1
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO
RULE 901(d) OF REGULATION S-T.
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, 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 October
31, 1994 was 84,249,662.
2
THIS PAGE LEFT BLANK INTENTIONALLY
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ROWAN COMPANIES, INC.
INDEX
Page No.
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PART I. Financial Information:
Consolidated Balance Sheet --
September 30, 1994 and December 31, 1993 . . . . . . . . 2
Consolidated Statement of Operations --
Three and Nine Months Ended September 30,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows --
Nine Months Ended September 30, 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
4
PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
September 30, December 31,
1994 1993
-------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 113,605 $ 116,778
Receivables- trade and other............................... 97,447 83,429
Inventories- at cost:
Raw materials and supplies............................... 36,157 14,002
Work-in-progress......................................... 15,520
Finished goods........................................... 3,674
Prepaid expenses........................................... 3,628 1,312
Costs of turnkey drilling contracts in progress............ 785
-------------- --------------
Total current assets................................. 270,031 216,306
-------------- --------------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANIES............ 33,893 33,569
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT- at cost:
Drilling equipment......................................... 959,758 950,538
Aircraft and related equipment............................. 177,540 166,791
Manufacturing plant and equipment.......................... 18,557
Other property and equipment............................... 83,252 81,636
-------------- --------------
Total................................................ 1,239,107 1,198,965
Less accumulated depreciation and amortization 726,851 691,772
-------------- --------------
Property, plant and equipment- net................. 512,256 507,193
OTHER ASSETS AND DEFERRED CHARGES............................ 9,121 8,195
-------------- --------------
TOTAL................................................ $ 825,301 $ 765,263
============== ==============
See Notes to Consolidated Financial Statements.
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September 30, December 31,
1994 1993
--------------- ---------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................... $ 2,248 $ 8,127
Accounts payable-trade ............................................ 23,864 15,887
Other current liabilities.......................................... 38,289 20,175
-------------- --------------
Total current liabilities..................................... 64,401 44,189
-------------- --------------
LONG-TERM DEBT- less current maturities............................. 248,578 207,137
-------------- --------------
OTHER LIABILITIES................................................... 33,614 30,409
-------------- --------------
DEFERRED CREDITS:
Income taxes....................................................... 4,439 4,314
Gain on sale/leaseback transactions................................ 16,350 18,742
Other.............................................................. 35 172
-------------- --------------
Total deferred credits........................................ 20,824 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 85,665,081
shares at September 30, 1994 and 85,349,906 shares
at December 31, 1993............................................ 10,708 10,669
Additional paid-in capital.......................................... 389,656 385,937
Retained earnings................................................... 60,005 66,179
Less cost of 1,457,919 treasury shares.............................. 2,485 2,485
-------------- --------------
Total stockholders' equity.................................... 457,884 460,300
-------------- --------------
TOTAL......................................................... $ 825,301 $ 765,263
============== ==============
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1994 1993 1994 1993
----------- ---------- ----------- -----------
(Unaudited)
REVENUES:
Drilling services.................... $ 66,383 $ 77,655 $ 191,183 $ 197,910
Aircraft services.................... 37,439 28,974 75,302 64,352
Manufacturing sales and services..... 25,397 68,818
----------- ---------- ----------- -----------
Total.............................. 129,219 106,629 335,303 262,262
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Drilling services.................... 56,298 56,213 155,006 156,946
Aircraft services.................... 23,987 20,678 58,483 52,294
Manufacturing sales and services..... 22,223 62,901
Depreciation and amortization........ 12,852 13,353 38,026 39,535
General and administrative........... 3,288 2,865 10,545 9,235
----------- ---------- ----------- -----------
Total.............................. 118,648 93,109 324,961 258,010
----------- ---------- ----------- -----------
INCOME FROM OPERATIONS................. 10,571 13,520 10,342 4,252
----------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense..................... (6,985) (6,278) (20,593) (19,091)
Gain on disposals of property, plant
and equipment....................... 764 18 980 101
Interest income...................... 1,224 984 3,269 1,424
Other-net............................ 93 30 205 130
----------- ---------- ----------- -----------
Other income (expense)- net........ (4,904) (5,246) (16,139) (17,436)
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...... 5,667 8,274 (5,797) (13,184)
Provision for income taxes........... 21 99 377 347
----------- ---------- ----------- -----------
NET INCOME (LOSS)...................... $ 5,646 $ 8,175 $ (6,174) $ (13,531)
=========== ========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE
(Note 5)............................. $ .07 $ .10 $ (.07) $ (.18)
=========== ========== =========== ===========
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
For The Nine Months
Ended September 30,
-----------------------------
1994 1993
----------- ------------
