<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _________________ to ________________
Commission File Number: 0-18309
------------------------
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
TEXAS 74-2558926
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
</TABLE>
ONE SUGAR CREEK CENTER BLVD., SUITE 600, SUGAR LAND, TEXAS 77478-3556
(Address of principal executive offices and zip code)
(281) 243-3000
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
---- ----
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT NOVEMBER 7, 1997 -- 51,881,335
===============================================================================
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Index to Financial Statements
Independent Auditors' Review Report ................... 1
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 ............. 2
Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and 1996 3
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 ......... 4
Notes to Consolidated Financial Statements ............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....................... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................................... 17
Item 6. Exhibits and Reports on Form 8-K...................................... 17
SIGNATURES .................................................................... 18
</TABLE>
(i)
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Marine
Drilling Companies, Inc. and subsidiaries as of September 30, 1997, and the
related consolidated statements of operations and cash flows for the three-month
and nine-month periods ended September 30, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Marine Drilling Companies,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated January 24, 1997, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1996 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Houston, Texas
October 21, 1997
1
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 18,848 $ 69,761
Restricted cash 5,000 2,200
Short-term investments -- 9,990
Accounts receivable - trade and other, net 39,509 21,378
Prepaid expenses and other 6,693 1,461
Inventory 535 897
--------- ---------
Total current assets 70,585 105,687
Property and Equipment 279,831 182,200
Less accumulated depreciation 45,059 33,463
--------- ---------
Property and equipment, net 234,772 148,737
Goodwill 794 --
Other 1,338 523
--------- ---------
$ 307,489 $ 254,947
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 1,000
Accounts payable 4,511 3,249
Accrued expenses 4,087 4,284
Deferred revenue 3,346 --
Employer's liability claims, current 827 483
--------- ---------
Total current liabilities 12,771 9,016
Long-Term Debt -- 9,000
Employer's Liability Claims, non-current and other 1,812 1,469
Minority Interest in Subsidiary 1,704 --
Deferred Income Taxes 14,690 13,729
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000 shares;
issued and outstanding 51,866,811 and 51,262,519 shares,
as of September 30, 1997 and December 31, 1996, respectively 519 513
Common stock restricted (1,388) (628)
Additional paid-in capital 200,721 184,992
Retained earnings from January 1, 1993 76,660 36,856
--------- ---------
Total shareholders' equity 276,512 221,733
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 307,489 $ 254,947
========= =========
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
2
<PAGE> 5
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 51,198 $ 29,819 $ 132,434 $ 78,418
Costs and Expenses:
Contract drilling 20,104 14,955 55,137 44,166
Depreciation and amortization 4,382 2,975 12,010 8,545
General and administrative 1,860 1,857 5,648 5,470
------------ ------------ ------------ ------------
26,346 19,787 72,795 58,181
------------ ------------ ------------ ------------
Operating income 24,852 10,032 59,639 20,237
------------ ------------ ------------ ------------
Other Income (Expense):
Interest expense (78) (209) (499) (593)
Interest income 276 312 2,002 726
Other income 143 269 230 355
------------ ------------ ------------ ------------
341 372 1,733 488
------------ ------------ ------------ ------------
Income before income taxes 25,193 10,404 61,372 20,725
Income tax expense 8,918 3,714 21,581 7,469
Minority interest 13 -- 13 --
------------ ------------ ------------ ------------
Net income $ 16,288 $ 6,690 $ 39,804 $ 13,256
============ ============ ============ ============
Income per common share $ 0.32 $ 0.15 $ 0.77 $ 0.30
============ ============ ============ ============
Weighted average common shares
outstanding 51,650,599 45,028,616 51,466,904 44,392,776
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
3
<PAGE> 6
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 39,804 $ 13,256
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 12,010 8,545
Deferred income taxes 1,316 5,069
Pre-quasi-reorganization net operating loss carryforwards 8,310 -
Tax effects of common stock issued pursuant to
long-term incentive plan 3,880 2,092
Gain on disposition of equipment (95) (358)
Loss on sale of short-term investments 2 -
Accrual of compensation expense, net 467 317
Issuance of common stock to Employee 401(k) Plan
and the Non-Employee Directors' Plan 966 725
Amortization of interest income (465) (122)
Minority interest loss of consolidated subsidiary (13) -
Changes in operating assets and liabilities:
Receivables (18,131) (2,591)
Other current assets (4,870) (607)
Payables, accrued expenses, current taxes and
employer's liability claims 3,976 (1,534)
Other (1,116) (109)
-------------- ---------------
Net cash provided by operating activities 46,041 24,683
-------------- ---------------
Cash Flows From Investing Activities:
Purchase of short-term investments (19,514) (9,729)
Maturity of short-term investments 29,967 -
Purchase of equipment (43,561) (12,047)
Acquisition of company, net of cash acquired (52,510) -
Proceeds from disposition of equipment 114 593
-------------- ---------------
Net cash used in investing activities (85,504) (21,183)
-------------- ---------------
Cash Flows From Financing Activities:
Payment of debt (10,000) -
Increase in restricted cash (2,800) -
Proceeds from exercise of stock options 1,350 1,835
Costs associated with shelf registration statements - (135)
-------------- ---------------
Net cash provided by (used in) financing activities (11,450) 1,700
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (50,913) 5,200
Cash and cash equivalents at beginning of period 69,761 12,260
-------------- ---------------
Cash and cash equivalents at end of period $ 18,848 $ 17,460
============== ===============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 544 $ 649
Income taxes 9,332 309
Noncash investing and financing activities:
Issuance of 76,500 and 60,833 shares in 1997 and 1996
respectively, of restricted common stock $ 1,323 $ 368
Forfeitures of 11,000 shares in 1997 of restricted common stock 96 -
Business acquisition, net of cash acquired:
Working capital, other than cash $ 766 $ -
Plant and equipment (54,186) -
Purchase price in excess of the net assets acquired (807) -
Minority interest 1,717 -
------------ ------------
Net cash used for acquisition $ (52,510) $ -
============ ============
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
5
<PAGE> 8
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of Marine Drilling
Companies, Inc. (the "Company" or the "Registrant") presented herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and notes required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted. In the opinion of management, these statements
include all adjustments (all of which consist of normal recurring adjustments
except as otherwise noted herein) necessary to present fairly the Company's
financial position and results of operations for the interim periods presented.
The financial data for the nine months ended September 30, 1997 included herein
has been subjected to a limited review by KPMG Peat Marwick LLP, the
Registrants' independent public accountants, whose report is included herein.
These statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
results of operations that may be expected for the year.
(2) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 introduces the concept of basic earnings per share, which
represents net income divided by the weighted average common shares outstanding
- - without the dilutive effects of common stock equivalents (options, warrants,
etc.) Diluted earnings per share, giving effect for common stock equivalents,
will be reported when SFAS 128 is adopted in the fourth quarter of 1997. The
impact of adopting SFAS 128 is anticipated to be immaterial.
