<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
1993 FORM 10-K
(MARK ONE)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _____________ TO ___________.
COMMISSION FILE NUMBER: 0-18309
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (713) 491-2002
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE NASDAQ STOCK MARKET
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. { }
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY
NONAFFILIATES ON FEBRUARY 17, 1994 - $129,281,361.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
ON FEBRUARY 17, 1994 - 43,792,876.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Annual Meeting of Shareholders to be held May 4, 1994
- Part III
================================================================================
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . 9
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters . . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . 38
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . 38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . 38
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . 38
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
(i)
<PAGE> 3
PART I
ITEM 1. BUSINESS
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 February 17, 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 February 17, 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.
The Company was significantly restructured and recapitalized in 1992
and early 1993 (the "Recapitalization"). See Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The
Recapitalization" for further information.
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.
1
<PAGE> 4
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. The Company is unable to predict
future oil or gas prices or the level of offshore drilling activity.
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 $2.18 per mcf in February 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 109 in December 1993. 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. Indeed, market conditions were
markedly weaker in early 1994 due to reduced jack-up rig demand and an
increased supply of rigs.
According to Offshore Data Services, as of February 15, 1994, there
were 127 jack-up rigs in the U.S. Gulf of Mexico of which 98 were contracted (a
77% 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 February 17, 1994, there
were 19 contracted jack-up rigs in the Bay of Campeche compared to 11
contracted jack-up rigs in early December 1992. 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 commenced working in the Bay of Campeche for a Mexican turnkey operator,
Perforadora Faja de Oro, S.A. de C.V. ("Faja de Oro") in January 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 on May 4,
1993. The Company considers the Bay of Campeche a lucrative market and
continues to actively market its fleet in this area.
2
<PAGE> 5
Pemex's current activity levels reflect a significant 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.
The following table sets forth certain industry and Company historical
data for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . . . . . . . . 116 121 144 159 160
Contracted jack-up rigs . . . . . . . . . . 95 63 91 120 104
Utilization . . . . . . . . . . . . . . . . 82% 52% 63% 76% 65%
All other markets:
Total jack-up rigs . . . . . . . . . . . . . 277 277 266 257 262
Contracted jack-up rigs . . . . . . . . . . 239 240 235 224 213
Utilization . . . . . . . . . . . . . . . . 86% 87% 88% 87% 81%
COMPANY(2):
Total jack-up rigs(3) . . . . . . . . . . . 11 15 21 22 16
Contracted jack-up rigs . . . . . . . . . . 10 6 12 16 10
Utilization . . . . . . . . . . . . . . . . 91% 40% 56% 71% 62%
Non-marketed rigs . . . . . . . . . . . . . 1 7 5 3 3
Utilization of marketed rigs . . . . . . . . 97% 73% 73% 84% 76%
Average day rates(4) . . . . . . . . . . . . $23,019 $13,816 $15,547 $15,141 $11,893
</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) From January 1, 1988 to March 12, 1990, the Company operated 16 rigs. In
March 1990, the Company acquired four additional rigs and assumed charter
agreements covering three additional rigs. The Company's rig fleet was
substantially reduced during 1991 and 1992. See Item 2 "Properties --
Rig Fleet."
(4) "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 during that period.
DRILLING OPERATIONS AND CUSTOMERS
Most of the Company's drilling contracts provide for compensation on a
"daywork" basis. Under daywork contracts, the Company receives a fixed
amount per day for providing drilling services using the rigs it operates. The
Company does not market its rigs under fixed price or turnkey contracts. In
recent years, the Company's rigs have generally been contracted on a
well-to-well basis due to highly competitive conditions. In early 1993,
however, the Company obtained a one-year contract for one rig in the Bay of
Campeche and the Company will strive to enter into additional term contracts in
the future.
3
<PAGE> 6
The Company provides drilling services to a customer base which
includes independent and major oil and gas companies. As is typical in the
industry, the Company does business with a relatively small number of customers
at any given time. The loss of any one of the Company's customers could, at
least on a short-term basis, have a material adverse effect on the Company's
profitability. Management believes, however, that at current levels of
activity, the Company would have alternative customers for its services if it
lost any single customer and that the loss of any one customer would not have a
material adverse effect on the Company on a long-term basis. See Note 9 of
Consolidated Financial Statements included in this report for further
information regarding the Company's major customers. The Company's management
believes that its customer relationships are good.
ENVIRONMENTAL MATTERS
General
The Company is subject to numerous domestic and foreign governmental
regulations that relate directly or indirectly to its operations, including
certain regulations (i) controlling the discharge of materials into the
environment, (ii) requiring removal and cleanup under certain circumstances,
(iii) requiring the proper handling and disposal of waste materials, or (iv)
otherwise relating to the protection of the environment. For example, the
Company, as an operator of mobile offshore drilling rigs in waters of the
United States and certain offshore areas, may be liable for damages and for the
cost of removing oil spills for which it is held responsible, subject to
certain limitations. Laws and regulations protecting the environment have
become more stringent in recent years and may, in certain circumstances, impose
"strict liability," rendering a company liable for environmental damage
without regard to negligence or fault on the part of such company. Such laws
and regulations may expose the Company to liability for the conduct of or
conditions caused by others or for acts of the Company that were in compliance
with all applicable laws at the time such acts were performed. The application
of these requirements or the adoption of new requirements could have a material
adverse effect on the Company. The Company believes that it has conducted its
operations in substantial compliance with all applicable environmental laws and
regulations.
The Company has generally been able to obtain contractual
indemnification in its drilling contracts against pollution and environmental
damages that are not caused by the gross negligence or willful misconduct of
the Company, but there can be no assurance that such indemnification will be
enforceable in all instances, that the customer will be financially able in all
cases to comply with its indemnity obligations, or that the Company will be
able to obtain such indemnification agreements in the future.
The Company maintains insurance coverage against certain environmental
liabilities, but there can be no assurance that such insurance will continue to
be available or carried by the Company or, if available and carried, will be
adequate to cover the Company's liability in the event of a catastrophic
occurrence.
U.S. Oil Pollution Act of 1990
The U.S. Oil Pollution Act of 1990 ("OPA '90") and regulations
promulgated pursuant thereto impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills. A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which an offshore facility is located. OPA '90 assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a responsible
party for an Outer Continental Shelf facility must pay all spill removal costs
incurred by a federal, state or local government. OPA '90 establishes
liability limits (subject to indexing) for mobile offshore drilling rigs. If
functioning as an offshore facility, the mobile offshore drilling rigs are
considered "tank vessels" for spills of oil on or above the water surface,
with liability limits of $1,200 per gross ton or $10,000,000. To the extent
damages and removal costs exceed this amount, the mobile offshore drilling rigs
will be treated as an offshore facility and the offshore lessee will be
responsible up to higher liability limits of all removal costs plus
$75,000,000. A party cannot take advantage of liability limits if the spill
was caused by gross negligence or willful misconduct or resulted from violation
of a federal safety,
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<PAGE> 7
construction, or operating regulation. If the party fails to report a spill or
to cooperate fully in the cleanup, liability limits likewise do not apply. Few
defenses exist to the liability imposed by OPA '90.
OPA '90 also imposes ongoing requirements on a responsible party.
These include proof of financial responsibility (to cover at least some costs
in a potential spill), and preparation of an oil spill contingency plan. A
failure to comply with ongoing requirements or inadequate cooperation in a
spill event may subject a responsible party to civil or criminal enforcement
action. In short, OPA '90 places a burden on drilling rig owners or operators
to conduct safe operations and take other measures to prevent oil spills. If a
spill occurs, OPA '90 then imposes liability for resulting damages.
Outer Continental Shelf Lands Act (U.S.)
In addition, the Outer Continental Shelf Lands Act authorizes
regulations relating to safety and environmental protection applicable to
lessees and permittees operating on the Outer Continental Shelf. Specific
design and operational standards may apply to Outer Continental Shelf vessels,
rigs, platforms, vehicles and structures. Violations of lease terms relating
to environmental matters or regulations issued pursuant to the Outer
Continental Shelf Lands Act can result in substantial civil and criminal
penalties as well as potential court injunctions curtailing operations and the
cancellation of leases. Such enforcement liabilities can result from either
governmental or citizen prosecution.
CERCLA and RCRA (U.S.)
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, currently exempts crude oil, and the
Resource Conservation and Recovery Act ("RCRA"), as amended, currently
exempts certain drilling materials, such as drilling fluids and produced water,
from the definitions of hazardous substances and hazardous wastes for purposes
of these statutes. The Company's operations, however, may involve the use or
handling of other material that may be classified as environmentally hazardous
substances or wastes. There can be no assurances that these exemptions will be
preserved in future amendments of such acts, if any, or that more stringent
federal or state laws and regulations protecting the environment will not be
adopted. CERCLA assigns strict liability to each responsible party for all
response and remediation costs, as well as natural resource damage. Few
defenses exist to the liability imposed by CERCLA.
GOVERNMENTAL REGULATION
The Company's business is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly to
the oil and gas industry. The adoption of laws and regulations curtailing
exploration and developmental drilling for oil and gas for economic,
environmental or other policy reasons would and have adversely affected the
operations of the Company by limiting available drilling opportunities for its
customers and/or increasing the costs of such activities to the Company or its
customers. The Company believes that it has conducted its operations in
substantial compliance with applicable governmental laws and regulations.
OPERATIONAL RISKS AND INSURANCE
Contract drilling operations are subject to various risks including
blowouts, cratering, fires and explosions, each of which could result in damage
to or destruction of drilling rigs and oil and gas wells, damage to life and
property, suspension of operations, and environmental damage through oil
spillage and extensive uncontrolled fires. The Company insures its drilling
rigs and plant assets for amounts approximating used equipment replacement cost
and also insures against catastrophic losses resulting from employer's
liability and other risks customary in the energy service industry. The
Company currently maintains insurance coverage it believes to be customary in
the industry against certain general and marine public liabilities, including
liabilities for personal injuries. Except in limited circumstances, this
insurance does not cover liability for pollution or environmental damage that
originates below the water surface, although the Company is
5
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generally indemnified against such pollution and environmental liabilities by
its customers. There is no assurance that such insurance or indemnification
will be adequate to protect the Company against liability from all consequences
of well disasters, extensive fire damage or damage to the environment.
Recognizing these risks, the Company has programs that are designed to promote
a safe environment for its personnel and equipment.
EMPLOYEES
As of February 17, 1994, the Company had approximately 700 employees.
The number of employees varies throughout the year depending on the level of
drilling activity. The Company considers relations with its employees to be
good. None of the Company's employees is presently represented by labor
unions.
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age (as of December 31, 1993) and offices currently held by
each of the executive officers of the Company are shown in the table below.
Each officer is elected by the Board of Directors for a term of office
extending until the meeting of the Board of Directors which follows the next
annual meeting of shareholders or until his successor has been elected and
qualified, unless otherwise removed.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
William O. Keyes 64 Chairman of the Board, President and
Chief Executive Officer(1)
William H. Flores 39 Senior Vice President, Chief Financial Officer
and Assistant Secretary(2)
Gerald T. Greak 53 Senior Vice President--Marketing(3)
Hugh L. Adkins 46 Vice President and Operations Manager(4)
Joan R. Smith 38 Vice President, Controller and Secretary(5)
</TABLE>
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(1) William O. Keyes has served as Chairman of the Board, President and
Chief Executive Officer of the Company since December 1991 and as Vice
Chairman of the Board from March 1990 to December 1991. Prior
thereto, he was sole director, sole shareholder and President of Keyes
Offshore, Inc. from October 1977 to March 1990.
(2) William H. Flores has served as Senior Vice President, Chief Financial
Officer and Assistant Secretary of the Company since March 1990.
Prior thereto, he served as Vice President--Finance for Keyes
Offshore, Inc. from December 1986 to March 1990.
(3) Gerald T. Greak has served as Senior Vice President--Marketing of the
Company since July 1991 and as Vice President since March 1990. Prior
thereto, he served as Vice President--Engineering of Keyes Offshore,
Inc. from 1980 to March 1990.
(4) Hugh L. Adkins has served as Vice President and Operations Manager of
the Company since February 1992 and as Safety Manager of the Company
from August 1990 to February 1992. He was employed by Norton Drilling
Company as Drilling Superintendent and Division Manager from May 1989
to August 1990 and by M. A. Hanna Company, Midland South West
Division, as Vice President-Drilling and Production from May 1984 to
May 1989.
(5) Joan R. Smith has served as Vice President, Controller and Secretary
since February 1993. Prior thereto, she served as Controller and
Assistant Secretary since February 1991 . She was employed by the
U.S. Securities and Exchange Commission in the Division of Corporation
Finance from March 1990 to February 1991. Prior thereto, she served
as Controller and Secretary for Enercap Corporation (a heavy oil
production company) from July 1985 to March 1990.
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<PAGE> 9
ITEM 2. PROPERTIES
RIG FLEET
All of the Company's rigs are jack-up rigs, which are mobile
self-elevating drilling platforms equipped with legs that can be lowered to the
ocean floor until a foundation is established to support the drilling platform.
