<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, 1998
COMMISSION FILE NUMBER 1-12797
CLIFFS DRILLING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0248934
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
(713) 651-9426
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding as of November 3, 1998:
15,941,861
(Exhibit Index Located on Page 21)
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<PAGE> 2
CLIFFS DRILLING COMPANY
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
<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, 1998 and 1997..........................3
Consolidated Balance Sheets (Unaudited) -
CLIFFS DRILLING COMPANY
September 30, 1998 and December 31, 1997.........................................4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Nine Months Ended September 30, 1998 and 1997..........................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..............................................................................20
EXHIBIT INDEX...........................................................................21
</TABLE>
<PAGE> 3
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Revenues .................................... $ 94,497 $ 67,827 $ 269,239 $ 187,952
Income from Equity Investments .............. 9 293 291 1,514
----------- ----------- ----------- -----------
94,506 68,120 269,530 189,466
COSTS AND EXPENSES:
Operating Expenses .......................... 54,718 36,176 157,350 108,061
Depreciation, Depletion and Amortization .... 7,505 5,801 21,246 14,160
General and Administrative Expense .......... 4,176 2,263 8,694 6,422
----------- ----------- ----------- -----------
66,399 44,240 187,290 128,643
----------- ----------- ----------- -----------
OPERATING INCOME ................................. 28,107 23,880 82,240 60,823
OTHER INCOME (EXPENSE):
Gain on Disposition of Assets ............... 71 125 194 2,597
Interest Income ............................. 447 532 1,496 1,074
Interest Expense ............................ (5,224) (4,786) (15,192) (12,572)
Exchange Rate Loss .......................... (1,003) (375) (1,605) (157)
Other, net .................................. 28 (467) (371) (1,185)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ....................... 22,426 18,909 66,762 50,580
INCOME TAX EXPENSE ............................... 7,849 6,618 23,367 17,703
----------- ----------- ----------- -----------
NET INCOME ....................................... $ 14,577 $ 12,291 $ 43,395 $ 32,877
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic ....................................... $ 0.92 $ 0.80 $ 2.73 $ 2.17
=========== =========== =========== ===========
Diluted ..................................... $ 0.91 $ 0.79 $ 2.71 $ 2.13
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic ....................................... 15,913 15,274 15,868 15,184
=========== =========== =========== ===========
Diluted ..................................... 16,001 15,560 16,030 15,439
=========== =========== =========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE> 4
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ........................................... $ 37,269 $ 28,122
Accounts Receivable, net of allowance for doubtful accounts
of $200 and $352 at September 30, 1998 and December 31,
1997, respectively .............................................. 59,605 53,341
Notes and Other Receivables, Current ................................ 4,313 10,190
Inventories ......................................................... 11,503 7,551
Drilling Contracts in Progress ...................................... 11,593 16,503
Prepaid Insurance ................................................... 1,774 1,772
Other Prepaid Expenses .............................................. 7,963 6,595
---------- ----------
Total Current Assets ........................................ 134,020 124,074
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment .......................................... 513,217 453,915
Other ............................................................... 18,660 15,373
---------- ----------
531,877 469,288
Less: Accumulated Depreciation, Depletion and Amortization ......... (121,922) (100,061)
---------- ----------
Net Property and Equipment .................................. 409,955 369,227
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES ................ 1,939 1,828
DEFERRED CHARGES AND OTHER .............................................. 4,386 5,022
---------- ----------
TOTAL ASSETS ................................................ $ 550,300 $ 500,151
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .................................................... $ 27,257 $ 33,171
Accrued Interest .................................................... 7,798 2,673
Other Accrued Expenses .............................................. 27,011 30,414
---------- ----------
Total Current Liabilities ................................... 62,066 66,258
10.25% SENIOR NOTES ..................................................... 203,103 203,606
DEFERRED INCOME TAXES ................................................... 21,105 14,335
OTHER LIABILITIES ....................................................... 1,460 23
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares authorized;
16,340,411 and 16,321,932 shares issued and 15,952,101
and 15,906,880 shares outstanding at September 30, 1998
and December 31, 1997, respectively .............................. 163 163
Paid-In Capital ..................................................... 182,871 182,420
Retained Earnings ................................................... 84,337 40,942
