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 MARCH 31, 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 1-8097
ENSCO INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 76-0232579
(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 70,873,236 shares of Common Stock, $.10 par value, of
the registrant outstanding as of April 28, 1997.
ENSCO INTERNATIONAL INCORPORATED
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
PAGE
--------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Review Report of Independent Accountants 3
Consolidated Statement of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Balance Sheet
March 31, 1997 and December 31, 1996 5
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders
of ENSCO International Incorporated
We have reviewed the accompanying consolidated balance sheet of ENSCO
International Incorporated as of March 31, 1997 and the related
consolidated statements of income and of cash flows for the three month
periods ended March 31, 1997 and 1996. This financial information is 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 accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income and of cash flows for the year
then ended (not presented herein), and in our report dated January 28, 1997
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet information 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.
/s/ Price Waterhouse LLP
- -------------------------
Dallas, Texas
April 28, 1997
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
-------- --------
OPERATING REVENUES........................... $161,600 $ 84,546
OPERATING EXPENSES
Operating costs............................ 70,111 43,524
Depreciation and amortization.............. 24,185 16,374
General and administrative................. 3,082 2,215
-------- --------
97,378 62,113
OPERATING INCOME............................. 64,222 22,433
OTHER INCOME (EXPENSE)
Interest income............................ 1,414 1,236
Interest expense........................... (5,857) (4,049)
Other, net................................. 91 264
-------- --------
(4,352) (2,549)
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST................................... 59,870 19,884
PROVISION FOR INCOME TAXES
Current income taxes....................... 9,191 367
Deferred income taxes...................... 13,474 4,400
-------- --------
22,665 4,767
MINORITY INTEREST............................ 928 427
-------- --------
NET INCOME .................................. $ 36,277 $ 14,690
======== ========
EARNINGS PER SHARE........................... $ .51 $ .24
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING.......... 70,864 60,651
======== ========
The accompanying notes are an integral part of these financial statements.
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except for share amounts)
MARCH 31, DECEMBER 31,
1997 1996
------------ -----------
(UNAUDITED)
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents..................... $ 87,544 $ 80,698
Accounts and notes receivable, net............ 124,113 111,033
Prepaid expenses and other.................... 17,053 19,668
---------- ----------
Total current assets.................... 228,710 211,399
PROPERTY AND EQUIPMENT, AT COST................. 1,280,123 1,248,873
Less accumulated depreciation................. 280,394 257,284
---------- ----------
Property and equipment, net............. 999,729 991,589
OTHER ASSETS, NET............................... 111,341 112,432
---------- ----------
$1,339,780 $1,315,420
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable.............................. $ 10,660 $ 11,447
Accrued liabilities........................... 56,347 57,490
Current maturities of long-term debt.......... 35,314 34,943
---------- ----------
Total current liabilities............... 102,321 103,880
LONG-TERM DEBT.................................. 235,590 258,635
DEFERRED INCOME TAXES........................... 86,437 72,963
OTHER LIABILITIES............................... 33,024 33,991
COMMITMENTS AND CONTINGENCIES...................
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 125.0 million
shares authorized and 77.2 million shares
issued...................................... 7,725 7,718
Additional paid-in capital.................... 837,157 835,475
Retained earnings............................. 108,079 71,802
Restricted stock (unearned compensation)...... (4,639) (4,929)
Cumulative translation adjustment............. (1,086) (1,086)
Treasury stock at cost, 6.4 million and 6.3
million shares.............................. (64,828) (63,029)
---------- ----------
Total stockholders' equity ............. 882,408 845,951
---------- ----------
$1,339,780 $1,315,420
========== ==========
The accompanying notes are an integral part of these financial statements.