Effective December 1997, the Company will be required to adopt
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129"). SFAS 129 requires that all entities
disclose in summary form within the financial statements the pertinent rights
and privileges of the various securities outstanding. An entity is to disclose
within the financial statements the number of shares issued upon conversion,
exercise, or satisfaction of required conditions during at least the most recent
annual fiscal period and any subsequent interim period presented. Other special
provisions apply to preferred and redeemable stock. The Company's adoption of
SFAS 129 in the fourth quarter of 1997 is not expected to have a material impact
on reported results.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including unrecognized foreign currency
translation items, minimum pension liability adjustments and unrealized gains
and losses on certain investments in debt and equity securities. SFAS 130
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed in equal prominence with the other financial statements; the total of
other comprehensive income for a period is required to be transferred to a
component of equity that is separately displayed in a statement of financial
position at the end of an accounting period. SFAS 130 is effective for both
interim and annual periods beginning after December 15, 1997, at which time the
Company will adopt the provisions. The Company does not expect SFAS 130 to have
a material effect on reported results.
6
<PAGE> 9
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way public
enterprises are to report information about operating segments in annual
financial statements and requires the reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is effective for periods
beginning after December 15, 1997, at which time the Company will adopt the
provisions. The Company does not expect SFAS 131 to have a material effect on
its reported results.
(3) NET INCOME PER COMMON SHARE
Net income per common share for the three and nine months ended
September 30, 1997 and 1996 excludes the effect of outstanding stock options
inasmuch as the potential dilution from their exercise is less than three
percent.
(4) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising out
of operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position or results of operations.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q, particularly the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that are not historical facts concerning,
among other things, market conditions, the demand for offshore drilling
services, future acquisitions and fleet expansion, future financings, future rig
contracts, future capital expenditures including rig upgrades and
refurbishments, and future results of operations. Actual results may differ
materially from those included in the forward-looking statements, and no
assurance can be given that the Company's expectations will be realized or
achieved. Important factors and risks that could cause actual results to differ
materially from those referred to in the forward-looking statements include (i)
one or more prolonged reductions in oil or gas prices; (ii) the inadequacy of
insurance and indemnification to protect the Company against liability from all
consequences of well disasters, fire damage or environmental damage; (iii) the
inability of the Company to obtain insurance at reasonable rates; (iv) a
decrease in the demand for offshore drilling rigs especially in the U.S. Gulf of
Mexico or for slot jack-up rigs; (v) the risks attendant with operations in
foreign countries including actions that may be taken by foreign countries and
actions that may be taken by the United States against foreign countries; (vi)
the failure of the Company to successfully compete with the Company's
competitors that are larger and have a greater diversity of rigs and greater
financial resources than the Company; (vii) a decrease in rig utilization
resulting from reactivation of currently inactive non-marketed rigs or new
construction of rigs; (viii) the risks of delay and cost overruns attendant to
large construction projects such as the upgrade and refurbishment of certain of
the Company's rigs, including shortages of material or skilled labor,
engineering problems, latent defects or damage to current equipment, work
stoppages, weather interference and inability to obtain requisite permits or
approvals; (ix) the return of market and other conditions similar to those in
which the Company incurred net losses before extraordinary items for each of the
years ended December 31, 1991, 1992 and 1995; (x) the loss of key management
personnel or the inability of the Company to attract and retain sufficient
qualified personnel to operate its rigs; (xi) the risk that labor shortages
could result in material wage increases; (xii) the adoption of additional laws
or regulations that limit or reduce drilling opportunities or that increase the
cost of drilling or increase the potential liability of the Company; (xiii) the
occurrence of risks attendant to contract drilling operations including
blowouts, cratering, fires and explosions, capsizing, grounding or collision
involving rigs while in operation, mobilization or otherwise or damage to rigs
from weather, sea conditions or unsound location; (xiv) adverse uninsured
litigation results; and (xv) adverse tax consequences with respect to
operations.
OVERVIEW
Demand for offshore drilling services is primarily driven by the
economics of oil and gas exploration, development and production, which in turn,
are closely linked to current and projected oil and gas prices. Since the
mid-1980's, oil and gas prices have been volatile and generally lower than
prices experienced during the early 1980's, resulting in volatile and generally
reduced demand for offshore drilling services. In addition, during the early
1980's, the industry built a substantial number of new offshore drilling rigs.
Since 1993, the worldwide offshore drilling market has shown general improvement
compared to the 1986-1992 period. This improvement can be generally attributed
to improved offshore rig demand and a continuing reduction in offshore rig
supply. Although this period can be characterized as showing general
improvement, certain significant offshore markets have experienced short periods
of reduced rig demand and/or excess rig supply. During those periods of low rig
utilization, day rates were adversely impacted and drilling contractors
competing in those markets suffered poorer financial results until rig demand
improved or rigs left those markets for other markets.
8
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DRILLING MARKETS AND UTILIZATION
General
Since 1995, most of the world's significant offshore drilling markets
have experienced improved rig utilization and day rates. According to Offshore
Data Services, as of November 4, 1997, worldwide jack-up utilization was 91%
(345 rigs working out of a supply of 378 rigs) compared to 84% average
utilization (323 rigs working out of a supply of 383 rigs) during the first nine
months of 1996. Worldwide semi-submersible rig utilization as of November 4,
1997 was 79% (116 rigs working out of a supply of 146 rigs) compared to 78%
average utilization (112 rigs working out of a supply of 143 during the first
nine months of 1996.
Prior to 1996, the Company derived substantially all of its revenues
from offshore drilling in the U.S. Gulf of Mexico and the Bay of Campeche
(offshore Mexico). Six of the Company's rigs, the MARINE 201, MARINE 300, MARINE
303, MARINE 304, MARINE 305 and MARINE 500, are configured to work in
international markets outside the U.S. Gulf of Mexico. Three of these rigs, the
MARINE 201, MARINE 305 and MARINE 500, are currently operating internationally.
The Company's other rigs could, if applicable modifications were made and
certifications obtained, operate in certain areas outside of the U.S. Gulf of
Mexico. The Company's rigs are not, however, suitable for areas, such as the
North Sea, that require enhanced environmental operating capabilities.
Contract terms in the offshore drilling business range from
well-to-well contracts that are very short in length, e.g. 30 days, to long term
contracts of three or more years. Until recently, drilling contracts for jack-up
rigs in the Company's primary operating area, the U.S. Gulf of Mexico, have been
predominately short term contracts. On the other hand, longer term contracts
have been more common (i) in most international drilling markets for jack-up
rigs and (ii) in several worldwide markets for deep water rigs, i.e.
semi-submersible rigs and drillships. Due to the highly cyclical nature of the
offshore drilling business, the Company seeks longer-term contracts for the
employment of a portion of its rig fleet (i) on a worldwide basis for deep water
assets and (ii) internationally for jack-ups. Such contracts help mitigate the
volatility of the Company's results.
