<PAGE> 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 MARCH 31, 1994
( ) 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.)
5450 Transco Tower, 2800 Post Oak Boulevard, 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 April 30,
1994 was 83,975,237.
<PAGE> 2
ROWAN COMPANIES, INC.
INDEX
Page No.
--------
PART I. Financial Information:
Consolidated Balance Sheet --
March 31, 1994 and December 31, 1993 . . . . . . . 2
Consolidated Statement of Operations --
Three Months Ended March 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . 6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . 8
PART II. Other Information:
Exhibits and Reports on Form 8-K . . . . . . . . . 11
<PAGE> 3
PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 121,917 $ 116,778
Receivables- trade and other........................... 74,930 83,429
Inventories- at cost:
Raw materials and supplies........................... 35,574 14,002
Work-in-progress..................................... 13,056
Finished goods....................................... 3,222
Prepaid expenses....................................... 2,976 1,312
Costs of turnkey drilling contracts in progress........ 785
---------- ----------
Total current assets........................... 251,675 216,306
---------- ----------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANIES........ 33,624 33,569
---------- ----------
PROPERTY, PLANT AND EQUIPMENT- at cost:
Drilling equipment..................................... 953,456 950,538
Aircraft and related equipment......................... 168,435 166,791
Manufacturing plant and equipment...................... 17,464
Other property and equipment........................... 82,740 81,636
---------- ----------
Total.......................................... 1,222,095 1,198,965
Less accumulated depreciation and amortization 703,412 691,772
---------- ----------
Property, plant and equipment- net........... 518,683 507,193
---------- ----------
OTHER ASSETS AND DEFERRED CHARGES........................ 9,564 8,195
---------- ----------
TOTAL.......................................... $ 813,546 $ 765,263
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 4
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt..................................... $ 6,163 $ 8,127
Accounts payable- trade.................................................. 15,878 15,887
Other current liabilities................................................ 34,916 20,175
-------- --------
Total current liabilities.......................................... 56,957 44,189
-------- --------
LONG-TERM DEBT- less current maturities.................................... 248,728 207,137
-------- --------
OTHER LIABILITIES.......................................................... 29,652 30,409
-------- --------
DEFERRED CREDITS:
Income taxes............................................................. 4,738 4,314
Gain on sale/leaseback transactions...................................... 17,953 18,742
Other.................................................................... 118 172
-------- --------
Total deferred credits............................................. 22,809 23,228
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized 5,000,000 shares issuable in series:
Series I Preferred Stock, authorized 6,500 shares; none issued
Series II Preferred Stock, authorized 6,000 shares; none issued
Series A Junior Preferred Stock, authorized
1,500,000 shares; none issued
Common stock, $.125 par value:
Authorized 150,000,000 shares; issued 85,366,156
shares at March 31, 1994 and 85,349,906 shares
at December 31, 1993.................................................. 10,671 10,669
Additional paid-in capital................................................. 386,993 385,937
Retained earnings.......................................................... 60,221 66,179
Less cost of 1,457,919 treasury shares..................................... 2,485 2,485
-------- --------
Total stockholders' equity......................................... 455,400 460,300
-------- --------
TOTAL.............................................................. $813,546 $765,263
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 5
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
--------------------
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
REVENUES:
Drilling services...................................... $ 64,455 $ 60,062
Aircraft services...................................... 15,471 13,478
Manufacturing sales and services....................... 20,778
-------- --------
Total.............................................. 100,704 73,540
-------- --------
COSTS AND EXPENSES:
Drilling services...................................... 48,582 50,450
Aircraft services...................................... 16,566 14,222
Manufacturing sales and services....................... 19,630
Depreciation and amortization.......................... 12,494 12,961
General and administrative............................. 3,707 3,257
-------- --------
Total.............................................. 100,979 80,890
-------- --------
INCOME (LOSS) FROM OPERATIONS............................. (275) (7,350)
-------- --------
OTHER INCOME (EXPENSE):
Interest expense....................................... (6,630) (6,364)
Gain on disposals of property, plant and equipment..... 182 78
Interest income........................................ 943 179
Other- net............................................. 99 71
-------- --------
Other income (expense)- net........................ (5,406) (6,036)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES......................... (5,681) (13,386)
Provision for income taxes............................. 277 123
-------- --------
NET INCOME (LOSS)......................................... $ (5,958) $(13,509)
======== ========
EARNINGS (LOSS) PER COMMON SHARE (Note 5)................. $ (0.07) $ (0.18)
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
--------------------
1994 1993
-------- --------
(Unaudited)
<S> <C> <C>
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss)................................................... $ (5,958) $(13,509)
