FLC - Additional Info and Comments
<<This little blip in oil pricing provided flc with the mental support needed to get their bond deal through. Without it they were talking convertable prefered's. This bond deal (albiet a bit expensive) does less dammage to the common.>>
Max: I agree 100%.
From the latest 8-K, dated 3/16/99...
<<Cancellation of Conversion Projects
Cancellation of conversion projects expense of $118.3 million in 1998 was the result of the termination of the Peregrine VI, Peregrine VIII and two other drillship conversion projects that were in the preliminary phases. Such expense includes shipyard costs (for services performed and in settlement of contract cancellation), Company personnel and contractor costs, engineering costs, capitalized interest, and write down of the vessels that were purchased for conversion. Such projects were cancelled due to continuing uncertainty as to the final cost and expected delivery dates.>>
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<<Merger Expenses
In connection with the Merger between Reading & Bates and Falcon, the Company recorded $66.4 million of merger expenses in the fourth quarter of 1997. Merger expenses consisted primarily of employment contract termination payments associated with executives of Reading & Bates, the acceleration of unearned compensation of certain stock grants previously awarded to certain Reading & Bates employees, fees for investment bankers, attorneys, and accountants, and printing and other related costs. In 1998, the Company recorded an $8.0 million reduction of merger expenses primarily due to an Internal Revenue Service ruling received relating to taxes on executive termination payments.>>
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<<Liquidity and Capital Resources
Cash Flows
Net cash provided by operating activities was $260.9 million for 1998, as compared to $331.4 million and $167.6 million for 1997 and 1996, respectively. Fluctuations between the years is primarily due to the result of improved dayrates and fleet additions, net of changes in the components of working capital.
Net cash used in investing activities was $1,075.2 million for 1998, as compared to $610.9 million for 1997 and $365.1 million for 1996. The increases in each year were due to increasing levels of capital expenditures, primarily related to the significant capital projects involving the construction or upgrade of drilling units and rig and vessel acquisitions.
Net cash provided by financing activities was $934.4 million for 1998, as compared to $301.2 million for 1997 and $319.6 million for 1996. The increase in net cash provided by financing activities in 1998 over 1997 was primarily due to proceeds from two senior note offerings during 1998. The decrease in net cash provided by financing activities in 1997 over 1996 was primarily the result of a decline in proceeds from the issuance of common stock more than offsetting increased borrowings under two credit facilities with two syndicates of commercial banks.
Net cash provided by business held for sale was $1.8 million for 1998 as compared to net cash used in business held for sale of $94.0 million for 1997 and $39.5 million for 1996. The cash provided in 1998 was primarily due to the sale of oil and gas properties and the collection of accounts receivable. The increase in use of cash from 1996 to 1997 was primarily due to the increased level of purchases of oil and gas properties.>>
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<<Liquidity
At December 31, 1998, the Company had approximately $413.6 million in the aggregate of cash, cash equivalents and borrowing capacity under its revolving credit facilities.
At December 31, 1998, approximately $99.4 million of total consolidated cash and cash equivalents of $177.4 million were restricted from the Company's use outside of Arcade Drilling's activities.
The Company is currently constructing or significantly upgrading seven wholly owned deepwater drilling rigs. The Company estimates the gross capital expenditures on these projects will be approximately $1.8 billion, of which approximately $1.0 billion remains to be funded by the Company. Since May 1998, however, there has been a downturn in demand for marine drilling rigs resulting in a decline in rig utilization and day rates. The decline has been particularly dramatic in the domestic barge and jack-up rig markets where the Company is one of the largest contractors. As a result, although the Company's operating revenues and EBITDA increased by $99.6 million and $114.5 million, respectively, from 1997 to 1998, on a quarterly basis during 1998 the Company experienced a decline in operating revenues from $279.4 million for the first quarter of 1998 to $228.7 million for the fourth quarter of 1998 and a decline in EBITDA from $143.8 million to $66.1 million for the same periods. As a result, the Company's cash flow from operations, cash on hand, and funds available under its existing credit facilities will not be sufficient to satisfy the Company's short-term and long-term working capital needs, planned investments, capital expenditures, debt, lease and other payment obligations. In order to meet these requirements it will be necessary for the Company to raise additional capital in the form of equity, debt, or both. Its failure to do so will require it to sell assets, terminate projects, or both.
