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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, 1995 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 (ZIP CODE) 77002
HOUSTON, TEXAS
(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 February 29, 1996, was $85,145,382. 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 February 29, 1996, was 6,230,822.
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENTS REFERENCED IN THIS REPORT
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Certain portions of the Registrant's definitive proxy statement for
the 1996 Annual Meeting of Shareholders Part III
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(Exhibit Index Located on Pages 48 to 50)
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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................................................... 9
Government Regulation.................................................... 10
Risks and Insurance...................................................... 10
Employees................................................................ 11
Other Properties......................................................... 11
3. Legal Proceedings........................................................ 11
4. Submission of Matters to a Vote of Security-Holders...................... 12
PART II
5. Market For Registrant's Common Equity and Related Stockholder Matters.... 12
6. Selected Financial Data.................................................. 13
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 14
8. Financial Statements and Supplementary Data.............................. 21
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure............................................................. 21
PART III
10. Directors and Executive Officers of the Registrant....................... 21
11. Executive Compensation................................................... 21
12. Security Ownership of Certain Beneficial Owners and Management........... 21
13. Certain Relationships and Related Transactions........................... 22
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......... 22
SIGNATURES............................................................................. 24
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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.
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 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 drilling rigs
and 2 land drilling 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, used one unit as a mobile
offshore supply unit in the Bay of Campeche, Mexico from February, 1993 through
October, 1995, 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
charterer has an option to purchase the rig at the end of the charter. During
1995, the Company purchased and renovated a 3000 HP land rig, Cliffs Drilling
Rig 54, for an initial contract to drill 2 wells on a daywork basis in
Venezuela. As a result of damage caused by an earthquake, the jack-up drilling
rig MARQUETTE was determined to be a compromised total loss in December, 1995,
and insurance underwriters paid the Company $14.6 million. The rig has
subsequently been scrapped and salvaged by the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Company currently owns and operates 2 offshore jack-up rigs, 6 land rigs and 6
MOPUs.
RECENT DEVELOPMENTS
The LANGLEY, one of 3 MOPUs which worked in Venezuela, ended its two-year
contract with Maraven, S.A. ("Maraven") in May, 1994. The rig was demobilized to
the United States and marketed. The LANGLEY has been bareboat chartered to Sedco
Forex International, Inc. ("Sedco") for a five-year term for use as a MOPU
offshore Nigeria. The rig will be mobilized to Nigeria midyear 1996 following
modifications.
During February, 1996, the Company bareboat chartered an idle jack-up
drilling rig, Cliffs No. 12, to a third party for use as a workover rig in the
U.S. Gulf of Mexico. The two-year charter
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may be terminated by the Company upon 30 days notice. The charterer may
terminate the contract after six months upon 30 days notice.
The Company was recently awarded a contract by Lagoven, S.A. ("Lagoven") to
manage the labor and maintenance on two 2000 HP land drilling rigs currently
operating in eastern Venezuela.
The Company converted 1,115,988 shares of its 1,150,000 issued and
outstanding shares of $2.3125 Convertible Exchangeable Preferred Stock
("Preferred Stock") on January 17, 1996. The Company issued 2,113,557 shares of
Common Stock upon conversion of the Preferred Stock. The remaining 34,012 shares
were redeemed for cash in the amount of $25.69 per share plus $.22 per share in
accrued and unpaid dividends thereon through the redemption date at a cost to
the Company of approximately $.9 million.
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. Current demand for offshore drilling rigs is much improved and world
utilization is at its highest level since early 1985. Significant increases in
foreign exploration and production activity have resulted in improvements in the
market for oilfield services. However, energy industry spending for U.S.
exploration and production activities has been reduced in the past due to
volatility in oil prices and depressed natural gas prices. This price volatility
has created extreme cycles in the drilling and oilfield service businesses.
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 market. As a result of its
actions, the Company is now positioned in 4 different business segments. See
Note 12 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 drilling rigs in 1989,
deployed 2 jack-up drilling rigs and 2 land drilling 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.
("Neddrill") and Perforadora Central, S.A. de C.V. The Company purchased and
renovated a 3000 HP land rig, Cliffs Drilling Rig 54, for an initial contract to
drill 2 wells on a daywork basis in Venezuela. The Company currently operates
all of its 6 land drilling rigs and one of its 2 jack-up drilling rigs in
Venezuela. The Company is optimistic about the Venezuelan drilling market due to
the recent programs for reactivation of marginal fields and profit-sharing
contracts initiated by Petroleos de Venezuela S.A. ("PDVSA").
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, 1995,
the Company completed 257 turnkeys with aggregate revenues of $630.8 million,
direct income before depreciation and allocated overhead of $83.3 million, and
operating income of $53.5 million. In recent years, the turnkey drilling market
has become more competitive as more companies entered the market and margins
were reduced. Domestic turnkey operators have been very aggressive in pricing
Gulf of Mexico turnkeys and competition is intense. International turnkeys have
achieved greater acceptance, and the Company believes that expansion
opportunities exist in
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this market. 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 as an expansion of this business segment. 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 strong source of revenues to the Company
with minimal operating cost requirements and higher profit margins. MOPUs create
expansion opportunities for the Company and provide some insulation against
decreased revenues during periods of weak drilling markets. 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.
CONTRACT DRILLING AND MOPU OPERATIONS
Daywork Drilling. The Company currently owns and operates 8 drilling rigs,
consisting of 2 jack-up drilling rigs and 6 land drilling rigs. Another of the
Company's jack-up drilling rigs, the MARQUETTE, was determined to be a
compromised total loss during December, 1995. Insurance underwriters paid the
Company $14.6 million for damages to the MARQUETTE. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The MARQUETTE
and LASALLE jack-up drilling rigs worked for Maraven in Lake Maracaibo,
Venezuela through April, 1995. Maraven paid the Company $4.3 million to
demobilize the rigs out of Lake Maracaibo. The LASALLE is currently working on a
daywork contract for Maraven offshore Venezuela. The LASALLE is capable of
drilling to depths of 25,000 feet. The unit is cantilevered, which allows for
extension of a portion of the drilling rig platform over fixed production
platforms, and is equipped with a "top drive" drilling system. The Company
operated another 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 to the U.S. Gulf
of Mexico in November, 1994. The Company recently secured a bareboat charter on
this unit, Cliffs No. 12, from a third party for use as a workover rig in the
U.S. Gulf of Mexico. The Company's land rig fleet consists of 4 diesel/electric
rigs and 2 mechanical rigs, 5 of which are capable of drilling to a depth of
25,000 feet. During 1995, the Company purchased and renovated a 3000 HP land
rig, named Cliffs Drilling Rig 54, for an initial contract to drill 2 wells on a
daywork basis in Venezuela for Total Oil and Gas Venezuela B.V. ("Total"). This
land rig is capable of drilling to a depth of 30,000 feet. Drilling activities
for Cliffs Drilling Rig 54 commenced in the third quarter of 1995, and renewals
are at the option of Total. During the second quarter of 1991, 2 of the land
rigs commenced operations under contracts with Corpoven, S.A. ("Corpoven") in
eastern Venezuela. These contracts expire in September, 1996. 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 turnkey wells for Corpoven.
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
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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 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 mobilization and demobilization expenses.
Engineering Services. The Company has been active in drilling wells on a
turnkey basis since 1982. 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 during both 1995 and
1994, with revenues of $54.2 million and $33.9 million, respectively. The
increase in revenues was primarily attributable to the mix of turnkey wells
drilled during 1995 and 1994. One and 5 of the turnkey contracts completed in
1995 and 1994, 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. These joint venture 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. Three turnkey drilling
contracts have been completed since December 31, 1995 with contract revenues of
$15.4 million. The Company currently has two turnkey drilling contracts in
progress with expected contract revenues of $9.6 million.
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, used one unit as a supply unit in
the Bay of Campeche, Mexico through October, 1995, and bareboat chartered the
other unit in 1994 to a third party for use as a workover rig in the U.S. Gulf
of
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Mexico. The charterer has an option to purchase the rig at the end of the
charter. The rig that worked in Mexico was demobilized to the U.S. Gulf of
Mexico during the fourth quarter of 1995, and is currently being marketed.
Another MOPU converted during 1993, Cliffs No. 10, is also currently being
marketed. The Company's MOPUs are jack-up rigs which have been modified to
accommodate production or compression equipment, 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, and
the charterer purchased 2 of the units in December, 1994. The remaining unit,
the LANGLEY, has been bareboat chartered to Sedco for a five-year term for use
as a MOPU offshore Nigeria. The rig will be mobilized to Nigeria in midyear 1996
following modifications. Sedco has an option to purchase the rig at the end of
the charter. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
MOPU contracts are generally on a dayrate basis and are normally long-term,
either for a period of years or a period of time sufficient to obtain the
economic production from an offshore oil and gas field or wells within such
field. It is not unusual for such contracts to contain renewal provisions at the
option of the customer. Under such contracts, the Company is generally
responsible for maintenance, operation and repair of the MOPU hull structure.
The Company is generally not responsible for risk of pollution or for damage to
or replacement of the customer's production equipment, although the Company
generally is responsible for damage to its production equipment. The Company
maintains insurance coverage against risk of damage to or loss of the MOPUs and
related equipment as is customary in the industry. See "Business and
Properties -- Risks 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. Currently, all of the Company's 8 drilling
rigs are either under contract or preparing for contracts. In addition, 4 of the
Company's 6 MOPUs are under contract and 2 are stacked. 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.
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
LASALLE...... Jack-up 1982 150' 25,000' Offshore Venezuela 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
54........... Land 1981 N/A 30,000' Eastern Venezuela Term Daywork Total
UNITED STATES
Cliffs No. Jack-up 1980 200' 20,000' Gulf of Mexico Term Daywork Hercules Offshore
12......... Corporation
MOBILE OFFSHORE PRODUCTION UNITS
UNITED STATES
Cliffs No. MOPU 1967 150' N/A Gulf of Mexico Term Daywork Vastar Resources, Inc.
4..........
Cliffs No. MOPU 1977 250' N/A Gulf of Mexico Term Daywork Union Pacific Resources
8.......... Corp.
Cliffs No. MOPU 1979 250' N/A Gulf of Mexico N/A N/A
10.........
Cliffs No. MOPU 1980 200' N/A Gulf of Mexico Term Daywork Hercules Offshore
11......... Corporation
Cliffs No. MOPU 1980 200' N/A Gulf of Mexico N/A N/A
14.........
NIGERIA
LANGLEY...... MOPU 1965 350' N/A Nigeria Term Daywork Sedco
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Foreign Operations. For the fiscal years ended December 31, 1995, 1994 and
1993, 63%, 78% and 64%, respectively, of the Company's consolidated revenues
were derived from foreign operations, principally in Venezuela and Mexico. See
Note 13 of Notes to Consolidated Financial Statements.
