-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKlk4Kl1SfL4NmvCaONdgtBd34uyj7jnlnoNSuGPT4rdFwXFtYxL+RVWujjxcjgp GWEovkvl5IO4pSfMOHcrfQ== 0000085408-01-500012.txt : 20020410 0000085408-01-500012.hdr.sgml : 20020410 ACCESSION NUMBER: 0000085408-01-500012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROWAN COMPANIES INC CENTRAL INDEX KEY: 0000085408 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 750759420 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05491 FILM NUMBER: 1786906 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD. STREET 2: SUITE 5450 CITY: HOUSTON STATE: TX ZIP: 77056-6127 BUSINESS PHONE: 7136217800 MAIL ADDRESS: STREET 1: 2800 POST OAK BOULEVARD STREET 2: SUITE 5450 CITY: HOUSTON STATE: TX ZIP: 77056-6127 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO DATE OF NAME CHANGE: 19671112 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO INC DATE OF NAME CHANGE: 19711110 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM_____TO_____ ROWAN COMPANIES, INC. --------------------- (Exact name of registrant as specified in its charter) Delaware 1-5491 75-0759420 - ------------------------------ -------------- ------------------- (State or other jurisdiction of Commission File (I.R.S. Employer incorporation or organization) Number Identification No.) 2800 Post Oak Boulevard, Suite 5450 Houston, Texas 77056-6127 - --------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (713) 621-7800 ------------------------------------------------------- Registrant's telephone number, including area code Inapplicable --------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 12 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 ----- ---- The number of shares of common stock, $.125 par value, outstanding at October 31, 2001 was 93,739,205. ROWAN COMPANIES, INC. INDEX
Page No. -------- PART I. Financial Information: Item 1. Financial Statements: Consolidated Balance Sheet -- September 30, 2001 and December 31, 2000 . . . . . . . . . . . .2 Consolidated Statement of Income -- Three and Nine Months Ended September 30, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statement of Cash Flows -- Nine Months Ended September 30, 2001 and 2000 . . . .. . . . . .5 Notes to Consolidated Financial Statements.. . . . . .. . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . .. . . .8 Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . .12 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-k . . . . . . . . .. . . . .. . .13
PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ------------------------------- ROWAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
September 30, December 31, 2001 2000 ------------ ------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents. . . . . . . . . . . $ 162,341 $ 192,828 Receivables - trade and other. . . . . . . . . 146,092 154,541 Inventories - at cost: Raw materials and supplies . . . . . . . . . 113,663 103,352 Work-in-progress . . . . . . . . . . . . . . 23,871 22,456 Finished goods . . . . . . . . . . . . . . . 1,466 3,084 Prepaid expenses . . . . . . . . . . . . . . . 6,625 3,397 Deferred tax assets - net. . . . . . . . . . . 2,424 3,699 ------------ ------------- Total current assets . . . . . . . . . . . 456,482 483,357 ------------ ------------- PROPERTY, PLANT AND EQUIPMENT - at cost: Drilling equipment . . . . . . . . . . . . . . 1,600,550 1,553,849 Aircraft and related equipment . . . . . . . . 251,834 236,760 Manufacturing plant and equipment. . . . . . . 102,012 94,077 Construction in progress . . . . . . . . . . . 285,723 157,314 Other property and equipment . . . . . . . . . 135,455 121,997 ------------ ------------- Total. . . . . . . . . . . . . . . . . . . 2,375,574 2,163,997 Less accumulated depreciation and amortization 1,025,633 981,217 ------------ ------------- Property, plant and equipment - net. . . 1,349,941 1,182,780 ------------ ------------- OTHER ASSETS AND DEFERRED CHARGES. . . . . . . . 12,225 12,289 ------------ ------------- TOTAL. . . . . . . . . . . . . . . . . . . $ 1,818,648 $ 1,678,426 ============ =============
See Notes to Consolidated Financial Statements. 2
