<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 JUNE 30, 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
June 30, 1994 was 43,811,752.
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Consolidated Balance Sheets --
June 30, 1994 and December 31, 1993 . . . . . . . . . . . . . 1
Consolidated Statements of Operations --
Three and Six Months Ended June 30, 1994 and 1993 . . . . . . 2
Consolidated Statements of Cash Flows --
Three and Six Months Ended June 30, 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 . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
(i)
<PAGE> 3
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 9,095 $ 21,969
Short-term investments 21,190 --
Accounts receivable - trade and other, net 13,268 19,356
Other current assets 1,242 854
------------ ------------
Total current assets 44,795 42,179
Property and Equipment 88,122 87,140
Less accumulated depreciation 9,050 5,295
------------ ------------
Property and equipment, net 79,072 81,845
Other assets 142 147
------------ ------------
$ 124,009 $ 124,171
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 4,078 $ 8,647
Employer's liability claims, current 1,549 1,443
------------ ------------
Total current liabilities 5,627 10,090
Employer's Liability Claims, non-current 2,021 2,288
Deferred Income Taxes 7,013 5,376
Commitments and contingencies
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 43,811,752 and
43,682,668 shares as of June 30, 1994 and
December 31, 1993, respectively 438 437
Common stock restricted (1,042) (844)
Additional paid-in capital 91,737 91,801
Retained earnings from January 1, 1993 18,215 15,023
------------ ------------
Total shareholders' equity 109,348 106,417
------------ ------------
$ 124,009 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 16,231 $ 20,179 $ 35,045 $ 37,775
Costs and Expenses:
Contract drilling 11,855 11,379 24,940 22,091
Depreciation and amortization 1,901 1,309 3,774 2,617
General and administrative 911 2,710 1,855 4,010
------------ ------------- ------------ ------------
14,667 15,398 30,569 28,718
------------ ------------- ------------ ------------
Operating income 1,564 4,781 4,476 9,057
------------ ------------- ------------ ------------
Other Income (Expense):
Interest expense -- (219) -- (497)
Interest income 218 32 354 77
Other income (expense) (85) 40 81 35
------------ ------------- ------------ ------------
133 (147) 435 (385)
------------ ------------- ------------ ------------
Income before income taxes 1,697 4,634 4,911 8,672
Income taxes 593 1,576 1,719 2,949
------------ ------------- ------------ ------------
Net income $ 1,104 $ 3,058 $ 3,192 $ 5,723
============ ============= ============ ============
Income per common share $ 0.03 $ 0.08 $ 0.07 $ 0.15
============ ============= ============ ============
Weighted average common shares
outstanding 43,810,863 38,422,195 43,780,412 38,349,813
============ ============= ============ ============
</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>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,192 $ 5,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,774 2,617
Deferred income taxes 1,637 1,430
Pre-quasi-reorganization net operating loss
carryforwards -- 574
Gain on disposition of equipment (382) (93)
Accrual of compensation expense, net 217 96
Changes in operating assets and liabilities:
Receivables 6,088 (1,868)
Other current assets (388) (168)
Payables, accrued expenses and employer's
liability claims (4,449) 1,490
Other (754) --
------------ ------------
Total adjustments 5,743 4,078
------------ ------------
Net cash provided by operating activities 8,935 9,801
------------ ------------
Cash Flows From Investing Activities:
Purchase of short-term investments (21,190) --
Purchase of equipment (1,075) (51)
Proceeds from disposition of equipment 456 111
------------ ------------
Net cash provided by (used in) investing activities (21,809) 60
------------ ------------
Cash Flows From Financing Activities:
Payments of debt -- (11,006)
------------ ------------
Net cash used in financing activities -- (11,006)
------------ ------------
Net decrease in cash and cash equivalents (12,874) (1,145)
Cash and cash equivalents at beginning of period 21,969 9,173
------------ ------------
Cash and cash equivalents at end of period $ 9,095 $ 8,028
============ ============
(Continued)
</TABLE>
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>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1994 1993
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ -- $ 498
Income taxes paid $ 366 $ 141
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 57,334 shares to employee retirement
plan $ 317 $ --
Restricted stock forfeitures of 11,250 shares $ 37 $ --
Receivable related to sale of 5,000,000 shares of
common stock $ -- $ 28,200
Accrued expenses associated with sale of common
stock $ -- $ 400
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 six months ended June 30, 1994 are not
necessarily indicative of the results of operations that may be expected for
the year.
