<PAGE> 1
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER: 0-18309
-----------------
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2558926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14141 SOUTHWEST FREEWAY, SUITE 2500, SUGAR LAND, TEXAS 77478-3435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 491-2002
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 .
The number of shares of Common Stock, $.01 par value, outstanding at
March 31, 1994 was 43,792,876.
________________________________________________________________________________
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Index to Financial Statements
Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993 . . . . . . . . . . . 1
Consolidated Statements of Operations --
Three Months Ended March 31, 1994 and 1993 . . . . . . . . 2
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1994 and 1993 . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
(i)
<PAGE> 3
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,902 $ 21,719
Restricted cash investments 250 250
Short-term investments 17,034 --
Accounts receivable - trade and other, net 13,627 19,356
Other current assets 320 854
------------ ------------
Total current assets 43,133 42,179
Property and Equipment 87,442 87,140
Less accumulated depreciation 7,159 5,295
------------ ------------
Property and equipment, net 80,283 81,845
Other assets 158 147
------------ ------------
$ 123,574 $ 124,171
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 4,460 $ 8,647
Employer's liability claims, current 2,043 1,443
------------ ------------
Total current liabilities 6,503 10,090
Employer's Liability Claims, non-current 1,878 2,288
Deferred Income Taxes 6,445 5,376
Commitments and contingencies
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 43,792,876 and
43,682,668 shares as of March 31, 1994 and
December 31, 1993, respectively 438 437
Common stock restricted (1,168) (844)
Additional paid-in capital 92,367 91,801
Retained earnings from January 1, 1993 17,111 15,023
------------ ------------
Total shareholders' equity 108,748 106,417
------------ ------------
$ 123,574 $ 124,171
============ ============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Revenues $ 18,814 $ 17,596
Costs and Expenses:
Contract drilling 13,085 10,712
Depreciation and amortization 1,873 1,308
General and administrative 944 1,300
------------ ------------
15,902 13,320
------------ ------------
Operating income 2,912 4,276
------------ ------------
Other Income (Expense):
Interest expense -- (278)
Interest income 136 45
Other income (expense) 166 (5)
------------ ------------
302 (238)
------------ ------------
Income before income taxes 3,214 4,038
Income taxes 1,126 1,373
------------ ------------
Net income $ 2,088 $ 2,665
============ ============
Income per common share $ .05 $ .07
============ ============
Weighted average common shares
outstanding 43,749,623 38,276,625
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,088 $ 2,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,873 1,308
Deferred income taxes 1,069 --
Pre-quasi-reorganization net operating loss
carryforwards -- 911
Gain on disposition of equipment (321) (81)
Accrual of compensation expense, net 91 48
Changes in operating assets and liabilities:
Receivables 5,729 64
Other current assets 534 572
Payables, accrued expenses and employer's
liability claims (3,845) 89
Other (11) (21)
------------ ------------
Total adjustments 5,119 2,890
------------ ------------
Net cash provided by operating activities 7,207 5,555
------------ ------------
Cash Flows From Investing Activities:
Purchase of short-term investments (17,034) --
Purchase of equipment (334) (36)
Proceeds from disposition of equipment 344 94
------------ ------------
Net cash provided by (used in) investing activities (17,024) 58
------------ ------------
Cash Flows From Financing Activities:
Payments of debt -- (8,459)
------------ ------------
Net cash used in financing activities -- (8,459)
------------ ------------
Net decrease in cash and cash equivalents (9,817) (2,846)
Cash and cash equivalents at beginning of period 21,719 9,173
------------ ------------
Cash and cash equivalents at end of period $ 11,902 $ 6,327
============ ============
</TABLE>
[Continued]
See notes to consolidated financial statements.