September 30, December 31, 2001 2000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) CURRENT LIABILITIES: Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . $ 34,994 $ 28,008 Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . . 27,234 24,769 Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 42,301 51,577 ------------ ------------ Total current liabilities . . . . . . . . . . . . . . . . . . . . . 104,529 104,354 ------------ ------------ LONG-TERM DEBT - less current maturities . . . . . . . . . . . . . . . . . . 410,388 372,212 ------------ ------------ OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,464 57,713 ------------ ------------ DEFERRED INCOME TAXES - net. . . . . . . . . . . . . . . . . . . . . . . . . 128,958 91,390 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, $1.00 par value: Authorized 5,000,000 shares issuable in series: Series III Preferred Stock, authorized 10,300 shares, none outstanding Series A Preferred Stock, authorized 4,800 shares, none outstanding Series B Preferred Stock, authorized 4,800 shares, none outstanding Series C Preferred Stock, authorized 9,606 shares, none outstanding Series D Preferred Stock, authorized 9,600 shares, none outstanding Series E Preferred Stock, authorized 1,194 shares, none outstanding Series A Junior Preferred Stock, authorized 1,500,000 shares, none issued Common stock, $.125 par value: Authorized 150,000,000 shares; issued 94,987,005 shares at September 30, 2001 and 94,384,704 shares at December 31, 2000 . . . . . 11,873 11,798 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 636,636 626,309 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,426 417,758 Less cost of 1,255,300 and 150,000 treasury shares, respectively . . . . . 21,626 3,108 ------------ ------------ Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 1,131,309 1,052,757 ------------ ------------ TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,818,648 $ 1,678,426 ============ ============
See Notes to Consolidated Financial Statements. 3 ROWAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Three Months For The Nine Months Ended September 30, Ended September 30, -------------------------- ----------------------- 2001 2000 2001 2000 ------------- ----------- --------- --------- (Unaudited) REVENUES: Drilling services . . . . . . . . $ 117,694 $ 117,434 $ 405,419 $ 291,311 Manufacturing sales and services. 24,490 28,223 76,531 72,770 Aviation services . . . . . . . . 49,141 45,192 113,283 97,659 ------------- ----------- --------- --------- Total . . . . . . . . . . . . 191,325 190,849 595,233 461,740 ------------- ----------- --------- --------- COSTS AND EXPENSES: Drilling services . . . . . . . . 79,759 71,694 227,750 188,474 Manufacturing sales and services. 21,146 25,413 70,159 64,310 Aviation services . . . . . . . . 32,306 30,040 87,821 81,095 Depreciation and amortization . . 17,276 15,608 50,203 43,051 General and administrative. . . . 7,249 6,690 21,432 17,479 ------------- ---------- --------- --------- Total . . . . . . . . . . . . 157,736 149,445 457,365 394,409 ------------- ---------- --------- --------- INCOME FROM OPERATIONS. . . . . . . 33,589 41,404 137,868 67,331 ------------- ---------- --------- --------- OTHER INCOME (EXPENSE): Interest expense. . . . . . . . . (5,617) (6,283) (18,122) (18,715) Less interest capitalized . . . . 2,687 2,038 7,733 10,940 Interest income . . . . . . . . . 1,663 2,938 7,021 7,827 Other - net . . . . . . . . . . . 87 136 211 389 ------------- ---------- --------- --------- Other income (expense) - net. (1,180) (1,171) (3,157) 441 ------------- ----------- --------- --------- INCOME BEFORE INCOME TAXES. . . . . 32,409 40,233 134,711 67,772 Provision for income taxes. . . . 11,769 14,674 48,043 25,013 ------------- ----------- --------- --------- NET INCOME. . . . . . . . . . . . . $ 20,640 $ 25,559 $ 86,668 $ 42,759 ========= ========= ========= ========== EARNINGS PER SHARE OF COMMON STOCK (Note 5): Basic . . . . . . . . . . . . . . $ .22 $ .27 $ .92 $ .46 ========= ========= ========= ======== Diluted . . . . . . . . . . . . . $ .22 $ .27 $ .90 $ .45 ========= ========= ========= ========
See Notes to Consolidated Financial Statements. 4 ROWAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
