SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q --------- (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 --------------------------------------------- OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ______________ Commission File Number 1-8097 ENSCO INTERNATIONAL INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 76-0232579 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2700 Fountain Place 1445 Ross Avenue, Dallas Texas 75202 - 2792 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 922-1500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] There were 70,873,236 shares of Common Stock, $.10 par value, of the registrant outstanding as of April 28, 1997.
ENSCO INTERNATIONAL INCORPORATED INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 PAGE -------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Review Report of Independent Accountants 3 Consolidated Statement of Income Three Months Ended March 31, 1997 and 1996 4 Consolidated Balance Sheet March 31, 1997 and December 31, 1996 5 Consolidated Statement of Cash Flows Three Months Ended March 31, 1997 and 1996 6 Notes to Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURES 19
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS REVIEW REPORT OF INDEPENDENT ACCOUNTANTS ---------------------------------------- To the Board of Directors and Stockholders of ENSCO International Incorporated We have reviewed the accompanying consolidated balance sheet of ENSCO International Incorporated as of March 31, 1997 and the related consolidated statements of income and of cash flows for the three month periods ended March 31, 1997 and 1996. This financial information is the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of income and of cash flows for the year then ended (not presented herein), and in our report dated January 28, 1997 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 1996, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ Price Waterhouse LLP - ------------------------- Dallas, Texas April 28, 1997
<TABLE> ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data) (Unaudited) <CAPTION> THREE MONTHS ENDED MARCH 31, ---------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING REVENUES........................... $161,600 $ 84,546 OPERATING EXPENSES Operating costs............................ 70,111 43,524 Depreciation and amortization.............. 24,185 16,374 General and administrative................. 3,082 2,215 -------- -------- 97,378 62,113 OPERATING INCOME............................. 64,222 22,433 OTHER INCOME (EXPENSE) Interest income............................ 1,414 1,236 Interest expense........................... (5,857) (4,049) Other, net................................. 91 264 -------- -------- (4,352) (2,549) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST................................... 59,870 19,884 PROVISION FOR INCOME TAXES Current income taxes....................... 9,191 367 Deferred income taxes...................... 13,474 4,400 -------- -------- 22,665 4,767 MINORITY INTEREST............................ 928 427 -------- -------- NET INCOME .................................. $ 36,277 $ 14,690 ======== ======== EARNINGS PER SHARE........................... $ .51 $ .24 ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING.......... 70,864 60,651 ======== ======== </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> MARCH 31, DECEMBER 31, 1997 1996 ------------ ----------- (UNAUDITED) <S> <C> <C> ASSETS - ------ CURRENT ASSETS Cash and cash equivalents..................... $ 87,544 $ 80,698 Accounts and notes receivable, net............ 124,113 111,033 Prepaid expenses and other.................... 17,053 19,668 ---------- ---------- Total current assets.................... 228,710 211,399 PROPERTY AND EQUIPMENT, AT COST................. 1,280,123 1,248,873 Less accumulated depreciation................. 280,394 257,284 ---------- ---------- Property and equipment, net............. 999,729 991,589 OTHER ASSETS, NET............................... 111,341 112,432 ---------- ---------- $1,339,780 $1,315,420 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Accounts payable.............................. $ 10,660 $ 11,447 Accrued liabilities........................... 56,347 57,490 Current maturities of long-term debt.......... 35,314 34,943 ---------- ---------- Total current liabilities............... 102,321 103,880 LONG-TERM DEBT.................................. 235,590 258,635 DEFERRED INCOME TAXES........................... 86,437 72,963 OTHER LIABILITIES............................... 33,024 33,991 COMMITMENTS AND CONTINGENCIES................... STOCKHOLDERS' EQUITY Common stock, $.10 par value, 125.0 million shares authorized and 77.2 million shares issued...................................... 7,725 7,718 Additional paid-in capital.................... 837,157 835,475 Retained earnings............................. 108,079 71,802 Restricted stock (unearned compensation)...... (4,639) (4,929) Cumulative translation adjustment............. (1,086) (1,086) Treasury stock at cost, 6.4 million and 6.3 million shares.............................. (64,828) (63,029) ---------- ----------