Noncash charges (credits) to net income (loss):
Depreciation and amortization...................................... 12,494 12,961
Gain on disposals of property, plant and equipment................. (182) (78)
Compensation expense............................................... 1,149 874
Change in sale/leaseback payable................................... (3,639) (2,203)
Amortization of sale/leaseback gain................................ (789) (789)
Provision for pension and postretirement benefits.................. 1,604 1,326
Other- net......................................................... (54) (742)
Changes in current assets and liabilities:
Receivables- trade and other....................................... 22,357 (5,862)
Inventories........................................................ 122 (158)
Other current assets............................................... 10 730
Current liabilities................................................ 21 10,445
Net changes in other noncurrent assets and liabilities.............. (3,459) (632)
-------- --------
Net cash provided by operations....................................... 23,676 2,363
-------- --------
Investing activities:
Property and equipment additions.................................... (6,379) (6,680)
Acquisition of net manufacturing assets............................. (10,414)
Advances to affiliates.............................................. (55)
Proceeds from disposals of property, plant and equipment........... 269 86
-------- --------
Net cash provided by (used in) investing activities................... (16,524) (6,649)
-------- --------
Financing activities:
Proceeds from borrowings............................................ 13,395
Repayments of borrowings............................................ (2,029) (1,964)
Other- net.......................................................... 16 234
-------- --------
Net cash provided by (used in) financing activities................... (2,013) 11,665
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................................... 5,139 7,379
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 116,778 29,550
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $121,917 $ 36,929
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE> 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 the rules and regulations of the
Securities and Exchange Commission. Certain information and notes
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that
the disclosures included herein are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and
related notes included in the Company's 1993 Annual Report to Stockholders
incorporated by reference in the Form 10-K for the year ended December 31,
1993.
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 March 31, 1994 and December 31, 1993, and the
results of its operations and its cash flows for the three months ended
March 31, 1994 and 1993.
3. The results of operations for the three months ended March 31, 1994 are
not necessarily indicative of the results to be expected for the full
year.
4. On February 11, 1994, the Company completed the acquisition of
substantially all of the assets, and assumed certain related liabilities,
of Marathon LeTourneau Company for $52.1 million pursuant to an agreement
with General Cable Corporation dated November 12, 1993. The acquisition
was financed with $10.4 million in cash and $41.7 million in 7% promissory
notes due in 1999 and has been recorded using the purchase method of
accounting. The accompanying financial statements give effect to the
acquisition as of January 1, 1994 and include the financial position,
results of operations and cash flows associated with the acquired net
assets from that date forward. Had the acquisition been completed
effective January 1, 1993, the Company's first quarter 1993 operating
results would have been as follows: revenues - $98.9 million, net loss -
$12.6 million and net loss per common share - $0.17.
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<PAGE> 8
5. Computation of primary and fully diluted earnings (loss) per share is as
follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
For The
Three Months Ended
March 31,
------------------
1994 1993
---- ----
<S> <C> <C>
Weighted average shares of common
stock outstanding ........................................... 83,899 73,306
Stock options (treasury stock method) ......................... 1,403 (A) 1,209 (A)
------- --------
Weighted average shares for primary
earnings (loss) per share calculation ....................... 85,302 74,515
Stock options (treasury stock method) ......................... 21 (A)
Shares issuable from assumed conversion
of floating rate convertible subordinated
debentures .................................................. 478 (A) 630 (A)
------- --------
Weighted average shares for fully diluted
earnings (loss) per share calculation ....................... 85,780 75,166
======= ========
Net income (loss) for primary calculation ..................... $(5,958) $(13,509)
Subordinated debenture interest, net of
income tax effect ........................................... 66 82
------- --------
Net income (loss) for fully
diluted calculation ......................................... $(5,892) $(13,427)
======= ========
Earnings (loss) per share:
Primary ..................................................... $ (0.07) $ (0.18)
======= ========
Fully diluted ............................................... $ (0.07) $ (0.18)
======= ========
</TABLE>
(A) Included in accordance with Regulation S-K Item 601 (b) (11) although
not required to be provided by Accounting Principles Board Opinion
No. 15 because the effect is insignificant.
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<PAGE> 9
ROWAN COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Three Months Ended March 31, 1994 Compared to
Three Months Ended March 31, 1993
The Company incurred a net loss of $6 million in the first quarter
of 1994 compared to a net loss of $13.5 million in the same quarter of 1993.
