<PAGE> 1
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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, 1996
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
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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 Identification Number)
incorporation or organization)
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 5, 1996 -- 44,618,136
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<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Index to Financial Statements
Independent Auditors' Review Report . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . 2
Consolidated Statements of Operations --
Three and Six Months Ended June 30, 1996 and 1995 . . . . . . . . 3
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
(i)
<PAGE> 3
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, 1996, and the related
consolidated statements of operations and cash flows for the three month and
six month periods ended June 30, 1996 and 1995. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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, 1995, 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 January 26, 1996, 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, 1995, 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 26, 1996
1
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 18,554 $ 12,260
Accounts receivable - trade and other, net 18,957 18,078
Inventory 1,054 1,272
Prepaid expenses and other 2,697 1,380
---------- ----------
Total current assets 41,262 32,990
Property and Equipment 132,836 123,442
Less accumulated depreciation 27,619 22,090
---------- ----------
Property and equipment, net 105,217 101,352
Other 263 203
---------- ----------
$ 146,742 $ 134,545
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ - $ 1,000
Accounts payable 4,243 5,721
Accrued expenses 2,975 1,927
Employer's liability claims, current 1,466 1,026
---------- ----------
Total current liabilities 8,684 9,674
Long-Term Debt 10,000 9,000
Employer's Liability Claims, non-current 1,979 2,155
Deferred Income Taxes 7,901 6,144
Shareholders' Equity:
Commons stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 44,528,320
shares as of June 30, 1996; issued 44,169,643 and
outstanding 43,635,433 shares as of December 31, 1995 445 442
Common stock restricted (672) (505)
Treasury stock, at cost (534,210 shares in 1995) - (2,016)
Additional paid-in capital 95,654 92,720
Retained earnings from January 1, 1993 22,751 16,931
---------- ----------
Total shareholders' equity 118,178 107,572
---------- ----------
Commitments and contingencies
$ 146,742 $ 134,545
========== ==========
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
2
<PAGE> 5
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,
---------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 27,360 $ 11,825 $ 48,599 $ 24,370
Costs and Expenses:
Contract drilling 15,679 11,567 29,211 25,442
Depreciation and amortization 2,873 2,158 5,570 4,302
General and administrative 2,203 1,132 3,613 2,884
------------- ------------- ------------- -------------
20,755 14,857 38,394 32,628
------------- ------------- ------------- -------------
Operating income (loss) 6,605 (3,032) 10,205 (8,258)
------------- ------------- ------------- -------------
Other Income (Expense):
Interest expense (203) (159) (384) (458)
Interest income 222 479 414 937
Other income (expense) 28 8 86 94
------------- ------------- ------------- -------------
47 328 116 573
------------- ------------- ------------- -------------
Income (loss) before income taxes 6,652 (2,704) 10,321 (7,685)
Income tax expense (benefit) 2,398 (947) 3,755 (2,691)
------------- ------------- ------------- -------------
Net income (loss) $ 4,254 $ (1,757) $ 6,566 $ (4,994)
============= ============= ============= =============
Income (loss) per common share $ 0.10 $ (0.04) $ 0.15 $ (0.11)
============= ============= ============= =============
Weighted average common shares
outstanding 44,338,438 43,959,172 44,071,363 43,996,105
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
3
<PAGE> 6
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) $ 6,566 $ (4,994)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Deferred income taxes 1,757 (2,775)
Tax benefits related to common stock issued pursuant to
long-term incentive plan 1,854 85
Depreciation and amortization 5,570 4,302
Gain on disposition of equipment (88) (118)
Accrual of compensation expense, net 202 189
Issuance of common stock to Employee 401(k) Plan
and the Non-Employee Directors' Plan 492 451
Changes in operating assets and liabilities:
Receivables (879) 4,883
Other current assets (1,099) (413)
Payables, accrued expenses and employer's liability claims (166) 2,096
Other (86) 105
-------------- --------------
Net cash provided by operating activities 14,123 3,811
-------------- --------------
Cash Flows From Investing Activities:
Proceeds from matured short-term investments - 7,652
Purchase of equipment (9,550) (10,988)
Proceeds from disposition of equipment 228 221
-------------- --------------
Net cash used in investing activities (9,322) (3,115)
-------------- --------------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 1,493 162
Payments of debt - (5,000)
Purchase of treasury stock - (1,570)
-------------- --------------
Net cash provided by (used in) financing activities 1,493 (6,408)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 6,294 (5,712)
Cash and cash equivalents at beginning of period 12,260 18,872
-------------- --------------
Cash and cash equivalents at end of period $ 18,554 $ 13,160
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 434 $ 517
Income taxes paid (refunded) $ 145 $ (1)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 60,833 and 43,500 shares in 1996 and 1995, $ 368 $ 108
respectively, of restricted common stock
Forfeitures of 7,500 shares in 1995 of restricted common stock - $ 43
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(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, 1996 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, 1995. The results of operations for the six months
ended June 30, 1996 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 1995 consolidated financial
statements to conform with the 1996 presentation.
(3) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ --------------------
1996 1995 1996 1995
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
U.S. federal $ (64) $ - $ 1 $ -
State - - - (1)
Foreign 70 - 143 -
------ ----- ------ -------
6 - 144 (1)
------ ----- ------ -------
Other:
U.S. federal - deferred 1,190 (947) 1,757 (2,775)
Tax benefits related to common
stock issued pursuant to long-
term incentive plan 1,202 - 1,854 85
------ ----- ------ -------
2,392 (947) 3,611 (2,690)
------ ----- ------ -------
Total tax provision (benefits) $2,398 $(947) $3,755 $(2,691)
====== ===== ====== =======
</TABLE>
5
<PAGE> 8
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
For the six months ended June 30, 1996, the effective tax rate of 36% for
financial reporting purposes approximates the U.S. federal statutory rate of
35%, plus the effect of foreign taxes.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1996 and
December 31, 1995 are presented below.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 29,473 $ 31,361
Investment tax, general business and alternative
tax credit carryforwards 10,465 11,356
Employer's liability claims 1,206 1,113
Allowance for bad debts 53 45
------------ -------------
Total gross deferred tax assets 41,197 43,875
Less valuation allowance (35,799) (36,738)
------------ -------------
Net deferred tax assets 5,398 7,137
------------ -------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation 12,073 11,896
Deferred intercompany gains and losses 1,226 1,385
------------ -------------
Total gross deferred tax liabilities 13,299 13,281
------------ -------------
Net deferred tax liability $ 7,901 $ 6,144
============ =============
</TABLE>
(4) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share for the three and six months ended
June 30, 1996 and 1995 excludes the effect of outstanding stock options inasmuch
as the potential dilution from their exercise is less than three percent.