The Company is currently operating one jack-up drilling rig offshore
Venezuela pursuant to a turnkey drilling contract with Maraven, an affiliate of
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. During 1995, the Company purchased and renovated a 3000
HP land rig for an initial contract to drill 2 wells on a daywork basis in
Venezuela for Total. Drilling activities for this rig commenced in the third
quarter of 1995, and renewals are at the option of Total. Three of the Company's
MOPUs completed operations in Lake Maracaibo, Venezuela during 1994. One of the
three MOPUs which worked in Venezuela, the LANGLEY, has been bareboat chartered
to Sedco for a five-year term for use as a mobile offshore production unit
offshore Nigeria. The rig will be mobilized to Nigeria in midyear 1996 following
modifications. Sedco has an option to purchase the rig at the end of the
contract. One of the Company's jack-up drilling rigs acquired in the fourth
quarter of 1992 completed operations during 1995 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 by PEMEX. The Company recently secured a
bareboat charter on the jack-up drilling rig from a third party for use as a
workover rig in the U.S. Gulf of Mexico. 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 initially 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 completed during the fourth 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. Occasionally, customers will
indemnify the Company against such losses. See "Business and
Properties -- Government Regulation."
Customers. The Company's 3 largest customers for the year ended December
31, 1995, Corpoven, Maraven and Texaco Exploration & Production, Inc., accounted
for approximately 66% of the Company's consolidated revenues. 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 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 12 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
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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. Demand for offshore drilling rigs and utilization are much
improved from previous years. However, the drilling industry remains 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. During the last three years, there have been several
business consolidations which have reduced the fragmented nature of the 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. 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.
Improved technologies such as 3-D seismic, subsea completions, floating
production systems and directional drilling have reduced the number of wells
necessary to maintain or even increase supplies of oil and gas, and have
therefore improved overall industry fundamentals.
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. In
recent years, the turnkey drilling market has become more competitive as more
companies entered the market and margins were reduced. Domestic turnkey
operators have been very aggressive in pricing Gulf of Mexico turnkeys and
competition is intense. 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 fixed 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 MOPUs
at rates which are profitable. Currently, margins on MOPU operations are high,
which is likely to result in increased competition. 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 Co., Inc., an indirect
subsidiary of Tenneco Inc., consisting of 6
8
<PAGE> 10
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, used one as a mobile offshore supply unit in the Bay
of Campeche, Mexico through October, 1995, used one unit during 1994 for turnkey
drilling operations in the Bay of Tampico, Mexico and bareboat chartered the
other unit during 1994 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. The Company purchased and renovated a
3000 HP land rig, Cliffs Drilling Rig 54, for an initial contract to drill 2
wells on a daywork basis in Venezuela.
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage
during demobilization from Venezuela to the U.S. Gulf of Mexico. During an
inspection of the hull damage by the Company and its insurance adjuster, other
damage was discovered which was attributed to an earthquake in Venezuela in May,
1994. The rig was declared a compromised total loss by the Company's insurance
underwriters. The Company has scrapped the rig and salvaged various rig
equipment for use on other rigs or to sell. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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. The Company plans,
however, to develop its existing properties where economical reserves are
expected to be recovered.
The Company's oil and gas operations were not significant; therefore,
applicable disclosures were not required at or for the years ended December 31,
1995 and 1994.
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.
9
<PAGE> 11
GOVERNMENT REGULATION
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of removal
and damages arising out of a pollution incident to the extent set forth in the
Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990
and the Outer Continental Shelf Lands Act. In addition, the Company may also be
subject to other civil claims arising out of any such incident. Certain of the
Company's facilities are also subject to regulations of the Environmental
Protection Agency ("EPA") that require the preparation and implementation of
spill prevention control and countermeasure plans relating to possible discharge
of oil into navigable waters. The Company supplements its activities in this
regard by membership in the Clean Gulf Association, which provides pollution
control facilities to its members. Other regulations of the EPA may require the
Company to take certain precautions in storing, handling and transporting
certain hazardous wastes. State statutory provisions relating to oil and natural
gas generally include requirements as to well spacing, waste prevention,
production limitations, pollution prevention and clean-up, obtaining drilling
permits and similar matters. The Company believes that it is in compliance in
all material respects with such laws, rules and regulations and that such
compliance has not had any material adverse effect on its operations or
financial condition.
The drilling industry is dependent on the demand for services from the oil
and gas exploration industry and, accordingly, is affected by changing tax laws,
price controls and other laws relating to the energy business. The Company's
business is affected generally by political developments and by federal, state,
local and foreign laws, rules and regulations which may relate directly to the
oil and gas industry. The adoption of laws, rules 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, rules 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 risks physical damage,
employer's liability, comprehensive general liability or commercial contract
indemnity and workers' compensation insurance. The Company's third party
liability insurance coverage is approximately $100 million per occurrence. The
Company believes that it is adequately insured for public liability and property
damage to others with respect to its operations. However, such insurance may not
be sufficient to protect the Company against liability for all consequences of
well disasters, extensive fire damage or damage to the environment. The Company
also carries insurance to cover physical damage to or loss of its drilling rigs
and MOPUs and a limited amount of insurance against loss of earnings resulting
from damage to some of 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
10
<PAGE> 12
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, 1995, and is
scheduled for renewal on June 1, 1996. This insurance, which is principally
through Underwriters at Lloyd's and Institute of London Underwriters Companies,
covers "control of well" (including blowouts above and below the surface);
cratering; seepage and pollution; and care, custody and control. Prior to June
1, 1992, the Company carried insurance coverage for losses and claims associated
with "stuck drill stem" occurrences, which are normal operating risks associated
with drilling operations. Under the terms of a typical turnkey drilling
contract, the drilling contractor assumes the risk of stuck drill stem
incidents. The Company believes that few, if any, turnkey drilling contractors
carry insurance for such losses and claims. In prior years, the Company procured
such insurance after concluding that the expense of such coverage was reasonable
in relation to the coverage afforded, and the proceeds from such insurance
generally exceeded the premiums. Because of a significant increase in premiums,
the Company now believes that the expense of such insurance, if available, is
too great in relation to the coverage afforded, and has chosen not to insure
against such losses and claims. While the absence of this coverage increases the
financial risk of the Company's turnkey operations, the Company is attempting to
offset this increase in risk by shifting its marketing and operating strategies
toward lower risk operations. The Company believes that it continues to maintain
insurance in accordance with industry standards. The Company's current insurance
program provides $500,000 coverage per occurrence for care, custody and control,
and $75 million coverage per occurrence 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, 1995, the Company employed 77 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, 1995. As of December
31, 1995, the Company employed 409 persons in Venezuela, approximately 40% 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.
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
The Company is 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.
11
<PAGE> 13
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 1995.
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>
1995 1994
-------------- -------------
MARKET VALUE MARKET VALUE
--------------- --------------
QUARTER ENDED HIGH LOW HIGH LOW
-------------- ---- ------ ---- ------
<S> <C> <C> <C> <C>
March 31........................................... $14 1/8 $11 5/16 $14 $11 1/4
June 30............................................ $15 $12 7/8 $13 $11 1/2
September 30....................................... $15 1/4 $13 1/8 $13 $11 1/2
December 31........................................ $16 3/8 $13 3/8 $13 $10 1/2
</TABLE>
On February 29, 1996, the closing sale price of the Company's Common Stock,
as reported by Nasdaq, was $15 3/8 per share. On that date, there were 1,893
beneficial holders 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 previously paid and applicable to the Company's Preferred Stock.
The Company's $2.3125 Convertible Exchangeable Preferred Stock was traded
on Nasdaq during 1995 under the symbol "CLDRP." The Company converted 1,115,988
shares of its 1,150,000 issued and outstanding shares of Preferred Stock on
January 17, 1996. The Company issued 2,113,557 shares of Common Stock upon
conversion of the Preferred Stock. The remaining 34,012 shares were redeemed for
cash in the amount of $25.69 per share plus $.22 per share in accrued and unpaid
dividends thereon through the redemption date at a cost to the Company of
approximately $.9 million. Holders of shares of the Preferred Stock had the
option to convert any or all of such shares of Preferred Stock into fully paid
and nonassessable shares of Common Stock of the Company prior to the redemption
date at a rate of 1.89394 shares of Common Stock for each full share of
Preferred Stock. No payment or adjustment was made upon any conversion of shares
of Preferred Stock on account of any dividends on the shares surrendered for
conversion, and the holder lost any right to payment of dividends on the shares
surrendered for conversion. No fractional shares of Common Stock were issued
upon conversion but, in lieu thereof, an appropriate amount was paid in cash by
the Company based upon the reported last sale price for the shares of Common
Stock on the date of conversion. The right of holders of Preferred Stock to
convert shares of Preferred Stock into Common Stock terminated on the redemption
date.
12
<PAGE> 14
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, 1995 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,
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues.......................... $ 83,289 $ 83,693 $ 65,538 $ 76,838 $ 84,503
Costs and Expenses:
Operating Expenses............. 67,713 50,907 35,171 57,646 70,725
Depreciation, Depletion and
Amortization................. 7,271 14,008 17,438 12,883 9,369
Contract Termination
Provision.................... -- 5,193 577 -- --
Write-down in Carrying Value of
Oil Gas Properties........... -- -- -- 1,500 4,000
General and Administrative
Expense...................... 5,289 5,114 4,807 4,512 4,352
--------- --------- --------- --------- ---------
Operating Income (Loss)........... 3,016 8,471 7,545 297 (3,943)
Other Income (Expense)(1)......... 2,430 (2,415) (3,919) 2,721 61
--------- --------- --------- --------- ---------
Net Income (Loss)................. 5,446 6,056 3,626 3,018 (3,882)
Dividends Applicable to Preferred
Stock.......................... (2,659) (2,659) (2,659) (2,659) (2,660)
--------- --------- --------- --------- ---------
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares......................... $ 2,787 $ 3,397 $ 967 $ 359 $ (6,542)
========= ========= ========= ========= =========
Net Income (Loss) per Share....... $ 0.68 $ 0.80 $ 0.21 $ 0.11 $ (2.19)
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding.................... 4,108 4,223 4,514 3,257 2,992
SUMMARY BALANCE SHEET DATA:
Working Capital................... $ 33,859 $ 19,331 $ 20,402 $ 24,830 $ 5,637
Property and Equipment, Net....... 65,950 71,248 86,506 101,178 99,023
Total Assets...................... 128,962 120,167 133,523 150,203 143,283
Notes Payable, Long-Term.......... -- -- 13,108 28,348 27,000
Obligations Under Capital Leases
(including current
maturities).................... -- -- -- -- 2,682
Redeemable Preferred Stock (2).... 28,750 28,750 28,750 28,750 28,750
Total Shareholders' Equity(3)..... $ 74,015 $ 70,881 $ 72,494 $ 71,446 $ 52,229
</TABLE>
- ---------------
(1) Includes net gains on disposition of assets of $2.7 million and net exchange
rate gains of $2.6 million in 1995, net exchange rate losses of $1.2 million
in 1994, litigation settlement and expenses of $3.7 million in 1993 and net
gains on disposition of assets of $5.0 million in 1992.
(2) All of the issued and outstanding shares of $2.3125 Convertible Exchangeable
Preferred Stock were either converted into fully paid and nonassessable
shares of Common Stock of the Company or redeemed for cash on January 17,
1996.
(3) The Company has not paid any cash dividends on its Common Stock.
13
<PAGE> 15
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
increased worldwide demand stemming from higher levels of pricing for oil and
natural gas. The financial condition and results of operations of the Company
and other drilling contractors are dependent upon the price of oil and natural
gas, as demand for their services is primarily dependent upon the level of
spending by oil and gas companies for exploration, development and production
activities. Crude oil and natural gas prices have continued to fluctuate over
the last two years. This price volatility creates an uncertain domestic market
and competition, therefore, remains intense within the contract drilling
industry.