(2) RECLASSIFICATION OF ACCOUNTS
Certain reclassifications have been made to the 1993 consolidated
financial statements to conform with the 1994 presentation.
(3) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . . $ 25 $ 91 $ 81 $ 165
State . . . . . . . . . . . . . . . . . -- -- 1 --
Foreign . . . . . . . . . . . . . . . . -- 392 -- 780
---------- ---------- ----------- ------------
25 483 82 945
---------- ---------- ----------- ------------
Other:
U.S. federal - deferred 568 1,430 1,637 1,430
Pre-quasi-reorganization net
operating loss carryforwards . . . . -- (337) -- 574
---------- ---------- ----------- ------------
568 1,093 1,637 2,004
---------- ---------- ----------- ------------
Total tax provision . . . . . . . . . . . $ 593 $ 1,576 $ 1,719 $ 2,949
========== ========== =========== ============
</TABLE>
For the six months ended June 30, 1994, the effective tax rate for
financial reporting purposes approximates the U.S. federal statutory rate of
35%.
5
<PAGE> 8
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1994 and December 31, 1993 are presented below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . $ 31,839 $ 33,312
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . . . . . . 15,463 15,463
Employer's liability claims . . . . . . . . . . . . . . . . . . 1,250 1,306
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . 45 166
------------ -------------
Total gross deferred tax assets . . . . . . . . . . . . . . . . 48,597 50,247
Less valuation allowance . . . . . . . . . . . . . . . . . . . . (42,410) (42,209)
------------ -------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . 6,187 8,038
------------ -------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation . . . . . . . . . . . . . . . . . . . . . . . 11,337 11,393
Deferred intercompany gains and losses . . . . . . . . . . . . . 1,863 2,021
------------ -------------
Total gross deferred tax liabilities . . . . . . . . . . . . . . 13,200 13,414
------------ -------------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . $ 7,013 $ 5,376
============ =============
</TABLE>
(4) SHORT-TERM INVESTMENTS
Short-term investments are carried at amortized cost, which
approximates market as of June 30, 1994. They consist of U.S. government or
agency issues, certificates of deposit and corporate paper, and are generally
held to maturity.
(5) NET INCOME PER COMMON SHARE
Net income per common share for the six months ended June 30, 1994
excludes the effect of outstanding stock options inasmuch as the potential
dilution from their exercise is less than three percent.
(6) 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
The Company, through its predecessors, has been engaged since 1966 in
offshore contract drilling of oil and gas wells for independent and major oil
and gas companies. The Company currently operates in the U.S. Gulf of Mexico
and the Bay of Campeche offshore Mexico. As of August 2, 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. At that time, 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 was incorporated in Texas in January 1990 and was
significantly restructured and recapitalized in 1992 and early 1993 (the
''Recapitalization''). The principal executive offices of the Company are
located at 14141 Southwest Freeway, Suite 2500, Sugar Land, Texas 77478-3435
and the telephone number of such offices is (713) 491-2002. References to the
''Company'' herein include Marine Drilling Companies, Inc. and its subsidiaries
unless the context otherwise requires.
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 diversify, insofar as financially and operationally practicable, into other
international markets. The Company recently elected to upgrade the operational
capabilities of four of its owned rigs. The Company also intends to actively
pursue the acquisition of additional rigs and to seek business combinations
which the Company believes will benefit its shareholders. See '' -- Financial
Conditions -- Liquidity and Capital Resources.''
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.
The offshore drilling business is influenced by a number of factors,
including the current and anticipated prices of oil and gas (which affect the
expenditures by oil and gas companies for exploration and production) and the
availability of drilling rigs. In particular, the Company's drilling
operations are dependent upon the level of offshore drilling activity in the
U.S. Gulf of Mexico and the Bay of Campeche offshore Mexico. Despite
occasional improvements, the market for offshore contract drilling and related
services has been depressed for most of the past ten years due primarily to
depressed oil and gas prices and an oversupply of drilling rigs.
The offshore drilling market is highly competitive and no one
competitor is dominant. There has been a prolonged period of intense price
competition during which many rigs have been idle for long periods of time.
Consequently, some drilling contractors have gone out of business, sought
protection under the bankruptcy laws or consolidated with other contractors.
