SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to ________________ Commission File Number 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 70,994,806 shares of Common Stock, $.10 par value, of the registrant outstanding as of July 28, 1997.
ENSCO INTERNATIONAL INCORPORATED INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997 PAGE -------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Review Report of Independent Accountants 3 Consolidated Statement of Income Three Months Ended June 30, 1997 and 1996 4 Consolidated Statement of Income Six Months Ended June 30, 1997 and 1996 5 Consolidated Balance Sheet June 30, 1997 and December 31, 1996 6 Consolidated Statement of Cash Flows Six Months Ended June 30, 1997 and 1996 7 Notes to Consolidated Financial Statements 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21 SIGNATURES 22
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 June 30, 1997 and the related consolidated statements of income and of cash flows for the three and six month periods ended June 30, 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 July 28, 1997
<TABLE> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data) (Unaudited) <CAPTION> THREE MONTHS ENDED JUNE 30, ---------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING REVENUES........................... $195,418 $ 97,249 EXPENSES Operating expenses......................... 77,157 49,227 Depreciation and amortization.............. 25,780 17,880 General and administrative................. 3,804 2,950 -------- -------- 106,741 70,057 -------- -------- OPERATING INCOME............................. 88,677 27,192 OTHER INCOME (EXPENSE) Interest income............................ 1,287 1,098 Interest expense........................... (4,806) (4,387) Other, net................................. 69 7,458 -------- -------- (3,450) 4,169 -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST................................... 85,227 31,361 PROVISION FOR INCOME TAXES Current income taxes....................... 18,402 594 Deferred income taxes...................... 13,749 8,255 -------- -------- 32,151 8,849 MINORITY INTEREST............................ 850 931 -------- -------- NET INCOME .................................. $ 52,226 $ 21,581 ======== ======== EARNINGS PER SHARE........................... $ .74 $ .34 ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING.......... 70,895 62,788 ======== ======== </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data) (Unaudited) <CAPTION> SIX MONTHS ENDED JUNE 30, ---------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING REVENUES........................... $357,018 $181,795 EXPENSES Operating expenses......................... 147,268 92,751 Depreciation and amortization.............. 49,965 34,254 General and administrative................. 6,886 5,165 -------- -------- 204,119 132,170 -------- -------- OPERATING INCOME............................. 152,899 49,625 OTHER INCOME (EXPENSE) Interest income............................ 2,701 2,334 Interest expense........................... (10,663) (8,436) Other, net................................. 160 7,722 -------- -------- (7,802) 1,620 -------- -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST................................... 145,097 51,245 PROVISION FOR INCOME TAXES Current income taxes....................... 27,593 961 Deferred income taxes...................... 27,223 12,655 -------- -------- 54,816 13,616 MINORITY INTEREST............................ 1,778 1,358 -------- -------- NET INCOME .................................. $ 88,503 $ 36,271 ======== ======== EARNINGS PER SHARE........................... $ 1.25 $ .59 ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING.......... 70,882 61,719 ======== ======== </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands, except for share amounts) <CAPTION> JUNE 30, DECEMBER 31, 1997 1996 ---------- ----------- (Unaudited) <S> <C> <C> ASSETS CURRENT ASSETS Cash and cash equivalents..................... $ 71,715 $ 80,698 Accounts and notes receivable, net............ 142,607 111,033 Prepaid expenses and other.................... 16,301 19,668 ---------- ---------- Total current assets.................... 230,623 211,399 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST................. 1,361,834 1,248,873 Less accumulated depreciation................. 304,944 257,284 ---------- ---------- Property and equipment, net............. 1,056,890 991,589 ---------- ---------- OTHER ASSETS, NET 126,287 112,432 ---------- ---------- $1,413,800 $1,315,420 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.............................. $ 10,556 $ 11,447 Accrued liabilities........................... 73,546 57,490 Current maturities of long-term debt.......... 35,356 34,943 ---------- ---------- Total current liabilities............... 119,458 103,880 ---------- ---------- LONG-TERM DEBT.................................. 215,553 258,635 DEFERRED INCOME TAXES........................... 101,758 72,963 OTHER LIABILITIES............................... 41,808 33,991 COMMITMENTS AND CONTINGENCIES................... STOCKHOLDERS' EQUITY Common stock, $.10 par value, 250.0 million shares authorized, 77.3 million and 77.2 million shares issued....................... 7,733 7,718 Additional paid-in capital.................... 838,235 835,475 Retained earnings ............................ 160,305 71,802 Restricted stock (unearned compensation)...... (4,801) (4,929) Cumulative translation adjustment............. (1,086) (1,086) Treasury stock at cost, 6.4 million and 6.3 million shares.......................... (65,163) (63,029) ---------- ---------- Total stockholders' equity ............. 935,223 845,951 ---------- ---------- $1,413,800 $1,315,420 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements.
