FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from _______ to _________
Commission File Number 0-9953
BONRAY DRILLING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 73-1086424
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification Number)
4701 N. E. 23rd Street, Oklahoma City, OK 73121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 405/424-4327
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class: Name of each exchange on which register:
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Title of Class
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant at August 31, 1995 was
$2,090,830.
The number of shares of common stock, $1.00 par value,
outstanding at August 31, 1995 was 423,540.
Part III incorporates information by reference from the Proxy
Statement for the Annual Meeting of Stockholders on November 14,
1995.
PART I
ITEM 1. BUSINESS
Introduction
- - ------------
Bonray Drilling Corporation, a Delaware corporation formed in
March 1980, is successor to a contract drilling business which
has been in operation since 1957. The term "Company" includes
Bonray Drilling Corporation and its predecessor corporate and
divisional operations unless the context otherwise requires.
The Company is engaged in domestic onshore contract drilling
of oil and gas wells. It currently owns and has available for
operation fifteen drilling rigs in Oklahoma, having depth
capabilities ranging from 7,000 to 25,000 feet. The Company will
extend its geographical area of operation if appropriate
opportunities are presented.
Industry conditions and utilization rates
- - -----------------------------------------
The Company's contract drilling revenues depend upon the
utilization of, and contract rates for, its drilling rigs. These
factors are affected by a number of variables, including
competitive conditions in the drilling industry and the amount of
exploration and development activity conducted by oil and gas
producers.
The level of domestic drilling activity has historically
fluctuated widely and cannot be predicted because of the uncertainty of
numerous factors affecting the petroleum industry, including oil and gas
selling prices and the degree of government regulation of the industry.
The demand for rigs has greatly declined since the fourth quarter of
1982 due to the decline in the exploration for and development of oil and
gas reserves, which resulted from the decrease in the sales price of
oil and gas. Lower rig utilization rates have caused intense price
competition in the industry. During the month of July 1995, the Company
operated at approximately 49.7% of capacity.
The following table sets forth certain information with
respect to the drilling activities of the Company. The utilization rate
represents the number of days during which a rig was operating or being made
ready to operate in a given period, expressed as a percentage of the
number of days that the rig was owned by the Company and available for work
during that same period.
Years ended June 30,
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Utilization rate <F1> 43.4% 38.6% 41.9% 28.0% 37.3%
Rigs available for work at
end of period 15 14 14 14 14
Wells drilled 62 59 61 43 53
Footage drilled (thousands) 505 489 547 344 457
- - ---------------
<FN>
<F1> Rigs being dismantled, moved and assembled were treated as
utilized if the Company was paid by a customer or if the Company
allowed for such activity in determining the price under a related
drilling contract.
Contracts
- - ---------
The terms and rates of the Company's drilling contracts vary
depending upon the location, duration and complexity of the
drilling, the equipment and services provided, and other factors. As of
August 31, 1995, seven rigs were under contract for the drilling of twelve
wells.
As of that date, five of the Company's rigs were operating on
a daywork basis, pursuant to which the Company is paid monthly a
specified amount per day based on the depth capability of the rig. The
Company is paid for all days during the term of the contracts except days
for which the rigs are not in operation because of repairs or maintenance.
Daywork contracts generally specify the type of equipment to be used, the
size of the hole and the depth of the well to be drilled, and provide for
payment by the customer of certain costs and expenses of transporting,
assembling and dismantling the rigs. While working under daywork contracts,
the Company bears no part of the costs due to in-hole losses such as
time delays for various reasons, including stuck drill strings and
blowouts.
The Company also enters into footage and turnkey contracts.
Footage and turnkey contracts, as opposed to daywork contracts,
shift the risk of loss in drilling from the customer to the drilling
contractor and, as a consequence, result in greater variation in
profitability. As of August 31, 1995, two rigs were operating under footage
contracts. Footage contracts usually provide for payment of an agreed price
per foot of hole drilled to a specified depth regardless of the time
required or the problems encountered. Turnkey contracts, of which none were
in process at August 31, 1995, provide for payment of an agreed
price upon the attainment of a specified objective. Turnkey contracts
require more services of the contractor and, consequently, result in
additional risks, costs and higher revenues which are not inherent in footage
or daywork contracts. Turnkey contracts include costs for casing,
cementing, drilling mud, and logging services. The Company determines the
manner of drilling and type of equipment to be used, subject to customer
specifications.
The Company prefers to work on a daywork basis, as it does
not believe the potentially higher profit margins of footage and
turnkey contracts justify the associated increased risks. However, in
periods of lesser demand, the Company is generally required to work on a
footage or turnkey basis, particularly with respect to shallow drilling.
