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, 1995 _________________________________________________ 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 60,595,143 shares of Common Stock, $.10 par value, of the registrant outstanding as of October 23, 1995.
ENSCO INTERNATIONAL INCORPORATED INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 PAGE ------ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheet September 30, 1995 and December 31, 1994 3 Consolidated Statement of Operations Three Months Ended September 30, 1995 and 1994 4 Consolidated Statement of Operations Nine Months Ended September 30, 1995 and 1994 5 Consolidated Statement of Cash Flows Nine Months Ended September 30, 1995 and 1994 6 Notes to Consolidated Financial Statements 7 - 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 18 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19 SIGNATURES 20
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> <CAPTION> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- (Unaudited) (Restated) (In thousands) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents..................... $ 90,453 $147,851 Short-term investments........................ - 5,869 Accounts and notes receivable, net............ 65,294 36,479 Prepaid expenses and other.................... 12,094 17,593 Net assets of discontinued operations......... - 7,862 Total current assets.................... 167,841 215,654 INVESTMENTS..................................... 6,609 6,970 PROPERTY AND EQUIPMENT, AT COST................. 768,128 652,573 Less accumulated depreciation................. 169,833 129,129 Property and equipment, net............. 598,295 523,444 OTHER ASSETS Goodwill...................................... 20,421 21,159 Other......................................... 14,259 5,863 Total other assets...................... 34,680 27,022 $807,425 $773,090 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.............................. $ 11,252 $ 10,240 Accrued liabilities........................... 43,267 35,492 Current maturities of long-term debt.......... 30,891 40,750 Total current liabilities............... 85,410 86,482 LONG-TERM DEBT.................................. 163,204 162,466 DEFERRED INCOME TAXES........................... 25,260 22,989 OTHER LIABILITIES............................... 19,286 13,203 STOCKHOLDERS' EQUITY Common stock, $.10 par value, 125.0 million shares authorized, 66.8 million and 66.6 million shares issued....................... 6,683 6,657 Additional paid-in capital.................... 615,100 612,318 Accumulated deficit........................... (40,671) (71,657) Restricted stock (unearned compensation)...... (5,498) (5,518) Cumulative translation adjustment............. (1,086) (1,210)
Treasury stock at cost, 6.2 million and 5.6 million shares.......................... (60,263) (52,640) Total stockholders' equity ............. 514,265 487,950 $807,425 $773,090 </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> <CAPTION> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) THREE MONTHS ENDED SEPTEMBER 30, ---------------------- 1995 1994 -------- -------- (Restated) (In thousands, except per share data) <S> <C> <C> OPERATING REVENUES........................... $ 71,793 $ 59,092 OPERATING EXPENSES Operating costs............................ 40,479 34,047 Depreciation and amortization.............. 14,702 13,214 General and administrative................. 2,209 2,160 57,390 49,421 OPERATING INCOME............................. 14,403 9,671 OTHER INCOME (EXPENSE) Interest income............................ 986 1,267 Interest expense........................... (3,912) (3,533) Income from equity affiliate............... - 285 Other, net................................. 874 55 (2,052) (1,926) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST......... 12,351 7,745 PROVISION FOR INCOME TAXES................... 1,242 685 MINORITY INTEREST............................ 508 583 INCOME FROM CONTINUING OPERATIONS............ 10,601 6,477 INCOME FROM DISCONTINUED OPERATIONS.......... 5,679 296 NET INCOME .................................. 16,280 6,773 PREFERRED STOCK DIVIDEND REQUIREMENT......... - 5 INCOME APPLICABLE TO COMMON STOCK............ $ 16,280 $ 6,768 INCOME PER COMMON SHARE Continuing operations...................... $ .18 $ .11 Discontinued operations.................... .09 .01 $ .27 $ .12 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 60,476 58,109 </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> <CAPTION> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1995 1994 -------- -------- (Restated) (In thousands, except per share data) <S> <C> <C> OPERATING REVENUES........................... $195,348 $182,808 OPERATING EXPENSES Operating costs............................ 