<TABLE> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (Unaudited) <CAPTION> SIX MONTHS ENDED JUNE 30, ------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING ACTIVITIES Net income........................................ $ 88,503 $ 36,271 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................ 49,965 34,254 Deferred income tax provision................ 27,223 12,655 Amortization of other assets................. 2,954 1,646 Other........................................ (306) (2,104) Changes in operating assets and liabilities: Increase in accounts receivable............ (31,579) (8,881) (Increase) decrease in prepaid expenses and other.................................... (679) 2,566 Increase in accounts payable............... 1,343 2,228 Increase in accrued liabilities............ 7,629 5,312 -------- -------- Net cash provided by operating activities............................. 145,053 83,947 -------- -------- INVESTING ACTIVITIES Additions to property and equipment............... (114,041) (69,289) Sale of short-term investments.................... - 5,000 Net cash acquired in Dual acquisition............. - 8,529 Other............................................. 852 1,495 -------- -------- Net cash used by investing activities......... (113,189) (54,265) -------- -------- FINANCING ACTIVITIES Proceeds from long-term borrowings................ - 45,000 Reduction of long-term borrowings................. (42,282) (57,590) Pre-acquisition purchase of Dual debt............. - (18,112) Reduction in restricted cash...................... 1,631 - Other............................................. (196) 699 -------- -------- Net cash used by financing activities......... (40,847) (30,003) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS............... (8,983) (321) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 80,698 77,064 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 71,715 $ 76,743 ======== ======== </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 presentation of the financial position, results of operations and of cash flows for the interim periods presented. The financial data for the three and six month periods ended June 30, 1997 included herein have 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 and six month periods ended June 30, 1997 are not necessarily indicative of the results of operations that will be realized for the year ending December 31, 1997. It is recommended that these financial 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 under the purchase accounting method. The excess of the purchase price over net assets acquired approximated $115 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 six months ended June 30, 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 $235,337 Operating income $ 52,700 Net income $ 34,773 Earnings per share $ .48 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 - Purchase of Additional Rig Interest In May 1997, the Company acquired 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. Note 4 - 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 the London InterBank Offered Rate. As of June 30, 1997, $100.0 million was outstanding and $100.0 million was available for future borrowing under the Facility. The weighted-average interest rate on the Facility was 6.5% as of June 30, 1997. Note 5 - 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 6 - 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 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 June 30, 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 $.74 and $.35 and diluted earnings per share of $.73 and $.34, for the respective periods. For the six months ended June 30, 1997 and 1996, the calculation of earnings per share in accordance with SFAS No. 128 would have resulted in basic earnings per share of $1.26 and $.59 and diluted earnings per share of $1.24 and $.58, for the respective periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS 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 those 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 geographic region in which the Company has the largest operation is North America where the Company operates primarily in the Gulf of Mexico. The Company's European operations are concentrated in the North Sea and the South American operations are conducted on Lake Maracaibo, Venezuela. Offshore drilling and marine transportation services are largely affected by the supply and demand for available equipment. Currently, nearly all actively