Less: Restricted Stock ............................................. -- (2,467)
Treasury Stock, at cost, 388,310 and 415,052 shares at
September 30, 1998 and December 31, 1997, respectively... (4,805) (5,129)
---------- ----------
Total Shareholders' Equity .................................. 262,566 215,929
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................. $ 550,300 $ 500,151
========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE> 5
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income ................................................... $ 14,577 $ 12,291 $ 43,395 $ 32,877
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization ................. 7,505 5,801 21,246 14,160
Deferred Income Tax Expense (Benefit) .................... 2,992 (712) 6,770 9,722
Mobilization Expense Amortization ........................ 377 -- 770 25
Gain on Disposition of Assets ............................ (71) (125) (194) (2,597)
Amortization of Debt Issue Costs ......................... 227 209 680 582
Amortization of Restricted Stock ......................... 1,894 191 2,212 269
Amortization of Debt Premium ............................. (168) (101) (503) (101)
Other .................................................... 363 498 797 546
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable ................................. 12,130 (10,516) (387) (28,366)
Inventories ......................................... (1,784) (593) (3,798) (846)
Drilling Contracts in Progress ...................... 1,102 (3,896) 4,921 8,241
Prepaid Insurance and Other Prepaid Expenses ........ 3,281 578 (2,140) 1,316
Investments in and Advances to Unconsolidated
Affiliates ....................................... 430 227 (111) (1,136)
Accounts Payable and Other .......................... (1,967) 9,949 (2,747) 11,778
----------- ----------- ----------- -----------
Net Cash Provided By Operating Activities ... 40,888 13,801 70,911 46,470
INVESTING ACTIVITIES:
Capital Expenditures ......................................... (21,305) (8,797) (63,471) (56,638)
Acquisition of Rigs and Related Equipment .................... -- (6,000) -- (34,500)
Proceeds from Sale of Property and Equipment ................. 318 118 1,528 3,642
Collection of Notes Receivable ............................... -- -- -- 3,537
----------- ----------- ----------- -----------
Net Cash Used In Investing Activities ....... (20,987) (14,679) (61,943) (83,959)
FINANCING ACTIVITIES:
Proceeds from Borrowings ..................................... -- 53,875 -- 60,375
Payments on Borrowings ....................................... -- (5,684) -- (12,184)
Proceeds from Exercise of Stock Options ...................... 103 2,017 211 2,149
Debt Issue Costs ............................................. -- (818) (32) (818)
----------- ----------- ----------- -----------
Net Cash Provided By Financing Activities ... 103 49,390 179 49,522
----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................ 20,004 48,512 9,147 12,033
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 17,265 2,702 28,122 39,181
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 37,269 $ 51,214 $ 37,269 $ 51,214
=========== =========== =========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE> 6
CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
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,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
2. NOTES PAYABLE
Long-term debt at September 30, 1998 consists solely of 10.25% Senior
Notes due 2003 (the "Senior Notes") in the aggregate principal amount of $200.0
million and debt premium, net of amortization, of $3.1 million. In addition to
the $150.0 million of Senior Notes sold during 1996, the Company sold $50.0
million of Senior Notes on August 7, 1997 at a premium of $3.9 million.
Considering the premium, the effective interest rate on the $50.0 million Senior
Notes is 9.5%. 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. See Note 6 of Notes to Interim Consolidated Financial Statements.
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 Company's $35.0 million revolving credit facility ("Revolving Credit
Facility") with ING (U.S.) Capital Corporation ("ING"). 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.
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:
<PAGE> 7
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(In thousands)
<S> <C> <C>
Current Assets ....................................................... $ 9,107 $ 31,872
Non-Current Assets ................................................... 64,802 214,462
------------- -------------
Total Assets ................................................... $ 73,909 $ 246,334
============= =============
Current Liabilities .................................................. $ 1,679 $ 21,417
Non-Current Liabilities .............................................. 61,856 189,004
Equity ............................................................... 10,374 35,913
------------- -------------
Total Liabilities and Equity ................................... $ 73,909 $ 246,334
============= =============
Nine Months Ended
September 30,
-------------------------------
1998 1997
------------- --------------
(In thousands)
Revenues ............................................................. $ 19,247 $ 66,668
Operating Income ..................................................... $ 5,311 $ 28,627
Net Income ........................................................... $ 3,253 $ 12,484
</TABLE>
Effective May 31, 1998, three Subsidiary Guarantors were merged into
Cliffs Drilling Company.