112,738 101,086 Depreciation and amortization.............. 42,555 38,184 General and administrative................. 6,830 6,653 162,123 145,923 OPERATING INCOME............................. 33,225 36,885 OTHER INCOME (EXPENSE) Interest income............................ 4,787 3,260 Interest expense........................... (12,407) (8,848) Income from equity affiliates, net......... 200 557 Other, net................................. 2,017 (706) (5,403) (5,737) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST......... 27,822 31,148 PROVISION FOR INCOME TAXES................... 1,426 2,907 MINORITY INTEREST............................ 1,706 2,066 INCOME FROM CONTINUING OPERATIONS............ 24,690 26,175 INCOME FROM DISCONTINUED OPERATIONS.......... 6,296 2,530 NET INCOME .................................. 30,986 28,705 PREFERRED STOCK DIVIDEND REQUIREMENT......... - 2,135 INCOME APPLICABLE TO COMMON STOCK............ $ 30,986 $ 26,570 INCOME PER COMMON SHARE Continuing operations...................... $ .41 $ .42 Discontinued operations.................... .10 .05 $ .51 $ .47 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING... 60,505 56,726 </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> <CAPTION> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994 -------- -------- (Restated) (In thousands) <S> <C> <C> OPERATING ACTIVITIES Net income........................................ $ 30,986 $ 28,705 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of discontinued operations...... (5,161) - Net cash provided by discontinued operations. 135 2,395 Depreciation and amortization................ 42,555 38,184 Deferred income tax provision (benefit)...... (1,246) 1,572 Amortization of other assets................. 2,556 2,106 Provision for compensatory stock grants...... 727 761 Distributed income from equity affiliates.... 225 534 Other........................................ 306 1,102 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable............................... (16,146) 2,405 (Increase) decrease in prepaid expenses and other................................ 5,450 (1,544) Increase in accounts payable and accrued liabilities.............................. 859 3,411 Net cash provided by operating activities........................... 61,246 79,631 INVESTING ACTIVITIES Additions to property and equipment............... (103,193) (135,902) Proceeds from sales of discontinued operations.... - 399 Proceeds from disposition of assets............... 668 11,900 (Purchase) sale of short-term investments......... 5,869 (5,869) Other............................................. (6,322) (1,866) Net cash used by investing activities......... (102,978) (131,338) FINANCING ACTIVITIES Long-term borrowings.............................. 24,043 115,471 Reduction of long-term borrowings................. (33,233) (60,475) Repurchase of common stock........................ (7,210) - Preferred stock dividends......................... - (2,135) Other............................................. 734 (293) Net cash provided (used) by financing activities.................................... (15,666) 52,568 (INCREASE) DECREASE IN CASH AND CASH EQUIVALENTS.... (57,398) 861 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 147,851 128,056
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 90,453 $128,917 </TABLE> 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 statement of the results of operations for the interim periods presented. 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, 1994 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K. NOTE 2 - CHANGE IN THE NAME OF THE COMPANY At the Company's Annual Meeting of the Stockholders held on May 23, 1995, the stockholders of the Company approved the change in the name of the Company from Energy Service Company, Inc. to ENSCO International Incorporated. NOTE 3 - ACQUISITION On March 23, 1995, the Company purchased a jackup rig located in the North Sea and simultaneously entered into a bareboat charter agreement with the seller, which is expected to continue through early 1996. The purchase price consisted of $12.8 million paid at closing and an additional $13.0 million to be paid at the end of the bareboat charter period. NOTE 4 - STOCKHOLDERS' EQUITY In December 1994, the Company's Board of Directors authorized the repurchase of up to $50.0 million of the Company's common stock. As of September 30, 1995, the Company had repurchased 800,769 shares of its common stock at an average price of $11.92 per share, of which 599,369 shares were repurchased in the first six months of 1995. No shares were repurchased during the three months ended September 30, 1995. On February 21, 1995, the Board of Directors of the Company adopted a shareholder rights plan and declared a dividend of one preferred share purchase right (a "Right") for each share of the Company's common stock outstanding on March 6, 1995. Each Right initially entitles its holder to purchase 1/100th of a share of the Company's Series A Junior Participating Preferred Stock for $50.00, subject to adjustment. The Rights generally will not become exercisable until 10 days after a public announcement that a person or group has acquired 15% or more of the Company's common stock (thereby becoming an "Acquiring Person") or the commencement of a tender or exchange offer upon consummation of which such person or group would own
