e10vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2006 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Rowan Companies, Inc.
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Incorporated in Delaware
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Commission File
Number 1-5491
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I.R.S. Employer
Identification: |
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75-0759420 |
2800 Post Oak Boulevard
Suite 5450
Houston, Texas 77056-6127
Registrant’s telephone number, including area code: (713) 621-7800
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class |
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Name of Each Exchange on Which Registered |
| Common Stock, $.125 Par Value
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New York Stock Exchange |
| Preferred Stock Purchase Rights
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes. þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filer þ
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $3.9 billion as of June 30, 2006 based upon the closing price of the registrant’s
Common Stock on the New York Stock Exchange Composite Tape of $35.28 per share.
The number of shares of Common Stock, $.125 par value, outstanding at February 26, 2007 was
110,500,425.
DOCUMENTS INCORPORATED BY REFERENCE
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Part of Form 10-K |
Portions of the Proxy Statement for the 2007 Annual
Meeting of Stockholders
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Part III, Items 10-14 |
FORWARD-LOOKING STATEMENTS
This Form 10-K contains “forward-looking statements” as defined by the Securities and Exchange
Commission (SEC). Such statements are those concerning contemplated transactions and strategic
plans, expectations and objectives for future operations. These include, without limitation:
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statements, other than statements of historical fact, that address activities, events
or developments that we expect, believe or anticipate will or may occur in the future; |
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statements relating to future financial performance, future capital sources and other
matters; and |
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any other statements preceded by, followed by or that include the words “anticipates”,
“believes”, “expects”, “plans”, “intends”, “estimates”, “projects”, “could”, “should”,
“may”, or similar expressions. |
Although we believe that our plans, intentions and expectations reflected in or suggested by
the forward-looking statements we make in this form 10-K are reasonable, we can give no assurance
that such plans, intentions and expectations will be achieved. These statements are based on
assumptions made by us based on our experience and perception of historical trends, current
conditions, expected future developments and other factors that we believe are appropriate in the
circumstances. Such statements are subject to a number of risks and uncertainties, many of which
are beyond our control. You are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ materially from those projected in
the forward-looking statements. Among the factors that could cause actual results to differ
materially are the following:
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oil and natural gas prices |
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the level of exploration and development expenditures by energy companies |
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energy demand |
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the general economy, including inflation |
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weather conditions in our principal operating areas |
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environmental and other laws and regulations |
All forward-looking statements contained in this Form 10-K only speak as of the date of this
document. We undertake no obligation to update or revise publicly any revisions to any such
forward-looking statements that may be made to reflect events or circumstances after the date of
this Form 10-K, or to reflect the occurrence of unanticipated events.
Other relevant factors have been disclosed in our previous filings with the U.S. Securities
and Exchange Commission and are included in under PART I, ITEM 1A, RISK FACTORS beginning on page
11 of this Form 10-K.
3
PART I
Rowan Companies, Inc. (hereinafter referred to as “Rowan” or “the Company”) is a major
provider of international and domestic contract drilling services. Rowan also owns and operates a
manufacturing division that produces equipment for the drilling, mining and timber industries.
Rowan was organized in 1947 as a Delaware corporation and a successor to a contract drilling
business conducted since 1923 under the name Rowan Drilling Company, Inc.
Information regarding each of Rowan’s industry segments, including revenues, income (loss)
from operations, assets and foreign-source revenues for 2006, 2005 and 2004 is shown in Footnote 10
of the Notes to Consolidated Financial Statements on pages 57-59 of this Form 10-K. Information
regarding Rowan’s discontinued operations is shown in Footnote 12 of the Notes to Consolidated
Financial Statements on page 59 of this Form 10-K.
During 2006, 2005 and 2004, no one customer accounted for 10% or more of Rowan’s consolidated
revenues.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act are made available free of charge on our website at http://www.rowancompanies.com as
soon as reasonably practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission.
DRILLING OPERATIONS
Rowan provides
contract drilling services utilizing a fleet of 21 self-elevating mobile
offshore drilling platforms (“jack-up rigs”) and 26 land drilling rigs. Rowan’s drilling operations
are conducted primarily in the Gulf of Mexico, the Middle East, the North Sea, Trinidad, offshore
eastern Canada and in Texas, Louisiana and Oklahoma. During 2006, we
returned to the Middle East market with four jack-up rigs and have
doubled our presence there in early 2007. In 2006, drilling operations generated
revenues of $1,067.4 million and income from operations of $447.7 million.
Offshore Operations
Since 1970, Rowan’s drilling operations have featured jack-up rigs performing both exploratory
and development drilling and, in certain areas, well workover operations. Rowan operates larger,
deep-water type jack-up rigs capable of drilling to depths of 20,000 to 35,000 feet in maximum
water depths ranging from 250 to 550 feet, depending on the size of the rig and its location.
Rowan’s jack-up rigs are designed with a floating hull with three independently elevating
legs, drilling equipment, supplies, crew quarters, loading and unloading facilities, a helicopter
landing deck and other related equipment. Drilling equipment includes engines, drawworks or hoist,
derrick, pumps to circulate the drilling fluid, drill pipe and drilling bits. At the drilling site,
the legs are lowered until they penetrate the ocean floor and the hull is jacked up on the legs to
the desired elevation above the water. The hull then serves as a drilling platform until the well
is completed, at which time the hull is lowered into the water, the legs are elevated and the rig
is towed to the next drilling site. Rowan’s rigs are equipped with propulsion thrusters to assist
in towing.
Rowan’s cantilever jack-ups can extend a portion of the sub-structure containing the
drawworks, derrick and related equipment over fixed production platforms so that development or
workover operations on the platforms can be carried out with a minimum of interruption to
production. In 1989, Rowan acquired and developed a “skid base” technology, whereby the rig floor
drilling equipment on a conventional jack-up rig can be “skidded” out over the top of a fixed
platform. Thus, conventional jack-up rigs can be used on certain drilling assignments that
previously required a cantilever jack-up or platform rig.
At February 26, 2007, Rowan’s offshore drilling fleet included the following:
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17 premium cantilever jack-up rigs, featuring three harsh environment Gorilla class rigs,
four enhanced Super Gorilla class rigs and three Tarzan Class rigs |
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Four conventional jack-up rigs, including three rigs with skid base capability |
The Company operates one of the cantilever jack-up rigs under an operating lease that expires
in June 2008.
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The fleet grew by one unit during 2006 with the addition of Rowan’s third Tarzan Class jack-up
rig, the Hank Boswell, in September. In addition, the Rowan-Louisiana, which had been
significantly damaged during Katrina in 2005, was returned to service in December 2006. Rowan lost
four other offshore rigs in the Gulf of Mexico during the 2005 hurricanes and sold two additional
rigs that year.
Rowan’s Gorilla class rigs were designed in the early 1980s as a heavier-duty class of jack-up
rig, capable of operating in water depths up to 328 feet in extreme hostile environments (winds up
to 100 miles per hour and seas up to 90 feet) such as in the North Sea and offshore eastern Canada.
Gorillas II and III can drill up to 30,000 feet and Gorilla IV is equipped to reach 35,000 feet.
In late 1998, Rowan completed construction of its first Super Gorilla class rig, the Gorilla
V. The Gorilla VI followed in June 2000 and the Gorilla VII was delivered in December 2001. The
Super Gorillas are enhanced versions of Rowan’s Gorilla class rigs, featuring a simultaneous
drilling and production capability. They can operate year-round in 400 feet of water south of the
61st parallel in the North Sea, within the worst-case combination of 100-year storm criteria for
waves, wave periods, winds and currents. Rowan financed an aggregate $509.5 million of the cost of
Gorillas V, VI and VII through separate bank loans guaranteed by the U.S. Department of
Transportation’s Maritime Administration under its Title XI program.
In August 2003, Rowan completed construction of the Bob Palmer (formerly the Gorilla VIII), an
enhanced version of the Super Gorilla class jack-up designated a Super Gorilla XL. The Bob Palmer
has 713 feet of leg, 139 feet more than the Super Gorillas, and has 30% larger spud cans, enabling
operation in the Gulf of Mexico in water depths up to 550 feet. The Bob Palmer can also operate in
water depths up to 400 feet in the hostile environments offshore eastern Canada and in the North
Sea. Rowan financed $187.3 million of the cost of the Bob Palmer through bank loans guaranteed
under the Title XI program.
In July 2001, Rowan’s Board of Directors approved the design and construction of a new class
of jack-up rig, specifically targeted for drilling beyond 25,000 feet in water depths up to 300
feet in benign environments. The Tarzan Class rig offers drilling capabilities similar to our Super
Gorilla class jack-ups, but with reduced environmental criteria (wind, wave and current) and at
around one-half the construction cost. The first Tarzan Class rig, the Scooter Yeargain, was
delivered in April 2004 and the second, the Bob Keller, was delivered in August 2005. Rowan
financed $180.9 million of the cost of the first two Tarzan Class rigs through separate
government-guaranteed Title XI bank loans.
