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, 1997
[ ] 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,
1997 was 85,753,234.
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ROWAN COMPANIES, INC.
INDEX
Page No.
--------
PART I. Financial Information:
Consolidated Balance Sheet --
March 31, 1997 and December 31, 1996 . . . . . . . . . . 2
Consolidated Statement of Operations --
Three Months Ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows --
Three Months Ended March 31, 1997
and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . 12
Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
3
PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
March 31, December 31,
1997 1996
---------- ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 116,924 $ 97,225
Receivables - trade and other ........................... 107,326 112,836
Inventories - at cost:
Raw materials and supplies ............................ 64,265 65,734
Work-in-progress ...................................... 26,287 21,181
Finished goods ........................................ 1,867 1,758
Prepaid expenses ........................................ 10,885 8,750
Cost of turnkey drilling contracts in progress .......... 9,835
---------- ----------
Total current assets ....................... 327,554 317,319
---------- ----------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANIES ......... 26,580 28,049
---------- ----------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment ...................................... 958,531 954,249
Aircraft and related equipment .......................... 190,098 188,681
Manufacturing plant and equipment ....................... 45,586 37,377
Construction in progress ................................ 98,567 77,318
Other property and equipment ............................ 95,249 94,517
---------- ----------
Total ...................................... 1,388,031 1,352,142
Less accumulated depreciation and amortization .......... 815,263 805,942
---------- ----------
Property, plant and equipment - net ...... 572,768 546,200
---------- ----------
OTHER ASSETS AND DEFERRED CHARGES ......................... 7,007 7,740
---------- ----------
TOTAL ...................................... $ 933,909 $ 899,308
========== ==========
See Notes to Consolidated Financial Statements.
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March 31, December 31,
1997 1996
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt ............... $ 56,008 $ 3,932
Accounts payable - trade ............................................. 34,887 28,106
Other current liabilities ............................................ 49,689 53,236
-------- --------
Total current liabilities ................................... 140,584 85,274
-------- --------
LONG-TERM DEBT - less current maturities ................................. 235,874 267,321
-------- --------
OTHER LIABILITIES ........................................................ 45,715 39,573
-------- --------
DEFERRED CREDITS:
Income taxes ......................................................... 1,674 1,774
Gain on sale/leaseback transactions .................................. 8,358 9,147
-------- --------
Total deferred credits ...................................... 10,032 10,921
-------- --------
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 87,151,753
shares at March 31, 1997 and 87,054,028 shares
at December 31, 1996 .............................................. 10,894 10,882
Additional paid-in capital ............................................... 403,050 401,730
Retained earnings ........................................................ 90,245 86,092
Less cost of 1,457,919 treasury shares ................................... 2,485 2,485
-------- --------
Total stockholders' equity .................................. 501,704 496,219
-------- --------
TOTAL ....................................................... $933,909 $899,308
======== ========
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,
----------------------
1997 1996
--------- ---------
(Unaudited)
REVENUES:
Drilling services ..................................... $ 89,603 $ 71,051
Manufacturing sales and services ...................... 36,644 35,948
Aviation services ..................................... 18,518 19,809
--------- ---------
Total ........................................ 144,765 126,808
--------- ---------
COSTS AND EXPENSES:
Drilling services ..................................... 65,971 52,764
Manufacturing sales and services ...................... 32,085 32,472
Aviation services ..................................... 20,064 19,210
Depreciation and amortization ......................... 11,367 12,047
General and administrative ............................ 4,292 4,021
--------- ---------
Total ........................................ 133,779 120,514
--------- ---------
INCOME FROM OPERATIONS .................................... 10,986 6,294
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ...................................... (7,344) (6,907)
Less: interest capitalized ............................ 1,941 207
Gain on disposals of property, plant and equipment .... 894 1,595
Interest income ....................................... 1,316 1,209
Other - net ........................................... 72 84
--------- ---------
Other income (expense) - net ................. (3,121) (3,812)
--------- ---------
INCOME BEFORE INCOME TAXES ................................ 7,865 2,482
Provision for income taxes ............................ 234 125
--------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ........................ 7,631 2,357
Extraordinary charge from early redemption of debt .... (3,478)
========= =========
NET INCOME ................................................ $ 4,153 $ 2,357
========= =========
PER COMMON SHARE (Note 4):
Income before extraordinary charge .................... $ .09 $ .03
Extraordinary charge from early redemption of debt .... (.04)