Total stockholders' equity ............. 882,408 845,951 ---------- ---------- $1,339,780 $1,315,420 ========== ========== </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> THREE MONTHS ENDED MARCH 31, ------------------- 1997 1996 -------- -------- <S> <C> <C> OPERATING ACTIVITIES Net income........................................ $ 36,277 $ 14,690 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 24,185 16,374 Deferred income tax provision................. 13,474 4,400 Amortization of other assets.................. 1,388 752 Other......................................... (37) (262) Changes in operating assets and liabilities: Increase in accounts receivable............. (13,087) (4,275) (Increase) decrease in prepaid expenses and other................................. 543 (642) Increase (decrease) in accounts payable..... (787) 7,495 Decrease in accrued liabilities............. (1,978) (1,491) -------- -------- Net cash provided by operating activities. 59,978 37,041 -------- -------- INVESTING ACTIVITIES Additions to property and equipment............... (31,718) (38,878) Sale of short-term investments.................... - 5,000 Other............................................. 366 2,128 -------- -------- Net cash used by investing activities..... (31,352) (31,750) -------- -------- FINANCING ACTIVITIES Reduction of long-term borrowings................. (22,477) (7,846) Reduction in restricted cash...................... 1,075 - Other............................................. (378) 645 -------- -------- Net cash used by financing activities..... (21,780) (7,201) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 6,846 (1,910) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 80,698 77,064 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 87,544 $ 75,154 ======== ======== </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 and results of operations for the interim periods presented. The financial data for the three month period ended March 31, 1997 included herein has been subjected to a limited review by Price Waterhouse LLP, the registrant's independent accountants. The accompanying review report of independent accountants is not a report within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the independent accountant's liability under Section 11 does not extend to it. Results of operations for the three month period ended March 31, 1997 are not necessarily indicative of results of operations which will be realized for the year ending December 31, 1997. It is recommended that these statements be read in conjunction with the Company's consolidated financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report to the Securities and Exchange Commission on Form 10-K. Note 2 - Acquisition of DUAL DRILLING COMPANY On June 12, 1996, the Company acquired DUAL DRILLING COMPANY ("Dual"), pursuant to an Agreement and Plan of Merger among the Company, a wholly owned subsidiary of the Company, and Dual. The acquisition was approved on that date by Dual stockholders who received 0.625 shares of the Company's common stock for each share of Dual common stock. The Company issued approximately 10.1 million shares of its common stock to Dual stockholders in connection with the acquisition, resulting in an acquisition price of approximately $218.4 million. The Company accounted for the acquisition of Dual as a purchase. The purchase price allocation has been based on preliminary estimates of fair value and is subject to adjustment as additional information becomes available and is evaluated. The primary areas subject to further purchase price adjustment are reserves associated with insurance related matters and taxes. The excess of the purchase price over net assets acquired approximated $100 million and is being amortized over 40 years. The acquired Dual operations consisted of a fleet of 20 offshore drilling rigs, including 10 jackup rigs and 10 platform rigs. Four of the jackup rigs are presently located in the Gulf of Mexico and six are located in various locations throughout Southeast Asia. Of the 10 platform rigs operated by Dual, seven are currently located in the Gulf of Mexico and one, which is not owned but managed, is located off the coast of China.
