<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1995 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. (Fee Required)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. (No Fee Required)
For the transition period from ____________ to ____________ .
Commission File Number: 0-18309
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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) (Zip Code)
Registrant's telephone number, including area code: (713) 243-3000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
COMMON STOCK, $.01 PAR VALUE NASDAQ STOCK MARKET
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY
NONAFFILIATES ON MARCH 5, 1996 -- $227,853,960.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
ON MARCH 5, 1996 -- 43,883,153.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Annual Meeting of Shareholders
to be held May 9, 1996 -- Part III
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<PAGE>
MARINE DRILLING COMPANIES, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . 15
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . 40
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . 40
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 40
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . 40
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . 40
PART IV
Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 40
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(i)
<PAGE>
PART I
ITEM 1. BUSINESS
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
March 5, 1996, 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, twelve of the Company's
thirteen rigs were located in the U.S. Gulf of Mexico and one was located
offshore India. The Company currently derives substantially all of its
revenues from offshore drilling in the U.S. Gulf of Mexico and in India. 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.
The Company's strategic objectives are to (i) optimize cash flow per
share by maintaining a significant presence in its primary market -- the U.S.
Gulf of Mexico and by obtaining profitable term contracts, to the extent
available, in selected international markets as well as in its primary
market, (ii) increase the size, flexibility and competitiveness of its fleet
through discrete rig acquisitions, opportunistic acquisitions of other fleets
which are complimentary to the Company's present fleet and rig upgrades and
refurbishments, (iii) manage the volatility of the drilling business by
maintaining a conservative capital structure and (iv) continually emphasize
customer service, quality operations, safety and environmental responsibility.
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 erratic 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 in the drilling industry and the amount of drilling
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. To provide a recent historical perspective, oil and gas
prices for 1991 through 1995 are set forth in the following graph:
1
<PAGE>
OIL AND NATURAL GAS PRICES
[GRAPH]
Five year history of Oil and Natural Gas Prices by quarters from January 1,
1991 through December 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT GAS OIL
PERIOD PRICES PRICES
---------- ------ ------
<S> <C> <C>
1st Qtr 91 $1.54 $21.91
2nd Qtr 91 $1.32 $20.77
3rd Qtr 91 $1.28 $21.65
4th Qtr 91 $1.82 $21.76
1st Qtr 92 $1.31 $18.91
2nd Qtr 92 $1.54 $21.21
3rd Qtr 92 $1.81 $21.66
4th Qtr 92 $2.36 $20.50
1st Qtr 93 $1.90 $19.88
2nd Qtr 93 $2.20 $18.75
3rd Qtr 93 $2.14 $17.80
4th Qtr 93 $2.11 $16.44
1st Qtr 94 $2.29 $14.80
2nd Qtr 94 $1.97 $17.86
3rd Qtr 94 $1.72 $18.44
4th Qtr 94 $1.58 $17.63
1st Qtr 95 $1.47 $18.37
2nd Qtr 95 $1.65 $19.32
3rd Qtr 95 $1.52 $17.82
4th Qtr 95 $1.98 $18.09
</TABLE>
SOURCE: OFFSHORE DATA SERVICES
NATURAL GAS PRICES -- OFFSHORE LOUISIANA SPOT GAS
OIL PRICES -- WEST TEXAS INTERMEDIATE
WORLDWIDE OFFSHORE MARKET CONDITIONS
As the following graph illustrates, from the beginning of 1991 to the
end of 1995, the number of jack-up rigs available worldwide has declined by
30 rigs (approximately 7%). Jack-up rig demand during that period has varied
from a low of 257 rigs (64% utilization) during the second quarter of 1992 to
a high of 319 rigs (83% utilization) in late 1995. During 1995, the average
worldwide supply, demand and utilization of jack-up rigs was 387, 302 and
78%, respectively, as compared to 1994 during which these statistics were
391, 296 and 75%, respectively. In general, jack-up rig demand was weak in
1992, 1994 and 1995, but demand was relatively stronger in 1993 and late
1995. Due to the highly competitive nature of the industry, relatively small
changes in the worldwide supply/demand relationship of jack-up rigs often
result in significant changes in rig day rates. This relationship can be
particularly pronounced in individual geographic markets.
2
<PAGE>
The following graph includes data regarding worldwide jack-up rig
supply (including non-marketed rigs), demand and utilization for 1991 through
1995:
WORLDWIDE JACK-UP RIG STATISTICS
[GRAPH]
Statistics for Jack-Up Rigs Worldwide consisting of the total rigs,
working rigs, and rig utilization by quarters from January 1, 1991
through December 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT TOTAL WORKING UTILIZATION
PERIOD RIGS RIGS PERCENTAGE
---------- ---- ------ -----------
<S> <C> <C> <C>
1st Qtr 91 415 300 72%
2nd Qtr 91 414 297 72%
3rd Qtr 91 410 296 72%
4th Qtr 91 407 296 73%
1st Qtr 92 401 277 69%
2nd Qtr 92 399 257 64%
3rd Qtr 92 397 270 68%
4th Qtr 92 396 298 75%
1st Qtr 93 394 303 77%
2nd Qtr 93 394 305 77%
3rd Qtr 93 393 310 79%
4th Qtr 93 392 312 80%
1st Qtr 94 391 295 75%
2nd Qtr 94 391 295 75%
3rd Qtr 94 392 294 75%
4th Qtr 94 391 298 76%
1st Qtr 95 390 286 73%
2nd Qtr 95 387 296 76%
3rd Qtr 95 385 308 80%
4th Qtr 95 385 319 83%
</TABLE>
SOURCE: OFFSHORE DATA SERVICES
Due to the mobile nature of jack-up rigs, changes in the demand for
drilling services among different markets cause many drilling contractors to
react by moving several rigs from weaker markets to stronger markets, thereby
creating an increased supply of rigs in the stronger market. This increased
rig supply in the stronger market will quickly cause day rates to deteriorate
unless rig demand in that market increases at or above the rate of growth in
rig supply. As the prices of oil and gas 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
may see a pronounced change in the demand for drilling services triggered by
the change in the price of the respective 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, early 1992 and early 1995 had a significant depressing effect on
jack-up demand during those periods in the U.S. Gulf of Mexico.
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. In addition, in late 1995, the Company
obtained a term contract for one of its rigs offshore India. 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
may remain so 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.
3
<PAGE>
U.S. GULF OF MEXICO
The following graphs illustrate the relationship among working jack-up
rigs, jack-up rig utilization and jack-up rig supplies based upon all rigs,
as well as "marketed" rigs.
U.S. GULF OF MEXICO
JACK-UP RIG STATISTICS -- ALL RIGS
[GRAPH]
Statistics for Jack-Up Rigs in the U.S. Gulf of Mexico consisting of the
total rigs, working rigs, and rig utilization by quarters from January 1,
1991 through December 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT TOTAL WORKING UTILIZATION
PERIOD RIGS RIGS PERCENTAGE
---------- ---- ------ -----------
<S> <C> <C> <C>
1st Qtr 91 156 96 62%
2nd Qtr 91 149 83 56%
3rd Qtr 91 143 76 53%
4th Qtr 91 137 78 57%
1st Qtr 92 127 60 47%
2nd Qtr 92 123 47 38%
3rd Qtr 92 117 52 44%
4th Qtr 92 117 76 65%
1st Qtr 93 111 81 73%
2nd Qtr 93 112 87 78%
3rd Qtr 93 119 93 78%
4th Qtr 93 125 101 81%
1st Qtr 94 127 92 72%
2nd Qtr 94 136 102 75%
3rd Qtr 94 139 105 76%
4th Qtr 94 141 112 79%
1st Qtr 95 141 94 67%
2nd Qtr 95 142 101 71%
3rd Qtr 95 140 108 78%
4th Qtr 95 138 114 83%
</TABLE>
SOURCE: OFFSHORE DATA SERVICES
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U.S. GULF OF MEXICO
JACK-UP RIG STATISTICS -- MARKETED RIGS
[GRAPH]
Statistics for marketed Jack-Up Rigs in the U.S. Gulf of Mexico consisting of
the marketed rigs, working rigs, and rig utilization by quarters from January 1,
1991 through December 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT TOTAL WORKING UTILIZATION
PERIOD RIGS RIGS PERCENTAGE
---------- ---- ------ -----------
<S> <C> <C> <C>
1st Qtr 91 125 96 77%
2nd Qtr 91 120 83 69%
3rd Qtr 91 110 76 69%
4th Qtr 91 107 78 73%
1st Qtr 92 96 60 63%
2nd Qtr 92 84 47 56%
3rd Qtr 92 77 52 68%
4th Qtr 92 88 76 86%
1st Qtr 93 91 81 89%
2nd Qtr 93 96 87 91%
3rd Qtr 93 103 93 90%
4th Qtr 93 111 101 90%
1st Qtr 94 118 92 78%
2nd Qtr 94 126 102 81%
3rd Qtr 94 130 105 81%
4th Qtr 94 131 112 86%
1st Qtr 95 127 94 74%
2nd Qtr 95 128 101 79%
3rd Qtr 95 129 108 84%
4th Qtr 95 126 114 90%
</TABLE>
SOURCE: OFFSHORE DATA SERVICES
4
<PAGE>
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 often experience major changes on
relatively small changes in the rig supply and demand situation in this
market.
Day rates during 1992 through 1995 were (i) very depressed during the
first three quarters of 1992, (ii) generally stronger beginning in late 1992
and throughout 1993, (iii) moderately declining during 1994, (iv) very weak
during the first quarter of 1995 and (v) generally increasing during late
1995. These activities were driven by the changes in the relationship
between the supply of marketed jack-ups and rig demand during those
respective periods. Demand for rigs during this time period was depressed
during early 1992 due to very weak natural gas prices. Demand improved in
late 1992 and remained at relatively stronger levels thereafter except for
early 1994 and early 1995 when natural gas prices (or the outlook therefor)
were weaker. The supply of marketed jack-up rigs declined during early 1992
due to net rig mobilizations to stronger international markets. Later, as
rig demand improved, rigs began to be mobilized back into this market and
additional rigs, which were previously noncompetitive were reactivated and
marketed. This rig supply trend started after the third quarter of 1992, when
the marketed supply averaged 77 rigs, through the fourth quarter of 1994,
when the marketed supply averaged 131 rigs. Subsequently, the marketed rig
supply has decreased slightly due to rig mobilizations to other markets.
At the date of this report, the demand for jack-ups (reported as the
number of contracted rigs by Offshore Data Services on March 5, 1996) has
increased dramatically to 117 rigs compared to a marketed rig supply of 123
rigs (95% utilization) and a total supply of 137 rigs (85% utilization). The
Company cannot predict whether the recent improvement represents a long term
trend or another short term cycle. Regardless of the demand existing at any
point in time, competitors could move additional rigs into the markets in
which the Company operates. Moreover, there are additional non-marketed rigs
stacked in the U.S. Gulf of Mexico which, subject to some expenditure, could
be reactivated to meet an increase in demand for drilling rigs in the
Company's markets. Such movement or reactivation could depress pricing
levels and adversely affect the supply and demand relationship in the
Company's markets.
5
<PAGE>
BAY OF CAMPECHE, OFFSHORE MEXICO
BAY OF CAMPECHE
JACK-UP RIG STATISTICS
[GRAPH]
Statistics for Jack-Up Rigs in the Bay of Campeche, Offshore Mexico
consisting of the total rigs, working rigs, and rig utilization by
quarters from January 1, 1991 through December 31, 1995.
<TABLE>
<CAPTION>
MEASUREMENT TOTAL WORKING UTILIZATION
PERIOD RIGS RIGS PERCENTAGE
---------- ---- ------ -----------
<S> <C> <C> <C>
1st Qtr 91 7 7 100%
2nd Qtr 91 8 8 100%
3rd Qtr 91 8 8 100%
4th Qtr 91 7 7 100%
1st Qtr 92 8 8 100%
2nd Qtr 92 9 9 100%
3rd Qtr 92 10 8 80%
4th Qtr 92 11 11 100%
1st Qtr 93 19 17 89%
2nd Qtr 93 22 21 95%
3rd Qtr 93 22 20 91%
4th Qtr 93 20 18 90%
1st Qtr 94 19 17 89%
2nd Qtr 94 17 15 88%
3rd Qtr 94 15 12 80%
4th Qtr 94 15 10 67%
1st Qtr 95 15 11 73%
2nd Qtr 95 15 10 67%
3rd Qtr 95 14 10 71%
4th Qtr 95 12 17 58%
</TABLE>
SOURCE: OFFSHORE DATA SERVICES
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 had lower levels of jack-up demand. The Company was able to
contract two of its rigs (the MARINE 301 and MARINE 303) into this market in
late 1992 and another 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 (the MARINE 300)
completed its contract in mid-1995.
Rigs working in the Bay of Campeche are usually engaged by or on behalf
of Petroleos Mexicanos ("Pemex"), the national oil company of the Republic
of Mexico. Some of the rigs working for Pemex are subject to contracts
between the respective drilling contractors and Pemex and the other rigs are
working for turnkey companies which, in turn, have entered into turnkey
drilling contracts with Pemex. The MARINE 300, which completed its contract
in May 1995, 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. As of December 31, 1995, the Company had no
rigs in the Bay of Campeche.
INDIA
In August 1995, the Company received a contract to operate one of its
rigs offshore India. The rig, the MARINE 201, was mobilized to India and
commenced operations for Command Petroleum in November. 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%.
Historically, most of the rigs working offshore India have been
contracted to the Oil and Natural Gas Corporation Limited or its predecessors
in India ("ONGC"). In recent months, however, ONGC and the Indian government
have entered into agreements allowing other energy companies to drill
offshore India. As a result of these agreements, the Company currently
expects that jack-up demand offshore India will increase in the near future.
6
<PAGE>
The following table sets forth certain industry and Company historical
data for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . 140.1 135.8 116.5 120.9 144.0
Working jack-up rigs . . . . . 104.6 102.9 90.5 58.8 91.0
Utilization. . . . . . . . . . 75% 76% 78% 49% 63%
All other markets:
Total jack-up rigs . . . . . . 246.7 255.5 276.6 277.1 266.0
Working jack-up rigs . . . . . 197.5 192.5 216.9 216.8 235.0
Utilization. . . . . . . . . . 80% 75% 78% 78% 88%
COMPANY(2):
Total jack-up rigs . . . . . . 13.0 12.1 11.1 15.3 21.0
Working jack-up rigs . . . . . 8.9 9.8 9.9 6.3 12.0
Utilization. . . . . . . . . . 69% 81% 89% 41% 56%
Non-marketed rigs. . . . . . . 3.0 .8 .9 6.7 5.0
Utilization of marketed rigs . 89% 87% 97% 73% 73%
Average day rates(3) . . . . . $19,289 $19,686 $23,019 $13,816 $15,547
</TABLE>
______________
(1) Average of weekly data published by Offshore Data Services.
(2) The numbers included in the table represent the average number of rigs
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 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, including two
multi-well contracts and a one-year contract with extensions. In August
1995, the Company entered into a term contract for work in the Ravva License
Area offshore the east coast of India. The term of the contract is one year
beginning early November 1995 with options providing for a total of up to
three years work for the MARINE 201. The operator of the Ravva License Area
is Command Petroleum Limited of Sydney, Australia. The Company's objective
is to obtain additional domestic and international contracts to the extent
such contracts are available.
7
<PAGE>
The Company provides drilling services to a customer base which includes
independent and major oil and gas companies. As is typical in the industry,
the Company does business with a relatively small number of customers at any
given time. The loss of any one of the Company's customers could, at least on
a short-term basis, have a material adverse effect on the Company's
profitability. Management believes, however, that at current levels of
activity, the Company would have alternative customers for its services if it
lost any single customer and that the loss of any one customer would not have
a material adverse effect on the Company on a long-term basis. See Note 8 of
Consolidated Financial Statements included in this report for further
information regarding the Company's major customers. The Company's management
believes that its customer relationships are good.