(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss)........................................... $ (6,174) $ (13,531)
Noncash charges (credits) to net income (loss):
Depreciation and amortization.............................. 38,026 39,535
Gain on disposals of property, plant and equipment......... (980) (101)
Compensation expense....................................... 3,549 3,133
Change in sale/leaseback payable........................... (2,996) (1,770)
Amortization of sale/leaseback gain........................ (2,392) (2,392)
Provision for pension and postretirement benefits.......... 4,983 4,424
Other- net................................................. (519) (2,688)
Changes in current assets and liabilities:
Receivables- trade and other............................... (160) (22,631)
Inventories................................................ (3,377) 738
Other current assets....................................... (642) (200)
Current liabilities........................................ 11,380 13,202
Net changes in other noncurrent assets and liabilities...... (3,515) 1,420
----------- -----------
Net cash provided by operations.............................. 37,183 19,139
----------- -----------
Investing activities:
Property and equipment additions............................ (25,748) (17,669)
Acquisition of net manufacturing assets..................... (10,414)
Advances to affiliates...................................... (101)
Proceeds from disposals of property, plant and equipment... 1,585 191
----------- -----------
Net cash used in investing activities........................ (34,577) (17,579)
----------- -----------
Financing activities:
Proceeds from common stock offering, net of issue costs..... 91,994
Proceeds from borrowings.................................... 13,560
Repayments of borrowings.................................... (6,094) (16,030)
Other- net.................................................. 315 457
----------- -----------
Net cash provided by (used in) financing activities.......... (5,779) 89,981
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (3,173) 91,541
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............... 116,778 29,550
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................... $ 113,605 $ 121,091
=========== ===========
See Notes to Consolidated Financial Statements.
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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 September 30, 1994 and December 31, 1993,
and the results of its operations for the three and nine month periods
ended September 30, 1994 and 1993 and its cash flows for the nine
months ended September 30, 1994 and 1993.
3. The results of operations for the three and nine month periods ended
September 30, 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 operating results for the first nine months of 1993 would
have been as follows: revenues - $337.7 million, net loss -$11.2
million and net loss per common share - $.14.
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5. Computation of primary and fully diluted earnings (loss) per share is as
follows (in thousands except per share amounts):
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1994 1993 1994 1993
--------- --------- --------- ----------
Weighted average shares of common
stock outstanding ................................ 84,177 83,805 84,038 77,262
Stock options (treasury stock method)............... 1,935 (A) 1,559 (A) 1,492 (A) 1,405 (A)
--------- --------- --------- ----------
Weighted average shares for primary
earnings (loss) per share calculation............. 86,112 85,364 85,530 78,667
Stock options (treasury stock method)............... 5 (A) 11 (A)
Shares issuable from assumed conversion
of floating rate convertible subordinated
debentures ....................................... 478 (A) 478 (A) 478 (A) 528 (A)
--------- --------- --------- ----------
Weighted average shares for fully diluted
earnings (loss) per share calculation ............ 86,590 85,847 86,008 79,206
========= ========= ========= ==========
Net income (loss) for primary calculation........... $ 5,646 $ 8,175 $ (6,174) $ (13,531)
Subordinated debenture interest, net of
income tax effect ................................ 80 67 210 215
--------- --------- --------- ----------
Net income (loss) for fully diluted
calculation ...................................... $ 5,726 $ 8,242 $ (5,964) $ (13,316)
========= ========= ========= ==========
Earnings (loss) per share:
Primary .......................................... $ .07 $ .10 $ (.07) $ (.17)(B)
========= ========= ========= ==========
Fully diluted .................................... $ .07 $ .10 $ (.07) $ (.17)(B)
========= ========= ========= ==========
(A) Included in accordance with Regulation S-K Item 601(b)(11) although not
required to be provided by Accounting Principles Board ("APB") Opinion No.
15 because the effect is insignificant.
(B) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an antidilutive result.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1994 Compared to
Nine Months Ended September 30, 1993
The Company incurred a net loss of $6.2 million in the first nine
months of 1994 compared to a net loss of $13.5 million in the same period of
1993. The 54% decrease in loss was primarily due to improved profitability of
the Company's aviation division, the addition of the manufacturing operations
in the first nine months of 1994 and a $1.8 million increase in interest income
attributable to the investment of the net proceeds from the June 1993 public
offering of 10 million shares of common stock coupled with generally increasing
interest rates.
A comparison of the revenues and operating profits from drilling,
aviation, manufacturing and consolidated operations for the first nine months
of 1994 and 1993, respectively, is reflected below (dollars in thousands):
Drilling Aviation Manufacturing Consolidated
-------- -------- ------------- ------------
1994 1993 1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
Revenues $191,183 $197,910 $75,302 $64,352 $68,818 $335,303 $262,262
Percent of
Consolidated Revenues 57% 75% 22% 25% 21% 100% 100%
Operating Profit (1) $6,609 $9,805 $9,132 $3,682 $5,146 $20,887 $13,487
- --------------------------------------------------------------------------------
(1) Income from operations before deducting general and administrative
expenses.