The following table indicates the percentage of drilling
revenues attributable to the foregoing types of contracts for the periods
indicated:
Years ended June 30,
--------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Type of Contract:
Daywork 88.5% 77.0% 42.8% 70.5% 43.3%
Footage 10.5% 12.0% 18.4% 26.7% 18.8%
Turnkey 1.0% 11.0% 38.8% 2.8% 37.9%
Customers and competition
- - -------------------------
The Company's customers include major integrated oil
companies and independent oil and gas producers. The following table
summarizes the Company's sources of contract drilling revenue and wells
drilled for each of the three years in the period ended June 30, 1995:
Years ended June 30,
(Dollars in thousands)
---------------------------------------------------------------------------
1995 1994 1993
Wells Wells Wells
Drld. Amount % Drld. Amount % Drld. Amount %
----- ------ -- ----- ------ -- ----- ------ --
Avalon Exploration 9 $2,561 30 13 $2,324 29 6 $1,933 20
Sanguine, Ltd. 4 879 10 1 162 2 5 1,506 16
Marathon Oil 6 2,082 25 10 1,766 22 8 1,731 18
DLB Energy - - - 4 871 11 9 1,480 15
All Others 43 2,964 35 31 2,789 36 33 2,981 31
-- ------ --- -- ------ --- -- ------ ---
Totals 62 $8,486 100 59 $7,912 100 61 $9,631 100
== ====== === == ====== === == ====== ===
The Company competes with a large number of companies in the
marketing of its drilling services, some of which have substantially
greater resources available than the Company. The Company believes that
competition is based principally on the availability of suitable drilling
rigs and related equipment, expertise, price and reputation, and believes
that it is able to compete effectively with respect to each of such
factors. Competition is primarily regional and may vary from time to
time by region. Rigs can be moved, however, from one region to another
in response to perceived demand.
Conditions in the industry remain very competitive. Maintenance of
on-going customer relationships is extremely important. However,
vigorous competition will make it difficult to maintain such
relationships.
The Company maintains four trucks in order to move some of its rigs
to drill sites on an economic basis but contracts with common carriers
and contractors for rig assembly and disassembly. The cost of
transportation is usually included in the daywork rate, with some
reimbursements generally allowed. Footage and turnkey contracts
usually require the Company to absorb these costs.
Regulatory matters
- - ------------------
General - The production and sale of crude oil and natural gas are
currently subject to extensive regulation and significant taxation by
both federal and state authorities. Most states (including Oklahoma)
have regulations which pertain to spacing of wells, preventing waste of
oil and gas, limiting rates of production, proration of production,
prevention and clean-up of pollution and similar matters. These
regulations decrease producer profitability which in turn decreases the
demand for contract drilling.
Environmental regulation - The Company's operations are subject to
numerous federal, state and local laws and regulations controlling the
discharge of material into the environment or otherwise relating to the
protection of the environment. The Company believes that it complies
with those regulations and laws affecting its operations. Such
compliance has not had and is not currently expected to have, a
material effect upon the Company's capital expenditures, earnings or
competitive position.
Operating risks and insurance
- - -----------------------------
Contract drilling by its nature involves numerous operating hazards
and risks, including blowouts, craterings, fires and explosions, any of
which can cause serious damage to property and equipment and personal
injuries or loss of life. There is also a risk that oil spillage, gas
leakage or fires could result in serious environmental damage. The
Company carries insurance customary for the industry but may not be fully
insured against all risks either because they are not fully insurable or
because premium costs are prohibitive. The occurrence of an event
against which the Company is not fully insured could cause the Company to
incur substantial costs and loss of revenue.
The Company insures its rigs for amounts approximating their fair
market values (less $25,000 deductible per occurrence). The Company
purchases workers' compensation insurance under a loss rating plan. This
plan affords the Company the opportunity to pay less than standard
premium or the risk of paying more than standard premium depending on
losses incurred. The Company limits its exposure within the plan to
$250,000 ($100,000 beginning June 1995) per incident.
Employees
- - ---------
As of June 30, 1995, the Company had 24 salaried and approximately
115 hourly employees. The number of hourly employees varies, depending
upon the level of rig utilization.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding
the executive officers of the Company:
Name Age Positions
---- --- ---------
Raymond H. Hefner, Jr. 68 Chairman of the Board of Directors
Richard B. Hefner 35 President and Chief Executive Officer
Officers are elected annually by the Board of Directors.
Raymond H. Hefner, Jr., was elected Chairman of the Board of
Directors of the Company upon its inception in March 1980. He served as
Chief Executive Officer from that time until June 30, 1993. He founded
Bonray Energy Corporation ("BEC"), a company engaged in oil and gas
exploration and production and the predecessor of the Company's
operations, in 1957. He served as Chairman of the Board, Chief Executive
Officer and Treasurer of BEC from 1957 until November 1, 1991, when BEC
was sold to Ensign Oil & Gas, Inc., and became EOG (Oklahoma) Inc. Mr.
