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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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)
<TABLE>
<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 AUGUST 12, 1997 -- 51,529,011
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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 -
June 30, 1997 and December 31, 1996..................................................... 2
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1997 and 1996....................................... 3
Consolidated Statements of Cash Flows -
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders........................................... 17
Item 5. Other Information............................................................................. 17
Item 6. Exhibits and Reports on Form 8-K.............................................................. 18
SIGNATURES................................................................................................... 19
</TABLE>
(i)
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Marine
Drilling Companies, Inc. and subsidiaries as of June 30, 1997, and the related
consolidated statements of operations and cash flows for the three-month and
six-month periods ended June 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
July 25, 1997
1
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,660 $ 69,761
Restricted cash 4,200 2,200
Short-term investments 9,988 9,990
Accounts receivable - trade and other, net 36,931 21,378
Inventory 623 897
Prepaid expenses and other 2,722 1,461
--------- ---------
Total current assets 59,124 105,687
Property and Equipment 266,199 182,200
Less accumulated depreciation 40,727 33,463
--------- ---------
Property and equipment, net 225,472 148,737
Goodwill 455 --
Other 1,369 523
--------- ---------
$ 286,420 $ 254,947
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 1,000
Accounts payable 6,100 3,249
Accrued expenses 6,791 4,284
Current tax liability 3,666 --
Employer's liability claims, current 1,000 483
--------- ---------
Total current liabilities 17,557 9,016
Long-Term Debt -- 9,000
Employer's Liability Claims, non-current and other 1,642 1,469
Minority Interest in Subsidiary 1,717 --
Deferred Income Taxes 12,526 13,729
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000 shares;
issued and outstanding 51,418,860 and 51,262,519 shares,
as of June 30, 1997 and December 31, 1996, respectively 514 513
Common stock restricted (1,309) (628)
Additional paid-in capital 193,401 184,992
Retained earnings from January 1, 1993 60,372 36,856
--------- ---------
Total shareholders' equity 252,978 221,733
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 286,420 $ 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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 44,486 $ 27,360 $ 81,236 $ 48,599
Costs and Expenses:
Contract drilling 18,557 15,679 35,033 29,211
Depreciation and amortization 4,047 2,873 7,628 5,570
General and administrative 2,007 2,203 3,788 3,613
------------ ------------ ------------ ------------
24,611 20,755 46,449 38,394
------------ ------------ ------------ ------------
Operating income 19,875 6,605 34,787 10,205
------------ ------------ ------------ ------------
Other Income (Expense):
Interest expense (71) (203) (421) (384)
Interest income 669 222 1,726 414
Other income (expense) 47 28 87 86
------------ ------------ ------------ ------------
645 47 1,392 116
------------ ------------ ------------ ------------
Income before income taxes 20,520 6,652 36,179 10,321
Income tax expense 7,182 2,398 12,663 3,755
------------ ------------ ------------ ------------
Net income $ 13,338 $ 4,254 $ 23,516 $ 6,566
============ ============ ============ ============
Income per common share $ 0.26 $ 0.10 $ 0.46 $ 0.15
============ ============ ============ ============
Weighted average common shares
outstanding 51,408,251 44,338,438 51,369,324 44,071,363
============ ============ ============ ============
</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>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
-------- --------
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Cash Flows From Operating Activities:
Net income $ 23,516 $ 6,566
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,628 5,570
Deferred income taxes 943 1,757
Pre-quasi-reorganization net operating loss carryforwards 5,631 --
Tax effects of common stock issued pursuant to
long-term incentive plan 795 1,854
Gain on disposition of equipment (53) (88)
Loss on sale of short-term investments 2 --
Accrual of compensation expense, net 350 202
Issuance of common stock to Employee 401(k) Plan
and the Non-Employee Directors' Plan 654 492
Amortization of interest income (453) --
Changes in operating assets and liabilities:
Receivables (15,537) (879)
Other current assets (987) (1,099)
Payables, accrued expenses, current taxes and
employer's liability claims 6,802 (166)
Other (1,117) (86)
-------- --------
Net cash provided by operating activities 28,174 14,123
-------- --------
Cash Flows From Investing Activities:
Purchase of short-term investments (19,514) --
Maturity of short-term investments 19,967 --
Purchase of equipment (29,965) (9,550)
Acquisition of company, net of cash acquired (52,134) --
Proceeds from disposition of equipment 72 228
-------- --------