3
<PAGE> 6
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1994 1993
------- --------
<S> <C <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ -- $278
Income taxes paid $ 1 $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of 83,000 shares of restricted common stock $415 $ --
Issuance of 285,000 shares of restricted common stock $ -- $465
Issuance of 27,208 shares to employee retirement plan $152 $ --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of the Company presented
herein have been prepared without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain information
and notes required by generally accepted accounting principles for complete
financial statements have been condensed or omitted. In the opinion of
management, these statements include all adjustments (all of which consist of
normal recurring adjustments except as otherwise noted herein) necessary to
present fairly the Company's financial position and results of operations for
the interim periods presented. These statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993. The
results of operations for the three months ended March 31, 1994 are not
necessarily indicative of the results of operations that may be expected for
the year.
(2) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, ``Accounting for Certain Investments in Debt and
Equity Securities'' (Statement 115). The adoption of Statement 115 resulted in
no cumulative effect on retained earnings at January 1, 1994.
(3) RECLASSIFICATION OF ACCOUNTS
Certain reclassifications have been made to the 1993 consolidated
financial statements to conform with the 1994 presentation.
(4) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56 $ 74
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 388
------ ------
57 462
------ ------
Other:
U.S. federal - deferred 1,069 --
Pre-quasi-reorganization net operating loss
carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . -- 911
------ ------
1,069 911
------ ------
Total tax provision . . . . . . . . . . . . . . . . . . . . . . . . . $1,126 $1,373
====== ======
</TABLE>
5
<PAGE> 8
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
For the quarter ended March 31, 1994, the effective tax rate for
financial reporting purposes approximates the U.S. federal statutory rate of
35%.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1994 and December 31, 1993 are presented below.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . $ 32,320 $ 33,312
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . . . . . . 15,463 15,463
Employer's liability claims . . . . . . . . . . . . . . . . . . 1,372 1,306
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . 131 166
--------- ---------
Total gross deferred tax assets . . . . . . . . . . . . . . . . 49,286 50,247
Less valuation allowance . . . . . . . . . . . . . . . . . . . . (42,419) (42,209)
--------- ---------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . 6,867 8,038
--------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation . . . . . . . . . . . . . . . . . . . . . . . 11,370 11,393
Deferred intercompany gains and losses . . . . . . . . . . . . . 1,942 2,021
--------- ---------
Total gross deferred tax liabilities . . . . . . . . . . . . . . 13,312 13,414
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . $ 6,445 $ 5,376
========= =========
</TABLE>
(5) SHORT-TERM INVESTMENTS
Short-term investments are carried at cost, which approximates market
as of March 31, 1994. They consist of U.S. government or agency issues,
certificates of deposit and corporate paper, and are generally held to
maturity.
(6) NET INCOME PER COMMON SHARE
Net income per common share for the three months ended March 31, 1994
excludes the effect of outstanding stock options inasmuch as the potential
dilution from their exercise is less than three percent.
(7) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising out
of operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position or results of operations.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Marine Drilling Companies, Inc. (collectively with its subsidiaries,
the ``Company'') was incorporated in Texas in January 1990. The Company or its
predecessors have been engaged since 1966 in offshore contract drilling of oil
and gas wells for independent and major oil and gas companies and currently
operates in the U.S. Gulf of Mexico and the Bay of Campeche offshore Mexico.
As of April 27, 1994, the Company operated a fleet of twelve mobile offshore
jack-up drilling rigs (all but one of which were owned by the Company),
consisting of four independent leg cantilever jack-ups and eight mat supported
jack-ups. As of April 27, 1994, eleven of the Company's twelve rigs were
located in the U.S. Gulf of Mexico and one was in the Bay of Campeche.
The Company's strategy is to strive to maintain its position as a
significant provider of offshore drilling services in its present markets and
to continue to diversify, insofar as financially and operationally practicable,
into other international markets. The Company also intends to seek business
combinations and to make acquisitions of additional drilling rigs which the
Company believes will benefit its shareholders.
INDUSTRY CONDITIONS AND COMPETITION
The Company currently derives substantially all of its revenues from
offshore drilling in the U.S. Gulf of Mexico and in the Bay of Campeche.