The decrease in loss (56%) was, in part, affected by the inclusion of the
operating results of manufacturing in the 1994 quarter and by the increase in
combined drilling and aviation revenues between the periods of $6.4 million
(9%) more than offsetting the increase in the combined drilling and aviation
operating expenses of $.5 million (1%).
A comparison of the revenues and operating profit (loss) from
drilling, aviation, manufacturing and consolidated operations for the first
quarters of 1994 and 1993, respectively, are reflected below (dollars in
thousands):
<TABLE>
<CAPTION>
Drilling Aviation Manufacturing Consolidated
-------- -------- ------------- ------------
1994 1993 1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $64,455 $60,062 $15,471 $13,478 $20,778 $100,704 $73,540
Percent of Consolidated Revenues 64% 82% 15% 18% 21% 100% 100%
Operating Profit (Loss) (1) $ 6,474 $ (620) $(3,803) $(3,473) $ 761 $ 3,432 $(4,093)
</TABLE>
- - - --------------------
(1) Income (loss) from operations before deducting general and
administrative expenses.
As reflected above, the Company's consolidated operating results
improved $7.5 million when the $3.4 million operating profit in the first
quarter of 1994 is compared to the $4.1 million operating loss in the first
quarter of 1993. A $4 million decline in turnkey drilling revenues was more
than offset by the aggregate effect of an $8.4 million increase in day rate
drilling revenues and a decrease of $1.9 million in drilling operating expenses.
Turnkey drilling revenues and incremental operating profit for the first quarter
of 1994 were $13.8 million and $1.5 million, respectively, compared to $17.8
million and $1.9 million, respectively, for the same quarter in 1993. The
aviation operating results in both the 1994 and 1993 quarters reflect the normal
seasonal slowdown in flying activity in Alaska.
In late 1992, industry conditions in the two principal drilling markets
in which the Company participates generally began moving in opposite directions.
An improvement in natural gas prices brought about an improvement in utilization
levels and day rates in the Gulf of Mexico. In the early part of the first
quarter of 1994, drilling activity in the Gulf of Mexico slowed due to delays in
issuing drilling permits by the U. S. Government and failure of some energy
companies to finalize their 1994 budgets until after the first of the year.
Utilization and day rates declined in the North Sea due to energy companies
downsizing their drilling programs and uncertainty created by the changes in
energy policies in the United Kingdom.
Although the Company continues to offer a diversity of flight services,
such as forest fire control, crew changes for commercial fishing, flightseeing,
airborne environmental surveys, commuter airline services, medivac
-8-
<PAGE> 10
services, etc., the aviation division's operating results are still heavily
dependent upon helicopter activity associated with oil and natural gas
exploration and production, principally in Alaska and the Gulf of Mexico.
Perceptible trends in the marine drilling markets in which the Company
is currently operating and the number of Company- operated rigs in each of those
markets (adjusted for the drilling rig currently being relocated from the North
Sea to the Gulf of Mexico) are as follows:
<TABLE>
<CAPTION>
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
---- ---- ---------------------------
<S> <C> <C>
Gulf of Mexico 18 Moderately improving levels of exploration
and development activity due to generally stable
natural gas prices remaining above $2.00 per mcf
North Sea 4 Generally stable drilling activity for jack-up rigs
used in the exploration and development of
natural gas
Eastern Canada 1 Generally stable demand
Trinidad 1 Generally stable demand
</TABLE>
Perceptible trends in the aviation markets in which the Company is
currently operating and the number of Company aircraft based in each of those
markets are as follows:
<TABLE>
<CAPTION>
COMPANY-OWNED
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
---- -------- ---------------------------
<S> <C> <C>
Alaska 70 Normal seasonal improvement
Gulf of Mexico 40 Moderately improving market conditions
North Sea (Dutch) 10 (1) Generally stable flight support activity
North Sea (U.K.) 1 (1) Generally stable flight support activity
</TABLE>
- - - --------------------
(1) 49% owned
The drilling and aviation markets in which the Company competes
frequently experience significant changes in supply and demand. Drilling
utilization and day rates achievable in offshore markets are affected by
material changes in overall exploration and development expenditures, as well as
by shifts of such expenditures between markets. These expenditures, in turn,
are driven by major discoveries of oil and natural gas reserves, shifts in the
political climate, regulatory changes, seasonal weather patterns, contractual
requirements under leases or concessions and changes in oil and natural gas
prices, the last being perhaps the most disruptive of all. The markets in which
the Company's aviation division competes are similarly affected by these
factors, since servicing offshore energy operations remains a significant source
of that division's business. The Company can, as it has done in the past,
relocate its drilling rigs and aircraft from one geographic area to another in
response to such changing market dynamics, but only when these moves are
economically justified.