Net cash used in investing activities (81,574) (9,322)
-------- --------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 299 1,493
Payment of debt (10,000) --
Increase in restricted cash (2,000) --
-------- --------
Net cash provided by (used in) financing activities (11,701) 1,493
-------- --------
Net increase (decrease) in cash and cash equivalents (65,101) 6,294
Cash and cash equivalents at beginning of period 69,761 12,260
-------- --------
Cash and cash equivalents at end of period $ 4,660 $ 18,554
======== ========
</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, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997 1996
-------- --------
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 468 $434
Income taxes 3,698 145
Noncash investing and financing activities:
Issuance of 62,000 and 60,833 shares in 1997 and 1996
respectively, of restricted common stock $ 1,081 $368
Forfeitures of 3,000 shares in 1997 of restricted common stock 50 --
Business acquisition, net of cash acquired:
Working capital, other than cash $ 750 $ --
Plant and equipment (54,146) --
Purchase price in excess of the net assets acquired (455) --
Minority interest 1,717 --
-------- ----
Net cash used for acquisition $(52,134) $ --
======== ====
</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
JUNE 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 six months ended June 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 six months
ended June 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 required 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.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segment 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) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Current:
U.S. federal .................................. $ 3,666 $ (64) $ 4,705 $ 1
State ......................................... 44 -- 44 --
Foreign ....................................... 472 70 545 143
------- ------- ------- -------
4,182 6 5,294 144
------- ------- ------- -------
Other:
U.S. federal - deferred ....................... 368 1,190 943 1,757
Tax benefits not recognized in
the statement of operations
Pre-quasi-reorganization net operating
loss carryforwards ................ 2,679 -- 5,631 --
Tax effects of common stock
issued pursuant to long-term
incentive plan .................... (47) 1,202 795 1,854
------- ------- ------- -------
3,000 2,392 7,369 3,611
------- ------- ------- -------
Total tax provision ............................... $ 7,182 $ 2,398 $12,663 $ 3,755
======= ======= ======= =======
</TABLE>
For the six months ended June 30, 1997 and 1996, the effective tax
rate for financial reporting purposes was 35% and 36% respectively, which
approximates the U.S. federal statutory rate of 35%. The effective rate was
higher than the statutory rate in 1996 due to the Company's treatment of
foreign tax payments.
6
<PAGE> 9
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 and December 31, 1996 are presented below.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ..................... $ 18,435 $ 24,065
Investment tax, general business and alternative
tax credit carryforwards ......................... 4,862 4,862
Employer's liability claims .......................... 871 683
Allowance for bad debts .............................. 53 53
-------- --------
Total gross deferred tax assets ...................... 24,221 29,663
Less valuation allowance ............................. (21,204) (28,980)
-------- --------
Net deferred tax assets .............................. 3,017 683
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation .................................. 14,636 13,344
Deferred intercompany gains and losses ............... 907 1,068
-------- --------
Total gross deferred tax liabilities ................. 15,543 14,412
-------- --------
Net deferred tax liability ............................... $ 12,526 $ 13,729
======== ========
</TABLE>
(4) NET INCOME PER COMMON SHARE
Net income per common share for the three and six months ended June
30, 1997 and 1996 excludes the effect of outstanding stock options inasmuch as
the potential dilution from their exercise is less than three percent.
(5) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising
out of operations in the normal course of business. In the opinion of
management, uninsured losses, if any, will not be material to the Company's
financial position or results of operations.
(6) SUBSEQUENT EVENTS
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.
The rig will be upgraded to work in water depths up to 5,000 feet with 15,000
psi drilling equipment. The rig will be taken out of service mid-1998 for four
to six months for the upgrade, which is expected to cost $70 to $80 million.
In July 1997, the Company entered into a Charter Agreement with
Shanghai Bureau of Marine Geological Survey to bareboat charter their
semi-submersible Kan Tan III 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 commences when a minimum one-year contract
is awarded. The rig is scheduled to undergo a refurbishment program by the rig
owners prior to commencement of the first contract. The Company is actively
seeking a long-term contract for this rig.
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) an adverse outcome with
respect to the Company's treatment of its net operating losses generated prior
to 1993.
