<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------------------
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-16703
CLIFFS DRILLING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0248934
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 651-9426
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding as of November 12, 1997:
15,468,072
(Exhibit Index Located on Page 22)
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CLIFFS DRILLING COMPANY
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Operations (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Nine Months Ended September 30, 1997 and 1996 ............ 3
Consolidated Balance Sheets (Unaudited) -
CLIFFS DRILLING COMPANY
September 30, 1997 and December 31, 1996 ........................... 4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Nine Months Ended September 30, 1997 and 1996 ........... 5
Notes to Interim Consolidated Financial Statements (Unaudited) ....... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................ 10
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES .......................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 19
SIGNATURES ............................................................... 21
EXHIBIT INDEX ............................................................ 22
</TABLE>
2
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CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Revenues ............................................................ $ 67,827 $ 43,262 $ 187,952 $ 86,022
Income from Equity Investments ...................................... 293 235 1,514 331
--------- --------- --------- ---------
68,120 43,497 189,466 86,353
COSTS AND EXPENSES:
Operating Expenses .................................................. 36,176 28,805 108,061 58,878
Depreciation, Depletion and Amortization ............................ 5,801 3,578 14,160 6,755
General and Administrative Expense .................................. 2,263 1,529 6,422 4,343
--------- --------- --------- ---------
44,240 33,912 128,643 69,976
--------- --------- --------- ---------
OPERATING INCOME ......................................................... 23,880 9,585 60,823 16,377
OTHER INCOME (EXPENSE):
Gain (Loss) on Disposition of Assets ................................ 125 (39) 2,597 2,608
Interest Income ..................................................... 532 1,068 1,074 1,872
Interest Expense .................................................... (4,786) (3,878) (12,572) (5,464)
Exchange Rate Gain (Loss) ........................................... (375) (11) (157) 137
Other, net .......................................................... (467) (96) (1,185) (155)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES ............................................... 18,909 6,629 50,580 15,375
INCOME TAX EXPENSE ....................................................... 6,618 2,320 17,703 5,381
--------- --------- --------- ---------
NET INCOME ............................................................... 12,291 4,309 32,877 9,994
DIVIDENDS APPLICABLE TO PREFERRED STOCK .................................. -- -- -- (31)
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON AND COMMON EQUIVALENT SHARES ............ $ 12,291 $ 4,309 $ 32,877 $ 9,963
========= ========= ========= =========
NET INCOME PER SHARE ..................................................... $ 0.79 $ 0.29 $ 2.13 $ 0.74
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING .......................................................... 15,557 15,078 15,434 13,522
========= ========= ========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
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CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------- ---------
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ................................................................. $ 51,214 $ 39,181
Accounts Receivable, net of allowance for doubtful accounts of $95 and $797 at
September 30, 1997 and December 31, 1996, respectively ................................. 60,017 28,866
Notes and Other Receivables, Current ...................................................... 3,150 4,922
Inventories ............................................................................... 6,653 5,807
Drilling Contracts in Progress ............................................................ 9,431 17,669
Prepaid Insurance ......................................................................... 1,235 7,408
Other Prepaid Expenses .................................................................... 11,181 6,349
--------- ---------
Total Current Assets ................................................................ 142,881 110,202
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment ................................................................ 380,610 283,223
Other ..................................................................................... 15,011 16,530
--------- ---------
395,621 299,753
Less: Accumulated Depreciation, Depletion and Amortization ............................... (94,855) (83,279)
--------- ---------
Net Property and Equipment .......................................................... 300,766 216,474
NOTES AND OTHER RECEIVABLES, LONG-TERM ........................................................ -- 3,510
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES ...................................... 1,572 4,434
DEFERRED CHARGES AND OTHER .................................................................... 5,158 4,926
--------- ---------
TOTAL ASSETS ........................................................................ $ 450,377 $ 339,546
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .......................................................................... $ 27,164 $ 30,545
Accrued Interest .......................................................................... 6,630 2,007
Other Accrued Expenses .................................................................... 19,965 9,429
--------- ---------
Total Current Liabilities ........................................................... 53,759 41,981
10.25% SENIOR NOTES ........................................................................... 203,774 150,000
DEFERRED INCOME TAXES ......................................................................... 14,750 5,028
DEFERRED INCOME AND OTHER ..................................................................... 33 369
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares authorized; 15,876,393 and
7,996,436 shares issued and 15,457,647 and 7,566,504 shares outstanding at
September 30, 1997 and December 31, 1996, respectively .................................. 159 80
Paid-In Capital ........................................................................... 158,836 153,513
Retained Earnings (Deficit) ............................................................... 27,160 (5,717)
Less: Notes Receivable from Officers for Restricted Stock ................................ (159) (186)
Restricted Stock ................................................................... (2,764) (223)
Treasury Stock, at cost, 418,746 and 429,932 shares at September 30,
1997 and December 31, 1996, respectively ........................................ (5,171) (5,299)
--------- ---------
Total Shareholders' Equity ......................................................... 178,061 142,168
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................... $ 450,377 $ 339,546
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
