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| RDC > SEC Filings for RDC > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
SUMMARY
Our results of operations continue to benefit from contracts executed prior to the downturn in markets for our offshore drilling services and manufacturing products that began in mid-2008. We are currently receiving day rates on several long-term drilling contracts at rates higher than current market rates. Absent a rebound in drilling demand, our future results of operations are therefore expected to be negatively impacted as the lower market rates are realized in our reported results. In response to the weakness in the U.S. Gulf of Mexico drilling market, we are seeking to relocate our Gulf rigs, as they become available, to other more profitable areas. Although our operations are currently profitable overall, we can provide no assurance that they will continue to be profitable.
As of August 10, 2009, the Company had nine offshore rigs in the Middle East, seven in the U.S. Gulf of Mexico, two in the North Sea, one each offshore West Africa, Eastern Canada and Mexico, and one preparing to mobilize to Egypt, where it will begin operating in the fourth quarter of 2009.
RESULTS OF OPERATIONS
The following table highlights Rowan's operating results for the three and six
months ended June 30, 2009 and 2008 (dollars in millions):
Three Months Ended June 30, Six Months Ended June 30,
2009 2008 % Change 2009 2008 % Change
Revenues:
Drilling $ 320.8 $ 367.4 -13 % $ 701.2 $ 707.8 -1 %
Manufacturing:
Drilling Products
and Systems 106.7 158.2 -33 % 177.8 249.3 -29 %
Mining, Forestry
and Steel Products 54.7 61.5 -11 % 98.0 115.5 -15 %
Total
Manufacturing 161.4 219.7 -27 % 275.8 364.8 -24 %
Total revenues $ 482.2 $ 587.1 -18 % $ 977.0 $ 1,072.6 -9 %
Costs and expenses:
Drilling $ 192.9 $ 209.4 -8 % $ 386.2 $ 406.2 -5 %
Manufacturing:
Drilling Products
and Systems 112.9 140.9 -20 % 178.0 230.3 -23 %
Mining, Forestry
and Steel Products 45.8 55.1 -17 % 84.0 106.7 -21 %
Total
Manufacturing 158.7 196.0 -19 % 262.0 337.0 -22 %
Total costs and
expenses $ 351.6 $ 405.4 -13 % $ 648.2 $ 743.2 -13 %
Operating income
(loss):
Drilling $ 127.9 $ 158.0 -19 % $ 315.0 $ 301.6 4 %
Manufacturing:
Drilling Products
and Systems (6.2 ) 17.3 -136 % (0.2 ) 19.0 -101 %
Mining, Forestry
and Steel Products 8.9 6.4 39 % 14.0 8.8 59 %
Total
Manufacturing 2.7 23.7 -89 % 13.8 27.8 -50 %
Total operating
income $ 130.6 $ 181.7 -28 % $ 328.8 $ 329.4 0 %
Net income $ 96.6 $ 120.6 -20 % $ 228.3 $ 219.2 4 %
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For the second quarter of 2009, our consolidated operating income decreased by $51.1 million or 28%, as compared to the second quarter of 2008, on a $104.9 million or 18% decrease in revenues and a $53.8 million or 13% reduction in costs. Net income includes income tax expense of $36.5 million (27% effective rate) and $63.3 million (34% effective rate) for the second quarter of 2009 and 2008, respectively.
For the six months, our consolidated operating income decreased by $0.6 million or less than one percent, when comparing 2009 and 2008, on a $95.6 million or 9% decrease in revenues and a $95.0 million or 13% reduction in costs. Net income includes income tax expense of $104.4 million (31% effective rate) and $115.1 million (34% effective rate) for the first six months of 2009 and 2008, respectively.
During the second quarter of 2009, the Company lowered its estimated full-year 2009 effective tax rate to 31.4% from 33.6%. The reduction reflects the current-year estimated impact of a recent tax case that provides a more favorable tax treatment for certain foreign contracts entered into in prior years, but continuing through 2009 and beyond. We are currently assessing the impact to prior open tax years and intend to complete that analysis during the third quarter.