The remaining two platform rigs were retired in September 1996. The following unaudited pro forma information shows the consolidated results of operations for the three months ended March 31, 1996 based upon adjustments to the historical financial statements of the Company and the historical financial statements of Dual to give effect to the acquisition by the Company as if such acquisition had occurred January 1, 1996 (in thousands, except per share data): 1996 -------- Operating revenues $114,007 Operating income $ 24,975 Net income $ 14,998 Earnings per share $ 0.21 The pro forma consolidated results of operations are not necessarily indicative of the actual results that would have occurred had the acquisition occurred on January 1, 1996, or of results that may occur in the future. Note 3 - Long-Term Debt On February 27, 1997, the Company amended and restated its $150.0 million revolving credit facility with a group of international banks, increasing availability under the amended and restated revolving credit facility (the "Facility") to $200.0 million and reducing the interest rate margin and the commitment fee. Availability under the Facility will be reduced by $14.0 million on a semi-annual basis beginning April 1998. The final maturity date of the Facility remains October 2001 and the Facility continues to be collateralized by the majority of the Company's jackup rigs. The covenants under the Facility are similar to the covenants that existed under the original revolving credit facility and the interest rate continues to be tied to London InterBank offered rates. As of March 31, 1997, approximately $111.1 million was outstanding and $88.9 million was available for withdrawal under the Facility. The weighted-average interest rate on the Facility was 6.5% as of March 31, 1997. Note 4 - Related Party Transaction In January 1997, a director of the Company settled a $675,000 note payable to the Company. The note payable related to the director's purchase of 168,750 shares of restricted common stock of the Company in 1988. The note was settled through the delivery to the Company of restricted shares of the Company's common stock valued at a formula price provided for in the director's 1988 stock purchase agreement. As a result, the director retained 132,998 net shares of common stock and $238,000 cash after repayment of the note. Note 5 - Amendment of Shareholder Rights Plan On March 3, 1997, the Board of Directors of ENSCO amended the Shareholder Rights Plan of the Company to increase the purchase price from $50.00 to $250.00 for each one one-hundredth of a share of preferred stock purchasable upon the exercise of a Right, subject to adjustment.
Note 6 - Purchase of Additional Rig Interest In April 1997, the Company agreed to acquire the remaining 51% interest in a jointly owned premium jackup rig located in Southeast Asia. The Company previously acquired a 49% interest in the rig as a result of the acquisition of Dual. The transaction is expected to close in May 1997, subject to certain governmental approvals. Note 7 - Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," (the "Statement") which establishes new standards for computing and presenting earnings per share. The new Statement is intended to simplify the standard for computing earnings per share and will require the presentation of basic and diluted earnings per share on the face of the income statement, including all prior periods presented. The Statement is effective for financial statements issued for periods ending after December 15, 1997, and earlier adoption is not permitted. For the quarters ended March 31, 1997 and 1996, the calculation of earnings per share in accordance with the provisions of SFAS No. 128 would have resulted in basic earnings per share of $.52 and $.24 and diluted earnings per share of $.51 and $.24, for the respective periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements based on current expectations that involve a number of risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Generally, forward-looking statements include words or phrases such as "management anticipates", "the Company believes", "the Company anticipates" and words and phrases of similar impact. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The factors that could cause actual results to differ materially include, but are not limited to: (i)industry conditions and competition, (ii) the cyclical nature of the industry, (iii) worldwide expenditures for oil and gas drilling, (iv)operational risks and insurance, (v) risks associated with operating in foreign jurisdictions, (vi) environmental liabilities which may arise in the future which are not covered by insurance or indemnity, (vii) the impact of current and future laws and governmental regulation, as well as repeal or modification of the same, affecting the oil and gas industry and the Company's operations in particular, and (viii) the risks described from time to time in the Company's reports to the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Demand for the Company's services is significantly affected by worldwide expenditures for oil and gas drilling. Expenditures for oil and gas drilling activity fluctuate based upon many factors including world economic conditions, the legislative environment in the U.S. and other major countries, production levels and other activities of OPEC and other oil and gas producers and the impact that these and other events have on the current and expected future pricing of oil and natural gas. BUSINESS ENVIRONMENT ENSCO International Incorporated is one of the largest providers of offshore drilling services and marine transportation services to the oil and gas industry. The Company's operations are conducted in the geographic cores of North America, Europe, Asia Pacific and South America. The Company's largest geographic unit is North America where the Company operates primarily in the Gulf of Mexico. The operations of the Europe Unit are concentrated in the North Sea and the operations of the South America Unit are conducted on Lake Maracaibo, Venezuela. In the first quarter of 1997, strong demand continued to push day rates upward from levels at the latter part of 1996. With nearly all actively marketed rigs in the world under contract and demand for high quality rigs exceeding supply in major markets, the current outlook remains positive for additional increases in day rates and continued high demand for the remainder of 1997.