7
<PAGE> 10
Notwithstanding these events, the industry remains fragmented, and the Company
believes that bidding for drilling contracts will remain highly competitive for
the foreseeable future. Certain of the Company's competitors are larger, or
are subsidiaries of larger companies, and have greater financial resources than
the Company, which may enable them to better withstand industry downturns,
compete on the basis of price, build new rigs or acquire existing rigs that
become available for purchase.
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.
The Company's 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, although natural gas prices have
recently weakened, the outlook for natural gas prices remains relatively
positive and such outlook is favorable for offshore drilling activity. Oil
prices, however, began to weaken in October 1993 and this weakness is believed
by the Company to have contributed to lower levels of offshore drilling in
early 1994. In recent weeks, oil prices have recovered and the Company
believes this recovery will stimulate additional offshore drilling.
U.S. Gulf of Mexico
From January 1992 through July 1994, natural gas prices have been
volatile with prices ranging from a low near $1.00 in January 1992 to a high of
approximately $2.57 in October 1992 to approximately $1.66 as of the date of
this report. As of January 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 a
recent high of 112 in mid-July 1994.
The Company believes that the general improvement in natural gas prices
since January 1992 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 any increase in demand for drilling
rigs in the Company's markets. Such rig movements or reactivations could
depress pricing levels and adversely affect the supply and demand relationship
in the U.S. Gulf of Mexico.
8
<PAGE> 11
The Company's second quarter 1994 results were adversely affected by a
drop in marketed rig utilization to 82% compared to 100% during the second
quarter 1993. Day rates declined when compared to 1993's second quarter and
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 be more than ample to meet this
demand. Under such circumstances, day rates are unlikely to materially improve
and could possibly decrease.
According to Offshore Data Services, as of August 2, 1994, there were
140 jack-up rigs in the U.S. Gulf of Mexico of which 103 were working (a 74%
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 August 1, 1994, there were
11 contracted jack-up rigs in the Bay of Campeche compared to 11 contracted
jack-up rigs in early December 1992 and 18 in December 1993. 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 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 its six-month
renewal option, extending the contract to November 1994, however, IPC could
elect to terminate this contract prior to that time. The Company considers the
Bay of Campeche to be a potentially lucrative market and continues to actively
market its fleet in this area.
Pemex's current activity levels reflect an increase compared to recent
years but is currently lower than the end of 1993. If Pemex were to elect to
reduce its activity levels further, the Company's operations could be adversely
affected. Furthermore, several of the rigs operated in the Bay of Campeche
have mobilized back to the U.S. Gulf of Mexico, increasing competition in that
area.
9
<PAGE> 12
The following table sets forth certain industry and Company historical
data for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS YEARS ENDED
ENDED JUNE 30, ENDED JUNE 30, DECEMBER 31,
---------------- ---------------- ---------------
1994 1993 1994 1993 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . . . . . . . 136 112 132 111 116 121
Working jack-up rigs . . . . . . . . . . . 102 87 97 84 91 59
Utilization . . . . . . . . . . . . . . . 75% 78% 74% 76% 77% 49%
All other markets:
Total jack-up rigs . . . . . . . . . . . . 255 282 259 283 277 277
Working jack-up rigs . . . . . . . . . . . 193 218 198 220 217 220
Utilization . . . . . . . . . . . . . . . 76% 77% 76% 78% 78% 79%
COMPANY(2):
Total jack-up rigs . . . . . . . . . . . . 12 11 12 11 11 15
Working jack-up rigs . . . . . . . . . . . 9 10 9 10 10 6
Utilization . . . . . . . . . . . . . . . 75% 91% 75% 91% 91% 40%
Non-marketed rigs . . . . . . . . . . . . 1 1 -- 1 1 7
Utilization of marketed rigs . . . . . . . 82% 100% 79% 97% 97% 73%
Average day rates(3) . . . . . . . . . . $19,212 $22,223 $20,981 $21,890 $23,019 $13,816
</TABLE>
(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. Oil prices
subsequently improved during the second quarter of 1994 and such increases may
have a positive effect on offshore drilling activity. The recent weakness in
natural gas prices, however, may offset any such effect.
10
<PAGE> 13
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 August 2, 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 which significantly restructured and recapitalized the
Company (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 half 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 in the Bay of Campeche.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company had working capital at June 30, 1994 of $39,168,000 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
$8,935,000 for the six months ended June 30, 1994 as compared to net cash
provided by operations of $9,801,000 for the six months ended June 30, 1993, a
decrease of 9%. Cash used in investing activities was $21,809,000 for the six
months ended June 30, 1994 which consisted primarily of the purchase of
short-term investments compared to cash provided by investing activities of
$60,000 for the six months ended June 30, 1993. Capital expenditures for the
six months ended June 30, 1994 were $1,075,000, of which approximately $970,000
was used to purchase drill pipe.