Drilling operations
Three months ended June 30, 2009, compared to three months ended June 30, 2008
The following table highlights the performance of our Drilling Services segment for the three months ended June 30, 2009 and 2008 (dollars in millions, except for average day rate):
Three months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 320.8 100 % $ 367.4 100 %
Operating costs (136.8 ) -43 % (163.3 ) -44 %
Depreciation expense (38.7 ) -12 % (29.7 ) -8 %
Selling, general and administrative expenses (17.4 ) -5 % (17.9 ) -5 %
Net gain on property disposals - 0 % 1.5 0 %
Operating income $ 127.9 40 % $ 158.0 43 %
Offshore fleet:
Average day rate $ 177,200 $ 161,600
Rig utilization 78 % 96 %
Revenue-producing days 1,561 1,840
Land fleet:
Average day rate $ 22,400 $ 22,600
Rig utilization 60 % 97 %
Revenue-producing days 1,721 2,604
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Drilling revenues for the quarter decreased by $46.6 million or 13% compared to the second quarter of 2008 as a result of the following (in millions):
Increase
(Decrease)
Addition of the J.P. Bussell and Rowan-Mississippi1 $ 23.9
Higher average offshore day rates 16.0
Addition of four land rigs2 6.5
Loss of the Rowan-Anchorage3 (5.4 )
Lower land rig utilization (25.9 )
Lower offshore rig utilization (55.3 )
Reimbursables and other, net (6.4 )
Net decrease $ (46.6 )
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Drilling operating costs for the second quarter of 2009 decreased by $26.5 million, or 16%, from the second quarter of 2008 due to lower labor and repair and maintenance costs in 2009 as compared to 2008. Drilling depreciation expense increased by $9 million or 30% between periods due primarily to the addition of the J.P. Bussell and Rowan-Mississippi in November 2008. Selling, general and administrative expenses for the Drilling Services segment decreased by $0.5 million, or 3% between periods, due primarily to lower incentive-based compensation expense.
The following table presents certain key performance measures by geographic area for our offshore fleet for the quarterly periods indicated. The number of rigs in each location is based on location for the majority of the period. Average day rates are computed based on revenues recognized during the period, excluding reimbursables, divided by the number of revenue-producing days. Revenues by area include reimbursables (dollars in thousands, except for average day rate).
Three months ended June 30,
2009 2008
Gulf of Mexico:
Number of rigs 9 8
Revenues $ 84,125 $ 96,082
Average day rate $ 150,400 $ 126,600
Utilization 66 % 98 %
Middle East:
Number of rigs 9 9
Revenues $ 102,324 $ 117,333
Average day rate $ 144,700 $ 153,500
Utilization 86 % 93 %
North Sea:
Number of rigs 2 2
Revenues $ 52,314 $ 41,390
Average day rate $ 285,400 $ 225,100
Utilization 100 % 100 %
Other international:
Number of rigs 2 2
Revenues $ 40,622 $ 47,161
Average day rate $ 314,000 $ 289,300
Utilization 71 % 100 %
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Six months ended June 30, 2009, compared to six months ended June 30, 2008
The following table highlights the performance of our Drilling Services segment for the first six months of 2009 and 2008 (dollars in millions, except for average day rate):
Six months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 701.2 100 % $ 707.8 100 %
Operating costs (282.2 ) -40 % (319.8 ) -45 %
Depreciation expense (75.5 ) -11 % (58.9 ) -8 %
Selling, general and administrative expenses (33.2 ) -5 % (34.4 ) -5 %
Net gain on property disposals 4.7 1 % 6.9 1 %
Operating income $ 315.0 45 % $ 301.6 43 %
Offshore fleet:
Average day rate $ 175,200 $ 160,700
Rig utilization 85 % 94 %
Revenue-producing days 3,402 3,585
Land fleet:
Average day rate $ 24,100 $ 22,900
Rig utilization 67 % 93 %
Revenue-producing days 3,776 4,962
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Drilling revenues for the first six months of 2009 decreased by $6.6 million, or less than one percent, compared to the comparable period of 2008 as a result of the following (in millions):
Increase
(Decrease)
Addition of the J.P. Bussell and Rowan-Mississippi1 $ 57.7
Higher average offshore day rates 27.0
Addition of four land rigs2 12.4
Higher average land day rates 3.3
Loss of the Rowan-Anchorage3 (10.7 )
Lower land rig utilization (38.6 )
Lower offshore rig utilization (53.8 )
Reimbursables and other, net (3.9 )
Net decrease $ (6.6 )
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Drilling operating costs for the first six months of 2009 decreased by $37.6 million, or 12%, from the comparable prior year period due to lower labor and repair and maintenance costs in 2009 as compared to 2008. Drilling depreciation expense increased by $16.6 million or 28% between periods due primarily to the addition of the J.P. Bussell and Rowan-Mississippi in November 2008. Selling, general and administrative expenses for the Drilling Services segment decreased by $1.2 million, or 3%, between periods due primarily to lower incentive-based compensation expense.
