1
Rowan Companies, Inc. and Subsidiaries
FINANCIAL REVIEW
(In thousands except per share amounts and ratios)
1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
OPERATIONS
Revenues:
Drilling services $ 250,080 $ 245,917 $ 271,022 $ 162,121
Manufacturing sales and services 133,755 96,664
Aircraft services 87,462 95,578 82,174 87,877
- ------------------------------------------------------------------------------------------------------------
Total 471,297 438,159 353,196 249,998
- ------------------------------------------------------------------------------------------------------------
Costs and expenses:
Drilling services 207,934 207,577 211,095 162,816
Manufacturing sales and services 120,378 87,382
Aircraft services 79,993 79,955 68,882 74,347
Depreciation and amortization 50,555 50,790 51,918 51,367
General and administrative 14,692 13,862 13,940 12,092
- ------------------------------------------------------------------------------------------------------------
Total 473,552 439,566 345,835 300,622
- ------------------------------------------------------------------------------------------------------------
Income (loss) from operations (2,255) (1,407) 7,361 (50,624)
- ------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (27,702) (27,530) (25,361) (26,254)
Less interest capitalized
Gain on disposals of property, plant
and equipment 6,598 1,344 1,955 731
Interest income 5,209 4,813 2,348 2,658
Other - net 468 260 150 165
- ------------------------------------------------------------------------------------------------------------
Other income (expense) - net (15,427) (21,113) (20,908) (22,700)
- ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (17,682) (22,520) (13,547) (73,324)
Provision (credit) for income taxes 754 469 (288) 429
- ------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (18,436) (22,989) (13,259) (73,753)
Extraordinary charge from redemption of debt
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ (18,436) $ (22,989) $ (13,259) $ (73,753)
- ------------------------------------------------------------------------------------------------------------
Per share of common stock:
Net income (loss):
Primary $ (.22) $ (.27) $ (.17) $ (1.01)
- ------------------------------------------------------------------------------------------------------------
Fully diluted $ (.22) $ (.27) $ (.17) $ (1.01)
- ------------------------------------------------------------------------------------------------------------
Cash dividends $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 200,588 $ 195,945 $ 172,117 $ 61,397
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment - at cost:
Drilling equipment 944,021 961,391 950,538 939,793
Aircraft and related equipment 189,954 176,874 166,791 162,001
Manufacturing plant and equipment 25,037 18,955
Other property and equipment 91,089 86,883 81,636 79,801
- ------------------------------------------------------------------------------------------------------------
Total 1,250,101 1,244,103 1,198,965 1,181,595
- ------------------------------------------------------------------------------------------------------------
Property, plant and equipment - net 487,039 506,121 507,193 537,819
Total assets 802,488 805,179 765,263 684,301
Capital expenditures 33,881 43,377 21,989 39,528
Long-term debt 247,744 248,504 207,137 212,907
Common stockholders' equity 429,155 442,347 460,300 375,754
- ------------------------------------------------------------------------------------------------------------
STATISTICAL INFORMATION
Current ratio 3.75 4.39 4.90 2.47
Long-term debt/total capitalization .37 .36 .31 .36
Book value per share of common stock $ 5.06 $ 5.25 $ 5.49 $ 5.13
- ------------------------------------------------------------------------------------------------------------
* Includes $.08 per share effect of extraordinary charge.
** At December 31, 1991, the $125,000,000 principal amount of the Company's
13 3/4% Senior Notes had been called for redemption and appeared as a
current liability. If redemption had occurred prior to year-end, the
current ratio would have been 3.61.
10
2
Rowan Companies, Inc. and Subsidiaries
FINANCIAL REVIEW
(In thousands except per share amounts and ratios)
1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Revenues:
Drilling services $ 170,739 $ 180,118 $ 128,818 $ 144,018 $ 90,145 $ 113,651
Manufacturing sales and services
Aircraft services 101,433 111,992 97,446 72,667 52,984 53,512
- --------------------------------------------------------------------------------------------------------------------------
Total 272,172 292,110 226,264 216,685 143,129 167,163
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Drilling services 147,853 130,845 119,182 126,288 113,348 139,177
Manufacturing sales and services
Aircraft services 82,364 88,182 75,943 62,571 48,996 52,846
Depreciation and amortization 52,954 50,702 52,062 60,324 61,312 62,525
General and administrative 11,739 9,549 7,690 7,313 6,766 7,100
- --------------------------------------------------------------------------------------------------------------------------
Total 294,910 279,278 254,877 256,496 230,422 261,648
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (22,738) 12,832 (28,613) (39,811) (87,293) (94,485)
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (21,379) (21,601) (23,682) (23,920) (23,463) (17,208)
Less interest capitalized 237 319 2,013
Gain on disposals of property, plant
and equipment 1,660 3,996 2,320 27,578 1,814 962
Interest income 4,763 8,635 12,709 4,002 4,917 6,786
Other - net 127 178 161 345 407 399
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense) - net (14,829) (8,792) (8,492) 8,242 (16,006) (7,048)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (37,567) 4,040 (37,105) (31,569) (103,299) (101,533)
Provision (credit) for income taxes 1,174 2,081 672 32 (34,009) (53,002)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (38,741) 1,959 (37,777) (31,601) (69,290) (48,531)
Extraordinary charge from redemption of debt (5,627)
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (44,368) $ 1,959 $ (37,777) $ (31,601) $ (69,290) $ (48,531)
- --------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Net income (loss):
Primary $ (.61)* $ .03 $ (.52) $ (.44) $ (1.12) $ (.93)
- --------------------------------------------------------------------------------------------------------------------------
Fully diluted $ (.61)* $ .03 $ (.52) $ (.44) $ (1.12) $ (.93)
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends $ -- $ -- $ -- $ -- $ -- $ .06
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital $ 125,996 $ 134,393 $ 143,963 $ 152,335 $ 76,779 $ 77,265
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment - at cost:
Drilling equipment 913,379 885,264 867,540 863,450 946,127 941,726
Aircraft and related equipment 158,361 138,327 107,985 97,500 98,860 100,339
Manufacturing plant and equipment
Other property and equipment 76,251 73,504 70,598 88,039 88,113 90,795
- --------------------------------------------------------------------------------------------------------------------------
Total 1,147,991 1,097,095 1,046,123 1,048,989 1,133,100 1,132,860
- --------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment - net 552,481 549,608 542,995 585,365 697,144 751,225
Total assets 895,889 739,133 737,826 800,684 827,785 875,004
Capital expenditures 85,618 59,905 22,945 18,318 14,123 102,094
Long-term debt 220,764 153,621 163,473 181,330 184,187 200,125
Common stockholders' equity 445,368 485,748 479,287 515,491 546,078 505,115
- --------------------------------------------------------------------------------------------------------------------------
STATISTICAL INFORMATION
Current ratio 1.71** 4.00 4.55 4.07 2.88 3.46
Long-term debt/total capitalization .33 .24 .25 .26 .25 .27
Book value per share of common stock $ 6.11 $ 6.69 $ 6.64 $ 7.16 $ 7.59 $ 9.28
- --------------------------------------------------------------------------------------------------------------------------
11
3
Rowan Companies, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following analysis highlights the Company's operating results for the years
indicated (in millions):
1995 1994 1993
- -----------------------------------------------------------------------------------------------
Revenues:
Drilling $ 250.1 $ 245.9 $ 271.0
Manufacturing 133.7 96.7
Aviation 87.5 95.6 82.2
- -----------------------------------------------------------------------------------------------
Total $ 471.3 $ 438.2 $ 353.2
===============================================================================================
Operating Profit (Loss)*:
Drilling $ 5.0 $ 0.2 $ 19.1
Manufacturing 11.7 7.7
Aviation (4.3) 4.6 2.2
- -----------------------------------------------------------------------------------------------
Total $ 12.4 $ 12.5 $ 21.3
===============================================================================================
Net Income (Loss) $ (18.4) $ (23.0) $ (13.3)
===============================================================================================
* Income (loss) from operations before deducting general and administrative
expenses.
