1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM_____TO_____
ROWAN COMPANIES, INC.
---------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5491 75-0759420
- -------------------------------- --------------- -------------------
(State or other jurisdiction of Commission File (I.R.S. Employer
incorporation or organization) Number Identification No.)
5450 Transco Tower, 2800 Post Oak Boulevard, Houston, Texas 77056-6196
- ----------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 621-7800
-----------------------------------------------------------
Registrant's telephone number, including area code
Inapplicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ----
The number of shares of common stock, $.125 par value, outstanding at October
31, 1998 was 83,832,282.
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ROWAN COMPANIES, INC.
INDEX
Page No.
--------
PART I. Financial Information:
Consolidated Balance Sheet --
September 30, 1998 and December 31, 1997....................2
Consolidated Statement of Income --
Three and Nine Months Ended September 30, 1998
and 1997....................................................4
Consolidated Statement of Cash Flows --
Nine Months Ended September 30, 1998
and 1997....................................................5
Notes to Consolidated Financial Statements..................6
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...............................................8
PART II. Other Information:
Exhibits and Reports on Form 8-K...........................13
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PART I. FINANCIAL INFORMATION
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
September 30, December 31,
1998 1997
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 112,775 $ 108,332
Receivables - trade and other ....................... 114,474 133,627
Inventories - at cost:
Raw materials and supplies ........................ 89,588 69,621
Work-in-progress .................................. 38,403 25,974
Finished goods .................................... 824 6,321
Prepaid expenses .................................... 9,050 7,694
Deferred tax assets ................................. 13,898 60,809
------------ ------------
Total current assets ..................... 379,012 412,378
------------ ------------
INVESTMENT IN AND ADVANCES TO 49% OWNED COMPANY ....... 25,737
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment .................................. 989,385 965,292
Aircraft and related equipment ...................... 209,378 202,044
Manufacturing plant and equipment ................... 74,501 60,902
Construction in progress ............................ 317,134 195,996
Other property and equipment ........................ 109,170 94,476
------------ ------------
Total .................................... 1,699,568 1,518,710
Less accumulated depreciation and amortization ...... 875,042 841,550
------------ ------------
Property, plant and equipment - net .... 824,526 677,160
------------ ------------
OTHER ASSETS AND DEFERRED CHARGES ..................... 5,931 6,860
------------ ------------
TOTAL .................................... $ 1,209,469 $ 1,122,135
============ ============
See Notes to Consolidated Financial Statements.
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September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ...................................... $ 12,756
Accounts payable - trade .................................................. 22,794 $ 22,839
Deferred revenues ......................................................... 12,290 14,927
Other current liabilities ................................................. 49,097 43,760
------------ ------------
Total current liabilities ......................................... 96,937 81,526
------------ ------------
LONG-TERM DEBT - less current maturities ...................................... 250,335 256,150
------------ ------------
OTHER LIABILITIES ............................................................. 46,696 50,457
------------ ------------
DEFERRED CREDITS:
Income taxes .............................................................. 76,796 74,956
Gain on sale/leaseback transactions ....................................... 3,556 5,948
------------ ------------
Total deferred credits ............................................ 80,352 80,904
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized 5,000,000 shares issuable in series:
Series A Preferred Stock, authorized 2,300 shares, none outstanding
Series III Preferred Stock, authorized 10,300 shares, none outstanding
Series A Junior Preferred Stock, authorized
1,500,000 shares, none issued
Common stock, $.125 par value:
Authorized 150,000,000 shares; issued 88,731,851
shares at September 30, 1998 and 88,162,101 shares
at December 31, 1997 .................................................... 11,091 11,020
Additional paid-in capital .................................................... 420,011 411,812
Retained earnings ............................................................. 352,394 232,751
Less cost of 4,462,319 and 1,457,919 treasury shares, respectively ............ 48,347 2,485
------------ ------------
Total stockholders' equity ........................................ 735,149 653,098
------------ ------------
TOTAL ............................................................. $ 1,209,469 $ 1,122,135
============ ============
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited)
REVENUES:
Drilling services ...................................... $ 103,543 $ 117,114 $ 359,192 $ 309,659
Manufacturing sales and services ....................... 36,727 40,738 119,431 111,976
Aviation services ...................................... 43,200 37,604 93,001 83,371
------------ ------------ ------------ ------------
Total .......................................... 183,470 195,456 571,624 505,006
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Drilling services ...................................... 56,822 51,471 162,240 165,315