(5) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising
out of operations in the normal course of business. In the opinion of
management, uninsured losses, if any, will not be material to the Company's
financial position or results of operations.
6
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Demand for offshore drilling services is primarily driven by the
economics of oil and gas exploration, development and production, which in turn,
are closely linked to current and projected oil and gas prices. Since the
mid-1980's, oil and gas prices have been unstable and generally lower than
prices experienced during the early 1980's, resulting in volatile and generally
reduced demand for offshore drilling services. In addition, during the early
1980's, the industry built a substantial number of new offshore drilling rigs.
Since 1993, the worldwide jack-up market has shown general improvement compared
to the 1986-1992 period. This improvement can be generally attributed to
improved jack-up rig demand and a continuing reduction in jack-up rig supply.
Although this period can be characterized as showing general improvement,
certain significant jack-up markets have experienced short periods of reduced
rig demand and/or excess rig supply. During those periods of low rig
utilization, day rates were adversely impacted and drilling contractors
competing in those markets suffered poorer financial results until rig demand
improved or rigs left those markets for other markets.
Drilling Markets and Utilization
General
Most of the world's significant jack-up drilling markets have recently
experienced improved rig utilization and day rates. According to Offshore Data
Services, as of July 30, 1996, worldwide jack-up utilization was 85% (327 rigs
working out of a supply of 383 rigs) compared to 75% (291 rigs working out of a
supply of 389 rigs) during the first six months of 1995, while jack-up
utilization outside of the U.S. Gulf of Mexico was 85% (210 rigs working out of
a supply of 247 rigs) compared to 78% during the first six months of 1995.
Historically, the Company has derived substantially all of its revenues
from offshore drilling in the U.S. Gulf of Mexico, the Bay of Campeche
(Mexico), and offshore India. Three of the Company's rigs, MARINE 300, MARINE
304 and MARINE 201, are configured to work in international markets outside the
Gulf of Mexico. In addition, the Company has recently fabricated quarters for
the MARINE 303 in order to facilitate that rig's use in international markets.
These upgrades could be added to the rig in a relatively short time frame to
allow that rig to obtain an international contract. The Company's other rigs
could, if applicable modifications were made and certifications obtained,
operate in certain areas outside of the Gulf of Mexico. The Company's rigs are
not, however, suitable for areas, such as the North Sea, that require hostile
environment operating capabilities.
Due to the highly cyclical nature of the offshore drilling business,
the Company seeks longer term contracts for the employment of its rigs, both
domestically and internationally. Such contacts help mitigate the cyclicity of
the Company's results. Historically, most longer term contracts have been
available primarily in international markets. Accordingly, the Company is
marketing certain of its rigs in selected international markets with a view to
obtaining longer term contracts. Thus far this year, the Company has
successfully obtained four term contracts for its U.S. Gulf of Mexico rigs with
terms ranging from three months to one year. Most of those contracts include
repricing mechanisms allowing the Company to periodically adjust day rates
during the terms of the contracts. The Company also has one rig in India (the
MARINE 201) which is operating under a one year contract ending November 1996
with eight three-month extension options.
7
<PAGE> 10
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. Day rates can and have fluctuated significantly on relatively
small changes in the rig supply and demand situation in this market.
Throughout the period from late 1992 through 1994, jack-up operations in
the U.S. Gulf of Mexico were characterized by improving rig demand. In late
1994 and early 1995, however, the combination of reduced jack-up demand and
increased rig supply had a depressing effect on U.S. Gulf of Mexico operations.
During this period of reduced utilization, day rate levels fell and contractors
experienced reduced levels of earnings. Since mid-1995, a combination of
improved jack-up rig demand and mobilizations of rigs to improving international
markets has resulted in improved jack-up day rates and utilization.
With 12 of its 13 rigs located in the U.S. Gulf of Mexico, the Company is
well positioned to benefit from any upturn in that market. Improved utilization
of jack-up rigs in the U.S. Gulf of Mexico during the third and fourth quarters
of 1995 continued into the first and second quarters of 1996. The industry wide
utilization of jack-up rigs in the U.S. Gulf of Mexico as of July 30, 1996 was
86% as compared with an average of 71% for the first six months of 1995.
Bay of Campeche
During most of 1993 and early 1994, demand for jack-up rigs was strong in
the Bay of Campeche, offshore Mexico in the southern Gulf of Mexico. The Bay of
Campeche drilling market, however, generally deteriorated in late 1994 and early
1995. The Company contracted two of its rigs (the MARINE 301 and the 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 completed its contract and returned to the U.S. Gulf of Mexico in May 1995.
Although Mexico has devalued its currency and is currently experiencing a
recession, the Company is continuing to actively market its fleet in this area.
Demand for rigs in the Bay of Campeche dropped from a high of 22 rigs in 1993 to
7 rigs in 1995 and has increased to an average of 8 rigs for the first half of
1996. Jack-up utilization in the Bay of Campeche at the end of 1995 was
approximately 58% compared to 100% as of July 31, 1996. Recently, drilling
activity in this market has improved and the Company expects that jack-up rig
demand and utilization will improve during the remainder of 1996 and 1997.
India
In August 1995, the Company entered into a one-year term contract for the
MARINE 201 to operate off the east coast of India. Under the contract, the
customer has options to extend the contract for up to eight three-month
extension periods. The rig reached India during the second week of November and
drilling operations commenced shortly thereafter. Demand for jack-ups in India
has generally averaged between 20 to 25 rigs during the past few years. During
this time, the supply of rigs has generally been equal to demand resulting in
utilization rates of 90% to 100%. The government of India recently approved
investment by non-Indian energy companies. As a result of these investments,
jack-up rig demand has recently increased, and most industry analysts expect
that demand could increase further in the near term.