Continued volatility in energy prices and in the resulting demand for
drilling and aviation services, has pervaded the principal markets in which the
Company has operated during the past several years. As shown above, the
Company's results have been directly impacted. The Company's manufacturing
operations, which have consistently yielded positive results since being
acquired in early- 1994, have effectively complemented the Company's marine
drilling business while also offering diversification beyond energy.
The Company's results in 1995 were improved over 1994 primarily due to
higher rig utilization and, beginning in the second quarter, increasing
drilling day rates which, coupled with gains realized from sales of drilling
and aviation equipment and the continued growth of the Company's manufacturing
operations, more than offset unfavorable results of aviation operations and
reduced turnkey drilling. The Company's 1994 results declined in comparison to
1993 primarily due to a decrease in turnkey drilling revenues and a softening
of drilling day rates, which more than offset the improved results of aviation
operations and the addition of profitable manufacturing operations.
DRILLING OPERATIONS. The Company's drilling operating results are generally a
function of rig rates and activity achieved in its offshore drilling business
conducted primarily in the Gulf of Mexico and the North Sea. In turn, the rates
obtained for and the utilization of the Company's offshore fleet are primarily
influenced by the level of offshore expenditures by energy companies.
The offshore drilling industry has fluctuated throughout the 1993 - 1995
period, but overall, has generally experienced weak market conditions since the
early 1980's, as characterized by short-term, marginal rate contracts. An
improvement in natural gas prices strengthened utilization and day rates in the
Gulf of Mexico throughout 1993 and much of 1994, while North Sea drilling
activity and rates weakened due to energy companies downsizing their drilling
programs in the face of impending changes in United Kingdom energy policies. In
late 1994, Gulf of Mexico utilization and day rates were impaired by the
downward trend of natural gas prices while the North Sea market began to
stabilize as changes in U.K. policies were deferred. Beginning in the second
quarter of 1995, both markets began to offer improving returns, but for
different reasons. Activity and day rates in the Gulf of Mexico were positively
influenced by strengthening gas prices, while North Sea utilization approached
100% due to the relatively scarce supply of harsh environment drilling
equipment. As a result, the Company's North Sea fleet achieved an 11% average
increase in day rates in 1995 compared to 1994 while the Company's Gulf of
Mexico fleet, reflecting the depth of the late-1994 decline, averaged a 9% drop
between years.
The number of marine rigs operated by the Company at the end of each year
in the 1993 - 1995 period and the rig utilization percentages (number of days
producing revenue as a percent of days the rig was available for service) for
each of those years are reflected in the following table:
1995 1994 1993
- -----------------------------------------------------------------------------------------
Jack-ups:
Number 20 20 20
Utilization 90% 86% 85%
Semi-submersible:
Number 1 1 1
Utilization 85% 73% 94%
Submersible barges:
Number - * 3 3
Utilization 87% 52% 30%
- -----------------------------------------------------------------------------------------
* The Company sold its three submersible barge rigs during the fourth quarter
of 1995.
The effects of fluctuations in activity and day rates are shown in the
following analysis of changes in the Company's contract drilling revenues (in
millions):
1994 1993
to 1995 to 1994
- -----------------------------------------------------------------
Utilization $ 33.9 $ 22.1
Drilling Rates (13.3) (20.7)
- -----------------------------------------------------------------
These fluctuations, combined with the impact of Total Project Management,
yielded a $4.2 million or 2% increase in 1995 drilling revenues compared to
1994, which was 9% under 1993. Drilling operations expenses were unchanged in
1995 compared to 1994, which was 2% lower than 1993. The expense variations do
not correlate with the revenue fluctuations primarily due to the effects of
turnkey drilling operations.
12
4
Perceptible trends existing in the offshore drilling markets in which the
Company operates are shown below:
- ------------------------------------------------------------------------------
GULF OF MEXICO - Continuing high levels of exploration & development activity
NORTH SEA - Continuing high levels of drilling activity for jack-up rigs
EASTERN CANADA - Improving demand
TRINIDAD - Uncertain demand
- ------------------------------------------------------------------------------
The drilling markets in which the Company competes frequently experience
significant fluctuations in 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 and, probably most influential, oil
and natural gas prices. 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 table
will continue. Assuming such conditions and trends prevail, however, the
Company should be profitable in 1996.
In response to fluctuating market conditions, the Company can, as it has
done in the past, relocate its drilling rigs from one geographic area to
another, but only when such moves are economically justified.
Three of the Company's deep-well land rigs were under contract in Texas and
Louisiana at year end and two others worked most of the third and fourth
quarters in Argentina. The Company's three trailer-mounted rigs commenced
operations in April under a two-year assignment in Argentina. The Company's
five arctic land rigs and remaining four rigs in western Texas and Oklahoma
were idle in 1995. The cost of maintaining the idle rigs is modest and the
remaining investment in such rigs is not significant.
AVIATION OPERATIONS. Although the aviation division's operating results are
still heavily influenced by oil and natural gas exploration and production,
principally in the Gulf of Mexico, and seasonal weather conditions, primarily
in Alaska, the division has continued to diversify its flight services. The
Company offers, among other services, forest fire control, commuter airline
services, flightseeing and medivac services, and, in recent years, has
developed and sold auxiliary fuel tanks for helicopters. The Company further
broadened its aviation operations in 1994 to include China, where two twin
engine helicopters are currently under contract.
Aviation revenues fell by 8% in 1995 compared to 1994, which was 16% higher
than 1993. Aviation division expenses in 1995 were unchanged from 1994, which
was 16% above 1993. The decrease in 1995 revenues was primarily due to a
drop-off in forest fire control services traditionally provided during the
third quarter throughout the western United States and a decrease in United
Nations-related flying.
The number of aircraft operated by the Company at the end of each year in
the 1993 - 1995 period and the revenue hours for each of those years are
reflected in the following table:
1995 1994 1993
- --------------------------------------------------------------------------------
Twin Engine Helicopters:
Number 62 63 63
Revenue Hours 29,129 33,330 29,715
Single Engine Helicopters:
Number 25 27 31
Revenue Hours 9,563 11,574 10,150
Fixed-Wing Aircraft:
Number 19 17 15
Revenue Hours 20,430 23,136 22,728
- --------------------------------------------------------------------------------
Excluded from the preceding table are 13 twin engine helicopters owned by
the Company's Dutch affiliate which recorded revenue hours of 8,907, 8,134 and
8,420 in 1995, 1994 and 1993, respectively. Also excluded are 14 helicopters
and one fixed-wing aircraft acquired in December 1995.
Perceptible trends existing in the aviation markets in which the Company
operates are shown below:
- --------------------------------------------------------------------------------
ALASKA - Moderately improving market conditions
GULF OF MEXICO - Moderately improving market conditions
NORTH SEA - Moderately improving flight support activity
CHINA - Generally stable demand
- --------------------------------------------------------------------------------
Assuming the foregoing trends continue, the aviation division should
contribute positive operating results in 1996. The Company, however, cannot
predict whether these market trends will continue. Changes in energy company
exploration and production activities, seasonal weather patterns and other
factors can affect the demand for flight services in the aviation markets in
which the Company competes. The Company can, as it has done in the past, move
aircraft from one market to another, but only when the likelihood of higher
returns makes such action economical.