At the present time, the Company has long-term international contracts
for three of its rigs, the MARINE 201, the MARINE 305 and the MARINE 500. The
MARINE 201 is operating in India under a one-year contract that started in
November 1995. That contract includes eight three-month extension options, all
of which have been exercised by its customer, and will provide for the rig's
employment through at least November 1998. The MARINE 305 received a one-year
contract with a major oil company which commenced in August 1997 in Southeast
Asia. This contract includes options that could, if exercised, extend its term
for up to an additional year at mutually agreed rates. The rig, which was
acquired in August 1996, was upgraded and refurbished in the Middle East.
Recently, the Company entered into a three-year contract for the MARINE 500,
which is projected to commence on or before January 1, 1999. Drilling will take
place in the Pacific Rim, Southeast Asia, offshore Australia and New Zealand.
Upgrades will be performed on the rig, per the contract, to allow the rig to
work in water depths up to 5,000 feet with 15,000 psi drilling equipment.
Currently, the MARINE 500 is contracted in Southeast Asia under a contract that
provides for the rig's employment through late 1997 (or through mid-1998 if all
extension options are exercised).
Currently, the Company is seeking to obtain a long-term contract for
the MARINE 700, which was acquired during the second quarter of 1997 with the
acquisition of 96.3 percent of the outstanding shares of Marine Drilling ASA
(formerly Deep Sea ASA of Norway). The MARINE 700 is a BINGO 8000 design
bare-deck hull, which will be configured as either a fourth or fifth generation
semi-submersible upon completion.
9
<PAGE> 12
U.S. Gulf of Mexico
The jack-up drilling market in the U.S. Gulf of Mexico is highly
competitive. A significant number of offshore drilling companies have rigs in
this market and, as a result, no one contractor is able to materially affect
pricing levels. Day rates can and have fluctuated significantly on relatively
small changes in the rig supply and demand situation in this market. Since
mid-1995, a combination of improved jack-up rig demand and rig mobilizations to
other international markets has resulted in improved jack-up utilization and day
rates. Improved utilization of jack-up rigs in the U.S. Gulf of Mexico during
the third and fourth quarters of 1995 continued into and throughout 1996 and is
still continuing during 1997. Utilization of jack-up rigs in this market as of
November 4, 1997 was 94% (122 rigs working out of a supply of 130) as compared
with an average of 86% (117 rigs working out of a supply of 136 rigs) for the
first nine months of 1996. With 12 of its 14 jack-up rigs located in the U.S.
Gulf of Mexico, the Company is well positioned to benefit from the improved rig
demand in this market.
India
In 1995, the Company entered into a one-year term contract for the
MARINE 201 to operate off the east coast of India. That rig commenced operations
under this contract in mid-November 1995. Under the contract, the customer has
options to extend the contract for up to eight three-month periods. All of the
options have been exercised ensuring this rig's employment through November
1998. Annual demand for jack-ups in India has generally averaged between 20 to
26 rigs during the past few years. During this time, jack-up utilization has
been stable in the range of 89% to 93%. The government of India approved
investment in the oil and gas sector by non-Indian energy companies. As a result
of these actions, jack-up rig demand has recently increased, and most industry
analysts expect that demand could increase further in the near term.
Southeast Asia
In January 1997, the Company entered into a one-year contract with a
major oil company for the MARINE 305 to begin work in Southeast Asia. The
contract began in August 1997 and is expected to generate total revenues of
approximately $28,000,000. In December 1996, the Company acquired the MARINE
500, a second-generation semi-submersible rig. The rig began operating in late
February drilling offshore Indonesia on a short-term contract. In April 1997 the
Company entered into a three-well contract for the Marine 500 to operate in the
Gulf of Thailand offshore Malaysia. This contract includes three option wells,
which if exercised will extend the contract until mid-1998. The Company entered
into a three-year contract for the Marine 500 to commence on or before January
1, 1999 and includes operations in Southeast Asia, the Pacific Rim, offshore
Australia and New Zealand. Before this contract can commence, the MARINE 500
will be upgraded to work in water depths up to 5,000 feet with 15,000 psi
drilling equipment. The upgrade is expected to take four to six months.
Utilization in this market is currently strong, with contracted rig utilization
of 96% and 100%, respectively, for jack-ups and semi-submersibles.
The following table sets forth certain industry and Company historical
data for the periods indicated. Industry data includes many rigs that are
dissimilar to the Company's rigs in terms of performance capabilities, age,
operational criteria and environmental capabilities. Certain of the Company's
competitors operate rigs other than jack-up rigs that can compete with jack-up
rigs under certain circumstances.
10
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------------ ----------------------- ------------------------
1997 1996 1997 1996 1996 1995
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. GULF OF MEXICO:
Jack-ups
Total rigs........................... 130.0 135.9 132.3 136.6 135.9 140.1
Working rigs......................... 118.6 119.6 119.3 117.2 118.5 104.6
Utilization.......................... 91% 88% 90% 86% 87% 75%
Semi-submersibles
Total rigs........................... 33.0 31.1 33.4 29.7 30.4 24.2
Working rigs......................... 27.3 21.0 25.3 21.6 22.0 16.8
Utilization.......................... 83% 68% 76% 73% 72% 69%
ALL OTHER MARKETS:
Jack-ups
Total rigs........................... 248.0 246.0 245.7 246.5 246.0 246.7
Working rigs......................... 217.4 210.8 215.5 206.4 208.5 197.5
Utilization.......................... 88% 86% 88% 84% 85% 80%
Semi-submersibles
Total rigs........................... 111.7 113.1 111.1 113.8 112.8 117.2
Working rigs......................... 88.9 94.0 91.4 90.1 90.4 82.6
Utilization.......................... 80% 83% 82% 79% 80% 70%
COMPANY(2):
Jack-ups
Total rigs........................... 14.0 13.5 14.0 13.2 13.4 13.0
Working rigs......................... 13.4 13.0 12.7 12.3 12.4 8.9
Utilization.......................... 96% 97% 91% 93% 93% 69%
Non-marketed rigs.................... 0.6 0.5 1.3 0.6 0.9 3.0
Utilization of marketed rigs......... 100% 100% 100% 98% 99% 89%
Semi-submersibles
Total rigs........................... 1.0 - 1.0 - - -
Working rigs......................... 0.8 - 0.7 - - -
Utilization.......................... 80% - 70% - - -
Non-marketed rigs.................... - - 0.2 - - -
Utilization of marketed rigs......... 80% - 90% - - -
Average Day Rates
Jack-up rigs(3)...................... $37,720 $24,932 $34,644 $23,268 $24,343 $19,289
Semi-submersible rigs(3)(4).......... 68,234 - 60,078 - - -
All rigs(3).......................... 39,338 24,932 36,039 23,268 24,343 $19,289
</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 and working during that
period.
4) The Company did not operate any semi-submersibles prior to 1997;
therefore, prior period data is omitted.
11
<PAGE> 14
DRILLING OPERATIONS AND CUSTOMERS
The Company's existing drilling contracts provide for compensation on a
"daywork" basis. Under daywork contracts, the Company receives a fixed amount
per day for providing drilling services using the rigs it operates. Under most
daywork contracts, the customer also pays the cost of moving the rig and related
equipment to the job site and the costs of drilling the well (other than the
costs of operating the rig, which are borne by the drilling contractor). Daywork
contracts may provide for lower rates during periods when drilling operations
are interrupted or restricted by equipment breakdowns, adverse weather or sea
conditions or other conditions beyond the control of the Company. Historically,
the Company has not marketed its rigs under fixed price or turnkey contracts.