Manufacturing sales and services ....................... 32,484 34,964 102,131 97,478
Aviation services ...................................... 29,728 29,438 78,520 73,235
Depreciation and amortization .......................... 12,571 11,808 36,847 34,598
General and administrative ............................. 4,376 4,061 13,645 12,644
------------ ------------ ------------ ------------
Total .......................................... 135,981 131,742 393,383 383,270
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS ..................................... 47,489 63,714 178,241 121,736
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ....................................... (4,362) (6,601) (12,753) (20,139)
Less interest capitalized .............................. 4,297 2,663 11,682 6,770
Gain on disposals of property, plant and equipment ..... 2,394 127 3,066 1,075
Interest income ........................................ 1,729 1,213 5,179 3,449
Other - net ............................................ 70 21 276 168
------------ ------------ ------------ ------------
Other income (expense) - net ................... 4,128 (2,577) 7,450 (8,677)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ................................. 51,617 61,137 185,691 113,059
Provision for income taxes ............................. 19,122 6,850 66,048 10,561
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY CHARGE ......................... 32,495 54,287 119,643 102,498
Extraordinary charge from early redemption of debt ..... 3,478
------------ ------------ ------------ ------------
NET INCOME (Note 4) ........................................ $ 32,495 $ 54,287 $ 119,643 $ 99,020
============ ============ ============ ============
PER SHARE OF COMMON STOCK (Note 5):
Basic:
Income before extraordinary charge ................... $ .38 $ .63 $ 1.39 $ 1.19
Extraordinary charge from early redemption of debt ... .04
------------ ------------ ------------ ------------
Net income .......................................... $ .38 $ .63 $ 1.39 $ 1.15
============ ============ ============ ============
Diluted:
Income before extraordinary charge ................... $ .38 $ .61 $ 1.36 $ 1.15
Extraordinary charge from early redemption of debt ... .04
------------ ------------ ------------ ------------
Net income .......................................... $ .38 $ .61 $ 1.36 $ 1.11
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
For The Nine Months
Ended September 30,
--------------------------
1998 1997
---------- ----------
(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income ................................................................. $ 119,643 $ 99,020
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization ........................................... 36,847 34,598
Gain on disposals of property, plant and equipment ...................... (3,066) (1,075)
Compensation expense .................................................... 3,753 3,496
Change in sale/leaseback payable ........................................ (4,562) (8,019)
Amortization of sale/leaseback gain ..................................... (2,392) (2,392)
Provision for pension and postretirement benefits ....................... 4,599 4,698
Deferred income taxes ................................................... 48,751 8,083
Extraordinary charge from early redemption of debt ...................... 3,478
Other - net ............................................................. 107 1,893
Changes in current assets and liabilities:
Receivables - trade and other............................................ 19,153 (21,757)
Inventories ............................................................. (26,298) (21,584)
Other current assets .................................................... (1,356) 7,756
Current liabilities ..................................................... 2,507 18,861
Net changes in other noncurrent assets and liabilities ..................... (117) (340)
---------- ----------
Net cash provided by operations ............................................... 197,569 126,716
---------- ----------
Investing activities:
Property, plant and equipment additions .................................... (180,136) (116,909)
Proceeds from disposals of property, plant and equipment ................... 4,747 2,958
Proceeds from disposition of investment in 49% owned company ............... 19,550
Repayments from affiliates ................................................. 229
---------- ----------
Net cash used in investing activities ......................................... (155,839) (113,722)
---------- ----------
Financing activities:
Proceeds from borrowings .................................................. 43,097 59,209
Repayments of borrowings ................................................... (36,156) (50,247)
Payments to acquire treasury stock ......................................... (45,862)
Premium on redemption of debt .............................................. (3,000)
Other - net ................................................................ 1,634 1,245
---------- ----------
Net cash provided by (used in) financing activities ........................... (37,287) 7,207
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS ............................................ 4,443 20,201
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 108,332 97,225
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 112,775 $ 117,426
========== ==========
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 1997 Annual Report to Stockholders incorporated by
reference in the Form 10-K for the year ended December 31, 1997.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments and reclassifications,
which are of a normal recurring nature, necessary to present fairly its
financial position as of September 30, 1998 and December 31, 1997, and
the results of its operations for the three and nine month periods ended
September 30, 1998 and 1997 and its cash flows for the nine months ended
September 30, 1998 and 1997.