marketed offshore rigs in the world are under contract and the demand for high quality rigs exceeds supply in most areas. Based on current industry conditions and the projected capital spending levels of major oil and gas companies, the Company believes the 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 and six months ended June 30, 1997 and 1996 are summarized below: Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 1997 1996 1997 1996 ------ ------ ------ ------ INDUSTRY WIDE AVERAGES * - - ------------------------ Offshore Rigs U.S. Gulf of Mexico: All Rigs: Rigs Under Contract 167 156 167 153 Total Rigs Available 180 179 181 178 % Utilization 93% 87% 92% 86% Jackup Rigs: Rigs Under Contract 127 121 125 118 Total Rigs Available 133 137 134 137 % Utilization 95% 88% 93% 86% Platform Rigs: Rigs Under Contract 22 18 20 16 Total Rigs Available 27 26 26 25 % Utilization 81% 69% 77% 63% Worldwide: All Rigs: Rigs Under Contract 600 572 592 562 Total Rigs Available 635 640 635 641 % Utilization 94% 89% 93% 88% Jackup Rigs: Rigs Under Contract 364 346 359 340 Total Rigs Available 378 384 378 384 % Utilization 96% 90% 95% 89% Platform Rigs: Rigs Under Contract 114 90 113 86 Total Rigs Available 124 122 123 118 % Utilization 92% 74% 92% 73% Marine Vessels U.S. Gulf of Mexico: Vessels Under Contract 278 258 278 263 Total Vessels Available 297 278 293 280 % Utilization 94% 93% 95% 94% * 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 six months ended June 30, 1997 and 1996 (in thousands): Three months ended Six months ended June 30, June 30, ------------------ ------------------ Operating Results 1997 1996 1997 1996 - - ----------------- -------- -------- -------- -------- Revenues $195,418 $ 97,249 $357,018 $181,795 Operating margin <F1> 118,261 48,022 209,750 89,044 Operating income 88,677 27,192 152,899 49,625 Other income (expense) (3,450) 4,169 (7,802) 1,620 Provision for income taxes 32,151 8,849 54,816 13,616 Minority interest 850 931 1,778 1,358 Net income 52,226 21,581 88,503 36,271 Revenues - - -------- Contract drilling Jackup rigs: North America $ 86,928 $ 41,279 $154,611 $ 77,332 Europe 39,394 19,824 71,644 40,746 Asia Pacific <F2> 18,281 1,933 31,144 1,933 -------- -------- -------- -------- Total jackup rigs 144,603 63,036 257,399 120,011 Barge rigs - South America 20,542 19,179 41,085 35,087 Platform rigs <F2> 7,405 1,459 14,816 1,459 -------- -------- -------- -------- Total contract drilling 172,550 83,674 313,300 156,557 -------- -------- -------- -------- Marine transportation AHTS <F4> 5,390 3,852 10,085 7,630 Supply 14,760 7,811 28,329 14,406 Mini-supply 2,718 1,912 5,304 3,202 -------- -------- -------- -------- Total marine transportation 22,868 13,575 43,718 25,238 -------- -------- -------- -------- Total $195,418 $ 97,249 $357,018 $181,795 ======== ======== ======== ======== Operating Margin <F1> - - --------------------- Contract drilling Jackup rigs: North America $ 56,743 $ 20,305 $ 98,413 $ 36,459 Europe 25,602 6,592 44,889 16,021 Asia Pacific <F2> 8,293 690 10,719 690 -------- -------- -------- -------- Total jackup rigs 90,638 27,587 154,021 53,170 Barge rigs - South America 12,021 13,119 25,110 23,113 Platform rigs <F2> 1,645 509 3,986 509 Land rig <F3> - (15) - (46) -------- -------- -------- -------- Total contract drilling 104,304 41,200 183,117 76,746 -------- -------- -------- -------- Marine transportation AHTS <F4> 2,770 1,827 5,582 4,004 Supply 9,680 3,988 18,133 6,889 Mini-supply 1,507 1,007 2,918 1,405 -------- -------- -------- -------- Total marine transportation 13,957 6,822 26,633 12,298 -------- -------- -------- -------- Total $118,261 $ 48,022 $209,750 $ 89,044 ======== ======== ======== ======== <F1> Defined as revenues less operating expenses, exclusive of depreciation and general and administrative expenses. <F2> The 1996 amounts for Asia Pacific and the platform rigs are comprised exclusively of operations acquired in the Dual acquisition on June 12, 1996. <F3> The Company sold its remaining land rig in July 1996. <F4> Anchor handling tug supply vessels. The following is an analysis of certain operating information of the Company for the three and six months ended June 30, 1997 and 1996: Three months ended Six months ended June 30, June 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Contract Drilling - - ----------------- Utilization: Jackup rigs: North America 98% 91% 95% 91% Europe 100% 78% 100% 86% Asia Pacific 78% 86% 70% 86% -------- -------- -------- -------- Total jackup rigs 95% 88% 92% 89% Barge rigs - South