The Company has endeavored to mitigate the effect of volatile product
pricing by diversifying its scope of operations beyond the domestic daywork
contract drilling market. To achieve its strategic objective, the Company
established separate but related lines of business in turnkey drilling and MOPU
operations, and pursued foreign drilling and production opportunities. Each of
the Company's business segments will continue to be affected, however, by the
unsettled energy markets, which are influenced by a variety of factors,
including general economic conditions, the extent of worldwide oil and gas
production and demand therefor, government regulations, and environmental
concerns.
RESULTS OF OPERATIONS
Year 1995 Versus 1994
The Company recognized net income, before preferred dividends, of $5.4
million in 1995 compared to net income of $6.1 million in 1994. Operating income
decreased $5.5 million from 1994 to 1995. The decrease in operating income was
primarily due to a reduction in foreign daywork drilling operating income of
$4.4 million, a reduction in MOPU operating income of $1.9 million, a reduction
in engineering services operating income of $1.0 million, and an increase in
corporate overhead of $.2 million, offset in part by an increase in oil and gas
operating income of $2.0 million.
<TABLE>
<CAPTION>
INCREASE
1995 1994 (DECREASE)
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic....................................... $ -- $ 19 $ (19)
Foreign........................................ 26,363 32,462 (6,099)
Engineering Services.............................. 56,970 36,079 20,891
MOPU Operations................................... 4,920 16,020 (11,100)
Oil and Gas....................................... 2,788 2,470 318
Eliminations...................................... (7,752) (3,357) (4,395)
------- ------- --------
Consolidated.............................. $83,289 $83,693 $ (404)
======= ======= ========
Operating Income (Loss):
Daywork Drilling:
Domestic....................................... $ -- $ (62) $ 62
Foreign........................................ 2,761 7,162 (4,401)
Engineering Services.............................. 2,609 3,581 (972)
MOPU Operations................................... 2,492 4,415 (1,923)
Oil and Gas....................................... 541 (1,439) 1,980
Corporate Office.................................. (5,387) (5,184) (203)
Eliminations...................................... -- (2) 2
------- ------- --------
Consolidated.............................. $ 3,016 $ 8,471 $ (5,455)
======= ======= ========
</TABLE>
14
<PAGE> 16
Daywork Drilling
Domestic daywork drilling operating results reflect the Company's strategy
to diversify away from the volatile domestic market. The Company mobilized the
balance of its land rig fleet to Venezuela during the first quarter of 1994.
Foreign daywork drilling revenues decreased $6.1 million from 1994 to 1995,
and operating income decreased $4.4 million during the same period. Foreign
daywork drilling operating results reflect decreased revenues and operating
income primarily due to the stacking of one of the Company's jack-up drilling
rigs which completed operations in Mexico during the fourth quarter of 1994 for
CNCTI. The Company's other 2 jack-up drilling rigs operated in Venezuela through
April, 1995 on a well-to-well basis at reduced dayrates from those received in
1994. Subsequent to expiration of the contracts, one of the jack-up rigs was
demobilized to the U.S. Gulf of Mexico. The other jack-up rig was demobilized to
an offshore location outside Venezuela and contracted to drill a turnkey well.
The turnkey portion of the well was completed during the third quarter of 1995,
and the rig has continued to work on a daywork basis offshore Venezuela up to
the current date.
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage
during demobilization from Venezuela to the U.S. Gulf of Mexico. During an
inspection of the hull damage by the Company and its insurance adjuster, other
damage was discovered which was attributed to an earthquake in Venezuela in May,
1994. The rig was declared a compromised total loss by the Company's insurance
underwriters. The Company received $14.6 million from its insurance underwriters
for these damages. The Company has scrapped the rig and salvaged various rig
equipment for use on other rigs or to sell. See "Liquidity and Capital
Resources."
Contracts on 2 of the 5 land drilling rigs working for Corpoven have been
extended to September, 1996 at increased dayrates. The other 3 land drilling
rigs have contracts or agreements which extend into February, 1997. The Company
acquired, renovated and mobilized an additional land rig to Venezuela which
began drilling operations for Total on the first of 2 wells during September,
1995.
Engineering Services
Engineering services revenues increased $20.9 million from 1994 to 1995,
but operating income decreased $1.0 million during the same period. Fifteen
turnkey contracts were completed in both 1995 and 1994. The revenue increase is
primarily attributable to the mix of turnkey wells drilled during 1995 and 1994.
One of the 15 turnkey wells completed in 1995 and 5 of the 15 turnkey wells
completed in 1994 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
Statements. Despite the change in the mix of turnkey wells drilled, overall
operating margins have decreased. Domestic turnkey operators have been very
aggressive in pricing Gulf of Mexico turnkeys and competition is intense.
Various operational problems also caused turnkey margins to decline. Five of the
turnkey wells completed in 1995 and one turnkey well in progress at December 31,
1995 encountered downhole problems and as a result, the Company recorded losses
of $3.7 million in the 1995 results of operations on these 6 contracts. Two of
the wells which completed in 1994 encountered downhole problems and 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 1995
and 1994, primarily in Venezuela and Mexico. These activities contributed
operating income of $.7 million and $1.0 million in 1995 and 1994, respectively.
During 1995, the Company completed drilling operations on the final turnkey
wells included in 2 packages of 3 turnkey wells for Corpoven. The Company has
completed 3 turnkey wells since December 31, 1995 with contract revenues of
$15.4 million. The Company currently has two turnkey drilling contracts in
progress with expected contract revenues of $9.6 million.
15
<PAGE> 17
MOPU Operations
MOPU revenues decreased $11.1 million from 1994 to 1995, and operating
income decreased $1.9 million during the same period. The decrease in revenues
and operating income was primarily due to the expirations in May and September,
1994 of the two-year contracts on the 3 MOPUs which worked in Venezuela. The 3
MOPUs which worked in Venezuela contributed revenues of $11.9 million and
operating income of $1.6 million during 1994. After completing its contract in
Venezuela, the LANGLEY was demobilized to the United States during the second
quarter of 1994 and has been bareboat chartered to Sedco for a five-year term
for use as a MOPU offshore Nigeria. The rig is expected to be mobilized to
Nigeria in midyear 1996 following modifications. Sedco has an option to purchase
the rig at the end of the contract. The other 2 units which worked in Venezuela
were sold 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." Three of the Company's other MOPU's are currently under contract,
and two are being marketed.
Oil and Gas
Oil and gas revenues increased $.3 million from 1994 to 1995, and operating
income increased $2.0 million during the same period, primarily due to a $1.4
million settlement of a contractual dispute with Columbia Gas Transmission
Corp., a subsidiary of Columbia Gas System Inc. ("Columbia Gas") and decreased
depreciation, depletion and amortization and operating expenses, offset in part
by reduced gas revenues resulting from production declines and lower gas prices
during 1995 compared to 1994.
Corporate Overhead
Corporate overhead increased $.2 million from 1994 to 1995. The increase
was primarily due to an overall increase in employment-related costs.
Other Income (Expense)
The Company recognized $2.4 million of other income during 1995 compared to
$2.4 million of other expense during 1994. The net change in "Other Income
(Expense)" resulted primarily from an increase in net exchange rate gains of
$3.7 million and an increase in net gains on disposition of assets of $2.0
million, offset in part by an increase in income tax expense for 1995 of $1.6
million. See "Liquidity and Capital Resources."
16
<PAGE> 18
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
========= ========= ========
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 operating results in 1994 reflect the Company's
strategy to diversify away from the volatile domestic 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 to drill 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. 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.
17
<PAGE> 19
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 continued drilling operations on a well-to-well basis through April, 1995.
Contracts on 2 of the 5 land drilling rigs working for Corpoven have been
extended to September, 1996 at increased dayrates. The other 3 land drilling
rigs have contracts or agreements which extend into 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 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.
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. After completing its contract in Venezuela,
the LANGLEY was demobilized to the United States during the second quarter of
1994. 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 secured a contract for operations which commenced in
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. The charterer has an
option to purchase the rig at the end of the charter. Operations commenced on
this charter during the second quarter of 1994. The option for a two-year
contract on another MOPU, Cliffs No. 10, was terminated by the charterer
effective August 31, 1995. Renewed marketing efforts commenced subsequent to the
cancellation.
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.
18
<PAGE> 20
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.
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."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased $15.1 million from $11.3
million at December 31, 1994 to $26.4 million at December 31, 1995. The increase
resulted from $14.9 million provided by operating activities, $14.7 million
received from the disposition of property and equipment, and $1.6 million
received from the collection of notes receivable, partially offset by $13.4
million used to fund capital expenditures and $2.7 million used to make payments
on preferred stock dividends.
Cash of $14.9 million provided by operating activities included $4.3
million provided by working capital and other requirements. "Accounts
Receivable" increased from December 31, 1994 to December 31, 1995 due primarily
to completed turnkey contracts at December 31, 1995 which were not yet
collected. Increases in "Drilling Contracts in Progress" and "Accounts Payable"
were due primarily to the Company's significant turnkey operations in progress
at December 31, 1995. The Company had 5 turnkey wells in progress at December
31, 1995 compared to 3 at December 31, 1994. The decrease in "Property and
Equipment" from December 31, 1994 to December 31, 1995 was due primarily to the
loss of the jack-up drilling rig MARQUETTE. "Investments in and Advances to
Unconsolidated Affiliates" decreased from December 31, 1994 to December 31, 1995
due primarily to distributions received from CNCTI.
Cash was used during 1995 to fund $13.4 million of capital expenditures,
which primarily related to the purchase and renovation of a 3000 HP land rig,
Cliffs Drilling Rig 54. The contract for this rig commenced during the third
quarter of 1995. The Company has plans for capital expenditures totaling
approximately $18.7 million during 1996. The Company intends to fund these
capital expenditure requirements with internally-generated cash flow and amounts
currently available under its revolving line of credit.
Two of the Company's jack-up drilling rigs operating in Venezuela continued
drilling operations through April, 1995 on a well-to-well basis at reduced
dayrates from those received in 1994. Subsequent to expiration of the contracts,
one of the jack-up rigs was demobilized to the U.S. Gulf of Mexico. The other
jack-up rig was demobilized to an offshore location outside Venezuela and
contracted to drill a turnkey well. The turnkey portion of the well was
completed during the third quarter of 1995, and the rig has continued to work on
a daywork basis offshore Venezuela up to the current date. After completion of
the well, the Company plans to demobilize the jack-up drilling rig to a shipyard
in Venezuela for refurbishments. The Company expects the unit to operate in the
region after completion of the refurbishments. On July 2, 1995, the jack-up
drilling rig MARQUETTE suffered hull damage during demobilization from Venezuela
to the U.S. Gulf of Mexico. During an inspection of the hull damage by the
Company and its insurance adjuster, other damage was discovered which was
attributed to an earthquake in Venezuela in May, 1994. The rig was declared a
compromised total loss by the Company's insurance underwriters. The Company
received
19
<PAGE> 21
$14.6 million from its insurance underwriters for damages to the MARQUETTE. The
Company has scrapped the rig and salvaged various rig equipment for use on other
rigs or to sell.
