<PAGE>
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, 1996
------------------
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission File Number 0-22078
Dual Holding Company (formerly DUAL DRILLING COMPANY)
(Exact name of registrant as specified in its charter)
DELAWARE 51-0327704
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Fountain Place
1445 Ross Avenue, Dallas Texas 75202 - 2792
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 922-1500
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 twelve 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 [ ]
There were 1,000 shares of Common Stock, $.10 par value, of the registrant
outstanding as of November 11, 1996.<PAGE>
DUAL HOLDING COMPANY
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
PAGE
------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet
September 30, 1996 and December 31, 1995 3
Consolidated Statement of Operations
Three months ended September 30, 1996 and 1995 4
Consolidated Statement of Operations
January 1, 1996 to June 12, 1996, June 13, 1996 to
September 30, 1996 and the nine months ended
September 30, 1995 5
Consolidated Statement of Cash Flows
January 1, 1996 to June 12, 1996, June 13, 1996 to
September 30, 1996 and the nine months ended
September 30, 1995 6
Notes to Consolidated Financial Statements 7 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
Separate financial statements of the subsidiaries of Dual Holding
Company (the "Company") that guarantee the Company's Senior Subordinated
Notes due 2004 (the "Notes") are not included herein. Such subsidiary
guarantors are jointly and severally liable with respect to the Company's
obligations pursuant to such Notes, and the aggregate total assets, equity
and net income (loss) of such subsidiary guarantors are substantially
equivalent to the total assets, equity and net income (loss) of the Company
on a consolidated basis. The total assets, equity and net income (loss) of
subsidiaries of the Company not guaranteeing the Notes on a combined basis
are not significant compared to the respective amounts reported in the
Consolidated Financial Statements of the Company and its subsidiaries.
3<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except shares)
SUCCESSOR | PREDECESSOR
------------- | ------------
SEPTEMBER 30, | DECEMBER 31,
1996 | 1995
------------- | ------------
(UNAUDITED) |
<S> <C> | <C>
ASSETS |
- ------ |
CURRENT ASSETS |
Cash and cash equivalents.......................... $ 22,121 | $ 42,830
Accounts and notes receivable, net................. 11,439 | 18,993
Prepaid expenses and other......................... 5,532 | 15,422
Total current assets......................... 39,092 | 77,245
|
PROPERTY AND EQUIPMENT, AT COST...................... 280,243 | 282,310
Less accumulated depreciation...................... 6,453 | 85,881
Property and equipment, net.................. 273,790 | 196,429
|
OTHER ASSETS |
Goodwill........................................... 89,341 | 25,032
Other.............................................. 2,505 | 5,056
Total other assets........................... 91,846 | 30,088
$404,728 | $303,762
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
- ------------------------------------ |
CURRENT LIABILITIES |
Accounts payable................................... $ 4,218 | $ 5,069
Accrued liabilities................................ 16,580 | 10,026
Current maturities of long-term debt............... - | 6,538
Total current liabilities.................... 20,798 | 21,633
|
LONG-TERM DEBT....................................... 144,543 | 138,163
|
DEFERRED INCOME TAXES................................ 16,200 | 1,796
|
OTHER LIABILITIES.................................... 3,532 | 2,024
|
STOCKHOLDERS' EQUITY |
Common stock ($.10 par value, 10,000 shares |
authorized and 1,000 shares issued at September |
30, 1996) ($.01 par value, 50.0 million shares |
authorized and 15.8 million shares issued at |
4<PAGE>
December 31, 1995)............................... - | 158
Additional paid-in capital......................... 218,431 | 173,793
Retained earnings (deficit)........................ 1,224 | (33,386)
Treasury stock at cost............................. - | (419)
Total stockholders' equity .................. 219,655 | 140,146
$404,728 | $303,762
The accompanying notes are an integral part of these financial statements.