Construction of a fourth Tarzan Class rig, the J. P. Bussell, is progressing at a third-party
shipyard and should be completed by late 2007 or early 2008. Rowan has applied for Title XI
financing for the third and fourth Tarzan Class rigs on terms and conditions similar to those in
effect for the Bob Keller.
In November 2005, Rowan’s Board of Directors approved the design and construction of a new
class of jack-up rig specifically targeted for high pressure/high temperature drilling in water
depths up to 400 feet. The Company believes that the new 240C class will set a new standard as the
replacement for the industry’s current fleet of 116C class rigs, which have been the “workhorse” of
the global drilling industry for more than 25 years. The 240C will have more deck space, higher
variable load capacity, greater hook-load capability, more cantilever reach and greater personnel
capacity compared to the 116C. Construction of the first 240C should be completed in 2008, with the
second rig scheduled to arrive in 2009.
The current fleet expansion program began in 1995 following Rowan’s acquisition of the
manufacturing and rig-building operations formerly conducted by Marathon LeTourneau Company, which
had designed all of Rowan’s existing jack-up rigs, the last of which had been delivered in 1986. In
the intervening years, Rowan’s drilling capital expenditures were primarily for enhancements to
existing drilling rigs.
Rowan also takes advantage of lulls in drilling activity to perform needed maintenance and
make certain enhancements to its drilling fleet. During 1998 and 1999, the Company completed
significant upgrades to several offshore drilling rigs which were carried out to increase their
operating capabilities. See ITEM 2. PROPERTIES beginning on page 16 of this Form 10-K for
additional information with respect to the capabilities and operating status of the Company’s rigs.
For a further discussion of Rowan’s availability of funds in 2007 to sustain operations, debt
service and planned capital expenditures, including those related to construction of the Tarzan
Class and 240C rigs, see “Liquidity and Capital Resources” under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” on
pages 23 through 36 of this Form 10-K.
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Onshore Operations
Rowan has drilling equipment, personnel and camps available on a contract basis for
exploration and development of onshore areas. At February 26,
2007, the Rowan fleet consisted of 26
deep-well land rigs located in Texas (23), Louisiana (2) and Oklahoma (1). The fleet features nine
newly-constructed rigs, four rigs built during 2001-2002 and 11 rigs
that have been refurbished in recent years. Three additional rigs are under construction
with delivery expected during the first and third quarters of 2007.
The drilling equipment comprising an onshore rig consists basically of engines, drawworks or
hoist, derrick, pumps to circulate the drilling fluid, drill pipe and drilling bits. The type of
rig required by a customer depends upon the anticipated well depth, terrain and conditions in the
drilling area.
Contracts
Rowan’s drilling contracts generally provide for compensation on a day rate basis, whereby the
Company earns a fixed amount per day, and are usually obtained either through competitive bidding
or individual negotiations. A number of factors affect a drilling contractor’s ability, both
onshore and offshore, to obtain contracts at a profitable rate within an area. Such factors include
the location and availability of equipment, its suitability for the project, the comparative cost
of the equipment, the competence of personnel and the reputation of the contractor. Profitability
may also be dependent upon receiving adequate compensation for the cost of moving equipment to
drilling locations.
When weak market conditions characterized by declining drilling day rates prevail, Rowan
generally accepts lower rate contracts in an attempt to maintain its competitive position and to
offset the substantial costs of maintaining and reactivating stacked rigs. When drilling markets
are strong and increasing rates prevail, Rowan has historically pursued short rather than long-term
contracts for its rigs to maximize its ability to obtain rate increases and pass through any cost
increases to customers. Over the past 12-18 months, with rates at record levels, the Company has
increasingly pursued long-term contracts in order to enhance future
revenue predictability.
Rowan’s drilling contracts are either “well-to-well”, “multiple well” or for a fixed term
generally ranging from one month up to four years. Well-to-well contracts are cancelable by either
party upon completion of drilling at any one site, and fixed-term contracts usually provide for
termination by either party if drilling operations are suspended for extended periods by events of
force majeure. While most fixed-term contracts are for relatively short periods, some fixed-term
and well-to-well contracts continue for a longer period than the original term or for a specific
series of wells. Many offshore contracts contain renewal or extension provisions exercisable at the
option of the customer at prices agreeable to the Company. Most contracts provide for additional
payments to Rowan for mobilization and demobilization costs, which are recognized as revenues and
expenses over the primary contract term, and for reimbursement of certain “rebillable” costs, which
are recognized as both revenues and expenses when incurred. Rowan’s contracts for work in foreign
countries generally provide for payment in United States dollars except for minimal amounts
required to meet local expenses, such as payroll.
Rowan believes that the contract status of its onshore and offshore rigs is more informative
than backlog calculations, and that backlog information is neither calculable nor meaningful given
the cancellation options contained in, and the short duration of, many fixed-term contracts and the
indeterminable duration of well-to-well and multiple well contracts. See ITEM 2. PROPERTIES
beginning on page 16 of this Form 10-K for the contract status of the Company’s rigs as of February
26, 2007.
Competition
The contract drilling industry is highly competitive and involves many factors, including
price, equipment capability, operating and safety performance and reputation. Rowan believes that
it competes favorably with respect to all of these factors.
Rowan competes with several offshore drilling contractors together having available more than
600 mobile rigs worldwide and several domestic drilling contractors with about 200 available
deep-well land rigs in the aggregate. Based upon the number of rigs as tabulated by ODS-Petrodata,
Rowan is the eighth largest offshore drilling contractor in the world and the sixth largest jack-up
rig operator. Some of the Company’s competitors have greater financial and other resources and may
be more able to make technological improvements to existing equipment or replace equipment that
becomes obsolete.
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Technological advances can create competitive advantages and eventually cause less capable
equipment to be less suitable for certain drilling operations. Following the development of the
Company’s Gorilla class rigs in the early 1980s, Rowan has continued to employ a drilling rig
modification and enhancement program designed to provide a fleet of jack-up rigs reflecting the
latest technological advancements. In 1995, Rowan began a drilling rig expansion program that has
produced enhanced versions of the Gorilla class rig and, in recent years, the Tarzan Class and 240C
rig designs.
At February 26, 2007, Rowan had nine jack-ups located in the Gulf of Mexico, eight jack-ups in
the Middle East, three jack-ups in the North Sea and one jack-up in Trinidad. Relocation of
equipment from one geographic location to another is dependent upon changing market dynamics, with
moves occurring only when the likelihood of higher returns makes such action economical over the
longer term. These moves have traditionally featured our Super Gorilla class rigs: Gorilla VII was
relocated from the Gulf of Mexico to the North Sea in 2002; Gorilla V was relocated from eastern
Canada to the North Sea in 2004 and Gorilla VI was relocated from the Gulf of Mexico to eastern
Canada in 2005 and to the North Sea in early 2007.
Rowan markets its drilling services by directly contacting present and potential customers,
including large international energy companies, many smaller energy companies and foreign
government-owned or controlled energy companies. Since 1992, with the many restructurings,
downsizings and mergers by major energy companies, followed by periods of significant reductions in
their domestic budgets, the Company has increased its marketing emphasis on independent operators.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on
pages 23 through 36 of this Form 10-K for a discussion of current industry conditions and their
impact on operations.
Regulations and Hazards
Rowan’s drilling operations are subject to many hazards, including blowouts and well fires,
which could cause personal injury, suspend drilling operations, seriously damage or destroy the
equipment involved and cause substantial damage to producing formations and the surrounding areas.
Offshore drilling operations are also subject to marine hazards, either while on site or under tow,
such as vessel capsizing, collision or grounding. Raising and lowering the legs of jack-up rigs
into the ocean bottom requires skillful handling to avoid capsizing or other serious damage.
Drilling into high-pressure formations is a complex process and problems can frequently occur.
Rowan believes that it is adequately insured for physical damage to its rigs, and for marine
liabilities, worker’s compensation, maritime employers liability, automobile liability and for
various other types of exposures customarily encountered in the Company’s operations. Certain of
Rowan’s liability insurance policies specifically exclude coverage for fines, penalties and
punitive or exemplary damages. Rowan anticipates that its present insurance coverage will be
maintained, but no assurance can be given that insurance coverage will continue to be available at
rates considered reasonable, that self-insured amounts or deductibles will not increase or that
certain types of coverage will be available at any cost. The extensive damage caused by hurricanes
in recent years has reduced the availability of insurance for certain risks while also increasing
the cost of the coverage that is available. In 2006, the Company’s cost of coverage increased to
almost five times the pre-storm level though Rowan assumed more of the risk of certain losses.
Foreign operations are often subject to political, economic and other uncertainties not
encountered in domestic operations, such as arbitrary taxation policies, onerous customs
restrictions, unstable currencies and the risk of asset expropriation due to foreign sovereignty
over operating areas. As noted previously, Rowan attempts to minimize the risk of currency rate
fluctuations by generally contracting for payment in U.S. dollars.