MANUFACTURING OPERATIONS. The Company's manufacturing operations generated
revenues of $133.7 million in 1995, a 38% increase over 1994, while operating
profit improved to 9% of revenues. The heavy equipment division shipped 47
mining, timber and transportation loaders, stackers and cranes during 1995, or
34% more than in 1994, while the marine division's revenues more than doubled
to about $25 million. The Company's mini-steel mill, which produces steel for
the other two divisions as well as for outside sale, achieved a 17% increase in
revenues between years.
The Company's manufacturing operations are considerably less volatile than
its drilling and aviation operations. Given a year-end order backlog of $42
million and barring unforeseen circumstances, the Company's manufacturing
operations should continue to contribute positive operating results during
1996.
13
5
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet amounts and ratios for 1995 and 1994 were as follows (dollars
in millions):
December 31, 1995 1994
- ------------------------------------------------------------------------
Cash and cash equivalents $ 90.3 $ 111.1
Current assets $ 273.5 $ 253.7
Current liabilities $ 72.9 $ 57.8
Current ratio 3.75 4.39
Note payable and current maturities
of long-term debt $ 7.0 $ 0.3
Long-term debt $ 247.7 $ 248.5
Stockholders' equity $ 429.2 $ 442.3
Long-term debt/total capitalization .37 .36
- ------------------------------------------------------------------------
Reflected in the comparisons above are the effects of net cash used in
operations of $6.8 million, capital expenditures of $33.9 million, and proceeds
from equipment disposals and repayments from affiliates totaling $19.7 million.
The operating cash deficit resulted primarily from an increase in inventories
consistent with growing manufacturing operations, start-up costs associated
with Argentina land rig operations and deferred turnkey drilling costs on
projects in progress.
Capital expenditures encompass new assets or enhancements to existing
assets as expenditures for routine maintenance and major repairs are charged to
operations as incurred. Property, plant and equipment additions in 1995
included major rig enhancements, purchases of five aircraft and the December
acquisition of 15 helicopters, one fixed-wing aircraft and a hangar and office
facility in Alaska.
On April 28, 1995, the Company announced plans for the design and
construction of Rowan Gorilla V, an enhanced version of the Company's Gorilla
Class jack-ups, which will be the world's largest bottom supported mobile
offshore drilling unit. The rig is being constructed at the Company's
Vicksburg, Mississippi shipyard and is expected to be completed by mid-1998 at
an estimated cost of $170 million. The Company intends to finance a significant
portion of the construction cost and is currently evaluating credit
alternatives. While completion of the project could be contingent upon the
Company obtaining outside financing, the Company believes that, based upon the
relatively long duration of the project and the expected timing of
disbursements, such financing will not be necessary prior to early 1997. In the
interim, the Company expects capital expenditures related to the construction
of Rowan Gorilla V to be about $40 million, which will be financed through
existing working capital and anticipated cash flow from operations. While the
Company believes it will be able to obtain outside financing for the project,
and at a reasonable cost, there can be no assurance that such financing will be
obtained. The Company currently has no unused lines of credit.
The reactivation of the Company's marine construction capability,
principally through improvements to the Vicksburg shipyard, is expected to cost
approximately $20 million, most of which will be incurred over the first half
of 1996, and be financed through existing working capital.
The Company estimates all other 1996 capital expenditures to be between $20
and $25 million. The Company may also spend amounts to acquire additional
aircraft as market conditions justify and to upgrade existing offshore rigs.
Based on current operating levels and the previously discussed market
trends, management believes that 1996 operations, together with existing
working capital, will generate sufficient cash flow to sustain planned capital
expenditures and debt service requirements at least through the remainder of
1996.
At December 31, 1995, the provisions of the Company's existing indebtedness
would allow the Company to enter into sale/leaseback transactions with a
maximum value of approximately $73 million.
In December 1995, in connection with the purchase of 16 aircraft and a
hangar and office facility in Alaska, the Company issued a $7 million
promissory note payable at the end of one year. The note bears no interest, is
secured by the aircraft and can be repaid through the application of proceeds
from the Company's sale of any of the aircraft.
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 closing and the balance financed by nonrecourse promissory notes
bearing interest at 7% and payable at the end of five years.
In 1993, the Company sold 10 million shares of common stock using the $92
million net proceeds to expand the Company's turnkey drilling operations and
increase working capital. During 1993, the Company repaid $10 million
outstanding under its $35 million unsecured revolving line of credit and
canceled the line. Also in 1993, the Company entered into a $3.6 million
nonrecourse bank loan agreement to finance the purchase of two fixed-wing
aircraft in conjunction with a five-year medivac service contract.
The Company did not pay any dividends on its common stock during the 1993 -
1995 period and is currently prohibited from doing so under the terms of its
11 7/8% Senior Notes. See Note 5 of the Notes to Consolidated Financial
Statements.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, which governs accounting for the impairment of
long-lived assets. The effect of adopting the statement on the Company's
financial position or results of operations was not material.
The Company does not intend to adopt the accounting provisions of Statement
of Financial Accounting Standards No. 123 in 1996, but rather has elected to
continue to apply Accounting Principles Board Opinion No. 25 for measurement
and recognition of employee stock-based compensation.
14
6
INDEPENDENT AUDITORS' REPORT
Rowan Companies, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Rowan
Companies, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Houston, Texas
March 1, 1996
15
7
Rowan Companies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31,
--------------------------------------
(In thousands except share amounts) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 90,338 $ 111,070
Receivables - trade and other 87,811 78,317
Inventories:
Raw materials and supplies 51,898 42,364
Work-in-progress 23,015 14,238
Finished goods 708 2,784
Prepaid expenses 11,430 3,290
Cost of turnkey drilling contracts in progress 8,259 1,642
-----------------------------------------------------------------------------------------------------------------
Total current assets 273,459 253,705
-----------------------------------------------------------------------------------------------------------------
Investment In and Advances To 49% Owned Companies 29,770 34,476
-----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment - at cost:
Drilling equipment 944,021 961,391
Aircraft and related equipment 189,954 176,874
Manufacturing plant and equipment 25,037 18,955
Other property and equipment 91,089 86,883
-----------------------------------------------------------------------------------------------------------------
Total 1,250,101 1,244,103
Less accumulated depreciation and amortization 763,062 737,982
-----------------------------------------------------------------------------------------------------------------
Property, plant and equipment - net 487,039 506,121
-----------------------------------------------------------------------------------------------------------------
Other Assets and Deferred Charges 12,220 10,877
-----------------------------------------------------------------------------------------------------------------
Total $ 802,488 $ 805,179
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable and current maturities of long-term debt (Note 2) $ 7,039 $ 289
Accounts payable - trade 21,774 20,513
Other current liabilities (Note 4) 44,058 36,958
-----------------------------------------------------------------------------------------------------------------
Total current liabilities 72,871 57,760
-----------------------------------------------------------------------------------------------------------------
Long-Term Debt - less current maturities (Note 2) 247,744 248,504
-----------------------------------------------------------------------------------------------------------------
Other Liabilities (Notes 6 and 9) 36,227 36,557
-----------------------------------------------------------------------------------------------------------------
Deferred Credits:
Income taxes (Note 7) 4,146 4,468
Gain on sale/leaseback transactions (Note 9) 12,345 15,543
-----------------------------------------------------------------------------------------------------------------
Total deferred credits 16,491 20,011
-----------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 9)
-----------------------------------------------------------------------------------------------------------------
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 III Preferred Stock, authorized 10,300 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 86,353,792 shares at December 31, 1995 and 85,737,581 shares at
December 31, 1994 (Note 3) 10,794 10,717
Additional paid-in capital 396,092 390,925
Retained earnings (Note 5) 24,754 43,190
Less cost of treasury stock - 1,457,919 shares 2,485 2,485
-----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 429,155 442,347
-----------------------------------------------------------------------------------------------------------------
Total $ 802,488 $ 805,179
=================================================================================================================
See Notes to Consolidated Financial Statements.
