1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____TO_____
ROWAN COMPANIES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5491 75-0759420
- ------------------------------------------- -------------------------- --------------------------
(State or other jurisdiction of Commission File (I.R.S. Employer
incorporation or organization) Number Identification No.)
5450 Transco Tower, 2800 Post Oak Boulevard, Houston, Texas 77056-6196
- ----------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 621-7800
-------------------------------------------------------
Registrant's telephone number, including area code
Inapplicable
-------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
------ ------
The number of shares of common stock, $.125 par value, outstanding at April 30,
1996 was 85,149,285.
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ROWAN COMPANIES, INC.
INDEX
Page No.
--------
PART I. Financial Information:
Consolidated Balance Sheet --
March 31, 1996 and December 31, 1995 . . . . . . . . . . 2
Consolidated Statement of Operations --
Three Months Ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II. Other Information:
Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . 11
Exhibits and Reports on Form 8-K . . . . . . . . . . . 11
3
PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
March 31, December 31,
1996 1995
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 85,101 $ 90,338
Receivables - trade and other .................... 91,171 87,811
Inventories - at cost:
Raw materials and supplies ..................... 53,505 51,898
Work-in-progress ............................... 26,141 23,015
Finished goods ................................. 688 708
Prepaid expenses ................................. 12,626 11,430
Cost of turnkey drilling contracts in progress ... 9,739 8,259
---------- ----------
Total current assets ................ 279,571 273,459
---------- ----------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANIES .. 29,121 29,770
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment................................ 945,651 944,021
Aircraft and related equipment ................... 186,953 189,954
Manufacturing plant and equipment ................ 24,638 25,037
Other property and equipment ..................... 93,441 91,089
Construction in progress ......................... 11,476
---------- ----------
Total ............................... 1,262,159 1,250,101
Less accumulated depreciation and amortization ... 774,199 763,062
---------- ----------
Property, plant and equipment - net.. 487,960 487,039
---------- ----------
OTHER ASSETS AND DEFERRED CHARGES .................. 11,776 12,220
---------- ----------
TOTAL ............................... $ 808,428 $ 802,488
========== ==========
See Notes to Consolidated Financial Statements.
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March 31, December 31,
1996 1995
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable and current maturities of long-term
debt ........................................... $ 4,216 $ 7,039
Accounts payable - trade ......................... 24,167 21,774
Other current liabilities ........................ 52,750 44,058
---------- ----------
Total current liabilities ........... 81,133 72,781
---------- ----------
LONG-TERM DEBT - less current maturities ........... 247,664 247,744
---------- ----------
OTHER LIABILITIES .................................. 30,544 36,227
---------- ----------
DEFERRED CREDITS:
Income taxes ..................................... 4,566 4,146
Gain on sale/leaseback transactions .............. 11,557 12,345
---------- ----------
Total deferred credits .............. 16,123 16,491
---------- ----------
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 86,489,954
shares at March 31, 1996 and 86,353,792 shares
at December 31, 1995 ........................... 10,811 10,794
Additional paid-in capital ......................... 397,527 396,092
Retained earnings .................................. 27,111 24,754
Less cost of 1,457,919 treasury shares ............. 2,485 2,485
---------- ----------
Total stockholders' equity .......... 432,964 429,155
---------- ----------
TOTAL ............................... $ 808,428 $ 802,488
========== ==========
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
Ended March 31,
------------------------
1996 1995
--------- ---------
(Unaudited)
REVENUES:
Drilling services.................................................... $ 71,051 $ 46,870
Manufacturing sales and services..................................... 35,948 29,975
Aircraft services.................................................... 19,809 15,952
-------- --------
Total.............................................. 126,808 92,797
-------- --------
COSTS AND EXPENSES:
Drilling services.................................................... 52,764 47,758
Manufacturing sales and services..................................... 32,472 27,801
Aircraft services.................................................... 19,210 18,140
Depreciation and amortization........................................ 12,047 12,735
General and administrative........................................... 4,021 3,589
-------- --------
Total.............................................. 120,514 110,023
-------- --------
INCOME (LOSS) FROM OPERATIONS................................................. 6,294 (17,226)
-------- --------
OTHER INCOME (EXPENSE):
Interest expense..................................................... (6,907) (6,912)
