-----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, VQFy427RL4DD+rnpHjW0bHvW19qXjyBEuwV4npzbDqFEW9KNodVq5q+iek5sll5Z pX9D8f5FBawYNDAq4Ilfvw== 0000950129-99-004470.txt : 19991018 0000950129-99-004470.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950129-99-004470 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991013 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: SEC FILE NUMBER: 001-05491 FILM NUMBER: 99727152 BUSINESS ADDRESS: STREET 1: 5450 TRANSCO TWR STREET 2: 2800 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056-6196 BUSINESS PHONE: 7136217800 MAIL ADDRESS: STREET 1: 5450 TRANSCO TOWER STREET 2: 2800 POST OAK BOULEVARD CITY: HOUSTON STATE: TX ZIP: 77056-6196 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO INC DATE OF NAME CHANGE: 19711110 FORMER COMPANY: FORMER CONFORMED NAME: ROWAN DRILLING CO DATE OF NAME CHANGE: 19671112 10-Q 1 ROWAN COMPANIES, INC. - 09/30/99 1 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, 1999 [ ] 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 77056-6196 - --------------------------------------------------- ---------- (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 September 30, 1999 was 83,267,971. 2 ROWAN COMPANIES, INC. INDEX
Page No. --------- PART I. Financial Information: Item 1. Financial Statements Consolidated Balance Sheet -- September 30, 1999 and December 31, 1998..........2 Consolidated Statement of Operations -- Three and Nine Months Ended September 30, 1999 and 1998.....................................4 Consolidated Statement of Cash Flows -- Nine Months Ended September 30, 1999 and 1998.....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: Exhibits and Reports on Form 8-K.................13
3 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, 1999 1998 ------------- ------------ ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents ............................. $ 60,047 $ 148,834 Receivables - trade and other ......................... 91,142 81,097 Inventories - at cost: Raw materials and supplies .......................... 87,434 84,797 Work-in-progress .................................... 22,903 26,494 Finished goods ...................................... 2,127 2,625 Prepaid expenses ...................................... 9,749 10,478 Deferred tax assets - net ............................. 18,769 11,327 ---------- ---------- Total current assets ..................... 292,171 365,652 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT - at cost: Drilling equipment .................................... 1,284,111 1,238,361 Aircraft and related equipment ........................ 220,069 211,313 Manufacturing plant and equipment ..................... 82,650 75,949 Construction in progress .............................. 224,544 127,075 Other property and equipment .......................... 112,360 108,353 ---------- ---------- Total .................................... 1,923,734 1,761,051 Less accumulated depreciation and amortization ........ 922,523 883,854 ---------- ---------- Property, plant and equipment - net .... 1,001,211 877,197 ---------- ---------- OTHER ASSETS AND DEFERRED CHARGES ....................... 5,277 6,259 ---------- ---------- TOTAL .................................... $1,298,659 $1,249,108 ========== ==========
See Notes to Consolidated Financial Statements. -2- 4
September 30, December 31, 1999 1998 ------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) CURRENT LIABILITIES: Current maturities of long-term debt ....................................... $ 18,433 $ 12,756 Accounts payable - trade ................................................... 22,564 17,744 Other current liabilities .................................................. 40,593 49,093 ---------- ---------- Total current liabilities ......................................... 81,590 79,593 ---------- ---------- LONG-TERM DEBT - less current maturities ....................................... 368,154 310,250 ---------- ---------- OTHER LIABILITIES .............................................................. 51,804 51,264 ---------- ---------- DEFERRED CREDITS: Income taxes - net ......................................................... 76,604 75,255 Gain on sale/leaseback transactions ........................................ 412 2,750 ---------- ---------- Total deferred credits ............................................ 77,016 78,005 ---------- ---------- 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 A Junior Preferred Stock, authorized 1,500,000 shares, none issued Common stock, $.125 par value: Authorized 150,000,000 shares; issued 89,027,290 shares at September 30, 1999 and 88,752,976 shares at December 31, 1998 .................................................... 11,128 11,094 Additional paid-in capital ..................................................... 425,113 420,767 Retained earnings .............................................................. 345,188 357,211 Less cost of 5,759,319 and 5,509,319 treasury shares, respectively ............. 61,334 59,076 ---------- ---------- Total stockholders' equity ........................................ 720,095 729,996 ---------- ---------- TOTAL ............................................................. $1,298,659 $1,249,108 ========== ==========