3. The results of operations for the three and nine month periods ended
September 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
4. The Company's adoption, effective January 1, 1998, of Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", and No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits", did not materially affect its financial
statement disclosure. For the periods presented herein, the Company has
no items of "other comprehensive income" as defined in Statement 130.
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5. Computation of basic and diluted earnings per share is as follows (in
thousands except per share amounts):
For The For The
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Weighted average shares of common
stock outstanding ....................................... 85,073 86,500 86,305 86,022
Stock options and related (treasury stock method) .......... 203 1,835 1,061 1,711
Shares issuable from assumed conversion
of floating rate subordinated debentures ................ 664 1,123 899 1,283
---------- ---------- ---------- ----------
Weighted average shares for diluted
earnings per share calculation .......................... 85,940 89,458 88,265 89,016
========== ========== ========== ==========
Income before extraordinary charge ......................... $ 32,495 $ 54,287 $ 119,643 $ 102,498
Extraordinary charge from early redemption of debt ......... 3,478
---------- ---------- ---------- ----------
Net income for basic calculation ........................... 32,495 54,287 119,643 99,020
Subordinated debenture interest, net of
income tax effect ....................................... 14 172
---------- ---------- ---------- ----------
Net income for diluted calculation ......................... $ 32,495 $ 54,301 $ 119,643 $ 99,192
========== ========== ========== ==========
Basic earnings per share:
Income before extraordinary charge ...................... $ .38 $ .63 $ 1.39 $ 1.19
Extraordinary charge .................................... .04
---------- ---------- ---------- ----------
Net income .............................................. $ .38 $ .63 $ 1.39 $ 1.15
========== ========== ========== ==========
Diluted earnings per share:
Income before extraordinary charge ...................... $ .38 $ .61 $ 1.36 $ 1.15
Extraordinary charge .................................... .04
---------- ---------- ---------- ----------
Net income .............................................. $ .38 $ .61 $ 1.36 $ 1.11
========== ========== ========== ==========
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ROWAN COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to
Nine Months Ended September 30, 1997
The Company achieved net income of $119.6 million in the first nine months of
1998 compared to $99.0 million in the same period of 1997 as increased offshore
drilling day rates and improved manufacturing and aviation operations more than
offset higher provisions for income taxes. The prior period results were after
charges of $20 million from concluding the Company's turnkey business and $3.5
million from redeeming early certain 11 7/8% Senior Notes and incurred lower
income tax provisions due to available tax loss and credit carryforwards.
A comparison of the revenues and operating profit from drilling, manufacturing,
aviation and consolidated operations for the first nine months of 1998 and 1997,
respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated
---------------------- ---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- ---------
Revenues $ 359,192 $ 309,659 $ 119,431 $ 111,976 $ 93,001 $ 83,371 $ 571,624 $ 505,006
Percent of Consolidated
Revenues 63% 61% 21% 22% 16% 17% 100% 100%
Operating Profit(1) $ 173,493 $ 121,431 $ 13,376 $ 11,505 $ 5,017 $ 1,444 $ 191,886 $ 134,380
- -------------------------------------------------------------------------------
(1) Income from operations before deducting general and administrative expenses.
