<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 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)
<TABLE>
<S> <C> <C>
Delaware 1-5491 75-0759420
- ------------------------------- --------------- -------------------
(State or other jurisdiction of Commission File (I.R.S. Employer
incorporation or organization) Number Identification No.)
</TABLE>
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.
<PAGE> 2
ROWAN COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C> <C>
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
</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>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE> 4
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
<S> <C> <C>
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
========== ==========
</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 Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</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 Nine Months
Ended September 30,
-----------------------
1999 1998
----------- ----------
(Unaudited)
<S> <C> <C>
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
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-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 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).
<TABLE>
<CAPTION>
1999 Drilling Manufacturing Aviation Consolidated
------------------------ ----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
1998 Drilling Manufacturing Aviation Consolidated
------------------------ ----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
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
</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 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-
<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 Nine Months Ended
September 30, September 30,
---------------------------- -------------------------
1999 1998 1999 1998
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</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 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-
<PAGE> 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):
<TABLE>
<CAPTION>
Drilling Manufacturing Aviation Consolidated
-------------------- --------------------- -------------------- -----------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- -------------------------
(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-
<PAGE> 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):
<TABLE>
<CAPTION>
Drilling Manufacturing Aviation Consolidated
-------------------- --------------------- -------------------- -----------------------
1999 1998 1999 1998 1999 1998 1999 1998
-------- -------- -------- ------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE> 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:
<TABLE>
<CAPTION>
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
- ---------------------------- ------------- ------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
- ------------------------ ------------------- ---------------------------------------------------------
<S> <C> <C>
Alaska 68 Normal seasonal decline
Gulf of Mexico 46 Moderately improving market conditions, particularly
for deep-water operations
</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 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-
<PAGE> 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):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
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
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 60,047
<SECURITIES> 0
<RECEIVABLES> 91,142
<ALLOWANCES> 0
<INVENTORY> 112,464
<CURRENT-ASSETS> 292,171
<PP&E> 1,923,734
<DEPRECIATION> 922,523
<TOTAL-ASSETS> 1,298,659
<CURRENT-LIABILITIES> 81,590
<BONDS> 368,154
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0
<COMMON> 11,128
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<SALES> 66,401
<TOTAL-REVENUES> 339,145
<CGS> 52,409
<TOTAL-COSTS> 353,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,503
<INCOME-PRETAX> (17,825)
<INCOME-TAX> (5,802)
<INCOME-CONTINUING> (12,023)
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<NET-INCOME> (12,023)
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