A daywork contract generally extends over a period of time covering
either the drilling of a single well, a group of wells or a stated term. The
customer may terminate the contract if the drilling rig is destroyed or lost, or
if drilling operations are suspended for a specified period of time as a result
of breakdown of major equipment or other specific events. The duration of
drilling contracts has tended to be on a well-by-well basis, while contracts in
the deep water and international jack-up markets typically have tended to be on
a term basis. Until recently the Company's experience during recent years has
been consistent with this general rule. As a result of the substantial
improvement in the U.S. Gulf of Mexico drilling market, the Company has been
able to obtain term contracts on some of its domestic rigs ranging from six
months to two years. To the extent available, the Company will continue to focus
upon obtaining additional term contracts, both foreign and domestic, in the
future.
The Company obtains most of its contracts through competitive bidding
against other contractors in response to oil and gas companies' solicitations of
bids. The Company's current drilling contracts, both foreign and domestic,
generally provide for payment in U.S. dollars.
The Company provides drilling services to a customer base that 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.
FINANCIAL CONDITION -- GENERAL
The following is a discussion of the Company's financial condition,
results of operations, historical financial resources and working capital. This
discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto included in Item 1 of this
report.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash
The Company had working capital at September 30, 1997 of $57,814,000 as
compared to working capital of $96,671,000 at December 31, 1996. Net cash
provided by operating activities was $46,041,000 for the nine months ended
September 30, 1997 compared to $24,683,000 for the nine months ended September
30, 1996, an increase of $21,358,000 or 86.5%. Cash used in investing activities
was $85,504,000 for the nine months ended September 30, 1997 including capital
expenditures of $43,561,000 and the acquisition of Marine Drilling ASA formerly
known as Deep Sea ASA for $52,510,000, compared to cash used in investing
activities of $21,183,000 for the nine months ended September 30, 1996. Capital
expenditures for the nine months ended September 30, 1997 consisted of
disbursements for (i) the upgrade and refurbishment of the MARINE 305, (ii)
refurbishments to the MARINE 500 and (iii) purchase of drill pipe and other rig
machinery. Net cash used in financing activities was $11,450,000 consisting of
the debt prepayments and an increase in restricted cash offset by proceeds from
the exercise of common stock options.
12
<PAGE> 15
Credit Agreement
In March 1997, the Company entered into a new credit agreement, the
"New Credit Facility," with Bankers Trust Company ("BTCo"), Christiania Bank og
Kreditkasse ("CBK"), and certain other banks providing financing up to
$100,000,000 to be used for rig acquisitions and upgrades. This agreement
includes a revolving credit facility available through December 31, 1999, which
can be converted into a four-year term loan. Interest and facility fees are
generally payable quarterly during the terms of both facilities. Principal
during the term loan facility is payable quarterly in equal installments
beginning March 31, 2000. Interest accrues at (i) LIBOR plus a margin of .75% to
1.25% or (ii) prime plus a margin of 0% to .50%, with margins determined
pursuant to a debt to capital calculation. The agreement is secured by all of
the Company's current rig fleet as well as certain other collateral assignments.
The Company has no borrowings outstanding under this agreement at September 30,
1997. In connection with the consummation of the New Credit Facility, the
Company repaid and terminated its prior $35,000,000 credit facility with a U.S.
financial institution during February 1997.
Other Activities
In January 1997, the Company entered into a one-year contract to
operate the MARINE 305 in Southeast Asia for a major oil company. This contract
includes options that could extend the term an additional year and is currently
expected to generate revenues of approximately $28,000,000 assuming no exercise
of extension options. The rig underwent an upgrade that was completed in July
1997. Operations commenced in late August 1997.
The Company entered into a three-well contract in April 1997 to operate
the MARINE 500 in the Gulf of Thailand offshore Malaysia. This contract includes
three option wells. If all options are exercised, the term of the contract will
be approximately 360 days, until mid-1998.
Repairs on the MARINE 15, a 250 foot mat supported slot jack-up rig,
which was damaged as a result of a fire in late November 1996, were completed
during April 1997 and the rig subsequently began operations under a one-year
contract.
In late May 1997, the Company completed the acquisition of 93.7% of the
shares of Deep Sea ASA, a Norwegian company. In a mandatory offering in late
June 1997, the Company acquired an additional 2.5% of the outstanding shares
bringing the total ownership to 96.2%. During July 1997, the Company's ownership
increased 0.1% to 96.3%. Deep Sea ASA's primary asset is the Deepsea Stavanger,
a Bingo 8000 design bare-deck hull, which upon completion can be configured as
either a fourth or fifth-generation semi-submersible. Deep Sea ASA was
subsequently renamed Marine Drilling ASA and the rig was renamed the MARINE 700.
The Company is actively seeking a long-term contract for this rig.
A three-year contract for the MARINE 500 was executed in July 1997. The
contract is projected to commence on or before January 1, 1999 and is expected
to produce total revenues of $164,000,00 to $188,000,000. Pursuant to the terms
of this contract, the rig will have to be upgraded to operate in water depths up
to 5,000 feet.
In July 1997, the Company entered into a Charter Agreement with
Shanghai Bureau of Marine Geological Survey to bareboat charter the Kan Tan III,
a semi-submersible rig, for a period of five years. The Kan Tan III is a
600-foot water depth rig based upon the Pacesetter design and was built in China
in 1984. The Charter Agreement begins when the rig commences operations under a
drilling contract having a term of a year or greater. The rig is scheduled to
undergo a refurbishment program prior to commencement of the first contract. The
Company is actively seeking a long-term contract for this rig.
13
<PAGE> 16
Projected Capital Expenditures
The MARINE 700 will require additional expenditures to complete its
construction and equip it for service. At this time, the Company is conducting a
detailed engineering study to determine the cost of these activities. The
Company's preliminary analysis indicates that these additional expenditures will
be approximately $175,000,000. This estimate could increase materially based
upon further analysis, customer required features and increases in construction
and equipment costs. The sources of funding for the future rig completion
expenditures have not yet been determined.
As previously discussed, the MARINE 500 will be upgraded for its new
contract to work in water depths up to 5,000 feet. The rig is expected to be
taken out of service in mid-1998 for four to six months to complete the
upgrades, which are projected to cost approximately $80,000,000.
The Company expects to spend approximately $44,000,000 during the
fourth quarter of 1997 for capital expenditures, consisting primarily of
expenditures to begin the completion of the MARINE 700.