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CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ....................................................... $ 12,291 $ 4,309 $ 32,877 $ 9,994
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization ...................... 5,801 3,578 14,160 6,755
Deferred Income Tax Expense (Benefit) ......................... (712) 1,561 9,722 4,093
Mobilization Expense Amortization ............................. -- 59 25 255
Loss (Gain) on Disposition of Assets .......................... (125) 39 (2,597) (2,608)
Amortization of Debt Issue Costs .............................. 209 186 582 266
Amortization of Restricted Stock .............................. 191 5 269 14
Amortization of Premium on 10.25% Senior Notes ................ (101) -- (101) --
Other ......................................................... 498 72 546 306
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable ....................................... (10,516) (3,039) (28,366) (17,918)
Inventories ............................................... (593) (397) (846) (1,306)
Drilling Contracts in Progress ............................ (3,896) (7,998) 8,241 (3,873)
Prepaid Insurance and Other Prepaid Expenses .............. 578 (6,994) 1,316 (8,268)
Investments in and Advances to Unconsolidated Affiliates... 227 (235) (1,136) (331)
Accounts Payable and Other Accrued Expenses ............... 9,949 17,752 11,778 16,963
-------- -------- -------- --------
Net Cash Provided By Operating Activities .......... 13,801 8,898 46,470 4,342
INVESTING ACTIVITIES:
Capital Expenditures ............................................. (8,797) (8,823) (56,638) (22,039)
Acquisition of Rigs and Related Equipment ........................ (6,000) (3,072) (34,500) (108,477)
Acquisition of Equity Interest in Rig and Related Equipment....... -- -- -- (3,187)
Proceeds from Sale of Property and Equipment ..................... 118 270 3,642 1,267
Insurance Proceeds from Loss of Rig and Related Equipment ........ -- -- -- 292
Collection of Notes Receivable ................................... -- 243 3,537 691
-------- -------- -------- --------
Net Cash Used In Investing Activities .............. (14,679) (11,382) (83,959) (131,453)
FINANCING ACTIVITIES:
Proceeds from Borrowings ......................................... 53,875 -- 60,375 150,000
Payments on Borrowings ........................................... (5,684) -- (12,184) --
Proceeds from Exercise of Stock Options .......................... 2,017 -- 2,149 --
Debt Issue Costs ................................................. (818) -- (818) (4,651)
Acquisition of Treasury Stock .................................... -- -- -- (661)
Payments for Redemption of Preferred Stock ....................... -- -- -- (850)
Preferred Stock Dividends ........................................ -- -- -- (31)
-------- -------- -------- --------
Net Cash Provided By Financing Activities .......... 49,390 -- 49,522 143,807
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 48,512 (2,484) 12,033 16,696
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 2,702 45,585 39,181 26,405
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 51,214 $ 43,101 $ 51,214 $ 43,101
======== ======== ======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
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CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal and recurring adjustments) necessary to present a fair statement
of the results for the periods included herein have been made and the
disclosures contained herein are adequate to make the information presented not
misleading. Operating results for the three and nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K/A (Amendment No. 3) for the year ended December 31, 1996.
2. STOCK SPLIT
On June 9, 1997, the Company effected a two-for-one stock split in the form
of a 100% stock dividend to holders of record on May 22, 1997 (the "Stock
Split"). All references to the weighted average number of common and common
equivalent shares outstanding and per share amounts have been restated to
reflect the Stock Split, unless otherwise indicated.
3. EARNINGS PER SHARE
Primary earnings per share computations are based on net income less
dividends on the Company's $2.3125 Convertible Exchangeable Preferred Stock (the
"Preferred Stock"), divided by the average number of common shares and
equivalents outstanding during the respective periods. Common stock equivalents
include the number of shares issuable upon exercise of stock options, less the
number of shares that could have been repurchased with the exercise proceeds
using the treasury stock method. Fully diluted earnings per share is not
presented for any period because it is not materially different than primary
earnings per share.
The Company issued 2,113,557 shares of common stock, $.01 par value
("Common Stock"), before effects of the Stock Split, upon conversion of
1,115,988 shares of its 1,150,000 issued and outstanding shares of Preferred
Stock on January 17, 1996. The remaining 34,012 shares of Preferred Stock 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.
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," (SFAS No. 128) which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under SFAS No. 128, primary earnings per share computed in
accordance with APB Opinion No. 15 will be replaced with a new simpler
calculation called basic earnings per share. Basic earnings per share will
exclude the dilutive effect of stock options. The adoption of SFAS No. 128 is
not expected to result in a material impact on earnings per share amounts for
the three and nine months ended September 30, 1997 and 1996.
6
<PAGE> 7
4. ACQUISITIONS
On October 16, 1997, the Company entered into a letter of intent to acquire
2 offshore platform drilling rigs, one self-propelled jack-up drilling/workover
rig, and substantially all of the assets used in the offshore contract drilling
business of Well Services (Marine) Limited, a Trinidad and Tobago company. The
purchase price is $47.0 million, consisting of $23.5 million in cash and $23.5
million in Cliffs Drilling Company Common Stock, subject to certain closing and
post-closing adjustments. Closing of the acquisition is subject to execution and
delivery of a definitive agreement, certain approvals and consents and
satisfaction of customary closing conditions to be contained in the definitive
agreement. The closing of the acquisition is expected to occur on or before
January 15, 1998.
Effective October 1, 1997, the Company exercised an option to purchase a
platform drilling rig which is currently operating in Brazil. The purchase price
was $4.3 million.
Effective August 1, 1997, the Company acquired substantially all of the
remaining 50% interest of the West Indies Drilling Joint Venture (the "WINDJV"),
a joint venture between Cliffs Drilling Trinidad Limited and Well Services
(Marine) Limited, which owns one jack-up drilling rig. The purchase price was
$6.0 million. In connection with the acquisition, the Company also repaid $5.7
million of indebtedness owed by the WINDJV.
On January 24, 1997, the Company completed the acquisition of the stock of
a subsidiary of Andrade Gutierrez Perfuracao Ltda. which owned the jack-up
drilling rig ATENA, four 1,500 HP land drilling rigs, miscellaneous drilling
equipment and a contract to operate a platform rig in Brazil (the "AGP
Acquisition"). The ATENA has been renamed Cliffs Drilling 156 and the four land
rigs have been designated as Cliffs Drilling 34, 35, 36 and 37. The purchase
price was $28.5 million in cash.