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income........................................ $ 36,277 $ 14,690
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 24,185 16,374
Deferred income tax provision................. 13,474 4,400
Amortization of other assets.................. 1,388 752
Other......................................... (37) (262)
Changes in operating assets and liabilities:
Increase in accounts receivable............. (13,087) (4,275)
(Increase) decrease in prepaid expenses
and other................................. 543 (642)
Increase (decrease) in accounts payable..... (787) 7,495
Decrease in accrued liabilities............. (1,978) (1,491)
-------- --------
Net cash provided by operating activities. 59,978 37,041
-------- --------
INVESTING ACTIVITIES
Additions to property and equipment............... (31,718) (38,878)
Sale of short-term investments.................... - 5,000
Other............................................. 366 2,128
-------- --------
Net cash used by investing activities..... (31,352) (31,750)
-------- --------
FINANCING ACTIVITIES
Reduction of long-term borrowings................. (22,477) (7,846)
Reduction in restricted cash...................... 1,075 -
Other............................................. (378) 645
-------- --------
Net cash used by financing activities..... (21,780) (7,201)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 6,846 (1,910)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 80,698 77,064
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 87,544 $ 75,154
======== ========
The accompanying notes are an integral part of these financial statements.
ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited Financial Statements
The consolidated financial statements included herein have been prepared by
ENSCO International Incorporated (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 presentation of the
financial position and results of operations for the interim periods
presented.
The financial data for the three month period ended March 31, 1997 included
herein has been subjected to a limited review by Price Waterhouse LLP, the
registrant's independent accountants. The accompanying review report of
independent accountants is not a report within the meaning of Sections 7
and 11 of the Securities Act of 1933 and the independent accountant's
liability under Section 11 does not extend to it.
Results of operations for the three month period ended March 31, 1997 are
not necessarily indicative of results of operations which will be realized
for the year ending December 31, 1997. 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, 1996 included
in the Company's Annual Report to the Securities and Exchange Commission on
Form 10-K.
Note 2 - Acquisition of DUAL DRILLING COMPANY
On June 12, 1996, the Company acquired DUAL DRILLING COMPANY ("Dual"),
pursuant to an Agreement and Plan of Merger among the Company, a wholly
owned subsidiary of the Company, and Dual. The acquisition was approved on
that date by Dual stockholders who received 0.625 shares of the Company's
common stock for each share of Dual common stock. The Company issued
approximately 10.1 million shares of its common stock to Dual stockholders
in connection with the acquisition, resulting in an acquisition price of
approximately $218.4 million.
The Company accounted for the acquisition of Dual as a purchase. 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 excess of the purchase price over net assets acquired
approximated $100 million and is being amortized over 40 years.
The acquired Dual operations consisted of a fleet of 20 offshore drilling
rigs, including 10 jackup rigs and 10 platform rigs. Four of the jackup
rigs are presently located in the Gulf of Mexico and six are located in
various locations throughout Southeast Asia. Of the 10 platform rigs
operated by Dual, seven are currently located in the Gulf of Mexico and
one, which is not owned but managed, is located off the coast of China.
The remaining two platform rigs were retired in September 1996.
The following unaudited pro forma information shows the consolidated
results of operations for the three months ended March 31, 1996 based upon
adjustments to the historical financial statements of the Company and the
historical financial statements of Dual to give effect to the acquisition
by the Company as if such acquisition had occurred January 1, 1996 (in
thousands, except per share data):
1996
--------
Operating revenues $114,007
Operating income $ 24,975
Net income $ 14,998
Earnings per share $ 0.21
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, 1996, or of results that may occur in
the future.
Note 3 - Long-Term Debt
On February 27, 1997, the Company amended and restated its $150.0 million
revolving credit facility with a group of international banks, increasing
availability under the amended and restated revolving credit facility (the
"Facility") to $200.0 million and reducing the interest rate margin and the
commitment fee. Availability under the Facility will be reduced by $14.0
million on a semi-annual basis beginning April 1998. The final maturity
date of the Facility remains October 2001 and the Facility continues to be
collateralized by the majority of the Company's jackup rigs. The covenants
under the Facility are similar to the covenants that existed under the
original revolving credit facility and the interest rate continues to be
tied to London InterBank offered rates. As of March 31, 1997,
approximately $111.1 million was outstanding and $88.9 million was
available for withdrawal under the Facility. The weighted-average interest
rate on the Facility was 6.5% as of March 31, 1997.