ENVIRONMENTAL MATTERS
GENERAL
The Company is subject to numerous domestic and foreign governmental
regulations that relate directly or indirectly to its operations, including
certain regulations (a) controlling the discharge of materials into the
environment, (b) requiring removal and cleanup under certain circumstances,
(c) requiring the proper handling and disposal of waste materials, or (d)
otherwise relating to the protection of the environment. For example, the
Company, as an operator of mobile offshore drilling rigs in waters of the
United States and certain offshore areas, may be liable for damages and for
the cost of removing oil spills for which it is held responsible, subject to
certain limitations. Laws and regulations protecting the environment have
become more stringent in recent years and may, in certain circumstances,
impose "strict liability," rendering a company liable for environmental
damage without regard to negligence or fault on the part of such company.
Such laws and regulations may expose the Company to liability for the conduct
of or conditions caused by others or for acts of the Company that were in
compliance with all applicable laws at the time such acts were performed.
The application of these requirements or the adoption of new requirements
could have a material adverse effect on the Company. The Company believes
that it has conducted its operations in substantial compliance with all
applicable environmental laws and regulations.
The Company has generally been able to obtain contractual
indemnification in its drilling contracts against pollution and environmental
damages that are not caused by the gross negligence or willful misconduct of
the Company, but there can be no assurance that such indemnification will be
enforceable in all instances, that the customer will be financially able in
all cases to comply with its indemnity obligations, or that the Company will
be able to obtain such indemnification agreements in the future.
The Company maintains insurance coverage against certain environmental
liabilities, but there can be no assurance that such insurance will continue
to be available or carried by the Company or, if available and carried, will
be adequate to cover the Company's liability in the event of a catastrophic
occurrence.
U.S. OIL POLLUTION ACT OF 1990
The U.S. Oil Pollution Act of 1990 ("OPA '90") and regulations
promulgated pursuant thereto impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills. A "responsible party" includes the owner or
operator of an onshore facility or vessel, or the lessee or permittee of the
area in which an offshore facility is located. OPA '90 assigns liability to
each responsible party for oil removal costs and a variety of public and
private damages. While liability limits apply in some circumstances, a
responsible party for an Outer Continental Shelf facility must pay all spill
removal costs incurred by a federal, state or local government. OPA '90
establishes liability limits (subject to indexing) for mobile offshore
drilling rigs. If functioning as an offshore facility, the mobile offshore
drilling rigs are considered "tank vessels" for spills of oil on or above
the water surface, with liability limits of the greater of $1,200 per gross
ton or $10 million. To the extent damages and removal costs exceed this
amount, the mobile offshore drilling rigs will be treated as an offshore
facility and the offshore lessee will be responsible up to higher liability
limits of all removal costs plus $75 million. A party cannot take advantage
of liability limits if the spill was caused by gross negligence or willful
misconduct or resulted from violation of
8
<PAGE>
a federal safety, construction, or operating regulation. If the party fails
to report a spill or to cooperate fully in the cleanup, liability limits
likewise do not apply. Few defenses exist to the liability imposed by OPA
'90.
OPA '90 also imposes ongoing requirements on a responsible party. A
failure to comply with ongoing requirements or inadequate cooperation in a
spill event may subject a responsible party to civil or criminal enforcement
action. In short, OPA '90 places a burden on drilling rig owners or operators
to conduct safe operations and take other measures to prevent oil spills. If
a spill occurs, OPA '90 then imposes liability for resulting damages.
The ongoing requirements of OPA '90 include proof of financial
responsibility (to cover at least some costs in a potential spill), and
preparation of an oil spill contingency plan. Vessel financial
responsibility and contingency plan requirements have been promulgated by the
United States Coast Guard. On August 23, 1993, the Minerals Management
Service ("MMS") published an advance notice of its intention to adopt a rule
under OPA '90 that would require responsible parties for offshore facilities
to demonstrate $150,000,000 in financial responsibility, an amount set by the
statute. This notice generated significant controversy and opposition
throughout the oil and gas industry, and in May of 1995 the U.S. House of
Representatives passed a bill that would lower the financial responsibility
requirements applicable to offshore facilities to $35 million (the current
requirement under the Outer Continental Shelf Lands Act). In November of
1995 the U.S. Senate adopted similar but slightly different legislation that
must be reconciled with the House of Representatives bill before either bill
can be presented to President Clinton for approval. The Clinton
Administration has indicated support for limited changes to the OPA '90
financial responsibility requirements and that changes in the House of
Representatives bill may be too extensive. The potential for these
legislative efforts to affect OPA '90 financial responsibility requirements
applicable to the Company cannot be determined at this time, but the impact
of any financial responsibility requirement ultimately imposed by the MMS
should be no more burdensome on the Company than on similarly situated or
less capitalized drilling contractors operating in U.S. waters.
OUTER CONTINENTAL SHELF LANDS ACT (U.S.)
The Outer Continental Shelf Lands Act authorizes regulations relating to
safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of lease terms relating to environmental
matters or regulations issued pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as
potential court injunctions curtailing operations and the cancellation of
leases. Such enforcement liabilities can result from either governmental or
citizen prosecution.
CERCLA and RCRA (U.S.)
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, currently exempts crude oil, and the
Resource Conservation and Recovery Act ("RCRA"), as amended, currently
exempts certain drilling materials, such as drilling fluids and produced
water, from the definitions of hazardous substances and hazardous wastes for
purposes of these statutes. The Company's operations, however, may involve
the use or handling of other material that may be classified as
environmentally hazardous substances or wastes. There can be no assurances
that these exemptions will be preserved in future amendments of such acts, if
any, or that more stringent federal or state laws and regulations protecting
the environment will not be adopted. CERCLA assigns strict liability to each
responsible party for all response and remediation costs, as well as natural
resource damage. Few defenses exist to the liability imposed by CERCLA.
9
<PAGE>
GOVERNMENTAL REGULATION
The Company's business is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly
to the oil and gas industry. The adoption of laws and regulations curtailing
exploration and developmental drilling for oil and gas for economic,
environmental or other policy reasons would and have adversely affected the
operations of the Company by limiting available drilling opportunities for
its customers and/or increasing the costs of such activities to the Company
or its customers. The Company believes that it has conducted its operations
in substantial compliance with applicable governmental laws and regulations.
OPERATIONAL RISKS AND INSURANCE
Contract drilling operations are subject to various risks including
blowouts, cratering, fires and explosions, each of which could result in
damage to or destruction of drilling rigs and oil and gas wells, damage to
life and property, suspension of operations, and environmental damage through
oil spillage and extensive uncontrolled fires. The Company insures its
drilling rigs and plant assets for amounts approximating used equipment
replacement cost and also insures against catastrophic losses resulting from
employer's liability and other risks customary in the energy service
industry. The Company currently maintains insurance coverage it believes to
be customary in the industry against certain general and marine public
liabilities, including liabilities for personal injuries. Except in limited
circumstances, this insurance does not cover liability for pollution or
environmental damage that originates below the water surface, although the
Company is generally indemnified against such pollution and environmental
liabilities by its customers. There is no assurance that such insurance or
indemnification will be adequate to protect the Company against liability
from all consequences of well disasters, extensive fire damage or damage to
the environment. Recognizing these risks, the Company has programs that are
designed to promote a safe environment for its personnel and equipment.
EMPLOYEES
As of March 5, 1996, the Company had approximately 724 employees. The
number of employees varies throughout the year depending on the level of
drilling activity. The Company considers relations with its employees to be
good. None of the Company's employees is presently represented by labor
unions.
Crew quality is an important factor considered by the customer in
selecting a rig. Accordingly, the Company seeks experienced personnel when
selecting crews from among the available applicants and the Company maintains
a safety and personal training program. Due to the recent increases in
demand for drilling services in the U.S. Gulf of Mexico, there is currently a
shortage of experienced, qualified personnel. The Company has been forced to
raise its wage rates in recent months in order to attract qualified
personnel. Thus far, however, these increases have not been material.
10
<PAGE>
ITEM 2. PROPERTIES
RIG FLEET
All of the Company's thirteen rigs are jack-up rigs, which are mobile
self-elevating drilling platforms equipped with legs that can be lowered to
the ocean floor until a foundation is established to support the drilling
platform. An offshore rig consists of a hull, which supports the drilling
equipment, jacking system, crew quarters, loading and unloading facilities,
storage areas for bulk and liquid materials, helicopter landing deck and
other related equipment. The rig legs may operate independently or have a
lower hull or mat attached to the lower portion of the legs in order to
provide a more stable foundation in soft bottom areas. Nine of the Company's
rigs are mat supported rigs and four are of independent leg design. Five of
the mat supported rigs and one of the independent leg rigs are of slot type
design, which are configured for the drilling operations to take place
through a slot in the hull. The Company's other four mat supported rigs and
three of the independent leg rigs have a cantilever feature which allows the
extension of the drilling equipment over a customer's platform to perform
development drilling or workover operations. The Company's rigs are capable
of drilling to depths of 20,000 to 30,000 feet in maximum water depths
ranging from 200 to 300 feet.
There are several factors that determine the type of rig most suitable
for a particular job, the most significant of which include the water depth
and bottom conditions at the proposed drilling location, whether the drilling
is being done over a platform or other structure, and the intended well
depth. Independent leg jack-up rigs typically have greater water depth
capability and are advantageous in offshore areas where uneven bottom
conditions or obstructions, such as pipelines, exist. Mat-supported rigs are
advantageous in offshore areas with soft bottom conditions. A slot design is
appropriate for drilling exploratory wells in the absence of any existing
permanent structure, such as a production platform, although some slot design
rigs are capable of drilling over production platforms. A cantilevered
jack-up can extend its drill floor and derrick over an existing, fixed
structure, thereby permitting the rig to drill or work over a well located on
such a structure. Jack-up rigs with the cantilever feature historically have
achieved higher utilization and day rates.
The Company has top drive drilling systems installed on seven of its
rigs and plans to install such systems on several of its other rigs as a part
of its rig upgrading program. A top drive drilling system allows drilling
with 90-foot lengths of drill pipe rather than 30-foot lengths, thus reducing
the number of required connections. A top drive drilling system also permits
rotation of the drill string while tripping in or out of the hole. These
characteristics increase drilling speed, personnel safety and drilling
efficiency and reduce the risk of the drill string sticking during
operations.
11
<PAGE>
The following table describes the Company's drilling rigs as of March 5,
1996:
<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION RATED RATED
OR MAJOR WATER DRILLING
NAME OF RIG MAKE/DESIGN TYPE REFURBISHMENT DEPTH DEPTH LOCATION
- --------------------- ------------------- ---------- ------------- ----- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
INDEPENDENT LEG RIGS:
MARINE 300 T(a)(b)(c) F&G*/L780 MOD II Cantilever 1981 250' 30,000' U.S. Gulf of Mexico
MARINE 301 T F&G*/L780 MOD II Cantilever 1981 300' 25,000' U.S. Gulf of Mexico
MARINE 303 T(d) F&G*/L780 MOD II Cantilever 1982 300' 30,000' U.S. Gulf of Mexico
MARINE 304 T(c) MLT** Slot 1993 (e) 300' 30,000' U.S. Gulf of Mexico
MAT SUPPORTED RIGS:
MARINE 3 Bethlehem/262 Slot 1974 262' 25,000' U.S. Gulf of Mexico
MARINE 4 Bethlehem/250 Slot 1975 250' 25,000' U.S. Gulf of Mexico
MARINE 15 T Baker Marine/250 Slot 1996 (f)(g) 250' 25,000' U.S. Gulf of Mexico
MARINE 16 T Bethlehem/250 Slot 1995 (f) 250' 20,000' U.S. Gulf of Mexico
MARINE 17 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
MARINE 18 Bethlehem/250 Cantilever 1982 250' 20,000' U.S. Gulf of Mexico
MARINE 200 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
MARINE 201 T(c) Bethlehem/200 Cantilever 1995 (f) 200' 20,000' India
MARINE 225 Bethlehem/225 Slot 1993 (h) 225' 20,000' U.S. Gulf of Mexico
</TABLE>
_______________________
(a) The Company is fabricating additional legs to provide for 300 foot water
depth capacity.
(b) Designed to operate in environmentally sensitive areas such as Mobile Bay.
(c) Configured for international operations.
(d) The Company is fabricating additional personnel quarters to configure this
rig for international operations.
(e) Year of construction -- 1976
(f) Year of construction -- 1981
(g) At the date of this report, this rig was not marketed pending the
completion of refurbishment and upgrade activities.
(h) Year of construction -- 1969
T Equipped with top drive drilling system.
* Friede & Goldman.
** Marathon LeTourneau
RECENT RIG TRANSACTIONS
In August 1993, the Company acquired and refurbished the MARINE 304.
Later in 1993, the Company refurbished and reactivated the MARINE 225
(previously named the MARINE 1). During the fourth quarter of 1994, the
Company acquired the MARINE 3 (which the Company had chartered from its
former owner since early 1993) for approximately $5,500,000. In addition,
the Company acquired the MARINE 201 in December 1994 for approximately
$7,000,000.
12
<PAGE>
Independent Leg Rig -- This type of rig consists of a floating hull with
three independent elevated legs. After being towed to the drilling location,
the legs are lowered until they penetrate the seabed and the hull is jacked
to the desired elevation above sea level. The rig depicted in the diagram
has a cantilever feature that permits the rig to operate over an existing,
fixed platform or other structure.
[ART -- LINE DRAWING]
Mat Supported Rig -- This type of rig consists of a floating upper hull with
three legs which are attached to a lower hull commonly referred to as a mat.
After being towed to the drilling location, the legs are lowered until the
mat contacts the seabed and the upper hull is jacked to the desired elevation
above sea level. One advantage of mat supported rigs is the ability to
operate in areas having soft seabed conditions where independent leg rigs are
prone to have excessive penetration and subject to leg damage. The rig
depicted is cantilevered.
[ART -- LINE DRAWING]
13
<PAGE>
LEASED REAL PROPERTY
The Company leases approximately 19,000 square feet of office space in
Sugar Land, Texas for its headquarters. In addition, the Company leases a
warehouse, storage and repair facility, including approximately 31 acres of
land and 60,000 square feet of buildings, in Rosharon, Texas (near Houston).
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
GENERAL
Various claims have been filed against the Company and its subsidiaries
in the ordinary course of business, particularly claims alleging personal
injuries. Management believes that the Company has adequate insurance
coverage and has established adequate reserves for any liabilities which may
reasonably be expected to result from these claims. In the opinion of
management, no pending claims, actions or proceedings against the Company or
its subsidiaries are expected to have a material adverse effect on its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock, par value $.01 per share (the "Common
Stock"), trades on the Nasdaq Stock Market under the symbol "MDCO." The
following table sets forth the range of high and low sale prices per share of
the Common Stock as reported by the Nasdaq Stock Market for the periods
indicated.
<TABLE>
<CAPTION>
1995 1994
------------- --------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter. . . . . . . . . 3 1/4 2 1/2 6 3/4 4 5/8
Second Quarter . . . . . . . . 4 1/2 3 3/8 6 1/8 4 3/8
Third Quarter. . . . . . . . . 4 7/8 3 3/8 6 1/8 4 1/2
Fourth Quarter . . . . . . . . 5 1/8 3 1/2 4 3/4 2 5/8
</TABLE>
The last sale price of the Common Stock as reported by the Nasdaq Stock
Market on March 5, 1996 was $7 1/2 per share and there were approximately 500
holders of record.