The Company currently maintains a $35.0 million Revolving Credit Facility
with ING which matures May 31, 2000. At September 30, 1998, the Company had no
indebtedness outstanding under the Revolving Credit Facility, but had $.4
million in letters of credit outstanding, thereby leaving $34.6 million
available under the credit facility.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. The earnings per share amounts and weighted
average number of common and common equivalent shares outstanding for the three
and nine months ended September 30, 1997 have been restated as required to
comply with SFAS No. 128.
The following table sets forth the computation of basic and diluted
earnings per share. The numerator for basic and diluted earnings per share is
the same.
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Numerator for Basic and Diluted Earnings Per Share -
Income Available to Common Shareholders After Assumed
Conversions ............................................... $ 14,577 $ 12,291 $ 43,395 $ 32,877
Denominator:
Denominator for Basic Earnings Per Share - Weighted
Average Shares ............................................ 15,913 15,274 15,868 15,184
Effect of Dilutive Securities:
Stock Options ............................................. 59 195 101 209
Restricted Stock .......................................... 29 91 61 46
---------- ---------- ---------- ----------
Dilutive Potential Common Shares ............................. 88 286 162 255
---------- ---------- ---------- ----------
Denominator for Diluted Earnings Per Share - Adjusted
Weighted Average Shares and Assumed Conversions............ 16,001 15,560 16,030 15,439
Net Income Per Common Share:
Basic......................................................... $ 0.92 $ 0.80 $ 2.73 $ 2.17
========== ========== ========== ==========
Diluted................................................ $ 0.91 $ 0.79 $ 2.71 $ 2.13
========== ========== ========== ==========
</TABLE>
4. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income,"
("SFAS No. 130"). SFAS No. 130 establishes new rules for the reporting and
disclosure of comprehensive income and its components in a full set of financial
statements. To the extent the Company has comprehensive income, it would present
these items in a statement of changes in shareholders' equity. However, the
Company had no items of comprehensive income during the three and nine months
ended September 30, 1998 and 1997 and therefore, comprehensive income is equal
to net income for each period.
5. SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information,"
("SFAS No. 131"). SFAS No. 131 changes the reporting of segment information in
annual financial statements and also requires reporting selected segment
information in interim financial reports to shareholders. SFAS No. 131 is
effective for years beginning after December 15, 1997 and is not expected to
have a significant impact on the Company's consolidated financial statements and
related disclosures upon adoption.
6. MERGER AGREEMENT
On August 21, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with R&B Falcon Corporation, a Delaware
corporation ("R&B Falcon"), and RBF Cliffs Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of R&B Falcon ("RBF Subsidiary"),
providing for the acquisition of the Company by R&B Falcon by means of a merger
of RBF Subsidiary with and into the Company (the "Merger"). Upon consummation of
the Merger, each share of common stock of the Company will be exchanged for 1.7
shares of newly issued common stock of R&B Falcon. The exchange of shares is
expected to be tax-free for both companies, and the transaction will be
accounted for as a purchase.
<PAGE> 9
The Company currently has outstanding $200.0 million in principal amount
of Senior Notes. Upon consummation of the Merger, the Company will be required
to offer to purchase for cash all of the outstanding Senior Notes at a purchase
price equal to 101% of the principal amount of each Senior Note, plus accrued
and unpaid interest to the change of control payment date. The offer must
provide for purchase of the Senior Notes within 60 days following the Merger.
The obligations of the Company and R&B Falcon to consummate the Merger
are subject to certain conditions, including the approval of the holders of at
least a majority of the outstanding shares of the Company's common stock and
other conditions customary for transactions of this nature. A special meeting of
stockholders of the Company is scheduled to be held on Friday, November 20,
1998, to consider and vote upon the Merger. Should a majority of the outstanding
shares of the Company vote in favor of the Merger and other conditions be
satisfied, the combination is expected to be made effective on November 30,
1998. Under certain circumstances, the Company could become obligated to pay to
R&B Falcon a $30 million breakup fee in the event that the Company enters into
an agreement for, or consummates, a business combination with a third party
within specified periods following termination of the Merger Agreement, should
it be so terminated.
7. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior
year to conform with the current year presentation.
<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 within this item and elsewhere in this Form 10-Q.