Offshore rig and marine vessel industry utilization for the three months ended March 31, 1997 and 1996 is summarized below: INDUSTRY WIDE AVERAGES * 1997 1996 ------------------------ ------ ------ Offshore Rigs U.S. Gulf of Mexico: All Rigs: Rigs Under Contract 165 149 Total Rigs Available 183 178 % Utilization 90% 84% Jackup Rigs: Rigs Under Contract 123 115 Total Rigs Available 135 137 % Utilization 91% 84% Platform Rigs: Rigs Under Contract 18 16 Total Rigs Available 24 25 % Utilization 75% 64% Worldwide: All Rigs: Rigs Under Contract 585 551 Total Rigs Available 636 641 % Utilization 92% 86% Jackup Rigs: Rigs Under Contract 355 334 Total Rigs Available 378 384 % Utilization 94% 87% Platform Rigs: Rigs Under Contract 112 103 Total Rigs Available 121 114 % Utilization 93% 90% Marine Vessels U.S. Gulf of Mexico: Vessels Under Contract 277 268 Total Vessels Available 289 281 % Utilization 96% 95% * Industry utilization based on data published by OFFSHORE DATA SERVICES, INC.
RESULTS OF OPERATIONS - --------------------- The following analysis highlights the Company's operating results for the three months ended March 31, 1997 and 1996 (in thousands): 1997 1996 Operating Results -------- -------- ----------------- Revenues $161,600 $ 84,546 Operating margin <F1> 91,489 41,022 Operating income 64,222 22,433 Other expense 4,352 2,549 Provision for income taxes 22,665 4,767 Minority interest 928 427 Net income 36,277 14,690 Revenues -------- Contract drilling Jackup rigs: North America $ 67,684 $ 36,053 Europe 32,251 20,922 Asia Pacific <F2> 12,863 - -------- -------- Total jackup rigs 112,798 56,975 Barge drilling rigs - South America 20,541 15,908 Platform rigs <F2> 7,411 - -------- -------- Total contract drilling 140,750 72,883 Marine transportation AHTS <F3> 4,695 3,778 Supply 13,569 6,595 Mini-supply 2,586 1,290 -------- -------- Total marine transportation 20,850 11,663 Total $161,600 $ 84,546 ======== ======== Operating Margin <F1> --------------------- Contract drilling Jackup rigs: North America $ 41,672 $ 16,154 Europe 19,288 9,429 Asia Pacific <F2> 2,424 - -------- -------- Total jackup rigs 63,384 25,583 Barge drilling rigs - South America 13,086 9,994 Platform rigs <F2> 2,343 - -------- -------- Total offshore rigs 78,813 35,577 Land rig <F4> - (31) -------- -------- Total contract drilling 78,813 35,546 -------- --------
1997 1996 Operating Margin <F1> (Cont.) -------- -------- ----------------------------- Marine transportation AHTS <F3> 2,812 2,177 Supply 8,453 2,901 Mini-supply 1,411 398 -------- -------- Total marine transportation 12,676 5,476 -------- -------- Total $ 91,489 $ 41,022 ======== ======== <F1> Defined as revenues less operating expenses, exclusive of depreciation and general and administrative expenses. <F2> The Company did not have an Asia Pacific Unit or platform rigs prior to the Dual acquisition. <F3> Anchor handling tug supply vessels. <F4> The Company sold its remaining land rig in July 1996.