The Company owns eleven rigs and operates one additional rig under a two-year
charter agreement which commenced in early 1993. Of the Company's twelve rig
fleet, eight are mat supported rigs (i.e., they have a lower hull attached to
the rig legs) and four are of independent leg design. Five of the mat
supported rigs and one of the independent leg rigs are slot type jack-up units
which are configured for the drilling operations to take place through a slot
in the hull. The Company's other mat supported rigs and three of the
independent leg rigs have a cantilever feature which allows the extension of
the drilling equipment over a customer's platform to perform development
drilling or workover operations. The Company's rigs are currently capable of
drilling to depths of 20,000 to 30,000 feet in maximum water depths ranging
from 200 to 300 feet. The Company's rigs could, if applicable modifications
were made and certifications obtained, operate in certain non-hostile areas
outside of their current markets. The Company believes that all of its rigs
are in good operating condition and have been well maintained.
Mat Supported Rig -- This type of rig
consists of a floating upper
hull with three legs which
are attached to a lower hull
commonly referred to as a
mat. After being towed to
the drilling location, the
legs are lowered until the
{GRAPH} mat contacts the seabed and
the upper hull is jacked to
the desired elevation above
sea level. One advantage of
mat supported rigs is the
ability to operate in areas
having soft seabed conditions
where independent leg rigs
are prone to have excessive
penetration and subject to
leg damage.
Independent Leg Rig -- This type of rig
consists of a floating hull with three
independent elevated legs. After being
towed to the drilling location, the {GRAPH}
legs are lowered until they penetrate
the seabed and the hull is jacked to the
desired elevation above sea level.
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<PAGE> 10
The following table describes the Company's drilling rigs as of
February 17, 1994:
<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION RATED RATED
OR REFUR- WATER DRILLING
NAME OF RIG MAKE/DESIGN TYPE BISHMENT DEPTH DEPTH LOCATION
----------- ----------- ---- ------------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Independent Leg Rigs:
MARINE 300 (a)(b) F&G*/L780 MOD II Cantilever 1981 250' 30,000' Bay of Campeche
MARINE 301 (c) F&G*/L780 MOD II Cantilever 1981 300' 25,000' U.S. Gulf of Mexico
MARINE 303 F&G*/L780 MOD II Cantilever 1982 300' 30,000' U.S. Gulf of Mexico
MARINE 304 (c) MLT** Slot 1993 (d) 300' 30,000' U.S. Gulf of Mexico
Mat Supported Rigs:
MARINE 1 Bethlehem/225 Slot 1993 (e) 225' 20,000' U.S. Gulf of Mexico
MARINE 3 (f) Bethlehem/262 Slot 1974 262' 25,000' U.S. Gulf of Mexico
MARINE 4 Bethlehem/250 Slot 1975 250' 25,000' U.S. Gulf of Mexico
MARINE 15 Baker Marine/250 Slot 1981 250' 25,000' U.S. Gulf of Mexico
MARINE 16 Bethlehem/250 Slot 1981 250' 20,000' U.S. Gulf of Mexico
MARINE 17 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
MARINE 18 Bethlehem/250 Cantilever 1982 250' 20,000' U.S. Gulf of Mexico
MARINE 200 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
</TABLE>
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(a) Can be modified to provide for 300 foot water depth capacity.
(b) Designed to operate in environmentally sensitive areas such as Mobile Bay.
(c) Equipped with top drive.
(d) Year of construction -- 1976
(e) Year of construction -- 1969
(f) Chartered pursuant to a two-year charter agreement expiring in February
1995.
* Friede & Goldman.
** Marathon LeTourneau
The Company's fleet was substantially reduced during 1991 and 1992. In
1991, the Company sold one rig and returned two chartered rigs to their owners
pursuant to the termination of the related charter agreements. In 1992, the
Company (i) sold two rigs (one of which was 50% owned), (ii) transferred
custody of seven rigs to the United States Maritime Administration ("MarAd")
and (iii) returned one chartered rig to its owner pursuant to the expiration of
the related charter agreement. The rigs transferred to MarAd were sold to
third parties during 1992 and 1993 with MarAd receiving the proceeds from such
sales. Pursuant to the terms of such sales, the owners of such rigs are
prohibited from marketing them in the U.S. Gulf of Mexico for exploratory and
development drilling purposes. See Item 7 " -- The Recapitalization." In
December 1992, the Company chartered an additional rig under a two-year charter
agreement providing for charter payments of $1,500 and $1,800 per operating day
during the first and second years, respectively. In August 1993, the Company
acquired and refurbished the MARINE 304. Also in 1993, the Company refurbished
and reactivated the MARINE 1.
OTHER PROPERTY
The Company leases approximately 28,000 square feet of office space in
Sugar Land, Texas for its headquarters. In addition, the Company leases an
approximately 60,000 square foot warehouse and repair facility on 31 acres near
Houston, Texas. The Company also owns a 16 acre property in Corpus Christi,
Texas, which is presently held for sale.
8
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
GENERAL
Various claims have been filed against the Company and its
subsidiaries in the ordinary course of business, particularly claims alleging
personal injuries. Management believes 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 or its subsidiaries are expected to have a
material adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock, par value $.01 per share (the "Common
Stock"), trades on the Nasdaq Stock Market under the symbol "MDCO." The
following table sets forth the range of high and low sale prices per share of
the Common Stock as reported by the Nasdaq Stock Market for the periods
indicated. Share price data has been adjusted to reflect a one-for-twenty-five
reverse stock split (the "Reverse Stock Split") effected in October 1992.
See Item 7 " -- The Recapitalization."
<TABLE>
<CAPTION>
1993 1992
------------------ --------------------
HIGH LOW HIGH LOW
------ ----- -------- -----
<S> <C> <C> <C> <C>
First Quarter . . . . . . . 4 1/2 1 1/4 5 15/32 3 1/8
Second Quarter . . . . . . . 10 4 6 1/4 3 1/8
Third Quarter . . . . . . . 8 1/4 5 7/8 4 11/16 1 9/16
Fourth Quarter . . . . . . . 8 5/8 3 7/8 3 29/32 1 1/4
</TABLE>
The last sale price of the Common Stock as reported by the Nasdaq
Stock Market on February 17, 1994 was $5 5/8 per share. As of February 17,
1994, there were approximately 500 holders of record of the Common Stock.
The Company has not paid cash dividends on its Common Stock in the
past and does not intend to pay dividends on the Common Stock in the
foreseeable future. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included in Item 8 of this report.
9
<PAGE> 12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company as of and for each of the periods indicated. The selected
financial data for each of the five years in the period ended December 31, 1993
are derived from the Company's audited consolidated financial statements. The
information presented below should be read in conjunction with Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included in Item 8 of this report.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1993 1992 1991 1990(2) 1989
--------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Drilling revenues . . . . . . . . . . . . . . . . $ 82,998 $ 31,621 $ 66,686 $ 85,863 $ 43,060
Drilling expenses . . . . . . . . . . . . . . . . 45,330 29,189 58,117 72,842 43,549
Depreciation and amortization . . . . . . . . . . 5,312 12,315 17,240 18,956 14,699
General and administrative . . . . . . . . . . . 8,999 6,903 9,786 8,969 6,082
Rig writedown . . . . . . . . . . . . . . . . . . -- 68,320(3) -- -- --
Operating income (loss) . . . . . . . . . . . . . 23,357 (85,106) (18,457) (14,904) (21,270)
Interest expense, net . . . . . . . . . . . . . . 62 9,628 13,291 12,598 9,008
Income (loss) before income taxes
and extraordinary items . . . . . . . . . . . . 23,301 (91,327) (34,462) (29,251) (28,926)
Income tax expense (benefit) . . . . . . . . . . 8,278 40 -- -- (724)
Gains on early extinguishments
of debt . . . . . . . . . . . . . . . . . . . . -- 104,523(4) -- -- --
Net income (loss) . . . . . . . . . . . . . . . . $ 15,023 $ 13,156 $ (34,462) $ (29,251) $ (28,202)
Weighted average common shares
outstanding (5) . . . . . . . . . . . . . . . . 40,936 5,823 753 618 337
PER SHARE DATA(1):
Income (loss) per common share before
extraordinary items (6) . . . . . . . . . . . . $ 0.37 $ (16.84) $ (56.29) $ (58.37) $ (101.86)
Extraordinary gains per common
share . . . . . . . . . . . . . . . . . . . . . -- 17.95 -- -- --
Net income (loss) per common
share (6) . . . . . . . . . . . . . . . . . . . $ 0.37 $ 1.11 $ (56.29) $ (58.37) $ (101.86)
BALANCE SHEET DATA(1):
Cash and cash equivalents . . . . . . . . . . . . $ 21,719 $ 9,173 $ 4,503 $ 20,995 $ 12,822
Working capital (deficit) . . . . . . . . . . . . 32,089 (846)(7) (77,063)(7) 17,478 13,671
Total assets . . . . . . . . . . . . . . . . . . 124,171 92,228 247,788 293,201 210,805
Long-term debt, non-current . . . . . . . . . . . -- 5,123 (7) 59,702 (7) 140,672 104,073
Old Preferred Stock . . . . . . . . . . . . . . . -- -- 57,233 49,296 38,556
Shareholders' equity . . . . . . . . . . . . . . 106,417 60,695 26,741 67,954 47,600
</TABLE>
(see notes on following page)
10
<PAGE> 13
SELECTED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
- ------------
Note: For definitions of certain capitalized terms used in the following
footnotes, see Item 7 " -- The Recapitalization."
(1) See Note 1 to the Consolidated Financial Statements included in Item 8
of this report and Item 7 " -- The Recapitalization" for discussions
of the restructuring and recapitalization activities, as well as the
effect of quasi-reorganization accounting procedures adopted in 1992.
(2) Reflects the business combination (the "Keyes Merger") effected on
March 13, 1990 of the Company's predecessor, Marine Drilling Company,
and certain entities (the "Keyes Entities") then controlled by Mr.
Keyes. The statement of operations data includes the Keyes Entities
from March 1, 1990.
(3) In connection with the Recapitalization, during 1992, the Company
recorded a rig writedown of $68,320,000 related to the transfer of
seven rigs to MarAd and the writedown of four other rigs to net
realizable value.
(4) During the second quarter of 1992, the Company paid a lender $500,000
in connection with the Bank One Transaction and recorded early
extinguishment of debt of $13,942,000 and a related gain on early
extinguishment of debt of $13,442,000. Additionally, during the third
quarter of 1992, the Company recorded the discharge of debt of
$52,106,000 and a related early extinguishment gain of $45,406,000
pursuant to the Storm Drilling Restructuring. During the fourth
quarter of 1992, the Company recorded an extraordinary gain of
$45,675,000 and issued 4,994,752 shares of Common Stock at a value of
$1.25 per share, or $6,244,000, in connection with the Chase Exchange.
Total debt discharged and related early extinguishment gains during the
year ended December 31, 1992 were $117,967,000 and $104,523,000,
respectively.
(5) Income (loss) per common share is based on the weighted average number
of common shares outstanding and common stock equivalents, if dilutive.
Net income per common share for the year ended December 31, 1993 does
not include the effect of outstanding stock options as the potential
dilution from their exercise is less than three percent.
(6) For the years ended December 31, 1992, 1991, 1990 and 1989, net income
(loss) per common share includes $1.15, $10.54, $11.01 and $18.08,
respectively, per share of Common Stock attributable to dividends on
and discount accretion of Old Preferred Stock. On October 29, 1992,
the Company's Old Preferred Stock was reclassified into 19,369,893
shares of Common Stock.
(7) The working capital deficit as of December 31, 1992 included
$16,157,000 representing the current portion of long-term debt. The
working capital deficit as of December 31, 1991 included "Long-term
debt currently due" of $88,593,000 which was in default subsequent to
December 31, 1991. See Item 7 " -- Liquidity and Capital Resources"
and Note 5 to the Consolidated Financial Statements included in Item 8
of this report.
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 included in Item 8 of this
report.
During 1991 and 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 increase in the
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 February 17, 1994, the Company had one rig operating in the
Bay of Campeche. See Note 9 to the Company's Consolidated Financial Statements
included in Item 8 of this report.
During 1992 and the first quarter of 1993, the Company completed a
series of related transactions that provided for the Recapitalization. See "
- -- The Recapitalization" below. Primarily as a result of the
Recapitalization, between January 1, 1992 and early 1993, the Company
eliminated its preferred stock obligations of approximately $64,000,000 and its
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.
12
<PAGE> 15
THE RECAPITALIZATION
The Recapitalization of the Company in 1992 and the first quarter of
1993 included several transactions which significantly reduced the Company's
debt and eliminated its preferred stock obligations. The table presented below
reflects certain effects of the Recapitalization transactions and other
payments of debt as if each of the transactions had been consummated on January
1, 1992. The capitalized terms used in the table are defined in the narrative
following the table which further describes each of the Recapitalization
transactions.