8
<PAGE> 11
The following table sets forth certain industry and Company historical data for
the periods indicated. Industry data includes many rigs that are dissimilar to
the Company's rigs in terms of performance capabilities, age, operational
criteria and environmental capabilities. Certain of the Company's competitors
operate rigs other than jack-up rigs that can compete with jack-up rigs under
certain circumstances.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Years Ended
June 30, June 30, December 31,
---------------------- --------------------- -------------------
1996 1995 1996 1995 1995 1994
---------- --------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Industry(a):
U.S.Gulf of Mexico:
Total jack-up rigs 136.7 142.2 136.9 141.4 140.1 135.8
Working jack-up rigs 118.5 101.5 116.0 97.9 104.6 102.9
Utilization 87% 71% 85% 69% 75% 76%
All other markets:
Total jack-up rigs 246.8 244.9 246.7 247.2 246.7 255.5
Working jack-up rigs 205.0 194.1 204.1 192.9 197.5 192.5
Utilization 83% 79% 83% 78% 80% 75%
Company(b):
Total jack-up rigs 13.0 13.0 13.0 13.0 13.0 12.1
Working jack-up rigs 12.8 7.8 11.9 7.7 8.9 9.8
Utilization 98% 60% 92% 59% 69% 81%
Non-marketed rigs 0.2 3.9 0.7 3.4 3.0 0.8
Utilization of marketed rigs 100% 86% 97% 80% 89% 87%
Average day rates (c) $ 23,505 $ 16,621 $ 22,353 $ 17,472 $ 19,289 $ 19,686
</TABLE>
- - ----------
(a) Average of weekly data published by Offshore Data Services.
(b) The numbers included in the table represent the average number of rigs
operated by the Company for the periods indicated.
(c) "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.
Competition
The offshore contract drilling market is highly competitive with a large
number of contractors competing for available work. Drilling contracts are
generally awarded on a competitive bid basis. 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 seeks to capitalize on customer recognition of the Company's
safety record, crew quality and the quality of its service and equipment. Many
of the Company's competitors, however, are larger, or are subsidiaries of larger
companies, and have greater financial resources and more diverse fleets than the
Company. This may enable them to better withstand industry downturns, to
compete more effectively on the basis of price, to build new rigs or to acquire
existing rigs that become available for purchase.
9
<PAGE> 12
Drilling Operations and Customers
The Company's existing 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. Under most
daywork contracts, the customer also pays the cost of moving the rig and
related equipment to the job site and the costs of drilling the well (other
than the costs of operating the rig, which are borne by the drilling
contractor). Daywork contracts may provide for lower rates during periods when
drilling operations are interrupted or restricted by equipment breakdowns,
adverse weather or water conditions or other conditions beyond the control of
the Company. Historically, the Company has not marketed its rigs under fixed
price or turnkey contracts.
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.
Financial Condition -- Liquidity and Capital Resources
Liquidity and Capital Resources
The Company had working capital at June 30, 1996 of $32,578,000 as
compared to working capital of $23,316,000 at December 31, 1995. Net cash
provided by operating activities was $14,123,000 for the six months ended June
30, 1996 compared to $3,811,000 for the six months ended June 30, 1995, an
increase of $10,312,000 or 271%. Cash used in investing activities was
$9,322,000 for the six months ended June 30, 1996 resulting primarily from
capital expenditures of $9,550,000 compared to cash used in investing activities
of $3,115,000 for the six months ended June 30, 1995. Capital expenditures for
the six months ended June 30, 1996 consisted of (i) drill pipe purchases, (ii)
the addition of a top drive drilling system and other upgrades to the MARINE 15,
(iii) the installation of a top drive drilling system and the fabrication of
additional leg sections for the MARINE 300 and (iv) the fabrication of
international quarters for the MARINE 303. Net cash provided by financing
activities was $1,493,000 consisting of the proceeds from exercises of common
stock options.
Outlook
In late 1994, the Company commenced a program (the "Rig Upgrade Program")
to upgrade the operational capabilities of certain of its rigs. This program
includes the following upgrades: (i) converting the power systems of selected
mechanically powered rigs, (ii) adding top drive drilling systems to selected
rigs and (iii) other potential rig upgrades such as (a) increased water depth
ratings and (b) additions of cantilever features to slot type rigs. 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.
10
<PAGE> 13
The Company recently entered into an agreement to purchase the ODIN
PRINCESS, a 300 foot independent leg slot rig, for a total consideration of
$8,000,000, consisting of cash and/or the issuance of common stock. The
Company anticipates that it will finalize this transaction in mid-August. As
of June 30, 1996, the Company had spent approximately $500,000 in additional
fees and inspection costs related to this rig acquisition which were included
in general and administrative expenses during the second quarter. The rig,
which will be renamed MARINE 305, is currently located in the Middle East and
will require substantial expenditures to restore it to working condition. At
this time, the Company has not determined when it will commence the
refurbishment of this rig, the extent to which it will upgrade and refurbish
the rig, or the amount which it will spend to do so.
The Company will continue to pursue the acquisition of additional drilling
rigs to enhance its fleet. Future acquisitions, if any, would likely be funded
from the Company's working capital 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 section in order to preserve its
working capital resources. At this time, the Company estimates its 1996
capital expenditures, excluding rig acquisition costs, to be approximately
$11,000,000, including the $9,550,000 spent during the first six months.
On December 1, 1994, Keyes Holding Corporation ("KHC"), a wholly-owned
subsidiary of the Company, entered into a revolving credit/term loan agreement
(the "Loan Agreement") with a U.S. financial institution pursuant to which KHC
may, subject to the conditions stated in the agreement, borrow up to the lesser
of (i) $35,000,000, or (ii) 50% of the appraised value of MARINE 300, 301 and
303. The agreement included an 18-month revolving credit facility which was
convertible on June 1, 1996 into a three-year term loan facility. On May 31,
1996, the Loan Agreement was amended to extend the revolving loan availability
period for one year to June 1, 1997; to extend the maturity date of the term
facility to June 1, 2002; and to lower the amount of available borrowing during
the loan availability period as discussed below. The amount available during
the revolving loan availability period will be permanently reduced through four
consecutive quarterly reductions of $1,750,000 each on September 1, 1996;
December 1, 1996; March 1, 1997 and June 1, 1997. If converted, the term loan
will be amortized over sixty equal monthly installments ending June 1, 2002.
The agreement provides that the amounts borrowed will bear interest at floating
rates equal to LIBOR + 2.5%. The minimum borrowing under the revolving credit
facility is $10,000,000. If, on June 1, 1997, KHC elects to convert less than
$10,000,000 into a term loan, it will be required to pay a non-utilization fee
equal to 1 1/2% of the excess of $10,000,000 over the amount converted. As of
June 30, 1996, the related debt outstanding was $10,000,000 and the amount
available under the line of credit 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 has guaranteed up to
$8,750,000 of the borrowings under the loan agreement. The borrowings under
the agreement are secured by a mortgage on the MARINE 300, MARINE 301 and
MARINE 303.
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 three rigs. These rigs were
deactivated in a common offshore location and, after preparation for extended
idle time, were maintained periodically by a small maintenance crew. As of the
date of this report, all of these rigs have been reactivated and are under
contract.