The following is an analysis of certain operating information of the Company for the three months ended March 31, 1997 and 1996: 1997 1996 Contract Drilling -------- -------- ----------------- Rig utilization: Jackup rigs: North America 93% 90% Europe 100% 94% Asia Pacific <F1> 61% - -------- -------- Total jackup rigs 88% 91% Barge drilling rigs - South America 100% 80% Platform rigs <F1> 61% - -------- -------- Total 87% 88% ======== ======== Average day rates: Jackup rigs: North America $ 37,006 $ 23,385 Europe 60,649 43,345 Asia Pacific <F1> 32,624 - -------- -------- Total jackup rigs 41,084 27,959 Barge drilling rigs - South America 22,813 21,798 Platform rigs <F1> 17,909 - -------- -------- Total $ 34,653 $ 26,266 ======== ======== Marine Transportation --------------------- Fleet utilization: AHTS <F2> 79% 88% Supply 94% 89% Mini-supply 96% 66% -------- -------- Total 92% 84% ======== ======== Average day rates: AHTS <F2> $ 10,992 $ 7,828 Supply 6,962 3,535 Mini-supply 3,726 2,678 -------- -------- Total $ 6,791 $ 4,120 ======== ======== <F1> The Company did not have an Asia Pacific Unit or platform rigs prior to the Dual acquisition. <F2> Anchor handling tug supply vessels.
The Company's consolidated revenues, operating margin and operating income for the three months ended March 31, 1997 increased significantly from the same period in 1996. The increases were due to higher average day rates and utilization for the Company's drilling rigs and marine vessels that were owned in both the first quarter of 1997 and 1996, as well as the results from the drilling rigs acquired in the Dual acquisition. The improved level of operating income in the first quarter of 1997 was reduced by increased depreciation and amortization expense resulting from the Dual acquisition and capital expenditures on the Company's fleet in 1996.
Contract Drilling - ----------------- The following is an analysis of the Company's offshore drilling rigs at March 31, 1997 and 1996: 1997 1996 ---- ---- Jackup rigs: North America 22 18 Europe 6 6 Asia Pacific 7 <F1> - ---- ---- Total jackup rigs 35 24 Barge drilling rigs - South America 10 10 Platform rigs 8 <F2> - ---- ---- Total 53 34 ==== ==== <F1> Includes one jackup rig operated by the Company that is currently 49% owned. The Company anticipates that the remaining 51% interest will be acquired in a transaction expected to close in May 1997 (see Note 6 to the Consolidated Financial Statements). <F2> Seven are located in the Gulf of Mexico and one, which is not owned but operated under a management contract, is located off the coast of China. Revenues and operating margins for the Company's contract drilling segment for the three months ended March 31, 1997 were up $67.9 million, or 93%, and $43.3 million, or 122%, respectively, compared to the prior year period. The significantly improved 1997 results were primarily due to increased day rates and utilization for rigs owned by the Company in both the current year and prior year period and to the revenue and operating margins generated from the rigs added in the Dual acquisition. For the three months ended March 31, 1997, revenues and operating margin from the Company's North America jackup rigs increased by $31.6 million, or 88%, and $25.5 million, or 158%, respectively, compared to the same period in 1996. These improvements are primarily due to an increase in average day rates of approximately $13,600 and an increase in utilization over the prior year period. In addition, the North America jackup rigs acquired in the Dual acquisition contributed approximately $7.9 million in revenues and $3.6 million in operating margin in the first quarter of 1997. Revenues and operating margin from the Company's Europe jackup rigs increased by $11.3 million, or 54%, and $9.9 million, or 105%, respectively, from the prior year period. These improvements are primarily due to an approximate $17,300, or 40%, increase in day rates and an increase in utilization over the prior year period. In the prior year period, two of the Company's Europe jackup rigs were undergoing modifications and enhancements for a part of the quarter. The Company did not have an Asia Pacific Unit prior to the Dual acquisition. Subsequent to the Dual acquisition, the Company acquired an additional jackup rig located in Southeast Asia in November 1996 and transferred another jackup rig from the Gulf of Mexico to the Asia Pacific Unit in the first quarter of 1997. Of the seven jackup rigs in the Asia
