<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER: 0-18309
-------------
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2558926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE SUGAR CREEK CENTER BLVD., SUITE 600, SUGAR LAND, TEXAS 77478-3556
(Address of principal executive offices and zip code)
(713) 243-3000
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT AUGUST 15, 1995 -- 43,840,327
================================================================================
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Consolidated Balance Sheets --
June 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations --
Three and Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 4
Independent Auditors' Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(i)
<PAGE> 3
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,160 $ 18,872
Short-term investments 10,501 18,137
Accounts receivable - trade and other, net 10,470 15,353
Other current assets 1,433 1,020
------------ ------------
Total current assets 35,564 53,382
Property and Equipment 113,212 102,431
Less accumulated depreciation 17,182 13,010
------------ ------------
Property and equipment, net 96,030 89,421
Other assets 267 412
------------ ------------
$ 131,861 $ 143,215
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 5,792 $ 4,137
Employer's liability claims, current 1,262 832
------------ ------------
Total current liabilities 7,054 4,969
Long-Term Debt 10,000 15,000
Employer's Liability Claims, non-current 2,149 2,150
Deferred Income Taxes 5,590 8,365
Commitments and contingencies
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued 44,172,143 and outstanding 43,806,524
shares as of June 30, 1995; issued and outstanding
43,917,766 shares as of December 31, 1994 442 439
Common stock restricted (680) (804)
Treasury stock, at cost (365,619 shares in 1995) (1,357) --
Additional paid-in capital 92,704 92,143
Retained earnings from January 1, 1993 15,959 20,953
Accumulated deficit of $49,572 as of December 31, 1992
eliminated in quasi-reorganization -- --
------------ ------------
Total shareholders' equity 107,068 112,731
------------ ------------
$ 131,861 $ 143,215
============ ============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
1
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 11,825 $ 16,231 $ 24,370 $ 35,045
Costs and Expenses:
Contract drilling 11,567 11,855 25,442 24,940
Depreciation and amortization 2,158 1,901 4,302 3,774
General and administrative 1,132 911 2,884 1,855
------------ ------------- ------------ ------------
14,857 14,667 32,628 30,569
------------ ------------- ------------ ------------
Operating income (loss) (3,032) 1,564 (8,258) 4,476
------------ ------------- ------------ ------------
Other Income (Expense):
Interest expense (159) -- (458) --
Interest income 479 218 937 354
Other income (expense) 8 (85) 94 81
------------ ------------- ------------ ------------
328 133 573 435
------------ ------------- ------------ ------------
Income (loss) before income taxes (2,704) 1,697 (7,685) 4,911
Income tax expense (benefit) (947) 593 (2,691) 1,719
------------ ------------- ------------ ------------
Net income (loss) $ (1,757) $ 1,104 $ (4,994) $ 3,192
============ ============= ============ ============
Income (loss) per common share $ (.04) $ .03 $ (.11) $ 0.07
============ ============= ============ ============
Weighted average common shares
outstanding 43,959,172 43,810,863 43,996,105 43,780,412
============ ============= ============ ============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
2
<PAGE> 5
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (4,994) $ 3,192
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 4,302 3,774
Deferred income taxes (2,775) 1,637
Tax benefits related to common stock issued pursuant to
long-term incentive plan 85 --
Gain on disposition of equipment (118) (382)
Accrual of compensation expense, net 189 217
Changes in operating assets and liabilities:
Receivables 4,883 6,088
Other current assets (413) (388)
Payables, accrued expenses and employer's liability
claims 2,547 (4,449)
Other 105 (754)
------------ ------------
Net cash provided by operating activities 3,811 8,935
------------ ------------
Cash Flows From Investing Activities:
Proceeds from maturities of short-term investments 7,652 --
Purchase of short-term investments, net -- (21,190)
Purchase of equipment (10,988) (1,075)
Proceeds from disposition of equipment 221 456
------------ ------------
Net cash used in investing activities (3,115) (21,809)
------------ ------------
Cash Flows From Financing Activities:
Payments of debt (5,000) --