See Notes to Consolidated Financial Statements. -3- 5 ROWAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For The Three Months For The Nine Months Ended September 30, Ended September 30, ------------------------ ----------------------- 1999 1998 1999 1998 ----------- ----------- ---------- ---------- (Unaudited) REVENUES: Drilling services ................................ $ 60,883 $ 103,543 $ 189,670 $ 359,192 Manufacturing sales and services ................. 22,007 36,727 69,653 119,431 Aviation services ................................ 37,033 43,200 79,822 93,001 --------- --------- --------- --------- Total ................................... 119,923 183,470 339,145 571,624 --------- --------- --------- --------- COSTS AND EXPENSES: Drilling services ................................ 50,802 56,822 160,672 162,240 Manufacturing sales and services ................. 21,335 32,484 66,371 102,131 Aviation services ................................ 26,917 29,728 71,572 78,520 Depreciation and amortization .................... 13,964 12,571 40,856 36,847 General and administrative ....................... 4,572 4,376 14,061 13,645 --------- --------- --------- --------- Total ................................... 117,590 135,981 353,532 393,383 --------- --------- --------- --------- INCOME (LOSS) FROM OPERATIONS ......................... 2,333 47,489 (14,387) 178,241 --------- --------- --------- --------- OTHER INCOME (EXPENSE): Interest expense ................................. (5,773) (4,362) (16,057) (12,753) Less interest capitalized ........................ 3,020 4,297 7,554 11,682 Gain on disposals of property, plant and equipment 246 2,394 1,024 3,066 Interest income .................................. 866 1,729 3,565 5,179 Other - net ...................................... 199 70 476 276 --------- --------- --------- --------- Other income (expense) - net ............ (1,442) 4,128 (3,438) 7,450 --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES ..................... 891 51,617 (17,825) 185,691 Provision (credit) for income taxes .............. 290 19,122 (5,802) 66,048 --------- --------- --------- --------- NET INCOME (LOSS) ..................................... $ 601 $ 32,495 $ (12,023) $ 119,643 ========= ========= ========= ========= EARNINGS (LOSS) PER SHARE OF COMMON STOCK (Note 5): Basic ............................................ $ .01 $ .38 $ (.14) $ 1.39 ========= ========= ========= ========= Diluted .......................................... $ .01 $ .38 $ (.14) $ 1.36 ========= ========= ========= =========
See Notes to Consolidated Financial Statements -4- 6 ROWAN COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
For The Nine Months Ended September 30, ----------------------- 1999 1998 ----------- ---------- (Unaudited) CASH PROVIDED BY (USED IN): Operations: Net income (loss) ............................................................... $ (12,023) $ 119,643 Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization ................................................ 40,856 36,847 Gain on disposals of property, plant and equipment ........................... (1,024) (3,066) Compensation expense ......................................................... 4,018 3,753 Change in sale/leaseback payable ............................................. (7,597) (4,562) Amortization of sale/leaseback gain .......................................... (2,338) (2,392) Provision for pension and postretirement benefits ............................ 4,887 4,599 Deferred income taxes ........................................................ (6,093) 48,751 Other - net .................................................................. 108 107 Changes in current assets and liabilities: Receivables- trade and other ................................................. (10,045) 19,153 Inventories .................................................................. 1,452 (26,298) Other current assets ......................................................... 729 (1,356) Current liabilities .......................................................... (1,168) 2,507 Net changes in other noncurrent assets and liabilities .......................... 687 (117) --------- --------- Net cash provided (used in) by operations ........................................... 12,449 197,569 --------- --------- Investing activities: Property, plant and equipment additions ......................................... (166,266) (180,136) Proceeds from disposals of property, plant and equipment ....................... 2,592 4,747 Proceeds from disposition of investment in 49% owned company .................... 19,550 --------- --------- Net cash used in investing activities ............................................... (163,674) (155,839) --------- --------- Financing activities: Proceeds from borrowings ....................................................... 76,337 43,097 Repayments of borrowings ........................................................ (12,756) (36,156) Payments to acquire treasury stock .............................................. (2,258) (45,862) Other - net ..................................................................... 1,115 1,634 --------- --------- Net cash provided by (used in) financing activities ................................. 62,438 (37,287) --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................................... (88,787) 4,443 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 148,834 108,332 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 60,047 $ 112,775 ========= =========