</TABLE>
5<PAGE>
<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
SUCCESSOR | PREDECESSOR
------------- | -------------
THREE MONTHS | THREE MONTHS
ENDED | ENDED
SEPTEMBER 30, | SEPTEMBER 30,
1996 | 1995
------------- | -------------
<S> <C> | <C>
|
OPERATING REVENUES............................ $ 20,623 | $ 21,764
|
|
OPERATING EXPENSES |
Operating costs............................. 8,373 | 14,593
Depreciation and amortization............... 6,164 | 4,921
General and administrative.................. 1,272 | 2,100
15,809 | 21,614
|
|
OPERATING INCOME.............................. 4,814 | 150
|
|
OTHER INCOME (EXPENSE) |
Interest income............................. 223 | 355
Interest expense............................ (3,177) | (3,733)
Loss on sale of assets, net................. - | (1,152)
Other, net.................................. (9) | (33)
(2,963) | (4,563)
|
|
INCOME (LOSS) BEFORE INCOME TAXES............. 1,851 | (4,413)
|
|
PROVISION FOR INCOME TAXES.................... 808 | 419
|
|
NET INCOME (LOSS)............................. $ 1,043 | $ (4,832)
|
|
EARNINGS (LOSS) PER SHARE..................... $1,043.00 | $ (.31)
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING........... 1 | 15,765
The accompanying notes are an integral part of these financial statements.
</TABLE>
6<PAGE>
<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
SUCCESSOR |PREDECESSOR PREDECESSOR
------------ |----------- -------------
JUNE 13, | JANUARY 1, NINE MONTHS
1996 TO | 1996 TO ENDED
SEPTEMBER 30,| JUNE 12, SEPTEMBER 30,
1996 | 1996 1995
-------------|----------- -------------
<S> <C> | <C> <C>
OPERATING REVENUES....................... $ 24,257 | $ 53,542 $ 61,428
|
|
OPERATING EXPENSES |
Operating costs........................ 9,907 | 37,346 44,960
Depreciation and amortization.......... 7,196 | 8,768 14,904
Change in control...................... - | 22,005 -
General and administrative............. 1,440 | 3,757 6,030
18,543 | 71,876 65,894
|
|
OPERATING INCOME (LOSS).................. 5,714 | (18,334) (4,466)
|
|
OTHER INCOME (EXPENSE) |
Interest income........................ 247 | 846 1,434
Interest expense....................... (3,829) | (6,484) (11,062)
Gain on sale of assets, net............ - | - 5,282
Other, net............................. (17) | 268 (168)
(3,599) | (5,370) (4,514)
|
|
INCOME (LOSS) BEFORE INCOME TAXES........ 2,115 | (23,704) (8,980)
|
|
PROVISION FOR INCOME TAXES............... 891 | 628 898
|
|
NET INCOME (LOSS)........................ $ 1,224 | $(24,332) $ (9,878)
|
|
EARNINGS (LOSS) PER SHARE................ $1,224.00 | $ (1.54) $ (.63)
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING...... 1 | 15,810 15,765
The accompanying notes are an integral part of these financial statements.
</TABLE>
7<PAGE>
<TABLE>
<CAPTION>
DUAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
SUCCESSOR | PREDECESSOR PREDECESSOR
------------ | ----------- ------------
JUNE 13, | JANUARY 1, NINE MONTHS
1996 TO | 1996 TO ENDED
SEPTEMBER 30,| JUNE 12, SEPTEMBER 30,
1996 | 1996 1995
------------ | ----------- ------------
<S> <C> | <C> <C>
OPERATING ACTIVITIES |
Net income (loss)...................... $ 1,224 | $(24,332) $ (9,878)
Adjustments to reconcile net income |
(loss) to net cash provided (used) by |
operating activities: |
Depreciation and amortization...... 7,196 | 8,768 14,904
Deferred income tax benefit........ - | (426) (361)
Gain on disposition of assets...... - | - (5,282)
Provision for cashless exercise |
of stock options................. - | 9,667 -
Other.............................. (175) | (1,912) (2,999)
Changes in operating assets and |
liabilities: |
(Increase) decrease in accounts |
receivable.................... 10,734 | (3,985) 1,453
(Increase) decrease in prepaid |
expenses and other............. (956) | 5,584 1,523
Increase (decrease) in accounts |
payable........................ 2,860 | (4,777) (278)
Increase (decrease) in accrued |
liabilities.................... (10,661) | 11,770 (2,559)
Net cash provided (used) by |
operating activities....... 10,222 | 357 (3,477)
|
INVESTING ACTIVITIES |
Additions to property and equipment.... (2,888) | (23,149) (27,674)
Cash restricted for rig purchases...... - | - 22,000
Proceeds from sale of assets........... 3,403 | 208 38,741
Other.................................. 769 | (1,688) (288)
Net cash provided (used) by |
investing activities............... 1,284 | (24,629) 32,779
|
FINANCING ACTIVITIES |
Proceeds from long-term borrowings..... 45,000 | - -
Reduction of long-term borrowings...... (47,094) | (2,586) (3,624)
Other.................................. 4,180 | (7,443) (189)
Net cash provided (used) by |
financing activities............... 2,086 | (10,029) (3,813)
|
8<PAGE>
INCREASE (DECREASE) IN CASH AND |
CASH EQUIVALENTS....................... 13,592 | (34,301) 25,489
|
CASH AND CASH EQUIVALENTS, BEGINNING OF |
PERIOD................................. 8,529 | 42,830 19,925
|
CASH AND CASH EQUIVALENTS, END OF PERIOD. $ 22,121 | $ 8,529 $ 45,414
The accompanying notes are an integral part of these financial statements.