GENERAL
Activity in the contract drilling industry and related oil service
businesses improved over the last several years due to increased worldwide
demand for drilling rigs and related services. The supply of offshore drilling
rigs has declined while the demand for such rigs has increased, resulting in
increases in worldwide utilization rates. More recently, however, there has been
a significant decline in both dayrates and utilization of most classes of
drilling rigs due to a decline in crude oil prices. 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. If crude oil
prices decline further or the current weakness in crude oil prices continues for
an extended period, there could be a further deterioration in both rig
utilization and dayrates.
The Company's daywork drilling operations benefited during 1997 and early
1998 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 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 during 1997 and
early 1998, in that increased exploration activity caused an increase in demand
for the Company's engineering services; however, reduced rig availability made
it more difficult for the Company to contract drilling rigs required for
performance of turnkey drilling operations. Lower crude oil prices are currently
affecting exploration and production spending which is creating significantly
lower dayrates and utilization for offshore drilling companies, particularly in
the U.S. Gulf of Mexico.
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 mobile offshore production unit
("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.
<PAGE> 11
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997
The Company recognized net income of $14.6 million during the third
quarter of 1998 compared to net income of $12.3 million in the third quarter of
1997. Revenues increased $26.4 million and operating income increased $4.2
million in the same period. 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>
Three Months Ended
September 30,
---------------------------- Increase
1998 1997 (Decrease)
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ............................ $ 62,186 $ 49,654 $ 12,532
Engineering Services ........................ 38,338 19,709 18,629
MOPU Operations ............................. 2,347 2,698 (351)
Oil and Gas ................................. 37 4 33
Eliminations ................................ (8,402) (3,945) (4,457)
---------- ---------- ----------
Consolidated ........................... $ 94,506 $ 68,120 $ 26,386
========== ========== ==========
Operating Income (Loss):
Daywork Drilling ............................ $ 22,465 $ 20,461 $ 2,004
Engineering Services ........................ 9,244 4,733 4,511
MOPU Operations ............................. 734 1,100 (366)
Oil and Gas ................................. (52) (58) 6
Corporate Office ............................ (4,284) (2,356) (1,928)
---------- ---------- ----------
Consolidated ........................... $ 28,107 $ 23,880 $ 4,227
========== ========== ==========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $12.5 million and operating income
increased $2.0 million in the third quarter of 1998 compared to the third
quarter of 1997. The increases in revenues and operating income were primarily
due to an expansion of the Company's operating rig fleet, in addition to
improved dayrates on several rigs.
The Company recently completed the planned conversion of one of the
Company's MOPUs into a drilling rig and mobilized the rig to offshore Venezuela.
The rig commenced operations under a one-year drilling contract during the third
quarter of 1998.
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:
<PAGE> 12
Three Months Ended
September 30,
----------------------- Increase
1998 1997 (Decrease)
-------- -------- ----------
(In thousands)
Daywork Drilling Revenues (1):
Jack-up Rigs:
International ........... $ 15,366 $ 14,688 $ 678
Domestic ................ 25,967 21,149 4,818
Land Rigs ................. 15,163 10,399 4,764
Platform/Workover Rigs .... 6,392 1,111 5,281
Other (2) ................. (702) 2,307 (3,009)
-------- -------- --------
Total ............... $ 62,186 $ 49,654 $ 12,532
======== ======== ========
Average Rig Utilization (3):
Jack-up Rigs:
International ........... 98% 100%
Domestic ................ 91% 98%
Land Rigs ................. 100% 98%
Platform/Workover Rigs .... 100% 100%
Average Dayrates (4):
Jack-up Rigs:
International ........... $ 34,725 $ 31,779
Domestic ................ 34,194 30,359
Land Rigs ................. 17,005 13,898
Platform/Workover Rigs .... 14,077 11,884
- ------------------
(1) Includes revenues earned from affiliates.
(2) Includes joint venture operations in Trinidad in the third quarter of 1997
and joint venture operations in Mexico and labor maintenance contracts in
the third quarters of 1997 and 1998.
(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 $18.6 million and operating income
increased $4.5 million in the third quarter of 1998 compared to the third
quarter of 1997. The Company completed 5 turnkey contracts in the third quarter
of 1998 compared to 4 turnkey contracts in the third quarter of 1997.