For The Nine Months Ended September 30, ------------------------ 2001 2000 ------------ ---------- (Unaudited) CASH PROVIDED BY (USED IN): Operations: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 86,668 $ 42,759 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 50,203 43,051 Gain on disposals of property, plant and equipment . . . . . . . . . . (1,695) (2,314) Compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . 5,722 4,956 Provision for pension and postretirement benefits. . . . . . . . . . . (10,053) 3,054 Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 38,843 18,613 Change in sale/leaseback payable. . . . . . . . . . . . . . . . . . (4,151) Amortization of sale/leaseback gain . . . . . . . . . . . . . . . . . (2,344) Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Changes in current assets and liabilities: Receivables- trade and other . . . . . . . . . . . . . . . . . . . . . 8,449 (48,910) Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,108) 13,068 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . (3,228) 132 Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . (9,640) (1,130) Net changes in other noncurrent assets and liabilities . . . . . . . . . (1,269) 299 ------------ ---------- Net cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 153,892 67,203 ------------ ---------- Investing activities: Property, plant and equipment additions. . . . . . . . . . . . . . . . . (218,069) (183,637) Proceeds from disposals of property, plant and equipment. . . . . . . . 2,903 3,214 Purchase of pump companies, net of cash acquired . . . . . . . . . . . . (7,245) ------------ ---------- Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (215,166) (187,668) ------------ ---------- Financing activities: Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . 73,170 80,184 Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . (28,008) (129,882) Payments to acquire treasury stock . . . . . . . . . . . . . . . . . . . (18,518) Proceeds from stock option and convertible debenture plans . . . . . . . 4,143 6,026 Proceeds from common stock offering, net of issue costs. . . . . . . . . 246,683 ------------ ---------- Net cash provided by financing activities. . . . . . . . . . . . . . . . . 30,787 203,011 ------------ ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. . . . . . . . . . . . . . (30,487) 82,546 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 192,828 87,055 ------------ ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 162,341 $ 169,601 ============ ===========
See Notes to Consolidated Financial Statements. 5 ROWAN COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements of Rowan included in this Form 10-Q have been prepared without audit in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission. Certain information and notes have been condensed or omitted as permitted by those rules and regulations. We believe that the disclosures included herein are adequate, but suggest that you read these consolidated financial statements in conjunction with the financial statements and related notes included in our 2000 Annual Report to Stockholders, which are incorporated by reference in our Form 10-K for the year ended December 31, 2000. 2. We believe the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly Rowan's financial position as of September 30, 2001 and December 31, 2000, and the results of its operations for the three and nine months ended September 30, 2001 and 2000 and its cash flows for the nine months ended September 30, 2001 and 2000. 3. Rowan's results of operations and cash flows for the nine months ended September 30, 2001 are not necessarily indicative of results to be expected for the full year. 4. Rowan has three principal operating segments: contract drilling of oil and gas wells, both onshore and offshore ("Drilling"), helicopter and fixed- wing aircraft services ("Aviation") and the manufacture and sale of heavy equipment for the mining, timber and transportation industries, alloy steel and steel plate and drilling equipment ("Manufacturing"). The following table presents certain financial information of Rowan by operating segment as of September 30, 2001 and 2000 and for the nine month periods then ended (in thousands).
