<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 JUNE 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 July 31,
1999 was 83,203,032.
<PAGE> 2
ROWAN COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet --
June 30, 1999 and December 31, 1998 ................ 2
Consolidated Statement of Operations --
Three and Six Months Ended June 30, 1999
and 1998 ........................................... 4
Consolidated Statement of Cash Flows --
Six Months Ended June 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
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 81,163 $ 148,834
Receivables - trade and other ......................... 85,346 81,097
Inventories - at cost:
Raw materials and supplies .......................... 87,982 84,797
Work-in-progress .................................... 15,151 26,494
Finished goods ...................................... 875 2,625
Prepaid expenses ...................................... 8,277 10,478
Deferred tax assets - net ............................. 18,702 11,327
---------- ----------
Total current assets ..................... 297,496 365,652
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment .................................... 1,274,147 1,238,361
Aircraft and related equipment ........................ 218,092 211,313
Manufacturing plant and equipment ..................... 79,457 75,949
Construction in progress .............................. 198,079 127,075
Other property and equipment .......................... 111,660 108,353
---------- ----------
Total .................................... 1,881,435 1,761,051
Less accumulated depreciation and amortization ........ 908,782 883,854
---------- ----------
Property, plant and equipment - net ...... 972,653 877,197
---------- ----------
OTHER ASSETS AND DEFERRED CHARGES ....................... 5,339 6,259
---------- ----------
TOTAL .................................... $1,275,488 $1,249,108
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE> 4
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................... $ 12,756 $ 12,756
Accounts payable - trade ................................................. 20,096 17,744
Other current liabilities ................................................ 45,618 49,093
---------- ----------
Total current liabilities ....................................... 78,470 79,593
---------- ----------
LONG-TERM DEBT - less current maturities ..................................... 349,043 310,250
---------- ----------
OTHER LIABILITIES ............................................................ 52,827 51,264
---------- ----------
DEFERRED CREDITS:
Income taxes - net ....................................................... 76,442 75,255
Gain on sale/leaseback transactions ...................................... 1,164 2,750
---------- ----------
Total deferred credits .......................................... 77,606 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 88,937,976
shares at June 30, 1999 and 88,752,976 shares
at December 31, 1998 .................................................. 11,117 11,094
Additional paid-in capital ................................................... 423,172 420,767
Retained earnings ............................................................ 344,587 357,211
Less cost of 5,759,319 and 5,509,319 treasury shares, respectively ........... 61,334 59,076
---------- ----------
Total stockholders' equity ...................................... 717,542 729,996
---------- ----------
TOTAL ........................................................... $1,275,488 $1,249,108
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE> 5
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended June 30, Ended June 30,
----------------------- ----------------------
1999 1998 1999 1998
--------- -------- - --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Drilling services .................................... $ 67,834 $ 131,424 $ 128,787 $ 255,649
Manufacturing sales and services ..................... 27,626 45,227 47,646 82,704
Aviation services .................................... 23,709 27,589 42,789 49,801
--------- --------- --------- ---------
Total ....................................... 119,169 204,240 219,222 388,154
--------- --------- --------- ---------
COSTS AND EXPENSES:
Drilling services .................................... 55,930 56,907 109,870 105,418
Manufacturing sales and services ..................... 24,866 38,723 45,036 69,647
Aviation services .................................... 22,467 25,212 44,655 48,792
Depreciation and amortization ........................ 13,777 12,397 26,892 24,276
General and administrative ........................... 4,645 4,766 9,489 9,269
--------- --------- --------- ---------
Total ....................................... 121,685 138,005 235,942 257,402
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS ............................. (2,516) 66,235 (16,720) 130,752
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense ..................................... (5,292) (4,114) (10,284) (8,391)
Less interest capitalized ............................ 2,461 3,960 4,534 7,385
Gain on disposals of property, plant and equipment ... 80 195 778 672
Interest income ...................................... 1,149 1,748 2,699 3,450
Other - net .......................................... 103 75 277 206