16
8
Rowan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
---------------------------------------------------
(In thousands except per share amounts) 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------
Revenues:
Drilling services $ 250,080 $ 245,917 $ 271,022
Manufacturing sales and services 133,755 96,664
Aircraft services 87,462 95,578 82,174
-----------------------------------------------------------------------------------------------------------------
Total 471,297 438,159 353,196
-----------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Drilling services 207,934 207,577 211,095
Manufacturing sales and services 120,378 87,382
Aircraft services 79,993 79,955 68,882
Depreciation and amortization 50,555 50,790 51,918
General and administrative 14,692 13,862 13,940
-----------------------------------------------------------------------------------------------------------------
Total 473,552 439,566 345,835
-----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations (2,255) (1,407) 7,361
-----------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (27,702) (27,530) (25,361)
Gain on disposals of property, plant and equipment 6,598 1,344 1,955
Interest income 5,209 4,813 2,348
Other - net 468 260 150
-----------------------------------------------------------------------------------------------------------------
Other income (expense) - net (15,427) (21,113) (20,908)
-----------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (17,682) (22,520) (13,547)
Provision (credit) for income taxes (Note 7) 754 469 (288)
-----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (18,436) $ (22,989) $ (13,259)
=================================================================================================================
Earnings (Loss) Per Share of Common Stock (Note 1) $ (.22) $ (.27) $ (.17)
=================================================================================================================
See Notes to Consolidated Financial Statements.
17
9
Rowan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
------------------------------------------------------------------
Common Stock
---------------------------------------
Issued In Treasury Additional
----------------- ---------------- Paid-in Retained
(In thousands) Shares Amount Shares Amount Capital Earnings
---------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1993 74,645 $ 9,331 1,458 $ 2,485 $ 289,470 $ 79,438
Exercise of stock options 531 66 464
Value of services rendered by
participants in the Nonqualified
Stock Option Plans (Note 3) 4,282
Conversion of subordinated debentures 174 22 978
Sale of common stock (Note 3) 10,000 1,250 90,743
Net loss (13,259)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 85,350 10,669 1,458 2,485 385,937 66,179
Exercise of stock options 388 48 340
Value of services rendered by
participants in the Nonqualified
Stock Option Plans (Note 3) 4,648
Net loss (22,989)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 85,738 10,717 1,458 2,485 390,925 43,190
Exercise of stock options 538 67 472
Value of services rendered by
participants in the Nonqualified
Stock Option Plans (Note 3) 4,255
Conversion of subordinated debentures 78 10 440
Net loss (18,436)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 86,354 $10,794 1,458 $ 2,485 $ 396,092 $ 24,754
=====================================================================================================================
See Notes to Consolidated Financial Statements.
18
10
Rowan Companies, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
-----------------------------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Cash Provided By (Used In):
Operations:
Net income (loss) $ (18,436) $ (22,989) $ (13,259)
Noncash charges (credits) to net income (loss):
Depreciation and amortization 50,555 50,790 51,918
Gain on disposals of property, plant and equipment (6,598) (1,344) (1,955)
Compensation expense 4,255 4,648 4,282
Change in sale/leaseback payable (1,460) (1,405) (273)
Amortization of sale/leaseback gain (3,198) (3,198) (3,198)
Provision for pension and postretirement benefits 7,402 6,922 5,623
Other - net 1,161 (503) (1,271)
Changes in current assets and liabilities:
Receivables - trade and other (9,494) 18,080 (28,867)
Inventories (16,235) (9,205) 670
Other current assets (17,718) (2,464) 2,257
Current liabilities 3,148 6,064 774
Net changes in other noncurrent assets and liabilities (171) (2,591) 1,665
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operations (6,789) 42,805 18,366
- ------------------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures:
Property, plant and equipment additions (33,881) (32,963) (21,989)
Acquisition of net manufacturing assets (10,414)
Repayments from (advances to) affiliates 3,676 (100)
Proceeds from disposals of property, plant and equipment 16,013 2,604 2,929
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,192) (40,773) (19,160)
- ------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from common stock offering, net of issue costs 91,993
Proceeds from revolving credit arrangements 10,000
Payments on revolving credit arrangements (10,000)
Proceeds from other borrowings 3,560
Repayments of other borrowings (290) (8,127) (8,061)
Other - net 539 387 530
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 249 (7,740) 88,022
- ------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents (20,732) (5,708) 87,228
Cash and Cash Equivalents, Beginning of Year 111,070 116,778 29,550
- ------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 90,338 $ 111,070 $ 116,778
========================================================================================================================
See Notes to Consolidated Financial Statements.
19
11
Rowan Companies, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Rowan Companies, Inc. and all of its wholly and majority owned
subsidiaries (the "Company").
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 $52,070,000 pursuant to an agreement with
General Cable Corporation dated November 12, 1993. The acquisition was financed
with $10,414,000 in cash and $41,656,000 in 7% promissory notes due in 1999 and
has been recorded using the purchase method of accounting. The accompanying
consolidated 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. Had the
acquisition been completed effective January 1, 1993, the Company's unaudited
pro forma operating results for 1993 would have been as follows: revenues -
$449,400,000, net loss - $10,300,000 and net loss per share of common stock -
$.13.
The Company accounts for its investment in 49% owned companies using
the equity method.
The excess of cost over the net assets of subsidiaries at dates of
acquisitions ($8,452,000) is being amortized over a thirty-year period. At
December 31, 1995, the unamortized excess cost was $2,967,000.
Intercompany transactions are eliminated in consolidation.
REVENUE RECOGNITION. Most drilling contracts provide for payment on a day rate
basis, and revenues and expenses are recognized as the work progresses. The
Company also utilizes turnkey contracts for certain of its drilling operations.
Under these short-term, fixed price arrangements, revenues and expenses are
recognized on a completed contract basis.
The Company's aviation services generally are provided under master
service agreements (which provide for incremental payments based on usage),
term contracts, or day-to-day charter arrangements. Aviation revenues and
expenses are recognized as services are rendered.
Manufacturing sales and related costs are generally recognized as
products are shipped. Revenues and costs and expenses included sales and costs
of sales of $119,640,000 and $97,324,000, respectively, in 1995 and $90,460,000
and $72,717,000, respectively, in 1994.
INVENTORIES. Manufacturing inventories are stated principally at lower of
first-in, first-out cost or market. Drilling and aviation materials and
supplies are carried at average cost.
STATEMENT OF CASH FLOWS. The Company generally considers all highly liquid
instruments with a maturity of three months or less when purchased to be cash
equivalents.
Noncash financing activities consisted of the issuance of a
$6,972,000 non-interest bearing promissory note in connection with the purchase
of certain aviation assets in 1995, the issuance of $41,656,000 in 7%
promissory notes in connection with the acquisition of the net assets of
Marathon LeTourneau Company in 1994, the issuance of $10,300,000 Series III
Floating Rate Convertible Subordinated Debentures in 1994 and the conversion of
$450,000 and $1,000,000 of Series I Floating Rate Convertible Subordinated
Debentures into 78,261 and 173,913 shares of common stock in 1995 and 1993,
respectively. See Notes 2 and 3.