<TABLE>
<CAPTION>
SHARES OF OLD
COMMON PREFERRED
STOCK(1) STOCK(2) DEBT(3)
---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances as of January 1, 1992 . . . . . . 753,546 $ 57,233 $ 148,295
Recapitalization transactions --
Bridge Loan . . . . . . . . . . . . . . -- -- 4,000
Bank One Transaction . . . . . . . . . -- -- (12,901)
Marine 200 Restructuring . . . . . . . -- -- (7,471)
Chemical Bank Restructuring . . . . . . -- -- (4,070)
First City Redemption . . . . . . . . . -- -- (4,205)
Chemical Bank Extension . . . . . . . . -- -- (4,184)
Storm Drilling Restructuring . . . . . -- -- (47,841)
Preferred Stock Reclassification . . . 19,369,893 (57,233) --
Chase Exchange . . . . . . . . . . . . 4,994,752 -- (46,801)
Bridge Loan Exchange . . . . . . . . . 3,270,054 -- (4,000)
Rights Offering . . . . . . . . . . . . 9,638,214 -- --
---------- --------- ---------
38,026,459 -- 20,822
Other cash payments of debt . . . . . . . -- -- (8,001)
---------- --------- ---------
Balances as adjusted as of
March 31, 1993 . . . . . . . . . . . . 38,026,459 (4) $ -- $ 12,821
========== ========= =========
</TABLE>
- ---------------
(1) Share amounts have been adjusted to reflect the Reverse Stock Split
effected on October 29, 1992.
(2) Excludes accrued dividends and accretion of discount.
(3) Excludes accrued interest and interest payments.
(4) Excludes 285,000 shares of restricted Common Stock issued in January
1993.
Background
In June 1992, the Company entered into an agreement (the
"Recapitalization Agreement") with certain of its lenders, including The
Chase Manhattan Bank, N.A. ("Chase"), and certain preferred shareholders,
including Warburg, Pincus Capital Company, L.P. ("Warburg"), Aeneas Venture
Corporation ("Aeneas"), Capricorn Investors, L.P. ("Capricorn," and
together with Warburg and Aeneas, the "Marine Investors") and William O.
Keyes ("Mr. Keyes"). At the time the Company entered into the
Recapitalization Agreement, a substantial portion of its debt was in default.
The Company had unsuccessfully sought a business combination during the prior
year and was close to exhausting its cash reserves. The Recapitalization
collectively consisted of the following described transactions, substantially
all of which were contemplated by the Recapitalization Agreement.
13
<PAGE> 16
Bridge Loan and Bank One Transaction
Concurrently with the execution of the Recapitalization Agreement, the
Company entered into a $4,000,000 bridge loan agreement with the Marine
Investors (the "Bridge Loan") to provide sufficient funding to enable the
Company to complete the Recapitalization. The Company also then purchased
approximately $13,942,000 of indebtedness (approximately $12,901,000 principal
plus accrued interest) owed by one of its subsidiaries for $500,000 (the "Bank
One Transaction").
Marine 200 Restructuring
On July 14, 1992, a subsidiary of the Company owning a single jack-up
rig filed for protection under Chapter 11 of the United States Bankruptcy Code
in order to restructure certain indebtedness held by MarAd, an agency of the
U.S. Department of Transportation. On March 11, 1993, the creditors of this
subsidiary unanimously approved its plan of reorganization and on March 16,
1993 the plan was confirmed by the bankruptcy court. Under the plan (the
"Marine 200 Restructuring"), the subsidiary's outstanding indebtedness to
MarAd of approximately $10,554,000 was reduced by approximately $7,471,000 to
approximately $3,083,000, which was fully retired later in 1993.
Chemical Bank Restructuring, First City Redemption and Chemical Bank Extension
In August 1992, the Company agreed to a restructuring (the "Chemical
Bank Restructuring") of indebtedness owed to Chemical Bank and First City --
Texas, Houston N.A. ("First City"), which was in default and which aggregated
approximately $22,533,000 as of the date of the restructuring. The Chemical
Bank Restructuring extended the maturity of approximately $18,400,000 of such
indebtedness to April 30, 1993 and provided for payment of the balance
(approximately $4,070,000) during 1992. In January 1993, the Company acquired
all of such indebtedness then held by the successor to First City,
approximately $4,215,000 (approximately $4,205,000 principal plus accrued
interest), at a five percent discount (the "First City Redemption"). Later
in 1993, the Company retired the remaining indebtedness owed to Chemical Bank.
Storm Drilling Restructuring
In September 1992, the Company effectively discharged approximately
$52,106,000 (approximately $47,841,000 principal plus accrued interest, net of
deferred financing costs) of indebtedness owed to MarAd by a subsidiary of the
Company (the "Storm Drilling Restructuring") in consideration for the
transfer to entities designated by MarAd of the seven jack-up rigs that secured
such debt and the transfer to MarAd of an interest in certain then pending
litigation against the manufacturer of one of the Company's jack-up rigs (the
"Marine 7 Litigation"). As a result of the settlement of the Marine 7
Litigation in early 1993, MarAd received approximately $3,802,000.
Preferred Stock Reclassification, Chase Exchange and Bridge Loan Exchange
On October 29, 1992, immediately following the meeting of the
Company's shareholders at which certain elements of the Recapitalization were
approved, the Company (i) effected the Reverse Stock Split which reclassified
the then outstanding 18,838,643 shares of Common Stock (pre Reverse Stock
Split) into 753,546 shares of Common Stock, (ii) reclassified all outstanding
shares of the Company's 14% nonconvertible redeemable preferred stock (the
"Old Preferred Stock") into an aggregate of 19,369,893 shares of Common Stock
(the "Preferred Stock Reclassification"), (iii) issued 4,994,752 shares of
Common Stock in exchange for approximately $51,919,000 (approximately
$46,801,000 principal plus accrued interest, net of deferred financing costs)
of indebtedness of a subsidiary of the Company held primarily by Chase (the
"Chase Exchange"), (iv) issued 3,270,054 shares of Common Stock to the Marine
Investors in exchange for the approximately $4,087,000 ($4,000,000 principal
plus accrued interest) outstanding under the Bridge Loan (the "Bridge Loan
Exchange"), (v) paid contingent dividend rights (the "Litigation Dividend
Rights") to the holders of record of Common Stock immediately prior to the
consummation of the
14
<PAGE> 17
other Recapitalization transactions occurring on such date, and (vi) entered
into a Registration Rights Agreement and a Shareholders' Agreement with the
Marine Investors, Chase, Mr. Keyes and certain other participants in the
Recapitalization.
The Litigation Dividend Rights provided for a payment to be made if
the net litigation proceeds from the Marine 7 Litigation exceeded certain
threshold amounts. As a result of the settlement of this litigation in January
1993, no amounts have been or will be paid pursuant to the Litigation Dividend
Rights.
Rights Offering
In December 1992, the Company concluded a rights offering (the
"Rights Offering") in which it sold 9,638,214 shares of Common Stock, at
$1.25 per share, out of a maximum offering of 12,810,277 shares. The
transferable rights had been distributed to the holders of record of the Common
Stock immediately prior to the consummation of the Recapitalization
transactions effected on October 29, 1992. Pursuant to the Recapitalization
Agreement, the Marine Investors purchased 4,800,000 shares of Common Stock in
the Rights Offering.
Quasi-Reorganization
As of December 31, 1992, the Company adopted quasi-reorganization
accounting procedures which allowed the Company to eliminate its accumulated
deficit against paid-in capital and to revalue its assets and liabilities to
estimated fair values.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company had positive working capital at December 31, 1993 of
$32,089,000 as compared to negative working capital of $(846,000) at December
31, 1992. The improvement in working capital was due primarily to the
Company's sale of Common Stock, an increase in cash generated by operations and
the settlement of the Marine 7 Litigation.
Net cash provided by operating activities was $23,493,000 in 1993 as
compared to net cash used in operations of $6,254,000 and $7,756,000,
respectively, during 1992 and 1991. Non-cash items included in the Company's
Statement of Cash Flows in 1992 consist of extraordinary gains on debt
extinguishment of $104,523,000 and writedowns of rigs of $68,320,000.
Cash provided by or (used in) investing activities was $(17,772,000),
$677,000 and $(2,100,000) during 1993, 1992 and 1991, respectively. Cash used
in 1993 consisted primarily of capital expenditures of $18,329,000, with the
largest expenditure being the acquisition and refurbishment of the MARINE 304
(formerly Key Largo) in August 1993, including the purchase price of $9,950,000
and refurbishment costs of $2,400,000. In addition, the MARINE 1 was
reactivated and refurbished at a cost of $3,900,000 and the MARINE 303 was
upgraded at a cost of $1,200,000. The balance of $879,000 was primarily for
drill pipe and other purchases. Cash provided in 1992 was generated primarily
from proceeds from sales of two rigs. The Company sold one rig in September
1992 and another (in which the Company owned a 50% interest) in July 1992.
Cash used in 1991 was due to capital expenditures of $3,938,000, consisting
primarily of purchases of drill pipe, cranes, other drilling equipment, and
renovation costs. Excluding expenditures relating to possible acquisitions of
rigs, the Company plans capital expenditures in 1994 of approximately
$1,200,000 primarily for drill pipe purchases.
Cash provided by or (used in) financing activities was $6,825,000,
$10,247,000, and $(6,636,000) during 1993, 1992 and 1991, respectively. Cash
provided by financing activities in 1993 consisted of the sale of Common Stock
offset by the payments of debt discussed below. During 1992, the Company
received $4,000,000 from the Bridge Loan in connection with the
Recapitalization, received net proceeds
15
<PAGE> 18
of $11,462,000 from the Rights Offering, and made debt payments of $12,277,000.
During 1991 the Company made debt payments of $8,239,000, of which $1,603,000
was from restricted cash.
In connection with the Recapitalization, in November and December 1992
the Company sold stock related to the Rights Offering. Approximately 9,638,000
shares of Common Stock were subscribed for with gross proceeds of approximately
$12,048,000. Approximately $186,000 of broker solicitation fees were paid on
approximately 3,055,000 shares and approximately $325,000 of expenses were
incurred in connection with the Rights Offering.
In early July 1993, the Company completed a sale of 5,000,000 shares
of Common Stock at a price of $6.00 per share ($5.64 net of underwriting
discounts). The sale provided proceeds to the Company of approximately
$28,200,000. The proceeds of the offering were used for (i) the reduction of
bank indebtedness during the third quarter as discussed in the following
paragraph, (ii) the reactivation of the MARINE 1 and (iii) the purchase and
refurbishment of the MARINE 304 and the balance will be used in the future for
general corporate purposes, including possible acquisitions of offshore
drilling rigs. Approximately $422,000 of expenses were incurred in connection
with the offering.
On December 31, 1992, the Company's indebtedness was $21,280,000, with
shareholders' equity of $60,695,000 as compared to December 31, 1991 when the
Company's indebtedness and obligations related to preferred stock totaled
$205,528,000 with shareholders' equity of $26,741,000. During the first
quarter of 1993, the Company reduced its debt pursuant to a redemption and
retirement of $4,205,000 of indebtedness at 95% of face value followed by
additional debt retirements of $4,184,000. During the third quarter of 1993,
the Company retired its remaining indebtedness of $10,274,000. As a result of
debt retirements, the sale of Common Stock and improved cash flows from
operations, the Company had no debt and had shareholders' equity of
$106,417,000 as of December 31, 1993.
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.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Statement 109 required a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Effective December 31, 1992, in conjunction with the adoption of
quasi-reorganization accounting, the Company adopted Statement 109. The change
in the method of accounting for income taxes had no cumulative effect on the
1992 consolidated statements of operations.
16
<PAGE> 19
Federal Income Tax Effects of the Recapitalization
The Company has taken the position that the Recapitalization and the
Rights Offering did not cause an ownership change under Section 382 of the
Internal Revenue Code of 1986, as amended, (the "Code") based on the
applicability of Section 382(l)(3)(C) and Regulation Section
1.382-2T(h)(4)(i)(B). Since neither the Internal Revenue Service nor the
Department of Treasury has established any rules or guidance on Section
382(l)(3)(C), there can be no assurance that an ownership change will not be
deemed to have occurred. If an ownership change were deemed to have occurred,
the utilization of the Company's net operating losses and investment tax credit
carryforwards, would be substantially limited.
In addition, the Recapitalization and certain transactions related
thereto have resulted in substantial reductions of the Company's tax net
operating loss carryforwards. Moreover, if the Company fails to prevail on
certain of the tax positions it has taken with respect to the tax effects of
those transactions, the Company's net operating loss carryforwards could be
further reduced in a substantial manner. Appropriate valuation allowances for
deferred tax assets have been established in the consolidated financial
statements based on management's consideration of whether it is more likely
than not that some portion or all of the net operating losses and investment
tax credit carryforwards will not be realized.
Sales of significant numbers of shares of Common Stock by the Company
or certain significant shareholders of the Company could result in an ownership
change under Section 382 of the Code. An ownership change under Section 382 of
the Code would limit the Company's ability to use its remaining net operating
losses against its future income in each taxable year to no more than an amount
equal to the product of the fair market value of the Company's equity
immediately prior to such an ownership change multiplied by the long-term
federal exempt rate then in effect. Such an ownership change would also limit
the Company's ability to use its investment tax credit and general business
credit carryforwards for federal income tax purposes.
For further discussion of the federal income tax effects of the
Recapitalization, see Note 6 to the Company's Consolidated Financial Statements
included in Item 8 of this report.
RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992
Revenues
During 1993, the Company generated drilling revenues of $82,998,000
which represented an increase of $51,377,000 or 162% compared to 1992 drilling
revenues of $31,621,000. The increases in revenues resulted primarily from the
following factors: (i) an increase in the number of marketed rigs from 8
during the 1992 period to 10 rigs during 1993; (ii) an increase in utilization
of marketed rigs from 73% during the 1992 period to 97% during 1993; and (iii)
a 67% increase in average day rates from $13,816 during the 1992 period to
$23,019 in 1993. The increases in utilization and average day rates resulted
principally from increased drilling activity in the U.S. Gulf of Mexico and the
Bay of Campeche. As of February 17, 1994, the Company had one rig in the Bay
of Campeche. Revenues from the Bay of Campeche market accounted for 28%
($23,459,000) of the Company's revenues and 37% ($8,538,000) of the Company's
operating income for 1993. The Company had no rigs in this market during 1992.
