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 JUNE 30, 2001
[ ] 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.)
2800 Post Oak Boulevard, Suite 5450 Houston, Texas 77056-6127
- --------------------------------------------------- ----------
(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 July 31,
2001 was 94,499,805.
ROWAN COMPANIES, INC.
INDEX
Page No.
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PART I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheet --
June 30, 2001 and December 31, 2000 . . . . . . . . . . . . . . .2
Consolidated Statement of Income --
Three and Six Months Ended June 30, 2001
and 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows --
Six Months Ended June 30, 2001 and 2000 . . . . . . . . . . . .5
Notes to Consolidated Financial Statements.. . . . . .. . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . .. . . .8
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . .12
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-k . . . . . . . . .. . . . .. . .13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, December 31,
2001 2000
------------ -------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . $ 190,498 $ 192,828
Receivables - trade and other. . . . . . . . . 157,802 154,541
Inventories - at cost:
Raw materials and supplies . . . . . . . . . 107,573 103,352
Work-in-progress . . . . . . . . . . . . . . 24,681 22,456
Finished goods . . . . . . . . . . . . . . . 2,539 3,084
Prepaid expenses . . . . . . . . . . . . . . . 7,000 3,397
Deferred tax assets - net. . . . . . . . . . . 3,338 3,699
------------ -------------
Total current assets . . . . . . . . . . . 493,431 483,357
------------ -------------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment . . . . . . . . . . . . . . 1,587,353 1,553,849
Aircraft and related equipment . . . . . . . . 248,485 236,760
Manufacturing plant and equipment. . . . . . . 100,394 94,077
Construction in progress . . . . . . . . . . . 231,014 157,314
Other property and equipment . . . . . . . . . 131,694 121,997
------------ -------------
Total. . . . . . . . . . . . . . . . . . . 2,298,940 2,163,997
Less accumulated depreciation and amortization 1,009,084 981,217
------------ -------------
Property, plant and equipment - net. . . 1,289,856 1,182,780
------------ -------------
OTHER ASSETS AND DEFERRED CHARGES. . . . . . . . 12,192 12,289
------------ -------------
TOTAL. . . . . . . . . . . . . . . . . . . $ 1,795,479 $ 1,678,426
============ =============
See Notes to Consolidated Financial Statements.
2
June 30, December 31,
2001 2000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . $ 34,187 $ 28,008
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . . 30,204 24,769
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 51,200 51,577
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 115,591 104,354
------------ ------------
LONG-TERM DEBT - less current maturities . . . . . . . . . . . . . . . . . . 394,064 372,212
------------ ------------
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,991 57,713
------------ ------------
DEFERRED INCOME TAXES - net. . . . . . . . . . . . . . . . . . . . . . . . . 106,310 91,390
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized 5,000,000 shares issuable in series:
Series III Preferred Stock, authorized 10,300 shares, none outstanding
Series A Preferred Stock, authorized 4,800 shares, none outstanding
Series B Preferred Stock, authorized 4,800 shares, none outstanding
Series C Preferred Stock, authorized 9,606 shares, none outstanding
Series D Preferred Stock, authorized 9,600 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 94,941,830 shares at
June 30, 2001 and 94,384,704 shares at December 31, 2000 . . . . . . . . 11,868 11,798
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 635,022 626,309
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483,786 417,758
Less cost of 318,100 and 150,000 treasury shares, respectively . . . . . . . 7,153 3,108
------------ ------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . 1,123,523 1,052,757
------------ ------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,795,479 $ 1,678,426
============ ============
See Notes to Consolidated Financial Statements.