PROPERTY AND DEPRECIATION. For financial reporting purposes, the Company
computes depreciation using the straight-line method over the estimated lives
of the related assets as follows:
Salvage
Years Value
- ---------------------------------------------------------------------------------------
Marine drilling equipment:
Semi-submersible 15 20%
Cantilever jack-ups 15 20%
Conventional jack-ups 12 20%
Barges 12 20%
Land Drilling equipment 8 to 12 20%
Drill pipe and tubular equipment 4 10%
Aviation equipment:
Aircraft 7 to 10 15% to 25%
Other 2 to 10 various
Manufacturing plant and equipment:
Buildings and improvements 10 to 25 10% to 20%
Other 2 to 12 various
Other property and equipment 3 to 40 various
- ---------------------------------------------------------------------------------------
The Company depreciates its equipment from the date placed in service
until the equipment is sold or becomes fully depreciated.
The Company capitalizes, during the construction period, an allocation
of the interest cost incurred during the period required to complete the asset.
Engineering salaries and other expenses related to the construction of drilling
equipment are also capitalized.
Expenditures for new property or enhancements to existing property are
capitalized. Expenditures for routine maintenance and major repairs are charged
to operations as incurred. See Note 10.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement generally
requires a periodic review of long-lived assets for indications that their
carrying amount may not be recoverable and governs the measurement and
disclosure of any resulting impairment loss. Its application did not have a
material impact on the Company's financial position or results of operations.
INCOME TAXES. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109 under which deferred income tax assets
and liabilities reflect
20
12
the future tax consequences of differences between the financial statement and
tax bases of assets and liabilities. See Note 7.
EARNINGS (LOSS) PER COMMON SHARE. Earnings (loss) per share amounts are
computed by dividing net income (loss) by the weighted average number of common
shares outstanding during the year. Shares issuable upon conversion of the
Series I, Series II and Series III Floating Rate Convertible Subordinated
Debentures and the exercise of stock options are excluded from the computation
because their effect is antidilutive.
MANAGEMENT ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS. Certain reclassifications have been made in the 1994 and
1993 amounts to conform with the 1995 presentations.
2. LONG-TERM DEBT
Long-term debt consisted of (in thousands):
December 31, 1995 1994
- -----------------------------------------------------------------------------------
11 7/8% Senior Notes due 2001 $ 200,000 $ 200,000
Nonrecourse notes payable in quarterly
installments through 1998 with a
final balloon payment due at
maturity; bearing interest at 7% and
collateralized by two aircraft costing
approximately $3.6 million 2,797 3,087
Nonrecourse notes payable due 1999
bearing interest at 7% 41,656 41,656
Promissory note payable in 1996; non-
interest bearing and secured by 15
aircraft costing approximately
$6.7 million 6,730
Series I subordinated convertible
debentures due 1996 bearing interest
at 1/2% above prime rate 450
Series II subordinated convertible
debenture due 1997 bearing interest
at 1/2% above prime rate 3,600 3,600
- -----------------------------------------------------------------------------------
Total 254,783 248,793
Less current maturities 7,039 289
- -----------------------------------------------------------------------------------
Remainder $ 247,744 $ 248,504
===================================================================================
Maturities of long-term debt for the five years ending December 31,
2000 are as follows: 1996 - $7,039,000, 1997 - $3,932,000, 1998 - $2,156,000,
1999 - $41,656,000 and 2000 - $0.
The 11 7/8% Senior Notes due 2001 may be redeemed early, in whole or
in part from time to time at the Company's option, beginning December 1, 1996,
upon payment of a premium of 6% and descending 2% annually from that date to
December 1, 1999, when the Company may redeem them at the principal amount.
In January 1993, the Company entered into a five-year nonrecourse loan
agreement with a bank to finance the purchase of two fixed-wing aircraft for
$3,560,000. The resulting notes payable are collateralized by the aircraft and
bear a fixed interest rate of 7%. The notes will be repaid in quarterly
installments through 1998, with a final balloon payment due at maturity.
In February 1994, in connection with the acquisition of certain net
manufacturing assets, the Company issued $41,656,000 in 7% promissory notes due
in 1999. See Note 1 for further information.
In December 1995, in connection with the purchase of 15 helicopters,
one fixed-wing aircraft and a hangar and office facility, the Company issued a
$6,972,000 promissory note due in one year. The note bears no interest and is
secured by the aircraft.
The $3,600,000 principal amount of the Series II Floating Rate
Convertible Subordinated Debenture is convertible into $3,600,000 Series II
Preferred Stock, which may be converted into an aggregate of 400,000 shares of
the Company's common stock. At December 31, 1995 the interest rate was 9.25%.
See Note 3 for further information.
In November 1994, the Company issued $10,300,000 principal amount of
Series III Floating Rate Convertible Subordinated Debentures. The debentures
are convertible into $10,300,000 Series III Preferred Stock, which may be
converted into an aggregate of 1,525,926 shares of the Company's common stock.
The debentures were issued in exchange for promissory notes containing
provisions for setoff. Accordingly, the debentures and notes, and the related
interest amounts, have been offset in the consolidated financial statements
pursuant to Financial Accounting Standards Board Interpretation No. 39. See
Note 3 for further information.
Interest payments for 1995, 1994 and 1993 were $27,433,000,
$26,900,000 and $24,867,000, respectively.
Certain debt agreements of the Company contain provisions that require
an excess of current assets over current liabilities and an excess of
stockholders' equity over consolidated funded indebtedness, and restrict
investments, sale/leaseback transactions, mergers, consolidations, sales of
assets, borrowings, creation of liens, purchases of the Company's capital
stock, and present and future common stock dividend payments. See Note 5 for
further information.
3. STOCKHOLDERS' EQUITY
The Company has two nonqualified stock option plans through which options have
been granted to certain key employees.
The Company's 1980 Nonqualified Stock Option Plan authorized the Board
of Directors to grant, through January 25, 1990, options to purchase a total of
1,000,000 shares of the Company's common stock.
Under the terms of the 1988 Nonqualified Stock Option Plan, as amended
(the "1988 Plan"), the Board of Directors can grant, before January 21, 2003,
options to purchase a total of 7,000,000 shares of the Company's common stock.
At December 31, 1995, options for 5,726,504 shares had been granted at
an exercise price of $1.00 per share and 317 active, key employees had been
granted options.
21
13
Options are exercisable to the extent of 25% after one year from date of grant,
50% after two years, 75% after three years and 100% after four years. All
options not exercised expire ten years after the date of grant.
For financial accounting purposes, the Company recognizes compensation
expense with respect to any nonqualified option in an amount equal to the
difference between the market price per share and the option price per share on
the date of grant. The compensation is recorded as expense over the period in
which the employee performs services to earn the right to exercise the option
and an equal amount is credited to additional paid-in capital.
Stock option activity was as follows:
Number of Shares
--------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------
Stock options outstanding,
January 1 2,182,650 1,616,325 1,490,475
Changes during the year:
Granted, at $1.00
per share 928,000 982,000 707,250
Exercised (537,950) (387,675) (530,650)
Forfeited (73,000) (28,000) (50,750)
- ----------------------------------------------------------------------------------------------
Stock options outstanding,
December 31 2,499,700 2,182,650 1,616,325
==============================================================================================
Stock options exercisable,
December 31 494,513 440,338 317,137
==============================================================================================
Stock options available for
grant, December 31:
1988 Plan 2,608,821 3,463,821 4,417,821
==============================================================================================
The Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan
(the "Plan") provides for the issuance to key employees of up to $20,000,000 in
aggregate principal amount of the Company's floating rate convertible
subordinated debentures. The debentures are initially convertible into
preferred stock which has no voting rights (except as required by law or the
Company's charter), no dividend and a nominal liquidation preference. The
preferred stock is immediately convertible into common stock.