Pacific Unit, four were in the shipyard for all or a portion of the first quarter of 1997. At March 31, 1997, two of the rigs remained in the shipyard and are projected to return to work during the first to middle part of May. In May 1997, the Company anticipates completing the acquisition of the remaining 51% interest in a jointly owned jackup rig located in Southeast Asia. This rig will undergo modifications and enhancements during most of the second and part of the third quarters of 1997. Revenues and operating margin from the Company's South America barge drilling rigs increased by $4.6 million, or 29%, and $3.1 million, or 31%, respectively, from the prior year period. These improvements are primarily due to an increase in utilization to 100% in the current year period from 80% in the prior year period, and an approximate $1,000 increase in average day rates. Two of the barge drilling rigs that were undergoing modification for the entire first quarter of 1996 returned to work in May and June of 1996. Marine Transportation - --------------------- The following is an analysis of the Company's marine transportation vessels as of March 31, 1997 and 1996: 1997 1996 ---- ---- AHTS * 6 6 Supply 23 23 Mini-Supply 8 8 ---- ---- Total 37 37 ==== ==== * Anchor handling tug supply vessels. Revenues and operating margins for the Company's marine transportation segment for the three months ended March 31, 1997 were up $9.2 million, or 79%, and $7.2 million, or 131%, respectively, from the prior year period. The 1997 results improved significantly from the prior year period due to increased current year activity levels in the Gulf of Mexico which was a contributing factor to higher average day rates for the Company's marine transportation vessels as compared to the prior year period. Average day rates for the Company's marine transportation vessels increased by approximately $2,700 from the prior year period and utilization increased to 92% in the current year period from 84% in the prior year period. Depreciation and Amortization - ----------------------------- Depreciation and amortization expense increased by $7.8 million, or 48%, for the three months ended March 31, 1997 as compared to the prior year period due primarily to depreciation and amortization from the additional drilling rigs and goodwill associated with the Dual acquisition, and depreciation associated with major modifications and enhancements to the Company's fleet in 1996.
Other Income (Expense) - ---------------------- Other income (expense) for the three months ended March 31, 1997 and 1996 was as follows (in thousands): 1997 1996 -------- -------- Interest income $ 1,414 $ 1,236 Interest expense (5,857) (4,049) Other, net 91 264 -------- -------- $ (4,352) $ (2,549) ======== ======== Interest income increased due primarily to higher average cash balances in the current period. Interest expense increased as a result of the debt assumed in the Dual acquisition. Provision for Income Taxes - -------------------------- The Company's provision for income taxes increased by $17.9 million for the three months ended March 31, 1997 as compared to the prior year period. The increase in income taxes results from the Company's increased profitability and the recognition of the remaining net operating losses for financial reporting purposes. LIQUIDITY AND CAPITAL RESOURCES Cash Flow and Capital Expenditures - ---------------------------------- The Company's cash flow from operations and capital expenditures for the three months ended March 31, 1997 and 1996 are as follows (in thousands): 1997 1996 -------- -------- Cash flow from operations $ 59,978 $ 37,041 ======== ======== Capital expenditures Sustaining $ 7,666 $ 2,551 Enhancements 24,052 23,056 Acquisitions - 13,271 -------- -------- $ 31,718 $ 38,878 ======== ======== Cash flow from operations increased by $22.9 million for the three months ended March 31, 1997 as compared to the prior year period. The increase in cash flow from operations is primarily a result of increased operating margins in the first three months of 1997 offset, in part, by a decrease in cash flow from changes in various working capital accounts. Management anticipates that capital expenditures for the remainder of 1997 will be approximately $185 million, including $35 million for existing operations, $130 million for modifications and enhancements of rigs and vessels, and $20 million for acquisitions. The Company may spend additional funds to acquire rigs or vessels in 1997, depending on market conditions and opportunities.