3
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Three Months For The Six Months
Ended June 30, Ended June 30,
-------------------------- -----------------------
2001 2000 2001 2000
------------- ----------- --------- ---------
(Unaudited)
REVENUES:
Drilling services . . . . . . . . $ 147,259 $ 91,953 $ 287,725 $ 173,877
Manufacturing sales and services. 25,426 20,618 52,041 44,547
Aviation services . . . . . . . . 37,709 30,590 64,142 52,467
------------- ----------- --------- ---------
Total . . . . . . . . . . . . 210,394 143,161 403,908 270,891
------------- ----------- --------- ---------
COSTS AND EXPENSES:
Drilling services . . . . . . . . 77,457 61,015 147,991 116,780
Manufacturing sales and services. 23,665 18,327 49,013 38,897
Aviation services . . . . . . . . 30,999 27,479 55,515 51,055
Depreciation and amortization . . 16,733 14,677 32,927 27,443
General and administrative. . . . 7,794 5,941 14,183 10,789
------------- ---------- --------- ---------
Total . . . . . . . . . . . . 156,648 127,439 299,629 244,964
------------- ---------- --------- ---------
INCOME FROM OPERATIONS. . . . . . . 53,746 15,722 104,279 25,927
------------- ---------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense. . . . . . . . . (5,817) (5,912) (12,505) (12,432)
Less interest capitalized . . . . 2,415 4,724 5,046 8,902
Interest income . . . . . . . . . 2,372 3,078 5,358 4,889
Other - net . . . . . . . . . . . 29 187 124 253
------------- ---------- --------- ---------
Other income (expense) - net. (1,001) 2,077 (1,977) 1,612
------------- ----------- --------- ---------
INCOME BEFORE INCOME TAXES. . . . . 52,745 17,799 102,302 27,539
Provision for income taxes. . . . 18,433 6,703 36,274 10,339
------------- ----------- --------- ---------
NET INCOME. . . . . . . . . . . . . $ 34,312 $ 11,096 $ 66,028 $ 17,200
========= ========= ========= ==========
NET INCOME PER SHARE
OF COMMON STOCK (Note 5):
Basic . . . . . . . . . . . . . . $ .36 $ .12 $ .70 $ .19
========= ========= ========= ========
Diluted . . . . . . . . . . . . . $ .36 $ .12 $ .68 $ .19
========= ========= ========= ========
See Notes to Consolidated Financial Statements.
4
ROWAN COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
For The Six Months
Ended June 30,
------------------------
2001 2000
------------ ----------
(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,028 $ 17,200
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 32,927 27,443
Gain on disposals of property, plant and equipment . . . . . . . . . . (1,228) (823)
Compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . 3,796 3,254
Provision for pension and postretirement benefits. . . . . . . . . . . 1,716 4,179
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 15,281 8,112
Amortization of sale/leaseback gain. . . . . . . . . . . . . . . . . . (1,595)
Change in sale/leaseback payable . . . . . . . . . . . . . . . . . . . (3,207)
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Changes in current assets and liabilities:
Receivables- trade and other . . . . . . . . . . . . . . . . . . . . . (3,261) (16,483)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,901) 9,080
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . (3,603) (2,331)
Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 3,157 (5,028)
Net changes in other noncurrent assets and liabilities . . . . . . . . . (753) (140)
------------ ----------
Net cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 108,159 39,781
------------ ----------
Investing activities:
Property, plant and equipment additions. . . . . . . . . . . . . . . . . (140,822) (132,770)
Proceeds from disposals of property, plant and equipment. . . . . . . . 2,381 1,093
Purchase of pump companies, net of cash acquired . . . . . . . . . . . . (7,245)
------------ ----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . (138,441) (138,922)
------------ ----------
Financing activities:
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . 42,535 53,411
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . (14,504) (116,378)
Proceeds from stock option and convertible debenture plans . . . . . . . 3,966 5,270
Payments to acquire treasury stock . . . . . . . . . . . . . . . . . . . (4,045)
Proceeds from common stock offering, net of issue costs. . . . . . . . . 246,685
------------ ----------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . 27,952 188,988
------------ ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.. . . . . . . . . . . . . . (2,330) 89,847
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . . . . 192,828 87,055
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . . . . $ 190,498 $ 176,902
============ ===========
See Notes to Consolidated Financial Statements.
5
ROWAN COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Rowan included in this Form 10-Q
have been prepared without audit in accordance with accounting principles
generally accepted in the United States of America and the rules and
regulations of the Securities and Exchange Commission. Certain information
and notes have been condensed or omitted as permitted by those rules and
regulations. We believe that the disclosures included herein are adequate,
but suggest that you read these consolidated financial statements in
conjunction with the financial statements and related notes included in our
2000 Annual Report to Stockholders, which are incorporated by reference in
our Form 10-K for the year ended December 31, 2000.