Hefner also serves as President of Bonray, Inc., a privately held oil and
gas investment company. He previously served as Chairman of the Board of
Liberty Bank and Trust Company of Oklahoma City, N.A., a national bank;
Vice Chairman of the Board of Liberty Bancorp, Inc., a bank holding
company; and currently serves as a director of Liberty Bancorp, Inc.,
Liberty Bank and Trust Company of Oklahoma City, N.A., Liberty Bank and
Trust Company of Tulsa, N.A., Oklahoma Health System, Liberty Mutual
Insurance Company, Liberty Mutual Life Insurance Company, Liberty
Financial Companies, Inc. and is a Southwest advisory director
for Liberty Mutual Insurance Company. Mr. Hefner joined the board of
directors for Gulf Canada Resources Limited January 25, 1995. He is the
father of Richard B. Hefner.
Richard B. Hefner was elected Chief Executive Officer effective June
30, 1993. He has served as President, Chief Operating Officer and
Director of the Company since October 1990. Mr. Hefner is a general
partner of Hefner Enterprises, a Texas general partnership, and serves as
Vice President of Bonray, Inc., a privately held oil and gas investment
company. He has served as Vice President and General Manager of Canadian
Valley Ranch, Inc., a pure-bred livestock production company, since 1982.
He is the son of Raymond H. Hefner, Jr.
ITEM 2. PROPERTIES
The Company owns approximately forty acres of land located in
Oklahoma City, Oklahoma, on which an office building and repair,
support and storage facilities for the Company's operations are located.
These facilities include a repair shop (8,000 square feet) and three
warehouses. The office building (3,600 square feet) was renovated in
fiscal year 1992 to be used by office personnel.
The Company presently owns and operates fifteen drilling rigs.
Although four of these drilling rigs have been "mothballed", thus
requiring major expenditures in order to become productive, the
remaining eleven rigs are in good operating condition. Although the rigs
with less depth capacity have had greater utilization in recent years,
those rigs with deeper capacity are available if deep gas drilling activity
increases. (See "Item 1. Business" for utilization rates, drilling
contracts and customers.) The following table sets forth certain
information relating to the Company's drilling rigs presently available
for operation:
Depth
Rig Capability Customer at
Number (feet)<F1> Type August 31, 1995
- - ------ ----------- ----------- ---------------
1 16,000 Oilwell 760 Marathon
2 20,000 Oilwell 860 mothballed
3 10,000 Ideco 525 mothballed
4 12,000 Unit U-40 Avalon
5 9,000 National 50-A <F2>
6 9,000 National 50-A mothballed
7 7,000 Cooper 550 Hollrah
8 10,000 Cooper LTO 750 Keener
10 12,000 National 55 <F2>
21 12,000 Ideco 750 Bolin
30 20,000 National 1320-M mothballed
31 25,000 National 1320-M <F2>
32 20,000 National 110-M Avalon
33 20,000 Mid Continent U914 Sanguine
34 25,000 Gardner Denver 1500 <F2>
<FN>
<F1> Depth capabilities are based upon the use of 4.5 inch or 5
inch drill pipe and normal casing designs. The capabilities may vary as a
result of the use of different drill pipe or unusual casing designs.
<F2> Not operating at August 31, 1995.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company is a
party or any of its property is subject.
There are no material administrative or judicial proceedings arising
under any federal, state, or local provisions regulating the discharge of
materials into the environment or otherwise relating to the protection of
the environment. No such proceedings are known to be contemplated by
governmental authorities. No material legal proceedings were terminated
during the fourth quarter ended June 30, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders through the
solicitation of proxies or otherwise during the fourth quarter of the
year ended June 30, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is traded over-the-counter under the
NASDAQ symbol BNRY. The following is the range of prices for the
Company's common stock for each of the quarters in the two year period
ended June 30, 1995:
1995 Bids<F1> 1994 Bids<F1>
------------------ ----------------
Quarter High Low High Low
- - ------- ------ ------ ------ ------
First $ 7.50 $ 7.00 $ 8.75 $ 8.25
Second $ 8.25 $ 7.75 $ 8.50 $ 8.00
Third $ 8.50 $ 8.50 $ 8.00 $ 7.25
Fourth $ 8.50 $ 8.50 $ 7.25 $ 7.25
<FN>
<F1> Bid quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
No dividends have been paid since the inception of the
Company. At present, the Company intends to maintain a policy of retaining
any earnings for its operations.
At August 31, 1995, Bonray Drilling Corporation had approximately 571
stockholders of record, not including individual stockholders whose
shares are held in street name by brokerage, nominee or depository firms.
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
------ ------- ------- ------- -------
Operating revenues $8,486 $ 7,912 $ 9,631 $ 5,145 $ 8,619
====== ======= ======= ======= =======
Net income (loss) $ 866 $ (575) $(1,551) $(1,179)<F2> $(5,283)<F1>
====== ======= ======= ======= =======
Net income (loss)
per share $ 2.05 $ (1.36) $ (3.66) $ (2.78)<F2> $(12.47)<F1>
====== ======= ======= ======= =======
Weighted average
shares outstanding 423,540 423,540 423,540 423,540 423,540
Total assets $10,647 $ 8,896 $ 9,419 $10,295 $11,391
======= ======= ======= ======= =======
Obligations due
after one year $ 693 $ 214 $ 388 $ - $ -
======= ======= ======= ======= =======
No cash dividends were declared or paid during the periods.