During the fourth quarter of 1995, the Company settled its contractual
dispute with Columbia Gas. The Company received $1.4 million related to the
settlement.
The Company converted 1,115,988 shares of its 1,150,000 issued and
outstanding shares of $2.3125 Convertible Exchangeable Preferred Stock on
January 17, 1996. The Company issued 2,113,557 shares of Common Stock upon
conversion of the Preferred Stock. The remaining 34,012 shares were redeemed for
cash in the amount of $25.69 per share plus $.22 per share in accrued and unpaid
dividends thereon through the redemption date at a cost to the Company of
approximately $.9 million. See Note 10 of Notes to Consolidated Financial
Statements.
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. The LANGLEY has been bareboat
chartered to Sedco for a five-year term for use as a mobile offshore production
unit offshore Nigeria. The rig will be mobilized to Nigeria in midyear 1996
following modifications. Sedco has an option to purchase the rig at the end of
the charter. 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. No gain or loss was recognized when the buyout options were exercised.
Approximately 62% of the Company's revenues and a substantial portion of
its operating income were sourced from its Venezuelan operations during 1995.
See Note 13 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. The Company may be exposed to the
risk of foreign currency losses in connection with its foreign operations. Such
losses are the result of holding net monetary assets (cash and receivables in
excess of payables) denominated in foreign currencies during periods of a
strengthening U.S. dollar. The Company's foreign exchange gains and losses are
primarily attributable to the Venezuelan Bolivar. 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 continued through all of 1995 and substantially
eliminated exchange losses attributable to the Company's Venezuelan operations
during most of 1995. Effective December 11, 1995, the Venezuela currency was
devalued approximately 70%, creating exchange losses during the month of
December. These losses incurred during December, 1995 were offset by $3.7
million in gains realized during 1995 in connection with currency swaps and
Venezuelan Brady Bond transactions. The effects of these transactions are
reported as "Exchange Rate Gain (Loss)" in the Consolidated Statements of
Operations. The Company does not speculate in foreign currencies or maintain
significant foreign currency cash balances. The Company continues to be exposed
to future foreign currency gains and losses if the currency continues to be
volatile. Despite the political and economic risks in Venezuela, the Company
believes that the country continues to be a favorable market for its services.
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. 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 was scheduled to expire
on January 1, 1996. The Company executed the Third Amendment to the Second
Restated Credit Agreement with INCC on December 19, 1995. The $20.0 million
revolving line of credit matures on January 1, 1998. As of
20
<PAGE> 22
December 31, 1995, the Company had no outstanding balance on the revolving line
of credit with INCC.
The Company from time to time purchases its Common Stock in the open
market. During 1994, the Company purchased 427,000 shares of its Common Stock at
an aggregate purchase price of $5.1 million, or approximately $11.93 per share.
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. All
of the acquired shares are held as Common Stock in treasury, less shares issued
to certain benefit plans. No treasury stock was purchased during 1995.
The ability of the Company to fund working capital, capital expenditures
and debt service 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 27 through 46 hereof and are incorporated by reference into this
Item 8. Selected quarterly financial data is set forth in Note 14 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 1996
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
1996 Annual Meeting of Shareholders, which is to be filed with the Commission,
sets forth information regarding management compensation and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under captions "Principal Shareholders" and
"Election of Directors -- Security Ownership of Management" in the Company's
definitive proxy statement for its 1996 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.
21
<PAGE> 23
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 1996 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 25.
(3) Exhibits. See Exhibit Index on pages 48 to 50.
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).
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).
</TABLE>
22
<PAGE> 24
<TABLE>
<C> <S>
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).
10.16 -- 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.
One report dated December 12, 1995 was filed by the Company on Form
8-K for the three months ending December 31, 1995 which included the
following:
(1) On December 14, 1995, the Company was advised that it will be paid
$14.6 million by its insurance underwriters for damages to the
jack-up drilling rig MARQUETTE resulting from an earthquake in Lake
Maracaibo, Venezuela in May, 1994.
(2) On December 19, 1995 the Company announced that all of the 1,150,000
issued and outstanding shares of the Company's $2.3125 Convertible
Exchangeable Preferred Stock, no par value, would be redeemed or
converted by the Company effective January 17, 1996.
(3) On December 12, 1995, the Company announced that the jack-up rig
LANGLEY had been bareboat chartered to Sedco for a five-year term
for use as a MOPU offshore Nigeria.
23
<PAGE> 25
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 1, 1996
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 1, 1996
- ------------------------------------------- and President
Douglas E. Swanson (Principal Executive Officer)
/s/ RANDOLPH NEWCOMER Executive Vice President and March 1, 1996
- ------------------------------------------- Director
Randolph Newcomer
/s/ M. M. CONE Director March 1, 1996
- -------------------------------------------
M. M. Cone
/s/ ROBERT M. MCINNES Director March 1, 1996
- -------------------------------------------
Robert M. Mclnnes
/s/ JOSEPH E. REID Director March 1, 1996
- -------------------------------------------
Joseph E. Reid
/s/ JOHN D. WElL Director March 1, 1996
- -------------------------------------------
John D. Weil
/s/ H. ROBERT HIRSCH Director March 1, 1996
- -------------------------------------------
H. Robert Hirsch
/s/ EDWARD A. GUTHRIE Vice President-Finance March 1, 1996
- ------------------------------------------- (Principal Financial Officer)
Edward A. Guthrie
/s/ CINDY B. TAYLOR Corporate Controller March 1, 1996
- ------------------------------------------- (Principal Accounting Officer)
Cindy B. Taylor
</TABLE>
24
<PAGE> 26
FORM 10-K ITEM 14A (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors....................................... 26
Consolidated Statements of Operations for Each of the Three Years in
the Period Ended December 31, 1995................................. 27
Consolidated Balance Sheets, December 31, 1995 and 1994.............. 28
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period Ended December 31, 1995................................. 29
Consolidated Statements of Changes in Shareholders' Equity for Each
of the Three Years in the Period Ended December 31, 1995........... 30
Notes to Consolidated Financial Statements........................... 31
Schedule:
For Each of the Three Years in the Period Ended December 31, 1995:
II Valuation and Qualifying Accounts........................... 47
</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.
25
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
CLIFFS DRILLING COMPANY
We have audited the accompanying consolidated balance sheets of Cliffs
Drilling Company as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. 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 the
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 at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, 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.
As discussed in Note 1 to the Consolidated Financial Statements, in 1995
the Company adopted a new method of accounting for impairment of long-lived
assets.
ERNST & YOUNG LLP
Houston, Texas
February 22, 1996
26
<PAGE> 28
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Revenues............................................. $84,156 $81,508 $64,936
Income (Loss) from Equity Investments................ (867) 2,185 602
------- ------- -------
83,289 83,693 65,538
COSTS AND EXPENSES:
Operating Expenses................................... 67,713 50,907 35,171
Depreciation, Depletion and Amortization............. 7,271 14,008 17,438
Contract Termination Provision....................... -- 5,193 577
General and Administrative Expense................... 5,289 5,114 4,807
------- ------- -------
80,273 75,222 57,993
------- ------- -------
OPERATING INCOME....................................... 3,016 8,471 7,545
OTHER INCOME (EXPENSE):
Gain on Disposition of Assets........................ 2,666 665 2,016
Interest Income...................................... 1,065 815 858
Interest Expense..................................... (199) (826) (1,356)
Exchange Rate Gain (Loss)............................ 2,554 (1,168) (443)
Litigation Settlement and Expenses................... -- -- (3,703)
Other, net........................................... (1,250) (1,111) (606)
------- ------- -------
INCOME BEFORE INCOME TAXES............................. 7,852 6,846 4,311
INCOME TAX EXPENSE..................................... 2,406 790 685
------- ------- -------
NET INCOME............................................. 5,446 6,056 3,626
DIVIDENDS APPLICABLE TO PREFERRED STOCK................ (2,659) (2,659) (2,659)
------- ------- -------
NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT
SHARES............................................... $ 2,787 $ 3,397 $ 967
======= ======= =======
NET INCOME PER SHARE:
Primary.............................................. $ 0.68 $ 0.80 $ 0.21
======= ======= =======
Assuming Full Dilution............................... $ 0.68 $ 0.80 $ 0.21
======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Primary.............................................. 4,108 4,223 4,514
======= ======= =======
Assuming Full Dilution............................... 4,108 4,223 4,514
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents......................................... $ 26,405 $ 11,320
Accounts Receivable, net of allowance for doubtful accounts of
$797 and $408 at December 31, 1995 and 1994, respectively...... 11,170 8,499
Notes and Other Receivables, Current.............................. 1,812 2,366
Inventories....................................................... 4,114 5,726
Drilling Contracts in Progress.................................... 11,339 5,074
Prepaid Insurance................................................. 957 577
Other Prepaid Expenses............................................ 2,400 5,486
-------- ---------
Total Current Assets...................................... 58,197 39,048
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment........................................ 122,777 148,085
Oil and Gas Properties ("successful efforts" method).............. 23,497 22,699
Other............................................................. 3,201 3,079
-------- ---------
149,475 173,863
Less: Accumulated Depreciation, Depletion and Amortization........ (83,525) (102,615)
-------- ---------
Net Property and Equipment................................ 65,950 71,248
NOTES AND OTHER RECEIVABLES, LONG-TERM.............................. 4,441 5,017
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES............ 269 4,036
OTHER ASSETS........................................................ 105 818
-------- ---------
TOTAL ASSETS.............................................. $128,962 $120,167
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable.................................................. $ 20,392 $ 14,808
Accrued Expenses, Including Interest.............................. 3,946 4,909
-------- ---------
Total Current Liabilities................................. 24,338 19,717
DEFERRED INCOME TAXES............................................... 1,447 --
DEFERRED INCOME AND OTHER........................................... 412 819
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, 1995 and 1994, respectively ($28,750 liquidation value).... 28,750 28,750
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 15,000,000 shares authorized;
4,518,104 shares issued and 4,113,067 and 4,089,447 shares
outstanding at December 31, 1995 and 1994, respectively........ 45 45
Paid-in Capital................................................... 99,186 99,135
Retained Earnings (Deficit)....................................... (20,108) (22,895)
Less: Notes Receivable from Officers for Restricted Stock......... (232) (232)
Restricted Stock.......................................... (32) (57)
Treasury Stock, at cost, 405,037 and 428,657 shares at
December 31, 1995 and 1994, respectively................ (4,844) (5,115)
-------- ---------
Total Shareholders' Equity................................ 74,015 70,881
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $128,962 $120,167
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 30
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net Income............................................... $ 5,446 $ 6,056 $ 3,626
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization.............. 7,271 14,008 17,438
Contract Termination Provision........................ -- 5,193 577
Mobilization Expense Amortization..................... 519 544 1,930
Litigation Settlement and Expenses.................... -- -- 3,703
Gain on Disposition of Assets......................... (2,666) (665) (2,016)
Other................................................. 71 (829) (232)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable................................. (3,728) 9,690 (853)
Inventories......................................... 1,612 (3,597) (487)
Drilling Contracts in Progress...................... (6,261) (4,722) 682
Prepaid Insurance and Other Prepaid Expenses........ 2,500 (1,583) (1,472)
Investments in and Advances to Unconsolidated
Affiliates....................................... 3,767 (2,184) (1,852)
Other Assets........................................ -- (854) (13)
Accounts Payable and Other Accrued Liabilities...... 6,394 2,667 (3,810)
--------- --------- ---------
Net Cash Provided By Operating Activities........ 14,925 23,724 17,221
INVESTING ACTIVITIES:
Capital Expenditures..................................... (13,437) (9,100) (12,668)
Proceeds from Sale of Property and Equipment............. 372 5,917 6,847
Insurance Proceeds from Loss of Rig and Related
Equipment............................................. 14,308 -- --
Collection of Notes Receivable........................... 1,576 1,027 1,456
--------- --------- ---------
Net Cash Provided By (Used In) Investing
Activities..................................... 2,819 (2,156) (4,365)
FINANCING ACTIVITIES:
Proceeds from Borrowings................................. 7,000 17,000 --
Payments on Borrowings................................... (7,000) (30,108) (15,240)
Acquisition of Treasury Stock............................ -- (5,096) (57)
Proceeds from Issuance of Common Stock................... -- -- 18
Preferred Stock Dividends................................ (2,659) (2,659) (2,659)
--------- --------- ---------
Net Cash Used In Financing Activities............ (2,659) (20,863) (17,938)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 15,085 705 (5,082)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 11,320 10,615 15,697
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 26,405 $ 11,320 $ 10,615
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 31
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, 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)
=== ======= ======== ===== ===== =======
Net Income.................... -- -- 5,446 -- -- --
Preferred Stock Dividends
Declared................... -- -- (2,659) -- -- --
Amortization of Restricted
Stock...................... -- -- -- -- 25 --
Employer Contributions to
401(k) Savings Plan........ -- 51 -- -- -- 271
--- ------- -------- ----- ----- -------
BALANCE AT DECEMBER 31, 1995.... $45 $99,186 $(20,108) $(232) $ (32) $(4,844)
=== ======= ======== ===== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 32
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure
These statements include the activities of Cliffs Drilling Company (the
"Company"), 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. ("Neddrill") 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, has been accounted for under the
equity method. All significant intercompany transactions and balances are
eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
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 cash
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.