Note 4 - Related Party Transaction
In January 1997, a director of the Company settled a $675,000 note payable
to the Company. The note payable related to the director's purchase of
168,750 shares of restricted common stock of the Company in 1988. The note
was settled through the delivery to the Company of restricted shares of the
Company's common stock valued at a formula price provided for in the
director's 1988 stock purchase agreement. As a result, the director
retained 132,998 net shares of common stock and $238,000 cash after
repayment of the note.
Note 5 - Amendment of Shareholder Rights Plan
On March 3, 1997, the Board of Directors of ENSCO amended the Shareholder
Rights Plan of the Company to increase the purchase price from $50.00 to
$250.00 for each one one-hundredth of a share of preferred stock
purchasable upon the exercise of a Right, subject to adjustment.
Note 6 - Purchase of Additional Rig Interest
In April 1997, the Company agreed to acquire the remaining 51% interest in
a jointly owned premium jackup rig located in Southeast Asia. The Company
previously acquired a 49% interest in the rig as a result of the
acquisition of Dual. The transaction is expected to close in May 1997,
subject to certain governmental approvals.
Note 7 - Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
(the "Statement") which establishes new standards for computing and
presenting earnings per share. The new Statement is intended to simplify
the standard for computing earnings per share and will require the
presentation of basic and diluted earnings per share on the face of the
income statement, including all prior periods presented. The Statement is
effective for financial statements issued for periods ending after December
15, 1997, and earlier adoption is not permitted. For the quarters ended
March 31, 1997 and 1996, the calculation of earnings per share in
accordance with the provisions of SFAS No. 128 would have resulted in basic
earnings per share of $.52 and $.24 and diluted earnings per share of $.51
and $.24, for the respective periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements based on current
expectations that involve a number of risks and uncertainties that could
cause actual results to differ materially from the results discussed in the
forward-looking statements. Generally, forward-looking statements include
words or phrases such as "management anticipates", "the Company believes",
"the Company anticipates" and words and phrases of similar impact. 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, but are not
limited to: (i)industry conditions and competition, (ii) the cyclical
nature of the industry, (iii) worldwide expenditures for oil and gas
drilling, (iv)operational risks and insurance, (v) risks associated with
operating in foreign jurisdictions, (vi) environmental liabilities which
may arise in the future which are not covered by insurance or indemnity,
(vii) the impact of current and future laws and governmental regulation, as
well as repeal or modification of the same, affecting the oil and gas
industry and the Company's operations in particular, and (viii) the risks
described from time to time in the Company's reports to the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
Demand for the Company's services is significantly affected by worldwide
expenditures for oil and gas drilling. Expenditures for oil and gas
drilling activity fluctuate based upon many factors including world
economic conditions, the legislative environment in the U.S. and other
major countries, production levels and other activities of OPEC and other
oil and gas producers and the impact that these and other events have on
the current and expected future pricing of oil and natural gas.
BUSINESS ENVIRONMENT
ENSCO International Incorporated is one of the largest providers of
offshore drilling services and marine transportation services to the oil
and gas industry. The Company's operations are conducted in the geographic
cores of North America, Europe, Asia Pacific and South America. The
Company's largest geographic unit is North America where the Company
operates primarily in the Gulf of Mexico. The operations of the Europe
Unit are concentrated in the North Sea and the operations of the South
America Unit are conducted on Lake Maracaibo, Venezuela.
In the first quarter of 1997, strong demand continued to push day rates
upward from levels at the latter part of 1996. With nearly all actively
marketed rigs in the world under contract and demand for high quality rigs
exceeding supply in major markets, the current outlook remains positive for
additional increases in day rates and continued high demand for the
remainder of 1997.