--------- ---------
Net income:
Primary ............................................ $ .05 $ .03
========= =========
Fully diluted ...................................... $ .05 $ .03
========= =========
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,
-----------------------
1997 1996
--------- ----------
(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income ...................................................... $ 4,153 $ 2,357
Noncash charges (credits) to net income:
Depreciation and amortization ................................ 11,367 12,047
Gain on disposals of property, plant and equipment ........... (894) (1,595)
Compensation expense ......................................... 1,236 1,103
Change in sale/leaseback payable ............................. (4,536) (4,101)
Amortization of sale/leaseback gain .......................... (789) (788)
Provision for pension and postretirement benefits ............ 2,076 2,110
Other - net .................................................. 1,768 1,182
Changes in current assets and liabilities:
Receivables- trade and other ................................. 5,510 (3,960)
Inventories .................................................. (3,746) (4,713)
Other current assets ......................................... 7,700 (3,364)
Current liabilities .......................................... 12,003 7,521
Net changes in other noncurrent assets and liabilities .......... (127) 1,073
--------- ---------
Net cash provided by operations ..................................... 35,721 8,872
--------- ---------
Investing activities:
Property, plant and equipment additions ......................... (38,774) (16,605)
Repayments from affiliates ...................................... 225
Proceeds from disposals of property, plant and equipment ....... 1,802 2,471
--------- ---------
Net cash used in investing activities ............................... (36,747) (14,134)
--------- ---------
Financing activities:
Proceeds from borrowings ....................................... 20,709
Repayments of borrowings ........................................ (80) (74)
Other - net ..................................................... 96 99
--------- ---------
Net cash provided by financing activities ........................... 20,725 25
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... 19,699 (5,237)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 97,225 90,338
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... $ 116,924 $ 85,101
========= =========
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of the Company included herein
have been prepared without audit pursuant to 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 1996 Annual Report to Stockholders incorporated by
reference in the Form 10-K for the year ended December 31, 1996.
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, 1997 and December 31, 1996, and
the results of its operations and its cash flows for the three months
ended March 31, 1997 and 1996.
3. The results of operations for the three months ended March 31, 1997 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 per share is as follows
(in thousands except per share amounts):
For The
Three Months Ended
March 31,
--------------------
1997 1996
------- -------
Weighted average shares of common
stock outstanding ................................. 85,625 84,984
Stock options and related (treasury stock method) ... 2,692 1,936
------- -------
Weighted average shares for primary
earnings per share calculation .................... 88,317 86,920
Stock options and related (treasury stock method) ... 306
Shares issuable from assumed conversion
of the Series II Convertible Subordinated
Debenture ......................................... 400 400
------- -------
Weighted average shares for fully diluted
earnings per share calculation .................... 88,717 87,626
======= =======
Net income for primary calculation .................. $ 4,153 $ 2,357
Subordinated debenture interest, net of
income tax effect ................................. 79 82
------- -------
Net income for fully diluted
calculation ....................................... $ 4,232 $ 2,439
======= =======
Earnings per share:
Primary ........................................... $ .05(A) $ .03(A)
======= =======
Fully diluted ..................................... $ .05(A) $ .03(A)
======= =======
(A) Amounts would not be materially different under Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which is effective
for interim and annual periods ending after December 15, 1997.
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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, 1997 Compared to
Three Months Ended March 31, 1996
The Company achieved net income of $4.2 million in the first quarter
of 1997 compared to $2.4 million in the same period of 1996. The current period
results were after charges of $20 million from concluding the Company's turnkey
business and $3.5 million from partially redeeming 11 7/8% Senior Notes. The
improved performance primarily resulted from the continued strengthening of
offshore drilling day rates.
A comparison of the revenues and operating profit (loss) from
drilling, manufacturing, aviation and consolidated operations for the first
quarters of 1997 and 1996, respectively, is reflected below (dollars in
thousands):
Drilling Manufacturing Aviation Consolidated
-------------------- -------------------- --------------------- --------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
Revenues $ 89,603 $ 71,051 $ 36,644 $ 35,948 $ 18,518 $ 19,809 $144,765 $126,808
Percent of Consolidated
Revenues 62% 56% 25% 28% 13% 16% 100% 100%
Operating Profit (Loss) (1) $ 16,017 $ 9,552 $ 3,696 $ 2,990 $ (4,435) $ (2,227) $ 15,278 $ 10,315
- --------------------------------------------------------------------------------
(1) Income (loss) from operations before deducting general and administrative
expenses.