Rig Mobilization Costs
The Company defers costs of moving a drilling unit to a new area of
operation. The deferred mobilization costs are amortized on a straight-line
basis over the term of the applicable drilling
31
<PAGE> 33
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contract. Unamortized mobilization costs were $338,000 and $858,000 at December
31, 1995 and 1994, respectively.
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.
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.
Property and Equipment
Property and equipment are carried at original cost or at adjusted net
realizable value, as applicable. 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.
To provide for any deterioration that may occur while the rigs are not
operating for an extended period of time, a minimum depreciation charge is
provided at a reduced rate of 25% of the normal depreciation rate.
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.
32
<PAGE> 34
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 intangible drilling costs
associated with productive wells are amortized based on proved developed
reserves.
Impairment of Long-Lived Assets
Effective October 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires
that certain long-lived assets be reviewed for impairment whenever events
indicate that the carrying amount of an asset may not be recoverable, and that
an impairment loss be recognized under certain circumstances in the amount by
which the carrying value exceeds the fair value of the asset. The adoption of
SFAS No. 121 resulted in a write down of oil and gas properties by $737,000
based upon the belief that remaining property reserves would be uneconomic to
produce. The impairment loss is included in "Depreciation, Depletion and
Amortization" in the Consolidated Statements of Operations.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes." Deferred
income taxes are provided 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
("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.
The Company converted 1,115,988 shares of its 1,150,000 issued and
outstanding shares of Preferred Stock on January 17, 1996. The Company issued
2,113,557 shares of Common Stock upon conversion of the Preferred Stock. See
Note 10 of Notes to Consolidated Financial Statements. Primary earnings per
share in 1995 would have been $0.88 if the conversions had taken place at the
beginning of 1995.
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
33
<PAGE> 35
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
independent oil and gas producers. Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of trade
receivables. The Company 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
conform with the current year presentation.
2. NOTES AND OTHER RECEIVABLES, LONG-TERM
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 a 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 had a face amount of $1,000,000, with interest calculated at the
base rate on corporate loans as quoted by the Wall Street Journal, and was
repaid in March, 1995. Interest was due and payable semi-annually and commenced
June 30, 1993. The second note has a face amount of $7,500,000, bears interest
at the base rate on corporate loans as quoted by the Wall Street Journal plus
one and one-half 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. At
December 31, 1995, the remaining note receivable balance was $4,441,000.
3. PROPERTY AND EQUIPMENT
During 1995, the Company purchased and renovated a 3000 HP land rig, Cliffs
Drilling Rig 54, for $9,101,000. The unit is currently operating in Venezuela
under an initial contract to drill 2 wells on a daywork basis.
On July 2, 1995, the jack-up drilling rig MARQUETTE suffered hull damage
during demobilization from Venezuela to the U.S. Gulf of Mexico. During an
inspection of the hull damage by the Company and its insurance adjuster, other
damage was discovered which was attributed to an earthquake in Venezuela in May,
1994. The rig was declared a compromised total loss by the Company's insurance
underwriters. The Company received $14,600,000 from its insurance underwriters
for damages to the MARQUETTE. The Company has scrapped the rig and salvaged
various rig equipment for use on other rigs or to sell. The Company recognized a
$2,715,000 pre-tax gain on the disposition of the unit.
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. See Note 2 of Notes to Consolidated
Financial Statements.
34
<PAGE> 36
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. One, 5 and 2 turnkey
contracts were completed by CNCTI during the years ended December 31, 1995, 1994
and 1993, respectively. The Company's one-third interest in CNCTI is recorded
under the equity method. CNCTI completed drilling operations in Mexico during
1995. The following information summarizes the unaudited Statements of
Operations and Balance Sheets of CNCTI:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
Revenues.............................................. $24,052 $66,717 $23,718
Operating expenses.................................... 26,638 58,338 21,518
------- ------- -------
Operating income (loss)............................. (2,586) 8,379 2,200
Other, net............................................ 433 (1,525) (395)
------- ------- -------
Net income (loss)................................... $(2,153) $ 6,854 $ 1,805
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------ -------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Current assets.................................................. $3,819 $31,148
Noncurrent assets............................................... 16 225
------ -------
Total assets.......................................... $3,835 $31,373
====== =======
Current liabilities............................................. $2,580 $17,532
Noncurrent liabilities.......................................... -- 1,433
Equity.......................................................... 1,255 12,408
------ -------
Total liabilities and equity.......................... $3,835 $31,373
====== =======
</TABLE>
5. NOTES PAYABLE
The Company executed the Second Restated Credit Agreement with
Internationale Nederlanden (U.S.) Capital Corporation ("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. 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 was scheduled to expire on January 1, 1996.
35
<PAGE> 37
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company executed the Third Amendment to the Second Restated Credit
Agreement on December 19, 1995. The revolving line of credit matures on January
1, 1998. At December 31, 1995, the Company had no outstanding borrowings on the
$20,000,000 revolving line of credit. The revolving line of credit note is
secured by accounts receivable, rig inventory, equipment and certain oil and gas
properties. 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.
Availability and borrowings under the revolving line of credit are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Line of credit available............................... $19,460 $20,000
Letters of credit outstanding.......................... 540 --
</TABLE>
Interest payments on all indebtedness amounted to $198,000, $919,000 and
$1,536,000 for the years ended December 31, 1995, 1994 and 1993, 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, 1995, the net operating loss
carryforward is $4,479,000 for regular tax purposes. The Company also has a
percentage depletion carryover of approximately $1,937,000. In addition, the
Company has $482,000 of unused investment tax credit carryforwards and
$2,450,000 of foreign tax credit carryforwards at December 31, 1995. For
financial reporting purposes, a valuation allowance of $2,309,000 and $2,677,000
at December 31, 1995 and 1994, respectively, is provided to reduce the deferred
tax assets related to these tax carryforward and credit items to a level which,
more likely than not, will be realized. The valuation allowance was reduced by
$368,000 from December 31, 1994 to December 31, 1995 to reflect the expiration
of a portion of the investment tax credits which were provided for in prior
years, partially offset by foreign taxes paid during 1995 which were not
benefited in the provision for income taxes. 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>
1996...................... $ -- $482 $ -- $ --
1997...................... -- -- -- --
1998 - 2009............... 2,450 -- 4,479 6,215
------- ---- ------- -------
Total........... $2,450 $482 $ 4,479 $ 6,215
====== ==== ======= =======
</TABLE>
- ---------------
(1) The investment tax credits reflect the 35% reduction required by the Tax
Reform Act of 1986.
36
<PAGE> 38
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company provided for $2,406,000 of income taxes for the year ended
December 31, 1995. This amount is comprised of a current provision of $558,000
for U.S. alternative minimum taxes and taxes paid in foreign jurisdictions and
deferred income taxes of $1,848,000. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. The significant components of deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................... $ 5,434 $ 9,575
Safe harbor lease income............................. -- 1,868
------- -------
Total deferred tax liabilities............... 5,434 11,443
Deferred tax assets:
Net operating loss carryforwards..................... 1,568 3,012
Safe harbor lease expense............................ -- 6,591
Unused investment tax credits........................ 482 1,394
Percentage depletion carryforward.................... 678 678
Minimum tax credits.................................. 500 400
Foreign tax credits.................................. 2,450 2,186
Accounts receivable reserves......................... 279 --
Other, net........................................... 339 259
------- -------
Total deferred tax assets.................... 6,296 14,520
Valuation allowance for deferred tax assets............ (2,309) (2,677)
------- -------
Net deferred tax assets...................... 3,987 11,843
------- -------
Net deferred tax liabilities (assets)........ $ 1,447 $ (400)
======= =======
</TABLE>
For financial reporting purposes, income (loss) before income taxes
includes the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes:
United States....................................... $ 125 $ 807 $(6,348)
Foreign............................................. 7,727 6,039 10,659
------ ------ -------
Total....................................... $7,852 $6,846 $ 4,311
====== ====== =======
</TABLE>
37
<PAGE> 39
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1995 1994 1993
------ ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $ 100 $ -- $475
Foreign................................................ 458 1,190 210
------ ------ ----
Total Current.................................. 558 1,190 685
Deferred:
Federal................................................ 1,848 (400) --
Foreign................................................ -- -- --
------ ------ ----
Total Deferred................................. 1,848 (400) --
------ ------ ----
$2,406 $ 790 $685
====== ====== ====
</TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1995 1994 1993
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates............................. $2,748 $ 2,396 $1,466
Tax benefits not recognized due to net operating loss
carryforwards......................................... -- -- (610)
Foreign tax provision................................... 458 1,190 210
Foreign tax credits available........................... -- (1,190) --
Foreign tax credits available from equity investments... -- (537) --
Alternative minimum tax provision....................... 100 -- 475
Alternative minimum credits available................... (100) -- --
Percentage depletion available.......................... -- (506) --
Change in valuation allowance........................... (368) (466) (912)
Safe harbor lease termination........................... (897) -- --
Other, net.............................................. 465 (97) 56
------ ------- ------
Income tax expense............................ $2,406 $ 790 $ 685
====== ======= ======
</TABLE>
Income tax payments amounted to $531,000, $982,000 and $685,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
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"). The Company's
former parent received a payment in the aggregate of $16,685,000 which
represented the investment tax credit and depreciation benefits attributable to
the rigs. The interest income and principal due the Company from the third
parties was equal to the lease payments by
38
<PAGE> 40
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company to the third parties throughout the lease term. The Company's
obligations to indemnify the tax lessors against loss of tax benefits throughout
the lease term, which was scheduled to expire in 1997, are guaranteed by its
former parent.