Offshore rig and marine vessel industry utilization for the three months
ended March 31, 1997 and 1996 is summarized below:
INDUSTRY WIDE AVERAGES * 1997 1996
------------------------ ------ ------
Offshore Rigs
U.S. Gulf of Mexico:
All Rigs:
Rigs Under Contract 165 149
Total Rigs Available 183 178
% Utilization 90% 84%
Jackup Rigs:
Rigs Under Contract 123 115
Total Rigs Available 135 137
% Utilization 91% 84%
Platform Rigs:
Rigs Under Contract 18 16
Total Rigs Available 24 25
% Utilization 75% 64%
Worldwide:
All Rigs:
Rigs Under Contract 585 551
Total Rigs Available 636 641
% Utilization 92% 86%
Jackup Rigs:
Rigs Under Contract 355 334
Total Rigs Available 378 384
% Utilization 94% 87%
Platform Rigs:
Rigs Under Contract 112 103
Total Rigs Available 121 114
% Utilization 93% 90%
Marine Vessels
U.S. Gulf of Mexico:
Vessels Under Contract 277 268
Total Vessels Available 289 281
% Utilization 96% 95%
* Industry utilization based on data published by
OFFSHORE DATA SERVICES, INC.
RESULTS OF OPERATIONS
- ---------------------
The following analysis highlights the Company's operating results for the
three months ended March 31, 1997 and 1996 (in thousands):
1997 1996
Operating Results -------- --------
-----------------
Revenues $161,600 $ 84,546
Operating margin <F1> 91,489 41,022
Operating income 64,222 22,433
Other expense 4,352 2,549
Provision for income taxes 22,665 4,767
Minority interest 928 427
Net income 36,277 14,690
Revenues
--------
Contract drilling
Jackup rigs:
North America $ 67,684 $ 36,053
Europe 32,251 20,922
Asia Pacific <F2> 12,863 -
-------- --------
Total jackup rigs 112,798 56,975
Barge drilling rigs - South America 20,541 15,908
Platform rigs <F2> 7,411 -
-------- --------
Total contract drilling 140,750 72,883
Marine transportation
AHTS <F3> 4,695 3,778
Supply 13,569 6,595
Mini-supply 2,586 1,290
-------- --------
Total marine transportation 20,850 11,663
Total $161,600 $ 84,546
======== ========
Operating Margin <F1>
---------------------
Contract drilling
Jackup rigs:
North America $ 41,672 $ 16,154
Europe 19,288 9,429
Asia Pacific <F2> 2,424 -
-------- --------
Total jackup rigs 63,384 25,583
Barge drilling rigs - South America 13,086 9,994
Platform rigs <F2> 2,343 -
-------- --------
Total offshore rigs 78,813 35,577
Land rig <F4> - (31)
-------- --------
Total contract drilling 78,813 35,546
-------- --------
1997 1996
Operating Margin <F1> (Cont.) -------- --------
-----------------------------
Marine transportation
AHTS <F3> 2,812 2,177
Supply 8,453 2,901
Mini-supply 1,411 398
-------- --------
Total marine transportation 12,676 5,476
-------- --------
Total $ 91,489 $ 41,022
======== ========
<F1> Defined as revenues less operating expenses, exclusive of
depreciation and general and administrative expenses.
<F2> The Company did not have an Asia Pacific Unit or platform rigs
prior to the Dual acquisition.
<F3> Anchor handling tug supply vessels.
<F4> The Company sold its remaining land rig in July 1996.