On May 23, 1996, the Company completed the acquisition of 9 jack-up
drilling rigs and a 50% interest in the WINDJV, and their related assets
(collectively referred to as the "Southwestern Rigs") operated by Southwestern
Offshore Corporation, a Delaware corporation ("Southwestern"). The purchase
price of the Southwestern Rigs was (a) $103.8 million in cash (after reductions
of $6.2 million for required refurbishments of certain Southwestern Rigs not
made prior to closing) plus (b) issuance of 1.2 million shares of the Company's
Common Stock, before effects of the Stock Split, and (c) assumption of certain
contractual liabilities, including the Company's guarantee of $4.25 million in
indebtedness of the WINDJV to Citibank N.A. related to the refurbishment of the
jack-up drilling rig owned by it (together with accrued but unpaid interest
thereon and costs of collection). The 50% interest in the WINDJV acquired by the
Company is actually the interest held by Cliffs Drilling Trinidad Limited, which
the Company acquired on the same day. In addition, on May 10, 1996, the Company
acquired the jack-up drilling rig OCEAN MAGALLANES from Diamond Offshore
Southern Company ("Diamond") for $4.5 million. The Company renamed this unit
Cliffs Drilling 155. On September 30, 1996, the Company acquired a land rig from
Quarles Drilling Corp. for $2.9 million which was refurbished and commenced
operations during the second quarter of 1997 in Venezuela.
5. NOTES PAYABLE
Long-term debt at September 30, 1997 was $203.8 million, including note
premium, and consists solely of 10.25% Senior Notes due 2003 (the "Senior
Notes") in the aggregate principal amount of $200.0 million.
Senior Notes in the principal amount of $150.0 million were sold by the
Company on May 23, 1996 in connection with the Southwestern Rigs acquisition.
Senior Notes in the principal amount of $50.0 million were sold at a premium by
the Company on August 7, 1997. Proceeds to the Company from the sale of the
$50.0 million Senior Notes, prior to deducting costs of the offering, were
approximately $53.9 million. The Company has used approximately $6.0 million of
the net proceeds to acquire substantially all of the remaining 50% interest of
the WINDJV, $5.7 million to
7
<PAGE> 8
repay indebtedness owed by the WINDJV and $4.3 million to purchase a platform
drilling rig in Brazil which was previously leased by the Company. The Company
intends to use the remainder of the net proceeds to acquire additional assets,
refurbish and renovate a portion of its existing rig fleet and for other general
corporate purposes.
The Senior Notes are senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior indebtedness and senior to all
subordinated indebtedness. The Senior Notes are unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by the Company's principal
subsidiaries (the "Subsidiary Guarantors"), and the Subsidiary Guarantees rank
pari passu in right of payment with all senior indebtedness of the Subsidiary
Guarantors and senior to all subordinated indebtedness of the Subsidiary
Guarantors. The Subsidiary Guarantees may be released under certain
circumstances. The Senior Notes and the Subsidiary Guarantees are effectively
subordinated to all secured indebtedness, including amounts outstanding under
the Revolving Credit Facility. The Subsidiary Guarantees provide that each
Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the
full and prompt performance of the Company's obligations under the indenture and
the Senior Notes. Each Subsidiary Guarantor is 100% owned by the Company,
although title to 1% of the outstanding equity interest in the WINDJV is owned
of record by a third party for the beneficial interest of the Company.
The indenture under which the Senior Notes are issued imposes significant
operating and financial restrictions on the Company. Such restrictions affect,
and in many respects limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness, make capital expenditures, create
liens, sell assets and make dividends or other payments.
Separate financial statements and other disclosures concerning the
Subsidiary Guarantors are not presented because management has determined such
financial statements and other disclosures are not material to investors. The
assets, equity, income and cash flows of the non-guarantor subsidiaries on an
individual and combined basis are less than 1% of the consolidated assets,
equity, income and cash flows, respectively, of the Company and are
inconsequential. The combined condensed financial information of the Company's
Subsidiary Guarantors is as follows:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Current Assets .............................. $ 27,313 $ 19,295
Non-Current Assets .......................... 158,140 135,934
-------- --------
Total Assets ........................... $185,453 $155,229
======== ========
Current Liabilities ......................... $ 14,053 $ 12,122
Non-Current Liabilities ..................... 121,316 132,941
Equity ...................................... 50,084 10,166
-------- --------
Total Liabilities and Equity ........... $185,453 $155,229
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
Revenues .................................... $ 66,668 $ 27,011
Operating Income ............................ $ 28,627 $ 8,771
Net Income .................................. $ 12,484 $ 3,187
</TABLE>
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6. GAIN ON DISPOSITION OF ASSET
The Company recorded a gain of $2.7 million on the disposition of various
oil and gas related interests during the second quarter of 1997. The oil and gas
related interests secured the long-term note receivable valued at $3.5 million
at December 31, 1996. This note was settled in full in connection with the asset
sale.
7. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
acquisition of the Southwestern Rigs using the purchase method of accounting
given the related assumptions and adjustments, the offering of $150.0 million
Senior Notes and the issuance of 1.2 million shares of the Company's Common
Stock, before effects of the Stock Split, valued at an average price of $18.51
per share in connection with the acquisition of the Southwestern Rigs.
The pro forma financial information is based upon the historical
consolidated financial statements of the Company and Southwestern for the nine
months ended September 30, 1996. The historical results of Southwestern include
the results of operations of the rigs that were available for service during the
indicated periods.