2001 Drilling Manufacturing Aviation Consolidated -------------------- ------------ ------------- -------- ------------- Total Assets $ 1,442,427 $ 211,181 $ 165,040 $ 1,818,648 Revenues 405,419 76,531 113,283 595,233 Operating Profit (1) 143,734 623 14,943 159,300 2000 Drilling Manufacturing Aviation Consolidated -------------------- ------------ ------------- -------- ------------- Total Assets $ 1,277,864 $ 184,327 $ 154,340 $ 1,616,531 Revenues 291,311 72,770 97,659 461,740 Operating Profit (1) 75,165 2,969 6,676 84,810
(1) Income from operations before deducting general and administrative expenses. Excluded from the preceding table are the effects of transactions between segments. During the nine months ended September 30, 2001 and 2000, Rowan's manufacturing division provided approximately $83 million and $83 million respectively, of products and services to its drilling division and Rowan's aviation division provided approximately $1,070,000 and $1,015,000, respectively, of flight services to its drilling division. 6 5. Computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):
For The Three Months For The Nine Months Ended September 30, Ended September 30, ---------------------- -------------------- 2001 2000 2001 2000 ------- ------ ------ ------ Weighted average shares of common stock outstanding. . . . . . . . . . . . . . . 94,282 94,312 94,349 91,972 Stock options and related (treasury stock method) 403 932 791 1,043 Shares issuable from assumed conversion of floating rate subordinated debentures. . . . . 736 1,086 980 1,088 ------- ------ ------- ------ Weighted average shares for diluted earnings per share calculation. . . . . . . . . . . . . 95,421 96,330 96,120 94,103 ======= ======= ====== ====== Net income for basic and diluted calculations . . . . . . . . . . . . . $ 20,640 $ 25,559 $ 86,668 $ 42,759 ======= ======= ====== ====== Earnings per share: Basic. . . . . . . . . . . . . . . . . . . . . $ .22 $ .27 $ .92 $ .46 ======= ======= ====== ====== Diluted. . . . . . . . . . . . . . . . . . . . $ .22 $ .27 $ .90 $ .45 ======= ======= ====== ======
6. In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141, "Business Combinations", which essentially mandates the purchase method of accounting for business combinations, effective July 1, 2001. Rowan believes that the provisions of Statement No. 141 will not materially impact our financial position or results of operations. In June 2001, FASB also issued Statement No. 142, "Goodwill and Other Intangible Assets", which governs accounting and reporting for acquired goodwill and other intangible assets at acquisition and after initial recognition in the financial statements. Statement No. 142 is effective for fiscal years beginning after December 15, 2001. Rowan believes that the provisions of Statement No. 142, when adopted effective January 1, 2002, will not materially impact its financial position or results of operations. In October 2001, FASB also issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supercedes existing standards pertaining to accounting and reporting for long-lived assets, especially those held for disposal. Statement No. 144 is effective for fiscal years beginning after December 15, 2001. Rowan believes that the provisions of Statement No. 144, when adopted effective January 1, 2002, will not materially impact its financial position or results of operations. 7 ROWAN COMPANIES, INC. AND SUBSIDIARIES -------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Nine Months Ended September 30, 2001 Compared to - ------------------------------------------------- Nine Months Ended September 30, 2000 ------------------------------------ Rowan achieved net income of $86.7 million in the first nine months of 2001 compared to $42.8 million in the same period of 2000. The improved results were attained largely through an increase in average Gulf of Mexico drilling day rates, together with increased contributions from our land rig operations, boat operations and aviation division A comparison of the revenues and operating profit from drilling, manufacturing, aviation and consolidated operations for the first nine months of 2001 and 2000, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated ------------------- ------------------ ----------------- -------------------- 2001 2000 2001 2000 2001 2000 2001 2000 --------- -------- -------- -------- -------- ------- --------- --------- Revenues. . . . . . . . . . $405,419 $291,311 $76,531 $72,770 $113,283 $97,659 $595,233 $461,740 Percent of Consolidated Revenues. . . . . . . . . . 68% 63% 13% 16% 19% 21% 100% 100% Operating Profit (1) $143,734 $ 75,165 $ 623 $ 2,969 $ 14,943 $6,676 $159,300 $ 84,810