As reflected above, the Company's consolidated operating results increased by
43% to $192 million, or 34% of revenues, when comparing the first nine months of
1998 and 1997. Daywork drilling revenues increased by $49.5 million or 16% as
the Company's offshore fleet achieved 92% utilization during the first nine
months of 1998, compared to 99% in the same period of 1997, and a 24% increase
in average day rates between periods. Related expenses increased by $17.1
million or 12% between periods primarily as a result of higher wages and rig
mobilization costs.
The operating results for the first nine months of 1997 included a loss from
concluding the Company's turnkey drilling operations of approximately $20
million. The Company currently has no turnkey wells in progress nor any plans
for additional turnkey work at this time.
The 7% and 16% improvements shown above in the Company's manufacturing revenues
and profitability between periods primarily reflects the increased contribution
of the marine group. During the first nine months of 1998, the Company provided
design and components (a LeTourneau "kit") toward the construction of two new
Super 116 Class rigs. One kit was completed during the period and the other is
expected to be completed prior to year end. The division's external backlog was
$30.2 million at September 30, 1998. Manufacturing operations exclude
approximately $88 million of products and services provided to
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the Company's drilling division during the first nine months of 1998, most of
which was attributable to construction progress on Rowan Gorillas V and VI,
compared to $49 million in the same period of 1997.
The 12% and 247% increases shown above in the Company's aviation revenues and
profitability between periods primarily reflects a more-than-doubling of forest
fire control services, the continued growth of Alaskan tourism and increased
flying for energy companies in the Gulf of Mexico and in connection with the
Company's commuter airline in Alaska. The Company's disposition in January 1998
of its 49% interest in the Dutch helicopter joint venture KLM ERA did not have a
material impact on its results of operations for the first nine months of 1998.
Three Months Ended September 30, 1998 Compared to
Three Months Ended September 30, 1997
The Company generated net income of $32.5 million in the third quarter of 1998
compared to $54.3 million in the same period of 1997 as reduced offshore rig
utilization, primarily in the Gulf of Mexico, and higher provisions for income
taxes more than offset improved aviation operations. The prior period results
incurred lower income tax provisions due to available tax loss and credit
carryforwards.
A comparison of the revenues and operating profit from drilling, manufacturing,
aviation and consolidated operations for the third quarters of 1998 and 1997,
respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated
---------------------- ---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997 1998 1997
--------- --------- --------- --------- --------- --------- --------- ---------
Revenues $ 103,543 $ 117,114 $ 36,727 $ 40,738 $ 43,200 $ 37,604 $ 183,470 $ 195,456
Percent of Consolidated
Revenues 56% 60% 20% 21% 24% 19% 100% 100%
Operating Profit $ 38,522 $ 57,917 $ 2,864 $ 4,688 $ 10,479 $ 5,170 $ 51,865 $ 67,775
As reflected above, the Company's consolidated operating results declined by
$15.9 million or 23% when comparing the third quarters of 1998 and 1997.
Drilling revenues decreased by $13.6 million or 12% as utilization of the
Company's offshore fleet fell to 84% during the third quarter of 1998, compared
to 99% in the third quarter of 1997, though average day rates increased by 6%
between periods. Related expenses increased by $5.4 million or about 10% between
periods primarily as a result of higher wages for operating personnel.
The decline in the Company's manufacturing revenues and profitability between
periods primarily reflects reduced mining equipment sales as a result of weak
commodity prices. The division's external backlog was $30.2 million at September
30, 1998. Manufacturing operations exclude approximately $37 million of products
and services provided to the Company's drilling division during the third
quarter of 1998, most of which was attributable to construction progress on
Rowan Gorillas V and VI, compared to $17 million in the same period of 1997.
The 15% and 103% increases shown above in the Company's aviation revenues and
profitability between periods primarily reflects increased flying in connection
with forest fire control services, Alaskan tourism, the Company's commuter
airline and for energy companies in the Gulf of Mexico.