The Company has not paid cash dividends on its Common Stock in the past
and does not intend to pay dividends on the Common Stock in the foreseeable
future. See Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included in Item 8 of this report.
15
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company as of and for each of the periods indicated. The selected
financial data for each of the five years in the period ended December 31,
1995 are derived from the Company's audited consolidated financial
statements. The information presented below should be read in conjunction
with Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and Notes
thereto included in Item 8 of this report.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993 (1) 1992 (1) 1991
-------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Drilling revenues . . . . . . . . . . . . . . . . $ 63,067 $ 70,597 $ 82,998 $ 31,621 $ 66,686
Drilling expenses . . . . . . . . . . . . . . . . 55,091 50,575 45,330 29,189 58,117
Depreciation and amortization . . . . . . . . . . 9,377 7,733 5,312 12,315 17,240
General and administrative. . . . . . . . . . . . 5,460 4,376 8,999 6,903 9,786
Rig writedown . . . . . . . . . . . . . . . . . . - - - 68,320 (2) -
Operating income (loss) . . . . . . . . . . . . . (6,861) 7,913 23,357 (85,106) (18,457)
Interest income (expense), net. . . . . . . . . . 639 1,280 (62) (9,628) (13,291)
Income (loss) before income taxes
and extraordinary item. . . . . . . . . . . . . (6,102) 9,123 23,301 (91,327) (34,462)
Income tax expense (benefit). . . . . . . . . . . (2,080) 3,193 8,278 40 -
Gains on early extinguishments
of debt . . . . . . . . . . . . . . . . . . . . - - - 104,523(3) -
Net income (loss) . . . . . . . . . . . . . . . . $ (4,022) $ 5,930 $ 15,023 $ 13,156 $ (34,462)
Weighted average common shares
outstanding (4) . . . . . . . . . . . . . . . . 43,812 43,819 40,936 5,823 753
PER SHARE DATA:
Income (loss) per common share before
extraordinary item (5). . . . . . . . . . . . . $ (0.09) $ 0.14 $ 0.37 $ (16.84) $ (56.29)
Extraordinary gains per common
share . . . . . . . . . . . . . . . . . . . . . - - - 17.95 -
Net income (loss) per common
share (5) . . . . . . . . . . . . . . . . . . . $ (0.09) $ 0.14 $ 0.37 $ 1.11 $ (56.29)
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . $ 12,260 $ 18,872 $ 21,969 $ 9,173 $ 4,503
Short-term investments. . . . . . . . . . . . . . - 18,137 - - -
Working capital (deficit) . . . . . . . . . . . . 23,316 48,529 32,089 (846)(6) (77,063)(6)
Total assets. . . . . . . . . . . . . . . . . . . 134,545 143,215 124,171 92,228 247,788
Long-term debt, non-current . . . . . . . . . . . 9,000 15,000 - 5,123 (6) 59,702 (6)
Deferred income taxes . . . . . . . . . . . . . . 6,144 8,365 5,376 - -
Preferred stock . . . . . . . . . . . . . . . . . - - - - (5) 57,233
Shareholders' equity. . . . . . . . . . . . . . . 107,572 112,731 106,417 60,695 26,741
</TABLE>
__________________________
(SEE NOTES ON FOLLOWING PAGE)
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
(1) During 1992 and the first quarter of 1993, the Company completed a series
of related transactions that constituted a restructuring and
recapitalization of 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 $148,000,000. As a part of the Recapitalization, the
Company adopted quasi-reorganization accounting procedures which allowed
the Company to eliminate its accumulated deficit against paid-in capital
and to revalue its assets and liabilities to estimated fair values.
(2) In connection with the Recapitalization, during 1992 the Company recorded a
rig writedown of $68,320,000 related to the transfer of seven rigs to the
United States Maritime Administration, and the writedown of four other rigs
to net realizable value.
(3) In connection with some of the Recapitalization transactions occurring in
1992, the Company recorded total debt discharges and related early
extinguishment gains of $117,967,000 and $104,523,000, respectively.
(4) Income (loss) per common share is based on the weighted average number of
common shares outstanding and common stock equivalents, if dilutive. Net
income per common share for the years ended December 31, 1995, 1994 and
1993 do not include the effect of outstanding stock options as the
potential dilution from their exercise is less than three percent.
(5) For the years ended December 31, 1992 and 1991, net income (loss) per
common share includes $1.15 and $10.54, respectively, per share of common
stock attributable to dividends on and discount accretion of preferred
stock. On October 29, 1992, the Company's preferred stock was converted
into 19,369,893 shares of common stock.
(6) The working capital deficit as of December 31, 1992 included $16,157,000
representing the current portion of long-term debt. The working capital
deficit as of December 31, 1991 included "Long-term debt currently due"
of $88,593,000 which was in default subsequent to December 31, 1991.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following is a discussion of the Company's financial condition,
results of operations, financial resources and working capital. This
discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in Item 8 of
this report. Also, please refer to the discussion included in "Business --
Industry Conditions and Competition" (Item 1) for an overview of the factors
affecting the Company's results during the periods discussed herein.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital at December 31, 1995 of $23,316,000 as
compared to working capital of $48,529,000 at December 31, 1994. The decrease
of $25,213,000 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 $3,827,000, $14,858,000 and $23,493,000 in 1995, 1994 and
1993, respectively.
From time to time, the Company invests portions of its cash in financial
instruments having maturities of greater than ninety days. These investments
are disclosed on the Company's balance sheet as short-term investments. For
internal funding purposes, however, the Company considers these investments
to be similar to cash and equivalents. Cash used in investing activities was
$2,967,000, $32,968,000 and $17,772,000 during 1995, 1994 and 1993,
respectively. For 1995, cash used for investing activities consisted
primarily of capital expenditures totalling $21,418,000 and was partially
funded by $18,137,000 of maturing short-term investments and fixed asset
sales of $314,000. Capital expenditures in 1995 consisted primarily of
$18,500,000 for the purchase of top drive drilling systems and other rig
upgrades as discussed below and drill pipe purchases of approximately
$2,500,000. Capital expenditures in 1994 consisted primarily of two offshore
drilling rig purchases in the fourth quarter, the MARINE 3 for $5,500,000 and
the MARINE 201 (formerly the Nordic Explorer) for $6,900,000. Other major
expenditures included $1,800,000 for the purchase of top drive drilling
systems and other rig upgrades and drill pipe purchases of approximately
$1,000,000. Cash used in investing activities in 1993 consisted primarily of
capital expenditures of $18,329,000, with the largest expenditures being the
acquisition and refurbishment of the MARINE 304 in August 1993. In addition
in 1993, the MARINE 225 was reactivated and refurbished at a cost of
$3,900,000 and the MARINE 303 was upgraded at a cost of $1,200,000. The
balance of $879,000 was used primarily for drill pipe and other purchases.
Cash used in or provided by financing activities was $(7,472,000),
$15,013,000, and $6,825,000 during 1995, 1994 and 1993, respectively. Cash
used in financing activities in 1995 consisted primarily of revolving debt
payments of $5,000,000 and stock repurchases totaling $2,659,000. Cash
provided by financing activities in 1994 consisted primarily of borrowings
under a credit facility. Cash provided by financing activities in 1993
consisted of the sale of common stock which was partially offset by the
payments of debt discussed below.
During the first quarter of 1993, the Company reduced its debt pursuant
to a redemption and retirement of $4,205,000 of indebtedness at 95% of face
value followed by additional debt retirements of $4,184,000. During the
third quarter of 1993, the Company retired its remaining indebtedness of
$10,274,000. In early July 1993, the Company completed a sale of 5,000,000
shares of Common Stock which provided net proceeds of approximately
$28,200,000. Approximately $422,000 of expenses were incurred in connection
with the offering.
18
<PAGE>
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. Accordingly, the Company may
elect to expand, defer or cancel portions of this program.
The Company continues to pursue the acquisition of additional drilling
rigs to enhance its fleet. At this time, however, the Company has no planned
or pending rig acquisitions. 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 would 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 resources.
At this time, the Company estimates its 1996 capital expenditures to be
approximately $9,400,000 consisting of (i) drill pipe expenditures, (ii) the
addition of a top drive drilling system and the fabrication of components to
increase the water depth of the MARINE 300, (iii) the fabrication of
international quarters for the MARINE 303, (iv) completion of the
reactivation, refurbishment, power system conversion and installation of a
top drive drilling system to the MARINE 15 and (v) other miscellaneous
expenditures.
On December 1, 1994, Keyes Holding Corporation ("KHC"), a wholly-owned
subsidiary of the Company, entered into a revolving credit/term 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 includes an 18-month revolving credit facility which is
convertible on June 1, 1996 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. 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, 1996, 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 2% of the excess of $10,000,000 over the amount
converted. As of December 31, 1995, 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 but one of those rigs has been reactivated,
however, the Company is currently preparing that rig to resume operations.
19
<PAGE>
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 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. 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. At December 31, 1995, the aggregate number of
treasury shares held by the Company was 534,210 and the number of shares
authorized for repurchase pursuant to its repurchase program was 3,465,790.
The Company believes that its available funds, together with cash
generated from operations and amounts that may be borrowed under the
revolving credit/term loan 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.
INCOME TAXES
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
FEDERAL INCOME TAX EFFECTS OF THE RECAPITALIZATION
The Company has taken the position that the Recapitalization did not
cause an ownership change under Section 382 of the Internal Revenue Code of
1986, as amended, (the "Code") based on the applicability of Section
382(l)(3)(C) and Regulation Section 1.382-2T(h)(4)(i)(B). Since neither the
Internal Revenue Service nor the Department of Treasury has established any
rules or guidance on Section 382(l)(3)(C), there can be no assurance that an
ownership change will not be deemed to have occurred. If an ownership change
were deemed to have occurred, the utilization of the Company's net operating
losses and investment tax credit carryforwards, would be substantially
limited.
Regardless of a change in ownership, the Recapitalization and certain
transactions related thereto have resulted in substantial reductions of the
Company's tax net operating loss carryforwards. Moreover, if the Company
fails to prevail on certain of the tax positions it has taken with respect to
the tax effects of those transactions, the Company's net operating loss
carryforwards could be further reduced in a substantial manner. Appropriate
valuation allowances for deferred tax assets have been established in the
consolidated financial statements based on management's consideration of
whether it is more likely than not that some portion or all of the net
operating losses and investment tax credit carryforwards will not be
realized.
Sales of significant numbers of shares of common stock by the Company or
certain significant shareholders of the Company could result in an ownership
change under Section 382 of the Code. An ownership change under Section 382
of the Code would limit the Company's ability to use its remaining net
operating losses against its future income in each taxable year to no more
than an amount equal to the product of the fair market value of the Company's
equity immediately prior to such an ownership
20
<PAGE>
change multiplied by the long-term federal exempt rate then in effect. Such
an ownership change would also limit the Company's ability to use its
investment tax credit and general business credit carryforwards for federal
income tax purposes.
For further discussion of the federal income tax effects of the
Recapitalization, see Note 5 to the Company's Consolidated Financial
Statements included in Item 8 of this report.
NEW FINANCIAL ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" was issued. The Company intends
to continue to use APB opinion No. 25 "Accounting for Stock Issued to
Employees" with respect to reporting the effects of employee stock options.
Effective December 31, 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). This
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes indicate the carrying amount of an asset may not
be recoverable. The adoption of SFAS 121 had no effect on the 1995
consolidated financial statements.
RESULTS OF OPERATIONS -- 1995 COMPARED WITH 1994
GENERAL
During 1995, the number of marketed rigs decreased as well as day rates
due primarily from a general decline in U.S. Gulf of Mexico jack-up rig
demand during the first five months of the year and reduced levels of
drilling activity in Mexico's Bay of Campeche.
REVENUES
During 1995, the Company generated drilling revenues of $63,067,000
which represented a decrease of $7,530,000 or 11% compared to 1994 drilling
revenues of $70,597,000. The change in revenues reflected the net effect of
the following factors: (i) a decrease in the number of marketed rigs from 11
during the 1994 period to 10 rigs during 1995 due to softer business
conditions as previously discussed; (ii) an increase in utilization of
marketed rigs from 87% during the 1994 period to 89% during 1995; and (iii) a
2% decrease in average day rates from $19,686 during the 1994 period to
$19,289 in 1995. The decrease in average day rates and number of marketed
rigs resulted primarily from the factors discussed above. The reduction in
revenues derived by the Company from the Bay of Campeche for 1995 was a
result of the MARINE 300 completing its contract in May 1995. The Company
has had no rigs in the Bay of Campeche since that time. During November
1995, the MARINE 201 completed its mobilization to India and commenced
operations under a twelve-month term contract.
COSTS AND EXPENSES
Contract drilling expenses of $55,091,000 in 1995 represented an
increase of $4,516,000 or 9% compared to contract drilling expenses of
$50,575,000 in 1994. The increase was primarily the result of costs of
approximately $2,500,000 (reimbursed by its customer and included as drilling
revenues) incurred to mobilize the MARINE 201 to India, the MARINE 225
returning to work in 1995 and the MARINE 300 returning to the U.S. Gulf of
Mexico with a full crew compliment. The increase was partially offset by a
reduction in the number of marketed rigs due to soft market conditions.
21
<PAGE>
Depreciation and amortization expense increased $1,644,000 or 21% from
$7,733,000 in 1994 to $9,377,000 in 1995. The increase resulted primarily
from the acquisition of the MARINE 3 in the fourth quarter of 1994,
expenditures for the acquisition and refurbishment of the MARINE 201,
expenditures to upgrade the MARINE 16 and the MARINE 303, purchases of drill
string and amortization of deferred loan costs.
General and administrative expenses in 1995 increased $1,084,000 or 25%
from $4,376,000 in 1994 to $5,460,000 compared to 1995. The increase was
primarily related to an increase in benefit-related expenses of $480,000 due
to credits received in 1994 which were not received in 1995, an increase of
$301,000 related to increased marketing activities and other general
increased expenses.
INTEREST EXPENSE
Interest expense in 1995 was $855,000 and consisted of the following:
(i) interest of $920,000 based on an average interest rate of 8.5% on an
average borrowed balance of approximately $10,800,000, (ii) credit facility
fees of $61,000 and (iii) a capitalized interest credit of approximately
$126,000. The Company had interest expense of $70,000 during 1994.
INTEREST INCOME
Interest income increased $144,000 or 11% from $1,350,000 in 1994 to
$1,494,000 in 1995. The increase was related primarily to increased cash
balances during 1995, as well as improved interest rates on invested balances
during the first ten months of 1995.
INCOME TAXES
Income tax benefits of $2,080,000 for the year ended December 31, 1995,
consisted of current state and federal income taxes of $56,000, tax benefits
related to Common Stock issued pursuant to the Marine Drilling 1992 Long Term
Incentive Plan of $85,000 and deferred federal income taxes of $2,221,000.
RESULTS OF OPERATIONS -- 1994 COMPARED WITH 1993
GENERAL
The Company's results in 1994 reflected the impact of increased
competition in the U.S. Gulf of Mexico and reduced activity levels in
Mexico's Bay of Campeche. Increased competition in the U.S. Gulf of Mexico
resulted from (i) an influx of jack-up rigs into that market from other
markets, (ii) an increased supply of marketed rigs due to reactivations of
previously nonmarketed rigs and (iii) lower than expected growth in jack-up
demand because of generally lower natural gas prices. Although demand for
jack-ups in the U.S. Gulf of Mexico increased by approximately 14% from 1993,
the supply of marketed jack-ups grew by 26% during that period. The effects
of this increased competition in that market included generally lower
utilization and day rates experienced by the Company.