15% or more of the Company's common stock (the earlier of such dates being called the "Distribution Date"). Rights will be issued with all shares of the Company's common stock issued between March 6, 1995 and the Distribution Date. Until the Distribution Date, the Rights will be evidenced by the certificates representing the Company's common stock and will be transferrable only with the Company's common stock. If any person or group becomes an Acquiring Person each Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter entitle its holder to purchase, at the Right's then current exercise price, shares of the Company's common stock having a market value of two times the exercise price of the Right. If, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its assets or earning power are sold, each Right (other than Rights owned by an Acquiring Person which will have become void) will entitle its holder to purchase, at the Rights then current exercise price, that number of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) which at the time of such transaction will have a market value of two times the exercise price of the Right. After any person or group has become an Acquiring Person, the Company's Board of Directors may, under certain circumstances, exchange each Right (other than Rights of the Acquiring Person) for shares of the Company's common stock having a value equal to the difference between the market value of the shares of the Company's common stock receivable upon exercise of the Right and the exercise price of the Right. The Company will generally be entitled to redeem the Rights for $.01 per Right at any time until 10 days after a public announcement that a 15% position has been acquired. The Rights expire on February 21, 2005. NOTE 5 - PROVISION FOR INCOME TAXES The income tax provisions for the three and nine months ended September 30, 1995 primarily include U.S. alternative minimum taxes, current and deferred taxes related to the Company's operations in Venezuela and deferred taxes related to the Company's operations in the United Kingdom. The income tax provisions were decreased by $1.6 million and $4.9 million during the three and nine months ended September 30, 1995, respectively, due to reductions in the deferred tax asset valuation allowance as management considers it more likely than not that certain additional U.S. net operating loss carryforwards will be utilized in the future prior to their expiration. No provisions for regular U.S. federal income taxes have been recorded for the three and nine months ended September 30, 1995 due to the utilization of net operating loss carryforwards to offset taxes currently payable. At September 30, 1995, the Company had regular and alternative minimum tax net operating loss and investment tax credit carryforwards of approximately $242.6 million, $153.4 million, and $2.7 million, respectively. NOTE 6 - MINORITY INTEREST On March 29, 1995, a wholly owned subsidiary of the Company purchased an additional 15% equity interest in ENSCO Drilling (Caribbean), Inc. ("Caribbean") from the minority interest partner in Caribbean. The purchase, which was effective January 1, 1995, increased the wholly owned subsidiary's interest in Caribbean from 70% to 85%. In consideration for
the additional 15% interest in Caribbean acquired, the wholly owned subsidiary makes payments to the minority interest partner that are based upon, in general, the utilization of existing Caribbean rigs. In addition, in the event of a future sale of any rigs currently owned by Caribbean, the minority interest partner is entitled to an additional 15% of the net proceeds upon sale. NOTE 7 - CHANGE IN ESTIMATED RIG LIVES In connection with the Company's rig upgrade program in 1995, the remaining useful life of certain rigs for which major enhancements were performed has been extended to twelve years from the time each respective rig left the shipyard to better reflect their remaining economic lives. The effect of this change in estimate was to increase net income for the three and nine months ended September 30, 1995 by $365,000, or $.01 per share. NOTE 8 - AMENDED AND RESTATED CREDIT AGREEMENT In September 1995, a subsidiary of the Company