</TABLE>
9<PAGE>
DUAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Dual Holding Company (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and in accordance
with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (which consist of normal recurring
adjustments) which are necessary for a fair statement of the financial
position and results of operations for the interim periods presented.
In addition, the consolidated financial statements included herein present
the results of the Company during the period prior to its acquisition
("Predecessor" entity) by ENSCO International Incorporated ("ENSCO") as
well as the period subsequent to its acquisition ("Successor" entity). See
"Note 2 - Merger" below. The financial statements of the Predecessor and
Successor are not comparative in certain respects because of differences
between the cost basis of the assets held by the Predecessor compared to
that of the Successor as well as the effect on the Successor's operations
for adjustments to depreciation, amortization, interest income, interest
expense and income taxes.
It is recommended that these statements be read in conjunction with the
Company's consolidated financial statements and notes thereto for the year
ended December 31, 1995 included in the Company's Annual Report on
Form 10-K.
NOTE 2 - MERGER
On June 12, 1996, a special meeting of the stockholders of the Company was
held to approve the Agreement and Plan of Merger among ENSCO, DDC
Acquisition Company (a wholly-owned subsidiary of ENSCO) and the Company
(the "Merger Agreement") dated March 21, 1996, as amended. The holders of
the Company's common stock approved the Merger Agreement and the Company
was merged into ENSCO on June 12, 1996 (the "Merger"). Under the terms of
the Merger Agreement, each share of the Company's common stock was
converted into the right to receive 0.625 shares of ENSCO common stock.
The Company's stockholders of record as of June 12, 1996 received, in the
aggregate, approximately 10.1 million shares of ENSCO common stock in
connection with the Merger.
Prior to the Merger, the Company charged $22.0 million against operating
results for certain items. These items included compensation paid in the
ordinary course of business as well as other costs directly related to the
merger process. The primary items composing the $22.0 million of operating
charges were as follows (in thousands):
10<PAGE>
Cashless exercise of stock options $ 9,667
Compensation and severance payments
to employees 8,773
Fee paid to investment advisor 3,000
Other 565
-------
Total $22,005
=======
In conjunction with the Merger, the Company used the purchase method to
record the acquisition of the Company by ENSCO. In a purchase method
combination, the purchase price is allocated to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition.
As a result, the assets and liabilities of the Company were revalued to
their fair market values to reflect the $218.4 million purchase price paid
by ENSCO to acquire the Company. Goodwill arising from the Merger is
amortized on the straight-line basis over 40 years. The purchase price
allocation has been based on preliminary estimates of fair value and is
subject to adjustment as additional information becomes available and is
evaluated. The primary areas subject to further purchase price adjustment
are reserves associated with insurance related matters and taxes.
The following unaudited pro forma information shows the consolidated
results of operations for the nine months ended September 30, 1996 and 1995
based upon adjustments to the historical financial statements of the
Company to give effect to the Merger as if such Merger had occurred on
January 1, 1995 (in thousands, except per share data):
1996 1995
-------- --------
Operating revenues $77,799 $ 66,710
Operating income (loss) 7,388 (4,163)
Net loss (1,674) (12,702)
Loss per share (1,674) (12,702)
The pro forma consolidated results of operations are not necessarily
indicative of the actual results that would have occurred had the
acquisition occurred on January 1, 1995, or of results that may occur in
the future.