Although the Company's rigs could, with certain modifications, work in other
areas, management believes that the U.S. Gulf of Mexico and the Bay of Campeche
currently have greater earnings potential than other markets in which its rigs
could operate. The Company's rigs are not, however, suitable for those areas,
such as the North Sea, that require hostile environment operating capabilities.
Since the mid-1980's, the worldwide contract drilling industry, and
particularly the drilling industry in the U.S. Gulf of Mexico, was, with
limited exceptions, adversely affected by unfavorable pricing and low rig
utilization. Over this period, the exploration and development budgets of the
Company's customer base were reduced as a result of substantial decreases and
volatility in the prices of oil and gas. These factors resulted in less
exploration and developmental drilling activity and negative cash flows for
many drilling contractors, including the Company. Furthermore, many energy
companies have shifted more of their drilling budgets to international areas
due to perceived unfavorable exploration and development economics as well as
the regulatory climate in the United States. As a consequence, the supply of
U.S. Gulf of Mexico drilling rigs frequently has substantially exceeded demand
resulting in generally unfavorable day rates and many rigs being idle for long
periods of time. During 1993, however, conditions in the Company's markets
improved and the Company was able to generate significant profits and cash
flows.
Pricing and rig water depth capabilities are generally the most
important competitive factors in the drilling industry. Other competitive
factors include the technical capabilities of specialized drilling equipment
and personnel, operational experience, rig suitability, efficiency, equipment
condition, safety record, reputation and customer relations. The Company
believes that it competes favorably with respect to all these factors.
7
<PAGE> 10
The Company's contract drilling revenues depend upon rig utilization
and pricing. These variables are affected by competitive conditions and the
amount of exploration and development activity conducted by oil and gas
companies. This activity is strongly influenced by the current and projected
prices of oil and natural gas. The Company believes that the outlook for
natural gas prices is currently positive and such outlook is favorable for
offshore drilling activity. However, oil prices have been generally weaker
since October 1993 and this weakness is believed by the Company to have
contributed to lower levels of offshore drilling in early 1994.
U.S. Gulf of Mexico
Since January 1992, the price of natural gas as reported by Natural Gas
Clearinghouse has increased from its low of approximately $1.00 per thousand
cubic feet (``mcf'') to $1.88 per mcf in April 1994. As of January 7, 1992,
there were 77 contracted jack-up rigs in the U.S. Gulf of Mexico and the
number declined until early May 1992 when the number of contracted jack-up rigs
reached a 1992 low of 46. Since May 1992, the number of contracted jack-up
rigs has generally increased, reaching 103 in April 1994. The Company believes
that the substantial improvement in natural gas prices has had a positive
effect on drilling activity in the U.S. Gulf of Mexico. Overall, jack-up rig
demand in the U.S. Gulf of Mexico has improved substantially since May 1992,
but there can be no assurance that such improvements in drilling activity are
indicative of future activity levels or that there will not be a decline in
drilling activity in the future. Furthermore, jack-up rigs are mobile and
competitors have moved and could move additional rigs from weaker markets to
the U.S. Gulf of Mexico or offshore Mexico in the Bay of Campeche. In
addition, there are additional non-marketed rigs stacked in the U.S. Gulf of
Mexico which, subject to some expenditure, have been or could be reactivated to
meet an increase in demand for drilling rigs in the Company's markets. Such
movement or reactivation could depress pricing levels and adversely affect the
supply and demand relationship in the U.S. Gulf of Mexico, notwithstanding
continued strength in natural gas prices.
The Company's first quarter 1994 results were adversely affected by a
drop in rig utilization to 76% compared to 94% during the first quarter 1993.
Day rates were up slightly when compared to 1993's first quarter but they also
reflected a decline from the levels experienced in late 1993. The Company
currently expects that jack-up rig demand will increase slightly in the U.S.