2. We believe the accompanying unaudited consolidated financial statements
contain all adjustments and reclassifications, which are of a normal
recurring nature, necessary to present fairly Rowan's financial position as
of June 30, 2001 and December 31, 2000, and the results of its operations
for the three and six months ended June 30, 2001 and 2000 and its cash
flows for the six months ended June 30, 2001 and 2000.
3. Rowan's results of operations and cash flows for the six months ended June
30, 2001 are not necessarily indicative of results to be expected for the
full year.
4. Rowan has three principal operating segments: contract drilling of oil and
gas wells, both onshore and offshore ("Drilling"), helicopter and fixed-
wing aircraft services ("Aviation") and the manufacture and sale of heavy
equipment for the mining, timber and transportation industries, alloy
steel and steel plate and drilling equipment ("Manufacturing"). The
following table presents certain financial information of Rowan by
operating segment as of June 30, 2001 and 2000 and for the six month
periods then ended (in thousands).
2001 Drilling Manufacturing Aviation Consolidated
-------------------- ------------ ------------- -------- -------------
Total Assets $ 1,424,129 $ 211,713 $ 159,637 $ 1,795,479
Revenues 287,725 52,041 64,142 403,908
Operating Profit (Loss)(1) 117,557 (805) 1,710 118,462
2000 Drilling Manufacturing Aviation Consolidated
-------------------- ------------ ------------- -------- -------------
Total Assets $ 1,242,071 $ 185,790 $ 142,913 $ 1,570,774
Revenues 173,877 44,547 52,467 270,891
Operating Profit (Loss)(1) 39,898 2,041 (5,223) 36,716
(1) Income (loss) from operations before deducting general and
administrative expenses.
Excluded from the preceding table are the effects of transactions between
segments. During the six months ended June 30, 2001 and 2000, Rowan's
manufacturing division provided approximately $54 million and $59 million
respectively, of products and services to its drilling division and Rowan's
aviation division provided approximately $814,000 and $716,000,
respectively, of flight services to its drilling division.
6
5. Computation of basic and diluted earnings per share is as follows
(in thousands, except per share amounts):
For The Three Months For The Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2001 2000 2001 2000
------- ------ ------ ------
Weighted average shares of common
stock outstanding. . . . . . . . . . . . . . . 94,484 93,988 94,383 90,789
Stock options and related (treasury stock method) 951 1,041 1,012 1,060
Shares issuable from assumed conversion of
floating rate subordinated debentures. . . . . 1,060 1,132 1,065 1,093
------- ------ ------- ------
Weighted average shares for diluted earnings
per share calculation. . . . . . . . . . . . . 96,495 96,161 96,460 92,942
======= ======= ====== ======
Net income for basic and
diluted calculations . . . . . . . . . . . . . $ 34,312 $ 11,096 $ 66,028 $ 17,200
======= ======= ====== ======
Net Income per share:
Basic. . . . . . . . . . . . . . . . . . . . . $ .36 $ .12 $ .70 $ .19
======= ======= ====== ======
Diluted. . . . . . . . . . . . . . . . . . . . $ .36 $ .12 $ .68 $ .19
======= ======= ====== ======
6. In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business
Combinations", which essentially mandates the purchase method of
accounting for business combinations, effective July 1, 2001. Rowan
believes that the provisions of Statement No. 141 will not materially
impact our financial position or results of operations.
In June 2001, FASB also issued Statement No. 142, "Goodwill and Other
Intangible Assets", which governs accounting and reporting for acquired
goodwill and other intangible assets at acquisition and after initial
recognition in the financial statements. Statement No. 142 is effective for
fiscal years beginning after December 15, 2001. Rowan believes that the
provisions of Statement No. 142, when adopted effective January 1, 2002,
will not materially impact its financial position or results of operations.
7
ROWAN COMPANIES, INC. AND SUBSIDIARIES
--------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
- --------------------------------------------------------------------------------
Rowan achieved net income of $66.0 million in the first half of 2001 compared to
$17.2 million in the same period of 2000. The improved results were attained
largely through an increase in average Gulf of Mexico drilling day rates,
together with increased contributions from our land rig operations, boat
operations and aviation division.