America 100% 85% 100% 82% Platform rigs 62% 78% 62% 78% -------- -------- -------- -------- Total 91% 87% 89% 87% ======== ======== ======== ======== Average day rates: Jackup rigs: North America $ 43,979 $ 25,825 $ 40,635 $ 24,631 Europe 71,917 45,522 66,384 44,375 Asia Pacific 37,333 24,772 35,396 24,772 -------- -------- -------- -------- Total jackup rigs 47,989 29,640 44,729 28,821 Barge rigs - South America 22,559 24,768 22,685 23,327 Platform rigs 17,563 15,074 17,739 15,074 -------- -------- -------- -------- Total $ 39,898 $ 27,879 $ 37,375 $ 27,106 ======== ======== ======== ======== Marine Transportation - - --------------------- Utilization: AHTS <F1> 82% 72% 81% 80% Supply 94% 90% 94% 90% Mini-supply 98% 95% 97% 80% -------- -------- -------- -------- Total 93% 88% 93% 86% ======== ======== ======== ======== Average day rates: AHTS <F1> $ 11,974 $ 9,767 $ 11,496 $ 8,713 Supply 7,535 4,142 7,249 3,840 Mini-supply 3,811 2,766 3,769 2,730 -------- -------- -------- -------- Total $ 7,324 $ 4,568 $ 7,060 $ 4,351 ======== ======== ======== ======== <F1> - Anchor handling tug supply vessels. The Company's consolidated revenues, operating margin and operating income for the three and six months ended June 30, 1997 increased significantly from the same periods in 1996. The increases were due to higher average day rates and utilization for the Company's drilling rigs and marine vessels over 1996 levels and the results from the drilling rigs acquired in the Dual acquisition in mid-June 1996.
Contract Drilling - - ----------------- The following is an analysis of the Company's offshore drilling rigs at June 30, 1997 and 1996: 1997 1996 ---- ---- Jackup rigs: North America 22 23 Europe 6 6 Asia Pacific 7 5 ---- ---- Total jackup rigs 35 34 Barge rigs - South America 10 10 Platform rigs* 8 10 ---- ---- Total 53 54 ---- ---- * 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 margin for the Company's contract drilling segment for the quarter ended June 30, 1997 were up $88.9 million, or 106%, and $63.1 million, or 153%, respectively, from the comparable prior year quarter. For the six months ended June 30, 1997, revenues were up $156.7 million, or 100%, and operating margin increased $106.4 million, or 139%, respectively, compared to the same period in the prior year. The significantly improved 1997 results were primarily due to increased day rates and utilization for rigs owned by the Company in both the current and prior year comparable periods and from the revenues and operating margin generated from the rigs acquired in the mid-June 1996 acquisition of Dual. For the quarter ended June 30, 1997, revenues and operating margin from the Company's North America jackup rigs increased by $45.6 million, or 111%, and $36.4 million, or 179%, respectively, over the prior year quarter. For the six months ended June 30, 1997, revenues and operating margin increased by $77.3 million, or 100%, and $62.0 million, or 170%, respectively, from the comparable prior year period. These improvements are due primarily to increased average day rates of 70% and 65% for the three and six months ended June 30, 1997, respectively, over the comparable prior year periods. In addition, the North America jackup rigs acquired in the Dual acquisition increased revenues and operating margin by approximately $13.2 million and $8.3 million, respectively, for the three and six months ended June 30, 1997. Revenues and operating margin from the Company's Europe jackup rigs increased by $19.6 million, or 99%, and $19.0 million, or 288%, respectively, for the quarter ended June 30, 1997 over the comparable prior year quarter. For the six months ended June 30, 1997, revenues and operating margin increased by $30.9 million, or 76%, and $28.9 million, or 180%, respectively, compared to the same period in the prior year. These improvements are due primarily to increased average day rates of 58% and 50% for the three and six months ended June 30, 1997, respectively, over