Many aspects of Rowan’s operations are subject to government regulation, as in the areas of
equipping and operating vessels, drilling practices and methods and taxation. In addition, various
countries (including the United States) have regulations relating to environmental protection and
pollution control. Recent events have also increased the sensitivity of the oil and gas industry to
environmental matters. Rowan could become liable for damages resulting from pollution of offshore
waters and, under United States regulations, must establish financial responsibility. Generally,
Rowan is substantially indemnified under its drilling contracts for pollution damages, except in
certain cases of pollution emanating above the surface of land or water from spills of pollutants,
or in the case of pollutants emanating from the Company’s drilling rigs, but no assurance can be
given regarding the enforceability of such indemnification provisions.
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As
previously reported, during 2004, Rowan learned that the Environmental and Natural Resources Division,
Environmental Crimes Section of the U. S. Department of Justice
(DOJ) had begun conducting a criminal
investigation of environmental matters involving several of the Company’s offshore drilling rigs.
Since that time, the Company has fully cooperated with the investigation, including responding to
the DOJ’s subpoenas for certain documentation regarding its operations. The DOJ has a broad range
of civil and criminal sanctions under environmental and other laws which it may pursue such as
injunctive relief, fines (including multi-million dollar fines), penalties and modifications to
business practices and compliance programs. Rowan has been engaged in discussions with the DOJ
regarding a possible resolution of its investigation, including fines and additional sanctions
against the Company. As a result of recent discussions with the DOJ,
Rowan expects to pay fines and environmental fund payments of $9
million and has recognized
such amount as a charge to its fourth quarter 2006 operations.
Rowan believes that it currently complies in all material respects with legislation and
regulations affecting the drilling of oil and gas wells and the discharge of wastes. To date, the
Company has made significant modifications to its Gulf of Mexico rigs to reduce waste and rain
water discharge and believes that it could operate those rigs at “zero discharge” without material
additional expenditures. Otherwise, and except as set forth above, regulatory compliance has not
materially affected the capital expenditures, earnings or competitive position of the Company to
date, although such measures do increase drilling costs and may reduce drilling activity. Further
regulations may reasonably be anticipated, but any effects thereof on Rowan’s drilling operations
cannot be accurately predicted.
Rowan is subject to the requirements of the Federal Occupational Safety and Health Act
(“OSHA”) and comparable state statutes. OSHA’s hazard communication standard, the Environmental
Protection Agency’s “community right-to-know” regulations and comparable state statutes require
Rowan to organize and report certain information about the hazardous materials used in its
operations to employees, state and local government authorities and local citizens.
Since the exploration activities of Rowan’s present and potential customers are directly
impacted by state, federal and foreign regulations associated with the production and
transportation of oil and gas, the demand for Rowan’s drilling services is also affected.
MANUFACTURING OPERATIONS
The Company’s manufacturing operations are conducted by LeTourneau, Inc., a wholly-owned
subsidiary of the Company formed in 1994 to acquire the net assets of Marathon LeTourneau Company,
headquartered in Longview, Texas. Recently, LeTourneau, Inc. was renamed LeTourneau Technologies,
Inc. (“LeTourneau”). LeTourneau operates in six markets where large scale, steel-intensive,
high-load bearing, complex products, projects and services are applied.
In 2006, LeTourneau generated external revenues of $443.3 million and income from operations
of $38.0 million. External manufacturing backlog for all product lines was approximately $530
million at December 31, 2006, most of which is expected to be realized in 2007, compared with $388
million at December 31, 2005.
The Steel Products group operates a mini mill in Longview, Texas that recycles scrap and
produces steel plate for internal needs and external customers. The mini mill produces carbon,
alloy and tool steel plate products. The Steel Products group concentrates on niche markets that
require higher end steel grades, including mold steels, free machining, aircraft quality steels and
hydrogen, crack-resistant steels. External steel sales, which are garnered through a direct sales
force, consist primarily of steel plate, but also include value-added fabrication of steel
products. Steel products are generally sold to steel service centers, fabricators and
manufacturers. The market for plate products is North America. The markets for fabricated product
sales are regional and encompass Texas, Oklahoma, Louisiana, Mississippi and Arkansas. LeTourneau
ships alloy and specialty grades of plate products nationally and exports quantities to Mexico and
Canada. Carbon and alloy plate products are also used internally in the production of equipment
and parts.
The Mining Products group produces heavy equipment for the mining market such as large wheeled
front-end loaders. These loaders feature bucket capacities of 18, 28, 33 and 53 cubic yards, with
the latter two capacities being largest in the industry. LeTourneau loaders are generally used in
coal, gold, copper, diamond and iron ore mines and utilize proprietary diesel-electric drive system
with digital controls. This system allows large, mobile equipment to stop, start and reverse
direction without gear shifting and high maintenance braking. LeTourneau wheeled loaders can load
rear-dump trucks in the 85-ton to 400-ton range. Mining products and parts are distributed through
a worldwide network of independent distributors and its own distribution network serving the
western United States and Australia.
The Forestry Products group based in Portland, Oregon, supplies diesel-electric powered log
stackers with either two or four wheel drive configurations and load capacities ranging from 35 to
55 tons.
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The Offshore Products group built the first jack-up drilling rig in 1955 and has designed or
built more than 200 units since, including all 21 in the Rowan fleet. The Offshore Products
shipyard in Vicksburg, Mississippi was reactivated
during 1995-1996 following Rowan’s announcement of the planned construction of Gorilla V and is
dedicated to providing equipment, spare parts and engineering support to the offshore drilling
industry. Some rig component manufacturing and rig repair services, as well as design engineering,
continue to be performed at LeTourneau’s Longview, Texas facility.
As noted previously, the Offshore Products group has delivered four Super Gorilla class
jack-ups to Rowan (1998-2003) and three Tarzan Class jack-ups (2004-2006), and is currently
constructing for the Company the first of two 240C class jack-ups. A fourth Tarzan Class rig is
being constructed at a third party facility under a sub-contract arrangement. In addition, a Super
116E class jack-up drilling rig purchased by Perforadora Central, S.A. de C.V. is nearing
completion at Vicksburg and will soon relocate to Sabine Pass, Texas for final outfitting.
The Drilling Systems group, created following the acquisition of the Ellis Williams Company in
2000, designs and manufactures mud pumps in a wide range of sizes, including the largest in the
world, for a variety of applications. In recent years, the Drilling Systems group has developed
other drilling systems components such as drawworks, rotary tables and top drives. These products
reflect the application of innovative technology in an effort to attain market-leading lifecycle
performance, though they have yet to achieve wide acceptance outside of Rowan.
The Power Systems group, created following the acquisition of Oilfield-Electric-Marine, Inc.
in January 2002, designs and manufactures variable speed AC motors, variable frequency drive
systems and other electrical components for the oil and gas, marine, mining and dredging
industries. This group also provides innovative switch reluctance drives in medium to large
horsepower applications. These captive electric drive technologies are key to the LeTourneau
product lines, and are increasingly being offered externally to non-competitive equipment
applications.
LeTourneau markets and sells its mining and forestry products and their support parts
primarily through an established international dealer network. LeTourneau dealers are
predominantly independent business organizations and all have established dealer agreements with
LeTourneau. The dealers are responsible for selling products on behalf of LeTourneau to end-users
and providing the necessary follow-up service and parts directly to those end-users.
LeTourneau emphasizes the supply of after-market parts and components for repair and
maintenance of products delivered in their respective markets. These are marketed through the
aforementioned dealer network. Global sites for parts stocking, rebuilding and service include
approximately 60 locations on six continents.
LeTourneau engages in research and product development, primarily to increase the capacity and
performance of its product lines on a continuous improvement basis. The Company routinely
evaluates its products and after-market applications with the intention of making enhancements.
Raw Materials
The principal raw material utilized in manufacturing operations is steel plate, much of which
is supplied by the steel mini mill. Other required materials are generally available in sufficient
quantities to meet manufacturing needs through purchases in the open market. LeTourneau does not
believe that it is dependent on any single supplier.
Competition
The
Mining Products group encounters competition worldwide from several sources. The LeTourneau wheeled
loader product line has only two direct competitors; however, the larger loader models compete with
other types of loading equipment, primarily electric shovels and hydraulic excavators. Internal
market studies indicate that, in the large-loader market (above 1,000 horsepower), LeTourneau has
achieved about a 40% share of worldwide sales over the past decade. LeTourneau recently reentered
the small-loader market (1,000 horsepower and below), and currently has about a 2% market share due
to the availability of smaller and cheaper alternatives.
There
are four major competitors for log stackers. Based upon market
studies, the Forestry Products group has an
estimated market share of around 20% in the United States and around 15% in
Canada.
9
The Steel Products group encounters competition from a total of six major competitors, with
four in plate products and two in fabricated products. LeTourneau’s share of the overall steel
market is negligible; however, it is very competitive in certain niche applications for
high-strength, thick plate. Internal requirements for steel plate provide a base load for the
steel mill, and the Steel Products group uses a small, direct sales force to sell specialized
alloy, carbon and tool steel products to steel service centers, fabricators, and other
manufacturers.