REVENUES
During 1994, the Company generated drilling revenues of $70,597,000
which represented a decrease of $12,401,000 or 15% compared to 1993 drilling
revenues of $82,998,000. The change in revenues reflected the net effect of
the following factors: (i) an increase in the number of marketed rigs from
10 during the 1993 period to 11 rigs during 1994; (ii) a decrease in
utilization of marketed rigs from 97% during the 1993 period to 87% during
1994; and (iii) a 14% decrease in average day rates from $23,019 during the
1993 period to $19,686 in 1994. The decreases in utilization and average
day rates resulted from the market conditions discussed above. Revenues from
the Bay of Campeche market
22
<PAGE>
accounted for 28% ($23,459,000) and 10% ($7,306,000) of the Company's
revenues in 1993 and 1994, respectively, and 37% ($8,538,000) and 34%
($2,698,000) of the Company's operating income for 1993 and 1994,
respectively.
COSTS AND EXPENSES
Contract drilling expenses of $50,575,000 in 1994 represented an
increase of $5,245,000 or 12% compared to contract drilling expenses of
$45,330,000 in 1993. This increase was primarily the result of the addition
of two rigs to the Company's active fleet in late 1993 and through most of
1994. The MARINE 225 (formerly the MARINE 1) was refurbished and operated
from October 1993 to May 1994 and again in November and December 1994. The
MARINE 304 was purchased, refurbished and activated in late 1993.
Depreciation and amortization expense increased $2,421,000 or 46% from
$5,312,000 in 1993 to $7,733,000 in 1994. The increase was primarily caused
by the MARINE 304 and the MARINE 225 having a full year of depreciation in
1994 and, to a lesser extent, the MARINE 303 upgrade and the MARINE 3
acquisition in November 1994.
General and administrative expenses decreased from $8,999,000 in 1993 to
$4,376,000 in 1994, a $4,623,000 or 51% decrease. General and administrative
expenses were higher in 1993 primarily as a result of executive bonuses of
$4,436,000 paid pursuant to bonus agreements which were based upon the price
of the Company's stock in November 1993. Excluding these bonuses, 1994's
general and administrative expenses decreased 4% or $187,000 from the 1993
expenses.
INTEREST EXPENSE
Interest expense decreased $510,000 or 88% from $580,000 in 1993 to
$70,000 in 1994. The decrease was related primarily to a reduction in
outstanding indebtedness as a result of the Recapitalization.
INTEREST INCOME
Interest income increased $832,000 or 161% from $518,000 in 1993 to
$1,350,000 in 1994. The increase was related primarily to increased cash
balances during 1994, as well as higher interest rates on short-term
investments.
INCOME TAXES
Income taxes of $3,193,000 for the year ended December 31, 1994,
consisted of current state and federal income taxes of $154,000, tax benefits
related to Common Stock issued pursuant to the Marine Drilling 1992 Long Term
Incentive Plan of $50,000 and deferred federal income taxes of $2,989,000.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have audited the consolidated financial statements of Marine Drilling
Companies, Inc. and subsidiaries as listed in Item 14 on page 40. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in Item 14 on page 40. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marine
Drilling Companies, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
January 26, 1996
24
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 12,260 $ 18,872
Short-term investments - 18,137
Accounts receivable - trade and other, net 18,078 15,353
Inventory 1,272 116
Prepaid expenses and other 1,380 1,020
-------- --------
Total current assets 32,990 53,498
Property and Equipment 123,442 102,431
Less accumulated depreciation 22,090 13,010
-------- --------
Property and equipment, net 101,352 89,421
Other 203 296
-------- --------
$134,545 $143,215
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,000 $ -
Accounts payable 5,721 2,283
Accrued expenses 1,927 1,854
Employer's liability claims, current 1,026 832
-------- --------
Total current liabilities 9,674 4,969
Long-Term Debt 9,000 15,000
Employer's Liability Claims, non-current 2,155 2,150
Deferred Income Taxes 6,144 8,365
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued 44,169,643 and outstanding 43,635,433
shares in 1995 and 43,917,766 shares issued and
outstanding in 1994 442 439
Common stock restricted (505) (804)
Treasury stock, at cost (534,210 shares in 1995) (2,016) -
Additional paid-in capital 92,720 92,143
Retained earnings from January 1, 1993 16,931 20,953
-------- --------
Total shareholders' equity 107,572 112,731
-------- --------
Commitments and contingencies
$134,545 $143,215
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues $63,067 $70,597 $82,998
Costs and Expenses:
Contract drilling 55,091 50,575 45,330
Depreciation and amortization 9,377 7,733 5,312
General and administrative 5,460 4,376 8,999
------- ------- -------
69,928 62,684 59,641
------- ------- -------
Operating income (loss) (6,861) 7,913 23,357
------- ------- -------
Other Income (Expense):
Interest expense (855) (70) (580)
Interest income 1,494 1,350 518
Other income (expense) 120 (70) 6
------- ------- -------
759 1,210 (56)
------- ------- -------
Income (loss) before income taxes (6,102) 9,123 23,301
Income tax expense (benefit) (2,080) 3,193 8,278
------- ------- -------
Net income (loss) $(4,022) $ 5,930 $15,023
------- ------- -------
------- ------- -------
Net income (loss) per common share $ (0.09) $ 0.14 $ 0.37
------- ------- -------
------- ------- -------
Weighted average common shares outstanding 43,812,161 43,819,049 40,936,209
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
ISSUED IN TREASURY ADDITIONAL
------------------- ----------------- PAID-IN RESTRICTED RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK EARNINGS
---------- ------ ------- ------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 38,026,459 $380 - $ - $60,315 $ - $ -
Net income - - - - - - 15,023
Issuance of common stock
related to stock offering 5,000,000 50 - - 28,150 - -
Common stock offering expenses - - - - (422) - -
Issuance of restricted common stock 385,000 4 - - 1,122 (1,126) -
Accrual of compensation expense - - - - - 233 -
Forfeitures of restricted common stock (30,000) - - - (49) 49 -
Common stock options exercised 261,030 3 - - 324 - -
Issuance of common stock for 401(k) plan 40,105 - - - 199 - -
Pre-quasi-reorganization net
operating loss carryforwards - - - - 1,612 - -
Tax benefits related to common
stock issued pursuant to long
term incentive plan - - - - 490 - -
Other 74 - - 60 - -
---------- ---- ------- ------- ------- ------- -------
Balances at December 31, 1993 43,682,668 437 - - 91,801 (844) 15,023
Net income - - - - - - 5,930
Issuance of restricted common stock 83,000 1 - - 414 (415) -
Accrual of compensation expense - - - - - 318 -
Forfeitures of restricted common stock (31,250) - - - (137) 137 -
Common stock options exercised 10,000 - - - 13 - -
Issuance of common stock for 401(k) plan 173,348 1 - - 815 - -
Tax benefits related to common
stock issued pursuant to long
term incentive plan - - - - 50 - -
Other - - - - (813) - -
---------- ---- ------- ------- ------- ------- -------
Balances at December 31, 1994 43,917,766 439 - - 92,143 (804) 20,953
Net loss - - - - - - (4,022)
Purchases of stock - - 735,633 (2,659) - - -
Issuance of restricted common stock 53,500 1 - - 147 (148) -
Accrual of compensation expense - - - - - 333 -
Forfeitures of restricted common stock (20,000) - - - (114) 114 -
Common stock options exercised 130,000 1 (20,000) 61 125 - -
Issuance of common stock for 401(k) plan 88,377 1 (166,528) 531 325 - -
Tax benefits related to common
stock issued pursuant to long
term incentive plan - - - - 85 - -
Issuance of stock for Non-
Employee Directors' Plan - - (14,895) 51 9 - -
---------- ---- ------- ------- ------- ------- -------
Balances at December 31, 1995 44,169,643 $442 534,210 $(2,016) $92,720 $ (505) $16,931
---------- ---- ------- ------- ------- ------- -------
---------- ---- ------- ------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(4,022) $ 5,930 $ 15,023
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes (2,221) 2,989 5,376
Pre-quasi-reorganization net operating loss
carry-forwards - - 1,612
Tax benefits related to common stock issued
pursuant to long term incentive plan 85 50 490
Depreciation and amortization 9,377 7,733 5,312
Gain on disposition of equipment (153) (453) (462)
Accrual of compensation expense 333 318 233
Issuance of common stock to the employee
retirement plan and the Non-Employee
Directors' Plan 917 816 199
(Increase) decrease in receivables (2,725) 4,003 (7,397)
Increase in prepaid expenses, other and inventory (1,516) (191) (94)
Increase (decrease) in payables, accrued
expenses and employer's liability claims 3,710 (5,259) 2,125
Other 42 (1,078) 1,076
-------- -------- --------
Net cash provided by operating activities 3,827 14,858 23,493
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of short-term investments - (29,537) -
Proceeds from matured short-term investments 18,137 11,400 -
Purchase of equipment (21,418) (15,385) (18,329)
Proceeds from disposition of equipment 314 554 557
-------- -------- --------
Net cash used in investing activities (2,967) (32,968) (17,772)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from long-term debt - 15,000 -
Proceeds from sale of common stock - - 28,200
Proceeds from exercise of stock options 187 13 327
Issuance cost of sale of common stock - - (422)
Payments of debt (5,000) - (21,280)
Purchase of treasury stock (2,659) - -
-------- -------- --------
Net cash provided by (used in) financing
activities (7,472) 15,013 6,825
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents (6,612) (3,097) 12,546
Cash and cash equivalents at beginning of period 18,872 21,969 9,423
-------- -------- --------
Cash and cash equivalents at end of period $ 12,260 $ 18,872 $ 21,969
-------- -------- --------
-------- -------- --------
</TABLE>
[Continued]
See notes to consolidated financial statements.
28
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (Continued)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 981 $ 70 $ 580
Income taxes paid 55 441 513
-------- -------- --------
-------- -------- --------
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Issuance of 53,500, 83,000 and 385,000 shares in
1995, 1994 and 1993, respectively, of restricted
common stock $ 148 $ 415 $ 1,126
Forfeiture of 20,000, 31,250 and 30,000 shares in
1995, 1994 and 1993, respectively, of restricted
common stock $ (114) $ (137) $ (49)
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994 and 1993
(in thousands, except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION -- References
herein to the "Company" refer to Marine Drilling Companies, Inc. ("Parent")
and its wholly-owned subsidiaries, Marine Drilling Management Company
("MDMC"), Keyes Holding Corporation ("KHC") and Marine Drilling
International, Inc. unless the context otherwise requires a reference only to
the Parent. The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS -- The Company is engaged in the offshore
contract drilling of oil and gas wells, primarily in the U.S. Gulf of Mexico,
for independent and major oil and gas companies. The Company owns and
operates a fleet of thirteen mobile offshore jack-up drilling rigs,
consisting of four independent leg units, three of which have a cantilever
feature, and nine mat supported units, four of which have a cantilever
feature. The Company's rigs are currently capable of drilling to depths of
20,000 to 30,000 feet in maximum water depths ranging from 200 to 300 feet.
As of the date of this report, twelve of the Company's thirteen rigs were
located in the U.S. Gulf of Mexico and one was located offshore India. The
Company currently derives substantially all of its revenues from offshore
drilling in the U.S. Gulf of Mexico and in India. 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.
INVENTORY -- Inventory consists of operating supplies primarily for the
Company's India operations and are carried at the lower of cost or market.
PROPERTY AND EQUIPMENT -- Effective December 31, 1995, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121"). This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes indicate the carrying amount of an
asset may not be recoverable. The adoption of SFAS 121 had no effect on the
1995 consolidated financial statements.
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption
of quasi-reorganization accounting procedures. Depreciation is provided on
the straight-line method over the estimated remaining useful lives of the
assets which are as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Jack-up rigs 5 to 15
Drill string 4
Other equipment 5
</TABLE>
Maintenance and repairs amounted to $8,219, $8,600 and $8,030 in 1995,
1994 and 1993, respectively. Expenditures for major renewals and betterments
are capitalized. Expenditures for normal maintenance and repairs are charged
to expense as incurred. When property or equipment is retired, the related
assets and accumulated depreciation are removed from the accounts and a gain
or loss is reflected in other income (expense). The Company continues to
depreciate idle drilling equipment using the same rates as while operating.
The Company capitalizes interest expense related to certain capital
expenditure projects. Capitalized interest was approximately $126 for 1995.
30
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYER'S LIABILITY CLAIMS -- Employer's liability claims, principally
arising from actual or alleged personal injuries, are estimates of the
Company's liabilities for such occurrences. These claims are classified as
current or long-term based upon the periods in which such claims are expected
to be funded.
DEFERRED FINANCING COSTS -- Deferred financing costs are amortized over
the life of the related debt. Deferred financing costs, net of accumulated
amortization were $183 and $228, respectively, at December 31, 1995 and 1994.
INCOME TAXES -- Deferred tax assets and liabilities are recorded to
reflect the future tax consequences of differences between the financial
statement and tax bases of existing assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
REVENUE RECOGNITION -- Drilling revenues are recorded pursuant to day
rate contracts, under which the Company receives a fixed amount per day for
providing drilling services using the rigs it operates.
CASH AND CASH EQUIVALENTS -- The Company generally considers all highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
SHORT-TERM INVESTMENTS -- Short-term investments consist of corporate
debt securities, mortgage-backed securities and corporate paper. The Company
classifies its short-term investments as held-to-maturity securities.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Premiums and discounts are amortized or
accreted over the life of the related held-to-maturity security as an
adjustment to yield using the effective interest method. Dividend and
interest income are recognized when earned. The fair value of the short-term
investments at December 31, 1994 was $18,133. There were no short-term
investments at December 31, 1995.
TREASURY STOCK -- Treasury stock is acquired under the cost method and
valued upon reissuance using the first-in, first-out method. During 1995,
the Company purchased 735,633 shares of common stock at an aggregate cost of
$2,659. In addition, during 1995, the Company reissued 201,423 shares at an
aggregate cost of $643 for the employee and non-employee benefit plans. No
shares were purchased in 1994. At December 31, 1995, the Company had
remaining authorization under the stock purchase program to acquire an
additional 3,465,790 shares.
INCOME (LOSS) PER COMMON SHARE -- Income (loss) per common share is
based on the weighted average number of common shares outstanding and common
stock equivalents, if dilutive. Net income per common share for the years
ended December 31, 1995, 1994 and 1993 do not include the effect of
outstanding stock options since they are either antidilutive or the potential
dilution from their exercise is less than three percent.
RECLASSIFICATION OF ACCOUNTS -- Certain reclassifications have been made
to the 1994 and 1993 consolidated financial statements to conform with the
current presentation.
31
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK -- The market for the Company's services
and products is the offshore oil and gas industry, and the Company's
customers consist primarily of independent and major oil and gas companies.
The Company performs ongoing credit evaluations of its customers and obtains
collateral security as deemed prudent. The Company has established an
adequate allowance for bad debts, and such losses have been within
management's expectations (see Note 8). At December 31, 1995 and 1994, the
Company had cash deposits concentrated primarily in one major bank. In
addition, the Company had certificates of deposits, commercial paper and
Eurodollar time deposits with a variety of companies and financial
institutions with strong credit ratings, and such securities are held until
maturity. The Company believes that credit and market risk in such
instruments is minimal.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- The fair values of the Company's
cash equivalents, trade receivables and trade payables approximated their
carrying values due to the short-term maturities of these instruments. The
estimated fair value of long-term debt is equivalent to its carrying value
due to the floating interest rate (see note 4).
USE OF ESTIMATES -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption
of quasi-reorganization accounting procedures, and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Jack-up rigs. . . . . . . . . . . . . . $100,811 $ 97,618
Drill string . . . . . . . . . . . . . 4,725 2,634
Other equipment . . . . . . . . . . . . 730 345
Construction in progress. . . . . . . . 17,176 1,834
-------- --------
$123,442 $102,431
-------- --------
-------- --------
</TABLE>
Depreciation expense was $9,326, $7,733 and $5,312 for the years ended
December 31, 1995, 1994 and 1993, respectively. The Company rents drilling
rigs, certain equipment and other property under operating leases. Rental
expense was $2,066, $1,707 and $936 in 1995, 1994 and 1993, respectively.