amended and restated its original $100.0 million loan arrangement with a group of international banks. The amended and restated facility is structured as a $130.0 million revolving credit facility ("facility"), of which $66.0 million was drawn as of September 30, 1995. Availability under the facility is reduced by $6.0 million on a semi-annual basis with the remaining outstanding balance due in October 2001. The facility continues to be collateralized by most of the Company's jackup rigs and the interest rate also continues to be tied to London InterBank Offered Rates. As of September 30, 1995, the interest rate on the facility was 7.15%. The covenants under the facility are similar to the covenants that existed under the original loan arrangement. NOTE 9 - DISCONTINUED OPERATIONS Effective September 30, 1995 the Company exited the technical services business through the sale of substantially all of the assets of its wholly owned subsidiary, ENSCO Technology Company, to an unrelated party. The purchase price consisted of $11.8 million in cash, of which $10.0 million was received in early October 1995, a promissory note for $3.6 million, a convertible promissory note for $2.5 million and the assumption of $1.9 million of liabilities. The remaining $1.8 million in cash not yet received and $1.3 million of the $3.6 million promissory note relate to post-closing adjustments. The promissory note and the convertible promissory note bear interest at prime and are repayable in equal annual principal installments over a five year period. Interest on the promissory note and the convertible promissory note is also payable annually. The convertible promissory note is convertible, at the Company's option, into equity of the purchaser. As a result of the sale, the Company's financial statements have been reclassified to present the net assets and operating results of the Company's technical services operations segment as discontinued operations. Prior years have been reclassified for comparative purposes. Included in the 1995 Income from Discontinued Operations is a gain on the sale discussed above of $5.2 million and income from operations for the three and nine months ended September 30, 1995 of $500,000 and $1.1 million,
respectively. Revenues from the technical services operations for the three and nine months ended September 30, 1995 were $5.2 million and $13.4 million, respectively, and $4.1 million and $12.8 million for the three and nine months ended September 30, 1994, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS ENVIRONMENT The Company conducts its business in the contract drilling and marine transportation segments of the oil and gas industry with operations in the Gulf of Mexico, the North Sea and Venezuela. Industry utilization levels for Gulf of Mexico rigs and vessels declined in the first quarter of 1995 in comparison to the latter part of 1994 due to decreased activity levels. Activity levels for Gulf of Mexico rigs and vessels increased during the second quarter of 1995 as compared to the first quarter of 1995 and such positive trend continued into the third quarter of 1995 from the low point reached in March 1995. Unless there is a significant deterioration in oil or gas prices, management believes current activity levels are sustainable for the remainder of 1995, and in particular, demand for cantilever jackup rigs is expected to remain strong due to oil company requirements for drilling over existing production platforms. An improvement in oil prices in 1994 and the first part of 1995 and a reduction in the number of available rigs have been contributing factors to increased industry utilization levels in the North Sea during the three and nine months ended September 30, 1995. The increased utilization has led to higher average day rates in the North Sea for the three and nine months ended September 30, 1995 compared to the latter part of 1994. Management anticipates, based on current market conditions, that North Sea day rate and utilization levels should remain fairly stable for the remainder of 1995, although lower spot prices for natural gas in the United Kingdom present some uncertainty for activity levels in 1996. The Company's barge drilling rigs in Venezuela generally operate under long-term contracts for a national oil company. As a result, their day rate and utilization levels are not as dependent on oil and natural gas prices. Offshore rig and marine vessel industry utilization for the three and nine months ended September 30, 1995 and 1994 is summarized below: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- INDUSTRY WIDE AVERAGES * 1995 1994 1995 1994 - ------------------------ ------ ------ ------ ------ Offshore Rigs Gulf of Mexico: All Rigs: Rigs Under Contract 141 134 130 130 Total Rigs Available 177 178 178 173 % Utilization 80% 75% 73% 75% Jackup Rigs: Rigs Under Contract 113 111 104 106 Total Rigs Available 140 139 141 134 % Utilization 81% 80% 74% 79%