See Notes to Consolidated Financial Statements. -5- 7 ROWAN COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements of the Company included herein have been prepared without audit pursuant to generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission. Certain information and notes have been condensed or omitted pursuant to such rules and regulations and the Company believes that the disclosures included herein are adequate. It is suggested that these condensed financial statements be read in conjunction with the financial statements and related notes included in the Company's 1998 Annual Report to Stockholders (the "Annual Report") incorporated by reference in the Form 10-K for the year ended December 31, 1998. 2. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments and reclassifications, which are of a normal recurring nature, necessary to present fairly its financial position as of September 30, 1999 and December 31, 1998, and the results of its operations for the three and nine month periods ended September 30, 1999 and 1998 and its cash flows for the nine months ended September 30, 1999 and 1998. 3. The results of operations for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. 4. The Company 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 marine drilling equipment ("Manufacturing"). The following table presents certain financial information of the Company as of September 30, 1999 and 1998 and for the nine month periods then ended by operating segment (amounts are in thousands).
1999 Drilling Manufacturing Aviation Consolidated ------------------------ ----------------- ----------------- ------------------ ------------------- Total Assets $ 980,266 $ 176,815 $ 141,578 $ 1,298,659 Revenues 189,670 69,653 79,822 339,145 Operating Profit (Loss)(1) 2,910 (1,461) (1,775) (326)
1998 Drilling Manufacturing Aviation Consolidated ------------------------ ----------------- ----------------- ------------------ ------------------- Total Assets $ 875,675 $ 192,969 $ 140,825 $ 1,209,469 Revenues 359,192 119,431 93,001 571,624 Operating Profit (Loss)(1) 173,493 13,376 5,017 191,886
(1) Income (loss) 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, 1999 and 1998, the Company's manufacturing division provided approximately $100 million and $88 million respectively, of products and services to the drilling division and the Company's aviation division provided approximately $797,000 and $1,281,000, respectively, of flight services to the drilling division. -6- 8 5. Computation of basic and diluted earnings (loss) per share is as follows (in thousands except per share amounts):
For The For The Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ------------------------- 1999 1998 1999 1998 ------------ ------------- ----------- ----------- Weighted average shares of common stock outstanding .................................. 83,227 85,073 83,141 86,305 Stock options and related (treasury stock method) ..... 717 203 521 1,061 Shares issuable from assumed conversion of floating rate subordinated debentures .............. 889 664 709 899 -------- -------- -------- -------- Weighted average shares for diluted earnings (loss) per share calculation ....................... 84,833 85,940 84,371 88,265 ======== ======== ======== ======== Net income (loss) for basic and diluted calculations ........................... $ 601 $ 32,495 $(12,023) $119,643 ======== ======== ======== ======== Earnings (loss) per share: Basic .............................................. $ .01 $ .38 $ (.14) $ 1.39 ======== ======== ======== ======== Diluted ............................................ $ .01 $ .38 $ (.14) $ 1.36 ======== ======== ======== ========
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, which establishes accounting and reporting standards for derivative instruments and hedging activities. In June 1999, the FASB issued SFAS No. 137, which delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company held no derivatives in 1999 and 1998 and believes SFAS No. 133, when adopted effective January 1, 2001, will not materially impact its financial position or results of operations. -7- 9 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, 1999 Compared to Nine Months Ended September 30, 1998 The Company incurred a net loss of $12.0 million in the first nine months of 1999 compared to net income of $119.6 million in the same period of 1998. Although oil and natural gas prices have recently improved, their prolonged weakness during 1998 and early-1999 significantly reduced worldwide drilling activity during the period, with adverse consequences for the Company's rig utilization, average day rates and drilling operating results. Continued weakness in other