<FN>
<F1> Includes $5,106,000 ($12.05 per share) relating to a write-down of
the Company's drilling equipment during the year.
<F2> Includes cumulative effect on prior years of $100,000 ($.24 per share)
due to change in method of accounting for income taxes. See Note 2 of
Notes to Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
References to 1995, 1994 and 1993 refer to the Company's
fiscal years ended June 30, 1995, June 30, 1994 and June 30, 1993,
respectively.
Liquidity and capital resources
- - -------------------------------
The Company reported net working capital on June 30, 1995 of $508,000
and a ratio of current assets to current liabilities of 1.27 to 1. The
$157,000 increase in working capital was largely a result of a higher
utilization rate than reported for the previous year. The Company will
continue to maintain its drilling rig fleet in good operating condition
through the use of working capital generated from operations.
Due to the depressed status of the energy industry, some of the
Company's customers pay for services on a basis of sixty to ninety days.
Due to the delay in collecting receivables, it became necessary to obtain
a line of credit with a local bank. The credit agreement provides for a
maximum of $750,000 at an interest rate of 1/2% above the national prime
lending rate recognized by the bank and is collateralized by accounts
receivable. The agreement expires October 31, 1995, unless renewed. At
June 30, 1995, the Company had no borrowings under this agreement.
In connection with the purchase of drilling equipment, a note payable
was issued to the seller for $828,000, payable in monthly installments of
principal and interest in the amount of $50,000 until paid in full with
interest at a rate of 1% above the national prime lending rate (aggregate
rate of 10% at June 30, 1995), and is secured by the equipment purchased.
Over the last several years, the Company generated additional net
operating losses for tax purposes due primarily to its use of accelerated
depreciation which exceeds accumulated book deprecation. The Company was
able to utilize a portion of these losses in its current year tax return.
The remaining net operating losses are available for use in future
periods due to carryover provisions. These carryover provisions will
begin to expire in the year 2001.
At the end of the year, the Company had no material commitments for
capital expenditures.
Results of operations
- - ---------------------
Revenues from drilling operations were $8,486,000 in 1995, an increase
of 7% from $7,912,000 in 1994 and a decrease of 12% from $9,631,000
reported in 1993. The increase from 1994 is represented by a higher
utilization of the Company's drilling fleet while the decrease from 1993
is due to the decrease in the number of turnkey contracts in relation to
total contracts. Unstable natural gas prices and fluctuating crude oil
prices have continued to depress the drilling industry. Competition for
contracts remains strong. However, the Company's attempts to raise rates
have been somewhat successful.
The Company's ability to operate on a large percentage of daywork
contracts as opposed to footage and turnkey contracts, along with a
reduction in depreciation in 1995, resulted in gross profit on drilling
contracts (drilling operations revenue less drilling operations' cost and
depreciation) of $491,000 compared to a gross profit of $51,000 reported
in 1994 and a gross loss of $823,000 reported in 1993. The decrease in
depreciation expense in 1995 and 1994 is due to the cost of certain rigs
more regularly operated becoming fully depreciated during the period. A
significant charge results from depreciating mothballed drilling rigs
pursuant to the Company's policy initiated in 1986. Additional
depreciation under this policy amounted to $36,000 in 1995, $131,000 in
1994 and $223,000 in 1993. Without the mothballed drilling rig
depreciation gross profit on drilling contracts would have been $527,000
in 1995 and $182,000 in 1994, while gross loss on drilling contracts
would have been $600,000 in 1993.
The income before provision for income taxes this year of $901,000 is
the result of a gain of approximately $1,000,000 from the sale of one of
the Company's rigs and related equipment.
Workers' compensation insurance costs and claims for self-insured
risks account for the Company's highest cash expense other than labor.
These costs were $979,000 in 1995, $876,000 in 1994 and $1,047,000 in
1993 or 25%, 23% and 27%, respectively, of payroll expenditures. Of the
amount expended in 1995, 1994, and 1993 for workers' compensation
insurance costs, 4%, 11% and 2%, respectively, were due to revisions in
estimates of claims from prior fiscal years. To place greater emphasis
on safety, the Company implemented a tenure and drug screening program in
1991 to help reduce these costs. The tenure program was changed to a
Safety Award Program in 1994. Because workers' compensation law and
insurance coverage allow claims to remain open after a policy year ends,
it is difficult to determine the Company's total liability for any given
year.