- -------------------------------------------------------------------------------- (1) Income from operations before deducting general and administrative expenses. As shown above, Rowan's consolidated operating results increased by $74.5 million when comparing the first nine months of 2001 and 2000. Drilling revenues increased by $114.1 million, or 39%, as our offshore fleet was 85% utilized during the first nine months of 2001, compared to 91% in the prior-year period, and achieved a 28% increase in average day rates between periods. Rowan's fleet of 15 land rigs was 77% utilized during the first nine months of 2001, compared to 42% in the prior-year period, and achieved a 74% increase in average day rates between periods. Drilling expenses increased by $39.3 million, or 21%, between periods, primarily due to the expansion of our AHTS (anchor-handling, towing and supply) boat operations, the costs of which were more than offset by outside revenues, increased land rig activity and the addition to our offshore fleet, in late June 2000, of Rowan Gorilla VI. The $2.3 million decrease shown above in Rowan's manufacturing results between periods reflects reduced contributions from the steel and marine groups, which more than offset the improved performance of the equipment group. Manufacturing operations exclude approximately $83 million of products and services provided to our drilling division during the first nine months of 2001, most of which was attributable to construction progress on Rowan Gorilla VII and Rowan Gorilla VIII, compared to $83 million in the same period of 2000. The division's external backlog was $13.7 million at September 30, 2001. 8 Rowan's aviation operating results during the first nine months of 2001 were significantly improved over the prior-year period due primarily to a 49% increase in revenues from energy-related flying in the Gulf of Mexico and Alaska which, together with an 11% increase in tourism-related revenues, more than offset a 52% decline in fire response revenues between periods. Three Months Ended September 30, 2001 Compared to - ------------------------------------------------- Three Months Ended September 30, 2000 -------------------------------------- Rowan achieved net income of $20.6 million in the third quarter of 2001 compared to $25.6 million in the same period of 2000. This reduction in profitability was primarily attributable to declining offshore rig utilization, the effects of which more than offset increased contributions from our land rig operations, boat operations, manufacturing division and aviation division. Declining natural gas prices throughout 2001 have, over the past several months, significantly reduced domestic drilling activity, particularly in the Gulf of Mexico, with adverse consequences for Rowan's rig utilization, average day rates and drilling operating results. A comparison of the revenues and operating profit from drilling, manufacturing, aviation and consolidated operations for the third quarters of 2001 and 2000, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated ------------------- ------------------ ----------------- -------------------- 2001 2000 2001 2000 2001 2000 2001 2000 --------- -------- -------- -------- -------- -------- --------- --------- Revenues . . . . . . . . $117,694 $117,434 $24,490 $28,223 $49,141 $45,192 $191,325 $190,849 Percent of Consolidated Revenues . . . . . . . . 62% 62% 13% 15% 25% 23% 100% 100% Operating Profit . $ 26,177 $35,267 $ 1,428 $ 928 $ 13,233 $ 11,899 $ 40,838 $ 48,094
As shown above, Rowan's consolidated operating results decreased by $7.3 million when comparing the third quarters of 2001 and 2000. Drilling revenues increased by $0.3 million as our offshore fleet was 70% utilized during the third quarter of 2001, compared to 92% in the third quarter of 2000, but achieved a 10% increase in average operating day rates between periods. Rowan's fleet of 15 land rigs was 71% utilized during the third quarter of 2001, compared to 47% in the prior-year period, and achieved a 91% increase in average day rates between periods. Drilling expenses increased by $8.1 million, or 11%, between periods, primarily due to the expansion of our AHTS (anchor-handling, towing and supply) boat operations, the costs of which were more than offset by outside revenues, and increased land rig activity. The $0.5 million increase shown above in Rowan's manufacturing results reflects an increased contribution from the equipment group, which achieved a 9% increase in part sales between periods. Manufacturing operations exclude approximately $29 million of products and services provided to our drilling division during the third quarter of 2001, most of which was attributable to construction progress on Rowan Gorilla VII and Rowan Gorilla VIII, compared to $24 million in the same period of 2000. The division's external backlog was $13.7 million at September 30, 2001. Rowan's aviation operating results during the third quarter of 2001 were significantly improved over the prior-year period due primarily to a 63% increase in revenues from energy-related flying in the Gulf of Mexico and Alaska which, together with an 14% increase in tourism-related revenues, more than offset a 57% decline in fire response revenues between periods. 