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| RDC > SEC Filings for RDC > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
SUMMARY
During 2009, our results of operations have continued to benefit from contracts executed prior to the downturn that began in mid 2008 in markets for our offshore drilling services and manufactured products and services. 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 may be further negatively impacted as the lower market rates are realized in our reported results. In response to the profound 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 active and profitable areas. Although our operations are currently profitable overall, we can provide no assurance that they will continue to be profitable.
As of November 6, 2009, the Company had nine offshore rigs in the Middle East, seven in the U.S. Gulf of Mexico, two in the North Sea, and one each offshore West Africa, Eastern Canada, Mexico and Egypt.
RESULTS OF OPERATIONS
The following table highlights Rowan's operating results for the three and nine
months ended September 30, 2009 and 2008 (dollars in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 % Change 2009 2008 % Change
Revenues:
Drilling $ 258.4 $ 357.1 -28 % $ 959.6 $ 1,064.9 -10 %
Manufacturing:
Drilling Products and
Systems 93.5 111.0 -16 % 271.3 360.3 -25 %
Mining, Forestry and
Steel Products 41.5 59.0 -30 % 139.5 174.5 -20 %
Total Manufacturing 135.0 170.0 -21 % 410.8 534.8 -23 %
Total revenues $ 393.4 $ 527.1 -25 % $ 1,370.4 $ 1,599.7 -14 %
Costs and expenses:
Drilling $ 177.3 $ 190.2 -7 % $ 563.5 $ 596.4 -6 %
Manufacturing:
Drilling Products and
Systems 92.4 113.0 -18 % 270.4 343.3 -21 %
Mining, Forestry and
Steel Products 36.6 51.7 -29 % 120.6 158.4 -24 %
Total Manufacturing 129.0 164.7 -22 % 391.0 501.7 -22 %
Total costs and
expenses $ 306.3 $ 354.9 -14 % $ 954.5 $ 1,098.1 -13 %
Operating income
(loss):
Drilling $ 81.1 $ 166.9 -51 % $ 396.1 $ 468.5 -15 %
Manufacturing:
Drilling Products and
Systems 1.1 (2.0 ) -155 % 0.9 17.0 -95 %
Mining, Forestry and
Steel Products 4.9 7.3 -33 % 18.9 16.1 17 %
Total Manufacturing 6.0 5.3 13 % 19.8 33.1 -40 %
Total operating
income $ 87.1 $ 172.2 -49 % $ 415.9 $ 501.6 -17 %
Net income $ 78.4 $ 114.1 -31 % $ 306.7 $ 333.3 -8 %
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For the third quarter of 2009, our consolidated operating income decreased by $85.1 million or 49%, as compared to the third quarter of 2008, on a $133.7 million or 25% decrease in revenues and a $48.6 million or 14% reduction in costs. Net income includes income tax expense of $8.0 million (9% effective rate) and $57.2 million (33% effective rate) for the third quarter of 2009 and 2008, respectively.
For the first nine months of 2009, our consolidated operating income decreased by $85.7 million or 17%, compared to the comparable 2008 period, on a $229.3 million or 14% decrease in revenues and a $143.6 million or 13% reduction in costs. Net income includes income tax expense of $112.4 million (27% effective rate) and $172.3 million (34% effective rate) for the first nine months of 2009 and 2008, respectively.
In the second quarter of 2009, we recognized an $8 million tax benefit ($0.07 per diluted share) as a result of a recent third-party tax case that provides a more favorable tax treatment for certain foreign contracts entered into in prior years, and lowered our estimated full-year 2009 effective tax rate to 31.4% from 33.6%.
During the third quarter of 2009, we completed our assessment of the impact of the case as to all open tax years and, as a result, recognized an additional $17 million tax benefit ($0.15 per diluted share) in the quarter, which further lowered our estimated full-year 2009 effective tax rate to 27.9%. We have deferred recognition of a remaining $50 million estimated benefit in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (ASC 740-10).