Since 1955, when the first LeTourneau jack-up was delivered, the Offshore Products group has
been recognized as a leading designer and builder of jack-up drilling rigs. We believe that there
are currently more than 60 jack-ups under construction or contracted for construction worldwide, 10
of which are LeTourneau designs. At present, LeTourneau has a limited number of competitors in the
rig construction and support industry. However, there are numerous shipyard facilities with the
capability for jack-up rig construction.
The Drilling Systems group’s principal competitor in the mud pump market has a share of
approximately 80%.
The competition LeTourneau encounters in the sale of after-market parts is fragmented with
only three other companies considered to be direct competitors. Vendors supplying parts directly
to end-users and others who obtain and copy the parts for cheaper and lower quality substitutes
provide more intense competition than LeTourneau’s direct competitors.
Historically, LeTourneau’s customer base has been diverse, such that none of its product lines
have been dependent upon any one customer or small group of customers.
LeTourneau offers warranties and parts guarantees. The warranties extend for stipulated
periods of ownership or hours of usage, whichever occurs first. Parts consumption guaranties and
maintenance and repair contracts are made on the same basis. The parts-return policy provides that
returned parts must be in new, usable condition, in current production and readily resalable. In
most cases, dealers of LeTourneau’s products perform the warranty work. Within its Offshore
Products group, LeTourneau generally performs warranty work directly
and accrues for estimated future warranty costs based on historical
experience.
Regulations and Hazards
LeTourneau’s manufacturing operations and facilities are subject to regulation by a variety of
local, state and federal agencies which regulate safety and the discharge of materials into the
environment, including the Environmental Protection Agency (EPA), the Texas Commission on
Environmental Quality (TCEQ) and the Mississippi Department of Environmental Quality. LeTourneau’s
manufacturing facilities are also subject to the requirements of OSHA and comparable state
statutes.
Hazardous materials are generated at LeTourneau’s Longview, Texas, plant during the steel
making process. Industrial wastewater generated at the mini mill for cooling purposes is
re-circulated and quality tests are conducted regularly. The facility has permits for wastewater
discharges, solid waste disposal and air emissions. Waste products considered hazardous by the EPA
are disposed of by shipment to an EPA or state approved waste disposal facility.
During
2006, LeTourneau discovered greater than permitted traces of the radioactive material
cesium within its mini mill, which it believes was released from shielded scrap metal during
processing. Remediation efforts were performed and operations restored to normal in a short
period. An extensive monitoring system has been installed to prevent re-occurrence.
LeTourneau jack-up designs are subject to regulatory approval by various agencies, depending
upon the geographic areas where the rig will be qualified for drilling. The rules vary by location
and are subject to frequent change, and primarily relate to safety and environmental issues, in
addition to those which classify the jack-up as a vessel.
LeTourneau may be liable for damages resulting from pollution of air, land and inland waters
associated with its manufacturing operations. LeTourneau believes that compliance with
environmental protection laws and regulations will have no material effect on its capital
expenditures, earnings or competitive position during 2007. Further regulations may reasonably be
anticipated, but any effects thereof on the Company’s manufacturing operations cannot be accurately
predicted.
10
As a manufacturing company, LeTourneau may be responsible for certain risks associated with
the use of its products. These risks include product liability claims for personal injury and/or
death, property damage, loss of product use, business interruption and necessary legal expenses to
defend LeTourneau against such claims. LeTourneau carries insurance that it believes adequately
covers such risks. LeTourneau did not assume certain liabilities of Marathon LeTourneau Company,
such as product liability and tort claims, associated with all products manufactured, produced,
marketed or distributed prior to the date of the acquisition.
DISCONTINUED OPERATIONS
Through 2004, Rowan provided, through a wholly-owned subsidiary, Era Aviation, Inc. (“Era”),
contract and charter helicopter and fixed-wing aviation services principally in Alaska, the coastal
areas of Louisiana and Texas, and the western United States, using a combined fleet of more than
100 helicopters and fixed-wing aircraft. Effective December 31, 2004, Rowan sold the stock of Era
for cash.
During the 2000-2005 period, Rowan operated six anchor-handling, towing and supply boats
obtained under operating lease agreements. The boats were fully-crewed by the lessor, but managed
by Rowan to provide towing and supply services for its drilling operations or third parties. During
2005, Rowan assigned the remaining lease term and sold its purchase options on four anchor-handling
boats and allowed the leases covering the two remaining boats to expire.
See
Note 12 of the Notes to Consolidated Financial Statements on page 59
of this Form 10-K
for more information regarding the Company’s discontinued operations.
EMPLOYEES
Rowan
had 5,160, 4,577 and 4,392 employees at
December 31, 2006, 2005 and 2004 respectively. Included in these numbers are citizens of the United
States and other countries. None of the Company’s employees are covered by collective bargaining
agreements with labor unions. Rowan considers relations with its employees to be satisfactory.
ITEM 1A. RISK FACTORS
You should consider carefully the following risk factors, in addition to the other information
contained and incorporated by reference in this Form 10-K, before deciding to invest in our common
stock.
Our operations are volatile and heavily dependent upon commodity prices and other factors beyond
our control.
The success of our drilling operations depends heavily upon the condition of the oil and gas
industry and the level of drilling activity. Demand for our drilling services is
vulnerable to periodic declines in drilling activity that are typically associated with depressed
oil and natural gas prices. Oil and natural gas prices have historically been very volatile, and
our drilling operations have in the past suffered through long periods of weak market conditions.
Demand for our drilling services also depends on additional factors that are beyond our
control, including:
| |
• |
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fluctuations in the worldwide demand for oil and natural gas; |
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• |
|
the willingness and ability of the Organization of Petroleum Exporting Countries, or
OPEC, to limit production levels and influence prices; |
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• |
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political and military conflicts in oil-producing areas and the effects of terrorism; |
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• |
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the level of production in non-OPEC countries; |
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• |
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laws, regulations and policies of various governments regarding exploration and
development of their oil and natural gas reserves; |
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• |
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advances in exploration and development technology; and |
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• |
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further consolidation of our customer base. |
11
Our drilling operations will be adversely affected by future declines in oil and natural gas
prices, but we cannot predict the extent of that effect. Nor can we assure you that a reduction in
offshore drilling activity will not occur for other reasons. Our manufacturing operations, though
less volatile, are also dependent on commodity prices which affect demand for rigs and rig
components and mining and timber equipment and parts.
We have incurred losses recently and over prolonged periods in the past, a circumstance that could
occur again in the future.
In 2004, we incurred a net loss of $1.3 million. In 2003, we incurred a $3.3 million net loss
from continuing operations. In 2002, we experienced a decline in revenues and incurred a loss from
operations of $30.9 million. During the 1985-1995 period, we consistently incurred net losses that
totaled more than $360 million. The inherent volatility of the businesses in which we operate makes
it likely that we will incur additional losses in the future.
Our markets are highly competitive, which may make it difficult for us to maintain satisfactory
price levels.
Our drilling and manufacturing markets are highly competitive, and no single participant is
dominant. In our drilling markets, drilling contracts are often awarded on a competitive bid basis,
with intense price competition frequently being the primary factor determining which qualified
contractor is awarded the job, although rig availability and location, the contractor’s safety and
operational record and the quality and technical capability of service and equipment are also
factors. Additionally, ongoing mergers among oil and natural gas exploration and production
companies reduce the number of available customers and usually delay or cancel drilling projects,
which may further increase competition in our drilling markets. Our manufacturing markets are also
characterized by vigorous competition among several competitors. Some of our competitors possess
greater financial resources than we do. We may have to reduce our prices in order to remain
competitive in our markets, which could have an adverse effect on our operating results.
The drilling industry has historically been cyclical, and periods of low demand could have an
adverse effect on our operating results.
The contract drilling industry has historically been cyclical, with periods of high demand,
short rig supply and high day rates, followed by periods of lower demand, excess rig supply and low
day rates. Although demand for drilling services is currently strong, there can be no assurances
that demand will not decline in future periods. Strong demand may lead to an increase in new rig
construction and reactivation of cold-stacked rigs, which could lead to increased price
competition. We believe there are currently more than 60 competitive jack-ups under construction or
contracted for construction worldwide. There can be no assurances that the market will be able to
fully absorb the addition of these new rigs to the worldwide fleet, and the addition of these rigs
could lead to decreased rig utilization, increased price competition and lower day rates. Prolonged
periods of low rig utilization and day rates require us to enter into lower rate contracts or to
idle rigs, which could have an adverse effect on our operating results and cash flows. Prolonged
periods of low rig utilization and day rates could also result in the recognition of impairment
charges on certain of our drilling rigs if future cash flow estimates, based upon information
available to management at the time, indicate that their carrying value may not be recoverable.
Most of our contracts are fixed-price contracts, and increases in our operating costs could have an
adverse effect on the profitability of those contracts.