Less: interest capitalized........................................... 207
Gain on disposals of property, plant and equipment................... 1,595 741
Interest income...................................................... 1,209 1,493
Other - net.......................................................... 84 102
-------- --------
Other income (expense) - net....................... (3,812) (4,576)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES............................................. 2,482 (21,802)
Provision (credit) for income taxes.................................. 125 (67)
-------- --------
NET INCOME (LOSS)............................................................. $ 2,357 $(21,735)
======== ========
EARNINGS (LOSS) PER COMMON SHARE (Note 4)........................................$ .03 $ (.26)
======== ========
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
For The Three Months
Ended March 31,
------------------------
1996 1995
---------- ---------
(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss)........................................... $ 2,357 $(21,735)
Noncash charges (credits) to net income (loss):
Depreciation and amortization............................. 12,047 12,735
Gain on disposals of property, plant and equipment........ (1,595) (741)
Compensation expense...................................... 1,103 1,038
Change in sale/leaseback payable.......................... (4,101) (3,898)
Amortization of sale/leaseback gain....................... (788) (789)
Provision for pension and postretirement benefits......... 2,110 1,701
Other - net............................................... 1,182 41
Changes in current assets and liabilities:
Receivables-trade and other............................... (3,960) 10,909
Inventories............................................... (4,713) (10,190)
Other current assets...................................... (3,364) (5,971)
Current liabilities....................................... 7,521 9,123
Net changes in other noncurrent assets and liabilities...... 1,073 1,313
-------- --------
Net cash provided by (used in) operations..................... 8,872 (6,464)
-------- --------
Investing activities:
Property, plant and equipment additions..................... (16,605) (7,058)
Repayments from affiliates.................................. 535
Proceeds from disposals of property, plant and equipment.... 2,471 1,015
-------- --------
Net cash used in investing activities......................... (14,134) (5,508)
-------- --------
Financing activities:
Repayments of borrowings.................................... (74) (70)
Other - net................................................. 99 40
-------- --------
Net cash provided by (used in) financing activities........... 25 (30)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS........................... (5,237) (12,002)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................. 90,338 111,070
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................ $ 85,101 $ 99,068
======== ========
See Notes to Consolidated to 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 generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission. Certain information and notes have been condensed or omitted
pursuant to such rules and regulations and the Company believes that the
disclosures included herein are adequate. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and related notes included in the Company's 1995 Annual Report
to Stockholders incorporated by reference in the Form 10-K for the year
ended December 31, 1995.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments and reclassifications, which
are of a normal recurring nature, necessary to present fairly its financial
position as of March 31, 1996 and December 31, 1995, and the results of
its operations and its cash flows for the three months ended March 31, 1996
and 1995.
3. The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
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4. Computation of primary and fully diluted earnings (loss) per share is as
follows (in thousands except per share amounts):
For The
Three Months Ended
March 31,
---------------------
1996 1995
-------- --------
Weighted average shares of common
stock outstanding ............................... 84,984 84,301
Stock options and related (treasury stock method) . 1,847 (A) 266 (A)
------- --------
Weighted average shares for primary
earnings (loss) per share calculation ........... 86,831 84,567
Stock options and related (treasury stock method) . 306 (A) 235 (A)
Shares issuable from assumed conversion
of the Series II Convertible Subordinated
Debenture ...................................... 400 (A) 400 (A)
------- --------
Weighted average shares for fully diluted
earnings (loss) per share calculation ........... 87,537 85,202
======= ========
Net income (loss) for primary calculation ......... $ 2,357 $(21,735)
Subordinated debenture interest, net of income
tax effect....................................... 82 91
------- --------
Net income (loss) for fully diluted calculation.... $ 2,439 $(21,644)
======= ========
Earnings (loss) per share:
Primary ......................................... $ .03 $ (.26)
======= ========
Fully diluted ................................... $ .03 $ (.25)(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
Three Months Ended March 31, 1996 Compared to
Three Months Ended March 31, 1995
The Company achieved net income of $2.4 million in the first quarter
of 1996 compared to a net loss of $21.7 million in the same period of 1995.