Financing and Capital Resources - ------------------------------- The Company's long-term debt, total capital and debt to capital ratios at March 31, 1997 and December 31, 1996 are summarized below (in thousands, except percentages): March 31, December 31, 1997 1996 ------------ ------------ Long-term debt $ 235,590 $ 258,635 Total capital 1,117,998 1,104,586 Long-term debt to total capital 21% 23% The decrease in long-term debt is a result of debt repayments in the first quarter of 1997. The total capital of the Company increased primarily due to equity increases resulting from the profitability of the Company for the three months ended March 31, 1997. On February 27, 1997, the Company amended and restated its $150.0 million revolving credit facility with a group of international banks, increasing availability under the amended and restated revolving credit facility (the "Facility") to $200.0 million and reducing the interest rate margin and the commitment fee. Availability under the Facility will be reduced by $14.0 million on a semi-annual basis beginning April 1998. The final maturity date of the Facility remains October 2001 and the Facility continues to be collateralized by the majority of the Company's jackup rigs. The covenants under the Facility are similar to the covenants that existed under the original revolving credit facility and the interest rate continues to be tied to London InterBank offered rates. As of March 31, 1997, approximately $111.1 million was outstanding and $88.9 million was available for withdrawal under the Facility. The weighted-average interest rate on the Facility was 6.5% as of March 31, 1997. The Company's liquidity position at March 31, 1997 and December 31, 1996 is summarized in the table below (in thousands, except ratios): March 31, December 31, 1997 1996 ------------ ------------ Cash and short-term investments $ 87,544 $ 80,698 Working capital 126,389 107,519 Current ratio 2.2 2.0 The Company utilizes a conservative investment philosophy with respect to its cash and cash equivalents and does not invest in any derivative financial instruments. Based on current energy industry conditions, management believes cash flow from operations, the Company's existing credit facility and the Company's working capital should be sufficient to fund the Company's short and long- term liquidity needs. Other Matters - ------------- In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," (the "Statement") which establishes new standards for computing and
presenting earnings per share. The new Statement is intended to simplify the standard for computing earnings per share and will require the presentation of basic and diluted earnings per share on the face of the income statement, including all prior periods presented. The Statement is effective for financial statements issued for periods ending after December 15, 1997, and earlier adoption is not permitted. For the quarters ended March 31, 1997 and 1996, the calculation of earnings per share in accordance with the provisions of SFAS No. 128 would have resulted in basic earnings per share of $.52 and $.24 and diluted earnings per share of $.51 and $.24, for the respective periods.
PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Filed with this Report EXHIBIT NO. ----------- 10.1 Amended and Restated Credit Agreement dated as of February 27, 1997 by and among ENSCO International Incorporated, ENSCO Delaware, Inc., ENSCO Offshore Company, ENSCO Offshore U.K. Limited, Dual Holding Company, as the borrowers, and Christiania Bank OG Kreditkasse, New York Branch, and Den Norske Bank ASA, New York Branch, as Co-Agents, and Christiania Bank OG Kreditkasse, New York Branch, as Admini-strative Agent and Security Trustee. 15.1 Letter of Independent Accountants regarding Awareness of Incorporation by Reference. 27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted as an exhibit only in the electronic format of this Quarterly Report on Form 10-Q submitted to the Securities and Exchange Commission.) (b) Reports on Form 8-K (i) During the first quarter of 1997, the Company filed a Current Report on Form 8-K, dated March 3, 1997, which reported under Item 5, "Other Events," that the Company's Board of Directors had amended the Shareholder Rights Plan of the Company.
SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENSCO INTERNATIONAL INCORPORATED Date: April 29, 1997 /s/ C. Christopher Gaut ------------------- ---------------------------------- C. Christopher Gaut Chief Financial Officer /s/ H. E. Malone ---------------------------------- H. E. Malone, Corporate Controller and Chief Accounting Officer