Most of our drilling contracts provide for the payment of a fixed day rate per rig operating
day and our manufacturing contracts typically provide for a fixed price. However, many of our
operating costs are unpredictable and vary based on events beyond our control. Our gross margins on
these contracts will vary based on fluctuations in our operating costs during the terms of these
contracts. If our costs increase or we encounter unforeseen costs, we may not be able to recover
such costs from our customers, which could adversely affect our financial position, results of
operations and cash flows. Our backlog has increased significantly
over the past 18 months and consists mainly of fixed-price
products and services to be delivered over the next two years. Accordingly, the
magnitude of our exposure to possible losses on fixed-price contracts
has increased along with the increase in the backlog.
Our fleet expansion program may encounter liquidity problems.
If operating conditions deteriorate, our results of operations would suffer and working
capital may not be adequate to finance our ongoing fleet expansion program. Because outside
financing may not be available, we could be forced to suspend rig construction activities.
12
We have in progress an offshore fleet expansion program under which we plan to spend
approximately $238 million in 2007 towards the completion of our fourth Tarzan Class jack-up rig,
the construction of two new 240C rigs and the completion of four new land rigs. Another $155
million is committed in 2007 for ongoing upgrades to existing equipment and facilities. We
currently have no available lines of credit, thus all of our planned capital expenditures will need
to be internally financed through working capital or operating cash flows. If we experience cost
overruns or delays in our capital projects or if we should need additional financing and are unable
to obtain it at commercially favorable rates, we could experience liquidity problems.
Rig upgrade, enhancement and new construction projects are subject to risks which could cause
delays or cost overruns and adversely affect our financial position, results of operations and cash
flows.
As noted above, we currently have a substantial fleet expansion program in progress and are
constructing a jack-up for a Mexican contractor. These projects and other projects of this type are
subject to risks of delay or cost overruns inherent in any large construction project from numerous
factors, including the following:
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• |
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shortages of equipment, materials or skilled labor; |
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• |
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unscheduled delays in the delivery of ordered materials and equipment; |
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• |
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inability to obtain required permits or approvals; |
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• |
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unanticipated cost increases between order and delivery,
which can be up to two years; |
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• |
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adverse weather conditions; |
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• |
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design or engineering changes; and |
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• |
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work stoppages. |
Significant cost overruns or delays could adversely affect our financial position, results of
operations and cash flows. Additionally, failure to complete a project on time may result in the
delay of revenue from that rig, which also could adversely affect our financial position, results
of operations and cash flows.
Our
four Super Gorilla class rigs and two of our Tarzan Class rigs are pledged as security under
our government-guaranteed debt arrangements.
If operating conditions deteriorate and if market conditions were to remain depressed for a
long period of time, our results of operations would suffer and working capital and other financial
resources may not be available or adequate to service our outstanding debt. Our four Super Gorilla
class jack-ups and two of our Tarzan Class jack-ups are pledged as security under our
government-guaranteed debt arrangements. If we were unable to service our debt, it is possible that
these assets could be removed from our fleet, in which case our ability to generate revenues would
be significantly reduced.
Our results of operations will be adversely affected if we are unable to secure drilling contracts
for our rigs on economically favorable terms.
The drilling markets in which we compete frequently experience significant fluctuations in the
demand for drilling services, as measured by the level of exploration and development expenditures,
and the supply of capable drilling equipment. In response to fluctuating market conditions, we can,
as we have done in the past, relocate drilling rigs from one geographic area to another, but only
when such moves are economically justified over the longer term. If demand for our rigs declines,
our rig utilization and day rates are generally adversely affected.
The expansion of our drilling fleet increases our daily operating costs. We may be unable to
secure economical drilling contracts for our new rigs, in which case their delivery will negatively
impact our operating results.
13
If our customers terminate or seek to renegotiate our drilling contracts, our results of operations
may be adversely affected.
Some of our drilling contracts are cancelable by the customer upon specific notice by the
customer, or upon the occurrence of events beyond our control, such as the loss or destruction of
the rig or the suspension of drilling operations for a specified period of time as a result of a
breakdown of major equipment. Although our contracts may require the customer to make an early
termination payment upon cancellation of the contract, such payment may not be sufficient to fully
compensate us for the loss of the contract. Early termination of a contract may result in a rig
being idle for an extended period of time. Our financial position, results of operations and cash
flows may be adversely affected by customers’ early termination of contracts, especially if we are
unable to re-contract the affected rig within a short period of time. Additionally, during adverse
market conditions, a customer may be able to obtain a comparable rig at a lower daily rate, and as
a result, may seek to renegotiate the terms of their existing drilling contract with us. The
renegotiation of a number of our drilling contracts could adversely affect our financial position,
results of operations and cash flows.
Failure to obtain or retain highly skilled personnel could adversely affect our operations.
We require highly skilled personnel to operate and provide technical services and support for
our businesses. Competition for skilled and other labor required for our drilling operations has
increased in recent years as the number of rigs activated or added to worldwide fleets has
increased. Additionally, the competition for skilled and other labor
required for our manufacturing operations has increased in recent
years due to the significant expansion of businesses providing
equipment and services to the energy industry. If this expansion continues and the demand for drilling services remains strong or
increases, shortages of qualified personnel could develop, creating upward pressure on wages and
making it more difficult to staff and service our rigs, which could adversely affect our operating
results.
Many of our drilling rigs are subject to damage or destruction by severe weather.
Much
of the Gulf of Mexico, the North Sea and offshore eastern Canada
frequently experience hurricanes or
other extreme weather conditions. Many of our offshore drilling rigs
are located in these areas and are thus subject to damage or destruction by these storms. Damage
caused by high winds and turbulent seas could cause us to suspend operations on such drilling rigs
for significant periods of time until the damage can be repaired. Additionally, even if our
drilling rigs are not directly damaged by such storms, we may still experience disruptions in our
operations due to damage to our customer’s platforms and other related facilities in these areas.
During Hurricanes Katrina and Rita in 2005, we lost four rigs and another was significantly
damaged. Future storms could result in the loss or damage of
additional rigs, which would adversely
affect our financial position, results of operations and cash flows.
We are subject to operating risks such as blowouts and well fires that could result in
environmental damage, property loss, personal injury and death, some of which may not be covered by
insurance or recoverable indemnification.
Our drilling operations are subject to many hazards that could increase the likelihood of
accidents. Accidents can result in:
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• |
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costly delays or cancellations of drilling operations; |
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• |
|
serious damage to or destruction of equipment; |
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• |
|
personal injury or death; |
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• |
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significant impairment of producing wells, leased properties or underground geological formations; and |
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• |
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major environmental damage. |
Our offshore drilling operations are also subject to marine hazards, either at offshore sites
or while drilling equipment is under tow, such as vessel capsizings, collisions or groundings. In
addition, raising and lowering jack-up rigs and drilling into high-pressure formations are complex,
hazardous activities and we frequently encounter problems.
Our manufacturing operations also present serious risks. Our manufacturing processes could
pollute the air, land, and inland waters, and the products we manufacture could be implicated in
lawsuits alleging environmental harm, property loss, personal injury and death.
14
We have had accidents in the past demonstrating some of the hazards described above, including
high pressure drilling accidents resulting in lost or damaged drilling formations and towing
accidents resulting in lost drilling equipment. Any similar events could yield future operating
losses and have significant adverse impact on our business.
Our insurance coverage may be inadequate and has become more expensive.
Our
insurance coverage is subject to certain significant deductibles and
levels of self-insurance, does not cover all types of losses and, in
some situations, may
not provide full coverage for losses or liabilities resulting from our operations. In addition,
due to the losses sustained by
us and the offshore drilling industry as a consequence of hurricanes that occurred in the Gulf of
Mexico in 2004 and 2005, we may not be able to obtain future insurance coverage comparable with
that of prior years, thus putting us at a greater risk of loss due to severe weather conditions and
other hazards, which could have a material adverse effect on our financial position, results of
operations and cash flows. In addition, we are likely to continuing experiencing increased costs
for available insurance coverage which may impose higher deductibles and limit maximum aggregated
recoveries for certain perils, such as hurricane related windstorm damage or loss. We may be
required to modify our risk management program in response to changes in the insurance market,
including increased risk retention.
Our customers may be unable to indemnify us.
Consistent with standard industry practice, we typically obtain contractual indemnification
from our customers whereby such customers generally agree to protect and indemnify us for
liabilities resulting from various hazards associated with the drilling industry. However, there
can be no assurance that our customers will be financially able to meet these indemnification
obligations, and the failure of a customer to meet such obligations, the failure of one or more of
our insurance providers to meet claim obligations, or losses or liabilities resulting from
unindemnified, uninsured or underinsured events could have a material adverse effect on our
financial position, results of operations and cash flows.
Government regulations and environmental risks, which reduce our business opportunities and
increase our operating costs, might worsen in the future.