Proceeds from exercise of stock options 162 --
Purchase of treasury stock (1,570) --
------------ ------------
Net cash used in financing activities (6,408) --
------------ ------------
Net decrease in cash and cash equivalents (5,712) (12,874)
Cash and cash equivalents at beginning of period 18,872 21,969
------------ ------------
Cash and cash equivalents at end of period $ 13,160 $ 9,095
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 517 $ --
Income taxes paid (refunded) $ (1) $ 366
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of 43,500 and 83,000 shares in 1995 and 1994,
respectively, of restricted common stock $ 108 $ 415
Issuance of 148,081 and 57,334 shares in 1995 and 1994,
respectively, to employee retirement plan $ 451 $ 317
Forfeitures of 7,500 and 11,250 shares in 1995, and 1994,
respectively, of restricted common stock $ 43 $ 37
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
3
<PAGE> 6
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
(1) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of Marine Drilling
Companies, Inc. (the ``Company'' or the ``Registrant'') presented herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and notes
required by generally accepted accounting principles for complete financial
statements have been condensed or omitted. In the opinion of management, these
statements include all adjustments (all of which consist of normal recurring
adjustments except as otherwise noted herein) necessary to present fairly the
Company's financial position and results of operations for the interim periods
presented. The financial data for the six months ended June 30, 1995 included
herein has been subjected to a limited review by KPMG Peat Marwick LLP, the
Registrant's independent public accountants, whose report is included herein.
These statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1994. The results of operations for the
six months ended June 30, 1995 are not necessarily indicative of the results of
operations that may be expected for the year.
(2) RECLASSIFICATION OF ACCOUNTS
Certain reclassifications have been made to the 1994 consolidated
financial statements to conform with the 1995 presentation.
(3) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . $ -- $ 25 $ -- $ 81
State . . . . . . . . . . . . . . . . -- -- (1) 1
---------- ---------- ----------- ------------
-- 25 (1) 82
---------- ---------- ----------- ------------
Other:
U.S. federal - deferred . . . . . . . (947) 568 (2,775) 1,637
Tax benefits related to common
stock issued pursuant to long-
term incentive plan . . . . . . . . -- -- 85 --
---------- ---------- ----------- ------------
(947) 568 (2,690) 1,637
---------- ---------- ----------- ------------
Total tax provision (benefits) . . . . . $ (947) $ 593 $ (2,691) $ 1,719
========== ========== =========== ============
</TABLE>
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
For the six months ended June 30, 1995, 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 June 30,
1995 and December 31, 1994 are presented below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . $ 30,954 $ 28,804
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . . . . . . 13,410 13,410
Employer's liability claims . . . . . . . . . . . . . . . . . . 1,194 1,044
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . -- 1
------------ -------------
Total gross deferred tax assets . . . . . . . . . . . . . . . . 45,558 43,259
Less valuation allowance . . . . . . . . . . . . . . . . . . . . (38,438) (38,649)
------------ -------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . 7,120 4,610
------------ -------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation . . . . . . . . . . . . . . . . . . . . . . . 11,167 11,273
Deferred intercompany gains and losses . . . . . . . . . . . . . 1,543 1,702
------------ -------------
Total gross deferred tax liabilities . . . . . . . . . . . . . . 12,710 12,975
------------ -------------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . $ 5,590 $ 8,365
============ =============
</TABLE>
(4) SHORT-TERM INVESTMENTS
Short-term investments are carried at amortized cost, which
approximates market as of June 30, 1995. They primarily consist of U.S.
government or agency issues which are generally held to maturity.
(5) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share for the six months ended June 30,
1995 and 1994 excludes the effect of outstanding stock options inasmuch as the
potential dilution from their exercise is less than three percent.
(6) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising out
of operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position or results of operations.