The Safe Harbor Lease for the MARQUETTE terminated with the loss of the
MARQUETTE, as described in Note 3 of Notes to Consolidated Financial Statements.
The Company has recorded a $431,000 liability at December 31, 1995 to provide
for potential tax lease termination exposure.
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 1995 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 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 $365,000,
$302,000 and $233,000 for the years 1995, 1994 and 1993, respectively.
9. CAPITAL STOCK
Changes in the number of issued and outstanding shares of the Company's
Common Stock are summarized as follows:
<TABLE>
<S> <C>
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
Treasury Stock contributed to employee savings plan............ 23,620
---------
Outstanding Shares at December 31, 1995.......................... 4,113,067
=========
</TABLE>
The Company has an Incentive Equity Plan under which stock options, stock
appreciation rights and 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
39
<PAGE> 41
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1995, 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
84,000 61,625 $12.00-$12.99
120,900 120,900 $13.00-$13.99
50,100 50,100 $14.00-$14.99
------- -------
260,000 237,625
======= =======
</TABLE>
Options for 1,500 shares were exercised during 1993 while no options were
exercised in 1995 or 1994.
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995. The Company will adopt the
disclosure provisions of SFAS No. 123 at the beginning of fiscal year 1996. It
is anticipated that the impact of adopting SFAS No. 123 will not have a material
effect on the consolidated financial statements.
The Company's Board of Directors 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
</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. The Company's Board of Directors
has not awarded any restricted stock since the 1993 award. Expense related to
amortization of the restricted stock was $25,000, $46,000 and $120,000 for the
years 1995, 1994, and 1993, 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 $32,000 and $57,000 at December 31,
1995 and 1994, 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,
40
<PAGE> 42
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1995, 1994 and 1993.
10. REDEEMABLE PREFERRED STOCK
The Company converted 1,115,988 shares of its 1,150,000 issued and
outstanding shares of $2.3125 Convertible Exchangeable Preferred Stock
("Preferred Stock") on January 17, 1996. The Company issued 2,113,557 shares of
Common Stock upon conversion of the Preferred Stock. The remaining 34,012 shares
were redeemed for cash in the amount of $25.69 per share plus $.22 per share in
accrued and unpaid dividends thereon through the redemption date at a cost to
the Company of approximately $881,000. Holders of shares of the Preferred Stock
had the option to convert any or all of such shares of Preferred Stock into
fully paid and nonassessable shares of Common Stock of the Company prior to the
redemption date at a rate of 1.89394 shares of Common Stock for each full share
of Preferred Stock. No payment or adjustment was made upon any conversion of
shares of Preferred Stock on account of any dividends on the shares surrendered
for conversion, and the holder lost any right to payment of dividends on the
shares surrendered for conversion. No fractional shares of Common Stock were
issued upon conversion but, in lieu thereof, an appropriate amount was paid in
cash by the Company based upon the reported last sales price for the shares of
Common Stock on the date of conversion. The right of holders of Preferred Stock
to convert shares of Preferred Stock into Common Stock terminated on the
redemption date.
The Preferred Stock was 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 $25.00 per share from and after September
15, 1998, plus accrued and unpaid dividends to the redemption date. Dividends on
the Preferred Stock were cumulative from the date of first issuance and were
payable quarterly at the rate of $2.3125 per share per annum. Pursuant to the
Second Restated Credit Agreement, dividends on Preferred Stock could not exceed
the current dividend rate per share without the consent of INCC.
11. 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 $560,000, $583,000 and $656,000 for the years ended 1995,
1994 and 1993, respectively. Minimum future obligations under non-cancelable
operating leases at December 31, 1995 for the following five years are $625,000,
$509,000, $516,000, $523,000 and $516,000, respectively, and $128,000
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
41
<PAGE> 43
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
12. BUSINESS SEGMENTS
During the three years ended December 31, 1995, 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.
42
<PAGE> 44
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION,
OPERATING DEPLETION
INCOME IDENTIFIABLE CAPITAL AND
REVENUES (LOSS) ASSETS EXPENDITURES AMORTIZATION
-------- --------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1995
Daywork Drilling................. $26,363 $ 2,761 $ 56,639 $11,814 $ 4,193
Engineering Services............. 56,970 2,609 37,302 -- 30
MOPU Operations.................. 4,920 2,492 30,017 825 1,360
Oil and Gas...................... 2,788 541 5,004 798 1,732
Corporate Office................. -- (5,387) -- -- 98
Eliminations..................... (7,752) -- -- -- (142)
------- ------- -------- ------- -------
Consolidated..................... $83,289 $ 3,016 $128,962 $13,437 $ 7,271
======= ======= ======== ======= =======
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
======= ======= ======== ======= =======
</TABLE>
Intersegment sales were $7,752,000, $3,357,000 and $147,000 for the years
ended December 31, 1995, 1994 and 1993, 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.
43
<PAGE> 45
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company derived a significant amount of its revenues from a few
customers in each of the three years ended December 31, 1995. The following
table summarizes information with respect to these major customers.
<TABLE>
<CAPTION>
% OF
CONSOLIDATED
CUSTOMER REPORTING SEGMENT REVENUES
-------- ----------------- ------------
<S> <C> <C>
December 31, 1995
Corpoven, S.A............. Daywork Drilling and Engineering Services 35%
Maraven, S.A.............. Daywork Drilling and Engineering Services 19%
Texaco Exploration &
Production, Inc........ Engineering Services 12%
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%
</TABLE>
The Company settled its contractual dispute with Columbia Gas Transmission
Corp., a subsidiary of Columbia Gas System Inc. ("Columbia Gas") during 1995.
The Company received $1,377,000 related to the settlement, which is included in
oil and gas revenues.
44
<PAGE> 46
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. 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>
MEXICO
UNITED SOUTH AND
STATES AMERICA OTHER TOTAL
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995
Revenues........................................ $30,783 $51,930 $ 576 $ 83,289
======= ======= ======= ========
Operating Income................................ $ 2,178 $ 6,081 $ 46 $ 8,305
======= ======= =======
General and Administrative Expense......... (5,289)
--------
$ 3,016
========
Identifiable Assets at December 31, 1995........ $82,934 $45,434 $ 594 $128,962
======= ======= ======= ========
December 31, 1994
Revenues........................................ $18,092 $53,816 $11,785 $ 83,693
======= ======= ======= ========
Operating Income................................ $ 1,523 $ 4,417 $ 7,645 $ 13,585
======= ======= =======
General and Administrative Expense......... (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
======= ======= =======
General and Administrative Expense......... (4,807)
--------
$ 7,545
========
Identifiable Assets at December 31, 1993........ $55,797 $73,657 $ 4,069 $133,523
======= ======= ======= ========
</TABLE>
45
<PAGE> 47
CLIFFS DRILLING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating results for the years ended December 31, 1995 and 1994
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>
1995:
Revenues............................ $ 14,282 $ 13,953 $ 20,036 $ 35,018(1)
Operating Income (Loss)............. 1,418 (1,010) 917 1,691(1)(2)
Net Income (Loss)................... 1,120 (785) 1,646 3,465(1)(2)
Net Income (Loss) Applicable to
Common and Common Equivalent
Shares............................ 455 (1,450) 981 2,801(1)(2)
Net Income (Loss) per Share:
Primary........................... $ 0.11 $ (0.35) $ 0.24 $ 0.68(1)(2)
Assuming Full Dilution............ $ 0.11 $ (0.35) $ 0.24 $ 0.55(1)(2)
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
</TABLE>
- ---------------
(1) Fourth quarter 1995 results include oil and gas revenues of $1,377,000
related to the Columbia Gas settlement.
(2) Fourth quarter 1995 results include net exchange rate gains of $1,169,000,
net gains on disposition of assets of $2,713,000, primarily related to the
compromised total loss of the jack-up drilling rig MARQUETTE and impairment
expenses of $737,000 related to oil and gas property write-downs.
46
<PAGE> 48
SCHEDULE II
CLIFFS DRILLING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(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:
1995............................................ $ 408 $ 400 $ (11) $ 797
==== ==== ===== ====
1994............................................ $ 697 $ 200 $ (489) $ 408
==== ==== ===== ====
1993............................................ $ 307 $ 390 $ -- $ 697
==== ==== ===== ====
</TABLE>
47
<PAGE> 49
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).
4.3.1 -- Form of Notice of Redemption for the Holders of the Company's $2.3125
Convertible Exchangeable Preferred Stock (incorporated by reference to
Exhibit 99.2 to the Company's Form 8-K filed December 22, 1995).
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).
</TABLE>
48
<PAGE> 50
<TABLE>
<S> <C>
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).
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).
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C>
10.12.1 -- Letter Agreement dated February 15, 1991 extending Exploration and
Development Agreement (incorporated by reference to Exhibit 10.13.1 to
the Company's Form 10-K for the fiscal year ended December 31, 1990).
10.13 -- 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 (incorpo-
rated by reference to Exhibit 10.13.1 to the Company's Form 10-K for the
fiscal year ended December 31, 1994).
*10.13.2 -- Second Amendment to Second Restated Credit Agreement dated as of
September 26, 1995, by and among the Company, COGC, International and
INCC.
*10.13.3 -- Third Amendment to Second Restated Credit Agreement dated as of Decem-
ber 19, 1995, by and among the Company, COGC, International and INCC.
10.14 -- Cliffs Neddrill Central Turnkey International Joint Venture Agreement
dated December 15, 1992, by and among International, 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).
10.15 -- 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).
10.16 -- 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).
*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.
50
<PAGE> 1
EXHIBIT 10.13.2
SECOND AMENDMENT TO SECOND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND RESTATED CREDIT AGREEMENT (herein
called this "Amendment") made as of the 26th day of September, 1995 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, as amended by that
certain First Amendment to Second Restated Credit Agreement dated as of May 17,
1994 (as so amended, 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 Second 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. Letters of Credit. Clause (b)(ii) of the first
sentence of Section 2.1.4 of the Original Agreement, which currently reads:
"(ii) the L/C Exposure would exceed $5,000,000", is hereby amended in its
entirety to read as follows: "(ii) the L/C Exposure would exceed $10,000,000."
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.
(c) The execution and delivery by Borrower, COG and CDI of
this Amendment, the performance by Borrower, COG and CDI 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
-2-
<PAGE> 3
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 survive the
execution and delivery of this Amendment and the performance hereof, including
without limitation the making or granting of the Loan, and shall further
survive until all of the Obligations are paid in full. All statements and
agreements contained in any certificate or instrument delivered by any Related
Person hereunder or under the Credit Agreement to Lender shall be deemed to
constitute representations and warranties by, or agreements and covenants of,
such Related Person under this Amendment and under the Credit Agreement.
Section 5.3. 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.