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 August 5, 1997, worldwide jack-up utilization was 89% (338
rigs working out of a supply of 378 rigs) compared to 83% average utilization
(320 rigs working out of a supply of 384 rigs) during the first six months of
1996. Worldwide semi-submersible rig utilization as of August 5, 1997 was 81%
(117 rigs working out of a supply of 145 rigs) compared to 77% average
utilization (110 rigs working out of a supply of 143 rigs) during the first six
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 or have
contracts to operate 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, four
of which have been exercised by its customer, which will provide for the rig's
employment through at least November 1997. Based upon conversations with the
rig's customer, the Company currently expects this contract to be extended
(pursuant to extension options) into 1998. The MARINE 305 has received a
one-year contract with a major oil company commencing in the third quarter in
Southeast Asia. This contract includes options that could, if exercised, extend
its term for up to an additional year. The rig, which was acquired in August
1996, was recently upgraded and refurbished in the Middle East and will be on
location during August 1997. 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. The rig will be upgraded for the contract
to work in water depths up to 5,000 feet with 15,000 psi drilling equipment.
The MARINE 500 is currently 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).
The Company is currently seeking to obtain a long-term contract for
the MARINE 700, which was recently acquired with the acquisition of
96.2 percent of the outstanding shares of Marine Drilling ASA
(formerly Deep Sea ASA of Norway).
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 August 5, 1997 was 92% (120 rigs working out of a supply of 130 rigs) as
compared with an average of 85% (116 rigs working out of a supply of 136 rigs)
for the first six 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, four of which have been exercised ensuring this rig's employment
through November 1997. 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 recently 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 will begin 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 signed another short-term contract for the MARINE 500 to drill
three wells with three option wells, which if exercised will extend the
contract until mid-1998. The Company also recently entered into a three-year
contract for that rig, which is projected to commence on or before January 1,
1999 and includes operations in Southeast Asia, the Pacific Rim, offshore
Australia and New Zealand. Utilization in this market is currently strong, with
contracted rig utilization of 91% 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
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED YEARS ENDED
JUNE 30, JUNE 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 ................... 132.6 136.7 133.6 136.9 135.9 140.1
Working rigs ................. 119.8 118.5 119.6 116.0 118.5 104.6
Utilization .................. 90% 87% 90% 85% 87% 75%
Semi-submersibles
Total rigs ................... 33.7 29.4 33.6 29.1 30.4 24.2
Working rigs ................. 25.5 21.9 24.2 22.0 22.0 16.8
Utilization .................. 76% 74% 72% 76% 72% 69%
ALL OTHER MARKETS:
Jack-ups
Total rigs ................... 245.5 246.8 244.4 246.7 246.0 246.7
Working rigs ................. 216.9 205.0 214.4 204.1 208.5 197.5
Utilization .................. 88% 83% 88% 83% 85% 80%
Semi-submersibles
Total rigs ................... 110.3 114.2 110.8 114.1 112.8 117.2
Working rigs ................. 90.9 91.8 92.8 88.1 90.4 82.6
Utilization .................. 82% 80% 84% 77% 80% 70%
COMPANY(2):
Jack-ups
Total rigs ................... 14.0 13.0 14.0 13.0 13.4 13.0
Working rigs ................. 12.8 12.8 12.4 11.9 12.4 8.9
Utilization .................. 91% 98% 89% 92% 93% 69%
Non-marketed rigs ............ 1.2 0.2 1.6 0.7 0.9 3.0
Utilization of marketed rigs.. 100% 100% 100% 97% 99% 89%
Semi-submersibles
Total rigs ................... 1.0 -- 1.0 -- -- --
Working rigs ................. 1.0 -- 0.7 -- -- --
Utilization .................. 100% -- 73% -- -- --
Non-marketed rigs ............ 0.0 -- 0.3 -- -- --
Utilization of marketed rigs.. 100% -- 100% -- -- --
Average Day Rates
Jack-up rigs(3) .............. $ 34,027 $ 23,505 $ 32,952 $ 22,353 $ 24,343 $ 19,289
Semi-submersible rigs(3)(4)... $ 54,823 -- $ 55,832 --
All rigs(3) .................. $ 35,539 $ 23,505 $ 34,230 $ 22,353 $ 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 June 30, 1997 of $41,567,000 as
compared to working capital of $96,671,000 at December 31, 1996. Net cash
provided by operating activities was $28,174,000 for the six months ended June
30, 1997 compared to $14,123,000 for the six months ended June 30, 1996, an
increase of $14,051,000 or 99.5%. Cash used in investing activities was
$81,574,000 for the six months ended June 30, 1997 including capital
expenditures of $29,965,000 and the acquisition of Marine Drilling ASA formerly
known as Deep Sea ASA for $52,134,000, compared to cash used in investing
activities of $9,322,000 for the six months ended June 30, 1996. Capital
expenditures for the six months ended June 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 $11,701,000 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
June 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
is currently expected to generate revenues of approximately $28,000,000. The
rig underwent an upgrade that was completed in July 1997. The rig is currently
under tow and will be on location to commence operations in mid 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%. 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 its
semi-submersible Kan Tan III 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 by the rig owners prior to
commencement of the first contract. The Company is actively seeking a
long-term contract for this rig.