The improved results were primarily attained through increased drilling
activity, continued strengthening of offshore drilling day rates and favorable
manufacturing and aviation operations.
A comparison of the revenues and operating profit (loss) from
drilling, manufacturing, aviation and consolidated operations for the first
quarters of 1996 and 1995, respectively, is reflected below (dollars in
thousands):
<Captaion>
Drilling Manufacturing Aviation Consolidated
-------------------- -------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
Revenues $ 71,051 $ 46,870 $ 35,948 $ 29,975 $ 19,809 $ 15,952 $126,808 $ 92,797
Percent of Consolidated
Revenues 56% 51% 28% 32% 16% 17% 100% 100%
Operating Profit (loss)(1) $ 9,552 $(10,292) $ 2,990 $ 1,792 $ (2,227) $ (5,137) $ 10,315 $(13,637)
________________________________________________________________________________
(1) Income (loss) from operations before deducting general and administrative
expenses.
As reflected above, the Company's consolidated operating results
improved by $24.0 million when the first quarter of 1996 is compared to the
first quarter of 1995. Day rate drilling revenues increased by $27.0 million
as the Company's offshore drilling rigs achieved 95% utilization during the
first quarter of 1996, compared to 75% utilization in the first quarter of
1995, and a 23% increase in average day rates between periods. Turnkey
drilling generated first quarter 1996 revenues of $8.2 million and an
incremental operating loss of $1.6 million, compared to $11.0 million in
revenues and an incremental operating loss of $.7 million in the year-earlier
period.
The Company's manufacturing operations have consistently yielded
positive operating results since their acquisition in early 1994. The
improvements in manufacturing revenues and operating profit noted above
resulted primarily from increased heavy equipment sales volume between periods,
particularly for the mining and timber industries.
The aviation operating results in both quarters reflect the normal
seasonal slowdown in flying activity in Alaska, although the 1996 results were
improved as demand for the Company's flying services increased in all markets.
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Perceptible trends in the offshore drilling markets in which the
Company is currently operating and the number of Company-operated rigs in each
of those markets are as follows:
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
---- ---- ---------------------------
Gulf of Mexico 15 Continuing high levels of exploration and development activity
North Sea 4 Continuing high levels of drilling activity for jack-up rigs
Eastern Canada 2 Improving demand
The preceding table reflects the relocation of Rowan Gorilla IV to
eastern Canada from the Gulf of Mexico and Rowan Gorilla II to the Gulf of
Mexico from Trinidad, both in April 1996.
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 (1) PERCEPTIBLE INDUSTRY TRENDS
---- ------------ ---------------------------
Alaska 68 Normal seasonal improvement
Gulf of Mexico 40 Moderately improving market conditions
China 2 Generally stable flight support activity
North Sea (Dutch) 10 Generally stable flight support activity
North Sea (U. K.) 5 Improving flight support activity
- ----------------------------
(1) Includes 13 units which are 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 a function of the
demand for drilling services, as measured by the level of exploration and
development expenditures, and the supply of capable drilling equipment. These
expenditures, in turn, are affected by many factors such as existing and newly
discovered oil and natural gas reserves, political and regulatory policies,
seasonal weather patterns, contractual requirements under leases or concessions
and, probably most influential, oil and natural gas prices. The Company's
aviation operations are also affected by such factors, as flying in support of
offshore energy operations remains a major source of business and Alaska
operations are hampered each winter. The volatile nature of such factors
prevents the Company from being able to predict whether existing market
conditions or the perceptible market trends reflected in the preceding tables
will continue. Assuming such conditions and trends prevail, however, the
Company should remain profitable throughout 1996. 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 fundamentals, but only when
these moves are economically justified.
The Company's manufacturing operations are considerably less volatile
than its drilling and aviation operations and, given current backlog levels and
barring unforeseen circumstances, should continue to contribute positive
operating results throughout the remainder of 1996.