The pro forma financial information for the nine months ended September 30,
1996 was prepared assuming that the transactions described above were
consummated as of January 1, 1996. The pro forma financial information has been
prepared based upon assumptions deemed appropriate by the Company and may not be
indicative of actual results. The historical results of Southwestern's
operations are included with the Company's results beginning May 23, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
---------------------
(In thousands, except
per share amounts)
<S> <C>
Revenues.......................................... $ 100,916
Net Income ....................................... 5,989
Net Income Per Share ............................. $ 0.40
</TABLE>
8. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior year
to conform with the current year presentation.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q regarding the
Company's financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under the captions "General" and "Liquidity and
Capital Resources" within this item and elsewhere in this Form 10-Q.
GENERAL
Activity in the contract drilling industry and related oil service
businesses has improved over the last two years due to increased worldwide
demand stemming from higher levels of pricing for oil and natural gas. Over the
past several years, the supply of offshore drilling rigs has declined while the
demand for such rigs has increased, resulting in increases in worldwide
utilization rates. 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 several years. This price volatility creates some market uncertainties,
despite the overall improvement in oil and gas market fundamentals.
The Company's daywork drilling operations have benefited from the tight
supply of jack-up drilling rigs both in the U.S. Gulf of Mexico and
internationally. Increased exploration activity coupled with a reduction in rig
availability has resulted in increasing dayrates and utilization of the
Company's drilling rigs. The same factors have positively and negatively
affected the Company's engineering services business segment, in that increased
exploration activity has caused an increase in demand for the Company's
engineering services; however, reduced rig availability has made it more
difficult for the Company to contract drilling rigs required for performance of
turnkey drilling operations.
The oil and gas industry has experienced extreme market cycles over the
past decade. The Company has endeavored to mitigate the effect of this
volatility by diversifying its scope of operations. To achieve its strategic
objective, the Company established separate but related lines of business in
daywork drilling, engineering services and MOPU operations. The Company also has
pursued foreign drilling and production opportunities in order to expand
geographically. Each of the Company's business segments will continue to be
affected, however, by the unsettled energy markets, which are influenced by a
variety of factors, including general economic conditions, the extent of
worldwide oil and gas production and demand therefor, government regulations and
environmental concerns.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1996
The Company recognized net income of $12.3 million during the third quarter
of 1997 compared to net income of $4.3 million in the third quarter of 1996.
Revenues increased $24.6 million and operating income increased $14.3 million in
the same period. These increases were partially offset by $.9 million of
increased interest expense associated with the Senior Notes and $4.3 million of
increased income taxes. Improved operating results from the Company's daywork
drilling and engineering services business segments contributed to the increases
in revenues and operating income.
10
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<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ............................................ $ 49,654 $ 26,894 $ 22,760
Engineering Services ........................................ 19,709 18,857 852
MOPU Operations ............................................. 2,698 956 1,742
Oil and Gas ................................................. 4 372 (368)
Eliminations ................................................ (3,945) (3,582) (363)
-------- -------- --------
Consolidated ............................................ $ 68,120 $ 43,497 $ 24,623
======== ======== ========
Operating Income (Loss):
Daywork Drilling ............................................ $ 20,461 $ 8,023 $ 12,438
Engineering Services ........................................ 4,733 2,437 2,296
MOPU Operations ............................................. 1,100 603 497
Oil and Gas ................................................. (58) 49 (107)
Corporate Office ............................................ (2,356) (1,557) (799)
Eliminations ................................................ -- 30 (30)
-------- -------- --------
Consolidated ............................................ $ 23,880 $ 9,585 $ 14,295
======== ======== ========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $22.8 million and operating income
increased $12.4 million in the third quarter of 1997 compared to the third
quarter of 1996. Of the $12.4 million increase in operating income, $9.9 million
was generated from the various jack-up and land drilling rig acquisitions
completed since May, 1996. Operating income also increased due to improved
dayrates for the Company's jack-up and land drilling rigs.
On May 23, 1996, the Company completed the acquisition of 9 jack-up
drilling rigs and a 50% interest in the WINDJV which owns an additional jack-up
drilling rig, and their related assets operated by Southwestern. In addition, on
May 10, 1996, the Company acquired a jack-up drilling rig from Diamond and
renamed it Cliffs Drilling 155. Eight of the 11 acquired jack-up drilling rigs
are currently operating in the Gulf of Mexico and one jack-up rig is operating
in each of Venezuela, Qatar and Trinidad. One of the 8 jack-up drilling rigs
currently operating in the Gulf of Mexico completed refurbishment activities and
commenced operations during late July, 1997.
On September 30, 1996, the Company acquired an additional land rig for $2.9
million. The Company refurbished the drilling rig, mobilized the unit to
Venezuela and commenced operations during the second quarter of 1997.
On January 24, 1997, the Company completed the AGP Acquisition which
included one jack-up drilling rig and 4 land rigs for a purchase price of $28.5
million in cash. The jack-up drilling rig acquired was renamed Cliffs Drilling
156 and is currently operating in Venezuela. The Company completed refurbishment
activities on 2 of the 4 land drilling rigs. One of the land drilling rigs
commenced operations in Venezuela during May, 1997, and the Company is currently
marketing the other unit for operations in Venezuela. The Company expects to
complete refurbishment activities on the other 2 land drilling rigs during the
next six months and will subsequently market the units for operations in
Venezuela.
Effective August 1, 1997, the Company acquired substantially all of the
remaining 50% interest of the WINDJV. The purchase price was $6.0 million. In
connection with the acquisition, the Company also repaid $5.7 million of
indebtedness owed by the WINDJV.
11
<PAGE> 12
Effective October 1, 1997, the Company exercised an option to purchase a
platform drilling rig which is currently operating in Brazil. The purchase price
was $4.3 million.