The following is an analysis of certain operating information of the
Company for the three months ended March 31, 1997 and 1996:
1997 1996
Contract Drilling -------- --------
-----------------
Rig utilization:
Jackup rigs:
North America 93% 90%
Europe 100% 94%
Asia Pacific <F1> 61% -
-------- --------
Total jackup rigs 88% 91%
Barge drilling rigs - South America 100% 80%
Platform rigs <F1> 61% -
-------- --------
Total 87% 88%
======== ========
Average day rates:
Jackup rigs:
North America $ 37,006 $ 23,385
Europe 60,649 43,345
Asia Pacific <F1> 32,624 -
-------- --------
Total jackup rigs 41,084 27,959
Barge drilling rigs - South America 22,813 21,798
Platform rigs <F1> 17,909 -
-------- --------
Total $ 34,653 $ 26,266
======== ========
Marine Transportation
---------------------
Fleet utilization:
AHTS <F2> 79% 88%
Supply 94% 89%
Mini-supply 96% 66%
-------- --------
Total 92% 84%
======== ========
Average day rates:
AHTS <F2> $ 10,992 $ 7,828
Supply 6,962 3,535
Mini-supply 3,726 2,678
-------- --------
Total $ 6,791 $ 4,120
======== ========
<F1> The Company did not have an Asia Pacific Unit or platform rigs
prior to the Dual acquisition.
<F2> Anchor handling tug supply vessels.
The Company's consolidated revenues, operating margin and operating income
for the three months ended March 31, 1997 increased significantly from the
same period in 1996. The increases were due to higher average day rates
and utilization for the Company's drilling rigs and marine vessels that
were owned in both the first quarter of 1997 and 1996, as well as the
results from the drilling rigs acquired in the Dual acquisition. The
improved level of operating income in the first quarter of 1997 was reduced
by increased depreciation and amortization expense resulting from the Dual
acquisition and capital expenditures on the Company's fleet in 1996.
Contract Drilling
- -----------------
The following is an analysis of the Company's offshore drilling rigs at
March 31, 1997 and 1996:
1997 1996
---- ----
Jackup rigs:
North America 22 18
Europe 6 6
Asia Pacific 7 <F1> -
---- ----
Total jackup rigs 35 24
Barge drilling rigs - South America 10 10
Platform rigs 8 <F2> -
---- ----
Total 53 34
==== ====
<F1> Includes one jackup rig operated by the Company that is
currently 49% owned. The Company anticipates that the
remaining 51% interest will be acquired in a transaction
expected to close in May 1997 (see Note 6 to the
Consolidated Financial Statements).
<F2> Seven are located in the Gulf of Mexico and one, which is
not owned but operated under a management contract, is
located off the coast of China.
Revenues and operating margins for the Company's contract drilling segment
for the three months ended March 31, 1997 were up $67.9 million, or 93%,
and $43.3 million, or 122%, respectively, compared to the prior year
period. The significantly improved 1997 results were primarily due to
increased day rates and utilization for rigs owned by the Company in both
the current year and prior year period and to the revenue and operating
margins generated from the rigs added in the Dual acquisition.
For the three months ended March 31, 1997, revenues and operating margin
from the Company's North America jackup rigs increased by $31.6 million, or
88%, and $25.5 million, or 158%, respectively, compared to the same period
in 1996. These improvements are primarily due to an increase in average
day rates of approximately $13,600 and an increase in utilization over the
prior year period. In addition, the North America jackup rigs acquired in
the Dual acquisition contributed approximately $7.9 million in revenues and
$3.6 million in operating margin in the first quarter of 1997.
Revenues and operating margin from the Company's Europe jackup rigs
increased by $11.3 million, or 54%, and $9.9 million, or 105%,
respectively, from the prior year period. These improvements are primarily
due to an approximate $17,300, or 40%, increase in day rates and an
increase in utilization over the prior year period. In the prior year
period, two of the Company's Europe jackup rigs were undergoing
modifications and enhancements for a part of the quarter.