The following table indicates the percentage of the Company's
drilling revenues attributable to the various types of contracts for each
of the three years ended June 30, 1995:
Years ended June 30,
----------------------------
1995 1994 1993
---- ---- ----
Type of Contract:
Daywork 88.5% 77.0% 42.8%
Footage 10.5% 12.0% 18.4%
Turnkey 1.0% 11.0% 38.8%
Gross profit, excluding indirect costs associated with contract
drilling operations and depreciation of mothballed drilling rigs,
attributable to the various types of contracts for the same three
years are as follows:
Years ended June 30,
--------------------------
1995 1994 1993
---- ---- ----
Type of Contract:
Daywork 91.0% 80.1% 67.2%
Footage 8.2% 12.6% 23.8%
Turnkey .8% 7.3% 9.0%
Inflation
- - ---------
The effect of inflation on the Company's operations has been
insignificant because of the low rate of inflation in recent
years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, together with the
report thereon of Ernst & Young LLP, are set forth on pages 13
through 22 hereof. (See Item 14 for Index.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by Item 304 of Regulation S-K is not
applicable to the Company.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the identification, business
experience, and directorships of each director and nominee for
director of the Company required by Item 401 of Regulation S-K
and presented in the section entitled "Information Concerning
Nominees and Directors" of the Company's Proxy Statement for the
annual meeting of Stockholders on November 14, 1995, is hereby
incorporated by reference. (See Item 1 for information relating
to the identification and business experience of the Company's
executive officers). The information required by Item 405 of
Regulation S-K does not require disclosure by the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to the remuneration of directors and
officers required by Item 402 of Regulation S-K and presented in
the section entitled "Executive Compensation" of the Company's
Proxy Statement for the annual meeting of Stockholders on
November 14, 1995, is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information relating to security ownership required by Item 403 of
Regulation S-K and presented in the section entitled "Voting Securities
Outstanding, Security Ownership of Management and Principal Stockholders,"
of the Company's Proxy Statement for the annual meeting of Stockholders
on November 14, 1995, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to transactions with management and business
relationships required by Item 404 of Regulation S-K and presented in the
section entitled "Transactions With Management" of the Company's Proxy
Statement for the annual meeting of Stockholders on November 14, 1995, is
hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
1 and 2. Index to Financial Statements and Financial Statement Schedules.
---------------------------------------------------------------
Report of independent auditors
Covered by report of independent auditors:
Balance sheets at June 30, 1995 and 1994
Statements of operations and accumulated deficit
for each of the three years in the period
ended June 30, 1995
Statements of cash flows for each of the three
years in the period ended June 30, 1995
Notes to financial statements
All financial statement schedules are inapplicable or the required
information is included in the financial statements or the notes thereto.
3. Exhibits
--------
The following documents are exhibits to this Form 10-K. Each
document marked by an asterisk is hereby incorporated herein by
reference to same document previously filed with the Securities and
Exchange Commission.
Exhibit
Number Document
- - ------- --------
3(a) Registrant's Certificate of Incorporation and all amendments
(filed as Exhibit 19(a) to Form 10-Q for the six months ended
December 31, 1986).*
3(b) Registrant's Restated By-Laws (dated May 6, 1981, as amended
November 25, 1986)(filed as Exhibit 19(b) to Form 10-Q for the
six months ended December 31, 1986).*
10(a) 1981 Incentive Stock Option Plan for Bonray Drilling Corporation
and its Subsidiaries.
10(b) Commercial Promissory Note - Fixed or Variable Rate by and between
Bonray Drilling Corporation and BancFirst.
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 13, 1995.
Report of Independent Auditors
The Board of Directors and Stockholders
Bonray Drilling Corporation
We have audited the accompanying balance sheets of Bonray Drilling
Corporation as of June 30, 1995 and 1994, and the related statements of
operations and accumulated deficit and cash flows for each of the three
years in the period ended June 30, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bonray
Drilling Corporation at June 30, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Ernst & Young LLP
Oklahoma City, Oklahoma
August 11, 1995
BONRAY DRILLING CORPORATION
BALANCE SHEETS
June 30, 1995 and 1994
ASSETS 1995 1994
(Dollars in thousands)
Current assets:
Cash and cash equivalents $ 160 $ 9
Accounts receivable (Note 3) 2,139 1,705
Drilling contracts in progress 21 34
Prepaid expenses 94 103
------- -------
Total current assets 2,414 1,851
Properties and equipment:
Drilling equipment (Note 3) 20,766 20,941
Land 110 110
Buildings 356 346
Other equipment 1,093 1,069
------- -------
22,325 22,466
Less accumulated depreciation 14,092 15,421
------- -------
Net properties and equipment 8,233 7,045
------- -------
$10,647 $ 8,896
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 965 $ 897
Notes payable (Note 3):
Short term line of credit - 165
Other 551 -
Accrued liabilities:
Salaries and wages 163 162
Payroll and other taxes 61 67
Workers' compensation insurance
(Note 4) 66 135
Other 100 74
------- -------
Total current liabilities 1,906 1,500
Obligations due after one year:
Workers' compensation insurance (Note 4) 447 188
Notes payable (Note 3) 191 -
Other 55 26
Stockholders' equity (Note 5):
Common stock, $1.00 par value; 800,000
shares authorized, 432,740 shares
issued 433 433
Capital in excess of par value 12,497 12,497
Accumulated deficit (4,790) (5,656)
------- -------
8,140 7,274
Less 9,200 shares of treasury stock,
at cost 92 92
------- -------
Total stockholders' equity 8,048 7,182
------- -------
$10,647 $ 8,896
======= =======
The accompanying notes are an integral part of these financial
statements.