(3) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Accrued payroll and related taxes . . . $ 884 $1,085
Accrued health benefit plan claims. . . 462 300
Other accrued expenses. . . . . . . . . 581 469
------ ------
$1,927 $1,854
------ ------
------ ------
</TABLE>
32
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
KHC note payable to lender due 1999 . . . $10,000 $15,000
LESS:
Current portion of long-term debt . . . 1,000 -
------- -------
Long-term debt, non-current . . . . . . $ 9,000 $15,000
------- -------
------- -------
</TABLE>
KHC - NOTE PAYABLE TO LENDER -- On December 1, 1994, KHC entered into a
$35,000 revolving/term loan agreement (the "Loan") with a U.S. financial
institution ("Lender"). As of December 31, 1995, the related debt
outstanding was $10,000 and the amount of unused line of credit subject to
the Loan was $25,000. 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 is a guarantor for up to an
aggregate of $8,750 under the Loan. On June 1, 1996, all amounts borrowed
under the Loan may be converted to a term loan.
If converted, the term loan will be due in thirty-six (36) consecutive
monthly installments, beginning July 1, 1996 and ending June 1, 1999
amortizing at the rate of 20% of the term loan balance per year with the
remaining 40% principal balance due and payable concurrently with the last
payment. KHC must maintain a minimum borrowing of $10,000 (the "minimum
borrowing") on the Loan after June 1, 1996. If the Company's average
borrowings under the revolving loan or the term loan are less than the
minimum borrowing, KHC will be required to pay a non-utilization fee of 2% of
the difference between the actual average borrowed balance and the minimum
borrowing. The term loan may be prepaid at any time after the eighteenth
payment (December 1, 1997). A prepayment premium of 1% of the prepaid
principal amount will be due with each such prepayment. Repayments may not
be re-borrowed during the term loan period.
Interest is due monthly on the outstanding principal balance at the
London Interbank Offered Rate ("LIBOR") plus 2.5%. The interest rate as of
December 31, 1995 was 8.3%. A revolving loan fee is due quarterly during the
revolving loan period based on the unused credit facility at .25%.
The note is secured by a first preferred fleet mortgage on the MARINE
300, 301 and 303 drilling rigs. The three drilling rigs must be appraised on
the term loan conversion date, June 1, 1996. The term loan will be limited
to 50% of the appraised value of the rigs. The Company and KHC are required
to comply with various covenants, including, but not limited to, the
maintenance of financial ratios related to (i) debt to total equity and (ii)
working capital to fixed expenses and projected debt services.
Interest payments on the loan amounted to $981 and $70 for the years
ended December 31, 1995 and 1994, including revolving loan fees of $60 and
$5, respectively. A facility fee of $175 was paid to the Lender during the
fourth quarter 1994 and will be amortized over the life of the loan.
The scheduled repayment of long-term debt as of December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 Total
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Annual maturities. . . . $1,000 $2,000 $2,000 $5,000 $10,000
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
33
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Current:
U.S. federal. . . . . . . . . . . . . . . . . . . $ - $ 153 $ 408
State . . . . . . . . . . . . . . . . . . . . . . 1 1 12
Foreign . . . . . . . . . . . . . . . . . . . . . 55 - 380
------- ------ ------
56 154 800
------- ------ ------
Other:
U.S. federal -- deferred. . . . . . . . . . . . . (2,221) 2,989 5,376
Pre-quasi-reorganization net operating loss
carry-forwards. . . . . . . . . . . . . . . . . - - 1,612
Tax benefits related to common stock issued
pursuant to long-term incentive plan. . . . . . 85 50 490
------- ------ ------
(2,136) 3,039 7,478
------- ------ ------
Total tax provision (benefit) . . . . . . . . . . . $(2,080) $3,193 $8,278
------- ------ ------
------- ------ ------
</TABLE>
As a result of the adoption of quasi-reorganization accounting
procedures on December 31, 1992, the tax effect of the realization of tax
attributes generated prior thereto are recorded directly to shareholders'
equity and are not reflected as a reduction of income tax expense.
For the years ended December 31, 1995, 1994 and 1993, the effective tax
rate for financial reporting purposes approximates the U.S. federal statutory
rate of 35%.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . $ 31,361 $ 28,804
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . 11,356 13,410
Employer's liability claims. . . . . . . . . . . . . 1,113 1,044
Allowance for bad debts. . . . . . . . . . . . . . . 45 1
-------- -------
Total gross deferred tax assets. . . . . . . . . . . 43,875 43,259
Less valuation allowance . . . . . . . . . . . . . . (36,738) (38,649)
-------- -------
Net deferred tax assets. . . . . . . . . . . . . . . 7,137 4,610
-------- -------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation. . . . . . . . . . . . . . . . . . 11,896 11,273
Deferred intercompany gains and losses . . . . . . . 1,385 1,702
-------- -------
Total gross deferred tax liabilities . . . . . . . . 13,281 12,975
-------- -------
Net deferred tax liability . . . . . . . . . . . . . $ 6,144 $ 8,365
-------- -------
-------- -------
</TABLE>
34
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets as of December 31, 1995
and 1994 was $36,738 and $38,649, respectively. The net change in the total
valuation allowance for the years ended December 31, 1995 and 1994 was a
decrease of $1,911 and $3,560, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon projections for future taxable income over the
periods which the deferred tax assets are deductible and the Section 382
limitation as discussed below, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at December 31, 1995.
At December 31, 1995, the Company had net operating loss carryforwards
for federal income tax purposes of $89,602 which are available to offset
future federal taxable income, if any, through 2007. The Company also had
investment tax credit and general business credit carryforwards for federal
income tax purposes of approximately $11,356 (including $1,844 which are
subject to the limitation as to their use imposed in connection with the 1989
Ownership Change as discussed below) at December 31, 1995 which are available
to reduce future federal income taxes, if any, through 2000.
The Company has taken the position that its recapitalization in 1992
(the "Recapitalization") did not cause an ownership change under Section 382
of the Internal Revenue Code of 1986, as amended ("Code"). The Company's
position is based on the applicability of Section 382(l)(3)(C) of the Code,
which provides generally that any change in the proportionate ownership
attributable solely to fluctuations in relative fair market value of
different classes of stock are not to be taken into account for purposes of
Section 382. To date, neither the Internal Revenue Service nor the United
States Department of Treasury has established any rules or guidance as to how
such Section will be interpreted or applied to situations similar to the
Recapitalization. Accordingly, there can be no assurance that an ownership
change for purposes of Section 382 will not be deemed to have occurred as a
result of the Recapitalization. If an ownership change were deemed to have
occurred, the utilization of the Company's net operating losses, against its
future income, if any, would be limited annually to approximately $1,500.
Since such limitation would be less than the Section 382 limitation
(approximately $9,000) imposed as a result of the Company's 1989 sale of
Common Stock which resulted in an ownership change ("1989 Ownership Change")
pursuant to Section 382 of the Code, the Section 382 limitation imposed in
connection with the Recapitalization would apply to all net operating losses
applicable to the period before the Recapitalization.
(6) BENEFIT PLANS
LONG TERM INCENTIVE PLANS -- In late 1992, the Company adopted the
Marine Drilling 1992 Long Term Incentive Plan ("1992 Plan"). Pursuant to the
terms of the 1992 Plan, an aggregate of 10,000,000 shares (subject to the
restrictions described herein) of common stock are available for distribution
pursuant to stock options, SARs and restricted stock. The number of shares
of common stock available for distribution as described above is further
limited in that no stock options, SARs or restricted stock may be issued if,
immediately after such issuance, the number of shares subject to outstanding
stock options, SARs and restricted stock awards would exceed 5% of the common
stock then outstanding. The shares of common stock subject to any stock
option or SAR that terminates without a payment being made in the form of
common stock would again become available for distribution pursuant to the
1992 Plan.
RESTRICTED COMMON STOCK -- During 1995, 1994 and 1993, the Company
issued restricted stock grants consisting of 53,500, 83,000 and 385,000
shares, respectively, of common stock. These grants generally lapse over
four-year periods and the values of the grants are based on the respective
closing prices on the day preceding each grant and are recognized as
compensation expense over the periods during which the restrictions lapse.
Compensation expense related to the issuance of restricted common stock for
the years ended December 31, 1995, 1994 and 1993 was $333, $318 and $233,
respectively.
35
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, 1994 and 1993, respectively, 20,000, 31,250 and 30,000 shares of
restricted common stock were forfeited.
COMMON STOCK OPTIONS -- The following table summarizes stock option
transactions pursuant to the 1992 Plan:
<TABLE>
<S> <C>
Options outstanding - December 31, 1992 . . . . . . . . . . 1,613,080
Granted - June 29, 1993 ($6.00 per share) . . . . . . . . 190,000
Exercised ($1.25 per share) . . . . . . . . . . . . . . . (261,030)
Forfeited ($1.25 per share) . . . . . . . . . . . . . . . (1,400)
---------
Options outstanding - December 31, 1993 . . . . . . . . . . 1,540,650
Granted - October 12, 1994 ($4.25 per share). . . . . . . 75,000
Exercised ($1.25 per share) . . . . . . . . . . . . . . . (10,000)
Forfeited ($1.25 per share) . . . . . . . . . . . . . . . (30,000)
---------
Options outstanding - December 31, 1994 . . . . . . . . . . 1,575,650
Granted - February 28, 1995 ($2.50 per share) . . . . . . 530,000
Exercised ($1.25 per share) . . . . . . . . . . . . . . . (150,000)
Forfeited ($4.25 per share) . . . . . . . . . . . . . . . (75,000)
---------
Options outstanding - December 31, 1995 . . . . . . . . . . 1,880,650
---------
---------
</TABLE>
The following table sets forth the shares subject to options outstanding
under the 1992 Plan at December 31, 1995:
<TABLE>
<CAPTION>
EXERCISE EXERCISE EXERCISE
PRICE/SHARE PRICE/SHARE PRICE/SHARE
@ $1.25 @ $2.50 @ $6.00 TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Fully vested and exercisable. . 793,150 - 95,000 888,150
Vesting during 1996 . . . . . . 367,500 132,500 47,500 547,500
Vesting during 1997 . . . . . . - 132,500 47,500 180,000
Vesting during 1998 . . . . . . - 132,500 - 132,500
Vesting during 1999 . . . . . . - 132,500 - 132,500
--------- ------- ------- ---------
Total. . . . . . . . . . . . 1,160,650 530,000 190,000 1,880,650
--------- ------- ------- ---------
--------- ------- ------- ---------
</TABLE>
Based upon Common Stock outstanding as of December 31, 1995 and 1994 and
shares reserved for issuance as set forth above, the number of shares then
available for future stock options, SARs and restricted stock grants was
180,332 and 432,721 shares, respectively.
EMPLOYEE 401(K) PROFIT SHARING PLAN -- The Company has a 401(k) Profit
Sharing Plan (the "401(k) Plan") covering substantially all of its employees
who have been employed at least three months. The Company matches employees'
contributions to the Plan on a dollar-for-dollar basis, in the form of
Company common stock, up to 5% of their eligible compensation. During 1995,
1994 and 1993, the Company made matching contributions with the Company's
common stock totaling $843, $744 and $354, respectively.
EXECUTIVE DEFERRED COMPENSATION PLAN -- The Company adopted the
Executive Deferred Compensation Plan (the "Executive Plan") effective
December 31, 1994. Employees who participate in the Executive Plan are
selected by an Administrative Committee. Under the Executive Plan, the
participating executives may elect (i) to defer up to 15% of compensation
after reaching the limitations applicable to the Company's 401(k) Plan and
(ii) to defer any excess contributions refunded by the 401(k) Plan. As of
December 31, 1995, the amount deferred under the Executive Plan was $63.
36
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NON-EMPLOYEE DIRECTORS' PLAN -- The Company adopted the 1995
Non-Employee Directors' Plan (the "Directors' Plan") effective June 29, 1995.
The Directors' Plan provides for the grant of shares and options to acquire
common stock to each director who is not an employee of the Company. A
maximum of 350,000 shares may be issued pursuant to stock awards or options.
Each option granted will vest and become exercisable one year after its grant
and will expire ten years from the date the option is granted.
The following table sets forth the shares subject to options outstanding
under the Directors' Plan at December 31, 1995:
<TABLE>
<CAPTION>
EXERCISE
PRICE/SHARE
@ $4.00
-----------
<S> <C>
Fully vested and exercisable. . . . . . . -
Vesting during 1996 . . . . . . . . . . . 50,000
------
Total. . . . . . . . . . . . . . . . . 50,000
------
------
</TABLE>
During 1995, 14,895 shares were issued as stock awards and related
compensation expense of $60 was recognized in 1995.
(7) RELATED PARTY TRANSACTIONS
The Company has performed services directly (or indirectly through third
party contractors) for Newfield Exploration Company ("Newfield"). Amounts
received directly or indirectly from Newfield were approximately $526 during
1993. One of the Company's directors is also a director of Newfield.
(8) GEOGRAPHIC AREA ANALYSIS AND MAJOR CUSTOMERS
The following table summarizes geographic area operating revenues and
operating income for the years ended December 31, 1995, 1994 and 1993, and
identifiable assets by geographic area at year-end 1995, 1994 and 1993:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues
United States. . . . . . . . . . . . . . $ 57,293 $ 63,291 $ 59,539
India. . . . . . . . . . . . . . . . . . 3,260 - -
Mexico . . . . . . . . . . . . . . . . . 2,514 7,306 23,459
-------- -------- --------
Total Revenues . . . . . . . . . . . . $ 63,067 $ 70,597 $ 82,998
-------- -------- --------
-------- -------- --------
Operating income (loss)
United States. . . . . . . . . . . . . . $ (7,444) $ 5,215 $ 14,819
India. . . . . . . . . . . . . . . . . . 441 - -
Mexico . . . . . . . . . . . . . . . . . 142 2,698 8,538
-------- -------- --------
Operating income (loss). . . . . . . . $ (6,861) $ 7,913 $ 23,357
-------- -------- --------
-------- -------- --------
Identifiable assets
United States. . . . . . . . . . . . . . $100,469 $ 87,290 $ 65,248
India. . . . . . . . . . . . . . . . . . 18,357 - -
Mexico . . . . . . . . . . . . . . . . . - 16,024 35,905
-------- -------- --------
Total assets . . . . . . . . . . . . . $118,826 $103,314 $101,153
-------- -------- --------
-------- -------- --------
</TABLE>
37
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company conducts business in one industry segment, oil and gas well
contract drilling. The Company negotiates drilling contracts with a number
of customers for varying terms, and management believes it is not dependent
upon any single customer. For the years 1995, 1994 and 1993, sales to
customers that represented 10% or more of consolidated drilling revenues were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A . . . . . . . . . . . . . . * 11% *
Customer B . . . . . . . . . . . . . . * 10% *
Customer C . . . . . . . . . . . . . . * 10% *
Customer D . . . . . . . . . . . . . . * * 23%
Customer E . . . . . . . . . . . . . . 14% * 21%
</TABLE>
_____________
* Less than 10%
As is typical in the industry, the Company does business with a
relatively small number of customers at any given time. The loss of any one
of such customers could, at least on a short-term basis, have a material
adverse effect on the Company's profitability. Management believes, however,
that at current levels of drilling activity, the Company would have
alternative customers for its services if it lost any single customer and
that the loss of any one customer would not have a material adverse effect on
the Company on a long-term basis.