the same periods in the prior year. Also, utilization increased to 100% in the current year periods from 78% and 86% for the comparable three and six month periods in the prior year, respectively. In the prior year, two of the Company's Europe jackup rigs were undergoing modifications and enhancements for a portion of the first six months of 1996. The Company's Asia Pacific operations were acquired as part of the Dual acquisition and the prior year results included only a partial month of operations. Subsequent to the Dual acquisition, the Company purchased an additional jackup rig located in Southeast Asia in November 1996 and transferred another jackup rig from the Gulf of Mexico to Southeast Asia in the first quarter of 1997. In May 1997, the Company completed the acquisition of the remaining 51% interest in a jointly owned jackup rig located in Southeast Asia. This rig is currently undergoing modifications and enhancement and will remain in the shipyard for most of the third quarter of 1997. During the second quarter of 1997, two of the Company's Asia Pacific jackup rigs that had been in the shipyard since late 1996 undergoing modifications and enhancements returned to work. Revenues from the Company's South America barge rigs increased by $1.4 million, or 7%, and operating margin decreased by $1.1 million, or 8%, respectively, for the quarter ended June 30, 1997 compared to same period in the prior year. For the six months ended June 30, 1997, revenues and operating margin increased by $6.0 million, or 17%, and $2.0 million, or 9%, respectively, compared to the same period in the prior year. These improvements are due primarily to increased utilization to 100% in the current year from 85% and 82% for the three and six months ended June 30, 1996, respectively. The increase in utilization is attributable to two of the Company's barge drilling rigs that were undergoing modification for most of the first six months of the prior year that returned to work in May and June of 1996. The increased utilization is offset by a decrease in average day rates from the comparable 1996 periods due to the recovery of prior cost increases included in the second quarter of 1996. These cost recoveries were the primary factor in the decrease in operating margin for the quarter ended June 30, 1997 compared to the prior year quarter. Marine Transportation - - --------------------- The following is an analysis of the Company's marine transportation vessels as of June 30, 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 margin for the Company's marine transportation segment for the quarter ended June 30, 1997 were up $9.3 million, or 68%, and $7.1 million, or 105%, respectively, from the comparable prior year quarter. For the six months ended June 30, 1997, revenues and operating
margins increased $18.5 million, or 73%, and $14.3 million, or 117%, respectively, from the prior year period. The 1997 results improved significantly over the prior year periods due to increased utilization and increased average day rates of approximately 60% and 62% for the comparable three and six month periods of 1996 and 1997, respectively. Depreciation and Amortization - - ----------------------------- Depreciation and amortization expense increased by $7.9 million, or 44%, and $15.7 million, or 46%, for the three and six months ended June 30, 1997, respectively, as compared to the same prior year periods. These increases were 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 and the first part of 1997. Other Income (Expense) - - ---------------------- Other income (expense) for the three and six months ended June 30, 1997 and 1996 was as follows (in thousands): Three months ended Six months ended June 30, June 30, ------------------ ------------------ 1997 1996 1997 1996 -------- -------- -------- -------- Interest income $ 1,287 $ 1,098 $ 2,701 $ 2,334 Interest expense (4,806) (4,387) (10,663) (8,436) Other, net 69 7,458 160 7,722 ------- ------- ------- ------- $(3,450) $ 4,169 $(7,802) $ 1,620 ======= ======= ======= ======= The Company's interest income increased for the three and six month periods ended June 30, 1997 over the comparable prior year periods due primarily to higher average cash balances in the current year. Interest expense increased for the three and six month periods ended June 30, 1997 over the comparable prior year periods due primarily to the additional debt assumed in the Dual acquisition, offset, in part, by debt repayments. "Other, net" decreased for the three and six month periods ended June 30, 1997 as compared to the prior year periods due primarily to a $6.4 million gain on a settlement with TransAmerican Natural Gas Corporation recorded in the second quarter of 1996. Provision for Income Taxes - - -------------------------- The Company's provisions for income taxes increased significantly for the three and six months ended June 30, 1997 as compared to the prior year periods due primarily to the increased profitability of the Company and the recognition of the remaining net operating losses for financial reporting purposes in 1996.