Drilling operations
Three months ended September 30, 2009, compared to three months ended September 30, 2008
The following table highlights the performance of our Drilling Services segment for the three months ended September 30, 2009 and 2008 (dollars in millions, except for average day rate):
Three months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 258.4 100 % $ 357.1 100 %
Operating costs (121.3 ) -47 % (163.3 ) -46 %
Depreciation expense (39.8 ) -15 % (32.2 ) -9 %
Selling, general and administrative expenses (16.3 ) -6 % (16.2 ) -5 %
Net gain on property disposals 0.1 0 % 21.5 6 %
Operating income $ 81.1 31 % $ 166.9 47 %
Offshore fleet:
Average day rate $ 182,500 $ 161,100
Rig utilization 59 % 95 %
Revenue-producing days 1,197 1,817
Land fleet:
Average day rate $ 22,500 $ 20,900
Rig utilization 56 % 97 %
Revenue-producing days 1,652 2,620
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Drilling revenues for the quarter decreased by $98.7 million or 28% compared to the third quarter of 2008 as a result of the following (in millions):
Increase
(Decrease)
Lower offshore rig utilization $ (112.3 )
Lower land rig utilization (25.4 )
Reimbursables and other, net (7.1 )
Loss of the Rowan-Anchorage1 (4.4 )
Higher average land day rates 1.6
Addition of three land rigs2 6.4
Addition of the J.P. Bussell and Rowan-Mississippi3 18.4
Higher average offshore day rates 24.1
Net decrease $ (98.7 )
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Drilling operating costs for the third quarter of 2009 decreased by $42.0 million, or 26%, from the third quarter of 2008 due to reductions in primarily labor and related personnel costs, and lower maintenance and reimbursable expenses. Additionally, several shipyard upgrade projects absorbed certain personnel-related costs for many of our idle rigs. Operating margins before depreciation and selling, general and administrative expenses for the third quarters of 2009 and 2008 were comparable at 53% and 54%, respectively. Drilling depreciation expense increased by $7.6 million or 24% between periods due primarily to the addition of the J.P. Bussell and Rowan-Mississippi in November 2008.
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 and includes active and idle rigs. Revenues include reimbursables. Average day rates are computed by dividing revenues recognized during the period, excluding reimbursables, by the number of revenue-producing days. Rig utilization is computed as the number of revenue-producing days divided by total available rig-days.
Three months ended September 30,
2009 2008
Gulf of Mexico:
Number of rigs 8 9
Revenues $ 43,844,000 $ 108,988,000
Average day rate $ 137,900 $ 131,400
Utilization 43 % 100 %
Middle East:
Number of rigs 9 9
Revenues $ 77,211,000 $ 124,545,000
Average day rate $ 161,400 $ 159,200
Utilization 57 % 94 %
North Sea:
Number of rigs 2 2
Revenues $ 36,244,000 $ 33,328,000
Average day rate $ 209,200 $ 238,300
Utilization 94 % 73 %
Other international:
Number of rigs 3 1
Revenues $ 63,465,000 $ 31,990,000
Average day rate $ 267,300 $ 324,600
Utilization 84 % 100 %
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Nine months ended September 30, 2009, compared to nine months ended September 30, 2008
The following table highlights the performance of our Drilling Services segment for the first nine months of 2009 and 2008 (dollars in millions, except for average day rate):
Nine months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 959.6 100 % $ 1,064.9 100 %
Operating costs (403.5 ) -42 % (483.1 ) -45 %
Depreciation expense (115.3 ) -12 % (91.1 ) -9 %
Selling, general and administrative expenses (49.5 ) -5 % (50.6 ) -5 %
Net gain on property disposals 4.8 1 % 28.4 3 %
Operating income $ 396.1 41 % $ 468.5 44 %
Offshore fleet:
Average day rate $ 177,100 $ 160,800
Rig utilization 77 % 94 %
Revenue-producing days 4,599 5,402
Land fleet:
Average day rate $ 23,600 $ 22,200
Rig utilization 63 % 95 %