Gulf of Mexico during the remainder of 1994, however, it also appears that the
supply of jack-ups in that market will increase by slightly more than the
improvement in demand. Thus, the utilization rate of jack-ups is likely to
decrease slightly for the remainder of the year. Under such circumstances, day
rates are unlikely to improve and could possibly decrease.
According to Offshore Data Services, as of April 26, 1994, there were
134 jack-up rigs in the U.S. Gulf of Mexico of which 100 were working (a 75%
utilization rate). Ownership of these rigs is widely dispersed among a number
of drilling contractors. As a result, no one contractor (including the
Company) is able to materially affect pricing levels in the U.S. Gulf of
Mexico.
Bay of Campeche, Offshore Mexico
According to Offshore Data Services, as of April 1, 1994, there were 17
contracted jack-up rigs in the Bay of Campeche compared to 11 contracted
jack-up rigs in early December 1992 and 19 in February 1994. These rigs are
operated by a variety of U.S.-based and Mexico-based drilling contractors. All
of the rigs in the Bay of Campeche are performing drilling
8
<PAGE> 11
services for Petroleos Mexicanos (``Pemex''), the national oil company of the
Republic of Mexico. Some of the rigs working for Pemex are subject to
contracts between the respective drilling contractors and Pemex. Other rigs
are working for turnkey companies which, in turn, have entered into turnkey
contracts with Pemex. Two of the Company's rigs worked in the Bay of Campeche
for a Mexican turnkey operator, Perforadora Faja de Oro, S.A. de C.V. (``Faja
de Oro'') during all or part of 1993. The Company's contracts with Faja de Oro
provided for compensation on a ``day work'' basis (and not on a turnkey or
fixed price basis) and for each rig to drill three wells. The rigs completed
their contracts and returned to the U.S. Gulf of Mexico in September 1993 and
January 1994, respectively. In May 1993, the Company entered into a one-year
bareboat charter and limited operating contract with Industrial Perforadora de
Campeche, S.A. de C.V. (``IPC''), with a six-month renewal at the option of
IPC, to provide drilling services in the Bay of Campeche. The rig commenced
operations under the contract in May 1993. In April 1994, IPC exercised the
six-month renewal option, extending the contract to November 1994. The Company
considers the Bay of Campeche a lucrative market and continues to actively
market its fleet in this area.
Pemex's current activity levels reflect an increase compared to recent
years. If Pemex were to elect to reduce its activity levels, or should it be
unable to finance these activities in the future, the Company's operations
could be adversely affected. Furthermore, if such reductions were to occur,
several of the rigs currently operated in the Bay of Campeche could be
mobilized back to the U.S. Gulf of Mexico which would increase competition in
that area and could adversely affect the Company's U.S. Gulf of Mexico results.
During late 1993 and early 1994, approximately nine jack-up rigs
concluded their respective contracts with Pemex. Several of those rigs were
subsequently mobilized to the U.S. Gulf of Mexico and have contributed to the
increasing oversupply of rigs in that market.
The following table sets forth certain industry and Company historical
data for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------ ------------------
1994 1993 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . . . . . . . . . 127 111 116 121
Working jack-up rigs . . . . . . . . . . . . . 92 81 91 59
Utilization . . . . . . . . . . . . . . . . . 72% 73% 77% 49%
All other markets:
Total jack-up rigs . . . . . . . . . . . . . . 270 283 277 277
Working jack-up rigs . . . . . . . . . . . . . 203 222 217 220
Utilization . . . . . . . . . . . . . . . . . 75% 78% 78% 79%
COMPANY(2):
Total jack-up rigs . . . . . . . . . . . . . . 12 11 11 15
Working jack-up rigs . . . . . . . . . . . . . 9 9 10 6
Utilization . . . . . . . . . . . . . . . . . 76% 82% 91% 40%
Non-marketed rigs . . . . . . . . . . . . . . -- 1 1 7
Utilization of marketed rigs . . . . . . . . . 76% 94% 97% 73%
Average day rates(3) . . . . . . . . . . . . . $22,791 $21,521 $23,019 $13,816
</TABLE>
[see notes on following page]
9
<PAGE> 12
(1) Average of weekly data published by Offshore Data Services.