The Company did not have an Asia Pacific Unit prior to the Dual
acquisition. Subsequent to the Dual acquisition, the Company acquired an
additional jackup rig located in Southeast Asia in November 1996 and
transferred another jackup rig from the Gulf of Mexico to the Asia Pacific
Unit in the first quarter of 1997. Of the seven jackup rigs in the Asia
Pacific Unit, four were in the shipyard for all or a portion of the first
quarter of 1997. At March 31, 1997, two of the rigs remained in the
shipyard and are projected to return to work during the first to middle
part of May. In May 1997, the Company anticipates completing the
acquisition of the remaining 51% interest in a jointly owned jackup rig
located in Southeast Asia. This rig will undergo modifications and
enhancements during most of the second and part of the third quarters of
1997.
Revenues and operating margin from the Company's South America barge
drilling rigs increased by $4.6 million, or 29%, and $3.1 million, or 31%,
respectively, from the prior year period. These improvements are primarily
due to an increase in utilization to 100% in the current year period from
80% in the prior year period, and an approximate $1,000 increase in average
day rates. Two of the barge drilling rigs that were undergoing
modification for the entire first quarter of 1996 returned to work in May
and June of 1996.
Marine Transportation
- ---------------------
The following is an analysis of the Company's marine transportation vessels
as of March 31, 1997 and 1996:
1997 1996
---- ----
AHTS * 6 6
Supply 23 23
Mini-Supply 8 8
---- ----
Total 37 37
==== ====
* Anchor handling tug supply vessels.
Revenues and operating margins for the Company's marine transportation
segment for the three months ended March 31, 1997 were up $9.2 million, or
79%, and $7.2 million, or 131%, respectively, from the prior year period.
The 1997 results improved significantly from the prior year period due to
increased current year activity levels in the Gulf of Mexico which was a
contributing factor to higher average day rates for the Company's marine
transportation vessels as compared to the prior year period. Average day
rates for the Company's marine transportation vessels increased by
approximately $2,700 from the prior year period and utilization increased
to 92% in the current year period from 84% in the prior year period.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense increased by $7.8 million, or 48%,
for the three months ended March 31, 1997 as compared to the prior year
period due primarily to depreciation and amortization from the additional
drilling rigs and goodwill associated with the Dual acquisition, and
depreciation associated with major modifications and enhancements to the
Company's fleet in 1996.
Other Income (Expense)
- ----------------------
Other income (expense) for the three months ended March 31, 1997 and 1996
was as follows (in thousands):
1997 1996
-------- --------
Interest income $ 1,414 $ 1,236
Interest expense (5,857) (4,049)
Other, net 91 264
-------- --------
$ (4,352) $ (2,549)
======== ========
Interest income increased due primarily to higher average cash balances in
the current period. Interest expense increased as a result of the debt
assumed in the Dual acquisition.
Provision for Income Taxes
- --------------------------
The Company's provision for income taxes increased by $17.9 million for the
three months ended March 31, 1997 as compared to the prior year period.
The increase in income taxes results from the Company's increased
profitability and the recognition of the remaining net operating losses for
financial reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow and Capital Expenditures
- ----------------------------------
The Company's cash flow from operations and capital expenditures for the
three months ended March 31, 1997 and 1996 are as follows (in thousands):
1997 1996
-------- --------
Cash flow from operations $ 59,978 $ 37,041
======== ========
Capital expenditures
Sustaining $ 7,666 $ 2,551
Enhancements 24,052 23,056
Acquisitions - 13,271
-------- --------
$ 31,718 $ 38,878
======== ========
Cash flow from operations increased by $22.9 million for the three months
ended March 31, 1997 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 three months of 1997 offset, in part, by a decrease in
cash flow from changes in various working capital accounts.
Management anticipates that capital expenditures for the remainder of 1997
will be approximately $185 million, including $35 million for existing
operations, $130 million for modifications and enhancements of rigs and
vessels, and $20 million for acquisitions. The Company may spend
additional funds to acquire rigs or vessels in 1997, depending on market
conditions and opportunities.