BONRAY DRILLING CORPORATION
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended June 30, 1995, 1994 and 1993
(Dollars in thousands, except per share amounts)
1995 1994 1993
---- ---- ----
Revenues:
Contract drilling operations
(Note 6) $ 8,486 $ 7,912 $ 9,631
Gain (loss) from sale of assets 1,029 (3) (25)
Interest and other income 172 137 66
------- ------- -------
9,687 8,046 9,672
Costs and expenses (Note 4):
Contract drilling operations 6,865 6,649 8,924
General and administrative 752 687 713
Interest and other expense 39 73 56
Depreciation 1,130 1,212 1,530
------- ------- -------
8,786 8,621 11,223
Income (loss) before provision for
income taxes 901 (575) (1,551)
Provision for income taxes (Note 2) 35 - -
------- ------- -------
Net income (loss) 866 (575) (1,551)
Accumulated deficit at beginning
of year (5,656) (5,081) (3,530)
------- ------- -------
Accumulated deficit at end of year $(4,790) $(5,656) $(5,081)
======= ======= =======
Net income (loss) per share $ 2.05 $ (1.36) $ (3.66)
======= ======= =======
Weighted average shares outstanding 423,540 423,540 423,540
======= ======= =======
The accompanying notes are an integral part of these financial
statements.
BONRAY DRILLING CORPORATION
STATEMENTS OF CASH FLOWS
Years ended June 30, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
---- ---- ----
Cash flows from operating activities:
Cash received from customers $10,910 $10,492 $12,948
Cash paid to suppliers and
employees (10,178) (10,285) (12,239)
Interest received 36 - -
Interest paid (27) (31) (16)
Income taxes paid (30) - -
Other cash receipts 152 124 115
------- ------- -------
Net cash provided by
operating activities 863 300 808
Cash flows from investing activities:
Proceeds from sales of assets 1,659 4 25
Capital expenditures (2,120) (424) (759)
Insurance proceeds for reimbursements
of losses pertaining to properties
and equipment - - 153
------- ------- -------
Net cash used by investing
activities (461) (420) (581)
Cash flows from financing activities:
Payments on notes payable (86) - -
Net increase (decrease) in
borrowings on short-term line
of credit (165) 65 (200)
------- ------- -------
Net cash provided (used) by
financing activities (251) 65 (200)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents 151 (55) 27
Cash and cash equivalents at
beginning of year 9 64 37
------- ------- -------
Cash and cash equivalents at
end of year $ 160 $ 9 $ 64
======= ======= =======
Reconciliation of net income (loss)
to net cash provided by
operating activities:
Net income (loss) $ 866 $ (575) $(1,551)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 1,130 1,212 1,530
(Gain) loss on sales of assets (1,029) 3 25
Change in assets and liabilities:
Decrease (increase) in
current assets:
Accounts receivable (434) (578) (233)
Drilling contracts in
progress 13 196 (28)
Prepaid expenses 9 (14) 135
Increase (decrease) in
current liabilities:
Accounts payable 68 107 313
Accrued liabilities (48) 54 174
Accrued workers' compensation
insurance and other due after
one year 288 (174) 388
Other - 69 55
------- ------- -------
Total adjustments (3) 875 2,359
------- ------- -------
Net cash provided by operating
activities $ 863 $ 300 $ 808
======= ======= =======
Disclosure of noncash investing and
financing activities:
During the year ended June 30, 1995, the Company acquired property,
plant and equipment by issuing a note payable of $828,050.
The accompanying notes are an integral part of these financial
statements.
BONRAY DRILLING CORPORATION
NOTES TO FINANCIAL STATEMENTS
Years ended June 30, 1995, 1994 and 1993
1. Basis of financial statements and significant accounting policies
-----------------------------------------------------------------
Cash and cash equivalents - Cash and cash equivalents include cash
deposits in banks and short-term investments with original maturities of
three months or less from the date of purchase by the Company.
Contract drilling operations - Revenue earned from footage and turnkey
contracts is recognized by the completed contract method, while revenue
earned from daywork contracts is recognized by the percentage-of-completion
method. Provision is made for the entire amount of expected losses on
contracts, if any, in the period in which such losses are first determined.