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
13
<PAGE> 16
these additional expenditures will be in the range of $140,000,000 to
$175,000,000. This estimate could change materially based upon further analysis
and customer required features. 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 between $70,000,000 and $80,000,000.
The Company expects to spend approximately $54,000,000 during the
second half of 1997 for other capital expenditures, consisting primarily of
expenditures to complete the upgrade and refurbishment of the MARINE 305 and 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 -- SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1996
Revenues
Revenues for the six months ended June 30, 1997 increased $32,637,000
(67%) from $48,599,000 to $81,236,000 compared to the same period in 1996. The
increase in revenues was the result of three factors: (i) a 53% increase in
average day rates from $22,353 in 1996 to $34,230 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 12 in 1996 to 13 in 1997 and (iii) an increase in
utilization of marketed rigs from 97% in 1996 to 100% 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 six months ended June 30, 1997
increased $5,822,000 (20%) from $29,211,000 to $35,033,000 compared to the same
period in 1996. The increase was mainly due to higher labor costs of $4,422,000
(30%) 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 six months ended June
30, 1997 increased $2,058,000 (37%) from $5,570,000 to $7,628,000 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) upgrades to the MARINE 15 and the MARINE 300, (iii) 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 $175,000 (5%) from
$3,613,000 for the six months ended June 30, 1996 to $3,788,000 for the same
period in 1997.
Interest Expense
Interest expense for the six months ended June 30, 1997 was $421,000
and consisted of the following: (i) nonutilization fee of $200,000 based on a
2% rate on an outstanding balance of $10,000,000 related to the early
termination of the CIT Credit Facility, (ii) interest of $115,000 based on an
average rate of 8.1% with an average balance of $10,000,000, (iii) credit
facility fees of $7,000 based on a .25% rate with an average unused balance of
$21,500,000, (iv) agency fee of $50,000, (v) commitment fees of $95,000 based
on a .30% rate with an average unused balance of $100,000,000 and (vi) offset
by capitalized interest of approximately $46,000. Interest expense for the six
months ended June 30, 1996 was $384,000.
Interest Income
Interest income increased $1,312,000 from $414,000 for the six months
ended June 30, 1996 to $1,726,000 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 of $12,663,000 for the six months ended June 30,
1997 consisted of (i) current U.S. federal taxes of $4,705,000, (ii)
current state taxes of $44,000, (iii) current foreign taxes of $545,000, (iv)
deferred U.S. federal income taxes of $943,000, (v) the realization of
pre-quasi-reorganization net operating loss carryforwards of $5,631,000 and
(vi) the tax effects of common stock issued pursuant to the Marine Drilling 1992
Long-Term Incentive Plan $795,000.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996
Revenues
Revenues for the second quarter of 1997 increased $17,126,000 (63%)
from $27,360,000 to $44,486,000 compared to the same period in 1996. The
increase in revenues was the result of two factors: (i) a 51% increase in
average day rates from $23,505 in 1996 to $35,539 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.
15
<PAGE> 18
Costs and Expenses
Contract drilling expense for the second quarter of 1997 increased
$2,878,000 (18%) from $15,679,000 to $18,557,000 compared to the same period in
1996. The increase was mainly due to higher labor costs of $2,146,000 (28%) and
was partially offset by decreases in both employer liability claims and
insurance costs. Labor costs were higher primarily as a result of the increased
number of working rigs and wage increases.
Depreciation and amortization expense for the second quarter of 1997
increased $1,174,000 (41%) from $2,873,000 to $4,047,000 compared to the same
period in 1996. The increase resulted primarily from depreciation associated
with the acquisition of the MARINE 500, upgrades for the MARINE 15, and
purchases of rig machinery and other capital expenditures.
General and administrative expense decreased $196,000 (9%) from
$2,203,000 for the second quarter to $2,007,000 for the same period in 1997.