5
<PAGE> 8
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Marine
Drilling Companies, Inc. and subsidiaries as of June 30, 1995, and the related
consolidated statements of operations and cash flows for the three month and
six month periods ended June 30, 1995 and 1994. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Marine Drilling
Companies, Inc. and subsidiaries as of December 31, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended (not presented here); and in our report dated February 3,
1995, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1994, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
KPMG PEAT MARWICK LLP
Houston, Texas
July 21, 1995
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Marine Drilling Companies, Inc. (collectively with its subsidiaries,
the ``Company'') was incorporated in Texas in January 1990. Since 1966, the
Company or its predecessors has been engaged in offshore contract drilling of
oil and gas wells for independent and major oil and gas companies. As of the
date of this report, the Company owned and operated a fleet of thirteen mobile
offshore jack-up drilling rigs, consisting of four independent leg jack-ups and
nine mat supported jack-ups. On that date, all of the Company's thirteen rigs
were located in the U.S. Gulf of Mexico. The Company's rigs could, with
certain modifications, work in other areas, however, the Company's rigs are not
suitable for those areas, such as the North Sea, that require hostile
environment operating capabilities. In early August 1995, the Company entered
into a one-year term contract for the MARINE 201 off the east coast of India.
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 additional selected international offshore drilling markets. The Company
also intends to seek business combinations and to make acquisitions of
additional drilling rigs which, over the long term, the Company believes will
benefit its shareholders.
INDUSTRY CONDITIONS AND COMPETITION
Demand for offshore drilling services is primarily driven by the
economics of oil and gas exploration, development and production, which in
turn, are closely tied to oil and gas prices. Since the mid-1980's oil and gas
prices have been volatile and generally lower than prices experienced during
the early 1980's. As a result, demand for offshore drilling services has been
volatile and generally lower than during the early 1980's. In addition, during
the late 1970's and early 1980's, the industry built a substantial number of
new offshore drilling rigs. The combination of (i) generally lower oil and gas
prices, (ii) increased rig supply and (iii) lower demand for offshore drilling
services has resulted in many periods of depressed pricing and utilization for
most of the world's offshore drilling markets.
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 these factors.
The magnitude of the Company's contract drilling revenues is dependent
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. As previously stated, this activity is strongly
influenced by the current and projected prices of oil and natural gas.
7
<PAGE> 10
Worldwide Offshore Market Conditions
As discussed later in this section, there was a significant movement of
jack-up rigs during 1993 and 1994 into the U.S. Gulf of Mexico from other
worldwide drilling markets. These mobilizations generally occurred for two
reasons - - (i) strong natural gas prices throughout 1993 and early 1994 led to
increased demand for jack-ups in the U.S. Gulf of Mexico and (ii) oil prices
were generally weak during the latter half of 1993 and the first quarter of
1994 which had a depressing effect on the demand for drilling services in many
jack-up markets outside the U.S. Gulf of Mexico.
The tendency of the offshore drilling industry to ``over-mobilize''
rigs among markets has been exacerbated by the volatile nature of oil and gas
prices since the mid-1980's. As the prices of these commodities fluctuate, oil
and gas companies quickly adjust their drilling budgets to reflect the changed
economics of exploration and production. Thus, a drilling market which is
driven primarily by the exploration and production of only one of those
commodities will generally see a change in the demand for drilling services
triggered by the change in the price of the underlying commodity. These
changes in demand for drilling services often occur quickly and can have
significant magnitude. For example, the weak price of natural gas during most
of 1991 and early 1992 had a significant depressing effect on jack-up demand in
the U.S. Gulf of Mexico during 1991 and early 1992.
During the periods discussed herein, the Company operated primarily in
the U.S. Gulf of Mexico and the Bay of Campeche, offshore Mexico. These
markets are further discussed below. The profitability of offshore drilling in
these markets, as well as most of the world's offshore drilling markets, has
been volatile since the mid-1980's and is expected to remain volatile until the
supply of jack-up rigs and demand therefor move closer to equilibrium levels.
The Company is unable to predict future oil and gas prices or future levels of
offshore drilling activity.
U.S. Gulf of Mexico
The jack-up drilling market in the U.S. Gulf of Mexico is highly
competitive. A significant number of offshore drilling companies have rigs in
this market and, as a result, no one contractor is able to materially affect
pricing levels. Indeed, day rates can and have exhibited major changes on
relatively small changes in the rig supply and demand situation in this market.