In connection with the Merger, the name of the Company was changed from
DUAL DRILLING COMPANY to Dual Holding Company and the capital structure of
the Company was changed. Prior to the Merger, the Company was authorized
to issue 50.0 million shares of its $.01 par value common stock, of which
16.1 million shares were outstanding as of June 12, 1996, and 10.0 million
shares of its preferred stock, of which none were outstanding as of June
12, 1996. Under the terms of the Company's restated certificate of
incorporation filed June 12, 1996, the Company is only authorized to issue
10,000 shares of its $.10 par value common stock. As of September 30,
1996, the Company had issued 1,000 shares of its $.10 par value common
stock, all of which were held by ENSCO.
NOTE 3 - RIG ACQUISITION AND RETIREMENTS
In May 1996 the Company purchased a jackup rig located in the Gulf of
11<PAGE>
Mexico, which the Company previously operated under a charter agreement,
for $21.3 million by exercising its purchase option under the charter
agreement. Proceeds from certain asset sales in 1995 that were previously
disclosed as restricted for purchase of replacement assets or repurchase of
indebtedness were used to purchase the rig.
In September 1996 the Company retired two platform rigs located off the
coast of California. The rigs were dismantled and their major components
were sold to ENSCO at fair market value as spare capital assets.
NOTE 4 - DEBT
The Company's bank debt outstanding prior to the Merger was refinanced on
June 13, 1996. The Company borrowed $45.0 million in accordance with the
terms of a sub-facility established under the terms of ENSCO's amended and
restated $150.0 million revolving credit facility with a group of
international banks (the "Facility"). Substantially all of the proceeds
from the $45.0 million of borrowings were used to refinance $28.8 million
of borrowings under the Company's credit facility with a group of banks led
by Citibank, N.A. and to refinance $13.0 million of borrowings under the
Company's term loan with Christiania Bank of Kreditkasse. The Company had
$5.0 million undrawn under the Facility at September 30, 1996. Certain of
the Company's jackup rigs are pledged as collateral under the Facility. As
of September 30, 1996, the interest rate on the $45.0 million of borrowings
under the Facility was 6.9%.
At June 30, 1996, the Company had outstanding $100.0 million (face amounts)
of 9-7/8% senior subordinated notes ("9 7/8% Notes"). In July 1996, $5.0
million (face amount) of the 9 7/8% Notes were redeemed pursuant to an
offer made by the Company to purchase the 9 7/8% Notes following the
Merger. As of September 30, 1996, ENSCO had purchased $23.2 million (face
amount) of the Company's remaining $95.0 million (face amount) 9 7/8% Notes
outstanding. The full $95.0 million (face amount) of the Company's 9-7/8%
Notes is shown as outstanding in the Company's consolidated balance sheet
as of September 30, 1996.
NOTE 5 - AFFILIATE AGREEMENTS
Effective June 13, 1996, each of the Company's domestic rigs, currently
consisting of three jackup rigs and seven platform rigs, were bareboat
chartered to ENSCO Offshore Company ("ENSCO Offshore"), a wholly owned
subsidiary of ENSCO to achieve certain operating and marketing
efficiencies. The terms of the bareboat charter agreements with ENSCO
Offshore provide for fixed daily rates to be paid to the Company, which the
Company believes are reasonable and representative of the environment in
which the rigs operate. The fixed daily rate would be reduced to 50% of
the normal rate if the rig were idle for more than 30 consecutive days.
The rate will be increased to compensate the Company for any capital
expenditures the Company makes on its chartered rigs. The initial term of
the bareboat charter agreements is one year, with automatic one year
extensions, unless either party gives at least one month's prior notice of
termination.
On June 13, 1996, the Company entered into a Master Services Agreement with
ENSCO. Under the terms of the Master Services Agreement, ENSCO will
12<PAGE>
provide certain shorebase and corporate support services for the Company's
domestic and foreign operations. The Company will pay ENSCO a monthly fee
for these services under the Master Services Agreement, which the Company
believes is reasonable for the services provided.
NOTE 6 - SUBSEQUENT EVENT
In November 1996, ENSCO reduced the amount outstanding on the Company's
credit facility (see "Note 4 - Debt") by $10.0 million to $35.0 million.
Effective with the debt reduction, the Company currently has $15.0 million
undrawn under the Facility.
13<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Dual Holding Company (the "Company") contracts its offshore drilling
equipment for use in the Gulf of Mexico and Asia. Industry activity levels
for offshore drilling rigs have increased in the first nine months of 1996
over the levels prevalent in the latter part of 1995. The increased
activity levels in 1996 have resulted in demand sufficient to absorb almost
all of the rigs that are in working condition and being actively marketed
in the major offshore oil and gas markets throughout the world.