The Company has recently determined to upgrade four of its rigs during the
next 12 months at an aggregate cost of between $20 to $25 million. The actual
level of expenditures for upgrades that the Company will elect to make may be
more or less dependent upon market conditions and changes in the Company's
financial position. In addition, the Company may choose to finance such
upgrades through bank borrowings, the sale of debt or the sale of equity
securities, and the level of actual expenditures may be affected by the
availability of acceptable financing arrangements.
The Company is also actively pursuing the acquisition of rigs to
complement its fleet. The Company would likely use debt or equity financing
for all or a portion of such rig acquisition costs. At this time the Company
cannot predict whether it will be successful in acquiring any additional rigs,
and obtaining financing therefor, on terms it finds acceptable.
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<PAGE> 14
The Company expects to manage any rig upgrades and acquisitions of rigs
and any related financing in a manner that will not impair its ability to meet
its operational, capital expenditure and debt service requirements (if
applicable) for the foreseeable future.
The Company also intends to pursue 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 business combinations. The Company cannot predict the
outcome of such discussions.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1993
Revenues
Revenues for the six months ended June 30, 1994 decreased $2,730,000
(7%) from $37,775,000 to $35,045,000 compared to the same period in 1993. The
decrease in revenues was the result of three factors -- (i) a 4% decrease in
average day rates from $21,890 in 1993 to $20,981 in 1994, (ii) a 20% increase
in the average number of marketed rigs from 10 in 1993 to 12 in 1994 and (iii)
a decrease in utilization of marketed rigs from 97% in 1993 to 79% 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 June 30, 1994, the Company had one rig in the Bay of
Campeche, Mexico. Revenues from the Bay of Campeche market decreased
$8,229,000 (68%) from $12,053,000 during the 1993 period to $3,824,000 for the
same period in 1994. Revenues from the Bay of Campeche market accounted for
11% of the Company's revenues in 1994 compared to 32% in 1993. Operating
income from this market decreased $2,784,000 (64%) from $4,380,000 in the 1993
period to $1,596,000 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 three rigs as of June 30, 1993 to one rig during the
second quarter 1994.
Costs and Expenses
Contract drilling expenses for the six months ended June 30, 1994
increased $2,849,000 (13%) from $22,091,000 to $24,940,000 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
refurbished and operated from October 1993 to May 1994 and the MARINE 304 was
purchased, refurbished and activated in late 1993.
Depreciation and amortization expense for the six months ended June 30,
1994 increased $1,157,000 (44%) from $2,617,000 to $3,774,000 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 refurbishment of the MARINE 303 in the fourth quarter of 1993.
General and administrative expenses for the six months ended June 30,
1994 decreased $2,155,000 (54%) from $4,010,000 to $1,855,000 compared to the
same period in 1993. The decrease is primarily the result of one-time
executive bonuses accrued for the six months ended June 30, 1993 of $2,311,000.
Excluding the one-time executive bonuses in 1993 of $2,311,000, general and
administrative expenses increased $156,000 (9%) from $1,699,000 to $1,855,000.
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<PAGE> 15
Interest Expense
There was no interest expense for the six months ended June 30, 1994 as
a result of the Company's repayment of all debt during 1993. Interest expense
for the six months ended June 30, 1993 was $497,000.
Interest Income
Interest income for the six months ended June 30, 1994 increased
$277,000 (360%) from $77,000 to $354,000 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, as well as
increased interest rates on short-term investments.
Income Taxes
Income taxes of $1,719,000 for the six months ended June 30, 1994
consisted of taxes currently payable of $82,000 and deferred income taxes of
$1,637,000. Taxes currently payable represent federal alternative minimum tax
of $81,000 and state franchise tax of $1,000.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1994 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1993
Revenues
Revenues for the second quarter of 1994 decreased $3,948,000 (20%) from
$20,179,000 to $16,231,000 compared to the same period in 1993. The decrease
in revenues was the result of three factors -- (i) a 14% decrease in average
day rates from $22,223 in 1993 to $19,212 in 1994, (ii) a 10% increase in the
average number of marketed rigs from 10 in 1993 to 11 in 1994 and (iii) a
decrease in utilization of marketed rigs from 100% in 1993 to 82% 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 June 30, 1994, the Company had one rig in the Bay of
Campeche, Mexico. Revenues from the Bay of Campeche market decreased
$5,014,000 (75%) from $6,721,000 during the 1993 period to $1,707,000 for the
same period in 1994. Revenues from the Bay of Campeche market accounted for
11% of the Company's revenues in the second quarter of 1994 compared to 33% in
the second quarter of 1993. Operating income from this market decreased
$1,229,000 (61%) from $2,007,000 in the 1993 period to $778,000 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 three in 1993
to one in 1994.