Valuation of properties and equipment - Drilling equipment is stated
at amounts representing historical cost adjusted by prior year write-downs
totaling approximately $21,000,000 based on the expected future economic
value of such equipment. This value was determined by projecting the
estimated future cash flows generated by drilling equipment based on the
Company's historical utilization rates and profit margins as well as
consideration of the economic conditions of the industry. Additions to
drilling equipment, land, buildings and other equipment are reported at cost.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Under the new rules long-lived assets must be reviewed for impairment at
the lowest level for which there are identifiable cash flows for the
Company's asset base and any impairment would be measured based on the
fair value of the assets and would be reported in the year in which the
statement is initially adopted. The statement is required to be adopted
by the Company by fiscal year 1997. The Company is in the preliminary
stages of evaluating the financial statement impact of adoption of this
statement and, accordingly, such impact has not been determined.
Depreciation - Depreciation of drilling equipment is computed on an
operating day basis (net of estimated salvage value), except for drilling
rigs and related equipment which are "mothballed" or otherwise not
expected to be used for an extended period of time. Annual depreciation
of these inactive rigs and related equipment is equal to 20% of the
amount of depreciation which would be computed using the straight-line
method over the estimated useful life of such drilling equipment. To the
extent that the inactive rigs and related equipment are utilized during
the year, depreciation is provided on an annual basis at the greater of
the amount computed using the 20% rate or the operating day basis. The
specific inactive drilling equipment used in any year may vary so the net
book value of this equipment and the depreciation expense relating to it
will vary accordingly. The net book value of such drilling equipment is
$733,000 and $1,356,000 at June 30, 1995 and 1994, respectively. The
Company recorded $36,000 of depreciation in 1995, $131,000 in 1994 and
$223,000 in 1993 on these inactive rigs and related equipment, or $.08
per share, $.31 per share, and $.53 per share, respectively.
Depreciation of buildings and other equipment is computed by the
straight-line method over the estimated useful lives of the assets.
Income (loss) per share - Income (loss) per share is computed on the
basis of weighted average number of shares of common stock and dilutive
common stock equivalents outstanding.
Credit risk - The Company operates fifteen drilling rigs in the state
of Oklahoma and grants credit, which is generally unsecured, to its
customers (Note 6). At June 30, 1995 approximately 84% of the Company's
accounts receivable were from three customers. The Company has not
experienced any significant credit losses in 1995, 1994 or 1993 and is
not aware of any significant uncollectible accounts at June 30, 1995.
2. Income taxes
------------
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax
liabilities and assets as of June 30, 1995 and 1994 are as follows
(dollars in thousands):
1995 1994
---- ----
Deferred tax liability - tax
depreciation over book
depreciation and write-downs $ 807 $ 1,198
======= =======
Deferred tax assets:
Net revenues and expenses
recognized for tax purposes
which are deferred for
financial purposes $ 7 $ 10
Net operating loss carryforwards 2,216 2,934
------- -------
Total deferred tax assets
before valuation allowance 2,223 2,944
Less: Valuation allowance
recognized 1,416 1,746
------- -------
Net deferred tax assets $ 807 $ 1,198
======= =======
The deferred tax assets and liability are offset and, therefore, no
deferred tax asset or liability is reflected in the Company's balance
sheets at June 30, 1995 and 1994.
The difference between the amount of the credit for income taxes and
the amount which would result from the application of the statutory rate
to income (loss) before provision (credit) for income taxes is analyzed
as follows (dollars in thousands):
1995 1994 1993
---- ---- ----
Provision (credit) for income taxes
at statutory rate $ 306 $ (201) $ (527)
Difference resulting from:
Increase (decrease) in valuation
allowance for net deferred
tax assets (330) 215 547
Alternative minimum tax 35 - -
Other 24 (14) (20)
------ ------ ------
Provision for income taxes $ 35 $ - $ -
====== ====== ======
At June 30, 1995, the Company has net operating loss carryforwards for
federal tax purposes of approximately $5,100,000 which will expire
beginning in the year 2001 if not used. At June 30, 1995, the net
operating loss carryforwards for state tax purposes amounted to
approximately $12,600,000.
3. Notes Payable
-------------
During the year ended June 30, 1995, the Company acquired drilling and
other equipment by issuing a note payable of $828,000 to the seller of
the equipment. The note is payable in monthly installments of principal
and interest in the amount of $50,000 until paid in full with interest at
a rate of 1% above the national prime lending rate (aggregate rate of 10%
at June 30, 1995) and is secured by the equipment purchased. The balance
due under the agreement at June 30, 1995 was $742,000, of which $551,000
is expected to be due within one year with the remainder due in 1997.
The note also contains a prepayment option for the Company and allows the
Company to defer up to four of the monthly payments.
The Company has a revolving line of credit agreement (the "credit
agreement") with a bank. Credit availability is subject to a monthly
borrowing base determination calculated as 75% of the Company's accounts
receivable less than 90 days old, not to exceed $750,000. At June 30,
1994, $165,000 of borrowings were outstanding under the revolving line of
credit (none at June 30, 1995). The credit agreement, which expires
October 31, 1995 unless renewed, provides for monthly interest payments
which accrue at a rate of 1/2 of 1% over the lender's national prime rate
(aggregate rate of 9.5% at June 30, 1995, and 7.75% at June 30, 1994).