commodity prices resulted in an unfavorable contribution from the Company's manufacturing operations during the period and a significant decline from the prior year. A comparison of revenues and operating profit (loss) from drilling, manufacturing, aviation and consolidated operations for the first nine months of 1999 and 1998, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated -------------------- --------------------- -------------------- ----------------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- ------- --------- --------- Revenues $189,670 $359,192 $ 69,653 $119,431 $ 79,822 $93,001 $ 339,145 $571,624 Percent of Consolidated Revenues 56% 63% 21% 21% 23% 16% 100% 100% Operating Profit (Loss) (1) $ 2,910 $173,493 $ (1,461) $ 13,376 $ (1,775) $ 5,017 $ (326) $191,886
- ------------------------- (1) Income (loss) from operations before deducting general and administrative expenses. As shown above, the Company's consolidated operating results decreased by $192.2 million when comparing the first nine months of 1999 and 1998. Drilling revenues declined by $169.5 million or 47% as the Company's offshore fleet was only 63% utilized during the first nine months of 1999, compared to 92% in the same period of 1998, and suffered a 26% decrease in average operating day rates between periods. Related expenses decreased by $1.6 million, or 1%, between periods, despite the addition of Rowan Gorilla V costs which, as a result of a contract termination now in litigation, had no offsetting revenues. The $14.8 million decline shown above in the Company's manufacturing results between periods primarily reflects the decreased contributions from the equipment and marine groups. The equipment group continued to suffer the effects of weak commodity prices, while the marine group's operations were reduced following the completion, in late-1998, of two Super 116-C rig kits. The division's external backlog was at $9.7 million at September 30, 1999, $20.5 million or 68% below the year-ago level. Manufacturing operations exclude approximately $100 million of products and services provided to the Company's drilling division during the first nine months of 1999, most of which was attributable to construction progress on Rowan Gorilla VI and Rowan Gorilla VII, compared to $88 million in the same period of 1998. -8- 10 The $6.8 million decline shown above in the Company's aviation operating results between periods primarily reflects reduced energy-related flying activity in the Gulf of Mexico and lower revenues than in the prior period from fire control services. Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998 The Company achieved net income of $0.6 million in the third quarter of 1999 compared to $32.5 million in the same period of 1998. Although oil and natural gas prices have recently improved and are now at higher levels than a year ago, their prolonged weakness during 1998 and early-1999 has significantly reduced worldwide drilling activity during the past 12-18 months, with adverse consequences for the Company's rig utilization, average day rates and drilling operating results. Continued weakness in other commodity prices resulted in a decline in the Company's manufacturing operations between periods. A comparison of revenues and operating profit (loss) from drilling, manufacturing, aviation and consolidated operations for the third quarters of 1999 and 1998, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated -------------------- --------------------- -------------------- ----------------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- ------- ------- ------- --------- -------- Revenues $60,883 $103,543 $ 22,007 $36,727 $37,033 $43,200 $119,923 $183,470 Percent of Consolidated Revenues 51% 56% 18% 20% 31% 24% 100% 100% Operating Profit (Loss) $ 1,128 $ 38,522 $ (947) $ 2,864 $ 6,724 $10,479 $ 6,905 $ 51,865
As shown above, the Company's consolidated operating results decreased by $45.0 million when comparing the third quarters of 1999 and 1998. Drilling revenues decreased by $42.7 million or 41% as the Company's offshore fleet was only 71% utilized during the third quarter of 1999, compared to 84% in the third quarter of 1998, and suffered a 34% decrease in average operating day rates between periods. Related expenses decreased by $6.0 million, or 11%, between periods. The $3.8 million decline shown above in the Company's manufacturing results between periods primarily reflects the decreased contributions from the equipment and marine groups. The equipment group continued to suffer the effects of weak commodity prices, while the marine group's operations were reduced following the completion, in late-1998, of two Super 116-C rig kits. Manufacturing operations exclude approximately $28 million of products and services provided to the Company's drilling division during the third quarter of 1999, most of which was attributable to construction progress on Rowan Gorilla VI and Rowan Gorilla VII, compared to $37 million in the same period of 1998. The Company's aviation operations experienced the normal seasonal improvement in flying activity in Alaska during both periods, although the 1999 results were hampered by reduced energy-related flying activity in the Gulf of Mexico and lower revenues than in the prior period from fire control services. -9- 11 Perceptible trends in the offshore drilling markets in which the Company is currently operating and the number of Company-operated rigs in each of those markets are as follows:
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS - ---------------------------- ------------- ------------------------------------------------------------ Gulf of Mexico 17 Moderately improving exploration and development activity North Sea 3 Reduced levels of drilling activity for jack-up rigs Eastern Canada 2 Generally stable demand
The preceding table reflects the impending relocation of the cantilever jack-up Rowan-Halifax from the North Sea to the Gulf of Mexico. Perceptible trends in the aviation markets in which the Company is currently operating and the number of Company-operated aircraft based in each of those markets are as follows:
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS - ------------------------ ------------------- --------------------------------------------------------- Alaska 68 Normal seasonal decline Gulf of Mexico 46 Moderately improving market conditions, particularly for deep-water operations
The drilling and aviation markets in which the Company 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 existing and newly discovered oil and natural gas reserves, political and regulatory policies, seasonal weather patterns, contractual requirements under leases or concessions, trends in finding and extraction costs and, probably most influential, oil and natural gas prices. The Company'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 these factors prevents the Company 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, the Company can relocate its drilling rigs and aircraft from one geographic area to another, but only when it believes such moves are economically justified. The Company's drilling operations continue to be adversely impacted by the effects of the dramatic decline in world oil prices that occurred throughout 1998 and early-1999. Most energy companies have significantly reduced their 1999 drilling budgets from 1998 levels and many of the major oil companies continue to be preoccupied with internal merger issues. Recently, following improved OPEC production discipline, oil and natural gas prices have strengthened, bid activity for Gulf of Mexico jack-ups has improved and several independent energy companies have announced increases in their 1999 drilling budgets. As a result, the Company believes that offshore drilling activity in the Gulf of Mexico will continue to improve. Conversely, the Company believes significant additional North Sea drilling activity will not materialize during the remainder of 1999 or the first half of 2000 and, as a result, recently relocated three of its Class 116-C jack-ups from that market to the improving Gulf of Mexico market. There can be no assurance that drilling market conditions will continue improving or that the Company's operations will not be more adversely affected should current market conditions deteriorate. -10- 12 Though considerably less volatile than its drilling and aviation operations, the Company's manufacturing operations have also been adversely impacted by depressed world commodity prices; in particular, prices for copper, iron ore, coal, gold and diamonds. Although prices for some of these commodities have recently improved, backlog remains well below year-ago levels. With reduced worldwide demand for drilling services, additional rig kit sales in the near term are unlikely. The Company believes that without additional strengthening of commodity prices, its manufacturing operations may not be profitable in 1999. LIQUIDITY AND CAPITAL RESOURCES A comparison of key balance sheet amounts and ratios as of September 30, 1999 and December 31, 1998 is as follows (dollars in thousands):
September 30, December 31, 1999 1998 -------- -------- Cash and cash equivalents $ 60,047 $148,834 Current assets $292,171 $365,652 Current liabilities $ 81,590 $ 79,593 Current ratio 3.58 4.59 Long-term debt $368,154 $310,250 Stockholders' equity $720,095 $729,996 Long-term debt/total capitalization .34 .30
Reflected in the comparison above are the effects in the first nine months of 1999 of net cash provided by operations of $12.4 million, capital expenditures of $166.3 million and net borrowings of $63.6 million. Capital expenditures during the first nine months of 1999 were primarily related to construction of Rowan Gorilla VI and Rowan Gorilla VII, each being an enhanced version of the Company's Gorilla Class jack-ups, like Rowan Gorilla V, featuring simultaneous drilling and production capabilities. The rigs are being constructed at the Company's Vicksburg, Mississippi shipyard and should be completed by mid-2000 and year-end 2001, respectively. The Company is financing up to $171 million of the cost of Gorilla VI through a 12-year bank loan guaranteed by the U. S. Department of Transportation's Maritime Administration under its Title XI Program. At September 30, 1999, the Company had drawn down about $136 million under the facility, bearing