On October 16, 1997, the Company entered into a letter of intent to acquire
2 offshore platform drilling rigs, one self-propelled jack-up drilling/workover
rig, and substantially all of the assets used in the offshore contract drilling
business of Well Services (Marine) Limited, a Trinidad and Tobago company. The
purchase price is $47.0 million, consisting of $23.5 million in cash and $23.5
million in Cliffs Drilling Company Common Stock, subject to certain closing and
post-closing adjustments. Closing of the acquisition is subject to execution and
delivery of a definitive agreement, certain approvals and consents and
satisfaction of customary closing conditions to be contained in the definitive
agreement. The closing of the acquisition is expected to occur on or before
January 15, 1998. See "Liquidity and Capital Resources."
The Company operates its drilling rigs on both a term and a spot
(well-to-well) basis. Drilling rigs contracted on a term basis generally work in
various international locations, while drilling rigs contracted on a spot basis
generally work in the U.S. Gulf of Mexico. The following table summarizes
revenues, utilization and average dayrates for significant classes of the
Company's drilling rigs:
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Daywork Drilling Revenues (1):
Jack-up Rigs:
International .......................... $14,688 $ 6,113 $ 8,575
Domestic ............................... 21,149 14,103 7,046
Land Rigs ................................ 10,399 5,017 5,382
Other (2) ................................ 3,418 1,661 1,757
------- ------- -------
Total .............................. $49,654 $26,894 $22,760
======= ======= =======
Average Rig Utilization (3):
Jack-up Rigs:
International .......................... 100% 100%
Domestic ............................... 98% 97%
Land Rigs ................................ 98% 100%
Average Dayrates (4):
Jack-up Rigs:
International........................... $31,779 $24,467
Domestic................................ 30,359 22,054
Land Rigs................................. 13,898 8,821
</TABLE>
- ------------------
(1) Includes revenues earned from affiliates.
(2) Includes Cliffs Drilling 201, which was bareboat chartered to a 50% owned
joint venture for use as a drilling rig during the third quarter of 1997
and as a workover rig to a third party during the same period in 1996,
WINDJV operations prior to August 1, 1997, 2 labor maintenance contracts
and a Brazilian platform rig operation during the third quarter of 1997.
(3) Utilization rates are based upon the number of actively marketed rigs in
the fleet and exclude rigs which are unavailable for operations during
periods of refurbishment and upgrade.
(4) Daywork drilling revenues, less non-recurring revenues, divided by
aggregate contract days, adjusted to exclude days under contract at zero
dayrate.
12
<PAGE> 13
Engineering Services
Engineering services revenues increased $.9 million and operating income
increased $2.3 million in the third quarter of 1997 compared to the third
quarter of 1996. The Company completed 4 turnkey contracts in the third quarter
of 1997 at improved margins compared to the 4 turnkey contracts completed during
the same period in 1996.
In February, 1997, the Company was awarded a contract to drill 12 turnkey
wells for Corpoven, S.A. in Venezuela. Total expected revenues for the 12 wells
are approximately $90.3 million. The Company began drilling the wells during
February, 1997 and expects to complete the 12-well package in May, 1998. Two of
the 4 wells completed during the third quarter of 1997 were part of this 12 well
package.
At September 30, 1997, the Company had 3 turnkey wells in progress, all in
Venezuela.
MOPU Operations
MOPU revenues increased $1.7 million and operating income increased $.5
million in the third quarter of 1997 compared to the third quarter of 1996. The
increases in revenues and operating income were primarily due to operations
associated with 3 MOPUs, none of which operated during the third quarter of
1996.
The Company currently owns 5 MOPUs, all of which are under contract and are
currently operating. The Company is evaluating conversion of one of its MOPUs to
a jack-up drilling rig. The estimated cost of the conversion is $20 million and
the estimated conversion period is six to nine months. The Company is currently
marketing the unit for international drilling operations. See "Liquidity and
Capital Resources."
Oil and Gas
Oil and gas revenues decreased $.4 million and operating losses increased
$.1 million in the third quarter of 1997 compared to the third quarter of 1996.
Revenues decreased and operating losses increased primarily due to the
disposition of certain of the Company's oil and gas properties. The Company does
not expect any significant activity related to oil and gas exploration and
production activities during 1997.
Corporate Overhead
Corporate overhead increased $.8 million in the third quarter of 1997
compared to the third quarter of 1996, primarily due to increased costs
associated with the Southwestern operations.
Other Income (Expense) and Income Taxes
The Company recognized $11.6 million of other expense, including income
taxes, during the third quarter of 1997 compared to $5.3 million of other
expense during the same period in 1996. The net increase in other expenses
resulted primarily from an increase in income taxes of $4.3 million and a $.9
million increase in interest expense associated with the Senior Notes. See
"Liquidity and Capital Resources."
13
<PAGE> 14
Nine Months Ended September 30, 1997 and 1996
The Company recognized net income of $32.9 million in the first nine months
of 1997 compared to net income of $10.0 million during the same period in 1996.
Revenues increased $103.1 million and operating income increased $44.4 million
in the same period. These increases were partially offset by $7.1 million of
increased interest expense associated with the Senior Notes and $12.3 million of
increased income taxes. Improved operating results from the Company's daywork
drilling and engineering services business segments contributed to the increases
in revenues and operating income.