The following table presents certain key performance measures by geographic area for our offshore fleet for the six months ended June 30, 2009 and 2008. The number of rigs in each location is based on location for the majority of the period. Average day rates are computed based on revenues recognized during the period, excluding reimbursables, divided by the number of revenue-producing days. Revenues by area include reimbursables (dollars in thousands, except for average day rate).
Six months ended June 30,
2009 2008
Gulf of Mexico:
Number of rigs 10 8
Revenues $ 208,269 $ 175,482
Average day rate $ 153,400 $ 120,600
Utilization 77 % 95 %
Middle East:
Number of rigs 9 9
Revenues $ 222,819 $ 226,950
Average day rate $ 147,600 $ 152,600
Utilization 92 % 91 %
North Sea:
Number of rigs 2 2
Revenues $ 102,425 $ 85,803
Average day rate $ 282,600 $ 234,400
Utilization 99 % 99 %
Other international:
Number of rigs 1 2
Revenues $ 71,478 $ 96,785
Average day rate $ 320,400 $ 288,300
Utilization 81 % 96 %
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Drilling Products and Systems
Three months ended June 30, 2009, compared to three months ended June 30, 2008
The following table highlights the performance of our Drilling Products and
Systems segment for the second quarters of 2009 and 2008 (dollars in millions):
Three months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 106.7 100 % $ 158.2 100 %
Operating costs (107.7 ) -101 % (131.4 ) -83 %
Depreciation expense (2.2 ) -2 % (2.3 ) -1 %
Selling, general and administrative expenses (3.0 ) -3 % (7.2 ) -5 %
Operating income (loss) $ (6.2 ) -6 % $ 17.3 11 %
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Revenues from Drilling Products and Systems decreased by $51.5 million, or 33%, between periods due primarily to the following:
· A decrease of $22.8 million attributable to $42.6 million recognized on shipments of land rigs and component packages in 2009, down from $65.4 million in 2008;
· A decrease of $16.2 million attributable to $0.4 million recognized on shipments of top drives in 2009, down from $16.6 million in 2008;
· A decrease of $13.3 million attributable to $24.5 million of revenues recognized on three offshore rig kit projects in progress in 2009, as compared to $37.8 million recognized on six projects in 2008.
Revenues from Drilling Products and Systems include revenues recognized under the percentage-of-completion method of accounting as well as at the time of shipment. Our product revenues are therefore influenced by progress on long-term projects in process and the timing of shipments, and profitability is highly impacted by the mix of product sales. Original-equipment sales, for example, have traditionally yielded lower margins than the related after-market parts sales. Our average margin before depreciation and selling, general and administrative expenses was a negative 1% of revenues in 2009 as compared to 17% in 2008. Margins in 2009 were negatively affected by sales mix, with a greater share of revenues from some of our lower-margin products as compared to the prior year, $4 million in warranty costs and $2 million in purchase cancellation fees.
Selling, general and administrative costs declined by $4.2 million or 58% between periods due primarily to lower compensation and related fringe benefit costs associated with reduced employment levels.
Our Drilling Products and Systems operating results for the 2009 second quarter excludes $35.1 million of revenues and $25.2 million of expenses in connection with sales of products and services to our Drilling Services segment, most of which was attributable to construction of the newbuild jack-up, Ralph Coffman. Drilling Products and Systems operating results for the comparable quarter of 2008 excludes $100.7 million of revenues and $79.0 million of expenses, primarily for construction of the J.P. Bussell, Rowan-Mississippi and Ralph Coffman.