Since the inception of the plan, debentures in the aggregate principal
amount of $19,925,000 have been issued by the Company. At December 31, 1995,
all $5,125,000 principal amount of debentures issued in 1986 had been converted
into common stock at $5.75 per share. In 1987, the Company issued a debenture
in the principal amount of $4,500,000, of which $3,600,000 was outstanding at
December 31, 1995. This residual amount is ultimately convertible into common
stock at $9.00 per share for each $1,000 principal amount of debenture at any
time through September 10, 1997, unless earlier redeemed or the conversion
privilege is terminated. In November 1994, the Company issued debentures in the
principal amount of $10,300,000 which are ultimately convertible into common
stock at $6.75 per share for each $1,000 principal amount of debenture through
November 30, 2004, as follows, unless earlier redeemed or the conversion
privilege is terminated: $2,350,000 through November 29, 1996; $4,800,000 on or
after November 30, 1996; $7,500,000 on or after November 30, 1997 and
$10,300,000 on or after November 30, 1998.
On February 25, 1992, the Company adopted a Stockholder Rights
Agreement to protect against coercive takeover tactics. The agreement provides
for the distribution to the Company's stockholders of one Right for each
outstanding share of common stock. Each Right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Junior Preferred
Stock of the Company at an exercise price of $30. In addition, under certain
circumstances, each Right will entitle the holder to purchase securities of the
Company or an acquiring entity at 1/2 market value. The Rights are exercisable
only if a person or group acquires 15% or more of the Company's outstanding
common stock or makes a tender offer for 30% or more of the Company's
outstanding common stock. The Rights will expire on February 25, 2002. The
Company may generally redeem the Rights at a price of $.01 per Right at any
time until the 10th day following public announcement that a 15% position has
been acquired.
In June 1993, the Company sold 10,000,000 shares of its common stock
in a public offering. Net proceeds of the sale were $91,993,000 after deducting
underwriting commissions and direct offering costs totaling $4,257,000.
4. OTHER CURRENT LIABILITIES
Other current liabilities consisted of (in thousands):
December 31, 1995 1994
- -------------------------------------------------------------------
Gain on sale/leaseback transactions $ 3,198 $ 3,198
Accrued liabilities:
Income taxes 1,321 577
Compensation and related
employee costs 24,578 17,837
Interest 2,012 2,195
Taxes and other 12,949 13,151
- -------------------------------------------------------------------
Total $ 44,058 $ 36,958
===================================================================
5. RESTRICTIONS ON RETAINED EARNINGS
Under the terms of certain debt agreements, the Company has agreed not to
declare dividends or make any distribution on its common stock unless the total
dividends or distributions subsequent to December 31, 1991 are less than the
sum of a) $20,000,000, plus b) 50% of cumulative consolidated net income, if
positive, subsequent to December 31, 1991, plus c) the net proceeds from the
sale of any class of capital stock after December 31, 1991, less d) 100% of
cumulative consolidated net income, if negative, subsequent to December 31,
1991. Under this dividend restriction, the Company had a computed negative
balance of $16,444,000 at December 31, 1995. Subject to these restrictions, the
Board of Directors will determine payment, if any, of future dividends or
distributions in light of conditions then existing, including the Company's
earnings, financial condition and requirements, opportunities for reinvesting
earnings, business conditions and other factors.
22
14
6. BENEFIT PLANS
Since 1952, the Company has sponsored defined benefit pension plans covering
substantially all of its employees. In 1994, in connection with the acquisition
of net manufacturing assets, the Company assumed the assets and obligations of
a separate plan covering manufacturing employees.
Pension benefits are based on an employee's years of service and
average earnings for the five highest consecutive calendar years of
compensation during the ten years immediately preceding retirement. The
Company's policy is to fund the minimum amount required by the Internal Revenue
Code.
The following table sets forth the plans' funded status and the
amounts recognized in the Company's consolidated balance sheet (in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
Vested benefits $107,803 $80,539
====================================================================
Total benefits $115,533 $87,380
====================================================================
Plan assets at fair value $108,056 $88,650
Projected benefit obligation
for service rendered to date 130,722 99,275
- --------------------------------------------------------------------
Plan assets less than projected
benefit obligation 22,666 10,625
Unrecognized net loss (9,857) (2,941)
Unrecognized net benefits being
recognized over 15 years 4,845 6,057
Unrecognized prior service cost (555) (671)
- --------------------------------------------------------------------
Accrued pension cost included in
Current and Other Liabilities $ 17,099 $13,070
====================================================================
The plans' assets consist primarily of equity securities and
U.S. Treasury bonds and notes and, at December 31, 1995, included 1,500,000
shares of the Company's common stock at an average cost of $4.81 per share.
At December 31, 1995, $13,200,000 of the plans' assets were invested
in a dedicated bond fund. The plans had a basis in these assets of $9,900,000
yielding approximately 5.4% to maturity.
Net pension cost included the following components (in thousands):
1995 1994 1993
- ---------------------------------------------------------------------
Service cost - benefits
earned during the period $ 4,335 $ 4,784 $ 3,982
Interest cost on projected
benefit obligation 8,580 7,879 6,796
Actual return on plan
assets - (gain) loss (24,166) 7,264 (8,580)
Net amortization
and deferral 15,280 (17,105) (5)
- ---------------------------------------------------------------------
Net periodic pension cost $ 4,029 $ 2,822 $ 2,193
=====================================================================
Assumptions used in actuarial calculations were:
1995 1994 1993
- --------------------------------------------------------------------
Discount rate 7.25% 8.75% 7.5%
Rate of compensation
increase 4.0% 4.0% 4.5%
Expected rate of return
on plan assets 9.0% 9.0% 9.0%
- --------------------------------------------------------------------
The Company also sponsors pension restoration plans to supplement the
benefits for certain key executives that would otherwise be limited by Section
415 of the Internal Revenue Code. The plans are unfunded and had projected
benefit obligations at December 31, 1995 and 1994 of $3,021,000 and $2,404,000,
respectively. The net pension liabilities included in the Company's
consolidated balance sheet were $2,230,000 and $1,497,000 at December 31, 1995
and 1994, respectively. Net pension cost was $473,000 in 1995, $437,000 in 1994
and $408,000 in 1993.
In addition to pension benefits, the Company provides certain health
care and life insurance benefits for retired employees. Substantially all of
the Company's drilling and aviation employees may become eligible for those
benefits if they reach normal retirement age while working for the Company.
The following table sets forth the plan's status and the amounts
recognized in the Company's consolidated balance sheet (in thousands):
December 31, 1995 1994
- --------------------------------------------------------------------
Accumulated postretirement
benefit obligations:
Retirees $12,006 $8,081
Fully eligible active plan
participants 7,751 5,388
Other active plan participants 11,570 9,057
- --------------------------------------------------------------------
Total benefits 31,327 22,526
Unrecognized transition obligation
being recognized over 20 years (12,859) (17,022)
Unrecognized net gain (loss) (8,870) 1,195
- --------------------------------------------------------------------
Accrued postretirement benefit cost
included in Other Liabilities $9,598 $6,699
====================================================================
The actuarially determined accumulated postretirement benefit
obligation reflects health care cost trend rates of 12% for 1995 and decreasing
by 1% annually through 2001 and a discount rate of 7.25%. A one percentage
point increase in the assumed health care cost trend rate would increase net
periodic postretirement benefit cost by approximately $353,000 and increase the
accumulated postretirement benefit obligation by approximately $2,986,000.