International operating margins are currently stronger than domestic
margins due to improved drilling efficiencies and reductions in lost time well
activities. Domestic turnkey contractors continue to bid wells very
aggressively, resulting in intense competition which has adversely affected the
Company's domestic turnkey margins, as well as margins of other competitors.
During the second quarter of 1998, the Company signed a contract with PDVSA
Exploration and Production, the Venezuelan government-owned oil company
("PDVSA"), to drill 60 turnkey wells in Venezuela. Aggregate revenues for the 60
wells are expected to range from approximately $450 million to $500 million
depending upon, among other things, various options to be elected by PDVSA. The
program is expected to extend over approximately three and one-half years and
will utilize 7 of the Company's land drilling rigs which are currently located
in Venezuela. As of September 30, 1998, 6 of the 60 wells had been completed,
and 5 wells were in progress. No assurance can be given that all 60 wells will
ultimately be drilled or that the program can be completed within the intended
time frame. Due to this expanded program in Venezuela, the Company reduced its
domestic turnkey business as personnel were reassigned to Venezuela.
<PAGE> 13
MOPU Operations
MOPU revenues and operating income both decreased $.4 million in the third
quarter of 1998 compared to the third quarter of 1997. The decreases in revenues
and operating income were primarily due to the loss of earnings from a MOPU
which was recently converted to a jack-up drilling rig. The Company currently
owns 4 MOPUs, 3 of which are under contract and currently operating. The Company
expects the contract for the other MOPU to be terminated by the charterer during
the fourth quarter of 1998.
Corporate Overhead
Corporate overhead increased $1.9 million in the third quarter of 1998
compared to the third quarter of 1997. The increase was primarily due to
amortization expense of $1.8 million due to the accelerated vesting of
outstanding restricted stock resulting from execution of the definitive merger
agreement with R&B Falcon.
Other Income (Expense) and Income Taxes
The Company recognized $13.5 million of other expense, including income
taxes, during the third quarter of 1998 compared to $11.6 million of other
expense during the same period in 1997. The net increase resulted primarily from
a $1.2 million increase in income taxes. See "Liquidity and Capital Resources."
<PAGE> 14
Nine Months Ended September 30, 1998 and 1997
The Company recognized net income of $43.4 million in the first nine months
of 1998 compared to net income of $32.9 million during the same period in 1997.
Revenues increased $80.1 million and operating income increased $21.4 million in
the same period. These increases were partially offset by a reduction of $2.4
million in gains on disposition of assets, $2.6 million of increased interest
expense associated with the Senior Notes and $5.7 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>
Nine Months Ended
September 30,
--------------------------------- Increase
1998 1997 (Decrease)
-------------- --------------- --------------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ................................. $ 177,408 $ 123,482 $ 53,926
Engineering Services.............................. 108,427 68,965 39,462
MOPU Operations................................... 7,027 6,023 1,004
Oil and Gas....................................... 259 197 62
Eliminations...................................... (23,591) (9,201) (14,390)
--------- ---------- --------
Consolidated.................................. $ 269,530 $ 189,466 $ 80,064
========= ========== ========
Operating Income (Loss):
Daywork Drilling.................................. $ 63,176 $ 50,834 $ 12,342
Engineering Services.............................. 25,580 14,051 11,529
MOPU Operations................................... 2,630 2,633 (3)
Oil and Gas....................................... (140) (69) (71)
Corporate Office ................................. (9,006) (6,626) (2,380)
--------- ---------- --------
Consolidated.................................. $ 82,240 $ 60,823 $ 21,417
========= ========== ========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $53.9 million and operating income
increased $12.3 million in the first nine months of 1998 compared to the same
period in 1997. The increases in revenues and operating income were primarily
due to an expansion of the Company's operating rig fleet, in addition to
improved dayrates.
See "Results of Operations -- Three Months Ended September 30, 1998 and
1997."