9 Perceptible trends in the offshore drilling markets in which we are currently operating and the numbers of Rowan-operated rigs in each of those markets are as follows: AREA RIGS PERCEPTIBLE INDUSTRY TRENDS - ----------------- ---- -------------------------------------------- Gulf of Mexico 22 Reduced exploration and development activity in the near term, improving moderately in late 2001 and early 2002 Eastern Canada 1 Improving demand for harsh environment equipment in 2002 and 2003 North Sea - Improving demand for harsh environment equipment in 2002 and 2003 Demand for jack-ups in the North Sea has increased and we are responding to bid requests for our Gorilla Class rigs for work commencing in early 2002. Upon its delivery in the fourth quarter, Gorilla VII will be relocated to the North Sea. We remain confident in the long-term viability of the North Sea jack-up drilling market. Perceptible trends in the aviation markets in which we are currently operating and the number of Rowan-operated aircraft based in each of those markets are as follows: AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS - ----------------- --------- -------------------------------------------- Alaska 65 Normal seasonal decline Gulf of Mexico 49 Moderately improving levels of flight support activity The drilling and aviation markets in which Rowan competes frequently experience significant changes in supply and demand. Offshore drilling utilization and day rates are primarily a function of the demand for drilling services, as measured by the level of exploration and development expenditures, and the supply of capable drilling equipment. These expenditures, in turn, are affected by many factors such as oil and natural gas reserves, political and regulatory policies, seasonal weather patterns, contractual requirements under leases or concessions, and, probably most influential, oil and natural gas prices. Rowan's aviation operations are also affected by such factors, as flying in support of offshore energy operations remains a major source of business and Alaska operations are hampered by weather each winter. The volatile nature of such factors prevents us from being able to accurately predict whether existing market conditions or the perceptible market trends reflected in the preceding tables will continue. In response to fluctuating market conditions, we can relocate our drilling rigs and aircraft from one geographic area to another, but only when we believe such moves are economically justified. Natural gas prices, in particular, have fluctuated wildly over the past eighteen months, and are presently at about one-third of their peak price attained just last winter. Such price volatility typically has an adverse effect on drilling activity. Recently, domestic drilling activity, particularly in the Gulf of Mexico, has weakened dramatically, market day rates have continued to deteriorate and Rowan's drilling operations have been adversely impacted. At current levels, Rowan's drilling operations are marginally profitable, but there can be no assurance that market conditions will not deteriorate further. Though considerably less volatile than its drilling and aviation operations, Rowan's manufacturing operations have been adversely impacted by a prolonged period of unfavorable world commodity prices; in particular, prices for copper, iron ore, coal, gold and diamonds. Rowan's external manufacturing backlog remains at a depressed level. As a result, we cannot accurately predict whether or not our manufacturing operations will remain profitable during the balance of 2001. 10 LIQUIDITY AND CAPITAL RESOURCES A comparison of key balance sheet amounts and ratios as of September 30, 2001 and December 31, 2000 is as follows (dollars in thousands): September 30, December 31, 2001 2000 --------- ------------- Cash and cash equivalents $ 162,341 $ 192,828 Current assets $ 456,482 $ 483,357 Current liabilities $ 104,529 $ 104,354 Current ratio 4.37 4.63 Long-term debt $ 410,388 $ 372,212 Stockholders' equity $1,131,309 $1,052,757 Long-term debt/total capitalization .27 .26 Reflected in the comparison above are the effects during the first nine months of 2001 of net cash provided by operations of $153.9 million, proceeds from borrowings of $73.2 million, capital expenditures of $218.1 million, debt payments of $28.0 million and purchases of Rowan stock totaling $18.5 million. Capital expenditures during the first nine months of 2001 were primarily related to the construction of Rowan Gorilla VII and Rowan Gorilla VIII and the reactivation of our land drilling division. Rowan Gorilla VII, a Super Gorilla Class jack-up like Rowan Gorilla V and Rowan Gorilla VI featuring a combination drilling and production capability, is at Rowan's Sabine Pass, Texas facility for final outfitting and should be completed prior to year-end 2001. We have financed up to $185 million of the cost of Gorilla VII through a 12-year bank loan guaranteed by the U. S. Department of Transportation's Maritime Administration under its Title XI Program. The notes require semiannual payments in each of April and October and Gorilla VII secures the government guarantee. At September 30, 2001, we had drawn down about $168 million under this facility, which bore interest at floating rates averaging approximately 4%. Rowan Gorilla VIII is an enhanced version of our Super Gorilla Class jack-up and is designated as a Super Gorilla XL. Gorilla