Six months ended June 30, 2009, compared to six months ended June 30, 2008
The following table highlights the performance of our Drilling Products and Systems segment for the first six months of 2009 and 2008 (dollars in millions):
Six months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 177.8 100 % $ 249.3 100 %
Operating costs (166.5 ) -94 % (212.2 ) -85 %
Depreciation expense (4.4 ) -2 % (4.7 ) -2 %
Selling, general and administrative expenses (7.1 ) -4 % (13.4 ) -5 %
Operating income (loss) $ (0.2 ) 0 % $ 19.0 8 %
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Revenues from Drilling Products and Systems decreased by $71.5 million, or 29%, between periods due primarily to the following:
· A decrease of $36.8 million attributable to $48.2 million recognized on shipments of land rigs and component packages in 2009, down from $85.0 million in 2008;
· A decrease of $29.9 million attributable to $50.6 million of revenues recognized on four offshore rig kit projects in progress in 2009, as compared to $80.5 million recognized on six projects in 2008;
· A decrease of $17.4 million attributable to $0.7 million of revenues recognized on shipments of top drives in 2009, down from $18.1 million in 2008;
· An increase of $9.1 million attributable to $27.8 million recognized on 29 mud pumps shipped in 2009, up from $18.7 million on 27 pumps in 2008.
Our average margin before depreciation and selling, general and administrative expenses decreased to 6% of revenues in 2009 from 15% in 2008. Margins in 2009 were negatively affected by sales mix, with a greater share of revenues from some of our lower-margin products as compared to the prior year, $4 million in warranty costs and $2 million in purchase cancellation fees.
Selling, general and administrative costs declined by $6.3 million or 47% between periods due primarily to lower compensation and related fringe benefit costs associated with reduced employment levels.
Our Drilling Products and Systems operating results for the 2009 six-month period excludes $108.6 million of revenues and $78.2 million of expenses in connection with sales of products and services to our Drilling Services segment, most of which was attributable to construction of the newbuild jack-up, Ralph Coffman. Drilling Products and Systems operating results for the comparable period of 2008 excludes $179.7 million of revenues and $145.0 million of expenses, primarily for construction of the J.P. Bussell, Rowan-Mississippi and Ralph Coffman.
Mining, Forestry and Steel Products
Three months ended June 30, 2009, compared to three months ended June 30, 2008
The following table highlights the performance of our Mining, Forestry and Steel
Products segment for the second quarters of 2009 and 2008 (dollars in millions):
Three months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 54.7 100 % $ 61.5 100 %
Operating costs (39.7 ) -73 % (48.0 ) -78 %
Depreciation expense (1.6 ) -3 % (1.5 ) -2 %
Selling, general and administrative expenses (4.5 ) -8 % (5.6 ) -9 %
Operating income $ 8.9 16 % $ 6.4 10 %
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Our product revenues are influenced by the timing of shipments, and profitability is highly impacted by the mix of product sales, with after-market parts providing higher margins than original equipment. As indicated in the preceding table, revenues from Mining, Forestry and Steel Products decreased by $6.8 million or 11% between periods. Most of the decrease was attributable to lower sales of steel plate. Revenues from steel plate sales totaled $5.3 million during the second quarter of 2009, down by $12.1 million or 70% between periods. Shipments of front-end mining loaders and log stackers totaled six units during the second quarter of 2009, compared to seven units in the second quarter of 2008. Parts sales increased by $1.2 million or 7% between periods to $18.1 million during the second quarter of 2009.
Our average margin before depreciation and selling, general and administrative expenses increased to 27% of revenues in the second quarter of 2009 from 22% in the comparable quarter of 2008. The higher margins were primarily attributable to higher sales prices for steel plate and a greater share of parts sales in 2009 compared to 2008.
Six months ended June 30, 2009, compared to six months ended June 30, 2008
The following table highlights the performance of our Mining, Forestry and Steel Products segment for the first six months of 2009 and 2008 (dollars in millions):
Six months ended June 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 98.0 100 % $ 115.5 100 %
Operating costs (71.7 ) -73 % (93.4 ) -81 %
Depreciation expense (3.1 ) -3 % (2.9 ) -3 %
Selling, general and administrative expenses (9.2 ) -9 % (10.4 ) -9 %
Operating income $ 14.0 14 % $ 8.8 8 %
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As indicated in the preceding table, revenues from Mining, Forestry and Steel Products decreased by $17.5 million or 15% between periods. Most of the decrease was attributable to lower sales of steel plate. Revenues from steel plate sales totaled $17.5 million during the first six months of 2009, down by $15.1 million or 46% between periods. Shipments of front-end mining loaders and log stackers . . .
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