Since 1992, demand for jack-up rigs in this market has shown general
improvement. Day rates during this period generally increased until late 1993,
however, they began to decline thereafter. The decline in day rates during
1994 was due primarily to the supply of marketed jack-up rigs growing faster
than the rate of growth of jack-up rig demand. The growth in the marketed
jack-up rig supply was due to two factors -- (i) net rig mobilizations into
this market and (ii) reactivations (primarily during 1993) of previously
noncompetitive rigs.
In late 1994 and early 1995, the price of natural gas deteriorated due
to a mild winter in the U.S. As a result, jack-up rig demand in the U.S. Gulf
of Mexico suffered a decline in early 1995 as compared to 1994. According to
Offshore Data Services, as of August 8, 1995, there were 139 jack-up rigs in
the U.S. Gulf of Mexico of which 111 were contracted (an 80% utilization rate).
Day rates also declined during early 1995 but began to improve during the
second quarter 1995, however, they are still generally lower compared to 1994.
Moreover, as previously discussed, jack-up rigs are mobile and competitors
could move additional rigs from
8
<PAGE> 11
other markets to the U.S. Gulf of Mexico. 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. Such movement or reactivation
could further depress pricing levels.
In general, the Company has reason to believe that business conditions
should improve during the second half of 1995 due to improved jack-up rig
demand and reduced rig supply resulting from rig mobilizations to other
markets.
Bay of Campeche, Offshore Mexico
The Bay of Campeche drilling market experienced rapid growth in rig
demand during the period from late 1992 to mid-1993. Since that time, the
market has shown general deterioration. The Company was able to contract two
of its rigs (the MARINE 301 and MARINE 303) into this market in late 1992 and
another (the MARINE 300) in mid-1993. The first two rigs completed their
contracts in late 1993 and early 1994, respectively, and subsequently returned
to the U.S. Gulf of Mexico. The third rig recently completed its contract,
pursuant to extensions of the initial contract, and returned to the U.S. Gulf
of Mexico in May 1995.
All rigs in the Bay of Campeche were performing drilling services for
Petroleos Mexicanos (``Pemex''), the national oil company of the Republic of
Mexico. Of the rigs working for Pemex in the Bay of Campeche, some were
subject to contracts between the respective drilling contractors and Pemex and
the other rigs were working for turnkey companies which, in turn, have entered
into turnkey drilling contracts with Pemex. The MARINE 300 was contracted to
Industrial Perforadora, S.A. de CV (``IPC'') which, in turn, supplied the rig
and its services to Pemex pursuant to a contract between Pemex and IPC. Each of
the rigs working in Mexico was operating under contracts where the Company was
compensated in U.S. dollars, therefore, the Company was not subject to currency
risks thereunder.
Recently, Mexico's currency, the peso, has suffered a significant
devaluation. In addition, the country is currently suffering a recession due
to the devaluation and other fiscal concerns. If these problems were to
adversely affect Pemex's drilling programs, the demand for jack-up rigs in this
market could further deteriorate.
Assuming that Pemex is able to maintain and/or increase its offshore
drilling activity levels, the Company considers the Bay of Campeche to be a
potentially lucrative market and expects to continue to actively market its
fleet in this area.
Other Markets
At the date of this report, most of the world's other significant
jack-up drilling markets are experiencing improving rig utilization and day
rates. As of August 15, 1995, worldwide jack-up utilization outside of the
U.S. Gulf of Mexico was 90% (221 rigs contracted out of a supply of 246 rigs).
The Company is marketing its rigs in selected international markets in order to
reduce its exposure to the U.S. Gulf of Mexico.
In early August 1995, the Company obtained a one-year term contract for
the MARINE 201 to operate off the east coast of India. That contract includes
options for up to two additional years of work and operations thereunder are
expected to commence in mid-November 1995. The rig is expected to be mobilized
from the Gulf of Mexico to India in mid-September. The cost of mobilization
will be reimbursed by the customer.