-3-
<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: Trond Rokholt
Title: Vice President
-4-
<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
-5-
<PAGE> 1
EXHIBIT 10.13.3
THIRD AMENDMENT TO SECOND RESTATED
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO SECOND RESTATED CREDIT AGREEMENT (herein
called this "Amendment") made as of the 19th day of December, 1995 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, as amended by that
certain First Amendment to Second Restated Credit Agreement dated as of May 17,
1994, and by that certain Second Amendment to Second Restated Credit Agreement
dated as of September 26, 1995 (as so amended, 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 Third Amendment to Second Restated
Credit Agreement.
"Amendment Documents" means (i) this Amendment, (ii) the
Renewal Note, (iii) the Fifth Amendment to Deed of Trust, Security
Agreement, Assignment of Security Interests and Liens, Assignment of
Production and Financing Statement,
<PAGE> 2
(iv) the Fourth Amendment to Deed of Trust, Mortgage, Assignment,
Security Agreement and Financing Statement, (v) the Second Amendment
to First Restated Security Agreement, (vi) the Third Amendment to
Preferred Fleet Mortgage, (vii) the Second Amendment to Collateral
Pledge Agreement, and (viii) the Fourth Amendment to Louisiana
Security Agreement, Assignment of Production and Financing Statement.
"Credit Agreement" means the Original Agreement as amended
hereby.
"Renewal Note" has the meaning given such term in Section 3.1.
ARTICLE II.
Amendments to Original Agreement
Section 2.1. Definitions. The definition of "Borrowing Base" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:
"`Borrowing Base' shall mean, at a particular date and as
established pursuant to Section 2.1.7, the sum of (a) 80% of Eligible
Accounts at such date, plus (b) the Oil and Gas Reserves at such date,
plus (c) 80% of the Eligible Turnkey Drilling Contract Amounts, plus
(d) 50% of Fleet Value; provided, however, the amount of the Borrowing
Base derived from the Eligible Accounts, Oil and Gas Reserves or
Eligible Turnkey Drilling Contract Amounts owned by COG or CDI,
respectively, shall not exceed the limitation of liability in the
guaranty of such Related Person."
The following definitions of "Fleet" and "Fleet Value" are hereby
added to Section 1.1 of the Original Agreement immediately following the
definition of "Fixed Rate Portion":
"`Fleet' shall mean the mobile offshore drilling units, mobile
offshore production units and land drilling rigs, including all
related personal property and equipment, owned by Borrower and
described as follows:
<TABLE>
<S> <C>
Langley Official No. 501872
Cliffs LaSalle Official No. 644595
Cliffs Drilling No. 8 Official No. 587412
Cliffs Drilling No. 9 Official No. 601376
Cliffs Drilling No. 11 Official No. 617208
Cliffs Drilling No. 12 Official No. 622669
Cliffs Drilling No. 14 Official No. 625968
Marlin No. 4 (MOPU)
Rig 28 (Land)
Rig 40 (Land)
Rig 41 (Land)
Rig 42 (Land)
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
Rig 43 (Land)
Rig 54 (Land)
</TABLE>
`Fleet Value' shall mean the value attributed at a particular
date, to the Fleet in a published report by Jeffries & Companies,
William McKay & Gordon, or such other analyst of the market value of
drilling rigs as is reasonably acceptable to Lender; provided that in
the event that such value has not been updated by such a report
reasonably acceptable to Lender within 12 months, or if such a value
is in the reasonable determination of Lender no longer reflective of
market value of drilling rigs, the `Fleet Value' shall mean the value
determined by an appraisal of the Fleet, provided that the appraiser
and the form and scope of the appraisal are satisfactory to Lender.
If an appraisal of the Fleet is required by the preceding sentence,
then, until such appraisal is delivered to Lender, the `Fleet Value'
may be determined by the Lender in its sole discretion."
The definition of "Revolving Credit Commitment Termination Date" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:
"`Revolving Credit Commitment Termination Date' shall mean
January 1, 1998 or any extension thereof pursuant to Section 2.1.3 or,
if such date is not a Business Day, the Business Day next preceding
such date, or any earlier date on which the Revolving Credit
Commitment has been reduced to zero by Borrower or has been terminated
by Lender pursuant to Section 7.2."
Section 2.2. Revolving Credit Commitment. The following sentence is
hereby added to Section 2.1.1 of the Original Agreement immediately following
the first sentence thereof:
"Notwithstanding the foregoing, Borrower may use funds from a
Revolving Credit Loan for the purpose of redeeming shares of its
convertible exchangeable preferred stock pursuant to Section 6 of the
Certificate of Designations of Borrower dated September 20, 1988, so
long as (i) such Revolving Credit Loan, when made, does not exceed the
then Available Revolving Credit Commitment and (ii) Borrower complies
with any requirements of Regulation G which Lender may determine
applicable to such Revolving Credit Loan."
Section 2.3. Borrowing Base Determinations. Section 2.1.7 of the
Original Agreement is hereby amended in its entirety to read as follows:
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<PAGE> 4
"(a) The Borrowing Base as of the Closing Date is
acknowledged by the Related Persons and Lender to be $20,000,000. From
December 19, 1995, through the Revolving Credit Commitment Termination
Date and subject to the further provisions of this Section, the
Borrowing Base shall be redetermined quarterly on the basis of
information supplied by the Related Persons in compliance with the
provisions of this Agreement, including, without limitation, Borrowing
Base Certificates, Receivable Reports and Reserve Reports, and all
other information then available to Lender. Notwithstanding the
foregoing, Lender may, in the exercise of its good faith discretion,
make redeterminations of the Borrowing Base (i) no more frequently
than quarterly on the basis of information then available to Lender
regarding Credit Accounts, (ii) at any time and from time to time on
the basis of information then available to Lender regarding Mortgaged
Properties and (iii) at any time and from time to time upon the
occurrence of any event or change having a Material Adverse Effect.
(b) The Borrowing Base at any particular date shall be
that set forth in the most recent Borrowing Base Certificate submitted
to Lender pursuant to subsection 5.2, as such figure may be adjusted
or redetermined from time to time by Lender. Lender shall notify
Borrower orally or by facsimile within five Business Days after
receipt of the Borrowing Base Certificate (confirming such notice
promptly in writing) of its determination, and the Borrowing Base so
communicated to Borrower shall become effective upon such verbal or
facsimile notification by Lender to Borrower. Any Borrowing Base
established pursuant to this Agreement shall remain in effect until
the next subsequent determination of the Borrowing Base. The Borrowing
Base shall represent the determination by Lender, in accordance with
the applicable definitions and provisions herein contained and with
consideration for the nature of the facilities established hereunder,
of the value, for loan purposes, of the Eligible Accounts, the Oil and
Gas Reserves, the Eligible Turnkey Drilling Contracts, and the Fleet
Value. Furthermore, the Related Persons acknowledge that the
determination of the Borrowing Base contains an equity cushion (market
value in excess of loan value), which is acknowledged by the Related
Persons to be essential for the adequate protection of Lender.
Determination of the Oil and Gas Reserves shall be made by Lender in
its sole and absolute discretion."
Section 2.4. Reports. Section 5.2 of the Original Agreement is
hereby amended in its entirety to read as follows:
"5.2. Reports. Each Related Person will deliver to Lender,
on or before the 20th day after the end of each calendar quarter, a
Borrowing Base Certificate, a Receivables Report, a brief report on
the status and location of all drilling rigs and production units, and
a
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<PAGE> 5
Contracts Report, each of which shall be certified by the Chief
Financial Officer of each Related Person."
Section 2.5. Dividends and Distributions. Section 6.5 of the
Original Agreement is hereby amended in its entirety to read as follows:
"6.5. Dividends and Distributions. 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 Sections 6 and 7 of the
Certificate of Designations of Borrower dated September 20, 1988, or
(iii) the purchase by Borrower of an aggregate of up to 600,000 shares
of its common stock (0.01 par value per share) in the open market
(including 250,000 shares described in that certain Third Consent and
Agreement dated as of April 14, 1993 between Borrower, CDI, COG and
Lender and 250,000 shares described in that certain First Amendment to
Second Restated Credit Agreement dated as of May 17, 1994 by and among
Borrower, CDI, COG and Lender)."
Section 2.6. Exhibits. Exhibit 1.1 to the Original Agreement is
hereby amended in its entirety to read as set forth on Exhibit 1.1 hereto.
Exhibit 1.8 to the Original Agreement is hereby amended in its
entirety to read as set forth on Exhibit 1.8 hereto.
ARTICLE III.
Conditions of Effectiveness
Section 3.1. Effective Date. This Amendment shall become effective
as of the date first above written when and only when (i) Lender shall have
received, at Lender's office, a counterpart of this Amendment executed and
delivered by Borrower, (ii) Borrower shall have issued and delivered to Lender
a promissory note with appropriate insertions in the form attached hereto as
Exhibit 1.8 payable to the order of Lender on or before January 1, 1998 (such
note being herein called the "Renewal Note"), duly executed on behalf of
Borrower, and dated the date hereof, (iii)
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<PAGE> 6
Lender shall have received each of the other Amendment Documents executed and
delivered by Borrower, (iv) Borrower shall have paid Lender the fee set forth
in the letter agreement dated of even date herewith between Borrower and
Lender, and (v) Lender shall have additionally received all of the following
documents, each document (unless otherwise indicated) being dated the date of
receipt thereof by Lender, duly authorized, executed and delivered, and in form
and substance satisfactory to Lender:
(a) Opinion of Counsel for Borrower. A written opinion
of Messrs. Griggs & Harrison, counsel for Borrower, COG, and CDI dated
as of the date of this Amendment, addressed to Lender, to the effect
that this Amendment and the other Amendment Documents have been duly
authorized, executed and delivered by Borrower, COG, and CDI and that
the Credit Agreement and the other Amendment Documents constitute the
legal, valid and binding obligations of Borrower, COG, and CDI
enforceable in accordance with their terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency and
similar laws and to general principles of equity).
(b) Supporting Documents. A certificate of the Secretary
of each of Borrower, COG and CDI dated the date of this Amendment
certifying that the resolutions adopted by the Board of Directors of
Borrower, as attached as Exhibit A to those certain Secretary's
Certificates of each of Borrower, COG and CDI dated March 28, 1994,
have not been amended, modified or revoked in any respect and are in
full force and effect on the date hereof and authorize the execution,
delivery and performance of this Amendment and the other Amendment
Documents and certifying the names and true signatures of the officers
of Borrower, COG and CDI authorized to sign this Amendment and the
other Amendment Documents.
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 the other Amendment Documents,
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
-6-
<PAGE> 7
taken all corporate action necessary to authorize the execution and
delivery of this Amendment and the other Amendment Documents and to
authorize the performance of the obligations of Borrower, COG and CDI
hereunder and thereunder.
(c) The execution and delivery by Borrower, COG and CDI
of this Amendment and the other Amendment Documents (to which each is
a party), the performance by Borrower, COG and CDI of their respective
obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby do not and will not
conflict with any provision of law, statute, rule or regulation or of
the articles of incorporation and bylaws of Borrower, COG or CDI, or
of any material agreement, judgment, license, order or permit
applicable to or binding upon Borrower, COG or CDI, or result in the
creation of any lien, charge or encumbrance (other than those in favor
of Lender) upon any assets or properties of Borrower, COG or CDI.
