04-HP-876_newMDA.qxd 12/15/04 3:04 PM Page 40 margins did not continue at those levels during 2003 after contracts expired. The Company’s increase in rig capacity was brought about by its FlexRig3 construction program that began during 2002. During 2003, 19 FlexRig3s were completed and put into service. Two first generation FlexRigs were sent ov erseas for work in Hungary and Chad. As a result of the construction pr ogram, the Company’s  investment in drilling equipment r ose significantly, thereby resulting in an increase in depreciation expense. During 2003, the Company experienced a reduction in activity days and rig utilization in its U.S. offshor e platform rig operations. Total revenues and revenue per day during 2003 were aided by the  recognition of revenue due to early termination of contracts and higher dayrates for three rigs. During the fourth quarter of 2003, one  platform rig was stacked and two rigs that were working at full dayrate were changed to standb status. Capital expenditures were reduced  dramatically due to the fact that ther e were no new platform rigs under 41 COMPARISON OF THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002 Operating statistics of per day revenue, expense and margin do not include reimbursements of “out-of-pocket” expenses and exclude the effects of offshore platform management contracts. 2003 2002 % Change U.S. OFFSHORE OPERATIONS (in thousands, except operating statistics) Revenues 112,633 $132,249 (14.8)% Direct operating expenses 60,589 79,301 (23.6) General and administrative expense 2,939 3,451 (14.8) Depreciation 12,799 10,809 18.4 Operating profit  $ 36,306 $ 38,688 (6.2) Operating Statistics: Activity days 2,233 3,286 (32.0)% Average rig revenue per day $  38,239 $ 30,424 25.7 Average rig expense per day $  17,822 $ 16,263 9.6 Average rig margin per day $  20,417 $ 14,161 44.2 Number of owned rigs at end of period 12 12 – Rig utilization 51% 83% (38.6)