The Company is currently evaluating two project financings to meet a portion of its additional capital requirements. The first is an approximately $270.0 million financing in the form of a synthetic lease that would be collateralized by the drillship Deepwater Frontier and drilling contract revenues from such drillship. Proceeds of such financing, if obtained, would be used in part to repay an interim financing facility, under which $135.0 million is currently outstanding. The foregoing interim loan has been made to a limited liability company which will operate the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company has guaranteed repayment of 60% of this interim loan. The second financing being contemplated is an approximately $250.0 million project financing that would be collateralized by the semisubmersible RBS8M (formerly the RBS6), as well as the drilling contract revenues from such rig.
There can be no assurance that these or any other additional financings can be obtained or, if obtained, that they will be on terms favorable to the Company or for the amounts needed. The Company's indenture covenants limit its ability to incur additional indebtedness and to secure that debt. In the event that the Company is unable to obtain its requisite financing, the Company would have to sell assets or terminate or suspend one or more construction projects. Termination or suspension of a project may subject the Company to claims for penalties or damages under the construction contracts or drilling contracts for rigs that are being constructed. In addition, asset sales made under duress in today's drilling market may not yield attractive sales prices. Accordingly, the inability of the Company to complete such financings would have a material adverse effect on the Company's financial condition.
The liquidity of the Company should also be considered in light of the significant fluctuations in demand that may be experienced by drilling contractors as changes in oil and gas producers' expectations and budgets occur, primarily in response to declines in prices for oil and gas. These fluctuations can rapidly impact the Company's liquidity as supply and demand factors directly affect utilization and dayrates, which are the primary determinants of cash flow from the Company's operations. The decline in oil and gas prices since 1997 has negatively impacted the Company's performance, particularly in the shallow water U.S. Gulf market. The Company believes a continued depression in oil and gas prices will have a material adverse effect on the Company's financial position and results from operations.
The Company's construction and upgrade projects are subject to the risks of delay and cost overruns inherent in any large construction project, including shortages of equipment, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases and shortages of materials or skilled labor. Significant cost overruns or delays would adversely affect the Company's liquidity, financial condition, and results of operations. Delays could also result in penalties under, or the termination of, the long-term contracts under which the Company plans to operate these rigs.
The Company has based its estimates regarding its financing needs on the assumption that conditions in the marine contract drilling industry will remain approximately the same as currently exist through 1999 and will improve in 2000. If conditions during these periods are less favorable than the Company has assumed, the Company may be required to such additional financing. Any additional financing would be subject to the risks and contingencies described above.>>
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<<Credit Facilities
The Company has four bank facilities. The first is a $350.0 million revolving credit facility with a syndicate of banks. The first $100.0 million of borrowing under this credit facility is secured by a pledge of the stock of one of the Company's three major operating subsidiaries. At December 31, 1998, interest was accruing under this credit facility at LIBOR plus .75% for borrowings up to $100.0 million and at LIBOR plus 1.375% for borrowings in excess of $100.0 million. This credit facility matures on January 24, 2002. As of the date hereof, the Company has drawn the full $350.0 million under this facility.
The second bank facility is a $125.0 million interim construction facility with a syndicate of banks for the construction of the Deepwater Millennium. This facility matures on June 30, 1999, and bears interest at LIBOR plus 1.25%. As of the date hereof, the Company has drawn the full $125.0 million under this facility.
The third bank facility is an interim construction facility with a syndicate of banks for the construction of the Deepwater Frontier. This interim loan has been made to a limited liability company which operates the Deepwater Frontier and which is owned 60% by the Company and 40% by Conoco. The Company has guaranteed repayment of 60% of this interim loan. This facility matures on March 31, 1999, and bears interest at LIBOR plus .5%. As of the date hereof, $135 million is outstanding under this facility.
The fourth bank facility is a $35.0 million revolving credit facility maintained by Cliffs Drilling. This facility matures on May 31, 2000 and bears interest at .25% plus the greater of the prevailing Federal Funds Rate plus .5% or a referenced average prime; or at the adjusted LIBOR rate plus 2%. At December 31, 1998, Cliffs Drilling had $.4 million in letters of credit outstanding, thereby leaving $34.6 million available under this credit facility.>>
As I said before, the K should tell all (assuming it contains details of the recent junk bond offering). Since the offering, however, was just completed after the end of FY98, we may have to wait until the company files an 8-K or even the 1Q99 Q.
Should be interesting.
All of the above is only my opinion, of course.
Razor |