The Company will continue to pursue acquisitions of additional drilling
rigs and related equipment and/or businesses. Future acquisitions, if any, would
likely be funded from the Company's working capital, the New Credit Facility or
through the issuance of debt and/or equity securities. The Company cannot
predict whether it will be successful in acquiring additional rigs, and
obtaining financing therefor, on acceptable terms. In addition, it is currently
anticipated that the Company will continue the upgrading of rigs to enhance
their capability to obtain longer-term contracts. The timing and actual amounts
expended by the Company in connection with its plans to upgrade and refurbish
selected rigs, as well as the type of rig modification comprising each program
is subject to the discretion of the Company and will depend on the Company's
view of market conditions, the Company's cash flow, whether other acquisitions
are made and other factors.
With regard to fleet expansion, the Company believes that segments of
the offshore drilling market are continuing to undergo consolidation and such
consolidation may present acquisition opportunities. The Company will continue
to explore additional acquisition opportunities, including opportunities in the
deep water drilling sector, but there can be no assurance as to the timing of
any such acquisitions or that any acquisitions will be made.
The Company believes that its available funds, together with cash
generated from operations and amounts that may be borrowed under the New Credit
Facility and other potential funding sources will be sufficient to fund its
required capital expenditures, working capital and debt service requirements for
the foreseeable future. Future cash flows, however, are subject to a number of
uncertainties, especially 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. In particular, the potential sources of
funding (i) to complete and equip the MARINE 700 for operations and (ii) to
upgrade the MARINE 500 may not be available at the time or in sufficient amounts
to allow the Company to successfully complete these projects.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues
Revenues for the nine months ended September 30, 1997 increased
$54,016,000 (69%) from $78,418,000 to $132,434,000 compared to the same period
in 1996. The increase in revenues was primarily the result of three factors: (i)
a 55% increase in average day rates from $23,268 in 1996 to $36,039 in 1997,
which includes the addition of a semi-submersible rig at a higher day rate (ii)
an increase in the number of marketed rigs from 13 in 1996 to 14 in 1997 and
(iii) an increase in utilization of marketed rigs from 97% in 1996 to 99% in
1997. The increases in utilization and average day rates resulted from increased
drilling activity in the U.S. Gulf of Mexico and from the activation of the
MARINE 500 offshore Indonesia in late February 1997.
14
<PAGE> 17
Costs and Expenses
Contract drilling expense for the nine months ended September 30, 1997
increased $10,971,000 (25%) from $44,166,000 to $55,137,000 compared to the same
period in 1996. The increase was mainly due to higher labor costs of $6,633,000
(29%) and was partially offset by decreases in both employer liability claims
and insurance costs. Labor costs were higher, primarily as a result of the
increase in the number of working rigs and wage increases.
Depreciation and amortization expense for the nine months ended
September 30, 1997 increased $3,465,000 (41%) from $8,545,000 to $12,010,000
compared to the same period in 1996. The increase was due to depreciation
associated with expenditures for the following items - (i) the acquisition of
the MARINE 500, (ii) acquisition of the MARINE 305, (iii) upgrades to the MARINE
15 and the MARINE 300; and (iv) acquisitions of drill string and other drilling
equipment; and amortization expense related (i) to deferred financing costs
related to the New Credit Facility and (ii) the accelerated recognition of the
deferred financing costs associated with the prepayment of the CIT Credit
Facility.
General and administrative expense increased $178,000 (3%) from
$5,470,000 for the nine months ended September 30, 1996 to $5,648,000 for the
same period in 1997. The increase was the result of an increase in international
travel and other administrative expenses.
Interest Expense
Interest expense for the nine months ended September 30, 1997 was
$499,000. Interest expense for the nine months ended September 30, 1996 was
$593,000.
Interest Income
Interest income increased $1,276,000 from $726,000 for the nine months
ended September 30, 1996 to $2,002,000 for the same period in 1997. The increase
was related primarily to increased cash balances and, to a lesser extent, higher
interest rates.
Income Taxes
Income tax expense increased for the nine months ended September 30,
1997 as compared to the same period in 1996, primarily due to an increase in the
Company's pretax income.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996
Revenues
Revenues for the third quarter of 1997 increased $21,379,000 (72%) from
$29,819,000 to $51,198,000 compared to the same period in 1996. The increase in
revenues was primarily the result of two factors: (i) a 58% increase in average
day rates from $24,932 in 1996 to $39,338 in 1997 and (ii) an increase in the
number of marketed rigs from 13 in 1996 to 14 in 1997. The increase in average
day rates resulted from increased drilling activity in the U.S. Gulf of Mexico
and from the higher day rates working offshore Indonesia.
Costs and Expenses
Contract drilling expense for the third quarter of 1997 increased
$5,149,000 (34%) from $14,955,000 to $20,104,000 compared to the same period in
1996. The increase was mainly due to higher labor costs of $2,211,000 and higher
rig mobilization costs of $1,280,000. Labor costs and rig mobilization costs
were higher, primarily as a result of the increased number of working rigs and
wage increases.
15
<PAGE> 18
Depreciation and amortization expense for the third quarter of 1997
increased $1,407,000 (47%) from $2,975,000 to $4,382,000 compared to the same
period in 1996. The increase resulted primarily from depreciation associated
with the acquisitions of the MARINE 500 and MARINE 305 and purchases of other
capital expenditures.
General and administrative expense increased minimally from $1,857,000
for the third quarter in 1996 to $1,860,000 for the same period in 1997.
Interest Expense
Interest expense for the third quarter of 1997 was $78,000 compared
to $209,000 for the third quarter of 1996.
Interest Income
Interest income decreased $36,000 from $312,000 for the third quarter
of 1996 to $276,000 for the same period in 1997. The decrease was related
primarily to reduced cash balances.
Income Taxes
Income tax expense increased for the three months ended September 30,
1997 as compared to the same period in 1996, primarily due to an increase in the
Company's pretax income.
16
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has various claims filed against its subsidiaries in
the ordinary course of business, particularly claims alleging personal injuries.
It is the belief of management that the Company has established adequate
reserves for any liabilities that may reasonably be expected to result from
these claims. In the opinion of management, no pending claims, actions or
proceedings against the Company would have a material adverse effect on its
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibits No. Description
- ----------- -----------
<S> <C>
10.28 First Amendment to Credit Agreement dated May 21, 1997
among Marine Drilling Companies, Inc., Bankers Trust
Company, Christiania Bank og Kreditkasse, New York Branch
and certain other banks
10.29 Second Amendment to Credit Agreement dated August
27, 1997 among Marine Drilling Companies, Inc., Bankers
Trust Company, Christiania Bank og Kreditkasse, New York
Branch and certain other banks
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule (Exhibit 27 is being submitted
as an exhibit only in the electronic format of this
Quarterly Report on Form 10-Q being submitted to the U.S.
Securities and Exchange Commission.)
</TABLE>
(a) Reports on Form 8-K:
No reports were filed on Form 8-K during the third quarter of
1997.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: November 13, 1997 By /s/ Jan Rask
------------------------------------
Jan Rask
President
Chief Executive Officer and Director
Date: November 13, 1997 By /s/ Joan R. Smith
-------------------------------------
Joan R. Smith
Vice President, Controller and Secretary
(Principal Financial and Accounting Officer)
18
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.28 First Amendment to Credit Agreement dated May 21, 1997 among
Marine Drilling Companies, Inc., Bankers Trust Company,
Christiania Bank og Kreditkasse, New York Branch and certain other
banks
10.29 Second Amendment to Credit Agreement dated August 27, 1997 among
Marine Drilling Companies, Inc., Bankers Trust Company,
Christiania Bank og Kreditkasse, New York Branch and certain other
banks
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
(Exhibit 27 is being submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q being
submitted to the U.S. Securities and Exchange Commission.)