A comparison of the revenues and operating profit (loss) from drilling,
manufacturing, aviation and consolidated operations for the first six months of
2001 and 2000, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated
------------------- ------------------ ----------------- --------------------
2001 2000 2001 2000 2001 2000 2001 2000
--------- -------- -------- -------- -------- ------- --------- ---------
Revenues. . . . . . . . . . $287,725 $173,877 $52,041 $44,547 $64,142 $52,467 $403,908 $270,891
Percent of Consolidated
Revenues. . . . . . . . . . 71% 64% 13% 17% 16% 19% 100% 100%
Operating Profit (Loss) (1) $117,557 $ 39,898 $ (805) $ 2,041 $ 1,710 $(5,223) $118,462 $ 36,716
- --------------------------------------------------------------------------------
(1) Income (loss) from operations before deducting general and
administrative expenses.
As shown above, Rowan's consolidated operating results increased by $81.7
million when comparing the first halves of 2001 and 2000. Drilling revenues
increased by $113.8 million, or 65%, as our offshore fleet of 22 jack-ups and
one semi-submersible was 93% utilized during the first half of 2001, compared to
91% in the first half of 2000, and achieved a 40% increase in average day rates
between periods. Rowan's fleet of 15 land rigs was 80% utilized during the first
half of 2001, compared to 39% in the first half of 2000, and achieved a 64%
increase in average day rates between periods. Drilling expenses increased by
$31.2 million, or 27%, between periods, primarily due to the expansion of our
AHTS (anchor-handling, towing and supply) vessel operations, the costs of which
were more than offset by outside revenues, increased land rig activity and the
addition to our offshore fleet, in late June 2000, of Rowan Gorilla VI.
The $2.8 million decrease shown above in Rowan's manufacturing results between
periods reflects reduced contributions from the division's equipment, steel and
marine groups. Manufacturing operations exclude approximately $54 million of
products and services provided to the drilling division during the first half of
2001, most of which was attributable to construction progress on Rowan Gorilla
VII and Rowan Gorilla VIII, compared to $59 million in the same period of 2000,
which included Gorillas VI and VII. The division's external backlog was about
$13 million at June 30, 2001.
8
Rowan's aviation operating results in the first half of 2001 were significantly
improved over the prior-year period, due largely to a 41% increase in
energy-related flying, primarily in the Gulf of Mexico, although both periods
reflect the normal seasonal slowdown in helicopter flying activity in Alaska
during the first four months of the year.
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000
- ---------------------------------------------------------------------------
Rowan achieved net income of $34.3 million in the second quarter of 2001
compared to $11.1 million in the same period of 2000. The improved results were
attained largely through an increase in average Gulf of Mexico drilling day
rates, coupled with improved contributions from our land rig operations, boat
operations and aviation division.
A comparison of the revenues and operating profit (loss) from drilling,
manufacturing, aviation and consolidated operations for the second quarters of
2001 and 2000, respectively, is reflected below (dollars in thousands):
Drilling Manufacturing Aviation Consolidated
------------------- ------------------ ----------------- --------------------
2001 2000 2001 2000 2001 2000 2001 2000
--------- -------- -------- -------- -------- -------- --------- ---------
Revenues . . . . . . . . $147,259 $91,953 $25,426 $20,618 $37,709 $30,590 $210,394 $143,161
Percent of Consolidated
Revenues . . . . . . . . 70% 64% 12% 15% 18% 21% 100% 100%
Operating Profit (Loss). $ 58,430 $21,439 $ (156) $ 380 $ 3,266 $ (156) $ 61,540 $ 21,663
As shown above, Rowan's consolidated operating results increased by $39.9
million, or 184%, when comparing the second quarters of 2001 and 2000. Drilling
revenues increased by $55.3 million, or 60%, as our offshore fleet was 90%
utilized during the second quarter of 2001, compared to 95% in the second
quarter of 2000, and achieved a 43% increase in average day rates between
periods. Rowan's land rig fleet was 84% utilized during the second quarter of
2001, compared to 40% in the second quarter of 2000, and achieved a 91% increase
in average day rates between periods. Drilling expenses increased by $16.4
million, or 27%, between periods, primarily due to the expansion of our AHTS
(anchor-handling, towing and supply) vessel operations, the costs of which were
more than offset by outside revenues, increased land rig activity and the
addition to our offshore fleet, in late June 2000, of Rowan Gorilla VI.