(9) COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS -- The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
OPERATING LEASES -- Aggregate future minimum rental payments relating to
operating leases are as follows:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Office and equipment leases . . . $583 $537 $377 $375 $276 $269
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
</TABLE>
38
<PAGE>
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) UNAUDITED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly consolidated financial information for
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . . . $12,545 $11,825 $15,490 $23,207
Operating income (loss) . . . . . . . . . (5,226) (3,032) (1,075) 2,472
Income (loss) before income taxes . . . . (4,981) (2,704) (917) 2,500
Income tax expense (benefit). . . . . . . (1,744) (947) (320) 931
Net income (loss) . . . . . . . . . . . . (3,237) (1,757) (597) 1,569
Net income (loss) per common share (1). . $ (.07) $ (.04) $ (.01) $ .04
Weighted average shares outstanding . . . 44,033,448 43,959,172 43,656,282 43,608,078
Average day rates (2) . . . . . . . . . . $18,357 $16,621 $17,712 $22,679
Marketed rigs (weighted average). . . . . 10.1 9.1 9.9 11.5
Utilization of marketed rigs. . . . . . . 75% 86% 95% 97%
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . . . $18,814 $16,231 $17,393 $18,159
Operating income. . . . . . . . . . . . . 2,912 1,564 1,366 2,071
Income before income taxes. . . . . . . . 3,214 1,697 1,733 2,479
Income taxes. . . . . . . . . . . . . . . 1,126 593 606 868
Net income. . . . . . . . . . . . . . . . 2,088 1,104 1,127 1,611
Net income per common share (1) . . . . . $ 0.05 $ 0.03 $ 0.03 $ 0.04
Weighted average shares outstanding . . . 43,749,623 43,810,863 43,829,717 43,884,394
Average day rates (2) . . . . . . . . . . $22,791 $19,212 $18,616 $18,501
Marketed rigs (weighted average). . . . . 12.0 11.2 11.0 10.7
Utilization of marketed rigs. . . . . . . 76% 82% 92% 97%
</TABLE>
_____________
(1) Quarterly net income per common share may not total to annual results
due to rounding.
(2) "Average day rate" is determined by dividing the total gross revenue
earned by the Company's rigs during a given period by the total number
of days that the Company's rigs were under contract during that period.
During 1995, the Company's average marketed rigs and day rates decreased
due primarily to a general decline in U.S. Gulf of Mexico market conditions
during the first five months of the year and reduced levels of drilling
activity in Mexico's Bay of Campeche. The fourth quarter of 1995 includes
the mobilization and contract start-up costs of the MARINE 201 in India.
Excluding the mobilization to India, the average day rate was approximately
$20,200.
The Company's results in 1994 reflected the impact of increased
competition in the U.S. Gulf of Mexico and reduced activity levels in
Mexico's Bay of Campeche. Increased competition in the U.S. Gulf of Mexico
resulted from (i) an influx of jack-up rigs into that market from other
markets, (ii) an increased supply of marketed rigs due to reactivations of
previously nonmarketed rigs and (iii) lower than expected growth in jack-up
demand because of generally lower natural gas prices. Although demand for
jack-ups in the U.S. Gulf of Mexico increased by approximately 14% from 1993,
the supply of marketed jack-ups grew by 26% during that period. The effects
of this increased competition in that market included generally lower
utilization and day rates experienced by the Company.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the Registrant's Proxy Statements
relating to its annual meeting of Shareholders to be held May 9, 1996, which
will be filed by the Registrant with the Securities and Exchange Commission
no later than 120 days after the close of the fiscal year. Also reference is
made to the information contained under the captioned "Executive Officers of
Registrant" contained in Part I hereof.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are included in Part II, Item 8:
(1) Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . . . 25
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 1995 . . . . . . . . . . 26
Consolidated Statements of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1995 . . . . . 27
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1995 . . . . . . . . . . 28
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . 30
</TABLE>
(2) Financial Statement Schedules
<TABLE>
<S> <C>
Schedule I - Condensed Financial Information of Marine
Drilling Companies, Inc. for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 42
</TABLE>
All other schedules are omitted as the information is not required or is
not applicable.
40
<PAGE>
(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<C> <S>
3.1 Restated Articles of Incorporation of Marine Drilling Companies,
Inc. (Incorporated by reference to Exhibit 28.17 to the Current
Report on Form 8-K of the Registrant dated October 30, 1992.)
3.2 Amended and Restated Bylaws of Marine Drilling Companies, Inc.
(Incorporated by reference to Exhibit 28.18 to the Current Report
on Form 8-K of the Registrant dated October 30, 1992.)
++ 10.18 The Marine Drilling 1992 Long-Term Incentive Plan. (Incorporated
by reference to Exhibit 10.26 of the Company's Registration
Statement No. 33-52470 on Form S-1).
10.20 Registration Rights Agreement, dated October 29, 1992, among
Marine Drilling Companies, Inc., The Chase Manhattan Bank
(National Association), Corpus Christi National Bank, Bank One,
Texas, N.A., Energy Management Corporation, Randall D. Smith,
Trustee, Kathryn Sladek Smith Trust Article Third B, II of Last
Will and Testament of Kathryn Sladek Smith, Warburg, Pincus
Capital Company, L.P., Aeneas Venture Corporation, Capricorn
Investors, L.P. and William O. Keyes. (Incorporated by reference
to Exhibit 28.19 to the Current Report on Form 8-K of the
Registrant dated October 30, 1992.)
10.21 Shareholders' Agreement, dated October 29, 1992, among Marine
Drilling Companies, Inc., The Chase Manhattan Bank (National
Association), Warburg, Pincus Capital Company, L.P., Aeneas
Venture Corporation, Capricorn Investors, L.P. and William O.
Keyes. (Incorporated by reference to Exhibit 28.20 to the Current
Report on Form 8-K of the Registrant dated October 30, 1992.)
10.22 Termination and Amendment Agreement (respecting the Shareholders'
Agreement dated October 29, 1992) dated as of June 18, 1993 by and
among Marine Drilling Companies, Inc., The Chase Manhattan Bank
(National Association), Warburg, Pincus Capital Company, L.P.,
Aeneas Venture Corporation, Capricorn Investors, L.P. and William
O. Keyes. (Incorporated by reference to Exhibit 10.22 to the
Annual Report on Form 10-K of the Registrant for the year ended
December 31, 1993.)
10.23 Loan Agreement and related documents among The CIT Group/Equipment
Financing, Inc., as Lender, Marine Drilling Companies, Inc., as
Guarantor, and Keyes Holding Corporation, as Borrower, dated as of
December 1, 1994. (Incorporated by reference to Exhibit 10.23 to
the Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1994.)
++* 10.24 Marine Drilling Companies, Inc. Executive Deferred Compensation Plan.
* 21.1 Subsidiaries of the Registrant.
* 23.1 Consent of Independent Certified Public Accountants.
* 24.1 Powers of attorney.
* 27.1 Financial Data Schedule
</TABLE>
_____________
++ Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report.
* Filed herewith.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1995.
41
<PAGE>
SCHEDULE I
MARINE DRILLING COMPANIES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash $ - $ 584
Investments in and amounts due from subsidiaries 113,698 120,512
Other assets 81 -
-------- --------
$113,779 $121,096
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities and other $ 63 $ -
Deferred Income Taxes, long-term 6,144 8,365
Shareholders' Equity:
Common stock, par value $.01. Authorized
200,000,000 shares; issued 44,169,643 and
outstanding 43,635,433 shares in 1995 and
43,917,766 issued and outstanding shares in 1994 442 439
Common stock restricted (505) (804)
Treasury stock, at cost (534,210 shares in 1995) (2,016) -
Additional paid-in capital 92,720 92,143
Retained earnings from January 1, 1993 16,931 20,953
-------- --------
Total shareholders' equity 107,572 112,731
-------- --------
$113,779 $121,096
-------- --------
-------- --------
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
42
<PAGE>
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Costs and Expenses:
General and administrative 96 - (10)
------- ------ -------
Operating income (loss) (96) - 10
------- ------ -------
Other Income (Expense):
Interest expense - - -
Interest income 1,752 1,390 857
Equity in earnings (loss) of subsidiaries (7,813) 7,733 22,422
Other - - -
------- ------ -------
(6,061) 9,123 23,279
------- ------ -------
Income (loss) before income taxes (6,157) 9,123 23,289
Income tax expense (benefit) (2,135) 3,193 8,266
------- ------ -------
Net income (loss) $(4,022) $5,930 $15,023
------- ------ -------
------- ------ -------
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
43
<PAGE>
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(4,022) $ 5,930 $ 15,023
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Deferred income taxes (2,221) 2,989 5,376
Pre-quasi-reorganization net
operating loss carryforwards - - 1,612
Tax benefits related to common stock
issued pursuant to long term
incentive plan 85 50 490
Equity in (earnings) loss of
subsidiaries 7,813 (7,733) (22,422)
Increase in amounts due from
subsidiaries (666) (1,556) (12,654)
Accrual of compensation expense, net 333 318 233
Issuance of common stock to the
employee retirement plan and the
Non-Employee Directors' Plan 917 816 199
Changes in working capital other
than cash and cash equivalents (18) (1,282) 912
------- ------- --------
Net cash provided by (used in)
operating activities 2,221 (468) (11,231)
------- ------- --------
Cash Flows From Investing Activities:
Investment in subsidiaries (333) (6,507) (17,221)
------- ------- --------
Net cash used in investing
activities (333) (6,507) (17,221)
------- ------- --------
Cash Flows From Financing Activities:
Proceeds from sale of common stock - - 28,200
Issuance cost of common stock - - (422)
Proceeds from exercise of stock options 187 13 327
Purchase of treasury (2,659) - -
------- ------- --------
Net cash provided by (used in)
financing activities (2,472) 13 28,105
------- ------- --------
Net decrease in cash and
cash equivalents (584) (6,962) (347)
Cash and cash equivalents at beginning of year 584 7,546 7,893
------- ------- --------
Cash and cash equivalents at end of year $ - $ 584 $ 7,546
------- ------- --------
------- ------- --------
</TABLE>
[Continued]
See accompanying notes and the notes to the Condensed Financial Statements
44
<PAGE>
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ - $ 175 $ 501
------- ------- --------
------- ------- --------
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Issuance of 53,500, 83,000 and 385,000
shares in 1995, 1994 and 1993,
respectively, of restricted common stock $ 148 $ 415 $ 1,126
Forfeiture of 20,000, 31,250 and 30,000
shares in 1995, 1994 and 1993,
respectively, of restricted common stock $ (114) $ (137) $ (49)
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
45
<PAGE>
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) SOURCES OF FUNDING AND SUBSIDIARIES' FUNDING REQUIREMENTS
The Company's primary source of funding consists of dividends,
distributions and repayments of intercompany advances and loans by its
subsidiaries.
To the extent that the Company's subsidiaries have funding requirements
in excess of amounts available from operations (if any), those subsidiaries'
primary source of funding is from the Company.
(2) INVESTMENT IN AND AMOUNTS DUE FROM SUBSIDIARIES
Due to the restrictions on intercompany payments, amounts due from
certain subsidiaries have been classified as non-current assets.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Sugar Land, State of Texas, on this 8th day of March 1996.
MARINE DRILLING COMPANIES, INC.
By William O. Keyes
----------------------------------
William O. Keyes
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
William O. Keyes Chairman of the Board, President March 8, 1996
- ------------------------------------ and Chief Executive Officer
William O. Keyes (Principal Executive Officer)
William H. Flores Senior Vice President, March 8, 1996
- ------------------------------------ Chief Financial Officer and Director
William H. Flores (Principal Financial Officer)
Joan R. Smith Vice President, Controller March 8, 1996
- ------------------------------------ and Secretary
Joan R. Smith (Principal Accounting Officer)
Robert L. Barbanell* Director March 8, 1996
- ------------------------------------
Robert L. Barbanell
David A. B. Brown* Director March 8, 1996
- ------------------------------------
David A. B. Brown
Howard I. Bull* Director March 8, 1996
- ------------------------------------
Howard I. Bull
Nathaniel A. Gregory* Director March 8, 1996
- ------------------------------------
Nathaniel A. Gregory
David E. Libowitz* Director March 8, 1996
- ------------------------------------
David E. Libowitz
Christopher M. Linneman* Director March 8, 1996
- ------------------------------------
Christopher M. Linneman
Howard H. Newman* Director March 8, 1996
- ------------------------------------
Howard H. Newman
* By William H. Flores March 8, 1996
--------------------------------
(William H. Flores)
Attorney-in-Fact
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
------- -------- ------------
<C> <S> <C>
10.24 Marine Drilling Companies, Inc. Executive Deferred
Compensation Plan.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
24.1 Powers of attorney.
27.1 Financial Data Schedule.
</TABLE>
48
<PAGE>
MARINE DRILLING COMPANIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
As Amended and Restated
Effective January 1, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
I - Definitions and Construction. . . . . . . . . . . . . . . . I-1
II - Participation . . . . . . . . . . . . . . . . . . . . . . . II-1
III - Account Credits and Allocations of Income or Loss . . . . . III-1
IV - Deemed Investment of Funds. . . . . . . . . . . . . . . . . IV-1
V - Determination of Vested Interest and Forfeitures. . . . . . V-1
VI - In-Service Distributions. . . . . . . . . . . . . . . . . . VI-1
VII - Termination Benefits . . . . . . . . . . . . . . . . . . . VII-1
VIII - Administration of the Plan. . . . . . . . . . . . . . . . . VIII-1
IX - Administration of Funds . . . . . . . . . . . . . . . . . . IX-1
X - Nature of the Plan. . . . . . . . . . . . . . . . . . . . . X-1
XI - Adopting Entities . . . . . . . . . . . . . . . . . . . . . XI-1
XII - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . XII-1
(i)
<PAGE>
MARINE DRILLING COMPANIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
W I T N E S S E T H :
WHEREAS, MARINE DRILLING COMPANIES, INC. (the "Company"), desiring to
aid certain of its employees in making more adequate provision for their
retirement, has heretofore adopted the MARINE DRILLING COMPANIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN (the "Plan"); and
WHEREAS, the Company desires to restate the Plan and to amend the Plan
in several respects, intending thereby to provide an uninterrupted and
continuing program of benefits;
NOW THEREFORE, the Plan is hereby restated in its entirety as follows
with no interruption in time, effective as of January 1, 1995, except as
otherwise indicated herein:
(ii)
<PAGE>
I.
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. The capitalized words or terms used in the Plan and
which are not otherwise defined herein shall have the same meanings as such
words or terms have in the Marine Drilling Companies 401(k) Profit Sharing
Plan, as the same may be amended from time to time. Where the following
words and phrases appear in the Plan, they shall have the respective meanings
set forth below, unless their context clearly indicates to the contrary.
(1) ACCOUNT(S): A Member's Company Account and/or Deferral Account, including
the amounts credited thereto.
(2) AFFILIATE: Each trade or business (whether or not incorporated) which
together with the Company would be deemed to be a "single employer" within
the meaning of subsections (b), (c), (m) or (o) of section 414 of the Code.
(3) CHANGE IN CONTROL: A "Change in Control" of the Company, as such term is
defined in the Marine Drilling 1992 Long Term Incentive Plan.
(4) CODE: The Internal Revenue Code of 1986, as amended.
(5) COMMITTEE: The administrative committee appointed by the Directors to
administer the Plan.
(6) COMPANY: Marine Drilling Companies, Inc., Marine Drilling Management
Company and any other adopting entity which adopts the Plan pursuant to
the provisions of Article XI, jointly and severally.
(7) COMPANY ACCOUNT: An individual account for each Member to which is
credited the Company Deferrals made on his behalf pursuant to Section 3.2
and which is credited (or debited) for such account's allocation of net
income (or net loss) as provided in Section 3.3.