If Pemex reduces the level of its drilling activities, the Company's operations
could be adversely affected in both of its markets.
Costs and Expenses
Contract drilling expenses of $45,330,000 in 1993 represented an
increase of $16,141,000 or 55% compared to contract drilling expenses of
$29,189,000 in 1992. This increase was primarily the result of increased rig
utilization in 1993.
17
<PAGE> 20
Depreciation and amortization expense in 1993 decreased $7,003,000 or
57% from $12,315,000 to $5,312,000 compared to 1992. The decrease was
primarily due to the effect of the adoption of quasi-reorganization accounting
procedures on December 31, 1992.
General and administrative expenses in 1993 increased $2,096,000 or
30% from $6,903,000 to $8,999,000 compared to 1992. General and administrative
expenses increased primarily as a result of executive bonuses of $4,436,000
paid pursuant to bonus agreements which were based upon the price of the
Company's stock in November 1993 and a reversal of compensation expense
($741,000) related to expired options in 1992. Excluding these items, general
and administrative expenses were $4,563,000 and $7,644,000 during 1993 and
1992, respectively.
Interest Expense
Interest expense decreased $9,147,000 or 94% from $9,727,000 in 1992
to $580,000 in 1993. The decrease was related primarily to decreased debt as a
result of the Recapitalization and lower interest rates.
Interest Income
Interest income increased $419,000 or 423% from $99,000 in 1992 to
$518,000 in 1993. The increase was primarily the result of larger cash
balances available for investment which was partially offset by lower interest
rates.
Income Taxes
Income taxes of $8,278,000 for the year ended December 31, 1993,
consisted of taxes currently payable of $800,000, deferred federal income taxes
of $5,376,000, the realization of pre-quasi-reorganization net operating loss
carryforwards of $1,612,000 and tax benefits of $490,000 related to Common
Stock issued pursuant to the Marine Drilling 1992 Long Term Incentive Plan.
The latter amount was recorded to shareholders' equity, while taxes currently
payable represent federal alternative minimum tax of $408,000, state income
taxes of $12,000 and foreign income taxes of $380,000. As a result of the
Recapitalization, the realization of pre-quasi-reorganization net operating
loss carryforwards of $1,612,000 was recorded directly to shareholders' equity.
RESULTS OF OPERATIONS -- 1992 COMPARED WITH 1991
Revenues
During 1992 the Company generated drilling revenues of $31,621,000
which represented a decrease of $35,065,000 or 53% compared to 1991 drilling
revenues of $66,686,000. The decrease in revenues resulted primarily from the
following factors: (i) a decrease in the number of marketed rigs from 16
during the 1991 period to 8 rigs during 1992; and (ii) an 11% decrease in
average day rates from $15,547 to $13,816. The declines in marketed rigs and
average day rates are principally from the then current oversupply of jack-up
drilling rigs relative to the reduced demand for contract drilling services
attributable to prolonged weakness and volatility in oil and gas prices and
resulting reductions in the exploration and development expenditures of energy
companies.
Costs and Expenses
Contract drilling expenses of $29,189,000 in 1992 represented a
decrease of $28,928,000 or 50% compared to contract drilling expenses of
$58,117,000 in 1991. This decrease resulted primarily from decreased rig
utilization compared to 1991, offset partially by retaining rig crews on
certain marketed, but idle, rigs to keep such rigs in a work-ready condition.
18
<PAGE> 21
Depreciation and amortization expense in 1992 decreased $4,925,000 or
29% from $17,240,000 to $12,315,000 compared to 1991. The decrease was due
primarily to (i) the reclassification of three rigs to assets held for sale as
of May 1992, as well as the subsequent sale of one of those rigs and (ii) the
return of seven rigs to MarAd during May and June 1992 pursuant to the Storm
Drilling Restructuring.
General and administrative expenses in 1992 decreased by $2,883,000 or
29% from $9,786,000 to $6,903,000 compared to 1991. General and administrative
expenses decreased primarily as a result of cost savings related to reductions
in staff, the combination of the corporate and marketing offices and the
reversal of previously recorded compensation expense related to stock options
expiring in 1992. These reductions were offset partially by expenses incurred
in 1992 related to the Recapitalization and the Marine 7 Litigation.
Rig writedown expense of $68,320,000 consisted of three transactions:
(i) write-down in connection with the Storm Drilling Restructuring of seven
rigs financed by MarAd ($59,447,000); (ii) the reclassification of three rigs
to assets held for sale resulting in a writedown of $8,581,000; and (iii) the
sale of a rig in which the Company held a 50% interest resulting in a writedown
of $292,000.
Interest Expense
Interest expense decreased $4,613,000 or 32% from $14,340,000 in 1991
to $9,727,000 in 1992. The decrease resulted primarily from decreased debt and
lower interest rates.
Interest Income
Interest income decreased $950,000 or 91% from $1,049,000 in 1991 to
$99,000 in 1992. The decrease resulted primarily from fewer funds available
for investment and lower interest rates.
Other Income and Expense
Other income (net) for 1992 was $429,000 compared to other expense
(net) for 1991 of $2,714,000. Other income in 1992 consisted primarily of
drill pipe sales. The net expense in 1991 resulted primarily from a writedown
of an investment in a rig held for sale, charter fees on two rigs, as well as
the gains on the sale of another rig and the disposal of other assets.
Proceeds from Settlement of Litigation
After payment of legal fees and amounts owing MarAd as a result of the
Storm Drilling Restructuring, the Company recorded income in 1992 of
approximately $2,978,000 in connection with the settlement of the Marine 7
Litigation.
Gains on Early Extinguishment of Debt
Gains on early extinguishment of debt of $104,523,000 in 1992
consisted of three transactions: the Bank One Transaction, the Storm Drilling
Restructuring and the Chase Exchange. Two transactions in June included: (i)
the return of seven rigs having an estimated fair value of $6,700,000 pursuant
to the Storm Drilling Restructuring for debt extinguishment of $52,106,000
resulting in an extraordinary gain of $45,406,000; and (ii) the payment of
$500,000 pursuant to the Bank One Transaction to extinguish debt of $13,942,000
resulting in an extraordinary gain of $13,442,000. The Chase Exchange in
October 1992 consisted of issuing 4,994,752 shares of common stock to lenders
with a fair value of $1.25 per share or $6,244,000 to extinguish debt of
$51,919,000 resulting in an extraordinary gain of $45,675,000.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have audited the consolidated financial statements of Marine
Drilling Companies, Inc. and subsidiaries as listed in Item 14 on page 38. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in Item 14 on page 38.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Marine Drilling Companies, Inc. and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK
Houston, Texas
February 18, 1994
20
<PAGE> 23
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 21,719 $ 9,173
Restricted cash investments 250 250
Accounts receivable - trade (net of allowance of $79
and $97 for 1993 and 1992, respectively) 19,308 8,196
Accounts receivable - other 48 3,763
Prepaid expenses 829 735
Assets held for sale, at estimated net realizable value 25 100
---------- ----------
Total current assets 42,179 22,217
Property and Equipment 87,140 68,848
Less accumulated depreciation 5,295 --
---------- ----------
Property and equipment, net in 1993 81,845 68,848
Other 147 1,163
---------- ----------
$ 124,171 $ 92,228
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 16,157
Accounts payable and accrued expenses 8,647 5,101
Employer's liability claims, current 1,443 1,805
---------- ----------
Total current liabilities 10,090 23,063
Long-Term Debt, non-current -- 5,123
Employer's Liability Claims, non-current 2,288 3,347
Deferred Income Taxes 5,376 --
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 43,682,668 and
38,026,459 shares in 1993 and 1992, respectively 437 380
Common stock restricted (844) --
Additional paid-in capital 91,801 60,315
Retained earnings from January 1, 1993
(deficit of $49,572 as of December 31, 1992
eliminated in quasi-reorganization) 15,023 --
---------- ----------
Total shareholders' equity 106,417 60,695
---------- ----------
Commitments and contingencies
$ 124,171 $ 92,228
========== ==========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 24
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 82,998 $ 31,621 $ 66,686
Costs and Expenses:
Contract drilling 45,330 29,189 58,117
Depreciation and amortization 5,312 12,315 17,240
General and administrative 8,999 6,903 9,786
Rig writedown -- 68,320 --
----------- ---------- ----------
59,641 116,727 85,143
----------- ---------- ----------
Operating income (loss) 23,357 (85,106) (18,457)
----------- ---------- ----------
Other Income (Expense):
Interest expense (580) (9,727) (14,340)
Interest income 518 99 1,049
Other income (expense) 6 429 (2,714)
Proceeds from settlement of litigation -- 2,978 --
----------- ---------- ----------
(56) (6,221) (16,005)
----------- ---------- ----------
Income (Loss) Before Income Taxes
and Extraordinary Items 23,301 (91,327) (34,462)
Income Taxes 8,278 40 --
----------- ---------- ----------
Income (Loss) Before Extraordinary
Items 15,023 (91,367) (34,462)
Extraordinary Item:
Gains on early extinguishments of debt -- 104,523 --
----------- ---------- ----------
Net Income (Loss) 15,023 13,156 (34,462)
Preferred Stock Discount Accretion and
Dividend Requirements -- (6,681) (7,937)
----------- ---------- ----------
Net Income (Loss) Applicable to Common
Shareholders $ 15,023 $ 6,475 $ (42,399)
=========== ========== ==========
Income (Loss) Per Common Share Before
Extraordinary Items $ 0.37 $ (16.84) $ (56.29)
=========== ========== ==========
Extraordinary Gains Per Common Share $ -- $ 17.95 $ --
=========== ========== ==========
Net Income (Loss) Per Common Share $ 0.37 $ 1.11 $ (56.29)
=========== ========== ==========
Weighted Average Common Shares Outstanding 40,936,209 5,822,848 753,276
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 25
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
COMMON STK. RETAINED
COMMON STOCK ADDITIONAL OPTIONS O/S EARNINGS/
-------------------- PAID-IN & RESTRICTED (ACCUM.
SHARES AMOUNT CAPITAL STOCK DEFICIT) TOTAL
------------ ------ ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990 752,466 $ 1,881 $ 92,726 $ 1,613 $ (28,266) $ 67,954
Net loss -- -- -- -- (34,462) (34,462)
Accretion of discount and divi-
dends on preferred stock -- -- (7,937) -- -- (7,937)
Common stock options exercised 1,080 3 185 (148) -- 40
Accrual of compensation expense -- -- -- 1,146 -- 1,146
---------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1991 753,546 1,884 84,974 2,611 (62,728) 26,741
Net income -- -- -- -- 13,156 13,156
Accretion of discount and divi-
dends on preferred stock -- -- (6,681) -- -- (6,681)
Reverse split (1 for 25):
Common stock at $.10 par -- (1,884) 1,876 -- -- (8)
Common stock at $.01 par -- 8 -- -- -- 8
Issuance of common stock to
retire bridge loan 3,270,054 32 4,055 -- -- 4,087
Issuance of common stock
related to reclassification of
14% Cumulative Exchange-
able Preferred Stock 19,369,893 194 63,720 -- -- 63,914
Issuance of common stock in
satisfaction of bank debt 4,994,752 50 6,194 -- -- 6,244
Common stock options -- -- 1,870 (1,870) -- --
Deferred compensation -- -- -- (741) -- (741)
Issuance of common stock
pursuant to rights offering,
net of issuance cost of $511 9,638,214 96 11,441 -- -- 11,537
Quasi-reorganization:
Revaluation of net assets
and liabilities at fair value -- -- (57,562) -- -- (57,562)
Elimination of accumulated
deficit -- -- (49,572) -- 49,572 --
---------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1992 38,026,459 380 60,315 -- -- 60,695
Net income -- -- -- -- 15,023 15,023
Issuance of common stock
related to stock offering 5,000,000 50 28,150 -- -- 28,200
Common stock offering expenses -- -- (422) -- -- (422)
Issuance of restricted common stock 385,000 4 1,122 (1,126) -- --
Accrual of compensation expense -- -- -- 233 -- 233
Forfeitures of restricted common
stock (30,000) -- (49) 49 -- --
Common stock options exercised 261,030 3 324 -- -- 327
Issuance of common stock for
401(k) stock plan 40,105 -- 199 -- -- 199
Pre-quasi-reorganization net
operating loss carryforwards -- -- 1,612 -- -- 1,612
Tax benefits related to common
stock issued pursuant to long
term incentive plan -- -- 490 -- -- 490
Other 74 -- 60 -- -- 60
---------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1993 43,682,668 $ 437 $ 91,801 $ (844) $ 15,023 $ 106,417
========== ======== =========== ========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 26
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 15,023 $ 13,156 $ (34,462)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Extraordinary gains on early extinguishments
of debt -- (104,523) --
Rig writedown -- 68,320 --
Deferred income taxes 5,376 -- --
Pre-quasi-reorganization net operating loss carry-
forwards 1,612 -- --
Tax benefits related to common stock issued
pursuant to long term incentive plan 490 -- --
Depreciation and amortization 5,312 12,315 17,240
Gain on disposition of equipment (462) (233) (993)
Interest notes issued -- 1,949 4,252
Accrual (reversal) of compensation expense, net 233 (741) 1,146
(Increase) decrease in receivables (7,397) (1,367) 7,207
(Increase) decrease in prepaid expenses (94) 55 (476)
Increase (decrease) in payables, accrued
expenses and employer's liability claims 2,324 (388) (4,263)
Increase in accrued interest payable -- 4,601 823
Other 1,076 602 1,770
----------- ---------- ----------
Total adjustments 8,470 (19,410) 26,706
----------- ---------- ----------
Net cash provided by (used in) operating
activities 23,493 (6,254) (7,756)
----------- ---------- ----------
Cash Flows From Investing Activities:
Purchase of equipment (18,329) (80) (3,938)
Proceeds from disposition of equipment 557 757 1,838
----------- ---------- ----------
Net cash provided by (used in) investing
activities (17,772) 677 (2,100)
----------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from sale of common stock 28,200 12,048 --
Proceeds from exercise of stock options 327 -- --
Issuance cost of sale of common stock (422) (511) --
Payments of debt (21,280) (12,277) (8,239)
Proceeds from bridge loan -- Recapitalization -- 4,000 --
Decrease in restricted cash investments -- 6,987 1,603
----------- ---------- ----------
Net cash provided by (used in) financing
activities 6,825 10,247 (6,636)
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 12,546 4,670 (16,492)
Cash and cash equivalents at beginning of period 9,173 4,503 20,995
----------- ---------- ----------
Cash and cash equivalents at end of period $ 21,719 $ 9,173 $ 4,503
=========== ========== ==========
</TABLE>
{Continued}
See notes to consolidated financial statements.