11
<PAGE> 14
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 shareholders would
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 times and in such
amounts as the Company deems appropriate. The Company will fund such
repurchases from working capital. During 1995, the Company purchased 735,633
shares of its common stock at an average price of $3.61 per share (aggregate
value $2,659,000) pursuant to the repurchase program. A portion of these
shares (201,423 shares) were subsequently reissued (i) to fund the Company's
contributions to its 401(k) plan, (ii) to provide stock for stock option
exercises pursuant to its employees long term incentive plan and (iii) to
remunerate certain non-employee directors pursuant to the Company's directors
compensation plan. During the first six months of 1996, no shares were
repurchased by the Company; however, 534,210 shares were reissued to fund the
Company's contributions to its 401(k) plan and to provide stock option
exercises pursuant to the employee long term incentive plan.
The Company believes that its available funds, together with cash generated
from operations and amounts that may be borrowed under the CIT credit facility,
will be sufficient to fund its capital expenditure, working capital and debt
service requirements for the foreseeable future. Future cash flows, however,
are subject to a number of uncertainties, particularly the condition of the oil
and gas industry. Accordingly, there can be no assurance that these resources
will be sufficient to fund the Company's cash requirements.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1995
Revenues
Revenues for the six months ended June 30, 1996 increased $24,229,000 (99%)
from $24,370,000 to $48,599,000 compared to the same period in 1995. The
increase in revenues was the result of three factors: (i) a 28% increase in
average day rates from $17,472 in 1995 to $22,353 in 1996, (ii) an increase in
the number of marketed rigs from 10 in 1995 to 12 in 1996 and (iii) an increase
in utilization of marketed rigs from 80% in 1995 to 97% in 1996. The increases
in utilization and average day rates resulted from increased drilling activity
in the U.S. Gulf of Mexico due to improved natural gas prices.
Costs and Expenses
Contract drilling expenses for the six months ended June 30, 1996 increased
$3,769,000 (15%) from $25,442,000 to $29,211,000 compared to the same period
in 1995. This increase is primarily the result of an increase in the number of
working rigs from 8 in 1995 to 12 in 1996. Specifically, labor expense
increased by $1,936,000, repair and maintenance expenses increased by
$1,310,000 and insurance premiums increased by $435,000 in 1996 compared to
1995.
12
<PAGE> 15
Depreciation and amortization expense for the six months ended June 30,
1996 increased $1,268,000 (29%) from $4,302,000 to $5,570,000 compared to the
same period in 1995. The increase resulted primarily from the addition of top
drives and equipment upgrades on the MARINE 15, MARINE 16, MARINE 300 and
MARINE 303, the acquisition and upgrade of the MARINE 201, and drill string
purchases.
General and administrative expenses increased $729,000 (25%) from
$2,884,000 for the first six months of 1995 to $3,613,000 for the same period
in 1996. The increase was attributed to the incurrence of approximately
$500,000 of general and administrative expenses related to potential rig
acquisitions in the second quarter of 1996 and an increase in professional
services.
Interest Expense
Interest expense for the six months ended June 30, 1996 was $384,000 and
consisted of the following: (i) interest of $402,000 based upon an average
interest rate of 8.0% on an average borrowings of $10,000,000; (ii) credit
facility fees of $31,000, less (iii) capitalized interest of approximately
$49,000. Interest expense for the first six months of 1995 was $458,000.
Interest Income
Interest income decreased $523,000 from $937,000 for the first six months
of 1995 to $414,000 for the same period in 1996. The decrease was related
primarily to decreases in cash balances which were partially offset by higher
interest rates.
Income Taxes
Income taxes for the six months ended June 30, 1996 consisted of (i) a
refund of prior year alternative minimum tax of ($64,000), (ii) current
portion of U.S. federal alternative minimum tax of $65,000, (iii) current
foreign taxes of $143,000, (iv) deferred U.S. federal tax expense of
$1,757,000 and (v) tax benefits related to common stock issued pursuant to the
long term incentive plan of $1,854,000.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1995
Revenues
Revenues for the second quarter of 1996 increased $15,535,000 (131%)
from $11,825,000 to $27,360,000 compared to the same period in 1995. The
increase in revenues was the result of three factors -- (i) a 41% increase in
average day rates from $16,621 in 1995 to $23,505 in 1996, (ii) an increase in
the number of marketed rigs from 9 in 1995 to 13 in 1996 and (iii) an increase
in utilization of marketed rigs from 86% in 1995 to 100% in 1996.
Costs and Expenses
Contract drilling expenses for the second quarter of 1996 increased
$4,112,000 (36%) from $11,567,000 to $15,679,000 compared to the same period in
1995. This increase is attributed to the increased number of rigs working
during the second quarter of 1996 compared to the same period in 1995. As a
result, labor expense increased $1,975,000, repairs and maintenance expenses
increased by $994,000 and employer liability claims and insurance costs
increased by approximately $806,000 in the second quarter of 1996.
13
<PAGE> 16
Depreciation and amortization expense for the second quarter of 1996
increased $715,000 (33%) from $2,158,000 to $2,873,000 compared to the same
period in 1995. This increase resulted primarily from the costs associated
with the acquisition and refurbishment of the MARINE 201, the addition of a top
drive and equipment upgrades on the MARINE 15, MARINE 16 and MARINE 300 and
other capital expenditures.
General and administrative expenses for the second quarter of 1996
increased $1,071,000 (95%) from $1,132,000 to $2,203,000 compared to the same
period in 1995. The increase in the second quarter of 1996 resulted primarily
from the incurrence of approximately $500,000 of general and administrative
expenses related to potential rig acquisitions, an increase in labor costs, and
an increase in professional services and other administrative expenses.
Interest Expense
Interest expense for the second quarter of 1996 was $203,000 and
consisted of the following: (i) interest of $199,000 based on an average
interest rate of 7.9% on average borrowings of $10,000,000; (ii) credit
facility fees of $15,000 less (iii) capitalized interest of approximately
$11,000. Interest expense for the second quarter of 1995 was $159,000.
Interest Income
Interest income for the second quarter of 1996 decreased $257,000 from
$479,000 to $222,000 compared to the same period in 1995. The decrease was
related primarily to a decrease in cash balances and partially offset by higher
interest rates.
Income Taxes
Income taxes for the second quarter of 1996 consisted of (i) a refund
of prior year taxes of ($64,000), (ii) current foreign taxes of $70,000, (iii)
deferred U.S. federal tax expense of $1,190,000, and (iv) tax benefits related
to common stock issued pursuant to the long term incentive plan of $1,202,000.