On June 12, 1996, the Company was acquired by ENSCO International
Incorporated ("ENSCO") in a purchase acquisition. The following
comparisons to the prior year periods present the results of the Company
during the period prior to its acquisition by ENSCO ("Predecessor" entity)
as well as the period subsequent to its acquisition ("Successor" entity).
The financial statements of the Predecessor and Successor are not
comparable in certain respects because of differences between the cost
basis of the assets held by the Predecessor compared to that of the
Successor as well as the effect on the Successor's operations for
adjustments to depreciation, amortization, interest income, interest
expense and income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Capital Expenditures
- ----------------------------------
The Company's cash provided by (used in) operations and capital
expenditures for the nine months ended September 30, 1996 and 1995 were as
follows (in thousands):
1996 1995
-------- --------
Cash provided by (used in) operations $ 10,579 $ (3,477)
Capital expenditures $ 26,037 $ 27,674
Cash flow from operations increased by $14.1 million for the nine months
ended September 30, 1996 as compared to the prior year period. The
increase in cash flow from operations is primarily a result of increased
operating margins in the first nine months of 1996 as compared to the prior
year period and an increase in cash flow from the net change in various
working capital accounts offset, partially, by change of control expenses.
See "Note 2 - Merger" to the Company's Consolidated Financial Statements.
The capital expenditures for the nine months ended September 30, 1996
primarily relate to $21.3 million for the purchase of a jackup rig located
in the Gulf of Mexico. Management anticipates that capital expenditures in
1996 will be approximately $40.0 million, including the $21.3 million
purchase of a jackup rig, approximately $10.0 million for modifications and
enhancements of rigs and the remainder for existing operations.
14<PAGE>
Financing and Capital Resources
- -------------------------------
The Company's long-term debt, total capital and debt to capital ratios at
September 30, 1996 and December 31, 1995 are summarized below (in
thousands, except percentages):
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Long-term debt $144,543 $138,163
Total capital 364,198 278,309
Long-term debt to total capital 40% 50%
Long-term debt increased due to a $6.4 million net increase associated with
$45.0 million of additional borrowings, substantially all of which was used
to retire existing indebtedness, and a $5.0 million premium assigned to the
Company's 9 7/8% senior subordinated notes ("9 7/8% Notes") in connection
with the acquisition of the Company by ENSCO and the application of
purchase accounting. See "Note 2 - Merger" to the Company's Consolidated
Financial Statements. The above increases in long-term debt were offset by
scheduled principal reductions and redemption of $5.0 million (face value)
of the 9 7/8% Notes in July. Total capital increased due primarily to the
recapitalization of the Company in connection with the acquisition of the
Company by ENSCO in which the $218.4 million purchase price was attributed
to the net stockholder's equity of the Company. See "Note 2 - Merger" to
the Company's Consolidated Financial Statements. The total capital of the
Company also increased due to the net increase in long-term debt as
discussed above.
The Company had $5.0 million undrawn under a revolving line of credit at
September 30, 1996. See "Note 4 - Debt" to the Company's Consolidated
Financial Statements.
The Company's liquidity position at September 30, 1996 and December 31,
1995 is summarized in the table below (in thousands, except ratios):
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Cash $22,121 $42,830
Working capital 18,294 55,612
Current ratio 1.9 3.6
Based on current energy industry conditions, management believes cash flow
from operations, the Company's existing credit facility and the Company's
working capital should be sufficient to fund the Company's short and long-
term liquidity needs.
15<PAGE>
RESULTS OF OPERATIONS
Revenues and Operating Margins
- ------------------------------
The Company's operating margin (defined as revenues less operating
expenses, exclusive of depreciation, change of control and general and
administrative expenses) was up 71% for the three months ended September
30, 1996 as compared to the prior year period. For the nine months ended
September 30, 1996 the Company's operating margin was up 85% compared to
the prior year period. The significantly improved 1996 results were
primarily due to a tightening between supply and demand for rigs in the
Gulf of Mexico and Asia, with resulting increases in utilization and
average day rates for the Company's rigs. Additionally, the 1996 results
were also favorably impacted by the purchase of a Gulf of Mexico jackup rig
in May 1996 which the Company previously operated under a charter
agreement.