(2) The numbers included in the table represent the average number of rigs
(rounded to the nearest whole number) operated by the Company for the
periods indicated.
(3) ``Average day rate'' is determined by dividing the total gross revenue
earned by the Company's rigs during a given period by the total number of
days that the Company's rigs were under contract and working during that
period.
FINANCIAL CONDITION -- GENERAL
The following is a discussion of the Company's financial condition,
results of operations, historical financial resources and working capital.
This discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
During most of 1992, demand for drilling services in the U.S. Gulf of
Mexico was generally depressed due primarily to the uncertainty and occasional
volatility of oil and gas prices, as well as an oversupply of jack-up drilling
rigs. During the latter part of 1992, the demand for drilling services in the
U.S. Gulf of Mexico improved markedly from earlier levels, which, combined with
a continued decline in the supply of jack-up rigs, resulted in generally higher
jack-up rig utilization and day rates. The Company attributes this improvement
in demand primarily to the increased price of domestic natural gas during that
period. Demand continued to improve during early 1993 due primarily to
increased drilling activity in the Bay of Campeche by Pemex, which drilling
activity further reduced the supply of jack-up rigs in the U.S. Gulf of Mexico.
In addition, demand for jack-up rigs in the U.S. Gulf of Mexico showed general
improvement throughout 1993. Oil prices have been generally weaker since
October 1993, however, and this weakness is believed by the Company to have
contributed to lower levels of offshore drilling in early 1994.
Prior to 1993, the Company derived most of its revenues from contract
drilling in the U.S. Gulf of Mexico. During 1993, the Company operated two to
three rigs in the Bay of Campeche and received a significant amount of revenues
therefrom. As of April 26, 1994, the Company had one rig operating in the Bay
of Campeche.
During 1992 and the first quarter of 1993, the Company completed a series
of related transactions that provided for the Recapitalization. Primarily as a
result of the Recapitalization, between January 1, 1992 and early 1993, the
Company eliminated preferred stock obligations of approximately $64,000,000 and
indebtedness of approximately $148,000,000. The Company's rig fleet was also
reduced during that period from 21 rigs to 11 rigs.
The Company's financial results improved markedly during the fourth
quarter of 1992 and throughout 1993 due to the improvements in business
conditions noted above and the effects of the Recapitalization.
During the first quarter of 1994, the Company remained profitable,
although profits were lower than comparable 1993 results due to the effects of
(i) increased competition in the U.S. Gulf of Mexico which adversely affected
utilization and rig pricing in that market, as well as (ii) lower activity
levels by the Company's rigs in the Bay of Campeche.
10
<PAGE> 13
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company had working capital at March 31, 1994 of $36,630,000 as
compared to working capital of $32,089,000 at December 31, 1993. The
improvement in working capital was due primarily to an increase in cash
generated by operations. Net cash provided by operating activities was
$7,207,000 for the three months ended March 31, 1994 as compared to net cash
provided by operations of $5,555,000 for the three months ended March 31, 1993,
an increase of 30%. Cash used in investing activities was $17,024,000 for the
three months ended March 31, 1994 consisting primarily of the purchase of
short-term investments of $17,034,000 as compared to cash provided by investing
activities of $58,000 for the three months ended March 31, 1993. Purchases of
equipment in the first quarter of 1994 consisted primarily of drill pipe of
$280,000. The Company plans capital expenditures in 1994, exclusive of
additional rig purchases, of approximately $1,200,000 primarily for drill pipe
purchases.