23
15
Net postretirement benefit cost included the following components
(in thousands):
1995 1994 1993
- ------------------------------------------------------------------------
Service cost $ 1,157 $ 1,475 $ 1,039
Interest cost 1,998 1,799 1,537
Net amortization and
deferral 797 1,003 946
- ------------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 3,952 $ 4,277 $ 3,522
========================================================================
Cash payments for postretirement benefits in 1995, 1994 and 1993 were
approximately $1,052,000, $614,000 and $500,000, respectively.
Effective April 1, 1995, the Company commenced the Rowan Companies,
Inc. Savings and Investment Plan in conformity with Section 401(k) of the
Internal Revenue Code. The plan, to which the Company contributed about
$988,000 in 1995, covers all drilling and aviation employees. Manufacturing
employees are covered by a separate plan to which the Company contributed
approximately $620,000 and $433,000 in 1995 and 1994, respectively.
7. INCOME TAXES
The detail of income tax provisions (credits) is presented below (in
thousands):
1995 1994 1993
- -------------------------------------------------------------------------
Current:
Federal $ 87 $ (98) $ 123
Foreign 787 145 501
State 202 268
- -------------------------------------------------------------------------
Total current provision 1,076 315 624
Deferred - foreign and other (322) 154 (912)
- -------------------------------------------------------------------------
Total income tax
provision (credit) $ 754 $ 469 $ (288)
=========================================================================
Total income tax expense (credit) shown in the consolidated statement
of operations is reconciled to the amount that would be computed if the income
(loss) before income taxes was multiplied by the federal income tax rate
(statutory rate) as follows (in thousands):
1995 1994 1993
- -------------------------------------------------------------------------
Statutory rate 35% 35% 35%
Tax at statutory rate $(6,189) $(7,883) $(4,742)
Increase (decrease)
in taxes resulting from:
Limitation on utilization
of tax benefits 6,224 7,663 3,679
Additional taxes on
foreign source income 465 753 551
Alternative minimum tax 87 (98) 123
Other - net 167 34 101
- -------------------------------------------------------------------------
Total income tax
provision (credit) $754 $469 $(288)
=========================================================================
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities at December 31, 1995 and 1994 were as follows (in
thousands):
December 31, 1995 1994
- ---------------------------------------------------------------------
Deferred tax asset:
Deferred sale/leaseback gain $ 5,443 $ 6,563
Accrued pension and
postretirement benefit costs 10,190 7,454
ESOP/PAYSOP contributions 1,428 1,753
Net operating loss carryforward 97,608 95,352
Investment tax credit carryforward 49,495 56,450
Other 3,546 3,256
- ---------------------------------------------------------------------
167,710 170,828
Valuation allowance (69,278) (69,031)
- ---------------------------------------------------------------------
98,432 101,797
- ---------------------------------------------------------------------
Deferred tax liability:
Property, plant and equipment 99,162 102,113
Foreign income taxes 2,632 3,030
Other 784 1,122
- ---------------------------------------------------------------------
102,578 106,265
- ---------------------------------------------------------------------
Deferred tax liability - net $4,146 $4,468
=====================================================================
The valuation allowance at December 31, 1995 primarily consisted of
investment tax credit carryforwards ($49.5 million) and a portion of the net
operating loss carryforward ($18.8 million) which are forecast as not being
utilized prior to their statutory expiration dates. The valuation allowance
increased by $247,000 in 1995 primarily as a result of the Company's loss in
the current year which was offset by expiring tax credits.
At December 31, 1995, the Company had $45,414,000 of regular
investment tax credits and $4,081,000 of ESOP (Employee Stock Ownership Plan)
tax credits available for application against future federal taxes payable.
Total credits, if not utilized, will expire as follows: 1996 - $12,772,000,
1997 - $11,069,000, 1998 - $8,026,000, 1999 - $10,110,000, 2000 - $2,017,000
and 2001 - $5,501,000.
At December 31, 1995, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $278,880,000 which will
expire, if not utilized, as follows: 2001 - $89,438,000, 2002 - $129,124,000,
2006 - $1,860,000, 2007 - $50,260,000, 2008 - $3,002,000, 2009 - $1,465,000 and
2010 - $3,731,000.
Deferred income taxes not provided for undistributed earnings of
foreign subsidiaries, because such earnings are considered permanently invested
abroad, amounted to approximately $3,900,000 at December 31, 1995.
Loss before income taxes consisted of $(17,292,000), $(21,640,000) and
$(10,346,000) of domestic losses, and $(390,000), $(880,000) and $(3,201,000)
of foreign losses for 1995, 1994 and 1993, respectively.
Income tax payments exceeded refunds by $388,000 in 1995, $393,000 in
1994 and $248,000 in 1993.
24
16
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 1995, the carrying amount of the Company's cash and cash
equivalents approximated fair value due to the short maturity of the
instruments. Except for the 11 7/8% Senior Notes discussed below, the carrying
amount of the Company's long-term debt was estimated to approximate its fair
value at December 31, 1995 based upon quoted market prices for similar issues.
The 11 7/8% Senior Notes had a fair value of $216,000,000 at December
31, 1995, or a $16,000,000 premium to carrying value, based upon the closing
price quoted on the New York Stock Exchange.
9. COMMITMENTS AND CONTINGENT LIABILITIES
During 1984 and 1985, the Company sold two cantilever jack-ups, Rowan-Halifax
and Cecil Provine, for a total of $126,500,000 in cash and leased each rig back
under 15-year operating leases at effective interest rates of 9.3% and 8.0%,
respectively. In each of 1999 and 2000, the Company will have an option to
purchase the respective rig at the then fair market value, terminate the lease,
or renew the lease at the lesser of a) a fixed rental renewal of 50% of the
weighted average amount of the semi-annual installments during the basic term,
or b) a fair market rental renewal. Each transaction resulted in a gain which
is being recognized over the respective lease term.
Total payments to be made under the sale/leaseback agreements are
being expensed on a straight-line basis though the payments are variable. Other
liabilities at December 31, 1995 and 1994 included the excess of inception-to-
date sale/leaseback expenses over related payments of $12,857,000 and
$14,089,000, respectively.
The Company has operating leases covering aircraft hangars, offices
and computer equipment and the sale/leaseback rigs. Net rental expense under
all operating leases was $20,113,000 in 1995, $20,756,000 in 1994 and
$17,633,000 in 1993.
As of December 31, 1995, the future minimum payments to be made under
noncancelable operating leases were (in thousands):
1996 $ 21,538
1997 23,592
1998 19,161
1999 21,232
2000 17,646
Later years 1,717
- -----------------------------------------------
Total $ 104,886
===============================================
Capital expenditures for 1996 are estimated as follows: reactivation
of the Company's Vicksburg shipyard ($20 million), progress toward construction
of Rowan Gorilla V ($40 million) and other asset purchases or enhancements ($20
to $25 million).
In the Company's opinion, at December 31, 1995, there were no
contingencies, claims or lawsuits against the Company which could have a
material adverse effect on its financial position or results of operations.
10. SEGMENTS OF BUSINESS
The Company has three principal segments of business: contract and turnkey
drilling of oil and gas wells, both onshore and offshore ("Drilling"), charter
helicopter and fixed-wing aircraft services ("Aviation") and, beginning in
1994, manufacture of heavy equipment for the mining, timber and transportation
industries, alloy steel and steel plate and marine drilling equipment
("Manufacturing").