Government regulations dictate design and operating criteria for drilling vessels, determine
taxation levels to which we (and our customers) are subject, control and often limit access to
potential markets and impose extensive requirements concerning employee safety, environmental
protection and pollution control. Environmental regulations, in particular, prohibit access to some
markets and make others less economical, increase equipment and personnel costs and often impose
liability without regard to negligence or fault. In addition, governmental regulations may
discourage our customers’ activities, reducing demand for our products and services. We may be
liable for damages resulting from pollution of offshore waters and, under United States
regulations, must establish financial responsibility in order to drill offshore.
In response to the significant damage to offshore rigs in recent years caused by Gulf of
Mexico hurricanes, various industry and regulatory organizations are considering additional
operating constraints during the tropical storm season. Such constraints, if required, could limit
the capability of many of the Company’s rigs to operate at certain locations in the Gulf of Mexico
during a significant portion of each year. Depending upon the Company’s ability to obtain work
elsewhere, the impact of these additional regulations could be to reduce the Company’s ability to
generate drilling revenues.
Our operations are increasingly being conducted in foreign areas.
During 2006, we initiated a significant drilling operation in Saudi Arabia, returned to
Trinidad and established manufacturing service and supply shops in Dubai and Singapore. Foreign
operations are often subject to political, economic and other uncertainties not typically
encountered in domestic operations, such as arbitrary taxation policies, onerous customs
restrictions, unstable currencies, security threats including terrorism and the risk of asset
expropriation due to foreign sovereignty over operating areas. Any one of these factors could have
a material adverse effect on our financial position, results of operations and cash flows.
15
Anti-takeover provisions in our Certificate of Incorporation, bylaws and stockholder rights plan
could make it difficult for holders of our common stock to receive a premium for their shares upon
a change of control.
Holders of the common stock of acquisition targets may receive a premium for their shares upon
a change of control. Delaware law and the following provisions, among others, of our Certificate of
Incorporation, bylaws and rights plan could have the effect of delaying or preventing a change of
control and could prevent holders of our common stock from receiving such a premium:
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• |
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The affirmative vote of 80% of the outstanding shares of our capital stock is required to
approve business combinations with any related person that has not been approved by our
board of directors. We are also subject to a provision of Delaware corporate law that
prohibits us from engaging in a business combination with any interested stockholder for
three years from the date that person became an interested stockholder unless specified
conditions are met. |
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• |
|
Special meetings of stockholders may not be called by anyone other than our board of
directors, our chairman, our executive committee or our president or chief executive
officer. |
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• |
|
Our board of directors is divided into three classes whose terms end in successive years,
so that less than a majority of our board comes up for election at any annual meeting. |
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• |
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Our board of directors has the authority to issue up to 5,000,000 shares of preferred
stock and to determine the voting rights and other privileges of these shares without any
vote or action by our stockholders. |
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• |
|
We have adopted a stockholder rights plan that provides our stockholders rights to
purchase junior preferred stock in certain circumstances, whereby the ownership of Rowan
shares by a potential acquirer can be significantly diluted by the sale at a significant
discount of additional Rowan shares to all other stockholders, which could discourage
unsolicited acquisition proposals. |
|
|
|
| ITEM 1B. |
|
UNRESOLVED STAFF COMMENTS |
The Company has no unresolved Securities and Exchange Commission staff comments.
Rowan leases as its corporate headquarters approximately 79,300 square feet of space in an
office tower located at 2800 Post Oak Boulevard in Houston, Texas.
16
DRILLING RIGS
Following are summaries of the principal drilling equipment owned or operated by Rowan and in
service at February 26, 2007. See “Liquidity and Capital Resources” under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”
on pages 23 through 36 of this Form
10-K.
OFFSHORE RIGS
| |
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|
Depth (feet) (b) |
|
Year in |
|
Contract Status |
|
|
|
|
| Name |
|
Class(a) |
|
Water |
|
Drilling |
|
Service |
|
Location |
|
Customer |
|
Type(h) |
|
Duration(i) |
Cantilever Jack-up Rigs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240C #2(j) |
|
|
240C |
|
|
|
400 |
|
|
|
35,000 |
|
|
2009 |
|
|
|
|
|
|
|
|
240C #1(j) |
|
|
240C |
|
|
|
400 |
|
|
|
35,000 |
|
|
2008 |
|
|
|
|
|
|
|
|
J. P. Bussell(j) |
|
|
225C |
|
|
|
300 |
|
|
|
35,000 |
|
|
2007 |
|
|
|
|
|
|
|
|
Hank
Boswell(c)(d) |
|
|
225C |
|
|
|
300 |
|
|
|
35,000 |
|
|
2006 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
March 2011 |
Bob Keller(c)(d) |
|
|
225C |
|
|
|
300 |
|
|
|
35,000 |
|
|
2005 |
|
Gulf of Mexico |
|
El Paso |
|
term |
|
January 2008 |
Scooter Yeargain(c)(d) |
|
|
225C |
|
|
|
300 |
|
|
|
35,000 |
|
|
2004 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
March 2011 |
Bob Palmer(c)(d) |
|
|
224C |
|
|
|
550 |
|
|
|
35,000 |
|
|
2003 |
|
Gulf of Mexico |
|
Dominion |
|
well-to-well |
|
March 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BP |
|
term |
|
April 2009 |
Rowan Gorilla VII(c)(e) |
|
|
219C |
|
|
|
400 |
|
|
|
35,000 |
|
|
2002 |
|
North Sea |
|
Maersk |
|
term |
|
September 2007 |
Rowan Gorilla VI(c)(e) |
|
|
219C |
|
|
|
400 |
|
|
|
35,000 |
|
|
2000 |
|
North Sea |
|
Talisman |
|
term |
|
November 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Gas |
|
term |
|
May 2008 |
Rowan Gorilla V(c)(e) |
|
|
219C |
|
|
|
400 |
|
|
|
35,000 |
|
|
1998 |
|
North Sea |
|
Total |
|
term |
|
November 2008 |
Rowan Gorilla IV(c)(d) |
|
|
200C |
|
|
|
450 |
|
|
|
35,000 |
|
|
1986 |
|
Gulf of Mexico |
|
Arena |
|
single well |
|
April 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plains |
|
single well |
|
October 2007 |
Rowan Gorilla III(c)(d) |
|
|
200C |
|
|
|
450 |
|
|
|
30,000 |
|
|
1984 |
|
Trinidad |
|
EOG |
|
term |
|
September 2007 |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
Petro-Canada |
|
term |
|
April 2008 |
Rowan Gorilla II (c)(d) |
|
|
200C |
|
|
|
450 |
|
|
|
30,000 |
|
|
1984 |
|
Gulf of Mexico |
|
Dominion |
|
well-to-well |
|
April 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newfield |
|
well-to-well |
|
June 2007 |
Rowan-California(c) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1983 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
April 2009 |
Cecil Provine(c)(g) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1982 |
|
Gulf of Mexico |
|
Apache |
|
well-to-well |
|
March 2007 |
Gilbert Rowe(c)(d) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1981 |
|
Qatar |
|
Maersk |
|
term |
|
January 2009 |
Arch Rowan(c)(d) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1981 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
April 2009 |
Charles Rowan(c)(d) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1981 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
April 2009 |
Rowan-Paris(c)(d) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1980 |
|
Qatar |
|
Maersk |
|
term |
|
January 2009 |
Rowan-Middletown(c)(d) |
|
|
116C |
|
|
|
300 |
|
|
|
30,000 |
|
|
1980 |
|
Saudi Arabia |
|
Saudi Aramco |
|
term |
|
April 2009 |
Conventional Jack-up Rigs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rowan-Juneau(c)(f) |
|
|
116 |
|
|
|
300 |
|
|
|
30,000 |
|
|
1977 |
|
Gulf of Mexico |
|
Seneca |
|
well-to-well |
|
March 2007 |
Rowan-Alaska(c)(f) |
|
|
84 |
|
|
|
350 |
|
|
|
30,000 |
|
|
1975 |
|
Gulf of Mexico |
|
Devon |
|
well-to-well |
|
March 2007 |
Rowan-Louisiana(c)(f) |
|
|
84 |
|
|
|
350 |
|
|
|
30,000 |
|
|
1975 |
|
Gulf of Mexico |
|
Helix |
|
single well |
|
April 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominion |
|
single well |
|
August 2007 |
Rowan-Anchorage(c) |
|
|
52 |
|
|
|
250 |
|
|
|
20,000 |
|
|
1972 |
|
Gulf of Mexico |
|
Helix |
|
well-to-well |
|
March 2007 |
|
|
|
| (a) |
|
Indicated class is a number assigned by LeTourneau, Inc. to jack-ups of its design and construction. Class 200C is
a Gorilla class unit designed for extreme hostile environment capability. Class 219C is a Super Gorilla class