9
<PAGE> 12
The following table sets forth certain industry and Company historical
data for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED YEARS ENDED
JUNE 30, JUNE 30, DECEMBER 31,
------------------------ ---------------------- -------------------
1995 1994 1995 1994 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . . . 142 136 141 132 136 116
Working jack-up rigs . . . . . . . 101 102 98 97 103 91
Utilization . . . . . . . . . . . 71% 75% 69% 74% 76% 77%
All other markets:
Total jack-up rigs . . . . . . . . 245 255 248 259 255 277
Working jack-up rigs . . . . . . . 195 193 193 198 192 217
Utilization . . . . . . . . . . . 80% 76% 78% 76% 75% 78%
COMPANY(2):
Total jack-up rigs . . . . . . . . 13 12 13 12 12 11
Working jack-up rigs . . . . . . . 8 9 8 9 10 10
Utilization . . . . . . . . . . . 62% 75% 62% 75% 83% 91%
Non-marketed rigs . . . . . . . . 4 1 3 -- 1 1
Utilization of marketed rigs . . . 86% 82% 80% 79% 87% 97%
Average day rates(3) . . . . . . . $16,621 $19,212 $17,472 $20,981 $19,686 $23,019
</TABLE>
(1) Average of weekly data published by Offshore Data Services.
(2) The numbers included in the table represent the average number of rigs
(rounded to the nearest whole number) operated by the Company for the
periods indicated.
(3) ``Average day rate'' is determined by dividing the total gross revenue
earned by the Company's rigs during a given period by the total number of
days that the Company's rigs were under contract and working during that
period.
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 longer term contracts in Mexico which positively
affected the Company's results of operations in 1993. The Company also
obtained a one-year contract to drill offshore India beginning November 1995.
To the extent available, the Company will continue to focus upon obtaining
foreign and domestic term contracts in the future.
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 1 of this
report.
10
<PAGE> 13
Prior to 1993, the Company derived most of its revenues from contract
drilling in the U.S. Gulf of Mexico. During 1993, the Company operated two to
three rigs in the Bay of Campeche and received a significant amount of revenues
therefrom. During 1994, the Company operated one rig in the Bay of Campeche.
As of the date of this report, the Company had no rigs operating in the Bay of
Campeche.
During 1992 and the first quarter of 1993, the Company completed a
series of related transactions which significantly restructured and
recapitalized the Company (the ``Recapitalization''). Primarily as a result
of the Recapitalization, between January 1, 1992 and early 1993, the Company
eliminated preferred stock obligations of approximately $64,000,000 and
indebtedness of approximately $148,000,000.
The Company's 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.
The Company remained profitable throughout 1994, although profits were
lower than comparable 1993 results due to the effects of (i) increased
competition in the U.S. Gulf of Mexico which adversely affected utilization and
rig pricing in that market, as well as (ii) lower activity levels in the Bay of
Campeche.
During the first half of 1995, the Company posted its first loss after
nine consecutive quarters of profitable operations. This loss was primarily
the result of lower revenues arising from (i) reduced jack-up rig demand and
(ii) increased jack-up rig supply in the U.S. Gulf of Mexico. The Company's
expenses also reflected a small increase (12%) due to an increased number of
owned rigs.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company had working capital at June 30, 1995 of $28,510,000 as
compared to working capital of $48,413,000 at December 31, 1994. The decrease
of $19,903,000 in working capital was due primarily to the repayment of debt
under a revolving credit facility, losses from operations, capital expenditures
and common stock repurchases. Net cash provided by operating activities was
$3,811,000 for the six months ended June 30, 1995 as compared to net cash
provided by operations of $8,935,000 for the six months ended June 30, 1994, a
decrease of $5,124,000 or 57%. Cash used in investing activities was
$3,115,000 for the six months ended June 30, 1995 which resulted primarily from
the maturities of short-term investments of $7,652,000 compared to cash used in
investing activities of $21,809,000 for the six months ended June 30, 1994.
Capital expenditures for the six months ended June 30, 1995 were $10,988,000,
of which approximately $300,000 was used to purchase drill pipe, and the
balance was primarily for rig upgrades as discussed below and the
mobilization/refurbishment of the MARINE 201. Net cash used in financing
activities was $6,408,000 consisting of (i) debt repayments of $5,000,000 and
(ii) common stock repurchases of $1,570,000 net of (iii) proceeds of $162,000
from common stock option exercises.