As reflected above, the Company's consolidated operating results
improved $7.4 million when the $20.9 million operating profit in the first nine
months of 1994 is compared to the $13.5 million operating profit in the first
nine months of 1993. A $10.0 million decline in turnkey drilling revenues more
than offset the aggregate effects of a $3.3 million increase in day rate
drilling revenues and a $1.9 million decrease in drilling operating expenses.
Turnkey drilling revenues and incremental operating profit for the first nine
months of 1994 were $52.2 million and $3.4 million, respectively, compared to
$62.2 million and $8.0 million, respectively, for the same period in 1993. The
improved aviation operating results in 1994 reflect increased flying activity
in connection with wildfire control throughout the western United States and
tourism and commuter airline services in Alaska.
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Three Months Ended September 30, 1994 Compared to
Three Months Ended September 30, 1993
The Company generated net income of $5.6 million in the third quarter
of 1994 compared to net income of $8.2 million in the same quarter of 1993.
The 31% decrease in earnings was primarily due to a reduction in drilling
activity between periods which more than offset improved profitability of the
Company's aviation division and the addition of the manufacturing operations in
1994.
A comparison of the revenues and operating profits from drilling,
aviation, manufacturing and consolidated operations for the third quarters of
1994 and 1993, respectively, is reflected below (dollars in thousands):
Drilling Aviation Manufacturing Consolidated
-------- -------- ------------- ------------
1994 1993 1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ---- ---- ----
Revenues $66,383 $77,655 $37,439 $28,974 $25,397 $129,219 $106,629
Percent of
Consolidated Revenues 51% 73% 29% 27% 20% 100% 100%
Operating Profit $96 $10,964 $10,735 $5,421 $3,028 $13,859 $16,385
As reflected above, the Company's consolidated operating results
decreased by $2.5 million when the $13.9 million operating profit in the third
quarter of 1994 is compared to the $16.4 million operating profit in the third
quarter of 1993. Utilization of the Company's offshore rigs decreased to 79%
in the third quarter of 1994 from 90% in the comparable quarter of 1993
primarily due to weaker domestic energy prices. Turnkey drilling revenues and
incremental operating profit for the third quarter of 1994 were $25.7 million
and $1.5 million, respectively, compared to $27.7 million and $5.3 million,
respectively, for the same quarter in 1993. The improved aviation operating
results in 1994 reflect increased flying activity in connection with wildfire
control throughout the western United States and tourism and commuter airline
services in Alaska.
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 are as follows:
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
- ------------------------ ------------ ------------------------------------------------------------
Gulf of Mexico 18 Moderately improving levels of exploration and
development activity
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
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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:
COMPANY-OWNED
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
- ------------------------ ------------- -------------------------------------------------------
Alaska 69 Normal seasonal decline
Gulf of Mexico 39 Moderately improving market conditions
Trinidad 1 Generally stable flight support activity
China 1 Generally stable flight support activity
North Sea (Dutch) 10 (1) Generally stable flight support activity
North Sea (U. K.) 1 (1) Generally stable flight support activity
- ----------
(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.
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 preceding tables will continue, or
their impact on the results of drilling and aviation operations in the fourth
quarter 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, timber and railroad
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 $68.8 million and
$5.1 million of revenues and operating profit, respectively, during the first
nine months of 1994. 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.
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13
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of September
30, 1994 and December 31, 1993 is as follows (dollars in thousands):
September 30, December 31,
1994 1993
------------- ------------
Cash and cash equivalents $113,605 $116,778
Current assets $270,031 $216,306
Current liabilities $64,401 $44,189
Current ratio 4.19 4.90
Current maturities of long-term debt $2,248 $8,127
Long-term debt $248,578 $207,137
Stockholders' equity $457,884 $460,300
Long-term debt/total capitalization .35 .31
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 nine months of 1994 of net cash provided by operations of $37.2 million,
property and equipment additions of $25.7 million, and repayments of borrowings
totaling $6.1 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 September 30, 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 nine months of 1994 were
$25.7 million, consisting primarily of the purchase of four aircraft and
modifications to certain offshore rigs. The Company estimates 1994 capital
expenditures will be between $30 million and $35 million. These expenditures
are in addition to the purchase of the net assets of Marathon LeTourneau
Company discussed previously. The Company may also spend amounts to acquire
additional aircraft as market conditions justify and to upgrade existing
offshore rigs.
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
(a) Exhibit 27 - Financial Data Schedule
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14
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant
during the third quarter of fiscal year 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROWAN COMPANIES, INC.
(Registrant)
Date: November 14, 1994 /s/ E. E. THIELE
-----------------------------
E. E. Thiele
Senior Vice President-Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: November 14, 1994 /s/ W. H. WELLS
-----------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
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