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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 14 Reduced exploration and development activity in the
near-term
North Sea 5 Generally reduced levels of drilling activity for jack-up
rigs
Eastern Canada 2 Generally stable demand
Perceptible trends in the aviation markets in which the Company is currently
operating and the number of Company-operated aircraft based in each of those
markets are as follows:
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
- ------------------------ ------------------- ----------------------------------------------------
Alaska 69 Normal seasonal decline
Gulf of Mexico 46 Generally stable flight support activity
The drilling and aviation markets in which the Company competes frequently
experience significant changes in supply and demand. Offshore drilling
utilization and day rates are primarily a function of the demand for drilling
services, as measured by the level of exploration and development expenditures,
and the supply of capable drilling equipment. These expenditures, in turn, are
affected by many factors such as existing and newly discovered oil and natural
gas reserves, political and regulatory policies, seasonal weather patterns,
contractual requirements under leases or concessions, trends in finding and
extraction costs and, probably most influential, oil and natural gas prices. The
Company's aviation operations are also affected by such factors, as flying in
support of offshore energy operations remains a major source of business and
Alaska operations are hampered each winter. 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
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.
In recent months, the prolonged weakness in oil prices has led to a reduction in
drilling, primarily impacting jack-ups in the Gulf of Mexico. As some energy
companies have suspended portions of their drilling programs and announced
anticipated reductions in their 1998 and 1999 drilling budgets, the Company has
experienced curtailed drilling assignments and, at least partly due to its
efforts to maintain day rates, lower utilization of its rig fleet. Currently,
only five of the Company's Gulf of Mexico rigs are working and generally at day
rates well below those obtained during the just-completed third quarter. At
current levels, the Company can continue to operate profitably, though at a
level well below that experienced during the first nine months of 1998. There
can be no assurance that the Company's operations will not be more adversely
affected should current market conditions persist or that such conditions will
not deteriorate further.
The Company's manufacturing operations are considerably less volatile than its
drilling and aviation operations and, given current order backlog and barring
unforeseen circumstances, should continue to contribute positive operating
results throughout the remainder of 1998.
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LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet figures and ratios as of September 30, 1998
and December 31, 1997 is as follows (dollars in thousands):
September 30, December 31,
1998 1997
------------- ------------
Cash and cash equivalents $ 112,775 $ 108,332
Current assets $ 379,012 $ 412,378
Current liabilities $ 96,937 $ 81,526
Current ratio 3.91 5.06
Current maturities of long-term debt $ 12,756 --
Long-term debt $ 250,335 $ 256,150
Stockholders' equity $ 735,149 $ 653,098
Long-term debt/total capitalization .25 .28
Reflected in the comparison above are the effects in the first nine months of
1998 of net cash provided by operations of $197.6 million, capital expenditures
of $180.1 million, proceeds from borrowings of $43.1 million, repayments of
borrowings of $36.2 million, payments to acquire treasury stock of $45.9 million
and cash proceeds from the disposition of the Company's 49% interest in KLM ERA
Helicopters of $19.6 million.
Capital expenditures during the first nine months of 1998 were primarily related
to construction of Rowan Gorilla V and Rowan Gorilla VI , each being an enhanced
version of the Company's Gorilla Class jack-ups featuring a combination drilling
and production capability. Gorilla V is undergoing final outfitting at the
Company's Sabine Pass, Texas facility and should be completed and commence
operations in the North Sea during the fourth quarter. The Company has financed
$153.1 million of the cost of Gorilla V through two fixed rate bank notes
guaranteed by the Maritime Administration of the U. S. Department of
Transportation under its Title XI Program. The notes require semiannual
repayments beginning in January 1999, with final payments due in July 2010, and
bear interest as follows: $67 million at 6.94% and $86.1 million at 6.15%.
Construction of Gorilla VI is progressing at the Company's Vicksburg,
Mississippi shipyard and should be completed by mid-2000. The Company has
obtained Title XI bank financing for up to $171 million of the cost of Gorilla
VI on terms and conditions similar to those obtained for Gorilla V.