14
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has various claims filed against its subsidiaries in the
ordinary course of business, particularly claims alleging personal injuries. It
is the belief of management that the Company has established adequate reserves
for any liabilities which may reasonably be expected to result from these
claims. In the opinion of management, no pending claims, actions or proceedings
against the Company would have a material adverse effect on its financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 9, 1996.
At the meeting, six directors were elected by a vote of holders of Common
Stock, as outlined in the company's Proxy Statement related to the meeting.
With respect to the election of directors, (i) proxies were solicited pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended,
(ii) there was no solicitation in opposition to the management's nominees as
listed in the Proxy Statement, and (iii) all of such nominees were elected.
The following numbers of votes were cast as to the director nominees:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
In Favor Withheld Broker Abstaining
Non-Votes
- - ------------------------------------------------------------------------------------------------------------------------------------
Nominee Votes Cast Votes % Votes % Votes % Votes %
------- ---------- ----- --- ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Barbanell 37,231,177 37,205,876 84% 25,301 * - -% - -%
Mr. Brown 37,231,177 37,207,876 84% 23,301 * - -% - -%
Mr. Bull 37,231,177 37,207,876 84% 23,301 * - -% - -%
Mr. Flores 37,231,177 37,207,876 84% 23,301 * - -% - -%
Mr. Gregory 37,231,177 37,173,406 84% 57,771 * - -% - -%
Mr. Linneman 37,231,177 37,173,406 84% 57,771 * - -% - -%
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Employment Agreement between Marine
Drilling Companies, Inc. and Jan Rask
dated June 18, 1996.
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.)
15
<PAGE> 18
(b) Reports on Form 8-K:
Two reports on Form 8-K were filed during the second quarter of 1996.
(1) Report of the Company dated April 26, 1996 regarding the sale by
its largest shareholder, Warburg, Pincus Capital Company, L.P., of
its position in the Company's common stock and the pending
resignation of Warburg Pincus designees on the Company's Board of
Directors and the Company's intention to reduce the number of
Directors to six persons effective May 9, 1996.
(2) Report of the Company dated June 3, 1996 regarding the Company's
extension of the term and restructure of certain provisions of a
credit agreement between one of the Company's subsidiaries and
The CIT Group/Equipment Financing, Inc.
16
<PAGE> 19
(3) SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: August 5, 1996 By /s/ WILLIAM H. FLORES
--------------------------------------
William H. Flores
Chief Operating Officer
Senior Vice President -
Chief Financial Officer and Director
(Principal Financial Officer)
Date: August 5, 1996 By /s/ JOAN R. SMITH
---------------------------------------
Joan R. Smith
Vice President,
Controller and Secretary
(Principal Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibits Page
------ -------- ------------
<S> <C> <C>
10.1 Employment Agreement between Marine Drilling Companies, Inc.
and Jan Rask dated June 18, 1996
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between
MARINE DRILLING COMPANIES, INC. ("Company") and JAN RASK
("Executive").
W I T N E S S E T H:
WHEREAS, Company is desirous of employing Executive in an executive
capacity on the terms and conditions, and for the consideration, hereinafter
set forth and Executive is desirous of being employed by Company on such terms
and conditions and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, Company and Executive agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 Employment; Effective Date. Company agrees to employ Executive
and Executive agrees to be employed by Company, beginning as of the Effective
Date (as hereinafter defined) and continuing for the period of time set forth
in Article 2 of this Agreement, subject to the terms and conditions of this
Agreement. For purposes of this Agreement, the "Effective Date" shall be the
day immediately succeeding the date on which Executive delivers to the Company
evidence, reasonably satisfactory to the Company, that Executive has received
all authorizations and approvals from the Immigration and Naturalization
Service and other governmental agencies necessary for Executive to be employed
and compensated by Company. Executive agrees to use all reasonable efforts to
obtain as soon as practicable all such authorizations and approvals and to
deliver evidence thereof to the Company; provided, however, that if the
Company does not receive such evidence prior to September 15, 1996, then
notwithstanding anything to the contrary herein, this Employment Agreement
shall terminate on such date and Company and Executive shall have no duties,
obligations or rights hereunder whatsoever.
1.2 Position. From and after the Effective Date, Company shall employ
Executive in the position of President and Chief Executive Officer of Company,
or in such other positions as the parties mutually may agree.
1.3 Duties and Services. Executive agrees to serve in the position
referred to in paragraph 1.2 and to perform diligently and to the best of his
abilities the duties and services appertaining to such office, as well as such
additional duties and services appropriate to such office which the parties
mutually may agree upon from time to time. Executive's employment shall also
be subject to the policies maintained and established by Company, as the same
may be amended from time to time.
1.4 Other Interests. Executive agrees, during the period of
his employment by Company, to devote his primary business time, energy and best
efforts to the business and affairs of Company and its affiliates and not to
engage, directly or indirectly, in any other business or
-1-
<PAGE> 2
businesses, whether or not similar to that of Company,
except with the consent of the Board of Directors of Company (the "Board of
Directors"). The foregoing notwithstanding, the parties recognize and agree
that Executive may engage in passive personal investments and other business
activities that do not conflict with the business and affairs of Company or
interfere with Executive's performance of his duties hereunder. Executive
represents to Company that the execution, delivery and performance of this
Agreement by Executive will not violate or conflict with any non-competition
or similar agreement to which Executive is subject.
1.5 Duty of Loyalty. Executive acknowledges and agrees that Executive
owes a fiduciary duty of loyalty, fidelity and allegiance to act at all times
in the best interests of Company and to do no act which would injure the
business, interests, or reputation of Company or any of its subsidiaries or
affiliates. In keeping with these duties, Executive shall make full disclosure
to Company of all business opportunities pertaining to Company's business and
shall not appropriate for Executive's own benefit business opportunities
concerning the subject matter of the fiduciary relationship.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 Term. Unless sooner terminated pursuant to other provisions
hereof, Company agrees to employ Executive for the period beginning on the
Effective Date and ending on the second anniversary of the Effective Date (the
"Initial Term"). Said term of employment shall be extended automatically for
an additional successive one-year period as of the last day of the Initial
Term and as of the last day of each such successive one-year period of time
thereafter that this Agreement is in effect; provided, however, that if, prior
to ninety days before the last day of the Initial Term or any such one-year
term of employment, either party shall give written notice to the other that
no such automatic extension shall occur, then Executive's employment shall
terminate on the last day of the Initial Term or the one-year term of
employment, as applicable, during which such notice is given.