VIII will be outfitted with 708 feet of leg, 134 feet more than Gorillas V, VI or VII, and have 30% larger spud cans enabling operation in the Gulf of Mexico in water depths up to 550 feet. Gorilla VIII will also be able to operate in water depths up to 400 feet in the hostile environments offshore eastern Canada and in the North Sea. Gorilla VIII is being constructed at Vicksburg, Mississippi with delivery expected during the third quarter of 2003. Rowan has secured Title XI government-guaranteed financing for up to $187 million of the cost of Gorilla VIII. The notes require semiannual payments in each of January and July and Gorilla VIII secures the government guarantee. At September 30, 2001, we had drawn down about $11 million under this facility, which bore interest at floating rates averaging approximately 4%. Design work continues on a new class of jack-up rig, specifically targeted for deep drilling in water depths up to 250 feet on the outer continental shelf in the Gulf of Mexico. The Tarzan Class rig will offer drilling capabilities similar to our Gorilla Class jack-ups, enabling more efficient drilling beyond 15,000 feet, but with reduced environmental criteria (wind, wave and current) and at about one-third of the construction cost. The first rig, to be named Scooter Yeargain, will be constructed at Vicksburg, Mississippi with delivery expected during the third quarter of 2004. In July, Rowan committed to purchase three Sikorsky S-92 helicopters for the deepwater drilling market, subject to our obtaining long-term operating contracts. The S-92 design features a 19-passenger capacity and a range of 475 nautical miles. The total cost will approach $50 million and the helicopters should be delivered in early 2003. 11 On October 31, 2001, Rowan announced its intention to acquire, subject to execution of a definitive purchase agreement, Oilfield-Electric-Marine, Inc. ("OEM") and Industrial Logic Systems, Inc. OEM manufactures variable speed AC motors and variable frequency drive systems, DC motors and drive systems, and filters and consoles for marine boats and lay barges, the oil and gas drilling industry, and the mining and dredging industries. OEM also manufactures medium voltage switchgear from 5KV through 38KV for the industrial and petrochemical markets. The purchase price is approximately $8 million in Rowan stock and closing is expected to occur during the fourth quarter. Rowan estimates remaining 2001 capital expenditures will be around $50-60 million, including approximately $35-40 million for Gorillas VII and VIII. We may also spend amounts to acquire additional aircraft as market conditions justify, build additional land rigs and upgrade existing equipment and manufacturing facilities. During March 2001, Rowan completed the refinancing of its $156.8 million of outstanding floating-rate Gorilla VI debt through the issuance of a 5.88% fixed-rate note maturing in 2012. The fixed-rate note is U. S. Government-guaranteed under the Title XI Program and Gorilla VI secures the government guarantee. Based upon current operating levels and the previously discussed market trends, we believe that fourth quarter operations, together with existing working capital and available financial resources, will generate sufficient cash flow to sustain planned capital expenditures and debt service requirements at least through the remainder of 2001. Item 3. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------------- Rowan believes that its exposure to risk of earnings loss due to changes in interest rates is not significant. This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to the expectations, beliefs and future expected financial performance of the Company that are based on current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected by the Company. Among the factors that could cause actual results to differ materially are the following: oil, natural gas and other commodity prices; the level of offshore expenditures by energy companies; the general economy, including inflation; weather conditions in the Company's principal operating areas; and environmental and other laws and regulations. Other relevant factors have been disclosed in the Company's filings with the U. S. Securities and Exchange Commission. 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------------------------- (b) Reports on Form 8-K During the third quarter of 2001, Rowan filed a Form 8-K dated September 17, 2001 containing items pertinent to the current quarter, as follows: Item 5. Other Events Press release reporting a revision of Rowan's third quarter business outlook. Item 7. Financial Statements and Exhibits Rowan press release, dated September 17, 2001 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. ROWAN COMPANIES, INC. (Registrant) Date: November 14, 2001 /s/ E. E. THIELE ------------------------------- E. E. Thiele Senior Vice President- Finance, Administration and Treasurer (Chief Financial Officer) Date: November 14, 2001 /s/ W. H. WELLS ------------------------------- W. H. Wells Controller (Chief Accounting Officer) 13 -----END PRIVACY-ENHANCED MESSAGE-----