--------- --------- --------- ---------
Other income (expense) - net ................ (1,499) 1,864 (1,996) 3,322
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ......................... (4,015) 68,099 (18,716) 134,074
Provision (credit) for income taxes .................. (1,393) 23,710 (6,092) 46,926
--------- --------- --------- ---------
NET INCOME (LOSS) ......................................... $ (2,622) $ 44,389 $ (12,624) $ 87,148
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE
OF COMMON STOCK (Note 5):
Basic ................................................ $ (.03) $ .51 $ (.15) $ 1.00
========= ========= ========= =========
Diluted .............................................. $ (.03) $ .50 $ (.15) $ .98
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE> 6
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
----------------------
1999 1998
--------- ---------
(Unaudited)
<S> <C> <C>
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss) ................................................................ $ (12,624) $ 87,148
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization ................................................. 26,892 24,276
Gain on disposals of property, plant and equipment ............................ (778) (672)
Compensation expense .......................................................... 2,563 2,509
Change in sale/leaseback payable .............................................. (5,693) (6,326)
Amortization of sale/leaseback gain ........................................... (1,586) (1,586)
Provision for pension and postretirement benefits ............................. 4,826 3,046
Deferred income taxes ......................................................... (6,188) 34,852
Other - net ................................................................... 72 71
Changes in current assets and liabilities:
Receivables- trade and other .................................................. (4,249) (5,178)
Inventories ................................................................... 9,908 (16,892)
Other current assets .......................................................... 2,201 (718)
Current liabilities ........................................................... 587 (19)
Net changes in other noncurrent assets and liabilities ........................... 721 1,788
--------- ---------
Net cash provided by operations ...................................................... 16,652 122,299
--------- ---------
Investing activities:
Property, plant and equipment additions .......................................... (123,738) (114,997)
Proceeds from disposals of property, plant and equipment ........................ 2,282 1,135
Proceeds from disposition of investment in 49% owned company ..................... -- 19,550
--------- ---------
Net cash used in investing activities ................................................ (121,456) (94,312)
--------- ---------
Financing activities:
Proceeds from borrowings ........................................................ 45,171 40,602
Repayments of borrowings ......................................................... (6,378) (36,156)
Payments to acquire treasury stock ............................................... (2,258) (2,080)
Other - net ...................................................................... 598 1,492
--------- ---------
Net cash provided by financing activities ............................................ 37,133 3,858
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................................ (67,671) 31,845
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................................... 148,834 108,332
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................ $ 81,163 $ 140,177
========= =========
</TABLE>
-5-
<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 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 June 30, 1999 and December 31, 1998, and
the results of its operations for the three and six month periods
ended June 30, 1999 and 1998 and its cash flows for the six months
ended June 30, 1999 and 1998.
3. The results of operations for the three and six month periods ended
June 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 June 30, 1999 and
1998 and for the six month periods then ended by operating segment
(amount are in thousands).
<TABLE>
<CAPTION>
1999 Drilling Manufacturing Aviation Consolidated
------------ --------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Total Assets $ 966,142 $ 170,744 $ 138,602 $ 1,275,488
Revenues 128,787 47,646 42,789 219,222
Operating Profit
(Loss)(1) 1,782 (514) (8,499) (7,231)
1998 Drilling Manufacturing Aviation Consolidated
------------ --------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Total Assets $ 886,869 $ 184,740 $ 139,783 $ 1,211,392
Revenues 255,649 82,704 49,801 388,154
Operating Profit
(Loss)(1) 134,971 10,512 (5,462) 140,021
</TABLE>
(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 six months ended June 30, 1999 and 1998,
the Company's manufacturing division provided approximately $72.4
million and $51.0 million respectively, of products and services to the
drilling division and the Company's aviation division provided
approximately $307,000 and $1,013,000, respectively, of flight services
to the drilling division.