The Company believes that its projected cash flows and current working
capital resources are sufficient to meet its capital expenditure requirements
for the foreseeable future. The Company intends to pursue acquisitions of
additional jack-up rigs and business combinations with other drilling
contractors. From time to time, the Company has had discussions, and
anticipates that such discussions will continue in the future, with other
parties regarding rig acquisitions and business combinations. The Company
cannot predict the outcome of such discussions. If the Company is successful,
however, in acquiring additional offshore rigs, the Company would, under
certain circumstances, need to obtain debt or equity financing to fund such
acquisitions.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1993
Revenues
Revenues for the three months ended March 31, 1994 increased $1,218,000
(7%) from $17,596,000 to $18,814,000 compared to the same period in 1993. The
increase in revenues was the result of three factors -- (i) a 6% increase in
average day rates from $21,521 in 1993 to $22,791 in 1994, (ii) a 20% increase
in the average number of marketed rigs from 10 in 1993 to 12 in 1994 and (iii)
a partially offsetting decrease in utilization from 94% in 1993 to 76% in 1994.
The decrease in utilization was due to increased competition in the U.S. Gulf
of Mexico as previously discussed. See `` -- Industry Conditions and
Competition.'' As of March 31, 1994, the Company had one rig in the Bay of
Campeche, Mexico. Revenues from the Bay of Campeche market decreased
$3,215,000 (60%) from $5,332,000 during the 1993 period to $2,117,000 for the
same period in 1994. Operating income from this market decreased $1,793,000
(69%) from $2,611,000 in the 1993 period to $818,000 for the same period in
1994. This decrease is mainly attributable to a decrease in the number of the
Company's rigs present in the Bay of Campeche from two to one.
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Costs and Expenses
Contract drilling expenses for the three months ended March 31, 1994
increased $2,373,000 (22%) from $10,712,000 to $13,085,000 compared to the same
period in 1993. This increase is primarily the result of the addition of two
rigs to the Company's active rig fleet in late 1993. The MARINE 1 was
reactivated in October 1993 and the MARINE 304 was purchased in August 1993 and
refurbished in the fourth quarter.
Depreciation and amortization expense for the three months ended March
31, 1994 increased $565,000 (43%) from $1,308,000 to $1,873,000 compared to the
same period in 1993. The increase resulted primarily from the purchase of the
MARINE 304 in August 1993 and the reactivation and refurbishment of the MARINE
1 and the MARINE 303 in the fourth quarter of 1993.
General and administrative expenses for the three months ended March
31, 1994 decreased $356,000 (27%) from $1,300,000 to $944,000 compared to the
same period in 1993. The decrease is primarily the result of one-time
executive bonuses accrued in the first quarter of 1993 of $607,000 offset by a
minimal increase in labor costs of $43,000 and other administrative expenses.
Interest Expense
There was no interest expense for the three months ended March 31, 1994
as a result of the Company's payment of all debt during 1993. Interest expense
for the first quarter of 1993 was $278,000.
Interest Income
Interest income for the three months ended March 31, 1994 increased
$91,000 (202%) from $45,000 to $136,000 compared to the same period in 1993.
The increase was related primarily to increased cash balances resulting from
1993 stock offering proceeds and cash flows from operations.
Income Taxes
Income taxes of $1,126,000 for the three months ended March 31, 1994
consisted of taxes currently payable of $57,000 and deferred income taxes of
$1,069,000. Taxes currently payable represent federal alternative minimum tax
of $56,000 and state income tax of $1,000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has various claims filed against its subsidiaries in the
ordinary course of business, particularly claims alleging personal injuries.
It is the belief of management that the Company has established adequate
reserves for any liabilities which may reasonably be expected to result from
these claims. In the opinion of management, no pending claims, actions or
proceedings against the Company would have a material adverse effect on its
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the first quarter of
1994.
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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.
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: April 29, 1994 By /s/ William H. Flores
_________________________________
William H. Flores
Senior Vice President -
Chief Financial Officer
and Director
(Principal Financial Officer)
Date: April 29, 1994 By /s/ Joan R. Smith
__________________________________
Joan R. Smith
Vice President, Controller and
Secretary (Principal
Accounting Officer)
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