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ....................................... $ 123,482 $ 46,454 $ 77,028
Engineering Services ................................... 68,965 43,438 25,527
MOPU Operations ........................................ 6,023 3,277 2,746
Oil and Gas ............................................ 197 1,010 (813)
Eliminations ........................................... (9,201) (7,826) (1,375)
--------- --------- ---------
Consolidated ....................................... $ 189,466 $ 86,353 $ 103,113
========= ========= =========
Operating Income (Loss):
Daywork Drilling ....................................... $ 50,834 $ 12,102 $ 38,732
Engineering Services ................................... 14,051 6,560 7,491
MOPU Operations ........................................ 2,633 2,251 382
Oil and Gas ............................................ (69) (111) 42
Corporate Office ....................................... (6,626) (4,425) (2,201)
Eliminations ........................................... -- -- --
--------- --------- ---------
Consolidated ....................................... $ 60,823 $ 16,377 $ 44,446
========= ========= =========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $77.0 million and operating income
increased $38.7 million in the first nine months of 1997 compared to the same
period in 1996. Of the $38.7 million increase in operating income, $29.5 million
was generated from the various jack-up and land drilling rig acquisitions
completed since May, 1996. Operating income also increased due to improved
dayrates for the Company's jack-up and land drilling rigs.
See "Results of Operations -- Three Months Ended September 30, 1997."
14
<PAGE> 15
The following table summarizes revenues, utilization and average dayrates
for significant classes of the Company's drilling rigs:
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Daywork Drilling Revenues (1):
Jack-up Rigs:
International .......................... $ 33,385 $10,026 $23,359
Domestic ............................... 55,875 18,687 37,188
Land Rigs ................................ 24,459 14,426 10,033
Other (2) ................................ 9,763 3,315 6,448
------- ------- -------
Total .............................. $123,482 $46,454 $77,028
======== ======= =======
Average Rig Utilization (3):
Jack-up Rigs:
International .......................... 100% 100%
Domestic ............................... 99% 97%
Land Rigs ................................ 98% 100%
Average Dayrates (4):
Jack-up Rigs:
International .......................... $ 29,639 $23,549
Domestic ............................... 28,533 21,560
Land Rigs ................................ 12,551 8,616
</TABLE>
- ---------------------
(1) Includes revenues earned from affiliates.
(2) Includes Cliffs Drilling 201, which was bareboat chartered to a 50% owned
joint venture for use as a drilling rig during the first nine months of
1997 and as a workover rig to a third party during the same period in 1996,
WINDJV operations prior to August 1, 1997, 2 labor maintenance contracts
and a Brazilian platform rig operation during 1997.
(3) Utilization rates are based upon the number of actively marketed rigs in
the fleet and exclude rigs which are unavailable for operations during
periods of refurbishment and upgrade.
(4) Daywork drilling revenues less non-recurring revenues divided by aggregate
contract days, adjusted to exclude days under contract at zero dayrate.
Engineering Services
Engineering services revenues increased $25.5 million and operating income
increased $7.5 million in the first nine months of 1997 compared to the same
period in 1996. The Company completed 11 turnkey contracts at improved operating
margins in the first nine months of 1997 compared to 8 contracts in the same
period in 1996.
See "Results of Operations -- Three Months Ended September 30, 1997."
MOPU Operations
MOPU revenues increased $2.7 million and operating income increased $.4
million in the first nine months of 1997 compared to the same period in 1996.
The increases in revenues and operating income were primarily due to operations
associated with 2 MOPUs, neither of which operated during the first nine months
of 1996. The loss of income from Cliffs Drilling 11, which was sold during the
second quarter of 1996, partially offset the increase in operating income.
See "Results of Operations -- Three Months Ended September 30, 1997."
15
<PAGE> 16
Oil and Gas
Oil and gas revenues decreased $.8 million and operating losses were
consistent in the first nine months of 1997 compared to the same period in 1996.
Revenues decreased primarily due to the disposition of certain of the Company's
oil and gas properties. The Company does not expect any significant activity
related to oil and gas exploration and production activities during 1997.
Corporate Overhead
Corporate overhead increased $2.2 million in the first nine months of 1997
compared to the same period in 1996, primarily due to increased costs associated
with the Southwestern operations.
Other Income (Expense) and Income Taxes
The Company recognized $27.9 million of other expense, including income
taxes, during the first nine months of 1997 compared to $6.4 million of other
expense during the same period in 1996. The net increase in other expenses
resulted primarily from an increase in income taxes of $12.3 million and a $7.1
million increase in interest expense associated with the Senior Notes. See
"Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $12.0 million from $39.2 million at
December 31, 1996 to $51.2 million at September 30, 1997. The increase resulted
from $46.5 million provided by operating activities and $49.5 million provided
by financing activities, offset in part by $84.0 million used in investing
activities.
Operating Activities
Net cash of $46.5 million provided by operating activities included $9.0
million used in working capital and other activities. "Accounts Receivable"
increased from December 31, 1996 to September 30, 1997 due primarily to the
timing of turnkey completions, increases in dayrates and the timing of cash
receipts related to U.S. Gulf of Mexico daywork drilling operations.
Investing Activities
Net cash of $84.0 million used in investing activities included $28.5
million used to fund the AGP Acquisition which closed during January, 1997, $6.0
million used to acquire substantially all of the remaining 50% interest in the
WINDJV, and $56.6 million used to fund upgrade and renovation activities on
other drilling rigs and MOPUs.
The Company has capital expenditure requirements totaling approximately $6
million during the remainder of 1997. The Company intends to fund these capital
expenditure requirements with available cash and internally-generated cash flow.
The Company recorded a gain of $2.7 million on the disposition of various
oil and gas related interests. The oil and gas related interests secured the
long-term note receivable valued at $3.5 million at December 31, 1996.
This note was settled in full in connection with the asset sale.
Effective October 1, 1997, the Company exercised an option to purchase a
platform drilling rig which is currently operating in Brazil. The purchase price
was $4.3 million.