11
<PAGE> 14
Outlook
In late 1994, the Company commenced a program (the ``Rig Upgrade
Program'') to upgrade the operational capabilities of certain of its rigs
during 1995 and 1996. This program includes the following upgrades: (i)
converting the power systems of selected mechanically powered rigs, (ii) adding
top drive drilling systems to selected mechanically powered rigs, (iii) adding
a top drive drilling system to the MARINE 303 and (iv) possibly other types of
rig upgrades such as (a) water depth increases and (b) additions of cantilever
features to slot type rigs. At the present time, the Company has committed
and/or expended approximately $6,280,000 in connection with this program.
Future expenditures for the Rig Upgrade Program will be subject to the
Company's outlook for drilling market conditions, as well as changes in the
Company's financial condition. Accordingly, the Company may elect to defer or
cancel portions of this program.
The Company continues to pursue the acquisition of additional drilling
rigs to enhance its fleet. As of the date of this report, the Company has no
planned or pending rig acquisitions. Future acquisitions, if any, would likely
be funded from the Company's working capital resources, or through debt and/or
equity financing. The Company cannot predict whether it will be successful in
acquiring additional rigs, and obtaining financing therefor, on acceptable
terms. Depending upon the Company's success in acquiring rigs in the future,
as well as future industry conditions, the Company may elect to defer or
suspend portions of the Rig Upgrade Program discussed in the preceding
paragraph in order to preserve its working capital and financial resources.
As of the date of this report, the Company estimates its remaining 1995
capital expenditures to be approximately $4,000,000 consisting of (i) drill
pipe expenditures of $1,865,000, (ii) a top drive installation for the MARINE
300 which is expected to cost $2,069,000 and (iii) other miscellaneous
expenditures.
On December 1, 1994, Keyes Holding Corporation (``KHC''), a
wholly-owned subsidiary of the Company, entered into a revolving/term loan
agreement (the ``Loan'') with a U.S. financial institution for $35,000,000.
That agreement includes an eighteen-month revolving credit facility which is
convertible at the end of that period into a three-year term loan facility.
The term loan is amortized monthly at the rate of 20% of the initial term loan
amount per year with a balloon payment for the remaining principal (40% of the
initial term loan amount) due at the maturity of the term loan. As of June 30,
1995, the related debt outstanding was $10,000,000 and the amount of unused
line of credit subject to the Loan was $25,000,000. Loan proceeds may be used
to purchase additional jack-up drilling rigs or to make capital improvements to
the Company's existing drilling rig fleet. The Company guarantees up to
$8,750,000 of the borrowings under the loan agreement. The Company anticipates
that it may borrow additional amounts from this facility in 1995 to fund
capital expenditures.
Reduced rig demand in the U.S. Gulf of Mexico drilling market in early
1995 adversely affected the Company's operations and cash flow. As a result,
the Company elected to suspend the marketing of certain rigs. These rigs were
deactivated in a common offshore location and, after preparation for extended
idle time, are maintained periodically by a small maintenance crew. The
Company believes that these actions will benefit cash flow and working capital
during periods of depressed market conditions. The Company reactivated and
modified one of these rigs during the second quarter of 1995. The remaining
rigs are aggressively
12
<PAGE> 15
marketed to maximize cash flow. In addition to the foregoing, the Company will
continue to aggressively control and/or reduce its cost structure.
On March 7, 1995, the Company announced that its Board of Directors had
authorized the repurchase of up to 4,000,000 shares of the Company's common
stock. The action reflects the Company's view that its remaining shareholders
will benefit from such repurchases. The repurchases may be effected, from time
to time, in accordance with applicable securities laws, through solicited or
unsolicited transactions in the market or in privately negotiated transactions.
No limit was placed on the duration of the repurchase program. Subject to
applicable securities laws, such repurchases shall be at such time and in such
amounts as the Company deems appropriate. The Company will fund such
repurchases from working capital. The Company purchased 265,000 shares of
common stock during the second quarter and, as of the date of this report, a
cumulative total of 735,000 shares were purchased to date at an average price
of $3.61 per share.