The $0.5 million decline shown above in Rowan's manufacturing results between
periods primarily reflects the decreased contributions from the equipment and
steel groups. Manufacturing operations exclude approximately $34 million of
products and services provided to Rowan's drilling division during the second
quarter of 2001, most of which was attributable to construction progress on
Rowan Gorilla VII and Rowan Gorilla VIII, compared to $25 million in the same
period of 2000.
Rowan's aviation operating results in the second quarter of 2001 were
significantly improved over the prior-year period, due primarily to a 51%
increase in energy-related flying, primarily in the Gulf of Mexico.
Perceptible trends in the offshore drilling markets in which we are currently
operating and the numbers of Rowan-operated rigs in each of those markets are as
follows:
AREA RIGS PERCEPTIBLE INDUSTRY TRENDS
- ----------------- ---- --------------------------------------------
Gulf of Mexico 22 Reduced exploration and development activity in
the near term, improving in late-third quarter
Eastern Canada 1 Moderately improving demand for harsh
environment equipment
Demand for jack-ups in the North Sea has increased and we are responding to bid
requests for our Gorilla Class rigs for work commencing in late 2001 and early
2002. Upon its delivery in the fourth quarter, Gorilla VII will be relocated to
the North Sea. We remain confident in the long-term viability of the North Sea
jack-up drilling market.
9
Perceptible trends in the aviation markets in which we are currently operating
and the number of Rowan-operated aircraft based in each of those markets are as
follows:
AREA AIRCRAFT PERCEPTIBLE INDUSTRY TRENDS
- ----------------- --------- --------------------------------------------
Alaska 66 Normal seasonal improvement
Gulf of Mexico 49 Moderately improving levels of flight
support activity
The drilling and aviation markets in which Rowan 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 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. Rowan'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 by weather each winter. The volatile nature of such factors prevents us
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, we can relocate our drilling rigs and
aircraft from one geographic area to another, but only when we believe such
moves are economically justified.
Natural gas prices, in particular, have fluctuated wildly over the past several
months, and are presently at less than one-third of their peak price attained
just last winter. Such price volatility typically has an adverse effect on
drilling activity. Recently, Gulf of Mexico drilling activity has weakened,
market day rates have declined and Rowan's drilling operations have been
adversely impacted. At current levels, Rowan's drilling operations are
profitable, but there can be no assurance that market conditions will not
deteriorate further.
Though considerably less volatile than its drilling and aviation operations,
Rowan's manufacturing operations have been adversely impacted by a prolonged
period of unfavorable world commodity prices; in particular, prices for copper,
iron ore, coal, gold and diamonds. Rowan's external manufacturing backlog
remains at a depressed level. As a result, we cannot accurately predict whether
or not our manufacturing operations will return to profitability during the
remainder of 2001.
10
LIQUIDITY AND CAPITAL RESOURCES
A comparison of key balance sheet amounts and ratios as of June 30, 2001 and
December 31, 2000 is as follows (dollars in thousands):
June 30, December 31,
2001 2000
--------- -------------
Cash and cash equivalents $ 190,498 $ 192,828
Current assets $ 493,431 $ 483,357
Current liabilities $ 115,591 $ 104,354
Current ratio 4.27 4.63
Long-term debt $ 394,064 $ 372,212
Stockholders' equity $1,123,523 $1,052,757
Long-term debt/total capitalization .26 .26
Reflected in the comparison above are the effects in the first half of 2001 of
net cash provided by operations of $108.2 million, proceeds from borrowings of
$42.5 million, capital expenditures of $140.8 million and debt payments of $14.5
million.
Capital expenditures during the first half of 2001 were primarily related to the
construction of Rowan Gorilla VII and Rowan Gorilla VIII and the reactivation of
our land drilling division.
The construction of Rowan Gorilla VII, a Super Gorilla Class jack-up like Rowan
Gorilla V and Rowan Gorilla VI featuring a combination drilling and production
capability, continues on schedule at Rowan's Vicksburg, Mississippi shipyard and
should be completed by year-end 2001. We are financing up to $185 million of the
cost of Gorilla VII through a 12-year bank loan guaranteed by the U. S.