As reflected above, the Company's consolidated operating results
improved by $5.0 million when comparing the first quarters of 1997 and 1996.
Day rate drilling revenues increased by $26.8 million or 43% as the Company's
offshore fleet achieved 98% utilization during the first quarter of 1997,
compared to 95% in the first quarter of 1996, and a 42% increase in average day
rates between periods. Related expenses increased by only $2.5 million, or 6%,
between periods.
First quarter 1997 results include an approximately $20.5 million loss
from the Company's turnkey division, primarily reflecting the costs incurred on
one well where the Company was unable to reach the contract depth due to a
series of misfortunes, including underground blow-outs, stuck pipe, lost holes
and, finally, an unstable, heaving shale section. In the year-earlier period,
the turnkey division generated revenues of $8.2 million and an incremental
operating loss of $1.6 million. The Company currently has no turnkey wells in
progress nor any plans for additional turnkey work at this time.
The improvement in the Company's manufacturing profitability between
periods shown above primarily reflects higher-margin heavy equipment sales in
1997, particularly for the mining and timber industries. In April, the
manufacturing division was awarded two significant marine construction
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contracts. Over the next twelve months, the Company will provide vessel design
and components (a "LeTourneau kit") for the construction of a new Super 116
Class rig. In addition, the Company will furnish vessel design and components
needed to upgrade an existing LeTourneau 116-C kit to an enhanced 116-C rig.
The aviation operating results in both quarters reflect the normal
seasonal slowdown in flying activity in Alaska, although the 1997 results were
hampered primarily due to higher maintenance costs in the Company's fixed-wing
division.
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
- --------------------------- ------------- ------------------------------------------------------------
Continuing high levels of exploration and development
Gulf of Mexico 15 activity
Continuing high levels of drilling activity for jack-up
North Sea 5 rigs
Eastern Canada 1 Improving demand
The preceding table reflects the relocation in January 1997 of Rowan
Gorilla IV to the North Sea from the Gulf of Mexico.
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 63 Normal seasonal improvement
Gulf of Mexico 43 Moderately improving market conditions
China 2 Generally stable flight support activity
North Sea (Dutch) 11 Generally stable flight support activity
North Sea (U. K.) 4 Generally stable flight support activity
- ----------------------------
(1) Includes 15 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, trends in finding and extraction costs and, probably most
influential, oil and natural gas prices. The Company's aviation operations are
also affected by such factors, as flying in support of offshore energy
operations remains a major source of business and Alaska operations are
hampered each winter. The
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volatile nature of such factors prevents the Company from being able to
accurately predict whether existing market conditions or the perceptible market
trends reflected in the preceding tables will continue. In response to
fluctuating market conditions, the Company can, as it has done in the past,
relocate its drilling rigs and aircraft from one geographic area to another,
but only when such moves are economically justified. Assuming such conditions
and trends prevail, the Company should experience increased profitability in
1997.
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 1997.
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of March 31,
1997 and December 31, 1996 is as follows (dollars in thousands):
March 31, December 31,
1997 1996
---------- ------------
Cash and cash equivalents $116,924 $ 97,225
Current assets $327,554 $317,319
Current liabilities $140,584 $ 85,274
Current ratio 2.33 3.72
Notes payable and current maturities of long-term debt $ 56,008 $ 3,932
Long-term debt $235,874 $267,321
Stockholders' equity $501,704 $496,219
Long-term debt/total capitalization .32 .35
Reflected in the comparison above are the effects in the first quarter
of 1997 of net cash provided by operations of $35.7 million, capital
expenditures of $38.8 million, proceeds from borrowings of $20.7 million and
the call in February of $50 million of 11 7/8% Senior Notes for redemption in
April.
Capital expenditures during the first quarter were primarily related
to construction of Rowan Gorilla V, an enhanced version of the Company's
Gorilla Class jack-ups featuring a combination drilling and production
capability and 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 the third quarter of 1998. The Company is
financing up to 87.5% of the estimated $175 million cost of Gorilla V through a
12-year bank loan guaranteed by the Maritime Administration of the U. S.