Revenue-producing days 5,428 7,582
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Drilling revenues for the first nine months of 2009 decreased by $105.3 million, or 10%, compared to the comparable period of 2008 as a result of the following (in millions):
Increase
(Decrease)
Lower offshore rig utilization $ (166.3 )
Lower land rig utilization (64.5 )
Loss of the Rowan-Anchorage1 (15.2 )
Reimbursables and other, net (11.0 )
Higher average land day rates 5.5
Addition of four land rigs2 18.7
Higher average offshore day rates 51.4
Addition of the J.P. Bussell and Rowan-Mississippi3 76.1
Net decrease $ (105.3 )
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Drilling operating costs for the first nine months of 2009 decreased by $79.6 million, or 16%, from the comparable prior-year period due to reductions in primarily labor and related personnel costs, and lower maintenance and reimbursable expenses. Additionally, several shipyard upgrade projects absorbed certain personnel-related costs for many of our idle rigs. Operating margins before depreciation and selling, general and administrative expenses improved to 58% in the nine-month period ended September 30, 2009 from 55% in the prior-year period. Drilling depreciation expense increased by $24.2 million or 27% between periods due primarily to the addition of the J.P. Bussell and Rowan-Mississippi in November 2008.
The following table presents certain key performance measures by geographic area for our offshore fleet for the nine months ended September 30, 2009 and 2008. The number of rigs in each location is based on location for the majority of the period and includes active and idle rigs. Revenues include reimbursables. Average day rates are computed by dividing revenues recognized during the period, excluding reimbursables, by the number of revenue-producing days. Rig utilization is computed as the number of revenue-producing days divided by total available rig-days.
Nine months ended September 30,
2009 2008
Gulf of Mexico:
Number of rigs 9 8
Revenues $ 252,113,000 $ 284,470,000
Average day rate $ 150,400 $ 124,500
Utilization 67 % 97 %
Middle East:
Number of rigs 9 9
Revenues $ 300,030,000 $ 351,495,000
Average day rate $ 150,900 $ 154,900
Utilization 81 % 92 %
North Sea:
Number of rigs 2 2
Revenues $ 138,669,000 $ 119,131,000
Average day rate $ 258,800 $ 235,400
Utilization 98 % 91 %
Other international:
Number of rigs 2 2
Revenues $ 134,943,000 $ 128,775,000
Average day rate $ 293,100 $ 296,200
Utilization 82 % 97 %
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Drilling Products and Systems
Three months ended September 30, 2009, compared to three months ended September
30, 2008
The following table highlights the performance of our Drilling Products and
Systems segment for the quarterly periods (dollars in millions):
Three months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 93.5 100 % $ 111.0 100 %
Operating costs (86.6 ) -93 % (104.8 ) -94 %
Depreciation expense (2.4 ) -3 % (2.4 ) -2 %
Selling, general and administrative expenses (3.4 ) -4 % (5.8 ) -5 %
Operating income (loss) $ 1.1 1 % $ (2.0 ) -2 %
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Revenues from Drilling Products and Systems decreased by $17.5 million, or 16%, between periods due primarily to the following:
· A decrease of $13.8 million attributable to $35.9 million recognized on shipments of land rigs and component packages in 2009, down from $49.7 million in 2008;
· A decrease of $10.6 million attributable to $28.7 million of revenues recognized on four offshore rig kit projects in progress in 2009, as compared to $39.3 million recognized on six projects in 2008;
· An increase of $5.6 million attributable to $9.8 million recognized on shipments of 13 mud pumps in 2009, up from $4.2 million on shipments of 9 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 contracts 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 7% of revenues in 2009 and 6% in 2008.