</TABLE>
<PAGE> 1
FIRST AMENDMENT TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment")
dated effective as of May 21, 1997 is among MARINE DRILLING COMPANIES, INC., a
Texas corporation (the "Borrower"), the banks named on the signature pages
hereto (together with their respective successors and assigns in such capacity,
the "Banks"), BANKERS TRUST COMPANY, as agent for the Banks (together with its
successors and assigns in such capacity, the "Agent") and CHRISTIANIA BANK OG
KREDITKASSE, NEW YORK BRANCH, as co-agent for the Banks (together with its
successors and assigns in such capacity, the "Co-Agent").
PRELIMINARY STATEMENT
A. The Borrower and the Bank Group have entered into
that certain Credit Agreement dated as of March 7, 1997 (the "Credit
Agreement").
B. The Borrower and the Bank Group desire to amend the
Credit Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements set forth herein, the parties agree as follows:
Section 1. Definitions. Unless otherwise defined in this
Amendment, each capitalized term used in this Amendment has the meaning
assigned to such term in the Credit Agreement.
Section 2. Amendments. The Credit Agreement is hereby amended
as follows:
a. The second sentence of Section 2.03(a) of the Credit Agreement
is hereby amended in its entirety to read as follows:
"Each such request for a Letter of Credit (a "Letter of Credit
Request") made by the Borrower shall be in substantially the form of
Exhibit 2.03 hereto and shall specify the Business Day on which such
Letter of Credit is to be issued, the beneficiary of such Letter of
Credit, the amount of such Letter of Credit, the draw conditions
applicable thereto and shall provide for an expiry date which is not
later than the earlier of (i) three years from the issuance date or
(ii) December 31, 2000."
b. Section 5.01(j) of the Credit Agreement is hereby amended in
its entirety to read as follows:
"On or before the twenty-fifth (25th) day of each calendar
month, a report detailing (i) the then current location of each of the
offshore drilling rigs and other vessels owned or leased by the
Borrower and its Subsidiaries, and the then current term of and
parties to any
<PAGE> 2
contract of any such vessels and (ii) for the previous calendar month,
the average day rates and utilization for each such rig or vessel."
c. Section 6.10 of the Credit Agreement is hereby amended by
deleting the word "and" at the end of subclause (h), replacing the period at
the end of subclause (i) with a semicolon, adding the word "and" at the end of
subclause (i), and adding the following subclause (j) at the end of Section
6.10:
"(j) the acquisition by the Borrower of 93.7% of the
capital stock of Deep Sea ASA, a Norwegian corporation ("Deep Sea"),
for a price of approximately $1.59/share; and the acquisition by the
Borrower of all remaining capital stock of Deep Sea for an aggregate
price not greater than $4,000,000."
Section 3. Ratification. The Borrower hereby ratifies and
confirms all of the Obligations under the Credit Agreement (as amended hereby)
and the other Loan Documents and the Liens created under the Security
Documents. All references in the Loan Documents to the "Credit Agreement"
shall mean the Credit Agreement as amended hereby and as the same may be
amended, supplemented, restated or otherwise modified and in effect from time
to time in the future.
Section 4. Effectiveness. This Amendment shall become
effective upon the execution of this Amendment by all parties hereto. This
Amendment may be executed in separate counterparts, all of which constitute one
and the same instrument.
Section 5. Representations and Warranties. The Borrower
hereby represents and warrants to the Bank Group that (a) the execution,
delivery and performance of this Amendment has been duly authorized by all
requisite corporate action on the part of the Borrower, (b) each of the Credit
Agreement (as amended hereby) and the other Loan Documents to which it is a
party constitutes a valid and legally binding agreement enforceable against the
Borrower in accordance with its terms except, as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity, (c) the
representations and warranties by the Borrower contained in the Credit
Agreement (as amended hereby) and in the other Loan Documents are true and
correct on and as of the date hereof in all material respects as though made as
of the date hereof, unless otherwise limited to an earlier date, (d) no Default
or Event of Default exists under the Credit Agreement (as amended hereby) or
any of the other Loan Documents.
Section 6. Choice of Law. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
Section 7. Final Agreement. THE CREDIT AGREEMENT (AS AMENDED
HEREBY) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective duly authorized
representatives as of the date first above written.
MARINE DRILLING COMPANIES, INC.
<TABLE>
<S> <C>
By: /s/ WILLIAM H. FLORES
---------------------------------------------------------------
William H. Flores
Executive Vice President and Chief Financial Officer
BANKERS TRUST COMPANY,
as Agent and Bank
By: /s/ MARY JO JOLLY
---------------------------------------------------------------
Name: Mary Jo Jolly
--------------------------------------------------------
Title: Assistant Vice President
-------------------------------------------------------
CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH,
as Co-Agent and Bank
By: /s/ HANS CHR. KJELSRUD
---------------------------------------------------------------
Name: Hans Chr. Kjelsrud
--------------------------------------------------------
Title: First Vice President
-------------------------------------------------------
By: /s/ JUSTIN F. MCCARTY, III
---------------------------------------------------------------
Name: Justin F. McCarty, III
--------------------------------------------------------
Title: Vice President
-------------------------------------------------------
BANQUE INDOSUEZ S.A.
By: /s/ HANS-JORGEN WIBSTAD
---------------------------------------------------------------
Name: Hans-Jorgen Wibstad
---------------------------------------------------------------
Title: Vice President
-------------------------------------------------------
</TABLE>
-3-
<PAGE> 4
SKANDINAVISKA ENSKILDA BANKEN AB
(PUBL.)
<TABLE>
<S> <C>
By: /s/ MAGNE HAGA
---------------------------------------------------------------
Name: Magne Haga
--------------------------------------------------------
Title: Managing Director
-------------------------------------------------------
By: /s/ PER K. FROLICH
---------------------------------------------------------------
Name: Per K. Frolich
--------------------------------------------------------
Title: Head of Administration
-------------------------------------------------------
NEDERLANDSE
SCHEEPSHYPOTHEEKBANK N.V.
By: /s/ JOHN S. OSBORNE, JR.
---------------------------------------------------------------
Name: John S. Osborne, Jr.
--------------------------------------------------------
Title: Attorney-In-Fact
-------------------------------------------------------
</TABLE>
The foregoing First Amendment to Credit Agreement is hereby
acknowledged and agreed to effective as of this 21st day of May, 1997.
MARINE DRILLING MANAGEMENT COMPANY
<TABLE>
<S> <C>
By: /s/ WILLIAM H. FLORES
---------------------------------------------------------------
William H. Flores
President
MARINE 300 SERIES, INC.