interest at floating rate of approximately 6.3%. The Company has applied for Title XI government-guaranteed financing for Gorilla VII on terms and conditions similar to those of Gorillas V and VI. The Company guaranteed construction of Gorilla V and Gorilla VI and is obligated for the repayment of the debt incurred to construct these rigs. The Company expects the combined construction cost of Gorillas V, VI and VII will be approximately $600-$650 million. The Company estimates remaining 1999 capital expenditures will be approximately $35 million, including approximately $25 million for Gorillas VI and VII. The Company may also spend amounts to acquire additional aircraft as market conditions justify and to upgrade existing offshore rigs and manufacturing facilities. At September 30, 1999, the Company had available $45 million under a $155 million bank revolving credit facility maturing in October 2000. The $110 million outstanding under the credit line bore interest at 5.81% on September 30, 1999. The Company currently has no other available credit facilities. -11- 13 Based upon current operating levels and the previously discussed market trends, management believes that 1999 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 1999. At September 30, 1999, approximately $150 million of the Company's retained earnings was available for the payment of dividends under the most restrictive provisions of the Company's debt agreements. The Company believes that its exposure to potential year 2000 computer-related problems is limited and the costs associated with readying its information systems and computer-controlled equipment will not materially impact its financial position or results of operations. Over the past several years, the Company has devoted substantial efforts towards upgrading and enhancing its drilling and aviation information systems as a matter of course. Such modifications necessarily contemplated year 2000 compliance, the cost of which has been expensed as incurred, but is not separately identifiable. These upgrades and enhancements are complete and the Company believes its drilling and aviation information systems are year 2000 compliant. Modifications to the Company's manufacturing information systems have been undertaken only during the past few years. The Company estimates the cost of year 2000 compliance for its manufacturing systems will be approximately $4 million, about $3.4 million of which has been expensed to date. The Company believes that all necessary mission-critical modifications have been completed. The Company will continue to assess and test its computer-controlled equipment for year 2000 compatibility, but has heretofore discovered no significant deficiencies. The Company's operations are not highly dependent upon any single customer or vendor and the Company believes that the risk of a material interruption in its business as a result of year 2000 software problems associated with a single customer or vendor is remote. Although the Company expects to be year 2000 compliant prior to year end, in a "most-reasonably-likely-worst-case-scenario", failure by the Company or by third parties to fully implement appropriate year 2000 plans could adversely affect the Company's operations. Such adverse effects could include, among other things, business disruptions, increased costs and loss of business. The Company has not yet deemed necessary any year 2000 contingency plans, but will continue to monitor its own year 2000 status as well as that of its customers and vendors and, if warranted, develop any necessary contingency plans. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, which establishes accounting and reporting standards for derivative instruments and for hedging activities. In June 1999, the FASB issued SFAS No. 137, which delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company held no derivatives in 1999 or 1998 and believes that SFAS no. 133, when adopted effective January 1, 2001, will not materially impact its financial position results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company believes that its exposure to risk of earnings loss due to changes in market interest rates is not significant. -12- 14 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. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the third quarter of fiscal year 1999. 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: October 13, 1999 /s/ E. E. THIELE ---------------------------------- E. E. Thiele Senior Vice President- Finance, Administration and Treasurer (Chief Financial Officer) Date: October 13, 1999 /s/ W. H. WELLS ---------------------------------- W. H. Wells Controller (Chief Accounting Officer) -13- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ROWAN COMPANIES, INC. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 INCLUDED IN ITS FORM 10-Q FOR THE QUARTERLY PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 SEP-30-1999 60,047 0 91,142 0 112,464 292,171 1,923,734 922,523 1,298,659 81,590 368,154 0 0 11,128 708,967 1,298,659 66,401 339,145 52,409 353,532 0 0 8,503 (17,825) (5,802) (12,023) 0 0 0 (12,023) (0.14) (0.14)
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