Department of Transportation's Maritime Administration ("MARAD") under its Title
XI Program. The notes require semiannual payments in each April and October and
Gorilla VII secures the government guarantee. At June 30, 2001, we had drawn
down about $148 million under this facility, which bore interest at floating
rates averaging approximately 4.0%.
Rowan Gorilla VIII is an enhanced version of our Super Gorilla Class jack-up and
is designated as a Super Gorilla XL. Gorilla VIII will be outfitted with 708
feet of leg, 134 feet more than Gorillas V, VI or VII, and have 30% larger spud
cans enabling operation in the Gulf of Mexico in water depths up to 550 feet.
Gorilla VIII will also be able to operate in water depths up to 400 feet in the
hostile environments offshore eastern Canada and in the North Sea. Gorilla VIII
is being constructed at Vicksburg, Mississippi with delivery expected during the
third quarter of 2003. Rowan has secured Title XI government-guaranteed
financing for up to $187 million of the cost of Gorilla VIII on terms and
conditions similar to those in effect for Gorilla VII.
On July 26, 2001, Rowan's Board of Directors approved the development, design
and construction of a new class of jack-up rig, specifically targeted for deep
drilling in water depths up to 250 feet on the outer continental shelf in the
Gulf of Mexico. The Tarzan Class rig will offer drilling capabilities similar to
our Gorilla Class jack-ups, enabling more efficient drilling beyond 15,000 feet,
but with reduced environmental criteria (wind, wave and current) and at about
one-third of the construction cost. The new rig, to be named Scooter Yeargain,
will be constructed at Vicksburg, Mississippi with delivery expected during the
third quarter of 2004.
The Board also approved Rowan's commitment, which is subject to our obtaining
long-term contracts, to purchase three Sikorsky S-92 helicopters for the
deepwater drilling market. The S-92 design features a 19-passenger capacity and
a range of 475 nautical miles. The total cost will approach $50 million and the
helicopters should be delivered in early 2003.
Rowan estimates remaining 2001 capital expenditures will be between $100 million
and $125 million, including approximately $80-90 million for Gorillas VII and
VIII. We may also spend amounts to acquire additional aircraft as market
conditions justify, build additional land rigs and upgrade existing offshore
rigs, land rigs and manufacturing facilities.
During March 2001, Rowan completed the refinancing of its $156.8 million of
outstanding floating-rate Gorilla VI debt through the issuance of a 5.88%
fixed-rate note maturing in 2012. The fixed-rate note is U. S.
Government-guaranteed under MARAD's Title XI Program and Gorilla VI secures the
government guarantee.
Based upon current operating levels and the previously discussed market trends,
we believe that 2001 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 2001.
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In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations", which
essentially mandates the purchase method of accounting for business
combinations, effective July 1, 2001. Rowan believes that the provisions of
Statement No. 141 will not materially impact our financial position or results
of operations.
In June 2001, the FASB also issued Statement No. 142, "Goodwill and Other
Intangible Assets", which governs accounting and reporting for acquired goodwill
and other intangible assets at acquisition and after initial recognition in the
financial statements. Statement No. 142 is effective for fiscal years beginning
after December 15, 2001. Rowan believes that the provisions of Statement No.
142, when adopted effective January 1, 2002, will not materially impact our
financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------------
Rowan believes that its exposure to risk of earnings loss due to changes in
interest rates is not significant.
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, natural gas and other commodity prices; the level of offshore expenditures
by energy companies; the general economy, including inflation; weather
conditions in the Company's principal operating areas; and 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
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(b) Reports on Form 8-K
During the second quarter of 2001, Rowan filed a Form 8-K
dated June 18, 2001 containing items pertinent to the current
quarter, as follows:
Item 5. Other Events
Press release reporting a revision of Rowan's near-term
business outlook.
Item 7. Financial Statements and Exhibits
Rowan press release, dated June 18, 2001
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: August 14, 2001 /s/ E. E. THIELE
-------------------------------
E. E. Thiele
Senior Vice President- Finance,
Administration and Treasurer
(Chief Financial Officer)
Date: August 14, 2001 /s/ W. H. WELLS
-------------------------------
W. H. Wells
Controller
(Chief Accounting Officer)
13