<PAGE> 15
The following table summarizes revenues, utilization and average dayrates
for significant classes of the Company's drilling rigs:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------- Increase
1998 1997 (Decrease)
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Daywork Drilling Revenues (1):
Jack-up Rigs:
International................................. $ 43,371 $ 33,385 $ 9,986
Domestic...................................... 77,509 55,875 21,634
Land Rigs....................................... 36,882 24,459 12,423
Platform/Workover Rigs.......................... 18,934 3,326 15,608
Other (2)....................................... 712 6,437 (5,725)
------------- ------------ -------------
Total..................................... $ 177,408 $ 123,482 $ 53,926
============= ============ =============
Average Rig Utilization (3):
Jack-up Rigs:
International................................. 99% 100%
Domestic...................................... 96% 99%
Land Rigs....................................... 92% 98%
Platform/Workover Rigs.......................... 100% 100%
Average Dayrates (4):
Jack-up Rigs:
International................................. $ 32,367 $ 29,639
Domestic...................................... 34,633 28,533
Land Rigs....................................... 16,392 12,551
Platform/Workover Rigs.......................... 13,984 12,184
</TABLE>
- ------------------
(1) Includes revenues earned from affiliates.
(2) Includes joint venture operations in Trinidad in the first nine months of
1997 and joint venture operations in Mexico and labor maintenance contracts
in the first nine months of 1997 and 1998.
(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 $39.5 million and operating income
increased $11.5 million in the first nine months of 1998 compared to the same
period in 1997. The Company completed 14 turnkey contracts in the first nine
months of 1998 compared to 11 turnkey contracts in the same period in 1997.
At September 30, 1998, the Company had 5 turnkey wells in progress in
Venezuela.
See "Results of Operations -- Three Months Ended September 30, 1998 and
1997."
MOPU Operations
MOPU revenues increased $1.0 million while operating income decreased
slightly in the first nine months of 1998 compared to the same period in 1997.
The increase in revenues and decrease in operating income were primarily due to
operations associated with one MOPU which commenced operations late in the
second quarter of 1997, partially offset by the loss of earnings from another
unit which was recently converted to a jack-up drilling rig.
See "Results of Operations -- Three Months Ended September 30, 1998 and
1997."
<PAGE> 16
Corporate Overhead
Corporate overhead increased $2.4 million in the first nine months of 1998
compared to the same period in 1997. The increase was primarily due to
amortization expense of $1.8 million due to the accelerated vesting of
outstanding restricted stock resulting from execution of the definitive merger
agreement with R&B Falcon and an increase in employment-related
costs.
Other Income (Expense) and Income Taxes
The Company recognized $38.8 million of other expense, including income
taxes, during the first nine months of 1998 compared to $27.9 million of other
expense during the same period in 1997. The net increase resulted primarily from
a $2.4 million decrease in gains on disposition of assets, a $2.6 million
increase in interest expense associated with the Senior Notes, a $1.4 million
increase in exchange rate losses and an increase in income taxes of $5.7
million. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $9.2 million from $28.1 million at
December 31, 1997 to $37.3 million at September 30, 1998. The increase resulted
from $70.9 million provided by operating activities and $.2 million provided by
financing activities, offset in part by $61.9 million used in investing
activities.
Operating Activities
Net cash of $70.9 million provided by operating activities included $4.3
million used to fund working capital requirements and other activities.
Investing Activities
Net cash of $61.9 million used in investing activities during the first
nine months of 1998 included capital expenditures totaling $63.5 million. Of
that total, $11.7 million was used to fund the reactivation of 2 land drilling
rigs acquired in January, 1997 for operations on Venezuelan turnkeys, and $11.9
million was used for the conversion of a MOPU to a drilling rig. The remaining
$39.9 million was spent primarily on upgrade and renovation activities on other
drilling rigs and MOPUs.
On December 29, 1997, the Company completed the acquisition of 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
in Trinidad (the "Well Services Acquisition") previously operated by Well
Services (Marine) Ltd. ("Well Services"). The purchase price totaled $44.0
million, consisting of cash of $23.5 million and the issuance by the Company of
437,939 shares of Common Stock, $0.01 par value per share ("Common Stock"). One
platform rig and the jack-up drilling/workover rig are currently operating under
contracts in Trinidad. The contract on the other platform rig was recently
terminated by the operator.
The Company recently completed the conversion of one of its MOPUs to a
jack-up drilling rig at a cost of approximately $11.9 million. The jack-up
drilling rig mobilized to Venezuela and commenced operations on a one-year
contract during the third quarter of 1998.
The Company has capital expenditure plans totaling approximately $8.3
million during the remainder of 1998. Of this total, $1.5 million relates to
planned upgrades of a platform rig obtained in the Well Services Acquisition and
$6.8 million relates primarily to other drilling rig capital expenditures and
drill pipe purchases. The Company intends to fund these capital expenditures
with available cash and internally-generated cash flow.