The Company believes that its projected cash flows and current working
capital resources are sufficient to meet its working capital, debt service,
common stock repurchase program and capital expenditure requirements for the
foreseeable future.
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.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1994
Revenues
Revenues for the six months ended June 30, 1995 decreased $10,675,000
(30%) from $35,045,000 to $24,370,000 compared to the same period in 1994. The
decrease in revenues was the result of three factors -- (i) a 17% decrease in
average day rates from $20,981 in 1994 to $17,472 in 1995, (ii) a decrease in
the number of marketed rigs from 12 in 1994 to 10 in 1995 offset by an increase
in utilization of marketed rigs from 79% in 1994 to 80% in 1995. As of June
30, 1995, the Company had no rigs in the Bay of Campeche, Mexico. Revenues
from the Bay of Campeche market decreased $1,359,000 (36%) from $3,824,000
during the 1994 period to $2,465,000 for the same period in 1995. Revenues
from the Bay of Campeche market accounted for 10% of the Company's revenues in
1995 compared to 11% in 1994. This decrease is the result of (i) the Company
having a reduced average number of rigs in this market in 1995 as compared to
1994 and (ii) the MARINE 300 was out of service during early 1995 for required
inspections. In addition, the MARINE 300 completed its contract and returned
to the U.S. Gulf of Mexico in May 1995.
Costs and Expenses
Contract drilling expenses for the six months ended June 30, 1995
increased $502,000 (2%) from $24,940,000 to $25,442,000 compared to the same
period in 1994. This increase is primarily the result of an increased number
of owned rigs and rig inspection costs incurred during the first half of 1995
which was partially offset by a reduced number of marketed rigs in 1995.
Specifically, labor expense decreased by $1,057,000 in 1995 compared to 1994,
while repairs and maintenance expenses increased by $419,000 and employer
liability claims and insurance costs increased by approximately $611,000.
13
<PAGE> 16
Depreciation and amortization expense for the six months ended June 30,
1995 increased $528,000 (14%) from $3,774,000 to $4,302,000 compared to the
same period in 1994. The increase resulted primarily from the acquisition of
the MARINE 3 in the fourth quarter of 1994, drill string additions and, to a
lesser extent, the amortization of deferred loan costs.
General and administrative expenses for the six months ended June 30,
1995 increased $1,029,000 (55%) from $1,855,000 to $2,884,000 compared to the
same period in 1994. The increase was primarily due to the following factors:
(i) a $427,000 increase in health care coverage expenses due to credits
received in 1994 which were not received in 1995; (ii) executive bonuses of
approximately $127,000 in 1995; (iii) a severance accrual of $117,000 related
to a work force reduction program; (iv) an increase in professional services of
$132,000 due to business combination discussions which were later suspended and
(v) an increase of $183,000 related to increased marketing activities.
Interest Expense
Interest expense for the six months ended June 30, 1995 was $458,000.
There was no interest expense for the six months ended June 30, 1994 as the
Company had no debt during that period.
Interest Income
Interest income for the six months ended June 30, 1995 increased
$583,000 from $354,000 to $937,000 compared to the same period in 1994. The
increase was related primarily to an increase in cash balances and improved
interest rates.
Income Taxes
Income taxes of $(2,691,000) for the six months ended June 30, 1995
consisted of deferred U.S. federal tax benefits of $(2,775,000), tax
benefits related to common stock issued pursuant to a long-term incentive plan
of $85,000 and a state tax refund of $(1,000).
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1994
Revenues
Revenues for the second quarter of 1995 decreased $4,406,000 (27%) from
$16,231,000 to $11,825,000 compared to the same period in 1994. The decrease
in revenues was the result of three factors -- (i) a 13% decrease in average
day rates from $19,212 in 1994 to $16,621 in 1995, (ii) a decrease in the
number of marketed rigs from 11 in 1994 to 9 in 1995 offset by an increase in
utilization of marketed rigs from 82% in 1994 to 86% in 1995. As of June 30,
1995, the Company had no rigs in the Bay of Campeche, Mexico. Revenues from
the Bay of Campeche market decreased $626,000 (37%) from $1,707,000 during the
1994 period to $1,081,000 for the same period in 1995. Revenues from the Bay
of Campeche market accounted for 9% of the Company's revenues in the second
quarter of 1995 compared to 11% in the second quarter of 1994. This decrease
is the result of (i) the Company having a reduced average number of rigs in
this market in 1995 as compared to 1994 and (ii) the MARINE 300 returning to
the U.S. Gulf of Mexico in May 1995.