-6-
<PAGE> 8
5. Computation of basic and diluted earnings (loss) per share is as follows
(in thousands except per share amounts):
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding ................................ 83,106 87,014 83,097 86,931
Stock options and related (treasury stock method) ... 512 1,270 490 1,307
Shares issuable from assumed conversion of
floating rate subordinated debentures ............ 765 956 617 961
-------- -------- -------- --------
Weighted average shares for diluted earnings
(loss) per share calculation ..................... 84,383 89,240 84,204 89,199
======== ======== ======== ========
Net income (loss) for basic
and diluted calculations ......................... $ (2,622) $ 44,389 $(12,624) $ 87,148
======== ======== ======== ========
Earnings (loss) per share:
Basic ............................................ $ (.03) $ .51 $ (.15) $ 1.00
======== ======== ======== ========
Diluted .......................................... $ (.03) $ .50 $ (.15) $ .98
======== ======== ======== ========
</TABLE>
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 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 or
results of operations.
-7-
<PAGE> 9
ROWAN COMPANIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 Compared to
Six Months Ended June 30, 1998
The Company incurred a net loss of $12.6 million in the first half of 1999
compared to a net income of $87.1 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 six months of
1999 and 1998, respectively, is reflected below (dollars in thousands):
<TABLE>
<CAPTION>
Drilling Manufacturing Aviation Consolidated
---------------------- ---------------------- --------------------- ---------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 128,787 $ 255,649 $ 47,646 $ 82,704 $ 42,789 $ 49,801 $219,222 $388,154
Percent of Consolidated
Revenues 59% 66% 22% 21% 19% 13% 100% 100%
Operating Profit
(Loss)(1) $ 1,782 $ 134,971 $ (514) $ 10,512 $ (8,499) $ (5,462) $ (7,231) $140,021
</TABLE>
- -----------------------------------------------------------------------------
(1) Income (loss) from operations before deducting general and administrative
expenses.
As shown above, the Company's consolidated operating results decreased by
$147.3 million when comparing the first halves of 1999 and 1998. Drilling
revenues declined by $126.9 million or 50% as the Company's offshore fleet was
only 59% utilized during the first half of 1999, compared to 97% in the first
half of 1998, and suffered a 21% decrease in average operating day rates
between periods. Related expenses increased by $4.5 million, or 4%, between
periods, primarily due to the addition of Rowan Gorilla V costs which, as a
result of a contract dispute, had no offsetting revenues.
The $11.0 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 $10.1 million at June 30, 1999, $37.3
million or 79% below the year-ago level. Manufacturing operations exclude
approximately $72 million of products and services provided to the Company's
drilling division during the first half of 1999, most of which was attributable
to construction progress on Rowan Gorilla VI and Rowan Gorilla VII, compared to
$51 million in the same period of 1998.
The aviation operating results in both periods reflect the normal reduced flying
activity in Alaska throughout much of the first four months of the year,
although the 1999 results were also hampered by reduced energy-related flying
activity in the Gulf of Mexico.
-8-
<PAGE> 10
Three Months Ended June 30, 1999 Compared to
Three Months Ended June 30, 1998
The Company incurred a net loss of $2.6 million in the second quarter of 1999
compared to net income of $44.4 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 twelve
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 second quarters of
1999 and 1998, respectively, is reflected below (dollars in thousands):
<TABLE>
<CAPTION>
Drilling Manufacturing Aviation Consolidated
------------------- -------------------- -------------------- ----------------------
1999 1998 1999 1998 1999 1998 1999 1998
------- -------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $67,834 $131,424 $27,626 $45,227 $23,709 $27,589 $119,169 $204,240
Percent of Consolidated
Revenues 57% 64% 23% 22% 20% 14% 100% 100%
Operating Profit (Loss) $ 3,122 $ 66,700 $ 1,191 $ 5,188 $(2,184) $ (887) $ 2,129 $ 71,001
</TABLE>
As shown above, the Company's consolidated operating results decreased by $68.9
million when comparing the second quarters of 1999 and 1998. Drilling revenues
decreased by $63.6 million or 48% as the Company's offshore fleet was only 68%
utilized during the second quarter of 1999, compared to 95% in the second
quarter of 1998, and suffered a 31% decrease in average operating day rates
between periods. Related expenses decreased by $1.0 million, or 2%, between
periods.
The $4.0 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 $35 million of products and
services provided to the Company's drilling division during the second quarter
of 1999, most of which was attributable to construction progress on Rowan
Gorilla VI and Rowan Gorilla VII, compared to $29 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 also hampered by reduced energy-related flying activity in the Gulf of
Mexico.