Financing Activities
Long-term debt at September 30, 1998 consists solely of Senior Notes in the
aggregate principal amount of $200.0 million and debt premium, net of
amortization, of $3.1 million. In addition to the $150.0 million of Senior Notes
sold during 1996, the Company sold $50.0 million of Senior Notes on August 7,
1997 at a premium of $3.9 million. Considering the premium, the effective
<PAGE> 17
interest rate on the $50.0 million Senior Notes is 9.5%. 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 Company currently has outstanding $200.0 million in principal amount of
Senior Notes. Upon consummation of the Merger, the Company will be required to
offer to purchase for cash all of the outstanding Senior Notes at a purchase
price equal to 101% of the principal amount of each Senior Note, plus accrued
and unpaid interest to the change of control payment date. The offer must
provide for purchase of the Senior Notes within 60 days following the Merger.
Although the Senior Notes have recently traded at prices higher than 101% of the
principal amount, there is no assurance they will continue to do so, or even if
they do, that holders of the Senior Notes will not tender their Senior Notes in
response to the offer to purchase. If a significant amount of the Senior Notes
are tendered, the Company and/or R&B Falcon may be required to seek equity or
debt financing to pay all or a portion of the purchase price for the Senior
Notes tendered. However, there is no assurance that such debt or equity
financing could be obtained, or if obtained, that it will be on terms favorable
to the Company and/or R&B Falcon. The inability or failure to obtain any
financing necessary to pay for Senior Notes tendered in response to the offer to
purchase could have a material adverse effect on the financial condition of the
Company and R&B Falcon.
On or after May 15, 2000, the Senior Notes are redeemable at the option of
the Company, in whole or in part, at a price of 105% of principal if redeemed
during the twelve months beginning May 15, 2000, at a price of 102.5% of
principal if redeemed during the twelve months beginning May 15, 2001, or at a
price of 100% of principal if redeemed after May 15, 2002, in each case together
with interest accrued to the redemption date. Notwithstanding the foregoing, the
Company may at its option use all or a portion of the proceeds from a public
equity offering consummated on or prior to May 15, 1999, to redeem up to $50.0
million principal amount of the Senior Notes at a redemption price equal to 110%
of the principal amount, provided that at least $150.0 million in aggregate
principal amount of the Senior Notes remain outstanding immediately after such
redemption.
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.
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.
The Company currently maintains a $35.0 million Revolving Credit Facility
with ING which matures May 31, 2000. At September 30, 1998, the Company had no
indebtedness outstanding under the Revolving Credit Facility, but had $.4
million in letters of credit outstanding, thereby leaving $34.6 million
available under the credit facility.
Exchange Rate Gains and Losses
Approximately 64% of the Company's revenues and a substantial portion of
its operating income were sourced from its foreign operations in the first nine
months of 1998. 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
<PAGE> 18
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. The effects of these
transactions are reported as "Exchange Rate 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 Company's operations are materially dependent upon the level of
activity in offshore oil and gas exploration and production. The level of such
activity is affected by both short-term and long-term trends in oil and gas
prices. Oil and gas prices and, therefore, the level of drilling, exploration
and production activity, can be volatile. Any prolonged reduction in oil and gas
prices will depress the level of exploration and production activity and result
in a corresponding decline in the demand for the Company's services and,
therefore, have a material adverse effect on the Company's revenues, cash flows
and profitability.
The ability of the Company to fund working capital, capital expenditures
and debt service in excess of cash on hand will depend 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.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, many
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
Based upon preliminary equipment analyses and evaluations, the Company does
not believe that operational equipment programming modifications are necessary.
The Company is currently communicating with vendors, suppliers and shippers and
will work with them to minimize disruption in the Company's operations as a
result of others' Year 2000 problems. Based on a recent assessment, the Company
determined that it will be required to modify or replace portions of its
accounting software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter. The Company has determined
that it will replace certain accounting software rather than invest in the
modification of existing programs. The replacement software and related
installation are estimated to cost approximately $2.0 million, the majority of
which will be capitalized. The software conversion is estimated to be completed
not later than December 31, 1998. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
timely completed, the Year 2000 Issue could have a material impact on operations
of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there is no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the cost and extent of training
associated with needed conversions and similar uncertainties. The Company is
currently evaluating contingency plans in the event our plans prove ineffective.