14
<PAGE> 17
Costs and Expenses
Contract drilling expenses for the second quarter of 1995 decreased
$288,000 (2%) from $11,855,000 to $11,567,000 compared to the same period in
1994. This decrease is primarily the result of a reduced number of marketed
rigs in 1995 which was partially offset by higher repair and maintenance
expenses.
Depreciation and amortization expense for the second quarter of 1995
increased $257,000 (14%) from $1,901,000 to $2,158,000 compared to the same
period in 1994. The increase resulted primarily from the acquisition of the
MARINE 3 in the fourth quarter of 1994, drill string additions and, to a lesser
extent, the amortization of deferred loan costs.
General and administrative expenses for the second quarter of 1995
increased $221,000 (24%) from $911,000 to $1,132,000 compared to the same
period in 1994. The increase in the second quarter of 1995 was primarily due
to a $175,000 increase in health care coverage expenses due to credits received
in 1994 which were not received in 1995.
Interest Expense
Interest expense for the second quarter of 1995 was $159,000. There
was no interest expense for the six months ended June 30, 1994 as the Company
had no debt during that period.
Interest Income
Interest income for the second quarter of 1995 increased $261,000 from
$218,000 to $479,000 compared to the same period in 1994. The increase was
related primarily to an increase in cash balances and improved interest rates.
Income Taxes
Income taxes for the second quarter of 1995 consisted of deferred U.S.
federal tax benefits of $947,000.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has various claims filed against its subsidiaries in the
ordinary course of business, particularly claims alleging personal injuries.
It is the belief of management that the Company has established adequate
reserves for any liabilities which may reasonably be expected to result from
these claims. In the opinion of management, no pending claims, actions or
proceedings against the Company would have a material adverse effect on its
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
(Exhibit 27 is being submitted as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the U.S. Securities and Exchange
Commission.)
</TABLE>
(b) Reports on Form 8-K:
One report on Form 8-K was filed during the second quarter of
1995.
(1) Report of the Company dated June 29, 1995 regarding the
Company's announcement of changes to its Board of
Directors.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: August 21, 1995 By /s/ William H. Flores
----------------------------------------------------------------
William H. Flores
Senior Vice President -
Chief Financial Officer and Director
(Principal Financial Officer)
Date: August 21, 1995 By /s/ Joan R. Smith
----------------------------------------------------------------
Joan R. Smith
Vice President, Controller and Secretary
(Principal Accounting Officer)
</TABLE>
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
-------- -------- ------------
<S> <C>
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 15
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
Re: Registration Statement No. 33-56920 on Form S-8 dated January 11, 1993
No. 33-54909 on Form S-3 dated August 3, 1994
No. 33-55981 on Form S-3 dated October 11, 1994
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 21, 1995, related to our
review of interim financial information. Pursuant to Rule 436(c) under the
Securities Act of 1933, such report is not considered part of a registration
statement prepared or certified by an accountant within the meanings of
Sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
Houston, Texas
July 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 13,160
<SECURITIES> 10,501
<RECEIVABLES> 10,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,564
<PP&E> 113,212
<DEPRECIATION> 17,182
<TOTAL-ASSETS> 131,861
<CURRENT-LIABILITIES> 7,054
<BONDS> 0
<COMMON> 442
0
0
<OTHER-SE> 106,626
<TOTAL-LIABILITY-AND-EQUITY> 131,861
<SALES> 24,370
<TOTAL-REVENUES> 24,370
<CGS> 25,442
<TOTAL-COSTS> 25,442
<OTHER-EXPENSES> 4,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> (7,685)
<INCOME-TAX> (2,691)
<INCOME-CONTINUING> (4,994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,994)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