16
<PAGE> 17
The Company is evaluating conversion of one of its MOPUs to a jack-up
drilling rig. The estimated cost of the conversion is $20 million and the
estimated conversion period is six to nine months. The Company is currently
marketing the unit for international drilling operations.
On October 16, 1997, the Company entered into a letter of intent to acquire
2 offshore platform drilling rigs, one self-propelled jack-up drilling/workover
rig, and substantially all of the assets used in the offshore contract drilling
business of Well Services (Marine) Limited, a Trinidad and Tobago company. The
purchase price is $47.0 million, consisting of $23.5 million in cash and $23.5
million in Cliffs Drilling Company Common Stock, subject to certain closing and
post-closing adjustments. Closing of the acquisition is subject to execution and
delivery of a definitive agreement, certain approvals and consents and
satisfaction of customary closing conditions to be contained in the definitive
agreement. The closing of the acquisition is expected to occur on or before
January 15, 1998.
Financing Activities
Senior Notes in the principal amount of $150.0 million were sold by the
Company on May 23, 1996 in connection with the acquisition of the Southwestern
Rigs. Senior Notes in the principal amount of $50.0 million were sold at a
premium by the Company on August 7, 1997. Proceeds to the Company from the sale
of the $50.0 million Senior Notes, prior to deducting costs of the offering,
were approximately $53.9 million. The Company has used approximately $6.0
million of the net proceeds to acquire substantially all of the remaining 50%
interest of the WINDJV, $5.7 million to repay indebtedness owed by the WINDJV
and $4.3 million to purchase a platform drilling rig in Brazil which was
previously leased by the Company. The Company intends to use the remainder of
the net proceeds to acquire additional assets, refurbish and renovate a portion
of its existing rig fleet and for other general corporate purposes.
Interest on the Senior Notes is payable semi-annually during each May and
November. The Senior Notes do not require any payments of principal prior to
their stated maturity on May 15, 2003, but the Company is required to make
offers to purchase Senior Notes upon the occurrence of certain events as defined
in the indenture, such as asset sales or a change of control of the Company. The
Senior Notes are not redeemable at the option of the Company prior to May 15,
2000.
The Senior Notes are senior unsecured obligations of the Company, ranking
pari passu in right of payment with all senior indebtedness and senior to all
subordinated indebtedness. The Senior Notes are unconditionally guaranteed on a
senior unsecured basis by the Subsidiary Guarantors, and the Subsidiary
Guarantees rank pari passu in right of payment with all senior indebtedness of
the Subsidiary Guarantors and senior to all subordinated indebtedness of the
Subsidiary Guarantors. The Subsidiary Guarantees may be released under certain
circumstances. The Senior Notes and the Subsidiary Guarantees are effectively
subordinated to all secured indebtedness, including amounts outstanding under
the Revolving Credit Facility. The Subsidiary Guarantees provide that each
Subsidiary Guarantor will unconditionally guarantee, jointly and severally, the
full and prompt performance of the Company's obligations under the indenture and
the Senior Notes. Each Subsidiary Guarantor is 100% owned by the Company,
although title to 1% of the outstanding equity interest in the WINDJV is owned
of record by a third party for the beneficial interest of the Company.
The indenture under which the Senior Notes are issued imposes significant
operating and financial restrictions on the Company. Such restrictions affect,
and in many respects limit or prohibit, among other things, the ability of the
Company to incur additional indebtedness, make capital expenditures, create
liens, sell assets and make dividends or other payments.
On June 27, 1996, the Company and ING (U.S.) Capital Corporation ("ING")
modified and amended the Company's $20 million Revolving Credit Facility to,
among other things, increase the amount available under such facility to $35
million. The Revolving Credit Facility matures on May
17
<PAGE> 18
31, 1998. At September 30, 1997, the Company had no indebtedness outstanding
under the Revolving Credit Facility.
On January 17, 1996, the Company issued 2,113,557 shares of Common Stock,
before effects of the Stock Split, upon conversion of 1,115,988 shares of its
1,150,000 issued and outstanding shares of Preferred Stock. The remaining 34,012
shares of Preferred Stock were redeemed for cash in the amount of $25.69 per
share plus $0.22 per share in accrued dividends thereon at a cost to the Company
of approximately $.9 million.
Exchange Rate Gains and Losses
Approximately 46% of the Company's revenues and a substantial portion of
its operating income were sourced from its Venezuelan operations during the
first nine months of 1997. 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. Venezuela instituted currency exchange controls during June, 1994,
which continued through all of 1995 and substantially eliminated exchange losses
attributable to the Company's Venezuelan operations during most of 1995. The
Company realized $1.2 million in gains in connection with Venezuelan Brady Bond
transactions during the first quarter of 1996; however, the Venezuelan
government allowed the Bolivar to "float" relative to other currencies on April
22, 1996. Significant devaluation of the Bolivar occurred at that date, which
subjected the Company to exchange rate losses on its net monetary assets.
Foreign currency exchange rate losses of $1.2 million incurred during 1996
offset exchange rate gains realized during the first quarter of 1996. 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
will continue 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.
Cautionary Statements
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.