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- Industry Wide Averages (Continued)* 1995 1994 1995 1994 - ----------------------------------- ------ ------ ------ ------ Worldwide: All Rigs: Rigs Under Contract 548 532 535 533 Total Rigs Available 639 663 646 660 % Utilization 86% 80% 83% 81% Jackup Rigs: Rigs Under Contract 332 319 321 322 Total Rigs Available 386 392 388 391 % Utilization 86% 81% 83% 82% Marine Vessels: Gulf of Mexico: Vessels Under Contract 254 245 245 226 Total Vessels Available 277 272 277 258 % Utilization 92% 90% 88% 88% * 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 and nine months ended September 30, 1995 and 1994 (in thousands): THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1995 1994 1995 1994 -------- -------- -------- -------- OPERATING RESULTS - ----------------- Operating revenues $ 71,793 $ 59,092 $195,348 $182,808 Operating margin 31,314 25,045 82,610 81,722 Operating income 14,403 9,671 33,225 36,885 Other income (expense), net (2,052) (1,926) (5,403) (5,737) Provision for income tax (1,242) (685) (1,426) (2,907) Minority interest (508) (583) (1,706) (2,066) Income from continuing operations 10,601 6,477 24,690 26,175 Income from discontinued operations 5,679 296 6,296 2,530 Net income 16,280 6,773 30,986 28,705 Preferred stock dividend requirements - 5 - 2,135 Income applicable to common stock 16,280 6,768 30,986 26,570
Revenues and operating margin (defined as revenues less operating expenses excluding depreciation and general and administrative expenses) for each of the Company's operating segments are provided below for the three and nine months ended September 30, 1995 and 1994 (in thousands): THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1995 1994 1995 1994 -------- -------- -------- -------- OPERATING REVENUES - ------------------ Contract drilling Jackup rigs United States $ 29,946 $ 26,096 $ 83,840 $ 80,232 International 15,732 9,441 38,541 31,256 Total jackup rigs 45,678 35,537 122,381 111,488 Barge drilling rigs - Venezuela 15,484 12,419 46,630 30,691 Total offshore rigs 61,162 47,956 169,011 142,179 Land rigs (1) - 1,008 - 12,848 Total contract drilling 61,162 48,964 169,011 155,027 Marine transportation AHTS (2) 3,950 4,712 10,125 10,791 Supply 5,487 4,442 13,776 14,274 Mini-supply 1,193 383 2,435 1,265 Sub total 10,631 9,537 26,337 26,330 Utility (3) - 591 - 1,451 Total marine transportation 10,631 10,128 26,337 27,781 Total $ 71,793 $ 59,092 $195,348 $182,808 OPERATING MARGIN - ---------------- Contract drilling Jackup rigs United States $ 11,093 $ 10,462 $ 30,097 $ 37,018 International 5,762 3,596 14,195 14,285 Total jackup rigs 16,855 14,058 44,292 51,303 Barge drilling rigs - Venezuela 9,911 8,220 29,565 20,273 Total offshore rigs 26,766 22,278 73,857 71,576 Land rigs (1) (17) 80 (196) 942 Total contract drilling 26,749 22,358 73,661 72,518 Marine transportation AHTS (2) 2,144 1,457 4,717 4,236 Supply 2,050 1,297 3,819 4,953 Mini-supply 731 86 413 434 Sub total 4,565 2,840 8,949 9,623 Utility (3) - (153) - (419)
Total marine transportation 4,565 2,687 8,949 9,204 Total $ 31,314 $ 25,045 $ 82,610 $ 81,722 (1) United States and international land rigs are combined. As of September 30, 1994, the Company no longer had land rigs available for work. (2) Anchor handling tug supply vessels. (3) As of December 31, 1994, the Company no longer had utility vessels available for work.
The following is an analysis of certain operating information of the Company for the three and nine months ended September 30, 1995 and 1994: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1995 1994 1995 1994 -------- -------- -------- -------- OFFSHORE DRILLING - ----------------- Rig utilization: Jackup rigs United States 93% 91% 88% 89% International 77% 58% 65% 67% Total jackup rigs 89% 81% 83% 82% Barge drilling rigs - Venezuela 80% 100% 88% 100% Total offshore rigs 86% 86% 85% 86% Average day rates: Jackup rigs United States $ 20,153 $ 20,694 $ 19,778 $ 22,030 International 42,183 25,099 41,635 22,057 Total jackup rigs 24,483 21,706 23,676 22,789 Barge drilling rigs - Venezuela 20,970 15,934 19,283 15,690 Total offshore rigs $ 23,464 $ 19,904 $ 22,239 $ 20,848 MARINE TRANSPORTATION (1) - --------------------- Fleet utilization: AHTS (2) 88% 84% 81% 79% Supply 87% 87% 79% 85% Mini-supply 85% 85% 61% 94% Total 87% 86% 75% 85% Average day rates: AHTS (2) $ 8,097 $ 7,545 $ 7,442 $ 7,449 Supply 3,256 2,924 3,024 3,221 Mini-supply 1,915 1,630 1,831 1,645 Total $ 3,794 $ 3,616 $ 3,621 $ 3,781 (1) Excludes utility vessels. As of December 31, 1994, the Company no longer had utility vessels available for work. (2) Anchor handling tug supply vessels.