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LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of March 31,
1996 and December 31, 1995 is as follows (dollars in thousands):
March 31, December 31,
1996 1995
--------- ------------
Cash and cash equivalents $85,101 $90,338
Current assets $279,571 $273,459
Current liabilities $81,133 $72,871
Current ratio 3.45 3.75
Note payable and current maturities of long-term debt $4,216 $7,039
Long-term debt $247,664 $247,744
Stockholders' equity $432,964 $429,155
Long-term debt/total capitalization .36 .37
Reflected in the comparison above are the effects in the first quarter
of 1996 of net cash provided by operations of $8.9 million, proceeds from sales
of primarily aviation equipment of $2.5 million and capital expenditures of
$16.6 million.
During the first quarter of 1996, the Company completed the design and
began the 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 should be completed by mid-1998
at an estimated cost of $170 million. The Company expects to finance a
significant portion of the construction cost and is currently evaluating credit
alternatives. The reactivation of the Company's marine construction
capability, principally through rebuilding of the Vicksburg shipyard, is
expected to cost approximately $20 million.
Capital expenditures during the first quarter were primarily related
to construction of Gorilla V and the reactivation of the Vicksburg shipyard.
The Company estimates remaining 1996 capital expenditures will be between $70
million and $75 million, including approximately $35 million and $15 million,
respectively, for Gorilla V and the Vicksburg shipyard. The Company may also
spend amounts to acquire additional aircraft as market conditions justify and
to upgrade existing offshore rigs.
Based upon current operating levels and the previously discussed
market trends, management believes that remaining 1996 operations, together
with existing working capital, will generate sufficient cash flow to sustain
planned capital expenditures and debt service requirements for the remainder of
1996. The Company does not currently have any unused lines of credit.
Under the terms of its 11 7/8% Senior Notes, the Company is prohibited
from paying a cash dividend on its common stock.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders on April 26, 1996, stockholders
elected the three nominees for Class II Director as set forth in the
Company's Proxy Statement relating to the meeting. With respect to
such election, proxies were solicited pursuant to Regulation 14 under
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to such nominees. The following numbers of votes were cast
as to the Class II Director nominees: Ralph E. Bailey, 51,010,610 votes
for and 4,786,302 votes against; Honorable Colin B. Moynihan,
50,996,777 votes for and 4,800,135 votes against; and C. W. Yeargain,
51,005,541 votes for and 4,791,371 votes against.
Also at the meeting, stockholders approved, for consideration by the
Board of Directors, the following proposals, as set forth in the
Company's Proxy Statement relating to the meeting:
The proposal pertinent to declassifying the Company's Board of
Directors received 33,779,484 votes in the affirmative, or
39.7% of the 85,017,535 shares of record. Shares voted against
the proposal aggregated 20,534,057, including 7,016,883 of
non-votes, and 1,483,371 shares abstained from voting.
The proposal pertinent to matters associated with the Company's
Stockholders Rights Agreement received 38,552,087 votes in the
affirmative, or 45.3% of the 85,017,535 shares of record.
Shares voted against the proposal aggregated 16,996,247,
including 7,016,883 of non-votes, and 248,578 shares abstained
from voting.
The Board of Directors considered both proposals at its meeting on
April 26, 1996, but determined not to propose amendments to the
Company's Certificate of Incorporation and Bylaws at this time.
The Company's Proxy Statement relating to the 1996 Annual Meeting of
Stockholders dated March 11, 1996 is filed as an exhibit to this Form
10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) The following is a list of Exhibits filed with this Form 10-Q:
3(a) - Amendment dated April 26, 1996 to the Bylaws, as
Amended
3(b) - Bylaws, as Amended, as of April 26, 1996
27 - Financial Data Schedule
99 - Proxy Statement dated March 11, 1996
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
first quarter of fiscal year 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROWAN COMPANIES, INC.
(Registrant)
Date: May 13, 1996 /s/ E. E. THIELE
--------------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: May 13, 1996 /s/ W. H. WELLS
--------------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
3a - Amendment dated April 26, 1996 to the Bylaws, as
Amended
3b - Bylaws, as Amended, as of April 26, 1996
27 - Financial Data Schedule
99 - Proxy Statement dated March 11, 1996