Costs and Expenses
Contract drilling expenses for the second quarter of 1994 increased
$476,000 (4%) from $11,379,000 to $11,855,000 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 refurbished and
operated from October 1993 to May 1994 and the MARINE 304 was purchased in
August 1993 and refurbished in the fourth quarter.
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<PAGE> 16
Depreciation and amortization expense for the second quarter of 1994
increased $592,000 (45%) from $1,309,000 to $1,901,000 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 refurbishment of the MARINE 303 in the fourth quarter of 1993.
General and administrative expenses for the second quarter of 1994
decreased $1,799,000 (66%) from $2,710,000 to $911,000 compared to the same
period in 1993. The decrease is primarily the result of one-time executive
bonuses accrued in the second quarter of 1993 of $1,704,000. Excluding the
one-time executive bonuses in 1993 of $1,704,000, general and administrative
expenses decreased $95,000 (9%) from $1,006,000 for the second quarter of 1993
compared to $911,000 in the second quarter of 1994.
Interest Expense
There was no interest expense for the second quarter of 1994 as a
result of the Company's repayment of all debt during 1993. Interest expense
for the second quarter of 1993 was $219,000.
Interest Income
Interest income for the second quarter of 1994 increased $186,000 from
$32,000 to $218,000 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, as well as increases in the interest
rates on short-term investments.
Income Taxes
Income taxes of $593,000 for the second quarter of 1994 consisted of
taxes currently payable of $25,000 and deferred income taxes of $568,000.
Taxes currently payable represent federal alternative minimum taxes of $25,000.
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<PAGE> 17
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 4,
1994. At the meeting, six directors were elected by a vote of holders of
Common Stock, as outlined in the Company's Proxy Statement related to the
meeting. With respect to the election of directors, (i) proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, (ii) there was no solicitation in opposition to the management's
nominees as listed in the Proxy Statement, and (iii) all of such nominees were
elected. The following numbers of votes were cast as to the director nominees:
<TABLE>
<CAPTION>
In Favor Withheld Broker Non-Votes Abstaining
------------------- ------------------ ----------------- ----------------
Nominee Votes Cast Votes % Votes % Votes % Votes %
- - -------------- ---------- ----------- ----- --------- ----- --------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Flores 33,060,236 30,933,401 70.64% 2,126,835 4.86% -- -- -- --
Mr. Keyes 33,060,236 30,933,501 70.64% 2,126,735 4.86% -- -- -- --
Mr. Linneman 33,060,236 30,933,501 70.64% 2,126,735 4.86% -- -- -- --
Mr. McMahon 33,060,236 30,933,501 70.64% 2,126,735 4.86% -- -- -- --
Mr. Newman 33,060,236 30,929,501 70.63% 2,130,735 4.87% -- -- -- --
Mr. Winokur 33,060,236 30,933,501 70.64% 2,126,735 4.86% -- -- -- --
</TABLE>
The final item voted upon at the meeting was ratification of the appointment of
KPMG Peat Marwick as independent certified public accountants of the Company
and its subsidiaries for 1994, with votes cast as follows:
<TABLE>
<CAPTION>
In Favor Against Broker Non-Votes Abstaining
-------------------- ----------------- ------------------ ------------------
Votes Cast Votes % Votes % Votes % Votes %
---------- ----------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
33,239,523 33,192,506 75.79% 18,570 0.04% -- -- 28,447 0.06%
</TABLE>
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 second quarter of 1994.
15
<PAGE> 18
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: August 2, 1994 By /s/ William H. Flores
William H. Flores
Senior Vice President -
Chief Financial Officer and Director
(Principal Financial Officer)
Date: August 2, 1994 By /s/ Joan R. Smith
Joan R. Smith
Vice President, Controller and Secretary
(Principal Accounting Officer)
16