unit, an enhanced version of the Gorilla class. Class 224C is a Super Gorilla XL class unit, which has been
tailored for the Gulf of Mexico. Class 225C is a Tarzan Class unit. Class 240C is a new design that the Company
expects will, over time, replace the 116C. |
| |
| (b) |
|
Indicates rated water depth in current location and rated drilling depth |
| |
| (c) |
|
Unit equipped with a top-drive drilling system |
| |
| (d) |
|
Unit equipped with three mud pumps |
| |
| (e) |
|
Unit equipped with four mud pumps |
| |
| (f) |
|
Unit equipped with a skid base unit — refer to page 4 of this Form 10-K for a discussion of “skid base” technology |
| |
| (g) |
|
Unit sold and leased back under agreement expiring in June 2008 |
| |
| (h) |
|
Refer to “Contracts” on page 6 of this Form 10-K for a discussion of types of drilling contracts. |
| |
| (i) |
|
Indicates estimated completion date of work to be performed |
| |
| (j) |
|
Indicates units currently under construction or planned with anticipated year of completion |
17
ONSHORE RIGS (a)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Maximum |
|
|
|
|
|
|
| |
|
|
|
Drilling |
|
Maximum |
|
|
|
Contract Status |
| Name |
|
Type |
|
Depth (feet) |
|
Horsepower |
|
Location |
|
Customer |
|
Type(b) |
|
Duration(c) |
Rig 9 |
|
Diesel electric |
|
20,000 |
|
2,000 |
|
Texas |
|
Encana |
|
term |
|
April 2007 |
Rig 12 |
|
SCR diesel electric |
|
18,000 |
|
1,500 |
|
Texas |
|
Cimarex |
|
term |
|
March 2007 |
Rig 14 |
|
AC electric |
|
35,000 |
|
3,000 |
|
Texas |
|
Newfield |
|
term |
|
November 2007 |
Rig 15 |
|
AC electric |
|
35,000 |
|
3,000 |
|
Texas |
|
|
|
|
|
|
Rig 18 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Anadarko |
|
term |
|
November 2009 |
Rig 26 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Newfield |
|
well-to-well |
|
May 2007 |
Rig 29 |
|
Mechanical |
|
18,000 |
|
1,500 |
|
Texas |
|
Anadarko |
|
well-to-well |
|
April 2007 |
Rig 30 |
|
AC electric |
|
20,000 |
|
2,000 |
|
Louisiana |
|
Castex |
|
term |
|
April 2007 |
Rig 31 |
|
SCR diesel electric |
|
35,000 |
|
3,000 |
|
Texas |
|
Noble Energy |
|
well-to-well |
|
April 2007 |
Rig 33 |
|
SCR diesel electric |
|
18,000 |
|
1,500 |
|
Texas |
|
Devon |
|
well-to-well |
|
June 2009 |
Rig 34 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Marathon |
|
term |
|
January 2008 |
Rig 35 |
|
SCR diesel electric |
|
18,000 |
|
1,500 |
|
Texas |
|
PetroQuest |
|
term |
|
January 2008 |
Rig 41 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Newfield |
|
term |
|
April 2007 |
Rig 51 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Pogo |
|
multiple well |
|
January 2008 |
Rig 52 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Newfield |
|
term |
|
October 2007 |
Rig 53 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Oklahoma |
|
Marathon |
|
well-to-well |
|
March 2007 |
Rig 54 |
|
SCR diesel electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Newfield |
|
term |
|
May 2007 |
Rig 59 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Louisiana |
|
Dominion |
|
term |
|
June 2008 |
Rig 60 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Anadarko |
|
term |
|
April 2009 |
Rig 61 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Anadarko |
|
term |
|
April 2008 |
Rig 62 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Anadarko |
|
term |
|
April 2009 |
Rig 63 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Anadarko |
|
term |
|
April 2008 |
Rig 64 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Cabot |
|
term |
|
November 2008 |
Rig 65 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
Pioneer |
|
term |
|
December 2009 |
Rig 66 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
PetroQuest |
|
term |
|
January 2010 |
Rig 67 |
|
AC electric |
|
25,000 |
|
2,000 |
|
Texas |
|
ConocoPhillips |
|
term |
|
February 2010 |
Rig 68 |
|
AC electric |
|
25,000 |
|
2,000 |
|
|
|
Pioneer |
|
term |
|
March 2010 |
Rig 69 |
|
AC electric |
|
25,000 |
|
2,000 |
|
|
|
|
|
|
|
|
Rig 70 |
|
AC electric |
|
25,000 |
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Most of the rigs were constructed at various dates between 1960 and 1982, utilizing new as well as
used equipment, and have since been substantially rebuilt. Rigs 51 — 54 were constructed during
2001-02. Rigs 59-66 were completed during 2006 and rig 67 during
early 2007. Rig 68 should be completed by late March 2007 and
rigs 69 and 70 during the third quarter of 2007. All but Rigs 9, 29 and 35 are equipped with a top drive
drilling system. |
| |
| (b) |
|
Refer to “Contracts” on page 6 of this Form 10-K for a discussion of types of drilling contracts. |
| |
| (c) |
|
Indicates estimated completion date of work to be performed or duration of pending long-term contracts |
Rowan’s drilling division leases and, in some cases, owns various operating and
administrative facilities generally consisting of office, maintenance and storage space in the
states of Alaska, Texas and Louisiana and in the countries of Canada,
England, Scotland, Bahrain, Saudi Arabia and Qatar.
MANUFACTURING FACILITIES
LeTourneau’s principal manufacturing facility and headquarters are located in Longview, Texas,
on approximately 2,400 acres with approximately 1.2 million square feet of covered working area.
The facility contains:
| |
• |
|
a steel mini mill with 330,000 square feet of covered working area; the mill has two
25-ton electric arc furnaces capable of producing 120,000 melted tons per year; |
| |
| |
• |
|
a fabrication shop with 300,000 square feet of covered working area; the shop has a 3,000
ton vertical bender for making roll-ups or flattening materials down to 2 1/2 inches thick
by 11 feet wide; |
| |
| |
• |
|
a machine shop with 140,000 square feet of covered working area; and |
| |
| |
• |
|
an assembly shop with 124,000 square feet of covered working area. |
Drilling Systems and Power Systems products are machined, fabricated, assembled, and tested at
a facility in Houston, Texas, having approximately 450,000 square feet of covered work area and
45,000 square feet of office space. This capacity is supported by the Longview, Texas, facility.
18
The Offshore Products group’s rig construction facility is located in Vicksburg, Mississippi,
on 1,850 acres of land and has approximately 560,000 square feet of covered work area. The group’s
rig service and repair operation is carried out primarily at the Company’s Sabine Pass, Texas,
facility.
The distributor of forestry products in the northwestern United States is located on a
six-acre site in Troutdale, Oregon, with approximately 22,000 square feet of building space.
The distributor of mining products in the western United States is located in a leased
facility in Tucson, Arizona, having approximately 20,000 square feet. The distributor of mining
products in Australia is located in a leased facility in Murarrie, Queensland, having approximately
29,500 square feet. There are additional branch locations in each Australian territory.
|
|
|
| ITEM 3. |
|
LEGAL PROCEEDINGS |
Rowan leased the Rowan-Halifax under a charter agreement that commenced in 1984 and was
scheduled to expire in March 2008. The rig was insured for $43.4 million prior to being lost during
Hurricane Rita in September 2005. The Company believes the insured value satisfied the requirements
of the charter agreement, and by a margin sufficient to cover the $6.3 million carrying value of
its equipment installed on the rig. However, the owner of the rig claimed that the rig should have
been insured for its fair market value and sought recovery from Rowan for compensation above the
insured value. Thus, the Company assumed no insurance proceeds related to the Rowan-Halifax and
recorded a charge during the third quarter of 2005 for the full carrying value of its equipment. On
November 3, 2005, the Company filed a declaratory judgment action styled Rowan Companies, Inc. vs.
Textron Financial Corporation and Wilmington Trust Company as Owner Trustee of the Rowan-Halifax
116-C Jack-Up Rig in the 215th Judicial District Court of Harris County, Texas. The
owner filed a similar declaratory judgment action, claiming a value of approximately $83 million
for the rig. The owner’s motion for summary judgment was granted on January 25, 2007 which, unless
overturned on appeal, would make Rowan liable to the owner for the approximately $40 million
difference between the owner’s claim and the insurance coverage, plus interest and costs. The
Company continues to believe that its interpretation of the charter agreement is correct and
intends to vigorously pursue an appeal to overturn the summary judgment ruling.
During 2004, Rowan learned that the Environmental and Natural Resources Division,
Environmental Crimes Section of the U. S. Department of Justice
(DOJ) had begun conducting a criminal
investigation of environmental matters involving several of the Company’s offshore drilling rigs.
Since that time, the Company has fully cooperated with the investigation, including responding to
the DOJ’s subpoenas for certain documentation regarding its operations.
The DOJ has a broad range of civil and criminal sanctions under environmental and other laws
which it may pursue such as injunctive relief, fines (including multi-million dollar fines),
penalties and modifications to business practices and compliance programs.