By: /s/ WILLIAM H. FLORES
---------------------------------------------------------------
William H. Flores
President
</TABLE>
-4-
<PAGE> 1
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment")
dated effective as of August 27, 1997 is among MARINE DRILLING COMPANIES, INC.,
a Texas corporation (the "Borrower"), the banks named on the signature pages
hereto (together with their respective successors and assigns in such capacity,
the "Banks"), BANKERS TRUST COMPANY, as agent for the Banks (together with its
successors and assigns in such capacity, the "Agent") and CHRISTIANIA BANK OG
KREDITKASSE, NEW YORK BRANCH, as co-agent for the Banks (together with its
successors and assigns in such capacity, the "Co-Agent").
PRELIMINARY STATEMENT
A. The Borrower and the Bank Group have entered into
that certain Credit Agreement dated as of March 7, 1997, as amended by that
certain First Amendment to Credit Agreement date May 21, 1997 (as so amended,
the "Credit Agreement").
B. The Borrower and the Bank Group desire to amend,
inter alia, to add Marine Drilling International, Inc., a Delaware corporation
("International, Inc."), as a Guarantor and, subject to certain conditions, to
permit dispositions of assets among the Guarantors, the Credit Agreement as set
forth herein.
NOW THEREFORE, in consideration of the foregoing and the
mutual agreements set forth herein, the parties agree as follows:
Section 1. Definitions. Unless otherwise defined in this
Amendment, each capitalized term used in this Amendment has the meaning
assigned to such term in the Credit Agreement.
Section 2. Amendments. The Credit Agreement is hereby amended
as follows:
a. Section 6.08(b) of the Credit Agreement is hereby
amended in its entirety to read as follows:
"(b) sell, transfer, assign or otherwise dispose of any
Mortgaged Rig other than (i) to any other Guarantor; provided, that
such sale, transfer, assignment or other disposition to such Guarantor
is approved in writing by the Agent and such Guarantor shall ratify,
grant and confirm the Lien on such Mortgaged Rig (and other related
Collateral) pursuant to such Security Documents as may be reasonably
requested by the Agent, (ii) Collateral Dispositions to an
Unrestricted Subsidiary, (iii) Collateral Dispositions to any other
Person for cash consideration in an amount
<PAGE> 2
equal to the Fair Market Value of the Mortgaged Rig so disposed of or
for such other consideration reasonably acceptable to the Majority
Banks.
b. The definition of "International, Inc." is hereby
added to Annex A of the Credit Agreement to read as follows:
" 'International, Inc.' means Marine Drilling International,
Inc., a Delaware corporation and Wholly Owned Subsidiary of Management
Co."
c. The definition of "Guarantors" in Annex A to the
Credit Agreement is hereby amended in its entirety to read as follows:
" 'Guarantors' means Marine 300 Series, Management Co. and
International, Inc., and any other Subsidiary hereafter executing and
delivering a Guaranty Agreement pursuant to Section 5.11."
d. Schedule 4.13(c) of the Credit Agreement is hereby
amended in its entirety and replaced by Schedule 4.13(c) as attached hereto.
Section 3. Ratification; Consents and Waivers. (a) The
Borrower hereby ratifies and confirms all of the Obligations under the Credit
Agreement (as amended hereby) and the other Loan Documents and the Liens
created under the Security Documents. All references in the Loan Documents to
the "Credit Agreement" shall mean the Credit Agreement as amended hereby and as
the same may be amended, supplemented, restated or otherwise modified and in
effect from time to time in the future.
(b) The Borrower hereby gives notice to the Agent and the
Banks that it intends to cause Management Co. to transfer the Mortgaged Rig
identified on Schedule 4.13(c) as the "Marine 305" to International, Inc.
Subject to compliance with Section 4 of this Amendment, the Agent hereby
approves such transfer. In connection therewith, subject to (i) compliance
with Section 4 of this Amendment, (ii) the transfer of the Marine 305 to
International, Inc. and (iii) evidence that the Liens created under the
Security Documents to be executed by International, Inc. under Section 4 of
this Amendment have been duly perfected and constitute valid first priority
Liens, the Agent and the Banks release Management Co. from its obligations (A)
under the First Preferred Fleet Mortgage (Vanuatu) dated March 7, 1997 by
Management Co. in favor of Bankers Trust Company, as Collateral Agent; (B) the
Security Agreement dated March 7, 1997 by Management Co. in favor of Bankers
Trust Company, as Collateral Agent; (C) Assignment of Earnings dated March 7,
1997 by Management Co. in favor of Bankers Trust Company, as Collateral Agent;
and (D) Collateral Assignment of Insurances dated March 7, 1997 by Management
Co. in favor of Bankers Trust Company, as Collateral Agent insofar as such
agreements relate to the Marine 305 and all schedules and exhibits thereto are
hereby amended to delete all references therein to the Marine 305.
-2-
<PAGE> 3
Section 4. Effectiveness. The effectiveness of this
Amendment is subject to the condition precedent that the Agent shall
have received all of the following, each in form and substance
reasonably satisfactory to the Bank Group and in such number of
counterparts as may be reasonably requested by the Agent:
a. this Amendment executed by the Borrower, the
Guarantors and each member of the Bank Group;
b. a Guaranty Agreement executed by International, Inc.;
c. a Pledge Agreement executed by Management Co.,
pledging the capital stock of International, Inc., together with delivery of
certificates representing all shares of capital stock of International, Inc.
and related stock powers executed in blank by Management Co.;
d. (i) a First Preferred Ship Mortgage covering the
Marine 305 executed by International, Inc.;
(ii) an Assumption of Preferred Mortgage related
to the Marine 305 executed by International, Inc. and Management Co.;
(iii) a Security Agreement executed by
International, Inc.;
(iv) an Assignment of Earnings executed by International, Inc.;
(v) a Collateral Assignment of Insurances executed by International,
Inc.; and
(vi) financing statements relating to the foregoing.
e. a written confirmation from the Process Agent of its
appointment and acceptance as process agent for International, Inc.;
f. the favorable signed opinion of Vinson & Elkins
L.L.P., New York, counsel to the Borrower and its Subsidiaries addressed to the
Agent and the Bank Group, in form and substance reasonably satisfactory to the
Agent and its counsel;
g. a certificate of the secretary or an assistant
secretary of each of International, Inc. and Management Co. certifying, inter
alia, (i) true and correct copies of resolutions adopted by the Board of
Directors of such Person (A) authorizing the execution, delivery and
performance by such Person of the Loan Documents to which it is or will be a
party and the consummation of the transactions contemplated thereby, and (B)
authorizing officers of such Person to execute and deliver the Loan Documents
to which it is or will be a party and any related documents, including, without
limitation, any agreement or Security Document contemplated by this Agreement,
(ii) true and
-3-
<PAGE> 4
correct copies of the articles of incorporation and bylaws (or other similar
charter documents) of such Person and (iii) the incumbency and specimen
signatures of the officers of such Person executing any Loan Documents to which
it is a party; and
h. certificates of appropriate public officials as to
the existence and good standing of International, Inc. in the State of Delaware
and certificates of appropriate public officials as to the authority of
International, Inc. to do business in the State of Texas.