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
During the first nine months of 1998, 26,742 shares of the Company's Common
Stock held by the Company as treasury shares were contributed to the Cliffs
Drilling Company Savings Plan in satisfaction of the Company's matching
obligations under the Savings Plan. The shares had an aggregate value of
$842,000 based on market prices on the various dates of transfer ranging from
$20 to $55 3/4 per share. These transactions either (i) do not constitute
"sales" and therefore are not subject to the registration requirements of the
Securities Act of 1933, as amended, or (ii) were made in reliance on an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended, as transactions by the issuer not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of August 21, 1998,
among R&B Falcon Corporation, RBF Cliffs Acquisition Corp.
and Cliffs Drilling Company (incorporated by reference from
Exhibit 2.1 to the Company's Form 8-K dated August 20,
1998).
4.3.1 Amendment No. 1 to Rights Agreement dated as of August 20,
1998, between Cliffs Drilling Company and Harris Trust and
Savings Bank (incorporated by reference from Exhibit 4.3.1
to the Company's Form 8-K dated August 20, 1998).
10.23.1 Amendment No. 1 to Cliffs Drilling Company Compensation
Deferral Plan dated as of August 20, 1998 (incorporated by
reference from Exhibit 10.23.1 to the Company's Form 8-K
dated August 20, 1998).
27 Financial Data Schedule.
(b) Reports on Form 8-K
One report dated August 20, 1998 was filed by the Company on Form 8-K
during the three months ended September 30, 1998. The following
information was included in the report:
On August 21, 1998, the Company entered into an Agreement and
Plan of Merger ("Merger Agreement") with R&B Falcon Corporation
("R&B Falcon") and RBF Cliffs Acquisition Corp. ("RBF
Subsidiary") providing for the acquisition of the Company by R&B
Falcon by means of a merger of RBF Subsidiary with and into the
Company.
In connection with the Merger Agreement, the Company executed
Amendment No. 1 to Rights Agreement dated as of August 20, 1998.
In connection with the Merger Agreement, the Company executed
Amendment No. 1 to Cliffs Drilling Company Compensation Deferral
Plan dated as of August 20, 1998.
On August 26, 1998, the Company received notice that a class
action complaint against the Company and each member of the Board
of Directors was filed by a stockholder, on behalf of all of the
stockholders of the Company, on August 12, 1998.
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLIFFS DRILLING COMPANY
Date: November 3, 1998 By: /s/ EDWARD A. GUTHRIE
----------------------- --------------------------
Edward A. Guthrie
Vice President - Finance
Date: November 3, 1998 By: /s/ CINDY B. TAYLOR
----------------------- --------------------------
Cindy B. Taylor
Vice President - Controller
and Secretary
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger dated as of August 21, 1998,
among R&B Falcon Corporation, RBF Cliffs Acquisition Corp.
and Cliffs Drilling Company (incorporated by reference from
Exhibit 2.1 to the Company's Form 8-K dated August 20,
1998).
4.3.1 Amendment No. 1 to Rights Agreement dated as of August 20,
1998, between Cliffs Drilling Company and Harris Trust and
Savings Bank (incorporated by reference from Exhibit 4.3.1
to the Company's Form 8-K dated August 20, 1998).
10.23.1 Amendment No. 1 to Cliffs Drilling Company Compensation
Deferral Plan dated as of August 20, 1998 (incorporated by
reference from Exhibit 10.23.1 to the Company's Form 8-K
dated August 20, 1998).
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 37,269
<SECURITIES> 0
<RECEIVABLES> 64,118
<ALLOWANCES> 200
<INVENTORY> 11,503
<CURRENT-ASSETS> 134,020
<PP&E> 531,877
<DEPRECIATION> 121,922
<TOTAL-ASSETS> 550,300
<CURRENT-LIABILITIES> 62,066
<BONDS> 203,103
0
0
<COMMON> 163
<OTHER-SE> 262,403
<TOTAL-LIABILITY-AND-EQUITY> 550,300
<SALES> 269,530
<TOTAL-REVENUES> 269,530
<CGS> 157,350
<TOTAL-COSTS> 187,290
<OTHER-EXPENSES> 286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,192
<INCOME-PRETAX> 66,762
<INCOME-TAX> 23,367
<INCOME-CONTINUING> 43,395
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,395
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.71
</TABLE>