Operating margins of the Company in 1996 were negatively affected by the
sale, in August 1995, of a platform rig off the coast of China that
operated the entire first half of 1995 and the retirement, in September
1996, of two platform rigs off the coast of California that operated the
first nine months of 1995 and the first half of 1996. The China rig, which
has been idle in 1996, is operated by the Company under a management
contract that, subsequent to the August 1995 sale, provides for a
competitive day rate during periods that the rig is operating and a reduced
day rate when the rig is idle.
Effective June 13, 1996, each of the Company's domestic rigs, currently
consisting of three jackup rigs and seven platform rigs, are bareboat
chartered to ENSCO Offshore Company ("ENSCO Offshore"), a wholly owned
subsidiary of ENSCO to achieve certain operating and marketing
efficiencies. The terms of the bareboat charter agreements with ENSCO
Offshore provide for fixed daily rates to be paid to the Company, which the
Company believes are reasonable and representative of the environment in
which the rigs operate. The fixed daily rate would be reduced to 50% of
the normal rate if the rig were idle for more than 30 consecutive days.
The rate will be increased to compensate the Company for any capital
expenditures the Company makes on its chartered rigs. The initial term of
the bareboat charter agreements is one year, with automatic one year
extensions, unless either party gives at least one month's prior notice of
termination.
Change in Control Expenses
- --------------------------
The change in control expenses of $22.0 million recorded in the Predecessor
entity's Consolidated Statement of Operations for the period from January
1, 1996 to June 12, 1996 relates to compensation paid in the ordinary
course of business as well as other costs incurred by the Company directly
related to the acquisition of the Company by ENSCO. See "Note 2 - Merger"
to the Company's Consolidated Financial Statements.
16<PAGE>
Other Income (Expense)
- ----------------------
The Company recorded a loss of $1.2 million on the sale of assets in the
three months ended September 30, 1995. The Company recorded, in the nine
months ended September 30, 1995, a net gain of $5.3 million related to the
sale of assets. In 1995 the Company sold a jackup rig located in the Gulf
of Mexico, a 51% interest in a jackup rig located in Asia and a platform
rig also located in Asia.
OTHER MATTERS
In November 1996, ENSCO reduced the amount outstanding on the Company's
credit facility (see "Note 4 - Debt") by $10.0 million to $35.0 million.
Effective with the debt reduction, the Company currently has $15.0 million
undrawn under the Facility.
PRIVATE LITIGATION SECURITIES REFORM ACT OF 1995
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties. The
forward-looking statements are made pursuant to safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The factors that
could cause actual results to differ materially include the following:
industry conditions and competition, cyclical nature of the industry,
worldwide expenditures for oil and gas drilling, operational risks and
insurance, risks associated with operating in foreign jurisdictions, and
the risks described from time to time in the Company's reports to the
Securities and Exchange Commission, which include the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
17<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Exhibit Index
EXHIBIT NO.
-----------
*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 Securities and Exchange
Commission.)
------------
* Filed herewith
(b) Reports on Form 8-K
None.
18<PAGE>
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.
Dual Holding Company (formerly
DUAL DRILLING COMPANY)
Date: November 11, 1996 /s/ C. Christopher Gaut
--------------------- ------------------------------
C. Christopher Gaut
President
/s/ H. E. Malone
------------------------------
H. E. Malone
Secretary and Chief Accounting
Officer
19<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT NO. 27
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1996 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 22,121
<SECURITIES> 0
<RECEIVABLES> 11,562
<ALLOWANCES> 123
<INVENTORY> 0
<CURRENT-ASSETS> 39,092
<PP&E> 280,243
<DEPRECIATION> 6,453
<TOTAL-ASSETS> 404,728
<CURRENT-LIABILITIES> 20,798
<BONDS> 144,543
<COMMON> 0
0
0
<OTHER-SE> 219,655
<TOTAL-LIABILITY-AND-EQUITY> 404,728
<SALES> 0
<TOTAL-REVENUES> 24,257
<CGS> 0
<TOTAL-COSTS> 9,907
<OTHER-EXPENSES> 8,636
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 3,829
<INCOME-PRETAX> 2,115
<INCOME-TAX> 891
<INCOME-CONTINUING> 1,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,224
<EPS-PRIMARY> 1,224.00
<EPS-DILUTED> 1,224.00<PAGE>
</TABLE>
