57
<TABLE>
<S> <C>
10.13 -- Second Restated Credit Agreement dated as of March 28, 1994 by and among
the Company, COGC, International and Internationale Nederlanden (U.S.)
Capital Corporation ("INCC") (incorporated by reference to Exhibit
10.14.1 to the Company's Form 10-Q for the fiscal quarter ended March
31, 1994).
*10.13.1 -- First Amendment to Second Restated Credit Agreement dated as of May 17,
1994, by and among the Company, COGC, International and INCC.
10.14 -- 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).
10.14.1 -- 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).
10.14.2 -- 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).
10.14.3 -- Maintenance, Moving and Jacking Agreement (LANGLEY) dated as of December
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).
10.14.4 -- 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).
10.14.5 -- 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).
10.14.6 -- 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).
10.14.7 -- 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).
10.15 -- 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).
10.16 -- 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 for the fiscal
quarter ended March 31, 1993).
10.17 -- Form of Executive Agreement dated as of July 20, 1994 (incorporated by
reference to Exhibit 10.20 to the Company's Form 10-Q for the fiscal
quarter ended June 30, 1994).
</TABLE>
56
<PAGE> 58
<TABLE>
<S> <C>
*21.1 -- Subsidiaries of the Registrant.
*23.1 -- Consent of Ernst & Young LLP.
*23.2 -- Consent of Huddleston & Co., Inc.
*27 -- Financial Data Schedule.
</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.
57
<PAGE> 1
EXHIBIT 10.13.1
FIRST AMENDMENT TO SECOND RESTATED
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND RESTATED CREDIT AGREEMENT (herein
called this "Amendment") made as of the 17th day of May, 1994 by and among
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, a Delaware corporation ("Lender"),
W I T N E S S E T H:
WHEREAS, Borrower, COG, CDI and Lender have entered into that certain
Second Restated Credit Agreement dated as of March 28, 1994 (the "Original
Agreement") for the purposes and consideration therein expressed, pursuant to
which Lender made, and became obligated to make, loans to Borrower as therein
provided; and
WHEREAS, Borrower and Lender desire to amend the Original Agreement
for the purposes set forth herein;
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.
"Amendment" means this First Amendment to Second Restated
Credit Agreement.
"Credit Agreement" means the Original Agreement as amended
hereby.
<PAGE> 2
ARTICLE II.
Amendments to Original Agreement
Section 2.1 Dividends and Distributions. Section 6.5 of the
Original Agreement is hereby amended in its entirety to read as follows:
"In any fiscal year of the Consolidated Group, no Related
Person will declare, pay or make, whether in cash or Property of any
Related Person or any Subsidiary of any Related Person, any dividend
or distribution on, or purchase, redeem or otherwise acquire for
value, any share of, any class of its capital stock; provided,
however, the foregoing restriction shall not apply to (i) dividend
payments not exceeding the aggregate amount of $665,000 for any
calendar quarter payable to holders of shares of convertible
exchangeable preferred stock of Borrower outstanding on the Closing
Date; provided, however, such quarterly dividend payments shall not be
distributed after the occurrence of or during the continuance of a
Default or an Event of Default, (ii) redemptions of shares of
convertible exchangeable preferred stock of Borrower outstanding at
the Closing Date, pursuant to Section 7 of the Certificate of
Designations of Borrower dated September 20, 1988 or (iii) the
purchase by Borrower after the Closing Date of up to 250,000 shares of
its common stock $0.01 par value per share in the open market."
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 Lender shall have
received, at Lender's office, a counterpart of this Amendment executed and
delivered by Borrower.
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, 4.4, 4.6 and 4.27 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 Borrower is and
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 obligations of Borrower, COG
and CDI hereunder.
<PAGE> 3
(c) The execution and delivery by Borrower, COG and
CDI of this Amendment, the performance by Borrower of their
respective obligations hereunder and the consummation of the
transactions contemplated hereby 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 or to
consummate the transactions contemplated hereby.
(d) When duly executed and delivered, each of this
Amendment and the Credit Agreement will be a legal and binding
instrument and agreement 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 Ratification of Agreements. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, 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 5.2 Survival of Agreements. All representations,
warranties, covenants and agreements of Borrower herein shall 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 5.3 Loan Documents. This Amendment is a Loan Document, and
all provisions in the Credit Agreement pertaining to Loan Documents apply
hereto.
Section 5.4 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.
<PAGE> 4
Section 5.5 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 5.6 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.
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 Rokholt
____________________________
Name:
Title:
<PAGE> 5
CONSENT AND AGREEMENT
Each of Cliffs Oil and Gas Company and Cliffs Drilling International,
Inc., hereby consents to the provisions of this Amendment and the transactions
contemplated herein, and hereby ratifies and confirms the First Restated
Guaranty dated as of December 13, 1991 (as heretofore amended) 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
CLIFFS DRILLING INTERNATIONAL, INC.
By: /s/ Edward A. Guthrie
____________________________
Edward A. Guthrie
Vice President - Finance
<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.
11. CLIFFS DRILLING, INC., a Delaware corporation wholly owned by Cliffs
Drilling Company.
<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, 33-37162, and 33-71778) pertaining to the
1988 Incentive Equity Plan of Cliffs Drilling Company of our report dated
February 17, 1995, with respect to the consolidated financial statements and
schedule of Cliffs Drilling Company included in the Annual Report (Form 10-K)
for the year ended December 31, 1994.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 1, 1995
<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, 33-37162, and
33-71778) and in the related prospectuses of our report dated January 1, 1995,
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, 1994, and to the use
of our name, and the statements with respect to us.
HUDDLESTON & CO., INC.
By: /s/ B.P. HUDDLESTON
____________________________
B.P. Huddleston
Chairman
Houston, Texas
March 1, 1995
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 11,320
<SECURITIES> 0
<RECEIVABLES> 11,273
<ALLOWANCES> 408
<INVENTORY> 5,726
<CURRENT-ASSETS> 39,048
<PP&E> 173,863
<DEPRECIATION> 102,615
<TOTAL-ASSETS> 120,167
<CURRENT-LIABILITIES> 19,717
<BONDS> 0
<COMMON> 45
28,750
0
<OTHER-SE> 70,836
<TOTAL-LIABILITY-AND-EQUITY> 120,167
<SALES> 83,693
<TOTAL-REVENUES> 83,693
<CGS> 50,635
<TOTAL-COSTS> 75,222
<OTHER-EXPENSES> 599
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 826
<INCOME-PRETAX> 6,846
<INCOME-TAX> 790
<INCOME-CONTINUING> 6,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,056
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