2.2 Company's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Company shall have the right to terminate Executive's
employment under this Agreement at any time for any of the following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated by
accident, sickness or other circumstance which renders him
mentally or physically incapable of performing the duties
and services required of him hereunder on a full-time basis
for a period of at least 90 consecutive days or for a period
of 120 days during any 12-month period;
(iii) for cause, which for purposes of this
Agreement shall mean Executive (A) has engaged in gross
negligence or willful misconduct in the performance of the
duties required of him hereunder, (B) has been convicted of
a felony or a misdemeanor involving moral turpitude, (C) has
willfully refused without proper legal reason to perform the
duties and responsibilities required of him hereunder, (D)
has materially breached any material corporate policy or
code of conduct established by Company, or (E) has willfully
engaged in conduct that
-2-
<PAGE> 3
he knows or should know is materially injurious to Company or
any of its affiliates;
(iv) for Executive's material breach of any
material provision of this Agreement which, if correctable,
remains uncorrected for 30 days following written notice to
Executive by Company of such breach; or
(v) for any other reason whatsoever, in the sole
discretion of the Board of Directors.
2.3 Executive's Right to Terminate. Notwithstanding the provisions of
paragraph 2.1, Executive shall have the right to terminate his employment
under this Agreement at any time for any of the following reasons:
(i) (A) a material breach by Company of any
material provision of this Agreement which, if correctable,
remains uncorrected for 30 days following written notice of
such breach by Executive to Company or (B) a change within
the prior thirty days of the location of Executive's
principal place of employment by Company by more than fifty
miles from the location of the Company's principal executive
office as of the date hereof; or
(ii) for any other reason whatsoever, in the sole
discretion of Executive.
2.4 Notice of Termination. If Company or Executive desires to
terminate Executive's employment hereunder at any time prior to expiration of
the term of employment as provided in paragraph 2.1, it or he shall do so by
giving written notice to the other party that it or he has elected to
terminate Executive's employment hereunder and stating the effective date and
reason for such termination, provided that no such action shall alter or amend
any other provisions hereof or rights arising hereunder, including, without
limitation, the provisions of Articles 4 and 5 hereof.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 Base Salary. During the period of this Agreement, Executive shall
receive a minimum annual base salary equal to the greater of (i) $300,000 or
(ii) such amount as the parties mutually may agree upon from time to time.
Executive's annual base salary shall be paid in equal installments in
accordance with the Company's standard policy regarding payment of
compensation to executives but no less frequently than monthly.
3.2 Bonuses. Executive shall receive such bonuses, if any, as Company
shall determine in its sole discretion; provided, however, that it is not
anticipated that any annual bonus will in any event exceed 50% of Executive's
base salary for that year.
3.3 Vacation. During each year of his employment, Executive shall be
entitled to five weeks of vacation.
-3-
<PAGE> 4
3.4 Other Perquisites. During his employment hereunder, Executive
shall be afforded the following benefits as incidences of his employment:
(i) Club Expenses - Company shall reimburse
Executive up to $5,000 per year for membership fees, dues,
and assessments for luncheon, athletic, or other club
memberships for Executive.
(ii) Communication Expenses - Company shall
reimburse Executive up to $ 5,000.00 per year for expenses
related to a mobile telephone, home telephone, and facsimile
machine.
(iii) Other Company Benefits - Executive and, to
the extent applicable, Executive's spouse, dependents and
beneficiaries, shall be allowed to participate in all
benefits, plans and programs, including improvements or
modifications of the same, which are now, or may hereafter
be, available to similarly-situated Company employees. Such
benefits, plans and programs may include, without
limitation, health insurance or health care plan, life
insurance, disability insurance, vacation and sick leave
benefits, and the like. Company shall not, however, by
reason of this paragraph be obligated to institute,
maintain, or refrain from changing, amending, or
discontinuing, any such benefit plan or program, so long as
such changes are similarly applicable to executive employees
generally.
ARTICLE 4: PROTECTION OF INFORMATION
4.1 Disclosure to Executive. Company shall disclose to Executive, or
place Executive in a position to have access to or develop, trade secrets or
confidential information of Company or its affiliates; and/or shall entrust
Executive with business opportunities of Company or its affiliates; and/or
shall place Executive in a position to develop business good will on behalf of
Company or its affiliates.
4.2 Disclosure to and Property of Company. All information, ideas,
concepts, improvements, discoveries, and inventions, whether patentable or
not, which are conceived, made, developed, or acquired by Executive,
individually or in conjunction with others, during Executive's employment by
Company (whether during business hours or otherwise and whether on Company's
premises or otherwise) which relate to Company's business, products, or
services (including, without limitation, all such information relating to
corporate opportunities, research, financial and sales data, pricing terms,
evaluations, opinions, interpretations, acquisitions prospects, the identity
of customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects,
or marketing and merchandising techniques, prospective names, and marks) shall
be disclosed to Company and are and shall be the sole and exclusive property
of Company. Moreover, all documents, drawings, memoranda, notes, records,
files, correspondence, manuals, models, specifications, computer programs,
E-mail, voice mail, electronic databases, maps, and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Company. Upon termination of Executive's employment by
Company, for any reason, Executive promptly shall deliver the same, and all
copies thereof, to Company.
-4-
<PAGE> 5
4.3 No Unauthorized Use or Disclosure. Executive will not, at any
time during or after Executive's employment by Company, make any unauthorized
disclosure of any confidential business information or trade secrets of
Company or its affiliates, or make any use thereof, except in the carrying out
of Executive's employment responsibilities hereunder. Affiliates of the
Company shall be third party beneficiaries of Executive's obligations under
this paragraph. As a result of Executive's employment by Company, Executive
may also from time to time have access to, or knowledge of, confidential
business information or trade secrets of third parties, such as customers,
suppliers, partners, joint venturers, and the like, of Company and its
affiliates. Executive also agrees to preserve and protect the confidentiality
of such third party confidential information and trade secrets to the same
extent, and on the same basis, as Company's confidential business information
and trade secrets.
4.4 Ownership by Company. If, during Executive's employment by
company, Executive creates any work of authorship fixed in any tangible medium
of expression which is the subject matter of copyright (such as videotapes,
written presentations, or acquisitions, computer programs, E-mail, voice mail,
electronic databases, drawings, maps, architectural renditions, models,
manuals, brochures, or the like) relating to Company's business, products, or
services, whether such work is created solely by Executive or jointly with
others (whether during business hours or otherwise and whether on Company's
premises or otherwise), Company shall be deemed the author of such work if the
work is prepared by Executive in the scope of Executive's employment; or, if
the work is not prepared by Executive within the scope of Executive's
employment but is specially ordered by Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation, or as an instructional
text, then the work shall be considered to be work made for hire and Company
shall be the author of the work. If such work is neither prepared by Executive
within the scope of Executive's employment nor a work specially ordered that
is deemed to be a work made for hire, then Executive hereby agrees to assign,
and by these presents does assign, to Company all of Executive's worldwide
right, title, and interest in and to such work and all rights of copyright
therein.