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<PAGE> 11
The volatile nature of the various factors affecting the level of
offshore expenditures by energy companies and shifts of such expenditures
between markets prevent the Company from being able to predict whether the
perceptible market trends reflected in the tables on page 9 will continue, or
their impact on the results of drilling and aviation operations for the
remainder of 1994.
In February 1994, the Company completed the acquisition of the net
assets of Marathon LeTourneau Company for $52.1 million with $10.4 million cash
paid at the time of the purchase and the balance being seller-financed by
promissory notes bearing interest at 7% and payable at the end of five years.
The Company's new manufacturing segment operates a mini-steel mill that recycles
scrap and produces alloy steel and steel plate; a manufacturing facility that
produces heavy equipment for the mining and timber industries including, among
other things, front-end loaders up to 50 ton capacity; and a marine division
that has built over one-third of all mobile offshore jack-up drilling rigs,
including all twenty operated by the Company.
The Company's manufacturing operations generated $20.8 million of
revenues and was profitable for the quarter. With the uncertainty associated
with its pending sale now removed, the marketing efforts of the division will no
longer be constrained. The Company continues to evaluate its manufacturing
product and service lines with the intention of sustaining and enhancing
operating results through the remainder of 1994.
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of March 31,
1994 and December 31, 1993 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents $121,917 $116,778
Current assets $251,675 $216,306
Current liabilities $ 56,957 $ 44,189
Current ratio 4.42 4.90
Current maturities of long-term debt $6,163 $8,127
Long-term debt $248,728 $207,137
Stockholders' equity $455,400 $460,300
Long-term debt/total capitalization .35 .31
</TABLE>
Reflected in the comparison above are the effects of the acquisition of
the net assets of Marathon LeTourneau Company as well as the effects in the
first quarter of 1994 of net cash provided by operations of $23.7 million,
property and equipment additions of $6.4 million, and principal and interest
payments totaling approximately $2.6 million.
With respect to cash dividends on the Company's common stock, the
Company's ability to pay cash dividends was restored as a result of the addition
of the proceeds from the public offering of 10 million shares of common stock in
June 1993. As of March 31, 1994 approximately $19 million of the Company's
retained earnings were available for the payment of dividends under the terms of
certain debt agreements. However, the Company does not intend to pay dividends
on its common stock until it achieves and sustains a suitable level of
profitability.
Capital expenditures made during the first quarter of 1994 were $6.4
million, consisting primarily of the purchase of one fixed-wing airplane and
modifications to certain offshore rigs. The Company estimates 1994 capital
expenditures will be between $25 million and $35 million. These expenditures
are in addition to the $52.1 million purchase of the net assets of Marathon
LeTourneau Company. The Company may also spend amounts to acquire additional
aircraft as market conditions justify and to upgrade existing offshore rigs.
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<PAGE> 12
In the opinion of management, cash provided by operations and existing
working capital will be adequate to sustain planned capital expenditures and
debt service requirements for the foreseeable future. The Company does not
currently have any unused lines of credit.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the first quarter of 1994, the Company filed a
Form 8-K dated February 21, 1994 containing items
pertinent to the current quarter as follows:
Item 5. Other Events
On February 11, 1994, a wholly-owned subsidiary
of the Company completed the acquisition of
substantially all of the assets, and assumed
certain related liabilities, of Marathon
LeTourneau Company, a wholly-owned subsidiary of
General Cable Corporation and two of its
subsidiaries, in accordance with the terms of an
Asset Purchase Agreement among the parties dated
November 12, 1993.
Item 7. Financial Statements and Exhibits
Financial Statements:
Financial Statements consisted of the following:
(i) audited consolidated balance sheet as of
December 31, 1992 and audited consolidated
statements of operations and retained earnings
and of cash flows for the year then ended and
the unaudited consolidated balance sheet as of
September 30, 1993 and unaudited consolidated
statements of operations and of cash flows for
the nine-month periods ended September 30, 1993
and 1992 of Marathon LeTourneau Company and (ii)
unaudited pro forma financial information of the
Company reflecting the acquisition, such
financial statements and financial information
having been filed by amendment on Form 8-K/A
dated March 31, 1994.
Exhibits:
The Asset Purchase Agreement dated November 12,
1993 among the parties to the acquisiton.
-11-
<PAGE> 13
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: May 13, 1994 /s/ E. E. THIELE
E. E. Thiele
Senior Vice President - Finance,
Administration and Treasurer
Date: May 13, 1994 /s/ W. H. WELLS
W. H. Wells
Controller
(Chief Accounting Officer)
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