The Company's consolidated revenues for the three and nine months ended September 30, 1995 increased by 21% and 7%, respectively, from the comparable periods in 1994. The Company recognized increased revenues for the three and nine months ended September 30, 1995 as compared to 1994 from four barge drilling rigs which commenced operations in Venezuela in the third quarter of 1994. Revenues also increased due to improved results in the North Sea primarily related to an increase in average day rates and the Company assuming operations, effective January 1, 1995, of two jackup rigs acquired in mid-February 1994 that had operated for the remainder of 1994 under bareboat charter contracts. These revenue increases were offset by decreased revenues associated with the sale of substantially all of the Company's land rig operations in 1994 and due to three of the Company's jackup rigs undergoing modifications and enhancements and therefore two of the rigs being unavailable for work for substantially all of the first nine months of 1995 and the third rig becoming available for work in July 1995. Operating income for the three months ended September 30, 1995 increased by 49% and for the nine months ended September 30, 1995 decreased by 10% from the comparable periods in the prior year due primarily to the reasons stated above. The 1995 results were negatively impacted by depreciation expense related to rigs added to the fleet in the second half of 1994 and the first half of 1995. CONTRACT DRILLING The following is an analysis of the location of the Company's offshore rigs at September 30, 1995 and 1994: 1995 1994 ---- ---- Jackup rigs: U.S. Gulf of Mexico 18 * 16 * North Sea 6 5 Other International - 2 Total jackup rigs 24 23 Barge drilling rigs - Venezuela 10 10 Total offshore rigs 34 33 *Includes one rig operated through a joint venture in Mexico. The Company mobilized a jackup rig from Brazil that began operating in the Gulf of Mexico in the fourth quarter of 1994. Another jackup rig arrived in the Gulf of Mexico in January 1995 from Dubai and was immediately placed in the shipyard. The rig exited the shipyard and returned to work in September 1995 after having undergone modifications and enhancements, including extending the rig's water depth capability to approximately 400 feet. Two of the Company's North Sea jackup rigs were undergoing modifications and enhancements for a large part of 1995. One of the North Sea jackup rigs exited the shipyard and began its contract early in the third quarter of 1995 and the second jackup rig, which was converted from a slot rig to a cantilever rig, exited the shipyard and begin its contract in early October 1995. On March 23, 1995, the Company purchased a jackup rig located in the North Sea and simultaneously entered into a bareboat charter agreement with
the seller, which is expected to continue through early 1996. See Note 3 to Consolidated Financial Statements. The Company added four new barge drilling rigs in the third quarter of 1994 which, in addition to the previously existing six barge drilling rigs, are all located on Lake Maracaibo, Venezuela. Two of the Company's barge drilling rigs completed their contracts during the second quarter of 1995 and are currently idle. The Company is currently negotiating new long-term contracts for these two rigs and they are expected to return to work in the first quarter of 1996. The other eight barge drilling rigs in Venezuela are on long-term contracts that extend to 1998 and 1999. The Company sold its U.S. land rig operations effective June 30, 1994 and three of the Company's four land rigs located in the Middle East in the fourth quarter of 1994. The Company continues to own one land rig, located in Dubai, which is currently inactive. Revenues and operating margins for the Company's contract drilling segment for the three months ended September 30, 1995 were up 25% and 20%, respectively, and for the nine months ended September 30, 1995 were up 9% and 2%, respectively, compared to the prior year periods. The 1995 results were positively impacted by improved North Sea average day rates and the addition of four barge drilling rigs in Venezuela. In addition, the third quarter of 1994 included mobilization costs of $1.5 million to mobilize a jackup rig from Brazil to the Gulf of Mexico. These increases were offset, in part, by two barge drilling rigs in Venezuela coming off contract in the first quarter of 1995 and also due to three of the Company's jackup rigs undergoing modifications and enhancements during 1995. The nine months ended September 30, 1995 results were also negatively impacted by the sale of substantially all of the Company's land rigs in 1994 and by decreased Gulf of Mexico jackup rig average day rates. The Venezuelan currency experienced significant devaluation in the first half of 1994 and the Venezuelan government established policies to control the exchange rate of the Venezuelan currency and severely restricted the conversion of Venezuelan currency to U.S. dollars. To date, ENSCO Drilling (Caribbean), Inc. ("Caribbean") has not experienced problems associated with receiving U.S. dollar payments with respect to the U.S. dollar portion of its contracts with Lagoven, S.A. ("Lagoven"), a subsidiary of the Venezuelan national oil company. Changes in these conditions, other policy enactments, or political developments in Venezuela could have an adverse effect upon the Company. However, the Company believes such adverse effects are unlikely due to the volume of U.S. dollars paid to the parent company of Lagoven for its oil exports and the contractual protection available to Caribbean if U.S. dollar payments are not made. MARINE TRANSPORTATION The Company has a marine transportation operating fleet of 35 vessels of which 31 are owned by the Company and four are leased under long-term agreements. Of the 31 vessels owned by the Company, four were converted into larger, 146-foot mini-supply vessels during 1995. Two of these converted mini-supply vessels became available for work in late April 1995 and the remaining two vessels were completed in late-July and early-August 1995, respectively. The Company's marine transportation vessels are all currently located in the Gulf of Mexico.