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:
<TABLE>
<CAPTION>
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
----------- -------- ----------------------------------
<S> <C> <C>
Gulf of Mexico 16 Moderately improving exploration and development activity
North Sea 4 Reduced levels of drilling activity for jack-up rigs
Eastern Canada 2 Generally stable demand
</TABLE>
-9-
<PAGE> 11
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:
<TABLE>
<CAPTION>
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
----------- --------------- ----------------------------------
<S> <C> <C>
Alaska 68 Normal seasonal improvement
Gulf of Mexico 46 Moderately improving market conditions
</TABLE>
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 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. 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 such 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 majors 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 toward the level at which day rates begin to
trend higher. Conversely, the Company does not believe significant additional
North Sea drilling activity will materialize during the remainder of 1999 or
the first half of 2000 and, as a result, recently relocated two 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
market conditions deteriorate.
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. Recently, commodity prices have improved and mining
equipment orders have increased, though 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.
-10-
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet amounts and ratios as of June 30, 1999 and
December 31, 1998 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents $ 81,163 $148,834
Current assets $297,496 $365,652
Current liabilities $ 78,470 $ 79,593
Current ratio 3.79 4.59
Long-term debt $349,043 $310,250
Stockholders' equity $717,542 $729,996
Long-term debt/total capitalization .33 .30
</TABLE>
Reflected in the comparison above are the effects in the first half of 1999 of
net cash provided by operations of $16.7 million, capital expenditures of
$123.7 million and net borrowings of $38.8 million.
Capital expenditures during the first half 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
a combination drilling and production capability. 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 June 30, 1999, the
Company had drawn down about $105 million under the facility bearing interest
at floating rates averaging 5.37%. 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 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
$75 million, including approximately $50 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 June 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 5.37% on June 30, 1999. The
Company currently has no other available credit facilities.
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 June 30, 1999, approximately $149 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.
-11-
<PAGE> 13
The Company believes that its exposure to potential year 2000 ("Y2K")
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 Y2K
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 Y2K
compliant.
Modifications to the Company's manufacturing information systems have been
undertaken only during the past few years. The Company estimates the cost of
Y2K compliance for its manufacturing systems will be approximately $3.7
million, $3.0 million of which has been expensed to date. The Company believes
that all necessary mission-critical modifications will be completed by the end
of the third quarter of 1999.
The Company will continue to assess and test its computer-controlled equipment
for Y2K 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 Y2K software problems associated
with a single customer or vendor is remote.
Although the Company expects to be Y2K compliant by the end of the third
quarter, in a "most-reasonably-likely-worst-case-scenario", failure by the
Company or by third parties to fully implement appropriate Y2K 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 Y2K contingency plans, but will
continue to monitor its own Y2K 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 or
results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk disclosures set forth in the Annual Report had not
changed significantly through the period ended June 30, 1999.
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:
o oil, natural gas and other commodity prices
o the level of offshore expenditures by energy companies
o the general economy, including inflation
o weather conditions in the Company's principal operating areas
o 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-
<PAGE> 14
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 second 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: August 13, 1999 /s/ E. E. THIELE
----------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: August 13, 1999 /s/ W. H. WELLS
----------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
-13-
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ROWAN COMPANIES, INC. FOR THE SIX MONTHS
ENDED JUNE 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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 81,163
<SECURITIES> 0
<RECEIVABLES> 85,346
<ALLOWANCES> 0
<INVENTORY> 104,008
<CURRENT-ASSETS> 297,496
<PP&E> 1,881,435
<DEPRECIATION> 908,782
<TOTAL-ASSETS> 1,275,488
<CURRENT-LIABILITIES> 78,470
<BONDS> 349,043
0
0
<COMMON> 11,117
<OTHER-SE> 706,425
<TOTAL-LIABILITY-AND-EQUITY> 1,275,488
<SALES> 45,327
<TOTAL-REVENUES> 219,222
<CGS> 35,430
<TOTAL-COSTS> 235,942
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,750
<INCOME-PRETAX> (18,716)
<INCOME-TAX> (6,092)
<INCOME-CONTINUING> (12,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,624)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