Except for those which have been duly obtained, no consent, approval,
authorization or order of any court or governmental authority or third
party is required in connection with the execution and delivery by
Borrower, COG and CDI of this Amendment and the other Amendment
Documents or to consummate the transactions contemplated hereby and
thereby.
(d) When duly executed and delivered, each of this
Amendment, the Credit Agreement and the other Amendment Documents 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. Any reference
to the Credit Agreement in any Loan Document shall be deeded to be a reference
to the Original Agreement as hereby amended. Any reference to the Revolving
Credit Note in any Loan Document shall be deemed to be a reference to the
Renewal Note. The execution, delivery and effectiveness of this Amendment and
the other Amendment Documents 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
-7-
<PAGE> 8
survive the execution and delivery of this Amendment and the performance
hereof, including without limitation the making or granting of the Loans, and
shall further survive until all of the Obligations are paid in full. All
statements and agreements contained in any certificate or instrument delivered
by any Related Person hereunder or under the Credit Agreement to Lender shall
be deemed to constitute representations and warranties by, or agreements and
covenants of, such Related Person under this Amendment and under the Credit
Agreement.
Section 5.3. Loan Documents. This Amendment and each other
Amendment Documents is a Loan Document, and all provisions in the Credit
Agreement pertaining to Loan Documents apply hereto and thereto.
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.
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.
-8-
<PAGE> 9
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/ ROLAND BOEKHOUT
---------------------------------
Roland Boekhout
Title: Associate
-9-
<PAGE> 10
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> 11
EXHIBIT 1.1
FORM OF
BORROWING BASE CERTIFICATE
This Borrowing Base Certificate is being delivered pursuant to Section
5.2 of that one certain Second Restated Credit Agreement (as may be amended,
restated, modified and supplemented and in effect from time to time, the
"Credit Agreement") dated as of March 28, 1994, by and among Cliffs Drilling
Company ("Borrower"), Cliffs Oil and Gas Company ("COG") and Cliffs Drilling
International Inc.( "CDI"), each a Delaware corporation, and Internationale
Nederlanden (U.S.) Capital Corporation ("Lender"). All capitalized terms used
but not defined herein shall have the meaning ascribed to such term in the
Credit Agreement.
Borrower, COG and CDI hereby represent, warrant, and acknowledge to
Lender that:
(a) all representations and warranties made by any
Related Person in any Loan Document delivered on or before the date
hereof are true on and as of the date hereof (except to the extent
that the facts upon which such representations are based have been
changed by the transactions contemplated in the Credit Agreement) as
if such representations and warranties had been made as of the date
hereof;
(b) attached hereto is a schedule of calculations showing
Borrower's compliance as of ______________________ (the "Reporting
Date") with the requirements of Sections 6.14 and 6.16 of the
Agreement [and Borrower's non-compliance as of such date with the
requirements of Section(s) ______________ of the Agreement];
(c) on the Reporting Date Borrower was, and on the date
hereof Borrower is, in full compliance with the disclosure
requirements of Section 5.7 of the Agreement, and no Default otherwise
existed on the Reporting Date or otherwise exists on the date of this
instrument [except for Default(s) under Section(s) _______________ of
the Agreement, which [is/are] more fully described on a schedule
attached hereto].
The officer of Borrower signing this instrument hereby certifies that
he has reviewed the Loan Documents and has otherwise undertaken such inquiry as
is in his opinion necessary to enable him to express an informed opinion with
respect to the above representations, warranties and acknowledgments of
Borrower and, to the best of his knowledge, such representations, warranties,
and acknowledgments are true, correct and complete.
-1-
<PAGE> 12
The undersigned, each an officer of Borrower, COG, and CDI hereby
certify to Lender that the following is a true and accurate calculation of the
Borrowing Base as of the Reporting Date, as determined in accordance with the
requirements of the Credit Agreement:
(i) Eligible Accounts: $
---------
(ii) 80% of Eligible Accounts: $
---------
(iii) Oil and Gas Reserves: $
---------
(iv) Eligible Turnkey Drilling Contract Amounts $
---------
(v) 80% Eligible Turnkey Drilling
Contract Amounts $
---------
(vi) Fleet Value $
---------
(vii) 50% of Fleet Value $
---------
(viii) Borrower' determination of Borrowing
Base (sum of lines (ii), (iii), (v)
and (vii) (not to exceed $20,000,000): $
---------
(ix) Loan Balance: $
---------
(x) Letter of Credit Exposure
(not to exceed $10,000,000): $
---------
(xi) Total Exposure
(sum of lines (ix) and (x)) $
---------
(xii) Available Commitment
(line (viii) minus line (xi)): $
---------
-2-
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have caused this Certificate to be
duly executed as of the 19th day of December, 1995.
CLIFFS OIL AND GAS COMPANY CLIFFS DRILLING COMPANY
By: By:
------------------------- -------------------------
Name: Name:
-------------------- --------------------
Title: Title:
------------------- -------------------
CLIFFS DRILLING INTERNATIONAL, INC.
By:
-------------------------
Name:
--------------------
Title:
-------------------
LENDER'S DETERMINATION OF BORROWING BASE
(a) Borrower's determination of
Borrowing Base: $
----------
(b) Lender's Adjustment to Borrowing Base $
----------
(c) Borrowing Base $
----------
(d) Loan Balance: $
----------
(e) Letter of Credit Exposure
(not to exceed $10,000,000): $
----------
(f) Total Exposure
(sum of lines (d) and (e)): $
----------
(g) Available Commitment
(line (c) minus line (f)): $
----------
-3-
<PAGE> 14
EXHIBIT 1.8
REVOLVING CREDIT NOTE
$20,000,000 New York, New York December 19, 1995
FOR VALUE RECEIVED, the undersigned, CLIFFS DRILLING COMPANY, a
Delaware corporation (herein called "Borrower"), hereby promises to pay to the
order of INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION (herein called
"Lender"), the principal sum of Twenty Million Dollars ($20,000,000) or, if
less, the aggregate unpaid principal amount of the Revolving Credit Loans
outstanding under this Note by Lender to Borrower pursuant to the terms of the
Credit Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the New York Branch of Lender, 135 East 57th Street, New York, New York or at
such other place as from time to time may be designated by the holder of this
Note.
This Note (a) is issued and delivered under that certain Second
Restated Credit Agreement dated as of March 28, 1995 among Borrower, Cliffs Oil
and Gas Company, Cliffs Drilling International, Inc., and Lender, as amended by
the First Amendment to Second Restated Credit Agreement dated as of May 17,
1994, the Second Amendment to Second Restated Credit Agreement dated as of
September 26, 1995, and the Third Amendment to Second Restated Credit Agreement
dated of even date herewith (herein, as so amended and as from time to time
further supplemented, amended or restated, called the "Credit Agreement"), and
is the Revolving Credit Note as defined therein, (b) is subject to the terms
and provisions of the Credit Agreement, which contains provisions for payments
and prepayments hereunder and acceleration of the maturity hereof upon the
happening of certain stated events, and (c) is secured by and entitled to the
benefits of certain Security Instruments (as identified and defined in the
Credit Agreement). Payments on this Note shall be made and applied as provided
herein and in the Credit Agreement. Reference is hereby made to the Credit
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Instruments for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto. This Note is given in renewal, extension and
restatement of (but not in extinguishment or novation of) that certain
promissory note dated March 28, 1994, made by Borrower payable to the order of
Lender in the stated principal amount of $20,000,000, which note was given in
renewal, extension and restatement of (but not in extinguishment or novation
of) that certain promissory note dated December 23, 1993, made by Borrower
payable to the order of Lender.
-1-
<PAGE> 15
For the purpose of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each calendar
quarter, beginning December 31, 1995, and (ii) any day on which past due
interest or principal is owed hereunder and is unpaid. If the terms hereof or
of the Credit Agreement provide that payments of interest or principal hereon
shall be deferred from one Base Rate Payment Date to another day, such other
day shall also be a Base Rate Payment Date.
"Maximum Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, may then be charged on this Note.
If such maximum rate of interest changes after the date hereof, the Maximum
Rate shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective time of each change in
such maximum rate.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on January 1, 1998.
The Base Rate Portion of the Revolving Credit Loans (exclusive of any
past due principal or interest) from time to time outstanding shall bear
interest on each day outstanding at the Base Rate in effect on such day. On
each Base Rate Payment Date Borrower shall pay to the holder hereof all unpaid
interest which has accrued on the Base Rate Portion to but not including such
Base Rate Payment Date. Each Fixed Rate Portion of the Revolving Credit Loan
(exclusive of any past due principal or interest) from time to time outstanding
shall bear interest on each day during the related Interest Period at the
related Fixed Rate in effect on such day. On each Fixed Rate Payment Date
relating to such Fixed Rate Portion Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Fixed Rate Portion to but not
including such Fixed Rate Payment Date. All past due principal of and past due
interest on the Revolving Credit Loan shall bear interest on each day
outstanding at the Default Rate in effect on such day, and such interest shall
be due and payable daily as it accrues. Notwithstanding the foregoing
provisions of this paragraph, if at any time the rate at which interest is
payable on this Note (considering together all portions of the Revolving Credit
Loan and the interest payable thereon) exceeds the Maximum Rate, this Note
shall bear interest at the Maximum Rate only but shall continue to bear
interest at the Maximum Rate until such time as the total amount of interest
accrued hereon equals (but does not exceed) the total amount of interest which
would have accrued hereon had there been no Maximum Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable law, may be
charged on this
-2-
<PAGE> 16
Note, and this Note is expressly made subject to the provisions of the Credit
Agreement which more fully set out the limitations on how interest accrues
hereon.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment, notice of demand and of dishonor
and nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED ENTIRELY WITHIN SUCH STATE EXCEPT TO THE EXTENT THE SAME ARE
GOVERNED BY APPLICABLE FEDERAL LAW.
CLIFFS DRILLING COMPANY
By: /s/ EDWARD A. GUTHRIE
-------------------------------
Edward A. Guthrie
Vice President - Finance
-3-
<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.
12. OILFIELD MANAGEMENT & DEVELOPMENT CORP., a Barbados corporation wholly
owned by Cliffs Drilling Company.
13. CLIFFS DRILLING ACQUISITION COMPANY, 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 22, 1996, 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, 1995.
/s/ ERNST & YOUNG LLP
Houston, Texas
March 1, 1996
<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, 1996,
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, 1995, and to the use
of our name, and the statements with respect to us.
HUDDLESTON & CO., INC.
/s/ B.P. HUDDLESTON
B.P. Huddleston
Chairman
Houston, Texas
March 1, 1996
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,405
<SECURITIES> 0
<RECEIVABLES> 13,779
<ALLOWANCES> 797
<INVENTORY> 4,114
<CURRENT-ASSETS> 58,197
<PP&E> 149,475
<DEPRECIATION> 83,525
<TOTAL-ASSETS> 128,962
<CURRENT-LIABILITIES> 24,338
<BONDS> 0
<COMMON> 45
28,750
0
<OTHER-SE> 73,970
<TOTAL-LIABILITY-AND-EQUITY> 128,962
<SALES> 83,289
<TOTAL-REVENUES> 83,289
<CGS> 67,713
<TOTAL-COSTS> 80,273
<OTHER-EXPENSES> (5,435)
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 7,852
<INCOME-TAX> 2,406
<INCOME-CONTINUING> 5,446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,446
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