The Company operated four vessels in Singapore through a joint venture beginning in August 1993. The Singapore joint venture was terminated in May 1994 and three of the vessels were mobilized to the Gulf of Mexico and the remaining vessel, a utility boat, was sold. The Company had one vessel working offshore Brazil at the beginning of 1994 which returned to the Gulf of Mexico in February 1994. Revenues and operating margins for the Company's marine transportation segment for the three months ended September 30, 1995 were up 5% and 70%, respectively, and for the nine months ended September 30, 1995 were down 5% and 3%, respectively, in comparison to the comparable periods in the prior year. The increases in revenue and operating margins for the three months ended September 30, 1995 are due primarily to the Company experiencing increased average day rates and utilization levels consistent with the increased industry activity levels. Operating margins for the three months ended September 30, 1994 were negatively impacted by mobilization costs incurred to move three vessels from Singapore to the Gulf of Mexico. The decreases for the nine months ended September 30, 1995 in revenue and operating margins are due primarily to the Company experiencing decreased average day rates and utilization levels in the first half of 1995. The nine months ended September 30, 1994 operating margin was negatively impacted by the mobilization costs discussed above. Management anticipates that utilization for the remainder of 1995 should be consistent with the levels prevalent in the third quarter of 1995. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased by 11% for the three months ended September 30, 1995 as compared to the same period in 1994 due primarily to depreciation on four barge drilling rigs delivered to Venezuela in the third quarter of 1994, depreciation on a North Sea jackup rig acquired on March 23, 1995 and depreciation related to modification costs of certain rigs and vessels. Depreciation and amortization increased by 11% for the nine months ended September 30, 1995 as compared to the same period in 1994 due to the reasons stated above and also due to a full nine months depreciation in 1995 related to two North Sea jackup rigs that were acquired in mid-February 1994. The 1995 increased depreciation levels were partially offset by reduced depreciation related to the sale of substantially all of the Company's land rig operations in 1994 and due to the extending of the estimated useful lives of certain rigs in 1995. See Note 7 to Consolidated Financial Statements. OTHER INCOME (EXPENSE), NET The Company's other expense, net increased by 7% for the three months ended September 30, 1995 as compared to 1994 due primarily to decreased interest income resulting from lower average cash balances and increased interest expense due primarily to the financing of four barge drilling rigs added in Venezuela throughout the third quarter of 1994. The above increases in other expense, net were offset, in part, by increased other income related to gains on the sale of foreign currency denominated securities. Other expense, net for the nine months ended September 30, 1995 decreased by 6% as compared to 1994 due primarily to increased interest income related to higher average cash balances and increased other income due to the comparable period in 1994 including foreign currency translation losses
while 1995 includes gains on the sale of foreign currency denominated securities. The above decreases in other expense, net for the nine months ended September 30, 1995 were offset, in part, by increased interest expense as stated above. PROVISION FOR INCOME TAXES The 1995 and 1994 provisions include primarily U.S. alternative minimum taxes, current and deferred taxes related to the Company's operations in Venezuela and deferred taxes related to the Company's operations in the United Kingdom. The income tax provisions were decreased during the three and nine months ended September 30, 1995 due to reductions in the deferred tax asset valuation allowance. See Note 5 to Consolidated Financial Statements. MINORITY INTEREST Minority interest for the three and nine months ended September 30, 1995 decreased by 13% and 17%, respectively, as compared to the same periods in 1994 due primarily to a reduction in Caribbean's minority shareholder's interest from 30% to 15%, effective January 1, 1995, offset by increased earnings in Venezuela as discussed above in "Contract Drilling." See Note 6 to Consolidated Financial Statements. INCOME FROM DISCONTINUED OPERATIONS Income from discontinued operations increased for the three and nine months ended September 30, 1995 as compared to the prior year periods due primarily to the $5.2 million gain on sale recognized in the third quarter of 1995 related to the disposition of the Company's technical services business. See Note 9 to Consolidated Financial Statements. Income from discontinued operations for the nine months ended September 30, 1994 benefited from the collection of a receivable that had been fully reserved in a prior period. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- CASH FLOW AND CAPITAL EXPENDITURES The Company's cash flow from operations and capital expenditures for the nine months ended September 30, 1995 and 1994 are as follows (in thousands): 1995 1994 -------- -------- Cash flow from operations $ 61,246 $ 79,631 Capital expenditures 103,193 135,902 Cash flow from operations decreased by $18.4 million for the nine months ended September 30, 1995 as compared to the same period in 1994. The decrease is primarily a result of a decline in operating results in the
first half of 1995 and an increase in accounts receivable. The increase in accounts receivable at September 30, 1995 is due primarily to the Company now operating, effective January 1, 1995, two rigs acquired in mid-February 1994 that previously operated under bareboat charter contracts and a recent increase in revenue levels as compared to the prior year. The Company's capital expenditures of $103.2 million for the nine months ended September 30, 1995 included $80.7 million for modifications and enhancements of rigs and vessels and $12.8 million for the purchase of a jackup rig located in the North Sea. Management anticipates that capital expenditures in 1995 will total approximately $160.0 million, including $120.0 million for modifications and enhancements of rigs and vessels and $25.8 million for the purchase of a jackup rig located in the North Sea. See Note 3 to Consolidated Financial Statements. The Company may spend additional funds to acquire rigs or vessels in 1995 depending on market conditions and opportunities. FINANCING AND CAPITAL RESOURCES The Company's long-term debt, total capital and debt to capital ratios at September 30, 1995 and December 31, 1994 are summarized below (in thousands, except percentages): SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- Long-term debt $163,204 $162,466 Total capital 677,469 650,416 Long-term debt to total capital 24% 25% The increase in long-term debt relates to additional borrowings under the amended and restated credit agreement and also due to $12.0 million being reclassified from current to long-term under the terms of the amended and restated credit agreement. See Note 8 to Consolidated Financial Statements. The above increases in long-term debt were offset, in part, by scheduled repayments. The total capital of the Company increased primarily due to the profitability of the Company for the nine months ended September 30, 1995 offset, in part, by repurchases of the Company's common stock. See Note 4 to Consolidated Financial Statements. The Company had $64.0 million undrawn under its $130.0 million revolving credit facility at September 30, 1995. See Note 8 to Consolidated Financial Statements. The Company's liquidity position at September 30, 1995 and December 31, 1994 is summarized in the table below (in thousands, except ratios): SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- Cash and short-term investments $ 90,453 $153,720 Working capital 82,431 129,172 Current ratio 2.0 2.5
The Company utilizes a conservative investment philosophy with respect to its cash and short-term investments 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 revolving credit facility and the Company's working capital should be sufficient to fund the Company's required debt service and capital additions for the next twelve months.
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits and Exhibit Index EXHIBIT NO. ----------- *10.33 Amended and Restated Credit Facility Agreement dated September 27, 1995 by and among ENSCO Offshore Company and ENSCO Offshore U.K. Limited, as borrowers, and Christiana Bank OG Kreditkasse, New York Branch, and den Norske Bank AS, New York Branch, as the Banks. *10.34 Amendment No. 2, dated September 27, 1995, to the First Preferred Fleet Mortgage dated December 17, 1993, as amended, by ENSCO Offshore Company and Bankers Trust Company, as trustee for the benefit of Christiana Bank OG Kreditkasse, New York Branch, and den Norske Bank AS, New York Branch. *27 Financial Data Schedule ------------------- * filed herewith (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated September 11, 1995, with respect to the Letter of Intent for the sale of ENSCO Technology Company to Drilex Holdings Corp.
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. ENSCO INTERNATIONAL INCORPORATED Date: October 24, 1995 [ /s/ C. Christopher Gaut ] --------------------- ---------------------------------- C. Christopher Gaut Chief Financial Officer [ /s/ H. E. Malone ] ---------------------------------- H. E. Malone, Corporate Controller and Chief Accounting Officer