Selling, general and administrative costs declined by $2.4 million or 41% 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 third quarter excludes $84.1 million of revenues and $55.7 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 $78.4 million of revenues and $63.6 million of expenses, primarily for construction of the J.P. Bussell, Rowan-Mississippi and Ralph Coffman.
Nine months ended September 30, 2009, compared to nine months ended September 30, 2008
The following table highlights the performance of our Drilling Products and Systems segment for the first nine months of 2009 and 2008 (dollars in millions):
Nine months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 271.3 100 % $ 360.3 100 %
Operating costs (253.1 ) -93 % (316.9 ) -88 %
Depreciation expense (6.8 ) -3 % (7.2 ) -2 %
Selling, general and administrative expenses (10.5 ) -4 % (19.2 ) -5 %
Operating income $ 0.9 0 % $ 17.0 5 %
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Revenues from Drilling Products and Systems decreased by $89.0 million, or 25%, between periods due primarily to the following:
· A decrease of $64.3 million attributable to $82.3 million of revenues recognized on five offshore rig kit projects in progress in 2009, as compared to $146.6 million recognized on eight projects in 2008;
· A decrease of $26.7 million attributable to $81.1 million recognized on shipments of land rigs and component packages in 2009, down from $107.8 million in 2008;
· A decrease of $19.0 million attributable to $1.4 million of revenues recognized on shipments of top drives in 2009, down from $20.4 million in 2008;
· An increase of $14.7 million attributable to $37.6 million recognized on 42 mud pumps shipped in 2009, up from $22.9 million on 36 pumps in 2008.
Our average margin before depreciation and selling, general and administrative expenses decreased to 7% of revenues in 2009 from 12% 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 additional warranty costs accrued for necessary design improvements in the 500-ton top drive line, and $2 million in purchase cancellation fees.
Selling, general and administrative costs declined by $8.7 million or 45% 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 nine-month period excludes $192.7 million of revenues and $133.9 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 $258.1 million of revenues and $208.6 million of expenses, primarily for construction of the J.P. Bussell, Rowan-Mississippi and Ralph Coffman.
Mining, Forestry and Steel Products
Three months ended September 30, 2009, compared to three months ended September
30, 2008
The following table highlights the performance of our Mining, Forestry and Steel
Products segment for the quarterly periods (dollars in millions):
Three months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 41.5 100 % $ 59.0 100 %
Operating costs (30.3 ) -73 % (44.4 ) -75 %
Depreciation expense (1.7 ) -4 % (1.6 ) -3 %
Selling, general and administrative expenses (4.1 ) -10 % (5.6 ) -9 %
Net loss on property disposals (0.5 ) -1 % (0.1 ) 0 %
Operating income $ 4.9 12 % $ 7.3 12 %
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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 $17.5 million or 30% between periods. Most of the decrease was attributable to lower sales of steel plate. Revenues from steel plate sales totaled $5.8 million in the third quarter of 2009, down by $12.3 million or 68% between periods. Parts sales decreased by $3.2 million or 16% between periods to $16.5 million during the third quarter of 2009. Revenues from sales of new front-end mining loaders and log stackers were flat, despite shipping three units during the third quarter of 2009 compared to four units in the third quarter of 2008, due to sales of higher-priced units in the 2009 quarter.
Our average margin before depreciation and selling, general and administrative expenses increased to 27% of revenues in the third quarter of 2009 from 25% in the comparable quarter of 2008. The higher margins were attributable to primarily product sales mix, particularly a greater proportion of lower-margin steel plate sales in 2008.
Nine months ended September 30, 2009, compared to nine months ended September 30, 2008
The following table highlights the performance of our Mining, Forestry and Steel Products segment for the first nine months of 2009 and 2008 (dollars in millions):
Nine months ended September 30,
2009 2008
Amount % of Revenues Amount % of Revenues
Revenues $ 139.5 100 % $ 174.5 100 %
Operating costs (102.0 ) -73 % (137.9 ) -79 %
Depreciation expense (4.8 ) -3 % (4.5 ) -3 %
. . .
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