24
<PAGE> 27
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 580 $ 2,603 $ 8,771
Income taxes paid 513 40 --
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Restructuring activities:
In June 1992, the bank indebtedness of one of the
participants under the Mar-Dril, Inc. note with
accrued interest thereon of $1,041 was discharged $ -- $ 13,942 $ --
=========== ========== ==========
In September 1992, the Title XI debt with accrued
interest thereon of $5,062 was discharged pursuant
to the MarAd Settlement in exchange for $6,700
fair value of surrendered rigs $ -- $ 52,106 $ --
=========== ========== ==========
On October 29, 1992, the 1992 Reorganization was
approved by the Company's shareholders, giving
effect to the following transactions:
Conversion of 14% Cumulative Exchangeable
Preferred Stock (including accrued dividends
thereon) to 19,369,893 shares of common stock $ -- $ 63,914 $ --
=========== ========== ==========
Conversion of the Mar-Dril, Inc. bank indebted-
ness balance with accrued interest thereon of
$5,325 net of deferred financing costs for
4,994,752 shares of common stock $ -- $ 51,919 $ --
=========== ========== ==========
Conversion of Bridge Loan indebtedness into
3,270,054 shares of common stock $ -- $ 4,087 $ --
=========== ========== ==========
Other activities:
Accrual of cumulative dividends and accretion of
discount on preferred stock $ -- $ 6,681 $ 7,937
Issuance of 385,000 shares of restricted common
stock $ 1,126 $ -- $ --
Forfeiture of 30,000 shares of restricted common
stock $ (49) $ -- $ --
Issuance of 40,105 shares to employee retirement
plan $ 199 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 28
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) BASIS OF PRESENTATION AND RECAPITALIZATION TRANSACTIONS
Basis of Presentation
Marine Drilling Companies, Inc. ("Company") became a holding company
on March 13, 1990 through a reorganization and acquisition plan ("Keyes
Merger") pursuant to which Mar-Dril, Inc. ("Mar-Dril") acquired various
corporations and partnerships in which Mr. William O. Keyes had direct or
indirect interests ("Keyes Entities"). In the Keyes Merger, Mar-Dril and the
Keyes Entities became wholly-owned subsidiaries of the Company. During 1993,
the Keyes Entities included Keyes 303, Inc. ("Keyes 303"), Marine 300 Series,
Inc. ("Marine 300 Subsidiary") and Keyes Holding Corporation. In September
1993, Keyes 303 and Marine 300 Subsidiary were merged into Keyes Holding
Corporation. References herein to the Company include its subsidiaries unless
otherwise stated or the context otherwise requires.
Recapitalization Transactions
On June 19, 1992, the Company entered into an agreement with certain
of its lenders and preferred shareholders providing for a significant
recapitalization ("Recapitalization").
On June 19, 1992, $500 was paid to one of Mar-Dril's lenders in
exchange for the discharge of approximately $13,942 of bank indebtedness.
On October 29, 1992, the Recapitalization was approved by the
Company's shareholders and, as a result, the Company's debt (including
interest) and preferred stock obligations were reduced during 1992 by
approximately $187,000 and the Company's rig fleet was substantially reduced.
The Recapitalization included a one-for-twenty-five reverse split of the
Company's $.10 par value common stock into $.01 par value common stock
("Common Stock").
In connection with the approval of the Recapitalization, Mar-Dril's
remaining bank indebtedness and related interest totalling approximately
$51,919 as of September 30, 1992 was completely discharged for approximately
5,000,000 shares of Common Stock which were issued to Mar-Dril's lenders.
The Recapitalization also included the reclassification of the
Company's 14% cumulative exchangeable preferred stock, par value $1.00 per
share ("Old Preferred Stock") with a liquidation preference as of October 29,
1992 of approximately $65,582 into 19,369,893 shares of Common Stock.
The Company sold 9,638,214 shares of Common Stock of which 4,800,000
shares were purchased by three of the Company's principal shareholders pursuant
to a rights offering ("Rights Offering"). The Rights Offering was closed in
December 1992 with the Company receiving net proceeds of approximately $11,537.
As part of the Recapitalization, the Company entered into a $4,000
bridge loan facility with three of its principal shareholders which was
intended to fund the Company's operations through the completion thereof. On
October 29, 1992, the $4,000 principal amount and interest thereon were
exchanged for shares of Common Stock at an exchange price of $1.25 per share.
During 1992 the Company defaulted on all series of its U.S. Government
guaranteed Title XI ("Title XI") ship financing bonds owed by two of its
subsidiaries. The Company transferred custody and financial responsibility for
seven of its eight Title XI financed rigs to the Maritime Administration of the
United States Department of Transportation ("MarAd"), agreed to pay to MarAd
certain additional amounts in connection with certain litigation (see below),
proposed to restructure approximately $2,300 in debt and
26
<PAGE> 29
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pay approximately $460 in consideration for the discharge of approximately
$63,019 in debt and related interest. In September 1992, Mar-Dril; Storm
Drilling Company, a wholly owned subsidiary of Mar-Dril ("SDC"); Marine
Drilling Management Company, a wholly owned subsidiary of the Company
("MDMC"); the Company and MarAd entered into an agreement (the "Storm
Drilling Restructuring"). MarAd agreed to (i) release Mar- Dril from its
limited guarantee of interest on the SDC Title XI debt, (ii) not to take
adverse actions against SDC or any of its affiliates (including Mar-Dril, the
Company and MDMC) or their respective officers and directors with respect to
any deficiencies remaining on the Title XI debt after the foreclosure or sale
of SDC's rigs and (iii) take custody of the SDC rigs. In addition to the
foregoing, MDMC paid approximately $3,802 to MarAd from litigation involving
the MARINE 7.
Quasi-Reorganization
On December 31, 1992, the Company adopted quasi-reorganization
accounting procedures. Quasi-reorganization accounting allowed the Company to
eliminate the accumulated deficit against additional paid-in capital and to
revalue assets and liabilities to estimated fair values. Therefore, the
adoption of quasi-reorganization accounting procedures following the
Recapitalization gave the Company a "fresh start" for accounting purposes.
The adoption of quasi-reorganization accounting procedures resulted in
a decrease to property and equipment of $56,051, a decrease in assets held for
sale of $240, a decrease in other assets of $9,043, a decrease in debt of
$8,054, a decrease in deferred expenses of $145, a decrease in receivables of
$112 and an increase in other liabilities of $25.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries -- Mar-Dril, MDMC, Marine Drilling
International, Inc., Keyes Holding Corporation and Drilling Services Supply
Company.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Operations
As of December 31, 1993, the Company's fleet consisted of 12 jack-up
rigs, 11 of which are owned by the Company and one of which is operated by the
Company under a charter agreement expiring in February 1995.
Property and Equipment
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption of
quasi-reorganization accounting procedures. Depreciation is provided on the
straight-line method over the estimated remaining useful lives of the assets
which are as follows:
Years
-------
Jack-up rigs 5 to 15
Drill string 4
Other equipment 5
27
<PAGE> 30
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repairs amounted to $8,030, $1,943 and $8,593 in 1993,
1992 and 1991, respectively. Expenditures for major renewals and betterments
are capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred. When property or equipment is retired, the related assets
and accumulated depreciation are removed from the accounts and a gain or loss
is reflected in other income (expense). The Company continues to depreciate
idle drilling equipment using the same rates.
Goodwill Amortization
Goodwill recognized in the prior years' acquisitions of minority
interests in Mar-Dril affiliates and the 1990 acquisition of the Keyes Entities
was amortized over 15 years. Such amortization expense amounted to $791 in
1992 and $1,056 in 1991. All goodwill was eliminated at December 31, 1992 in
connection with the adoption of quasi-reorganization accounting procedures.
Employer's Liability Claims
Employer's liability claims, principally arising from actual or
alleged personal injuries, are estimates of the Company's liabilities for such
occurrences. These claims are classified as current or long-term based upon
the periods in which such claims are expected to be funded.
Deferred Financing Costs
Deferred financing costs are amortized over the life of the related
debt. All such costs, amounting to $1,003, were eliminated at December 31,
1992 in connection with the adoption of quasi-reorganization accounting
procedures or were written off in connection with early extinguishments of
debt.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement 109 required a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability method
of accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Effective December 31, 1992, in conjunction with the adoption of
quasi-reorganization accounting procedures, the Company adopted Statement 109.
The change in the method of accounting for income taxes had no cumulative
effect on the 1992 consolidated statements of operations. Pursuant to the
deferred method under APB Opinion 11, which was applied during 1992 and prior
years, deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the calculation. Under
the deferred method, deferred taxes are not adjusted for subsequent changes in
tax rates.
Revenue Recognition
Drilling revenues are recorded pursuant to day rate contracts, under
which the Company receives a fixed amount per day for providing drilling
services using the rigs it operates.
28
<PAGE> 31
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash Equivalents
Cash equivalents of $21,396 and $8,600 at December 31, 1993 and 1992,
respectively, consist of loan participations, Eurodollar investments, mortgage
backed and corporate debt securities. Their carrying value is a reasonable
approximation of their fair value. For purposes of the statement of cash
flows, the Company generally considers all investments with an original
maturity of three months or less at date of purchase and other highly liquid
investments readily convertible to determinable amounts of cash, excluding
restricted cash investments, to be cash equivalents.
Income (Loss) Per Common Share
Income (loss) per common share is based on the weighted average number
of common shares outstanding and common stock equivalents, if dilutive. For
the years ended December 31, 1992 and 1991, the net income (loss) applicable to
common shareholders has been adjusted to reflect the dividends on and the
accretion of discount on Old Preferred Stock. Net income per common share for
the year ended December 31, 1993 does not include the effect of outstanding
stock options as the potential dilution from their exercise is less than three
percent.
Reclassification of Accounts
Certain reclassifications have been made to the 1992 and 1991
consolidated financial statements to conform with the current presentation.
Restricted Cash Investments
Restricted cash investments consist primarily of funds held in a cash
collateral account required to secure employer's liability claims.
Concentrations of Credit Risk
The market for the Company's services and products in the offshore oil
and gas industry, and the Company's customers consist primarily of independent
and major oil and gas companies. The Company performs ongoing credit
evaluations of its customers and obtains collateral security as deemed prudent.
The Company has established an adequate allowance for bad debts, and such
losses have been within management's expectations (see Note 9).
At December 31, 1993 and 1992, the Company had cash deposits
concentrated primarily in two major banks. In addition, the Company had
certificates of deposits, commercial paper and Eurodollar time deposits with a
variety of companies and financial institutions with strong credit ratings, and
generally hold such securities until maturity. The Company believes that
credit and market risk in such instruments is minimal.
29
<PAGE> 32
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption of
quasi-reorganization accounting procedures, and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Jack-up rigs . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,133 $ 67,300
Drill string . . . . . . . . . . . . . . . . . . . . . . . . . . 1,704 1,344
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . 303 179
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . -- 25
--------- ---------
$ 87,140 $ 68,848
========= =========
</TABLE>
Depreciation expense was $5,312, $11,030 and $15,463 for the years
ended December 31, 1993, 1992 and 1991, respectively. The Company rents
drilling rigs, certain equipment and other property under operating leases.
Rental expense was $936, $1,013 and $1,658 in 1993, 1992 and 1991,
respectively.