The decrease was primarily the result of the incurrence in 1996 of $500,000 of
general and administrative expenses related to potential rig acquisitions
offset by increased labor costs, professional services and international travel
in 1997.
Interest Expense
Interest expense for the second quarter of 1997 was $71,000 compared to
$203,000 for the second quarter of 1996.
Interest Income
Interest income increased $447,000 from $222,000 for the second
quarter of 1996 to $669,000 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 of $7,182,000 for the second quarter of 1997
consisted of (i) current U.S. federal taxes of $3,666,000, (ii) current state
taxes of $44,000, (iii) foreign taxes of $472,000, (iv) deferred U.S. federal
income taxes of $368,000, (v) the realization of pre-quasi-reorganization net
operating loss carryforwards of $2,679,000 and (vi) the tax effects of common
stock issued pursuant to the Marine Drilling 1992 Long-Term Incentive Plan
$(47,000).
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May
9, 1997. At the meeting, seven directors were elected by a vote of holders of
Common Stock, as outlined in the company's Proxy Statement related to the
meeting. With respect to the election of directors, (i) proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, (ii) there was no solicitation in opposition to the management's
nominees as listed in the Proxy Statement, and (iii) all of such nominees were
elected. The following numbers of votes were cast as to the director nominees:
<TABLE>
<CAPTION>
====================================================================================================================
BROKER
IN FAVOR WITHHELD NON-VOTES ABSTAINING
--------------------- ------------------ --------------- ---------------
NOMINEE VOTES CAST VOTES % VOTES % VOTES % VOTES %
- ----------------- -------------- --------------------- ------------ ----- -------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Barbanell 46,145,179 43,357,707 84% 2,787,472 5% - -% - -%
Mr. Brown 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
Mr. Bull 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
Mr. Flores 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
Mr. Gregory 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
Mr. Linneman 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
Mr. Rask 46,145,179 43,358,007 84% 2,787,172 5% - -% - -%
====================================================================================================================
</TABLE>
The second item voted upon at the meeting was to approve and
ratify the Marine Drilling 1992 Long-Term Incentive Plan, as amended and
restated, with votes cast as follows:
<TABLE>
<CAPTION>
====================================================================================================================
BROKER
IN FAVOR WITHHELD NON-VOTES ABSTAINING
----------------------- ------------------------- ----------------- ---------------------
VOTES CAST VOTES % VOTES % VOTES % VOTES %
--------------- -------------- -------- -------------- --------- --------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
46,145,179 30,536,581 66.2% 15,402,581 33.4% - -% 206,017 0.4%
====================================================================================================================
</TABLE>
ITEM 5. OTHER INFORMATION
William H. Flores, Executive Vice President and Chief Financial
Officer of the Company, will be resigning as an officer and director effective
August 17, 1997 to accept employment with another company.
17
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Description
Exhibits No.
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.)
(b) Reports on Form 8-K:
One report was filed on Form 8-K during the second quarter of
1997.
(1) Report of the Company dated June 4, 1997 regarding the
acquisition of 93.7% of the shares of Deep Sea ASA, a
Norwegian company.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: August 14, 1997 By /s/ William H. Flores
----------------------------------------
William H. Flores
Executive Vice President
Chief Financial Officer and Director
(Principal Financial Officer)
Date: August 14, 1997 By /s/ Joan R. Smith
----------------------------------------
Joan R. Smith
Vice President, Controller and Secretary
(Principal Accounting Officer)
19
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
(Exhibit 27 is being submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q being
submitted to the U.S. Securities and Exchange Commission.)
</TABLE>
<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 July 25, 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
July 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,860
<SECURITIES> 9,988
<RECEIVABLES> 36,931
<ALLOWANCES> 0
<INVENTORY> 623
<CURRENT-ASSETS> 59,124
<PP&E> 266,199
<DEPRECIATION> 40,727
<TOTAL-ASSETS> 286,420
<CURRENT-LIABILITIES> 17,557
<BONDS> 0
0
0
<COMMON> 514
<OTHER-SE> 252,464
<TOTAL-LIABILITY-AND-EQUITY> 286,420
<SALES> 81,236
<TOTAL-REVENUES> 81,236
<CGS> 35,033
<TOTAL-COSTS> 35,033
<OTHER-EXPENSES> 7,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421
<INCOME-PRETAX> 36,179
<INCOME-TAX> 12,663
<INCOME-CONTINUING> 23,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,516
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0
</TABLE>