4.5 Assistance by Executive. Both during the period of Executive's
employment by Company and thereafter, Executive shall assist Company and its
nominee, at any time, in the protection of Company's worldwide right, title,
and interest in and to information, ideas, concepts, improvements,
discoveries, and inventions, and its copyrighted works, including without
limitation, the execution of all formal assignment documents requested by
Company or its nominee and the execution of all lawful oaths and applications
for patents and registration of copyright in the United States and foreign
countries.
4.6 Remedies. Executive acknowledges that money damages would not be
sufficient remedy for any breach of this Article by Executive, and Company
shall be entitled to enforce the provisions of this Article by terminating
payments then owing to Executive under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach. Such remedies shall not be deemed the exclusive remedies
for a breach of this Article, but shall be in addition to all remedies
available at law or in equity to Company, including the recovery of damages
from Executive and his agents involved in such breach and remedies available
to Company pursuant to other agreements with Executive.
-5-
<PAGE> 6
ARTICLE 5: NONCOMPETITION OBLIGATIONS
5.1 In General. As part of the consideration for the compensation and
benefits to be paid to Executive hereunder; to protect the trade secrets and
confidential information of Company and its affiliates that have been and will
in the future be disclosed or entrusted to Executive, the business good will
of Company and its affiliates that has been and will in the future be
developed in Executive, or the business opportunities that have been and will
in the future be disclosed or entrusted to Executive by Company and its
affiliates; and as an additional incentive for Company to enter into this
Agreement, Company and Executive agree to the noncompetition obligations
hereunder. If Executive's employment hereunder shall be terminated by
Executive prior to the expiration of the term provided in paragraph 2.1 for
any reason not described in paragraph 2.3(i), then Executive shall not,
directly or indirectly for Executive or for others, in any geographic area or
market where Company or any of its affiliates are conducting any business as
of the date of such termination of the employment relationship or have during
the previous twelve months conducted such business:
(i) engage in any business competitive with the
business conducted by Company;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with the business conducted by Company with respect to such
competitive business;
(iii) induce any employee of Company or any of its
affiliates to terminate his or her employment with Company
or such affiliates, or hire or assist in the hiring of any
such employee by any person, association, or entity not
affiliated with Company.
These noncompetition obligations shall extend until the later of (i) the
expiration of the term of this Agreement (or any extended term) provided in
paragraph 2.1 and (ii) the one year anniversary of the termination of
Executive's employment hereunder.
5.2 Enforcement and Remedies. Executive understands that the
restrictions set forth in paragraph 5.1 may limit Executive's ability to
engage in certain businesses anywhere in the world during the period provided
for above, but acknowledges that Executive will receive sufficiently high
remuneration and other benefits under this Agreement to justify such
restriction. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Article by Executive, and Company shall be
entitled to enforce the provisions of this Article be terminating any payments
then owing to Executive under this Agreement and/or to specific performance
and injunctive relief as remedies for such breach or any threatened breach.
Such remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in
equity to Company, including without limitation, the recovery of damages from
Executive and Executive's agents involved in such breach and remedies
available to Company pursuant to other agreements with Executive.
-6-
<PAGE> 7
5.3 Reformation. It is expressly understood and agreed that Company
and Executive consider the restrictions contained in this Article to be
reasonable and necessary to protect the proprietary information of Company.
Nevertheless, if any of the aforesaid restrictions are found by a court having
jurisdiction to be unreasonable, or overly broad as to geographic area or
time, or otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be fully enforced.
ARTICLE 6: STATEMENTS CONCERNING COMPANY
6.1 In General. Executive shall refrain, both during the employment
relationship and after the employment relationship terminates, from publishing
any oral or written statements about Company, any of its affiliates, or any of
such entities' officers, employees, agents or representatives that are
slanderous, libelous, or defamatory; or that disclose private or confidential
information about Company, any of its affiliates, or any of such entities'
business affairs, officers, employees, agents, or representatives; or that
constitute an intrusion into the seclusion or private lives of Company, any of
its affiliates, or any of such entities' officers, employees, agents, or
representatives; or that give rise to unreasonable publicity about the private
lives of Company, any of its affiliates, or any of such entities' officers,
employees, agents, or representatives; or that place Company, any of its
affiliates, or any of such entities' officers, employees, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of Company, any of its affiliates, or
any of such entities' officers, employees, agents, or representatives. A
violation or threatened violation of this prohibition may be enjoined by the
courts. The rights afforded Company and its affiliates under this provision
are in addition to any and all rights and remedies otherwise afforded by law.
ARTICLE 7: EFFECT OF TERMINATION ON COMPENSATION
7.1 By Expiration. If Executive's employment hereunder shall
terminate upon expiration of the term provided in paragraph 2.1 hereof, then
all compensation and all benefits to Executive hereunder shall terminate
contemporaneously with termination of his employment; provided, however, that
if Company shall be the party that gave written notice of such termination,
then Company shall, within 10 days after the last day of Executive's
employment with Company, pay Executive a lump sum cash payment in an amount
equal to 100% of Executive's annual base salary as in effect pursuant to
paragraph 3.1 immediately prior to such termination.
7.2 By Company. If Executive's employment hereunder shall be
terminated by Company prior to expiration of the term provided in paragraph
2.1, then, upon such termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment; provided, however,
that if such termination shall be for any reason other than those encompassed
by paragraphs 2.2(i), (ii), (iii), or (iv), the Company shall, within 10 days
after the last day of Executive's employment with Company, pay Executive a
lump sum cash payment in an amount equal to the Termination Payment. For
purposes of this Agreement, the term "Termination Payment" shall mean an
amount equal to the greater of (i) 100% of Executive's annual base salary as
in effect pursuant to paragraph 3.1 immediately prior to Executive's
termination of employment with Company or
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<PAGE> 8
(ii) the aggregate base salary that would have been paid to Executive
(determined based upon the base salary in effect pursuant to paragraph 3.1
immediately prior to Executive's termination of employment with Company) for
the period beginning on the date of such termination and ending on the last
day of the employment term provided in paragraph 2.1 during which occurs the
date of such termination.