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . $ 4,425 $ 2,934
Accrued payroll and related taxes . . . . . . . . . . . . . . . . 2,283 400
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . 1,939 1,767
--------- ---------
$ 8,647 $ 5,101
========= =========
</TABLE>
(5) DEBT OBLIGATIONS
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Marine 300 Subsidiary note payable to bank . . . . . . . . . . . . . . . . . $ -- 6,927
Keyes 303 notes payable to banks . . . . . . . . . . . . . . . . . . . . . . -- 11,284
Note payable to MarAd . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,069
--------- ---------
-- 21,280
--------- ---------
Less:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . -- 16,157
--------- ---------
Long-term debt, non-current . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 5,123
========= =========
</TABLE>
30
<PAGE> 33
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marine 300 Subsidiary - Note Payable to Bank
During 1991 and through August 12, 1992, the Marine 300 Subsidiary
note payable to a bank accrued interest at the lender's reference rate plus
three-quarters of one percent. This loan was secured by two drilling rigs,
including their respective drilling contracts and related receivables, and by a
cash collateral account. Amounts on deposit in a cash collateral account were
seized by the lender in February 1992 and were applied against the Marine 300
Subsidiary indebtedness. In August 1992, the debt of the Marine 300 Subsidiary
was restructured. Pursuant to that restructuring, $2,030 of the note was paid
and $40 applied to principal from a cash collateral account with the remaining
principal balance due April 30, 1993. Interest accrued at the lender's prime
rate plus one and one-quarter percent and was payable monthly. In connection
with the restructuring, all defaults were cured. On March 31, 1993, the Marine
300 Subsidiary note was again restructured by (i) extending the maturity to
March 31, 1994, (ii) prepaying the principal to reduce the balance to $6,720,
(iii) adjusting the interest rate to prime plus one and one-half percent, (iv)
paying a restructuring fee of $67 and (v) providing for the amortization of
principal through monthly prepayments of $560 each. In July 1993, the
remaining principal balance of $5,040 was prepaid in full.
Keyes 303 - Notes Payable to Banks
The Keyes 303 notes payable to banks accrued interest at the lender's
reference rate plus one and one-fourth percent. Amounts on deposit in a cash
collateral account were seized by the lender in February 1992 and were applied
against the Keyes 303 indebtedness. In August 1992, the debt of Keyes 303 was
restructured. Pursuant to that restructuring, $2,000 of the note was paid with
the remaining principal balance due April 30, 1993. In connection with the
restructuring, all defaults were cured. On March 31, 1993, the Keyes 303 note
was again restructured by (i) extending the maturity to March 31, 1994, (ii)
prepaying the principal to reduce the balance to $3,280, (iii) adjusting the
interest rate to prime plus one and one-half percent, (iv) paying a
restructuring fee of $33 and (v) providing for the amortization of principal
through monthly prepayments of $273 each. In July 1993, the remaining
principal balance of $2,460 was prepaid in full.
Note Payable to MarAd
On July 14, 1992, Marine 200 Subsidiary filed for protection under
Chapter 11 of the United States Bankruptcy Code in connection with the
restructuring of its indebtedness to MarAd which as of December 31, 1992 was
approximately $10,913 including related interest. The net book value of the
rig owned by Marine 200 Subsidiary was reduced to approximately $2,300 pursuant
to the Chapter 11 reorganization and the quasi-reorganization. The reduction
in the debt from its original face amount of approximately $11,000 was
reflected in these financial statements as part of the quasi-reorganization.
The Chapter 11 plan of reorganization of the Marine 200 Subsidiary was
confirmed by the U.S. Bankruptcy Court on March 16, 1993 after the plan was
unanimously approved by its creditors. The restructuring of the Title XI debt
was also completed as of March 31, 1993, at which time all defaults were cured.
That restructuring involved the issuance of notes totaling approximately $2,890
and a cash payment of approximately $230. The notes were prepaid in full in
August 1993.
31
<PAGE> 34
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1993 1992 1991
------- -------- -------
<S> <C> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . $ 408 $ -- $ --
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 40 --
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . 380 -- --
-------- ------- -------
800 40 --
-------- ------- -------
Other:
U.S. federal - deferred . . . . . . . . . . . . . . . . . . 5,376 -- --
Pre-quasi-reorganization net operating loss carry-
forwards . . . . . . . . . . . . . . . . . . . . . . . . . 1,612 -- --
Tax benefits related to common stock issued
pursuant to long term incentive plan . . . . . . . . . . . 490 -- --
-------- ------- -------
7,478 -- --
-------- ------- -------
Total tax provision . . . . . . . . . . . . . . . . . . . . . . $ 8,278 $ 40 $ --
======== ======= =======
</TABLE>
As a result of the adoption of quasi-reorganization accounting
procedures on December 31, 1992, the tax effect of the realization of tax
attributes generated prior thereto are recorded directly to shareholders'
equity and are not reflected as a reduction of income tax expense.
For the year ended December 31, 1993, 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 December
31, 1993 and 1992 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . $ 33,312 $ 38,919
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . 15,463 12,546
Employer's liability claims . . . . . . . . . . . . . . . . . . . . . 1,306 1,752
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . 166 --
--------- ---------
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . 50,247 53,217
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . (42,209) (39,594)
--------- ---------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . 8,038 13,623
--------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 11,393 11,313
Deferred intercompany gains and losses . . . . . . . . . . . . . . . 2,021 2,310
--------- ---------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . 13,414 13,623
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . $ 5,376 $ --
========= =========
</TABLE>
32
<PAGE> 35
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets as of December 31,
1993 and 1992 was $42,209 and $39,594, respectively. The net change in the
total valuation allowance for the years ended December 31, 1993 and 1992 was an
increase of $2,615 and $39,594, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon projections for future taxable income over the periods
which the deferred tax assets are deductible and the Section 382 limitation as
discussed below, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1993.
At December 31, 1993, the Company had net operating loss carryforwards
for federal income tax purposes of $95,176 which are available to offset future
federal taxable income, if any, through 2007. The Company also had investment
tax credit and general business credit carryforwards for federal income tax
purposes of approximately $15,463 (including $1,844 which are subject to the
limitation as to their use imposed in connection with the 1989 Ownership Change
as discussed below) at December 31, 1993 which are available to reduce future
federal income taxes, if any, through 2000.
The Company has taken the position that the Recapitalization did not
cause an ownership change under Section 382 of the Internal Revenue Code of
1986, as amended ("Code"). The Company's position is based on the
applicability of Section 382(l)(3)(C) of the Code, which provides generally
that any change in the proportionate ownership attributable solely to
fluctuations in relative fair market value of different classes of stock are
not to be taken into account for purposes of Section 382. To date, neither the
Internal Revenue Service nor the United States Department of Treasury has
established any rules or guidance as to how such Section will be interpreted or
applied to situations similar to the Recapitalization. Accordingly, there can
be no assurance that an ownership change for purposes of Section 382 will not
be deemed to have occurred as a result of the Recapitalization. If an
ownership change were deemed to have occurred, the utilization of the Company's
net operating losses, against its future income, if any, would be limited
annually to approximately $1,500. Since such limitation would be less than the
Section 382 limitation (approximately $9,000) imposed as a result of the
Company's 1989 sale of Common Stock which resulted in an ownership change
("1989 Ownership Change") pursuant to Section 382 of the Code, the Section
382 limitation imposed in connection with the Recapitalization would apply to
all net operating losses applicable to the period before the Recapitalization.
(7) LONG TERM INCENTIVE PLANS
Discontinued Plans
In 1987, the Company adopted a Stock Appreciation Rights plan ("SAR
Plan"), for certain officers and key employees, which could grant up to 28,800
stock appreciation rights ("SARs"). During 1989 the Company elected not to
grant additional SARs and adopted the Marine Drilling Company 1989 Stock Option
Plan ("1989 Plan"), which provided for the issuance, to key employees and
officers, of options to purchase up to 28,800 shares of Old Common Stock. On
September 29, 1989, all holders who were permitted to do so converted their
SARs (18,720 SARs) into stock options.
In conjunction with the Keyes Merger, the Company assumed the
obligations of the 1989 Plan and adopted the Marine Drilling Companies, Inc.
1990 Stock Option Plan ("1990 Plan"), in substantially the same form as the
1989 Plan, covering 10,080 shares.
From inception to October 29, 1992, no SARs were exercised, 1,080 of
the 1989 options were exercised, 5,400 of the 1989 options were forfeited and
680 of the 1990 options were forfeited and were available for future grant.
33
<PAGE> 36
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Previously recorded compensation expense ($741) related to the stock
options was reversed during 1992 for options which expired during 1992.
Compensation expense charged (or credited) to operations relating to the stock
options for 1992 and 1991 was $(741) and $1,146, respectively.
Adoption and Implementation of New Plan
On September 14, 1992, the Company's Board of Directors adopted the
Marine Drilling 1992 Long Term Incentive Plan ("1992 Plan"), which was
subsequently approved by the shareholders on October 29, 1992. Pursuant to the
terms of the 1992 Plan, an aggregate of 10,000,000 shares (subject to the
restrictions described herein) of Common Stock are available for distribution
pursuant to stock options, SARs and restricted stock. The number of shares of
Common Stock available for distribution as described above is further limited
in that no stock options, SARs or restricted stock may be issued if,
immediately after such issuance, the number of shares subject to stock options,
SARs and restricted stock awards would exceed 5% of the Common Stock then
outstanding. The shares of Common Stock subject to any stock option or SAR
that terminates without a payment being made in the form of Common Stock would
again become available for distribution pursuant to the 1992 Plan. During
1993, the Company issued 385,000 shares of restricted Common Stock.
Compensation expense related to the issuance of restricted Common Stock for the
year ended December 31, 1993 was $233. During 1993, 30,000 shares of
restricted Common Stock were forfeited.
Holders of SARs granted under the 1987 SAR Plan and options granted
under the 1989 Plan and the 1990 Plan have surrendered such SARs and options in
exchange for options under the 1992 Plan. The 1987 SAR Plan, the 1989 Plan and
the 1990 Plan have been terminated.
During the fourth quarter 1992, 1,440 SARs outstanding under the 1987
SAR Plan and 21,640 shares subject to option under the 1989 and 1990 Plans were
exchanged for 23,080 shares subject to option at $1.25 per share under the 1992
Plan. Additionally, options for 1,590,000 shares exercisable at $1.25 were
granted on November 3, 1992 and options for 190,000 shares exercisable at $6.00
were granted on June 29, 1993. All such options expire November 2002 and June
2003, respectively, unless earlier exercised. During 1993, 261,030 shares were
exercised at $1.25 per share and options for 1,400 shares were forfeited.
<TABLE>
<S> <C>
Options outstanding - December 31, 1992 . . . . . . . . . . . . . . . . . . . . 1,613,080
Granted - June 29, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,400)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261,030)
------------
Options outstanding - December 31, 1993 . . . . . . . . . . . . . . . . . . . . 1,540,650
============
</TABLE>
The following table sets forth the shares subject to options
outstanding under the 1992 Plan at December 31, 1993:
<TABLE>
<CAPTION>
EXERCISE EXERCISE
PRICE/SHARE PRICE/SHARE
@ $1.25 @ $6.00 TOTAL
----------- ----------- ------------
<S> <C> <C> <C>
Fully vested and exercisable . . . . . 158,150 -- 158,150
Vesting during 1994 . . . . . . . . . 397,500 47,500 445,000
Vesting during 1995 . . . . . . . . . 397,500 47,500 445,000
Vesting during 1996 . . . . . . . . . 397,500 47,500 445,000
Vesting during 1997 . . . . . . . . . -- 47,500 47,500
---------- ---------- ----------
Total . . . . . . . . . . . . . . . 1,350,650 190,000 1,540,650
========== ========== ==========
</TABLE>
34
<PAGE> 37
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based upon Common Stock outstanding as of December 31, 1993 and 1992
and shares reserved for issuance as set forth above, the number of shares then
available for future stock options, SARs and restricted stock grants was
404,870 and 388,312 shares, respectively.
(8) RELATED PARTY TRANSACTIONS
The Company has performed services directly for Newfield Exploration
Company ("Newfield") and indirectly for Newfield's customers. Amounts
received directly from Newfield were $-0-, $515 and $188 during 1993, 1992 and
1991, respectively. Amounts received indirectly from Newfield's customers were
approximately $526, $774 and $2,523 during 1993, 1992 and 1991, respectively.
One of the Company's directors is also a director of Newfield.
The Company has performed services for Brooklyn Union Exploration
Company, Inc. ("Brooklyn"), the operator of certain oil and gas properties
with respect to which Smith Offshore Exploration Company ("Smith")
participates as a working interest owner. During 1993, 1992 and 1991, the
Company recorded revenues of $5,165, $1,356 and $5,312, respectively, from
Brooklyn. Aeneas, a principal shareholder of the Company, is a principal
shareholder and creditor of Smith. In addition, Mr. Eisenson, a director of
the Company, is an officer and director of Aeneas.
In connection with the Recapitalization, the Company entered into a
loan agreement ("Bridge Loan") with three of its significant shareholders.
The Bridge Loan provided for the Company to borrow up to $4,000 at 10%. On
October 29, 1992, concurrently with the Recapitalization, the Company issued
3,270,054 shares of Common Stock in full satisfaction of the loan balance of
$4,000 and accrued interest thereon.