The Company has begun ordering long lead-time items for Rowan Gorilla VII and
expects construction to be completed about one year following delivery of
Gorilla VI. The Company intends to pursue outside financing for Gorilla VII if
necessary, but believes that internally generated working capital may be
sufficient to fund its construction. There can be no assurance that working
capital will be adequate throughout the period required to complete construction
or that outside financing will be available. The Company expects the total
construction cost of Gorillas V, VI and VII will be in the range of $550-600
million.
The Company estimates remaining 1998 capital expenditures will be between $50
million and $60 million, including approximately $35-45 million for Gorillas V,
VI and VII. The Company may also spend amounts to acquire additional aircraft as
market conditions justify and to upgrade existing offshore rigs and
manufacturing facilities.
In March 1998, the Company repaid the balance of $36.2 million of promissory
notes originally issued in February 1994 in connection with the acquisition of
its manufacturing operations.
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At September 30, 1998, the Company had available $45 million under a $155
million bank revolving credit facility maturing in October 2000. The $110
million outstanding under the credit line bore interest at 6.03% on September
30, 1998.
Based upon current operating levels and the previously discussed market trends,
management believes that 1998 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 1998.
At September 30, 1998, approximately $153 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.
On October 22, 1998, the Company expanded its Share Repurchase Program to
include up to eight million shares of its outstanding Common Stock. Since the
Program's inception in June 1998, the Company has repurchased 3,451,400 shares.
The Company believes that its exposure to potential year 2000 ("Y2K")
computer-related problems is limited and the costs associated with readying its
information systems and computer-controlled equipment will not materially impact
its financial position or results of operations. Over the past several years,
the Company has devoted substantial efforts towards upgrading and enhancing its
drilling and aviation information systems as a matter of course. Such
modifications necessarily contemplated Y2K compliance, the cost of which has
been expensed as incurred but is not separately identifiable. These upgrades and
enhancements are substantially complete and the Company's drilling and aviation
information systems should be fully Y2K compliant by the end of this year.
Modifications to the Company's manufacturing information systems have been
undertaken only during the past two to three years. The Company expects the cost
of Y2K compliance for its manufacturing systems will be approximately $2.8
million, $1.3 million of which has been expensed to date, and that all necessary
modifications will be completed by mid-1999. The Company will continue to assess
and test its computer-controlled equipment for Y2K compatibility, but has
heretofore discovered no significant deficiencies. The Company's operations are
not highly dependent upon any single customer or vendor and the Company believes
that the risk of a material interruption in its business as a result of Y2K
software problems associated with a single customer or vendor is extremely
remote. The Company has not yet deemed necessary any Y2K contingency plans, but
will continue to monitor its own Y2K status as well as that of its customers and
vendors and, if warranted, develop any necessary contingency plans.
This report contains forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, without limitation,
statements as to the expectations, beliefs and future expected financial
performance of the Company that are based on current expectations and are
subject to certain risks, trends and uncertainties that could cause actual
results to differ materially from those projected by the Company. Among the
factors that could cause actual results to differ materially are the following:
* oil and natural gas prices
* the level of offshore expenditures by energy companies
* the general economy, including inflation
* weather conditions in the Company's principal operating areas
* 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 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10(a) - Commitment to Guarantee Obligations and First
Preferred Ship Mortgage both dated September 29, 1998 between
the Company and the Maritime Administration of the U. S.
Department of Transportation.
(b) Exhibit 10(b) - Credit Agreement and Trust Indenture both
dated September 29, 1998 between the Company and Citibank,
N.A.
(c) Exhibit 27 - Financial Data Schedule
(d) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
third quarter of fiscal year 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROWAN COMPANIES, INC.
(Registrant)
Date: November 16, 1998 /s/ E. E. THIELE
-----------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: November 16, 1998 /s/ W. H. WELLS
-----------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
-13-
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
Exhibit 10(a) - Commitment to Guarantee Obligations and First Preferred Ship
Mortgage both dated September 29, 1998 between the Company and
the Maritime Administration of the U. S. Department of
Transportation.
Exhibit 10(b) - Credit Agreement and Trust Indenture both dated September 29,
1998 between the Company and Citibank, N.A.
Exhibit 27 - Financial Data Schedule