Financing and Capital Resources
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The Company's long-term debt, total capital and debt to capital ratios at
March 31, 1997 and December 31, 1996 are summarized below (in thousands,
except percentages):
March 31, December 31,
1997 1996
------------ ------------
Long-term debt $ 235,590 $ 258,635
Total capital 1,117,998 1,104,586
Long-term debt to total capital 21% 23%
The decrease in long-term debt is a result of debt repayments in the first
quarter of 1997. The total capital of the Company increased primarily due
to equity increases resulting from the profitability of the Company for the
three months ended March 31, 1997.
On February 27, 1997, the Company amended and restated its $150.0 million
revolving credit facility with a group of international banks, increasing
availability under the amended and restated revolving credit facility (the
"Facility") to $200.0 million and reducing the interest rate margin and the
commitment fee. Availability under the Facility will be reduced by $14.0
million on a semi-annual basis beginning April 1998. The final maturity
date of the Facility remains October 2001 and the Facility continues to be
collateralized by the majority of the Company's jackup rigs. The covenants
under the Facility are similar to the covenants that existed under the
original revolving credit facility and the interest rate continues to be
tied to London InterBank offered rates. As of March 31, 1997,
approximately $111.1 million was outstanding and $88.9 million was
available for withdrawal under the Facility. The weighted-average interest
rate on the Facility was 6.5% as of March 31, 1997.
The Company's liquidity position at March 31, 1997 and December 31, 1996 is
summarized in the table below (in thousands, except ratios):
March 31, December 31,
1997 1996
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Cash and short-term investments $ 87,544 $ 80,698
Working capital 126,389 107,519
Current ratio 2.2 2.0
The Company utilizes a conservative investment philosophy with respect to
its cash and cash equivalents and does not invest in any derivative
financial instruments.
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.
Other Matters
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In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
(the "Statement") which establishes new standards for computing and
presenting earnings per share. The new Statement is intended to simplify
the standard for computing earnings per share and will require the
presentation of basic and diluted earnings per share on the face of the
income statement, including all prior periods presented. The Statement is
effective for financial statements issued for periods ending after December
15, 1997, and earlier adoption is not permitted. For the quarters ended
March 31, 1997 and 1996, the calculation of earnings per share in
accordance with the provisions of SFAS No. 128 would have resulted in basic
earnings per share of $.52 and $.24 and diluted earnings per share of $.51
and $.24, for the respective periods.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed with this Report
EXHIBIT NO.
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10.1 Amended and Restated Credit Agreement dated as
of February 27, 1997 by and among ENSCO
International Incorporated, ENSCO Delaware,
Inc., ENSCO Offshore Company, ENSCO Offshore
U.K. Limited, Dual Holding Company, as the
borrowers, and Christiania Bank OG
Kreditkasse, New York Branch, and Den Norske
Bank ASA, New York Branch, as Co-Agents, and
Christiania Bank OG Kreditkasse, New York
Branch, as Admini-strative Agent and Security
Trustee.
15.1 Letter of Independent Accountants regarding
Awareness of Incorporation by Reference.
27.1 Financial Data Schedule. (Exhibit 27.1 is
being submitted as an exhibit only in the
electronic format of this Quarterly Report on
Form 10-Q submitted to the Securities and
Exchange Commission.)
(b) Reports on Form 8-K
(i) During the first quarter of 1997, the Company filed
a Current Report on Form 8-K, dated March 3, 1997,
which reported under Item 5, "Other Events," that
the Company's Board of Directors had amended the
Shareholder Rights Plan of the Company.
SIGNATURES
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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.
ENSCO INTERNATIONAL INCORPORATED
Date: April 29, 1997 /s/ C. Christopher Gaut
------------------- ----------------------------------
C. Christopher Gaut
Chief Financial Officer
/s/ H. E. Malone
----------------------------------
H. E. Malone, Corporate Controller
and Chief Accounting Officer