LIQUIDITY AND CAPITAL RESOURCES Cash Flow and Capital Expenditures - - ---------------------------------- The Company's cash flow from operations and capital expenditures for the six months ended June 30, 1997 and 1996 were as follows (in thousands): 1997 1996 -------- -------- Cash flow from operations $145,053 $ 83,947 ======== ======== Capital expenditures Sustaining $ 13,316 $ 6,264 Enhancements 79,049 49,754 Acquisitions 21,676 13,271 -------- -------- $114,041 $ 69,289 ======== ======== Cash flow from operations increased by $61.1 million for the six months ended June 30, 1997 as compared to the same period in the prior year. The increase in cash flow from operations is primarily a result of increased operating margins in the first six months of 1997 offset, in part, by a decrease in cash flow from the net change in various working capital accounts. Management anticipates that capital expenditures in 1997, excluding acquisitions, will be approximately $170.0 million to $190.0 million, represented by approximately $30.0 million for existing operations and $140.0 million to $160.0 million for modifications and enhancements of rigs and vessels. The Company may spend additional funds to acquire rigs or vessels in 1997, depending on market conditions and opportunities. Financing and Capital Resources - - ------------------------------- The Company's long-term debt, total capital and debt to capital ratios at June 30, 1997 and December 31, 1996 are summarized below (in thousands, except percentages): June 30, December 31, 1997 1996 ---------- ------------ Long-term debt $ 215,553 $ 258,635 Total capital 1,150,776 1,104,586 Long-term debt to total capital 19% 23% The decrease in long-term debt is due to $42.3 million of debt repayments in the first six months of 1997. The total capital of the Company increased due primarily to the profitability of the Company for the first six months of 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 the London InterBank Offered Rate. As of June 30, 1997, $100.0 million was outstanding and $100.0 million was available for future borrowing under the Facility. The weighted-average interest rate on the Facility was 6.5% as of June 30, 1997. The Company's liquidity position at June 30, 1997 and December 31, 1996 is summarized in the table below (in thousands, except ratios): June 30, December 31, 1997 1996 ---------- ------------ Cash and cash equivalent $ 71,715 $ 80,698 Working capital 111,165 107,519 Current ratio 1.9 2.0 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 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 June 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 $.74 and $.35 and diluted earnings per share of $.73 and $.34, for the respective periods. For the six months ended June 30, 1997 and 1996, the calculation of earnings per share in accordance with SFAS No. 128 would have resulted in basic earnings per share of $1.26 and $.59 and diluted earnings per share of $1.24 and $.58, for the respective periods.
PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 13 1997, the Company held an annual meeting of stockholders to consider the following proposals: "Proposal 1" - To elect two Class I Directors; "Proposal 2" - To approve the amendment of Article 4 of the Company's Restated Certificate of Incorporation to increase the authorized common stock from 125 million shares to 250 million shares; and "Proposal 3" - To approve the appointment of Price Waterhouse LLP as the Company's independent accountants for 1997. A description of the foregoing matters is contained in the Company's proxy statement, dated March 27, 1997, relating to the 1997 annual meeting of stockholders. There were 70,866,746 shares of the Company's common stock entitled to vote at the annual meeting based on the March 26, 1997 record date. The Company solicited proxies pursuant to Regulation 14 of the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's nominees for directors as listed in the proxy statement. Each director received a minimum of 63,000,000 votes, which was in excess of 88% of the outstanding common shares entitled to vote. With respect to Proposal 1 listed above, the voting was as follows: Votes for Votes Withheld --------- -------------- Gerald W. Haddock 63,331,567 995,197 Carl F. Thorne 64,126,449 200,315 With respect to Proposals 2 and 3 listed above, the voting was as follows: Votes for Votes Against Abstentions --------- ------------- ----------- Proposal 2 60,140,700 3,995,136 190,928 Proposal 3 64,174,130 40,347 112,287
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Filed with this Report EXHIBIT NO. ----------- 3.1 Amended and Restated Certificate of Incorporation. 15.1 Letter regarding unaudited interim financial information. 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 None
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: July 28, 1997 /s/ C. Christopher Gaut ----------------- ---------------------------------- C. Christopher Gaut Chief Financial Officer /s/ H. E. Malone ---------------------------------- H. E. Malone, Corporate Controller and Chief Accounting Officer