(8) COMPANY DEFERRALS: Deferrals made by the Company on a Member's behalf
pursuant to Section 3.2.
(9) COMPANY STOCK: The common stock of Marine Drilling Companies, Inc.
(10) COMPENSATION: Amounts equal to a Member's "Compensation," as such term is
defined under the Profit Sharing Plan, including amounts a Member could
have received in cash in lieu of Compensation deferrals pursuant to Section
3.1, and without regard to the maximum dollar limitation of section
401(a)(17) of the Code.
I-1
<PAGE>
(11) DEFERRAL ACCOUNT: An individual account for each Member to which is
credited his Compensation deferrals pursuant to Section 3.1 and which is
credited (or debited) for such account's allocation of net income (or
net loss) as provided in Section 3.3.
(12) DIRECTORS: The Board of Directors of Marine Drilling Companies, Inc.
(13) DISABILITY: A Member's "disability," as such term is defined under the
Profit Sharing Plan.
(14) EFFECTIVE DATE: January 1, 1995.
(15) ENTRY DATE: The first day of each Plan Year.
(16) FUNDS: The investment funds designated from time to time for the deemed
investment of Accounts pursuant to Article IV.
(17) INVOLUNTARY TERMINATION: A Member's "involuntary termination" of
employment with the Company, as such term is defined in the Marine Drilling
Companies, Inc. Executive Severance Policy.
(18) MEMBER: Each individual who has been selected for participation in the
Plan and who has become a Member pursuant to Article II.
(19) PLAN: The Marine Drilling Companies, Inc. Executive Deferred Compensation
Plan, as amended from time to time.
(20) PLAN YEAR: The twelve-consecutive month period commencing January 1 of
each year.
(21) PROFIT SHARING PLAN: The Marine Drilling Companies 401(k) Profit Sharing
Plan, as amended from time to time.
(22) RETIREMENT DATE. The date upon which a Member has attained fifty-five
years of age.
(23) TRUST: The trust, if any, established under the Trust Agreement.
(24) TRUST AGREEMENT: The agreement, if any, entered into between the Company
and the Trustee pursuant to Article X.
(25) TRUST FUND: The funds and properties, if any, held pursuant to the
provisions of the Trust Agreement, together with all income, profits and
increments thereto.
(26) TRUSTEE: The trustee or trustees appointed by the Directors who are
qualified and acting under the Trust Agreement at any time.
I-2
<PAGE>
(27) VALUATION DATES: The last business day of each calendar month and any
other interim Valuation Date determined by the Committee on a
nondiscriminatory basis.
(28) VESTED INTEREST: The portion of a Member's Accounts which, pursuant to the
Plan, is nonforfeitable.
1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in the
singular shall be considered to include the plural and words used in the
plural shall be considered to include the singular. The masculine gender,
where appearing in the Plan, shall be deemed to include the feminine gender.
1.3 HEADINGS. The headings of Articles and Sections herein are
included solely for convenience, and if there is any conflict between such
headings and the text of the Plan, the text shall control.
I-3
<PAGE>
II.
PARTICIPATION
2.1 PARTICIPATION. Prior to each Entry Date, the Committee, in its
sole discretion, shall select and notify those management or highly
compensated employees of the Company who shall be eligible to become Members
as of such Entry Date. Any such eligible employee may become a Member on
such Entry Date by executing and filing with the Committee, prior to such
Entry Date, the form prescribed by the Committee. Subject to the provisions
of Section 2.2, a Member shall remain eligible to defer Compensation
hereunder and receive an allocation of Company Deferrals for each Plan Year
following his initial year of participation in the Plan.
2.2 CESSATION OF ACTIVE PARTICIPATION. Notwithstanding any provision
herein to the contrary, an individual who has become a Member of the Plan
shall cease to be entitled to defer Compensation hereunder or receive an
allocation of Company Deferrals effective as of any date designated by the
Committee. Any such Committee action shall be communicated to the affected
individual prior to the effective date of such action. Further, an
individual who has become a Member of the Plan may cancel his Compensation
deferrals hereunder and his right to receive an allocation of Company
Deferrals, effective as of the Entry Date of any subsequent Plan Year, by
executing and delivering to the Company the form prescribed by the Committee
prior to such Entry Date and within the time period prescribed by the
Committee. An individual described in the preceding provisions of this
Section 2.2 may again become entitled to defer Compensation hereunder and
receive an allocation of Company Deferrals beginning on any subsequent Entry
Date selected by the Committee in its sole discretion.
II-1
<PAGE>
III.
ACCOUNT CREDITS AND ALLOCATIONS OF INCOME OR LOSS
3.1 MEMBER DEFERRALS.
(a) For each payroll period following the date a Member has made
the maximum Elective Deferral Contributions under the Profit Sharing Plan
permitted under section 402(g) of the Code, such Member may elect to defer
hereunder an integral percentage of from 1% to 15% of his Compensation.
(b) For each Plan Year in which a Member's Elective Deferral
Contributions under the Profit Sharing Plan are limited as a result of the
limitations contained in section 401(k)(3) and/or 415 of the Code, such
Member may elect to defer hereunder an amount equal to the reduction in such
Member's Elective Deferral Contributions to the Profit Sharing Plan as a
result solely of the application of such limitations.
(c) A Member's Compensation deferrals shall become effective as of
the Entry Date which is coincident with or next following the date the Member
executes and files with the Committee the form described in Section 2.1. A
Member's Compensation deferrals shall remain in force and effect unless and
until such deferrals are to cease in accordance with the provisions of
Section 2.2. Compensation for a Plan Year not deferred by a Member pursuant
to the above paragraphs shall be received by such Member in cash.
Compensation deferrals made by a Member shall be credited to such Member's
Deferral Account as of a date determined in accordance with procedures
established from time to time by the Committee; provided, however, that such
deferrals shall be credited to the Member's Deferral Account no later than 30
days after the date upon which the Compensation deferred would have been
received by such Member in cash if he had not elected to defer such amount
pursuant to this Section 3.1. The Company shall effect a Member's
Compensation deferrals by withholding such deferrals from such Member's
Compensation within the Plan Year.
3.2 COMPANY DEFERRALS.
(a) For each calendar month, the Company shall credit a Member's
Company Account with an amount which equals 100% of the Compensation
deferrals made by such Member pursuant to Section 3.1(a) and (b) during such
month; provided, however, that the amount credited to the Member's Company
Account pursuant to this Paragraph shall not exceed 5% of a Member's
Compensation for such month.
(b) For each Plan Year during which a Member has made the maximum
Elective Deferral Contributions under the Profit Sharing Plan pursuant to
section 402(g) of the Code or under the terms of the Profit Sharing Plan, the
Company shall credit a Member's Company Account with an amount equal to the
difference, if any, between (1)
III-1
<PAGE>
100% of such Member's Elective Deferral Contributions under the Profit
Sharing Plan for such Plan Year, and (2) the Matching Contributions made by
the Company on such Member's behalf under the Profit Sharing Plan for such
Plan Year; provided, however, that the sum of (i) the amounts credited to the
Member's Company Account pursuant to this Paragraph and (ii) the Matching
Contributions made by the Company on such Member's behalf under the Profit
Sharing Plan during any Plan Year shall not exceed 5% of such Member's
Compensation for such Plan Year.
(c) Company Deferrals made on a Member's behalf shall be credited
to his Company Account in accordance with the procedures established from
time to time by the Committee.
3.3 ALLOCATION OF NET INCOME OR LOSS AND CHANGES IN VALUE AMONG ACCOUNTS.
(a) As of each Valuation Date, the Committee shall determine the
net income (or net loss) of each Fund for the period elapsed since the next
preceding Valuation Date. The net income (or net loss) of each Fund since
the next preceding Valuation Date shall be ascertained by the Committee in
such manner as it deems appropriate, which may include expenses of
administering the Fund, the Trust and the Plan.
(b) For purposes of allocations of net income (or net loss), each
Member's Accounts shall be divided into subaccounts to reflect such Member's
deemed investment in a particular Fund or Funds pursuant to Article IV. As
of each Valuation Date, the net income (or net loss) of each Fund, separately
and respectively, shall be allocated among the corresponding subaccounts of
the Members who had such corresponding subaccounts invested in such Funds
since the next preceding Valuation Date.
(c) The preceding provisions of this Section 3.3 to the contrary
notwithstanding, the provisions of this Paragraph (c) shall be applicable
with respect to allocations and accounting for the deemed investment of
Company Accounts in Company Stock. All amounts that are credited to a
Member's Company Account during a calendar month and which are to be deemed
invested in Company Stock shall be deemed to have been used to purchase
shares of Company Stock based upon the lowest closing price of a share of
Company Stock during the first five trading days of the next following
calendar month. Any dividends paid by Marine Drilling Companies, Inc. with
respect to Company Stock shall be deemed to have been paid with respect to
shares deemed credited to a Member's Company Account as of the appropriate
record date, and such dividends shall be deemed invested in additional shares
of Company Stock for the benefit of such Member. Further, any Company Stock
distributed by Marine Drilling Companies, Inc. with respect to Company Stock
as a result of a stock split or stock dividend shall be deemed to have been
distributed with respect to shares credited to a Member's Company Account as
of the appropriate record date, and such Member's Company Account shall be
credited with any such deemed distributed shares.
(d) So long as there is any balance in any Account, such Account
shall continue to receive allocations pursuant to this Section.
III-2
<PAGE>
IV.
DEEMED INVESTMENT OF FUNDS
4.1 DEFERRAL ACCOUNTS. The Committee shall designate, in accordance
with procedures established by it from time to time, the manner in which the
amounts allocated to the Deferral Accounts of Members shall be deemed to be
invested from among the Fund or Funds designated from time to time for such
purpose by the Committee. The Committee may designate one Fund for the
deemed investment of all the amounts allocated to the Deferral Accounts of
Members or the Committee may split the deemed investment of the amounts
allocated to such Accounts among more than one Fund in such increments as the
Committee may determine. From time to time, the Committee may, in its
discretion, change the deemed investment designation for future amounts to be
allocated to the Deferral Accounts of Members and/or convert the deemed
investment designation with respect to amounts already allocated to such
Accounts. All determinations and designations by the Committee pursuant to
this Section 4.1 shall apply to all Members in a uniform and
nondiscriminatory manner.
4.2 COMPANY ACCOUNTS. Amounts allocated to the Company Account of a
Member shall be deemed to be invested in shares of Company Stock.
IV-1
<PAGE>
V.
DETERMINATION OF VESTED INTEREST AND FORFEITURES
5.1 DEFERRAL ACCOUNT. A Member shall have a 100% Vested Interest in
his Deferral Account at all times.
5.2 COMPANY ACCOUNT. Except as provided in the remaining provisions of
this Section 5.2, a Member shall have a 0% Vested Interest in his Company
Account. A Member shall have a 100% Vested Interest in his Company Account
upon completion of five years of continuous employment with the Company and
its Affiliates. Employment prior to the Effective Date shall be considered
for this purpose. Further, a Member shall have a 100% Vested Interest in his
Company Account upon his termination of employment with the Company and its
Affiliates after attainment of his Retirement Date or by reason of death or
Disability. Finally, a Member who is employed by the Company immediately
prior to a Change in Control shall have a 100% Vested Interest in his Company
Account if his employment shall be subject to an Involuntary Termination
within one year after the occurrence of such Change in Control.
5.3 FORFEITURES. A Member who terminates employment with the Company
and its Affiliates with a Vested Interest in his Company Account that is less
than 100% shall forfeit to the Company the nonvested portion of such Account
as of the date of such termination.
V-1
<PAGE>
VI.
IN-SERVICE DISTRIBUTIONS
In-service distributions shall not be permitted under the Plan. Members
shall not be permitted to make withdrawals from the Plan prior to termination
of employment with the Company and its Affiliates. Members shall not, at any
time, be permitted to borrow from the Trust Fund. Following termination of
employment with the Company and its Affiliates, the amounts credited to a
Member's Accounts shall be payable to such Member in accordance with the
provisions of Article VII.
VI-1
<PAGE>
VII.
TERMINATION BENEFITS
7.1 AMOUNT OF BENEFIT. Upon termination of employment of a Member with
the Company and its Affiliates for any reason, the Member, or, in the event
of the death of the Member while employed by the Company or an Affiliate, the
Member's designated beneficiary, shall be entitled to a benefit equal in
value to the Member's Vested Interest in the balance in his Accounts as of
the Valuation Date next preceding the date the payment of such benefit is to
commence pursuant to Section 7.2.
7.2 TIME OF PAYMENT. Payment of a Member's benefit under Section 7.1
shall commence as soon as administratively practicable after the Valuation
Date coincident with or next succeeding the date the Member terminates his
employment with the Company and its Affiliates.
7.3 ALTERNATIVE FORMS OF BENEFIT PAYMENTS. A Member's benefit under
Section 7.1 shall be paid in one of the following forms irrevocably elected
by such Member in writing on the form prescribed by the Committee on or
before the date he became a Member of the Plan:
(1) A single lump sum, cash payment; or
(2) Annual installment payments for a term certain of either
5, 10 or 15 years payable to the Member or, in the event of such Member's
death prior to the end of such term certain, to his designated beneficiary
as provided in Section 7.4.
In the event such Member fails to timely elect the form in which his benefit
payments are to be made, such benefit payments shall be in the form of annual
installment payments for a term certain of 10 years payable to such Member
or, in the event of such Member's death prior to the end of such term
certain, to his designated beneficiary as provided in Section 7.4. If a
Member dies prior to the date the payment of his benefit begins and if the
Member failed to timely elect the form in which his benefit payments are to
be made, then benefit payments shall be made to the Member's designated
beneficiary in the form described in the preceding sentence. If a Member
dies prior to the date the payment of his benefit begins and if the Member
did timely elect the form in which his benefit payments are to be made, then
benefit payments shall be made to the Member's designated beneficiary in the
form elected by the Member.
7.4 DESIGNATION OF BENEFICIARIES.
(a) Each Member shall have the right to designate the beneficiary
or beneficiaries to receive payment of his benefit in the event of his death.
Each such designation shall be made by executing the beneficiary designation
form prescribed by the
VII-1
<PAGE>
Committee and filing same with the Committee. Any such designation may be
changed at any time by execution of a new designation in accordance with this
Section.
(b) If no such designation is on file with the Committee at the
time of the death of the Member or such designation is not effective for any
reason as determined by the Committee, then the designated beneficiary or
beneficiaries to receive such benefit shall be as follows:
(1) If a Member leaves a surviving spouse, his benefit shall be
paid to such surviving spouse;
(2) If a Member leaves no surviving spouse, his benefit shall be
paid to such Member's executor or administrator, or to his heirs at law if
there if no administration of such Member's estate.
7.5 ACCELERATED PAY-OUT OF CERTAIN BENEFITS. Notwithstanding any
provision in Section 7.3 to the contrary, if a Member's benefit payments are
to be paid in a form other than a single lump sum, cash payment and the
aggregate amount to be paid with respect to such Member in any particular
calendar year is less than $10,000, then the Committee may, in its sole
discretion, elect to cause the entire remaining Account balance with respect
to such Member to be paid in a single lump sum, cash payment.
7.6 PAYMENT OF BENEFITS. To the extent the Trust Fund has sufficient
assets, the Trustee shall pay benefits to Members or their beneficiaries,
except to the extent the Company pays the benefits directly and provides
adequate evidence of such payment to the Trustee. To the extent the Trustee
does not or cannot pay benefits out of the Trust Fund, the benefits shall be
paid by the Company. Any benefit payments made to a Member or for his
benefit pursuant to any provision of the Plan shall be debited to such
Member's Accounts. All benefit payments shall be made in cash to the fullest
extent practicable.