Drilling services are provided in both domestic and foreign areas.
Aviation services primarily include charter airline, flightseeing and forest
fire control services in Alaska as well as oil and gas related services in the
Gulf of Mexico. Manufacturing operations are primarily conducted in Longview,
Texas, but sales and services are carried out throughout the United States and
in many foreign locations.
Total revenues reported by industry segments consist principally of
revenues from unaffiliated customers. The Company had revenues, primarily from
drilling operations, in excess of 10% of consolidated revenues from one
customer in each of 1995 (11%), 1994 (10%) and 1993 (17%).
The Company believes that it has no significant concentrations of
credit risk. The Company has never experienced any significant credit losses
and its drilling and aviation services customers have heretofore primarily been
large energy companies and government bodies. The addition of manufacturing
operations in 1994 has diversified the Company's operations and attendant
credit risk. Further, the Company retains the ability to relocate its major
drilling and aviation assets over significant distances on a timely basis in
response to changing market conditions.
Assets are identified to a segment by their direct use. The Company
classifies its drilling rigs for segment purposes as domestic or foreign based
upon the drilling rig's country of registry. Accordingly, drilling rigs
registered in the United States are classified with domestic operations and
revenues generated from foreign operations of these rigs are considered export
revenues. Revenues generated by foreign-registered drilling rigs from
operations offshore the United States are classified as foreign revenues.
Assuming revenues derived from all drilling operations within the United
States, both onshore and offshore, were treated as domestic revenues and export
revenues were treated as foreign revenues, revenues from foreign drilling
operations would have been $82,453,000 in 1995.
Domestic drilling operations included export revenues of $82,177,000
in 1995, $84,025,000 in 1994 and $79,697,000 in 1993. Except for $39,826,000 in
1995, $34,533,000 in 1994 and $38,005,000 in 1993, from other foreign areas,
such export revenues were generated from North Sea operations. Manufacturing
operations included export sales of $48,222,000 in 1995 and $34,543,000 in
1994.
At December 31, 1995, 27 drilling rigs, including 15 offshore rigs,
with a carrying value of $217,755,000 were located in the United States and 11
drilling rigs, including 6 offshore rigs, with a carrying value of $129,599,000
were located in foreign jurisdictions.
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Information concerning the Company's operations is summarized by
segment as follows (in thousands):
1995 1994 1993
- ----------------------------------------------------------------------------
Revenues:
Drilling services:
Domestic $ 224,563 $ 217,395 $ 243,993
Foreign 25,517 28,522 27,029
Manufacturing sales and services 133,755 96,664
Aviation services 87,462 95,578 82,174
- ----------------------------------------------------------------------------
Consolidated $ 471,297 $ 438,159 $ 353,196
============================================================================
Operating profit (loss):
Drilling services:
Domestic $ 5,902 $ 4,771 $ 22,856
Foreign (883) (4,597) (3,803)
Manufacturing sales and services 11,737 7,667
Aviation services (4,319) 4,614 2,248
- ----------------------------------------------------------------------------
Consolidated 12,437 12,455 21,301
Gain on disposals of property, plant
and equipment 6,598 1,344 1,955
Interest and other income 5,677 5,073 2,498
General and administrative (14,692) (13,862) (13,940)
Interest expense (27,702) (27,530) (25,361)
- ----------------------------------------------------------------------------
Income (loss) before income taxes $ (17,682) $ (22,520) $ (13,547)
============================================================================
Identifiable assets at
December 31:
Drilling services:
Domestic $ 483,354 $ 531,990 $ 584,583
Foreign 56,077 40,863 41,687
Manufacturing sales and services 108,798 83,616
Aviation services 154,259 148,710 138,993
- ----------------------------------------------------------------------------
Total assets $ 802,488 $ 805,179 $ 765,263
============================================================================
Certain other financial information for each of the Company's
principal business segments is summarized as follows (in thousands):
1995 1994 1993
- ----------------------------------------------------------------------------
Depreciation and amortization:
Drilling $ 37,127 $ 38,166 $ 40,874
Aviation 11,788 11,009 11,044
Manufacturing 1,640 1,615
Capital expenditures:
Drilling 14,846 17,033 12,741
Aviation 12,897 14,657 9,248
Manufacturing 6,138 11,687
Maintenance and repairs:
Drilling 25,870 27,237 22,129
Aviation 13,911 16,138 10,197
Manufacturing 9,071 7,836
- ----------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
A member of the Company's Board of Directors also serves as a director of one
of the Company's 1995 drilling customers. The transaction with this customer
involved a day rate and operating costs which were comparable to those
experienced by the Company in connection with third party contracts for similar
rigs. Because of the aforementioned relationship, the contract between the
Company and the customer was reviewed and ratified by the Board of Directors of
the Company. Related 1995 revenues were $2,755,000.
The chairman of the board of one of the Company's drilling customers
served as a director of the Company until April 1993. Transactions with this
customer involved day rates and operating costs which were comparable to those
experienced by the Company in connection with third party contracts for similar
rigs. Because of the aforementioned relationship, each drilling contract
between the Company and the customer was reviewed and ratified by the Board of
Directors of the Company during his tenure as a board member. Related 1993
revenues were $3,469,000.
In 1993, a director of the Company was an investment banker with one
of the underwriters of the Company's 10,000,000 share common stock offering.
That underwriter received $2,876,000 in commissions from the offering.
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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited information for the quarters ended March 31, June 30,
September 30 and December 31, 1994 and 1995 includes, in the Company's opinion,
all adjustments (which comprise only normal recurring accruals) necessary for a
fair presentation of such amounts (in thousands except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
1994:
Revenues $100,704 $105,380 $129,219 $102,856
Operating
profit (loss) 3,432 3,596 13,859 (8,432)
Net income (loss) (5,958) (5,862) 5,646 (16,815)
Earnings (loss) per
common share (.07) (.07) .07 (.20)
- -------------------------------------------------------------------------------------------
1995:
Revenues $92,797 $117,382 $134,343 $126,775
Operating
profit (loss) (13,637) 5,261 10,184 10,629
Net income (loss) (21,735) (3,706) 663 6,342
Earnings (loss) per
common share (.26) (.04) .01 .07
- -------------------------------------------------------------------------------------------
COMMON STOCK PRICE RANGE,
CASH DIVIDENDS AND STOCK SPLITS (UNAUDITED)
The price range below is as reported by the New York Stock Exchange on the
Composite Tape. On February 28, 1996 there were approximately 3,400 holders of
record.
Quarter 1995 1994
- -------------------------------------------------------------------------------------------
High Low High Low
---------------------------------------------------------------
First $6.75 $5.38 $9.13 $6.88
Second 8.38 6.38 8.75 6.63
Third 8.63 6.75 9.25 7.00
Fourth 10.00 6.00 7.88 5.75
- -------------------------------------------------------------------------------------------
The Company did not pay any dividends on its common stock during 1995
and 1994. See Note 5 of the Notes to the Consolidated Financial Statements for
restrictions on dividends.
Stock splits and stock dividends since the Company became publicly
owned in 1967 have been as follows: 2 for 1 stock splits on January 25, 1973,
December 16, 1976 and May 13, 1980; 2 for 1 stock splits effected in the form
of a stock dividend on February 6, 1978 and January 20, 1981; and a 5% stock
dividend on May 21, 1975.
On the basis of these splits and dividends, each share acquired prior
to January 25, 1973 would be represented by 33.6 shares if still owned at
present.
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