Outstanding advances and accrued interest are due in full upon expiration
of the credit agreement. The credit agreement is secured by the Company's
accounts receivable.
4. Contingency
-----------
The Company is covered by a workers' compensation insurance plan for
its employees under which the Company is responsible for claims up to
$250,000 ($100,000 beginning June 1995) per incident. The Company
changed from a retrospective rating plan to a paid loss plan effective
with the year ended June 30, 1995. Under the paid loss plan the Company
will reimburse the workers' compensation administrator for costs as those
costs are paid by the administrator, normally over a five year period.
Of these costs, $302,000 is included in workers' compensation insurance
due after one year in the accompanying 1995 balance sheet. Total
workers' compensation costs incurred by the Company were $979,000,
$876,000 and $1,047,000 for the years ended June 30, 1995, 1994 and 1993
respectively, and were based on actual and estimated claims incurred.
Workers' compensation expense for the years ended June 30, 1995, 1994
and 1993 includes $40,000, $99,000 and $24,000 ($.09, $.23 and $.06 per
share), respectively, for changes in the claims estimated to be incurred
by the Company's workers' compensation administrator for claims arising
in prior fiscal years. These changes in estimates are not expected to
have a significant effect on subsequent fiscal years.
At June 30, 1995, and 1994, the Company has a net liability for
accrued workers' compensation insurance totaling $513,000 and $323,000,
respectively. Under an agreement with the Company's workers' compensation
administrator, the Company will fund certain estimated workers'
compensation costs from the 1993 policy year as they are paid by
the administrator. The administrator has agreed to continue this
arrangement for the retrospective life of that particular policy year,
which is normally five years or until there is mutual agreement between
the Company and the administrator to do otherwise. Accordingly, the
estimated liability of $145,000 at June 30, 1995 related to these costs,
expected to be paid by the Company after June 30, 1996, is included in
workers' compensation insurance due after one year in the accompanying
1995 balance sheet. Under a similar agreement at June 30, 1994, the
Company included $188,000 related to these costs in workers' compensation
insurance due after one year.
5. Incentive stock option plan
---------------------------
In September 1981, the Company established the 1981 Incentive Stock
Option Plan under which the Company was authorized to award options on
up to 5,000 shares of common stock to certain officers and key employees
of the Company. The 1981 Incentive Stock Option Plan expired in
September 1991, and was not renewed, however outstanding options may
be exercised any time through June 1999.
The following table summarizes the activity in employees' stock
options during the year ended June 30, 1995:
Outstanding options at beginning of year 1,000
Granted -
Exercised -
Cancelled -
-------
Outstanding options at end of year 1,000
=======
At end of year:
Price of outstanding options $14.875
Options exercisable 1,000
6. Major customers
---------------
Contract drilling operations revenues include revenues from certain
customers which individually account for 10% or more of these contract
drilling operations revenues as follows:
1995 1994 1993
---- ---- ----
Customer
A $ 879,000 $ - $1,506,000
B 2,561,000 2,324,000 1,933,000
C - 871,000 1,480,000
D 2,082,000 1,766,000 1,731,000
E - - 1,011,000
---------- ---------- ----------
$5,522,000 $4,961,000 $7,661,000
========== ========== ==========
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on September 22, 1995.
BONRAY DRILLING CORPORATION
RICHARD B. HEFNER
Richard B. Hefner
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on September
22, 1995.
RAYMOND H. HEFNER, JR. Chairman of the Board of Directors
Raymond H. Hefner, Jr.
RICHARD B. HEFNER President, Chief Executive Officer
Richard B. Hefner and Director
PHILIP C. DAY Treasurer and Chief Financial Officer
Philip C. Day
JOANNE BELCHER Controller and Chief Accounting Officer
Joanne Belcher
WILLIAM B. CLEARY Director
William B. Cleary
HOBART A. SMITH Director
Hobart A. Smith
JAMES R. TOLBERT, III Director
James R. Tolbert III
INDEX TO EXHIBITS
PAGE NUMBER OR INCORPORATION
EXHIBIT NUMBER BY REFERENCE TO
3(a) Registrant's Certificate Form 10-Q for the six months
of Incorporation and all ended December 31, 1986,
amendments Exhibit 19(a)
3(b) Registrant's Restated Form 10-Q for the six months
By-laws (dated May 6, ended December 31, 1986,
1981, as amended Exhibit 19(a)
November 25, 1986)
10(a) 1981 Incentive Option
Plan for Bonray Drilling
Corporation on its
Subsidiaries
10(b) Commercial Promissory
Note - Fixed or Variable
Rate by and between
Bonray Drilling Corporation
and BancFirst