Section 5. Representations and Warranties. The Borrower
hereby represents and warrants to the Bank Group that (a) the execution,
delivery and performance of this Amendment and the Loan Documents have been
duly authorized by all requisite corporate action on the part of the Borrower
and the Guarantors, (b) each of the Credit Agreement (as amended hereby) and
the other Loan Documents to which the Borrower and the Guarantors are a party
constitutes a valid and legally binding agreement enforceable against such
Person in accordance with its terms except, as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity, (c) the
representations and warranties by the Borrower contained in the Credit
Agreement (as amended hereby) and in the other Loan Documents are true and
correct on and as of the date hereof in all material respects as though made as
of the date hereof, unless otherwise limited to an earlier date, (d) no Default
or Event of Default exists under the Credit Agreement (as amended hereby) or
any of the other Loan Documents.
Section 6. Choice of Law. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
Section 7. Final Agreement. THE CREDIT AGREEMENT (AS AMENDED
HEREBY) AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS
BETWEEN THE PARTIES.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective duly authorized representatives as
of the date first above written.
MARINE DRILLING COMPANIES, INC.
By: /s/ JOAN R. SMITH
----------------------------
Name: Joan R. Smith
----------------------------
Title: Vice President
----------------------------
BANKERS TRUST COMPANY,
as Agent and Bank
By: /s/ MARY JO JOLLY
----------------------------
Name: Mary Jo Jolly
----------------------------
Title: Assistant Vice President
----------------------------
CHRISTIANIA BANK OG KREDITKASSE,
NEW YORK BRANCH,
as Co-Agent and Bank
By: /s/ HANS CHR. KJELSRUD
----------------------------
Name: Hans Chr. Kjelsrud
----------------------------
Title: First Vice President
----------------------------
BANQUE INDOSUEZ S.A.
By: /s/ HANS-JORGEN WIBSTAD
----------------------------
Name: Hans-Jorgen Wibstad
----------------------------
Title: Vice President
----------------------------
-5-
<PAGE> 6
SKANDINAVISKA ENSKILDA BANKEN AB
(PUBL.)
<TABLE>
<S> <C>
By: /s/ MAGNE HAGA
---------------------------------------------------------
Name: Magne Haga
---------------------------------------------------------
Title: Head of Unit
---------------------------------------------------------
By: /s/ PER K. FROLICH
---------------------------------------------------------
Name: Per K. Frolich
---------------------------------------------------------
Title: Head of Administration
---------------------------------------------------------
NEDERLANDSE
SCHEEPSHYPOTHEEKBANK N.V.
By: /s/ JOHN S. OSBORNE JR.
---------------------------------------------------------
Name: John S. Osborne Jr.
---------------------------------------------------------
Title: Attorney-in-Fact
---------------------------------------------------------
</TABLE>
-6-
<PAGE> 7
The foregoing Second Amendment to Credit Agreement is hereby
acknowledged and agreed to effective as of this 27th day of August, 1997.
MARINE DRILLING MANAGEMENT COMPANY
<TABLE>
<S> <C>
By: /s/ JOAN R. SMITH
---------------------------------------------------------
Name: Joan R. Smith
Title: President
MARINE 300 SERIES, INC.
By: /s/ JOAN R. SMITH
---------------------------------------------------------
Name: Joan R. Smith
Title: President
MARINE DRILLING INTERNATIONAL, INC.
By: /s/ JOAN R. SMITH
---------------------------------------------------------
Name: Joan R. Smith
Title: President
</TABLE>
-7-
<PAGE> 8
SCHEDULE 4.13(c)
TO CREDIT AGREEMENT
as of August 27, 1997
Rigs
----
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Rig Name Owner Flag Official Home Class Location Operating
Number Port Status
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARINE 3 Marine Drilling USA 560547 Houston, (1) US GOM Active
Management Company TX
MARINE 4 Marine Drilling USA 567686 Houston, (1) US GOM Active
Management Company TX
MARINE 15 Marine Drilling USA 638626 Houston, (1) US GOM Repairs
Management Company TX
MARINE 16 Marine Drilling USA 638954 Houston, (1) US GOM Active
Management Company TX
MARINE 17 Marine Drilling USA 641802 Houston, (1) US GOM Active
Management Company TX
MARINE 18 Marine Drilling USA 652045 Houston, (1) US GOM Active
Management Company TX
MARINE 200 Marine Drilling USA 631372 Houston, (1) US GOM Active
Management Company TX
MARINE 225 Marine Drilling USA 523782 Houston, (1) US GOM Active
Management Company TX
MARINE 201 Marine Drilling Vanuatu 921 Port Villa, (1) India Active
Management Company Vanuatu
MARINE 305 Marine Drilling Vanuatu 1027 Port Villa, (1) Sharjah, Upgrades
International, Inc. Vanuatu UAE
MARINE 304 Marine Drilling Panama 9553-79 H Panama, (1) US GOM Active
Management Company Republic of
Panama
MARINE 500 Marine Drilling Panama 63346-PEXT-7 Panama, (2) Indonesia Active
Management Company Republic of
Panama
MARINE 300 Marine 300 Series, Inc. USA 636379 Houston, (1) US GOM Active
TX
MARINE 301 Marine 300 Series, Inc. USA 640126 Houston, (1) US GOM Active
TX
MARINE 303 Marine 300 Series, Inc. USA 651994 Houston, (1) US GOM Active
TX
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A1 Self Elevating Drilling Unit
(2) A1 Column Stabilized Drilling---AMS
-1-
<PAGE> 1
EXHIBIT 15
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
Re: Registration Statement No. 33-56920 on Form S-8 dated January 11, 1993
No. 33-61901 on Form S-8 dated August 17, 1995
No. 333-6997 on Form S-3 dated June 27, 1996, as
amended
No. 333-6995 on Form S-4 dated June 27, 1996, as
amended
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 21, 1997, related to
our review of interim financial information. Pursuant to Rule 436(c) under the
Securities Act of 1933, such report is not considered part of a registration
statement prepared or certified by an accountant within the meanings of Sections
7 and 11 of the Act.
KPMG PEAT MARWICK LLP
Houston, Texas
October 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 23,848
<SECURITIES> 0
<RECEIVABLES> 39,509
<ALLOWANCES> 0
<INVENTORY> 535
<CURRENT-ASSETS> 70,585
<PP&E> 279,831
<DEPRECIATION> 45,059
<TOTAL-ASSETS> 307,489
<CURRENT-LIABILITIES> 12,771
<BONDS> 0
0
0
<COMMON> 519
<OTHER-SE> 275,993
<TOTAL-LIABILITY-AND-EQUITY> 307,489
<SALES> 132,434
<TOTAL-REVENUES> 132,434
<CGS> 55,137
<TOTAL-COSTS> 55,137
<OTHER-EXPENSES> 12,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 499
<INCOME-PRETAX> 61,372
<INCOME-TAX> 21,581
<INCOME-CONTINUING> 39,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,804
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0
</TABLE>