Department of Transportation under its Title XI Program. Following Gorilla V
will be Rowan Gorilla VI and Rowan Gorilla VII in 1999 and 2000, respectively,
at a combined construction cost of approximately $380 million. The Company
intends to pursue outside financing for Gorilla VI and Gorilla VII if
necessary, but believes that internally generated working capital may be
sufficient to finance construction of both rigs if operating conditions
continue to improve as expected. The Company currently has no other available
credit facilities.
The Company estimates remaining 1997 capital expenditures will be
between $120 million and $130 million, including approximately $60-65 million
and $35-40 million, respectively, for Gorilla V and Gorilla VI and $6 million
for the purchase of five helicopters. The Company may also spend amounts to
acquire additional aircraft as market conditions justify and to upgrade
existing offshore rigs.
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On April 1, 1997, the Company redeemed $50 million of its 11 7/8%
Senior Notes due 2001 which had been called on February 6, 1997. The Company
recorded a $3.5 million extraordinary charge in the first quarter, consisting
primarily of the 6% redemption premium. The Company intends to refinance the
remaining $150 million of outstanding Senior Notes in late 1997 and expects to
realize an estimated $7 million extraordinary loss upon such redemption.
Based upon current operating levels and the previously discussed
market trends, management believes that 1997 operations, together with existing
working capital and available financial resources, will generate sufficient
cash flow to sustain planned capital expenditures and debt service requirements
at least through the remainder of 1997.
At March 31, 1997, approximately $49 million of the Company's retained
earnings was available for the payment of dividends under the most restrictive
provisions of the Company's debt agreements.
This report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without
limitation, statements as to the expectations, beliefs and future expected
financial performance of the Company that are based on current expectations and
are subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected by the Company. Among the
factors that could cause actual results to differ materially are the following:
o oil and natural gas prices
o the level of offshore expenditures by energy companies
o the general economy, including inflation
o weather conditions in the Company's principal operating areas
o environmental and other laws and regulations
Other relevant factors have been disclosed in the Company's filings with the
U. S. Securities and Exchange Commission.
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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 25, 1997, stockholders
elected the two nominees for Class III 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. Of the Company's 85,609,984 shares of
record, 78,823,307 were voted at the meeting in person or by proxy.
The following numbers of votes were cast as to the Class III Director
nominees: Henry O. Boswell, 78,252,824 votes for and 570,483 votes
withheld; and C. R. Palmer, 78,252,133 votes for and 571,174 votes
withheld.
Also at the meeting, stockholders declined a proposal to declassify
the Company's Board of Directors, as set forth in the Company's Proxy
Statement relating to the meeting. The proposal received 24,751,130
votes in the affirmative, or 39% of the votes cast, while 38,741,351
shares, or 61%, were voted against the proposal. Shares that abstained
from voting totaled 15,330,826.
The Company's Proxy Statement relating to the 1997 Annual Meeting of
Stockholders dated March 14, 1997 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:
3a - Amendment dated April 25, 1997 to the Bylaws, as Amended
3b - Bylaws, as Amended, as of April 25, 1997
10a - Amendment No. 2 dated April 25, 1997 to the 1988
Nonqualified Stock Option Plan, as Amended, together
with amendments to the form of Stock Option Agreement
related thereto
10b - 1988 Nonqualified Stock Option Plan, as Amended,
together with the form of Stock Option Agreement
related thereto
10c - Amendment No. 5 dated April 25, 1997 to the 1986
Convertible Debenture Incentive Plan, as Amended
10d - 1986 Convertible Debenture Incentive Plan, as Amended
27 - Financial Data Schedule
99 - Proxy Statement dated March 14, 1997
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
first quarter of fiscal year 1997.
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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, 1997 /s/ E. E. THIELE
------------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: May 13, 1997 /s/ W. H. WELLS
------------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
3a - Amendment dated April 25, 1997 to the Bylaws, as Amended
3b - Bylaws, as Amended, as of April 25, 1997
10a - Amendment No. 2 dated April 25, 1997 to the 1988 Nonqualified Stock
Option Plan, as Amended, together with amendments to the form of
Stock Option Agreement related thereto
10b - 1988 Nonqualified Stock Option Plan, as Amended, together with the
form of Stock Option Agreement related thereto
10c - Amendment No. 5 dated April 25, 1997 to the 1986 Convertible
Debenture Incentive Plan, as Amended
10d - 1986 Convertible Debenture Incentive Plan, as Amended
27 - Financial Data Schedule
99 - Proxy Statement dated March 14, 1997