18
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first nine months of 1997, 15,539 shares of the Company's common
stock, $.01 par value, held by the Company as treasury shares were sold to the
Cliffs Drilling Company 401(k) Savings Plan at an aggregate price of
approximately $581,000, with individual transactions at market prices on the
various dates of sale ranging from $25.00 to $64.88 per share. These sales were
made in reliance on an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended, inasmuch as these sales constituted
transactions by the issuer not involving a public offering. All references to
the number of shares and per share amounts in this item have been restated to
reflect the Stock Split.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4.4 Indenture dated as of August 7, 1997 among the Company, as
issuer, Southwestern Offshore Corporation, Cliffs Drilling
Merger Company, Cliffs Drilling International, Inc.,
Cliffs Oil and Gas Company and DRL, Inc., as subsidiary
guarantors, and State Street Bank and Trust Company, as
trustee, including a form of the Company's 10.25% Senior
Notes due 2003 (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
4.4.1 First Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation, Cliffs Drilling Merger Company, Cliffs
Drilling International, Inc., Cliffs Oil and Gas Company,
DRL, Inc., Cliffs Drilling Trinidad Limited and the West
Indies Drilling Joint Venture, as subsidiary guarantors,
and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 4.4.1 to the
Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
4.5 Registration Rights Agreement dated as of July 31, 1997 by
and among the Company, Southwestern Offshore Corporation,
Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Jefferies & Company, Inc., and ING Baring (U.S.)
Securities, Inc. (incorporated by reference to Exhibit 4.5
of the Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
10.19.3 Third Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Cliffs Drilling Trinidad Limited and the West Indies
Drilling Joint Venture, as subsidiary guarantors, and
State Street Bank and Trust Company, successor to Fleet
National Bank, as trustee (incorporated by reference to
Exhibit 4.3.3 to the Company's Registration Statement on
Form S-4, No. 333-36325, filed September 24, 1997).
19
<PAGE> 20
10.20 Indenture dated as of August 7, 1997 (included as Exhibit
4.4).
10.20.1 First Supplemental Indenture dated as of August 29, 1997
(included as Exhibit 4.4.1).
10.21 Registration Rights Agreement dated as of July 31, 1997
(included as Exhibit 4.5).
27 Financial Data Schedule.
(b) Reports on Form 8-K
One report dated September 19, 1997 was filed by the Company on Form
8-K during the three months ended September 30, 1997 which updated
the unaudited pro forma financial information with respect to the
Company's acquisition on May 23, 1996 of 9 jack-up drilling rigs and
a 50% interest in a joint venture which owns an additional drilling
rig.
One report dated October 16, 1997 was filed by the Company on Form
8-K subsequent to September 30, 1997 which reported that the Company
entered into a letter of intent to acquire 2 offshore platform
drilling rigs, one self-propelled jack-up drilling/workover rig and
substantially all of the assets used in the offshore contract
drilling business of Well Services (Marine) Limited.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLIFFS DRILLING COMPANY
Date: November 13, 1997 By: /s/ Edward A. Guthrie
-------------------- -----------------------------
Edward A. Guthrie
Vice President - Finance
Date: November 13, 1997 By: /s/ Cindy B. Taylor
-------------------- -----------------------------
Cindy B. Taylor
Vice President - Controller
21
<PAGE> 22
EXHIBIT INDEX
4.4 Indenture dated as of August 7, 1997 among the Company, as
issuer, Southwestern Offshore Corporation, Cliffs Drilling
Merger Company, Cliffs Drilling International, Inc.,
Cliffs Oil and Gas Company and DRL, Inc., as subsidiary
guarantors, and State Street Bank and Trust Company, as
trustee, including a form of the Company's 10.25% Senior
Notes due 2003 (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
4.4.1 First Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation, Cliffs Drilling Merger Company, Cliffs
Drilling International, Inc., Cliffs Oil and Gas Company,
DRL, Inc., Cliffs Drilling Trinidad Limited and the West
Indies Drilling Joint Venture, as subsidiary guarantors,
and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 4.4.1 to the
Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
4.5 Registration Rights Agreement dated as of July 31, 1997 by
and among the Company, Southwestern Offshore Corporation,
Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Jefferies & Company, Inc., and ING Baring (U.S.)
Securities, Inc. (incorporated by reference to Exhibit 4.5
of the Company's Registration Statement on Form S-4, No.
333-36325, filed September 24, 1997).
10.19.3 Third Supplemental Indenture dated as of August 29, 1997
among the Company, as issuer, Southwestern Offshore
Corporation (f/k/a Cliffs Drilling Asset Acquisition
Company), Cliffs Drilling Merger Company, Cliffs Drilling
International, Inc., Cliffs Oil and Gas Company, DRL,
Inc., Cliffs Drilling Trinidad Limited and the West Indies
Drilling Joint Venture, as subsidiary guarantors, and
State Street Bank and Trust Company, successor to Fleet
National Bank, as trustee (incorporated by reference to
Exhibit 4.3.3 to the Company's Registration Statement on
Form S-4, No. 333-36325, filed September 24, 1997).
10.20 Indenture dated as of August 7, 1997 (included as Exhibit
4.4).
10.20.1 First Supplemental Indenture dated as of August 29, 1997
(included as Exhibit 4.4.1).
10.21 Registration Rights Agreement dated as of July 31, 1997
(included as Exhibit 4.5).
27 Financial Data Schedule.
22
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 51,214
<SECURITIES> 0
<RECEIVABLES> 63,262
<ALLOWANCES> 95
<INVENTORY> 6,653
<CURRENT-ASSETS> 142,881
<PP&E> 395,621
<DEPRECIATION> 94,855
<TOTAL-ASSETS> 450,377
<CURRENT-LIABILITIES> 53,759
<BONDS> 203,774
0
0
<COMMON> 159
<OTHER-SE> 177,902
<TOTAL-LIABILITY-AND-EQUITY> 450,377
<SALES> 189,466
<TOTAL-REVENUES> 189,466
<CGS> 108,061
<TOTAL-COSTS> 128,643
<OTHER-EXPENSES> (2,329)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,572
<INCOME-PRETAX> 50,580
<INCOME-TAX> 17,703
<INCOME-CONTINUING> 32,877
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,877
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</TABLE>