7.7 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of
a Member, if the Committee is unable to locate the Member or beneficiary to
whom such benefit is payable, upon the Committee's determination thereof,
such benefit shall be forfeited to the Company. Notwithstanding the
foregoing, if subsequent to any such forfeiture the Member or beneficiary to
whom such benefit is payable makes a valid claim for such benefit, such
forfeited benefit shall be restored to the Plan by the Company.
VII-2
<PAGE>
VIII.
ADMINISTRATION OF THE PLAN
8.1 APPOINTMENT OF COMMITTEE. The general administration of the Plan
shall be vested in the Committee which shall be appointed by the Directors
and shall consist of one or more persons. Any individual, whether or not an
employee of the Company, is eligible to become a member of the Committee.
8.2 TERM, VACANCIES, RESIGNATION, AND REMOVAL. Each member of the
Committee shall serve until he resigns, dies, or is removed by the Directors.
At any time during his term of office, a member of the Committee may resign
by giving written notice to the Directors and the Committee, such resignation
to become effective upon the appointment of a substitute member or, if
earlier, the lapse of thirty days after such notice is given as herein
provided. At any time during his term of office, and for any reason, a
member of the Committee may be removed by the Directors with or without
cause, and the Directors may in their discretion fill any vacancy that may
result therefrom. Any member of the Committee who is an employee of the
Company shall automatically cease to be a member of the Committee as of the
date he ceases to be employed by the Company and its Affiliates.
8.3 SELF-INTEREST OF MEMBERS. No member of the Committee shall have
any right to vote or decide upon any matter relating solely to himself under
the Plan (including, without limitation, Committee decisions under Article
II) or to vote in any case in which his individual right to claim any benefit
under the Plan is particularly involved. In any case in which a Committee
member is so disqualified to act and the remaining members cannot agree, the
Directors shall appoint a temporary substitute member to exercise all the
powers of the disqualified member concerning the matter in which he is
disqualified.
8.4 COMMITTEE POWERS AND DUTIES. The Committee shall supervise the
administration and enforcement of the Plan according to the terms and
provisions hereof and shall have all powers necessary to accomplish these
purposes, including, but not by way of limitation, the right, power,
authority, and duty:
(a) To make rules, regulations, and bylaws for the administration
of the Plan that are not inconsistent with the terms and provisions
hereof, and to enforce the terms of the Plan and the rules and regulations
promulgated thereunder by the Committee;
(b) To construe in its discretion all terms, provisions, conditions,
and limitations of the Plan;
VIII-1
<PAGE>
(c) To correct any defect or to supply any omission or to reconcile
any inconsistency that may appear in the Plan in such manner and to such
extent as it shall deem in its discretion expedient to effectuate the
purposes of the Plan;
(d) To employ and compensate such accountants, attorneys, investment
advisors, and other agents, employees, and independent contractors as the
Committee may deem necessary or advisable for the proper and efficient
administration of the Plan;
(e) To determine in its discretion all questions relating to
eligibility;
(f) To determine whether and when there has been a termination of a
Member's employment with the Company and its Affiliates, and the reason for
such termination;
(g) To make a determination in its discretion as to the right of any
person to a benefit under the Plan and to prescribe procedures to be
followed by distributees in obtaining benefits hereunder;
(h) To receive and review reports from the Trustee as to the
financial condition of the Trust Fund, including its receipts and
disbursements; and
(i) To establish or designate Funds as provided in Article IV.
8.5 CLAIMS REVIEW. In any case in which a claim for Plan benefits of a
Member or beneficiary is denied or modified, the Committee shall furnish
written notice to the claimant within ninety days (or within 180 days if
additional information requested by the Committee necessitates an extension
of the ninety-day period), which notice shall:
(a) State the specific reason or reasons for the denial or
modification;
(b) Provide specific reference to pertinent Plan provisions on which
the denial or modification is based;
(c) Provide a description of any additional material or information
necessary for the Member, his beneficiary, or representative to perfect the
claim and an explanation of why such material or information is necessary;
and
(d) Explain the Plan's claim review procedure as contained herein.
In the event a claim for Plan benefits is denied or modified, if the Member,
his beneficiary, or a representative of such Member or beneficiary desires to
have such denial or modification reviewed, he must, within sixty days
following receipt of the notice of such denial or modification, submit a
written request for review by the Committee of its initial decision. In
connection with such request, the Member, his beneficiary, or the representa-
VIII-2
<PAGE>
tive of such Member or beneficiary may review any pertinent documents upon
which such denial or modification was based and may submit issues and
comments in writing. Within sixty days following such request for review the
Committee shall, after providing a full and fair review, render its final
decision in writing to the Member, his beneficiary or the representative of
such Member or beneficiary stating specific reasons for such decision and
making specific references to pertinent Plan provisions upon which the
decision is based. If special circumstances require an extension of such
sixty-day period, the Committee's decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for
review. If an extension of time for review is required, written notice of the
extension shall be furnished to the Member, beneficiary, or the
representative of such Member or beneficiary prior to the commencement of the
extension period.
8.6 COMPANY TO SUPPLY INFORMATION. The Company shall supply full and
timely information to the Committee, including, but not limited to,
information relating to each Member's Compensation, age, retirement, death,
or other cause of termination of employment and such other pertinent facts as
the Committee may require. The Company shall advise the Trustee of such of
the foregoing facts as are deemed necessary for the Trustee to carry out the
Trustee's duties under the Plan and the Trust Agreement. When making a
determination in connection with the Plan, the Committee shall be entitled to
rely upon the aforesaid information furnished by the Company.
8.7 INDEMNITY. To the extent permitted by applicable law, the Company
shall indemnify and save harmless the Directors and each member of the
Committee against any and all expenses, liabilities and claims (including
legal fees incurred to defend against such liabilities and claims) arising
out of their discharge in good faith of responsibilities under or incident to
the Plan. Expenses and liabilities arising out of willful misconduct shall
not be covered under this indemnity. This indemnity shall not preclude such
further indemnities as may be available under insurance purchased by the
Company or provided by the Company under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, as such indemnities are
permitted under applicable law.
VIII-3
<PAGE>
IX.
ADMINISTRATION OF FUNDS
9.1 PAYMENT OF EXPENSES. All expenses incident to the administration
of the Plan and Trust, including but not limited to, legal, accounting,
Trustee fees, and expenses of the Committee, may be paid by the Company and,
if not paid by the Company, shall be paid by the Trustee from the Trust Fund,
if any.
9.2 TRUST FUND PROPERTY. All income, profits, recoveries,
contributions, forfeitures and any and all moneys, securities and properties
of any kind at any time received or held by the Trustee, if any, shall be
held for investment purposes as a commingled Trust Fund pursuant to the terms
of the Trust Agreement. The Committee shall maintain one or more Accounts in
the name of each Member, but the maintenance of an Account designated as the
Account of a Member shall not mean that such Member shall have a greater or
lesser interest than that due him by operation of the Plan and shall not be
considered as segregating any funds or property from any other funds or
property contained in the commingled fund. No Member shall have any title to
any specific asset in the Trust Fund, if any.
IX-1
<PAGE>
X.
NATURE OF THE PLAN
The Company intends and desires by the adoption of the Plan to recognize
the value to the Company of the past and present services of employees
covered by the Plan and to encourage and assure their continued service with
the Company by making more adequate provision for their future retirement
security. The establishment of the Plan is, in part, made necessary by
certain benefit limitations which are imposed on the Profit Sharing Plan by
the Code. The Plan is intended to constitute an unfunded, unsecured plan of
deferred compensation for a select group of management or highly compensated
employees of the Company. Plan benefits herein provided are to be paid out
of the Company's general assets. Nevertheless, subject to the terms hereof
and of the Trust Agreement, the Company may transfer money or other property
to the Trustee and the Trustee shall pay Plan benefits to Members and their
beneficiaries out of the Trust Fund.
The Directors, in their sole discretion, may establish the Trust and
enter into the Trust Agreement. In such event, the Company shall remain the
owner of all assets in the Trust Fund and the assets shall be subject to the
claims of Company creditors if the Company ever becomes insolvent. For
purposes hereof, the Company shall be considered "insolvent" if (a) the
Company is unable to pay its debts as they become due, or (b) the Company is
subject to a pending proceeding as a debtor under the United Sates Bankruptcy
Code (or any successor federal statute). The chief executive officer of the
Company and its board of directors shall have the duty to inform the Trustee
in writing if the Company becomes insolvent. Such notice given under the
preceding sentence by any party shall satisfy all of the parties' duty to
give notice. When so informed, the Trustee shall suspend payments to the
Members and hold the assets for the benefit of the Company's general
creditors. If the Trustee receives a written allegation that the Company is
insolvent, the Trustee shall suspend payments to the Members and hold the
Trust Fund for the benefit of the Company's general creditors, and shall
determine within the period specified in the Trust Agreement whether the
Company is insolvent. If the Trustee determines that the Company is not
insolvent, the Trustee shall resume payments to the Members. No Member or
beneficiary shall have any preferred claim to, or any beneficial ownership
interest in, any assets of the Trust Fund.
X-1
<PAGE>
XI.
ADOPTING ENTITIES
It is contemplated that other corporations, associations, partnerships
or proprietorships may adopt this Plan and thereby become the Company. Any
such entity, whether or not presently existing, may become a party hereto by
appropriate action of its officers without the need for approval of its board
of directors or noncorporate counterpart or of the Directors; provided,
however, that such entity must be an Affiliate. The provisions of the Plan
shall apply separately and equally to each Company and its employees in the
same manner as is expressly provided for Marine Drilling Companies, Inc. and
its employees, except that the power to appoint or otherwise affect the
Committee or the Trustee and the power to amend or terminate the Plan or
amend the Trust Agreement shall be exercised by the Directors alone. Transfer
of employment among Companies and Affiliates shall not be considered a
termination of employment hereunder. Any Company may, by appropriate action
of its officers without the need for approval of its board of directors or
noncorporate counterpart or the Directors, terminate its participation in the
Plan. Moreover, the Directors may, in their discretion, terminate a Company's
Plan participation at any time.
XI-1
<PAGE>
XII.
MISCELLANEOUS
12.1 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the
Plan shall not be deemed to be a contract between the Company and any person
or to be consideration for the employment of any person. Nothing herein
contained shall be deemed to give any person the right to be retained in the
employ of the Company or to restrict the right of the Company to discharge
any person at any time nor shall the Plan be deemed to give the Company the
right to require any person to remain in the employ of the Company or to
restrict any person's right to terminate his employment at any time.
12.2 ALIENATION OF INTEREST FORBIDDEN. The interest of a Member or his
beneficiary or beneficiaries hereunder may not be sold, transferred,
assigned, or encumbered in any manner, either voluntarily or involuntarily,
and any attempt so to anticipate, alienate, sell, transfer, assign, pledge,
encumber, or charge the same shall be null and void; neither shall the
benefits hereunder be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person to whom such benefits or
funds are payable, nor shall they be an asset in bankruptcy or subject to
garnishment, attachment or other legal or equitable proceedings.
12.3 WITHHOLDING. All Compensation deferrals and payments provided for
hereunder shall be subject to applicable withholding and other deductions as
shall be required of the Company under any applicable local, state or federal
law.
12.4 AMENDMENT AND TERMINATION. The Directors may from time to time,
in their discretion, amend, in whole or in part, any or all of the provisions
of the Plan; provided, however, that no amendment may be made that would
impair the rights of a Member with respect to amounts already allocated to
his Accounts. The Directors may terminate the Plan at any time. In the
event that the Plan is terminated, the balance in a Member's Accounts shall
be paid to such Member or his designated beneficiary in the manner specified
by the Committee, which may include the payment of a single lump sum, cash
payment in full satisfaction of all of such Member's or beneficiary's
benefits hereunder.
12.5 SEVERABILITY. If any provision of this Plan shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
12.6 GOVERNING LAWS. ALL PROVISIONS OF THE PLAN SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF TEXAS EXCEPT TO THE EXTENT PREEMPTED BY FEDERAL
LAW.
XII-1
<PAGE>
EXECUTED effective as of January 1, 1995.
MARINE DRILLING COMPANIES, INC.
By: /s/ William H. Flores
--------------------------------
William H. Flores
Senior Vice President
(iii)
<PAGE>
EXHIBIT 21.1
MARINE DRILLING COMPANIES, INC.
SUBSIDIARIES AND PARTNERSHIPS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PLACE OF
INCORPORATION OWNERSHIP
SUBSIDIARY/PARTNERSHIP OR DOMICILE OWNER PERCENTAGE
- ---------------------- ------------- ----- ----------
<S> <C> <C> <C>
Marine Drilling Management Company Delaware Marine Drilling Companies, Inc. 100%
Marine Drilling International, Inc. Delaware Marine Drilling Management Company 100%
Keyes Holding Corporation Delaware Marine Drilling Companies, Inc. 100%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We consent to incorporation by reference of our report dated January 26,
1996, relating to the consolidated balance sheets of Marine Drilling
Companies, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995,
and all related schedules, which report appears in the December 31, 1995
annual report on Form 10-K of Marine Drilling Companies, Inc.,
in the following registration statements of Marine Drilling Companies, Inc.:
(i) No. 33-56920 on Form S-8 dated January 11, 1993, (ii) No. 33-54909 on Form
S-3 dated August 3, 1994 and (iii) No. 33-55981 on Form S-3 dated October 11,
1994.
KPMG PEAT MARWICK LLP
Houston, Texas
March 6, 1996
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ Robert L. Barbanell
-------------------------------
Robert L. Barbanell
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ David A. B. Brown
-------------------------------
David A. B. Brown
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ Howard I. Bull
-------------------------------
Howard I. Bull
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ Nathaniel A. Gregory
-------------------------------
Nathaniel A. Gregory
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ David E. Libowitz
-------------------------------
David E. Libowitz
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ Christopher M. Linneman
-------------------------------
Christopher M. Linneman
<PAGE>
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas
corporation (the "Company"), intends to file with the
Securities and Exchange Commission (the "Commission") under the
Securities Exchange Act of 1934, as amended, an annual report
on Form 10-K for the year ended December 31, 1995 and quarterly
reports on Form 10-Q for the quarters ended March 31, June 30
and September 30, 1996, with such amendment or amendments
thereto in each case as may be necessary or appropriate,
together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a
director of the Company, does hereby appoint each of WILLIAM H.
FLORES and JOAN R. SMITH, signing singly, the undersigned's
true and lawful attorney with power to act with full power of
substitution and resubstitution, to execute in his name, place
and stead, in his capacity as Director the reports referred to
above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection
therewith, and to file the same with the Commission. Such
attorney shall have full power and authority to do and perform
in the name and on behalf of the undersigned, in any and all
capacities every act whatsoever necessary or desirable to be
done in the premises, as fully and to all intents and purposes
as the undersigned might or could do in person, the undersigned
hereby ratifying and approving the acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this
instrument as of this 23rd day of January 1996.
/s/ Howard H. Newman
-------------------------------
Howard H. Newman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,260
<SECURITIES> 0
<RECEIVABLES> 18,078
<ALLOWANCES> 0
<INVENTORY> 1,272
<CURRENT-ASSETS> 32,990
<PP&E> 123,442
<DEPRECIATION> 22,090
<TOTAL-ASSETS> 134,545
<CURRENT-LIABILITIES> 9,674
<BONDS> 0
0
0
<COMMON> 442
<OTHER-SE> 107,130
<TOTAL-LIABILITY-AND-EQUITY> 134,545
<SALES> 63,067
<TOTAL-REVENUES> 63,067
<CGS> 55,091
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<INCOME-TAX> (2,080)
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<NET-INCOME> (4,022)
<EPS-PRIMARY> (.09)
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</TABLE>