7.3 By Executive. If Executive's employment hereunder shall be
terminated by Executive prior to expiration of the term provided in paragraph
2.1, then, upon such termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment; provided, however,
that if such termination shall be pursuant to paragraph 2.3(i), the Company
shall, within 10 days after the last day of Executive's employment with
Company, pay Executive a lump sum cash payment in an amount equal to the
Termination Payment.
7.4 Change in Control. For purposes of this paragraph, the term
"Change in Control" shall have the same meaning as assigned to such term in
The Marine Drilling 1992 Long Term Incentive Plan. If, within two years
following the occurrence of a Change in Control, Executive's employment with
Company shall terminate under circumstances that would entitle him to a
severance payment pursuant to paragraph 7.1, 7.2, or 7.3, then, in lieu of any
such severance payment, Company shall, within 10 days after the last day of
Executive's employment with Company, pay Executive a lump sum cash payment
equal to 200% of Executive's annual base salary as in effect pursuant to
paragraph 3.1 immediately prior to such termination of employment.
7.5 Certain Additional Payments by Company. Notwithstanding anything
to the contrary in this Agreement, in the event that any payment or
distribution by Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest or penalties, are hereinafter collectively
referred to as the "Excise Tax"), Company shall pay to Executive an additional
payment (a "Gross-up Payment") in an amount such that after payment by
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed on any Gross-up
Payment, Executive retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payments; provided, however, that in no event
shall the Gross-up Payment exceed $500,000 (the "Gross-up Limitation").
Company and Executive shall make an initial determination as to whether a
Gross-up Payment is required and the amount of any such Gross-up Payment.
Executive shall notify Company immediately in writing of any claim by the
Internal Revenue Service which, if successful, would require Company to make a
Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially
determined by Company and Executive) within five days of the receipt of such
claim. Company shall notify Executive in writing at least five days prior to
the due date of any response required with respect to such claim if it plans
to contest the claim. If Company decides to contest such claim, Executive
shall cooperate fully with Company in such action; provided, however, that
Company shall bear and pay directly or indirectly all costs and expenses
(including additional interest and penalties) incurred in connection with such
action and, subject to the Gross-up Limitation, shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise
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<PAGE> 9
Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of Company's action. If, as a result of Company's action
with respect to a claim, Executive receives a refund of any amount paid by
Company with respect to such claim, Executive shall promptly pay such refund
to Company. If Company fails to timely notify Executive whether it will
contest such claim or Company determines not to contest such claim, then,
subject to the Gross- up Limitation, Company shall immediately pay to
Executive the portion of such claim, if any, which it has not previously paid
to Executive.
7.6 Liquidated Damages. In light of the difficulties in estimating
the damages for an early termination of this Agreement, Company and Executive
hereby agree that the payments, if any, to be received by Executive pursuant
to this Article 7 shall be received by Executive as liquidated damages.
ARTICLE 8: MISCELLANEOUS
8.1 Notices. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Company to: Marine Drilling Companies, Inc.
One Sugar Creek Center Blvd.,Suite 600
Sugar Land, Texas 77478
Attention: Chairman of the Board
If to Employee to: Mr. Jan Rask
11214 Montebello
Houston, Texas 77024
or to such other address as either party may furnish to the other in writing
in accordance herewith, except that notices or changes of address shall be
effective only upon receipt.
8.2 Applicable Law. This Agreement is entered into under, and shall
be governed for all purposes by, the laws of the State of Texas.
8.3 No Waiver. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
8.4 Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
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<PAGE> 10
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together will constitute one and the same Agreement.
8.6 Withholding of Taxes and Other Employee Deductions. Company may
withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions
made with respect to Company's employees generally.
8.7 Headings. The paragraph headings have been inserted for purposes
of convenience and shall not be used for interpretive purposes.
8.8 Gender and Plurals. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
8.9 Affiliate. As used in this Agreement, the term "affiliate" shall
mean any entity which owns or controls, is owned or controlled by, or is under
common ownership or control with, Company.
8.10 Assignment. This Agreement shall be binding upon and inure to
the benefit of Company and any successor of Company, by merger or otherwise.
Except as provided in the preceding sentence, this Agreement, and the rights
and obligations of the parties hereunder, are personal and neither this
Agreement, nor any right, benefit, or obligation of either party hereto, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that Company may assign this Agreement to
a wholly-owned subsidiary of Company as long as Company fully and
unconditionally guarantees the performance of this Agreement.
8.11 Term. This Agreement has a term co-extensive with the term of
employment provided in paragraph 2.1. Termination shall not affect any right
or obligation of any party which is accrued or vested prior to such
termination. Without limiting the scope of the preceding sentence, the
provisions of Articles 4, 5, and 6 shall survive any termination of the
employment relationship and/or of this Agreement.
8.12 Entire Agreement. Except as provided in (i) the written benefit
plans and programs referenced in paragraph 3.4(iii) and (ii) any signed
written agreement contemporaneously or hereafter executed by Company and
Executive, this Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
employment of Executive by Company. Without limiting the scope of the
preceding sentence, all prior understandings and agreements among the parties
hereto relating to the subject matter hereof are hereby null and void and of
no further force and effect. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
18th day of June, 1996, to be effective as of the Effective Date.
MARINE DRILLING COMPANIES, INC.
By:
Name: Robert L. Barbanell
Title: Chairman of the Board
"COMPANY"
JAN RASK
"EXECUTIVE"
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<PAGE> 1
Exhibit 15
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
<TABLE>
<S> <C>
Re: Registration Statement No. 33-56920 on Form S-8 dated January 11, 1993
No. 33-61901 on Form S-8 dated August 17, 1995
No. 333-6997 on Form S-3 dated June 27, 1996
No. 333-6995 on Form S-4 dated June 27, 1996
</TABLE>
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 26, 1996, 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
August 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,554
<SECURITIES> 0
<RECEIVABLES> 18,957
<ALLOWANCES> 0
<INVENTORY> 1,054
<CURRENT-ASSETS> 41,262
<PP&E> 132,836
<DEPRECIATION> 27,619
<TOTAL-ASSETS> 146,742
<CURRENT-LIABILITIES> 8,684
<BONDS> 0
<COMMON> 445
0
0
<OTHER-SE> 117,733
<TOTAL-LIABILITY-AND-EQUITY> 146,742
<SALES> 48,599
<TOTAL-REVENUES> 48,599
<CGS> 29,211
<TOTAL-COSTS> 29,211
<OTHER-EXPENSES> 5,570
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 384
<INCOME-PRETAX> 10,321
<INCOME-TAX> 3,755
<INCOME-CONTINUING> 6,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,566
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0
</TABLE>