(9) GEOGRAPHIC AREA ANALYSIS AND MAJOR CUSTOMERS
The following table summarizes geographic area operating revenues and
operating income for the year ended December 31, 1993, and identifiable assets
by geographic area at year-end 1993:
<TABLE>
<CAPTION>
UNITED STATES MEXICO CONSOLIDATED
------------- ------------ ------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 59,539 $ 23,459 $ 82,998
Operating income . . . . . . . . . . . . . . 14,819 8,538 23,357
Identifiable assets . . . . . . . . . . . . 65,248 35,905 101,153
</TABLE>
There were no significant international operations in the years 1992
or 1991.
The Company conducts business in one industry segment, oil and gas
well contract drilling. The Company negotiates drilling contracts with a
number of customers for varying terms, and management believes it is not
dependent upon any single customer. For the years 1993, 1992 and 1991, sales
to customers that represented 10% or more of consolidated drilling revenues
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Perforadora Faja de Oro, S.A. de C.V. . . . . . . . . . 23% * *
Seagull Energy E&P, Inc. . . . . . . . . . . . . . . . . 21% * *
Shell Offshore, Inc. . . . . . . . . . . . . . . . . . . * 14% 18%
The Louisiana Land & Exploration Company . . . . . . . . * * 13%
</TABLE>
* Less than 10%
35
<PAGE> 38
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As is typical in the industry, the Company does business with a
relatively small number of customers at any given time. The loss of any one of
such customers could, at least on a short-term basis, have a material adverse
effect on the Company's profitability. Management believes, however, that at
current levels of drilling activity, the Company would have alternative
customers for its services if it lost any single customer and that the loss of
any one customer would not have a material adverse effect on the Company on a
long-term basis.
(10) COMMITMENTS AND CONTINGENCIES
Operating Leases
Aggregate future minimum rental payments relating to operating leases
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Office and equipment leases . . . . $ 475 $ 204 $ 16 $ 2
====== ======= ======= ======
</TABLE>
(11) UNAUDITED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly consolidated financial information
for 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 17,596 $ 20,179 $ 20,906 $ 24,317
Operating income . . . . . . . . . . . . . . . 4,276 4,781 5,832 8,468
Income before income taxes . . . . . . . . . . 4,038 4,634 6,071 8,558
Income taxes . . . . . . . . . . . . . . . . . 1,373 1,576 2,223 3,106
Net income . . . . . . . . . . . . . . . . . . 2,665 3,058 3,848 5,452
Net income per common share . . . . . . . . . $ 0.07 $ 0.08 $ 0.09 $ 0.13
Weighted average shares outstanding . . . . . 38,276,625 38,422,195 43,416,551 43,546,937
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1992 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 6,033 $ 5,538 $ 7,714 $ 12,336
Operating loss . . . . . . . . . . . . . . . . (6,089) (70,558) (6,546) (1,913)
Net income (loss) . . . . . . . . . . . . . . (9,276) (60,228) 36,334 46,326
Net income (loss) applicable to common
shareholders . . . . . . . . . . . . . . . (11,431) (62,453) 34,033 46,326
Extraordinary item . . . . . . . . . . . . . . -- 13,442 45,406 45,675
Net income (loss) per common share
before extraordinary items . . . . . . . . . (15.17) (100.72) (15.09) 0.03
Extraordinary gain per common share . . . . . -- 17.84 60.25 2.18
Net income (loss) per common share . . . . . . $ (15.17) $ (82.88) $ 45.16 $ 2.21
Weighted average shares outstanding . . . . . 753,546 753,546 753,546 20,920,553
</TABLE>
36
<PAGE> 39
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Results of operations during 1993 were generally improved compared to
1992 periods. These improvements were due primarily to improved rig
utilization and day rates resulting from increases in natural gas prices from
early 1992 levels. The 1993 results were also positively affected by the
Company's redeployment of three of its rigs to the Bay of Campeche offshore
Mexico.
Utilization rates of the Company's rigs during the first, second and
third quarters of 1992 reflected depressed industry conditions in the U.S. Gulf
of Mexico drilling market. During the second quarter of 1992, the Company
recorded a rig writedown of $65,822 related to the anticipated disposition of
seven rigs financed by MarAd and the writedown to net realizable value of three
rigs to be held for sale. Also, during that quarter the Company paid a lender
$500 in connection with the Mar-Dril debt restructuring (see Note 1) and
recorded early extinguishment of debt of $13,942 and a related gain of $13,442.
During the third quarter of 1992 the Company (i) accrued an additional $1,300
of general and administrative expense to reflect the costs associated with
certain litigation and the Recapitalization, (ii) recognized a loss in the
accompanying Consolidated Statements of Operations of $2,500 to reflect the
further impairment of the values of the rigs owned by SDC and (iii) recorded an
extraordinary gain of $45,406 reflecting the gain associated with the early
extinguishment of Title XI debt of SDC pursuant to the Storm Drilling
Restructuring (see Note 1). During the fourth quarter of 1992, the Company's
rig utilization and day rates increased dramatically from earlier levels,
resulting in improved operating results.
37
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the Registrant's Proxy Statements
relating to its annual meeting of Shareholders to be held May 4, 1994, which
will be filed by the Registrant with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year. Also reference is made
to the information contained under the captioned "Executive Officers of
Registrant" contained in Part I hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included in Part II, Item 8:
<TABLE>
<CAPTION>
(1) Consolidated Financial Statements
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheets at December 31, 1993 and 1992 . . . . . . . . . . . . 21
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 1993 . . . . . . . . . . . . . . . 22
Consolidated Statements of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1993 . . . . . . . . . . 23
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1993 . . . . . . . . . . . . . . . 24
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 26
(2) Financial Statement Schedules for each of the years in the three-year
period ended December 31, 1993:
Schedule V - Property and Equipment . . . . . . . . . . . . . . . . . . . . . 41
Schedule VI - Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
All other schedules are omitted because they are not required or are
not applicable.
38
<PAGE> 41
(3) Exhibits:
Exhibit
Number
------
3.1 Restated Articles of Incorporation of Marine Drilling
Companies, Inc. (Incorporated by reference to Exhibit 28.17 to
the Current Report on Form 8-K of the Registrant dated October
30, 1992.)
3.2 Amended and Restated Bylaws of Marine Drilling Companies, Inc.
(Incorporated by reference to Exhibit 28.18 to the Current
Report on Form 8-K of the Registrant dated October 30, 1992.)
10.1 Keyes Noncompetition Agreement, dated as of March 13, 1990,
between the Registrant and William O. Keyes. (Incorporated by
reference to Exhibit 10.12 to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31,
1989.)
++ 10.6 Bonus Agreement, dated November 18, 1991, among Marine
Drilling Management Company, Marine Drilling Companies, Inc.
and William O. Keyes. (Incorporated by reference to Exhibit
10.23 to the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1991.)
++ 10.7 Bonus Agreement, dated November 18, 1991, among Marine
Drilling Management Company, Marine Drilling Companies, Inc.
and William H. Flores. (Incorporated by reference to Exhibit
10.24 to the Annual Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1991.)
* ++ 10.8 Amendment dated October 27, 1993 to the Bonus Agreement dated
November 18, 1991, among Marine Drilling Management Company,
Marine Drilling Companies, Inc. and William O. Keyes.
* ++ 10.9 Amendment dated October 27, 1993 to the Bonus Agreement dated
November 18, 1991, among Marine Drilling Management Company,
Marine Drilling Companies, Inc. and William H. Flores.
10.12 Reorganization Agreement concerning Marine Drilling Companies,
Inc., dated June 19, 1992, among Marine Drilling Companies,
Inc., Mar-Dril, Inc., The Chase Manhattan Bank (National
Association), Corpus Christi National Bank, Bank One, Texas,
N.A., Energy Management Corporation, Randall D. Smith,
Trustee, Kathryn Sladek Smith Trust Article Third B, II of
Last Will and Testament of Kathryn Sladek Smith, Warburg,
Pincus Capital Company, L.P., Aeneas Venture Corporation,
Capricorn Investors, L.P. and solely for certain limited
purposes, William O. Keyes. (Incorporated by reference to
Exhibit 28.4 to the Current Report on Form 8-K of the
Registrant dated June 23, 1992.)
10.13 Amendment Number 1 to the Reorganization Agreement, dated as
of August 3, 1992. (Incorporated by reference to Exhibit 28.5
to the Current Report on Form 8-K of the Registrant dated
September 14, 1992).
10.14 Amendment Number 2 to the Reorganization Agreement, dated as
of August 7, 1992. (Incorporated by reference to Exhibit 28.6
to the Current Report on Form 8-K of the Registrant dated
September 14, 1992).
39
<PAGE> 42
10.15 Settlement Agreement dated as of September 2, 1992 among Storm
Drilling Company, Mar-Dril, Inc., Marine Drilling Management
Company, Marine Drilling Companies, Inc. and the United States
of America, represented by the Secretary of Transportation
acting by and through the Maritime Administrator.
(Incorporated by reference to Exhibit 28.14 to the Current
Report on Form 8-K of the Registrant dated September 25,
1992).
10.16 Amendment No. 1 dated as of September 30, 1992, to Settlement
Agreement among Storm Drilling Company, Mar-Dril, Inc., Marine
Drilling Management Company, Marine Drilling Companies, Inc.
and the United States of America, represented by the Secretary
of Transportation acting by and through the Maritime
Administrator.
10.17 Release dated October 19, 1992 issued by the United States
Secretary of Transportation acting by and through the Maritime
Administrator. (Incorporated by reference to Exhibit 28.16 to
the Current Report on Form 8-K of the Registrant dated October
19, 1992).
++10.18 The Marine Drilling 1992 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.26 of the Company's
Registration Statement No. 33-52470 on Form S-1).
10.20 Registration Rights Agreement, dated October 29, 1992, among
Marine Drilling Companies, Inc., The Chase Manhattan Bank
(National Association), Corpus Christi National Bank, Bank
One, Texas, N.A., Energy Management Corporation, Randall D.
Smith, Trustee, Kathryn Sladek Smith Trust Article Third B, II
of Last Will and Testament of Kathryn Sladek Smith, Warburg,
Pincus Capital Company, L.P., Aeneas Venture Corporation,
Capricorn Investors, L.P. and William O. Keyes. (Incorporated
by reference to Exhibit 28.19 to the Current Report on Form
8-K of the Registrant dated October 30, 1992.)
10.21 Shareholders' Agreement, dated October 29, 1992, among Marine
Drilling Companies, Inc., The Chase Manhattan Bank (National
Association), Warburg, Pincus Capital Company, L.P., Aeneas
Venture Corporation, Capricorn Investors, L.P. and William O.
Keyes. (Incorporated by reference to Exhibit 28.20 to the
Current Report on Form 8-K of the Registrant dated October 30,
1992.)
* 10.22 Termination and Amendment Agreement (respecting the
Shareholders' Agreement dated October 29, 1992) dated as of
June 18, 1993 by and among Marine Drilling Companies, Inc.,
The Chase Manhattan Bank (National Association), Warburg,
Pincus Capital Company, L.P., Aeneas Venture Corporation,
Capricorn Investors, L.P. and William O. Keyes.
* 21.1 Subsidiaries of the Registrant.
* 23.1 Consent of Independent Certified Public Accountants.
* 24.1 Powers of attorney.
- ---------------
++ Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report.
* Filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1993.
40
<PAGE> 43
SCHEDULE V
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
PROPERTY AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
=================================================================================================================
OTHER BALANCE
BALANCE AT CHANGES AT END
BEGINNING RETIRE- ADDITIONS OF
CLASSIFICATION OF PERIOD ADDITIONS MENTS (REDUCTIONS) PERIOD
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Jack-up Rigs . . . . . . . . $ 67,300 $ 17,733 $ -- $ 100 $ 85,133
Drilling Equipment . . . . . 1,344 464 104 -- 1,704
Other Equipment . . . . . . . 179 132 8 -- 303
Land and Buildings . . . . . 25 -- -- (25) --
----------- --------- -------- ---------- ----------
$ 68,848 $ 18,329 $ 112 $ 75 (1) $ 87,140
=========== ========= ======== =========== ==========
1992
Jack-up Rigs . . . . . . . . $ 370,500 $ -- $ -- $ (303,200) $ 67,300
Drilling Equipment . . . . . 10,632 18 754 (8,552) 1,344
Other Equipment . . . . . . . 2,052 62 106 (1,829) 179
Land and Buildings . . . . . 146 -- -- (121) 25
----------- --------- -------- ---------- ----------
$ 383,330 $ 80 $ 860 $ (313,702) (2) $ 68,848
=========== ========= ======== ========== ==========
1991
Jack-up Rigs . . . . . . . . $ 374,101 $ 1,806 $ 4,778 $ (629) $ 370,500
Drilling Equipment . . . . . 11,262 981 2,270 659 10,632
Other Equipment . . . . . . . 3,003 1,151 2,193 91 2,052
Land and Buildings . . . . . 213 -- 67 -- 146
----------- --------- -------- ----------- ----------
$ 388,579 $ 3,938 $ 9,308 $ 121 (1) $ 383,330
=========== ========= ======== =========== ==========
</TABLE>
- ---------------
(1) Adjustments between categories.
(2) Includes asset writedowns of $195,175; quasi-reorganization adjustments
of $118,396 and other of $131.
See accompanying notes and the notes to the Consolidated Financial Statements
41
<PAGE> 44
SCHEDULE VI
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
==================================================================================================================
OTHER BALANCE
BALANCE AT CHANGES AT END
BEGINNING RETIRE- ADDITIONS OF
CLASSIFICATION OF PERIOD ADDITIONS MENTS (REDUCTIONS) PERIOD
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Jack-up Rigs . . . . . . . . $ -- $ 4,932 $ -- $ -- $ 4,932
Drilling Equipment . . . . . -- 336 16 -- 320
Other Equipment . . . . . . . -- 44 1 -- 43
Land and Buildings . . . . . -- -- -- -- --
----------- --------- -------- ----------- ----------
$ -- $ 5,312 $ 17 $ -- $ 5,295
=========== ========= ======== =========== ==========
1992
Jack-up Rigs . . . . . . . . $ 165,165 $ 10,249 $ -- $ (175,414) $ --
Drilling Equipment . . . . . 6,931 617 363 (7,185) --
Other Equipment . . . . . . . 812 164 76 (900) --
Land and Buildings . . . . . 130 -- -- (130) --
----------- --------- -------- ---------- ----------
$ 173,038 $ 11,030 $ 439 $ (183,629) (2) $ --
=========== ========= ======== ========== ==========
1991
Jack-up Rigs . . . . . . . . $ 159,446 $ 13,886 $ 4,358 $ (3,809) $ 165,165
Drilling Equipment . . . . . 4,431 1,291 1,966 3,175 6,931
Other Equipment . . . . . . . 1,897 271 1,998 642 812
Land and Buildings . . . . . 143 15 28 -- 130
----------- --------- -------- ----------- ----------
$ 165,917 $ 15,463 $ 8,350 $ 8 (1) $ 173,038
=========== ========= ======== =========== ==========
</TABLE>
- ---------------
(1) Adjustments between categories.
(2) Includes asset writedowns of $121,284 and quasi-reorganization
adjustments of $62,345.
See accompanying notes and the notes to the Consolidated Financial Statements
42
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARINE DRILLING COMPANIES, INC.
By William O. Keyes
-----------------------------
William O. Keyes
President
Date: February 24, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
William O. Keyes Chairman of the Board, President February 24, 1994
- --------------------------------------- and Chief Executive Officer
William O. Keyes (Principal Executive Officer)
William H. Flores Senior Vice President, February 24, 1994
- ---------------------------------------- Chief Financial Officer and Director
William H. Flores (Principal Financial Officer)
Joan R. Smith Vice President, Controller February 24, 1994
- --------------------------------------- and Secretary
Joan R. Smith (Principal Accounting Officer)
Michael R. Eisenson* Director February 24, 1994
- -----------------------------------
Michael R. Eisenson
Howard H. Newman* Director February 24, 1994
--------------------------------
Howard H. Newman
James E. Thomas* Director February 24, 1994
- -----------------------------------
James E. Thomas
Herbert S. Winokur, Jr.* Director February 24, 1994
- -----------------------------------
Herbert S. Winokur, Jr.
* By William H. Flores February 24, 1994
-------------------------------
(William H. Flores)
Attorney-in-Fact
</TABLE>
43
<PAGE> 1
EXHIBIT 10.8
AMENDMENT NO. 1
TO
KEYES BONUS AGREEMENT
This Amendment, dated as of the 27th day of October 1993 (the
"Amendment") to the Bonus Agreement, dated November 18, 1991 (the "Agreement"),
among Marine Drilling Management Company (the "Company"), Marine Drilling
Companies, Inc. and William O. Keyes (the "Executive").
WHEREAS, the Executive desires to amend the Agreement to provide that
the Personnel and Compensation Committee of the Board of Directors of the
Company shall have authority, in the event such Committee determines that the
bonus otherwise payable to the Executive may have been reduced due to unusual
trading of the Company's common stock during the valuation period, to select an
alternative method of valuation; and
WHEREAS, in consideration thereof, the Executive is willing to amend
the Agreement to reduce, under certain circumstances, the amount of the cash
bonus payable to the Executive pursuant to Section 2(a) of the Agreement;
NOW, THEREFORE, for good and valuable consideration the parties agree
as follows:
1. A new Section 2(c) is added to the Agreement which
shall be and read as follows:
"(c) Notwithstanding the provisions of the first sentence
of Section 2(a), if the cash bonus otherwise payable to the Executive
pursuant to the provisions of Section 2(a) shall exceed $2,000,000,
such bonus shall be reduced by 100% of the first $480,000 by which
such bonus otherwise payable shall exceed $2,000,000 and by 80% of the
amount of any such excess greater than $2,730,000."
2. The definition of "Fair Market Value" in Section 1 of
the Agreement is amended by adding thereto the following sentence at
the end of the definition:
"Notwithstanding the above provisions, with respect to a
publicly traded security, in the event that on or prior to the date a
valuation is to be made, the Personnel and Compensation Committee of
the Board of Directors of the Company determines that the sale prices
of such security may have been influenced by unusual trading that may
have had the effect of reducing the bonuses that would otherwise have
been payable hereunder had such unusual trading not occurred, such
Committee shall have the authority to select an alternative method of
establishing Fair Market Value based upon trading of the Company's
stock during such period."
<PAGE> 2
IN WITNESS WHEREOF, each of the parties have executed this Amendment as
of the date first above written.
MARINE DRILLING MANAGEMENT COMPANY
By: /s/ William H. Flores
-----------------------------
Name: William H. Flores
Title: Senior Vice President
MARINE DRILLING COMPANIES, INC.
By: /s/ William H. Flores
------------------------------
Name: William H. Flores
Title: Senior Vice President
/s/ W. O. Keyes
------------------------------
William O. Keyes
-2-
<PAGE> 1
EXHIBIT 10.9
AMENDMENT NO. 1
TO
FLORES BONUS AGREEMENT
This Amendment, dated as of the 27th day of October 1993 (the
"Amendment"), to the Bonus Agreement, dated November 18, 1991 (the
"Agreement"), among Marine Drilling Management Company (the "Company"), Marine
Drilling Companies, Inc. and William H. Flores ("Executive").
WHEREAS, the Executive desires to amend the Agreement to provide that
the Personnel and Compensation Committee of the Board of Directors of the
Company shall have authority, in the event such Committee determines that the
bonus otherwise payable to the Executive may have been reduced due to unusual
trading of the Company's common stock during the valuation period, to select an
alternative method of valuation; and
WHEREAS, in consideration thereof, the Executive is willing to amend
the Agreement to reduce, under certain circumstances, the amount of the cash
bonus payable to the Executive pursuant to Section 2(a) of the Agreement;
NOW, THEREFORE, for good and valuable consideration the parties agree
as follows:
1. A new Section 2(c) is added to the Agreement which
shall be and read as follows:
"(c) Notwithstanding the provisions of the first
sentence of Section 2(a), if the cash bonus otherwise payable to the
Executive pursuant to the provisions of Section 2(a) shall exceed
$2,000,000, such bonus shall be reduced by 100% of the first $275,000
by which such bonus otherwise payable shall exceed $2,000,000 and by
80% of the amount of any such excess greater than $2,525,000."
2. The definition of "Fair Market Value" in
Section 1 of the Agreement is amended by adding thereto the following
sentence at the end of the definition:
"Notwithstanding the above provisions, with respect to
a publicly traded security, in the event that on or prior to the date
a valuation is to be made, the Personnel and Compensation Committee of
the Board of Directors of the Company determines that the sale prices
of such security may have been influenced by unusual trading that may
have had the effect of reducing the bonuses that would otherwise have
been payable hereunder had such unusual trading not occurred, such
Committee shall have the authority to select an alternative method of
establishing Fair Market Value based upon trading of the Company's
stock during such period."
<PAGE> 2
IN WITNESS WHEREOF, each of the parties have executed this Amendment as
of the date first above written.
MARINE DRILLING MANAGEMENT COMPANY
By: /s/ W. O. Keyes
---------------------------------
Name: William O. Keyes
Title: President
MARINE DRILLING COMPANIES, INC.
By: /s/ W. O. Keyes
----------------------------------
Name: William O. Keyes
Title: President
/s/ William H. Flores
----------------------------------
William H. Flores
<PAGE> 1
EXHIBIT 10.22
TERMINATION AND AMENDMENT AGREEMENT
THIS TERMINATION AND AMENDMENT AGREEMENT is entered into as of the 18th
day of June, 1993, by and among Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), The Chase Manhattan Bank (National Association)
("Chase"), Warburg, Pincus Capital Company, L.P., a Delaware limited
partnership ("Warburg"), Aeneas Venture Corporation, a Delaware corporation
("Aeneas"), Capricorn Investors, L.P. ("Capricorn") and William O. Keyes
("Keyes").
WHEREAS, the Company, Chase, Warburg, Aeneas, Capricorn and Keyes are
parties to that certain Shareholders' Agreement dated October 29, 1992 (the
"Shareholders' Agreement"); and
WHEREAS, the Company has filed a Registration Statement on Form S-1
(file no. 33-63178) under the Securities Act of 1933, as amended, relating to
the sale of shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), by the Company and the parties to the Shareholders'
Agreement (the "Offering"); and
WHEREAS, upon completion of the Offering, the Company, Chase, Warburg,
Aeneas, Capricorn and Keyes desire to terminate and amend the Shareholders'
Agreement except as set forth herein;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. TERMINATION OF SHAREHOLDERS' AGREEMENT. Immediately following the
consummation of the Offering, the Shareholders' Agreement shall terminate in
its entirety with respect to Chase, Aeneas, Capricorn and Keyes and shall
terminate with respect to Warburg except for Warburg's rights under Section 2.1
and Section 2.2 (as amended hereby) thereof which shall continue in full force
and effect.
2.2 AMENDMENT OF SHAREHOLDERS' AGREEMENT. Immediately following the
consummation of the Offering, Section 2.2 of the Shareholders' Agreement shall,
without any further action by the parties to the Shareholders' Agreement, be
amended to read in its entirety as follows:
"2.2 VACANCIES. In the event of any vacancy or vacancies
caused by the removal, death or resignation of any member of the
Board of Directors of the Corporation who was a nominee
designated by Warburg,
-1-
<PAGE> 2
the Corporation agrees, subject to the fiduciary duties of its
Board of Directors, to use its reasonable best efforts to cause a
person or persons who shall be designated for nomination by Warburg
to be elected to fill such vacancy or vacancies."
3. GOVERNING LAW. The terms of this Agreement shall be subject to and
governed by the laws of the State of Texas, without giving effect to the
principles of conflict of laws thereof.
4. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and supersedes all prior agreement's and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
5. COUNTERPARTS. Counterparts of this Agreement may be executed in
multiple counterparts, each of which shall be an original, but all of which
together shall constitute one and same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MARINE DRILLING COMPANIES, INC.
By: /s/ William H. Flores
-------------------------------
Name: William H. Flores
Title: Senior Vice President
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Kevin D. Slotten
-------------------------------
Name: Kevin D. Slotten
Title: Managing Director
-2-
<PAGE> 3
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: Warburg, Pincus & Co., its general partner
By: /s/ Stephen Distler
-------------------------------------------
Name: Stephen Distler
Title: Partner
AENEAS VENTURE CORPORATION
By: /s/ M. R. Eisenson
-------------------------------------------
Name: Michael R. Eisenson
Title: Partner
CAPRICORN INVESTORS, L.P.
By: /s/ Herbert S. Winokur, Jr.
-------------------------------------------
Name: Herbert S. Winokur, Jr.
Title: President, Winokur Holdings, Inc.
General Partner Of:
Capricorn Holdings, G.P.
General Partner Of:
Capricorn Investors, L.P.
/s/ William O. Keyes
-------------------------------------------
William O. Keyes
-3-
<PAGE> 1
EXHIBIT 21.1
MARINE DRILLING COMPANIES, INC.
Subsidiaries and Partnerships
December 31, 1993
<TABLE>
<CAPTION>
Place of
Incorporation Ownership
Subsidiary/Partnership or Domicile Owner Percentage
-------------------------------------------- ------------- ------------------------------------ ----------
<S> <C> <C> <C>
Mar-Dril, Inc. Texas Marine Drilling Management Company 100%
Marine Drilling Management Company Delaware Marine Drilling Companies, Inc. 100%
Marine Drilling International, Inc. Delaware Marine Drilling Management Company 100%
Keyes Holding Corporation Delaware Marine Drilling Companies, Inc. 100%
Drilling Services Supply Company Texas Marine Drilling Management Company 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-56920) on Form S-8 of Marine Drilling Companies, Inc. of our report
dated February 18, 1994, relating to the consolidated balance sheets of Marine
Drilling Companies, Inc. and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of operations, retained earnings, and cash
flows and related schedules for each of the years in the three-year period
ended December 31, 1993, which report appears in the December 31, 1993 annual
report on Form 10-K of Marine Drilling Companies, Inc.
KPMG PEAT MARWICK
Houston, Texas
February 24, 1994
<PAGE> 1
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1993 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1994,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 15th day of February 1994.
/s/ Michael R. Eisenson
------------------------------
Michael R. Eisenson
<PAGE> 2
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1993 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1994,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 15th day of February 1994.
/s/ Howard H. Newman
------------------------------
Howard H. Newman
<PAGE> 3
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1993 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1994,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 15th day of February 1994.
/s/ James E. Thomas
------------------------------
James E. Thomas
<PAGE> 4
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1993 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1994,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 15th day of February 1994.
/s/ Herbert S. Winokur, Jr.
------------------------------
Herbert S. Winokur, Jr.