Rowan has been engaged in discussions with the DOJ regarding a possible resolution of its
investigation, including fines and additional sanctions against the Company. As a result of recent
discussions with the DOJ, Rowan expects to pay fines and environmental
fund payments of $9 million and has recognized such amount as a charge to its fourth
quarter 2006 operations.
During 2005, the Company learned that the DOJ was conducting an investigation of potential
antitrust violations among helicopter transportation providers in the Gulf of Mexico. Rowan’s
former aviation subsidiary, which was sold effective December 31, 2004, received a subpoena in
connection with the investigation. The Company has not been contacted by the DOJ, but the purchaser
claimed that Rowan is responsible for any exposure it may have. The Company has disputed that
claim.
Rowan is involved in various legal proceedings incidental to its businesses and is vigorously
defending its position in all such matters. The Company believes that there are no other known
contingencies, claims or lawsuits that could have a material adverse effect on its financial
position, results of operations or cash flows.
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Rowan common stockholders during the fourth
quarter of the fiscal year ended December 31, 2006.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, positions, years of credited service and ages of the officers of the Company as of
February 26, 2007 are listed below. Officers are appointed by the Board of Directors and serve at
the discretion of the Board of Directors. There are no family relationships among these officers,
nor any arrangements or understandings between any officer and any other person pursuant to which
the officer was selected.
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Years of |
|
|
|
|
| |
|
|
|
Credited |
|
|
|
|
| Name |
|
Position |
|
Service |
|
|
Age |
|
D. F. McNease |
|
Chairman of the Board, President and Chief Executive Officer |
|
|
32 |
|
|
|
55 |
|
John L. Buvens |
|
Executive Vice President, Legal |
|
|
26 |
|
|
|
51 |
|
Mark A. Keller |
|
Executive Vice President, Business Development |
|
|
14 |
|
|
|
54 |
|
David P. Russell |
|
Executive Vice President, Drilling Operations |
|
|
23 |
|
|
|
45 |
|
William H. Wells |
|
Vice President, Finance and Chief Financial Officer |
|
|
12 |
|
|
|
44 |
|
D. C. Eckermann (1) |
|
Vice President, Manufacturing |
|
|
20 |
|
|
|
59 |
|
William C. Provine |
|
Vice President, Investor Relations |
|
|
20 |
|
|
|
60 |
|
Terry D. Woodall |
|
Vice President, Human Resources |
|
|
1 |
|
|
|
58 |
|
Michael J. Dowdy |
|
Vice President, Engineering |
|
|
16 |
|
|
|
47 |
|
Gregory M. Hatfield |
|
Controller |
|
|
12 |
|
|
|
37 |
|
Melanie M. Trent |
|
Corporate Secretary and Special Assistant to the CEO |
|
|
1 |
|
|
|
42 |
|
|
|
|
| (1) |
|
Mr. Eckermann also serves as President and Chief
Executive Officer of LeTourneau Technologies, Inc., a Rowan subsidiary. |
Each of the officers listed above continuously served in the position shown above for more
than the past five years except as noted in the following paragraphs.
Since May 2004, Mr. McNease’s principal occupation has been in the position set forth. From
May 2003 to May 2004, Mr. McNease served as President and Chief Executive Officer of the Company.
From August 2002 to May 2003, Mr. McNease served as President and Chief Operating Officer of the
Company. From April 1999 to August 2002, Mr. McNease served as Executive Vice President of the
Company and President of its drilling subsidiaries. Mr. McNease was first elected to the Board of
Directors in April 1998.
Since January 2007, Mr. Buvens’ principal occupation has been in the position set forth. From
April 2003 until January 2007, Mr. Buvens served the Company as Senior Vice President, Legal.
Prior to that time, Mr. Buvens served the Company as Vice President, Legal.
Since January 2007, Mr. Keller’s principal occupation has been in the position set forth.
Prior to that time, Mr. Keller served the Company as Senior Vice President, Marketing.
Since January 2007, Mr. Russell’s principal occupation has been in the position set forth.
From January 2005 to January 2007, Mr. Russell served the Company as Vice President, Drilling.
Prior to that time, Mr. Russell served the Company as Vice President, Rowan Drilling Company, Inc.
Since January 2007, Mr. Wells’ principal occupation has been in the position set forth. From
May 2005 to January 2007, Mr. Wells served the Company as Vice President, Finance and Treasurer.
Prior to that time, Mr. Wells served the Company as Controller.
Since July 2005, Mr. Woodall’s principal occupation has been in the position set forth. Prior
to that time, Mr. Woodall was Manager, U.S. Employee Services for Schlumberger.
Since April 2006, Mr. Dowdy’s principal occupation has been in the position set forth. Prior
to that time, Mr. Dowdy was Chief Engineer, Marine Group for LeTourneau, Inc., a Rowan subsidiary.
20
Since May 2005, Mr. Hatfield’s principal occupation has been in the position set forth. Prior
to that time, Mr. Hatfield served the Company as Corporate Accountant.
Since January 2007, Ms. Trent’s principal occupation has been in the position set forth. From
October 2005 to January 2007, Ms. Trent served the Company as Corporate Secretary and Compliance
Officer. From 2004 — September 2005, Ms. Trent performed contract legal services, primarily for
Jindal United Steel Corp., a Baytown, Texas steel mill company. From 1998 to September 2002, Ms.
Trent worked at Reliant Energy, Incorporated, as the Senior Aide to the CEO (1999-2001) and then as
Vice President — Investor Relations.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Rowan’s Common Stock is listed on the New York Stock Exchange. The price range below is as
reported by the New York Stock Exchange on the Composite Tape. On February 26, 2007, there were
approximately 1,600 holders of record.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
| Quarter |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
First |
|
$ |
45.61 |
|
|
$ |
36.16 |
|
|
$ |
33.04 |
|
|
$ |
24.57 |
|
Second |
|
|
48.15 |
|
|
|
33.13 |
|
|
|
31.57 |
|
|
|
24.53 |
|
Third |
|
|
36.77 |
|
|
|
29.75 |
|
|
|
38.10 |
|
|
|
29.01 |
|
Fourth |
|
|
37.99 |
|
|
|
29.03 |
|
|
|
39.50 |
|
|
|
28.87 |
|
On February 25, 2005, Rowan paid a special cash dividend of $.25 per share of common stock to
shareholders of record on February 9, 2005. On September 1, 2005, Rowan paid a special cash
dividend of $.25 per share of common stock to shareholders of record on August 17, 2005. On
February 24, 2006, Rowan paid a special cash dividend of $.25 per common share to shareholders of
record on February 8, 2006. On May 2, 2006, Rowan’s Board of Directors approved a regular
quarterly cash dividend $.10 per share, which the Company has since paid on each of May 26, August
18 and November 29, 2006 and February 20, 2007. Future dividends, if any, will only be paid at the
discretion of the Board of Directors. At December 31, 2006, Rowan had approximately $158 million of
retained earnings available for distribution to stockholders under the most restrictive provisions
of its debt agreements.
For information concerning Common Stock of the Company to be issued in connection with the
Company’s equity compensation plans, see PART III, ITEM 12, SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS on page 66 of this Form 10‑K.
21
ITEM 6. SELECTED FINANCIAL DATA
The following information summarizes Rowan’s results of operations and financial position for
each of the last five years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
| |
|
(In thousands except per share amounts and ratios) |
|
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
$ |
1,067,448 |
|
|
$ |
775,356 |
|
|
$ |
472,103 |
|
|
$ |
392,211 |
|
|
$ |
323,847 |
|
Manufacturing sales and services |
|
|
443,286 |
|
|
|
293,426 |
|
|
|
207,573 |
|
|
|
137,043 |
|
|
|
120,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,510,734 |
|
|
|
1,068,782 |
|
|
|
679,676 |
|
|
|
529,254 |
|
|
|
443,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
|
511,664 |
|
|
|
394,595 |
|
|
|
326,687 |
|
|
|
302,194 |
|
|
|
280,294 |
|
Manufacturing sales and services |
|
|
372,219 |
|
|
|
253,688 |
|
|
|
177,041 |
|
|
|
113,802 |
|
|
|
101,666 |
|
Depreciation and amortization |
|
|
89,971 |
|
|
|
81,204 |
|
|
|
78,489 |
|
|
|
70,002 |
|
|
|
61,828 |
|
Selling, general and administrative |
|
|
71,452 |
|
|
|
65,092 |
|
|
|
40,721 |
|
|
|
36,095 |
|
|
|
34,592 |
|
Gain on sales of property and equipment |
|
|
(29,266 |
) |
|
|
(52,449 |
) |
|
|
(1,747 |
) |
|
|
(2,002 |
) |
|
|
(2,071 |
) |
Charge for estimated environmental fine |
|
|
9,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gain on hurricane-related events |
|
|
— |
|
|
|
(13,948 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,025,040 |
|
|
|
728,182 |
|
|
|
621,191 |
|
|
|
520,091 |
|
|
|
474,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
485,694 |
|
|
|
340,600 |
|
|
|
58,485 |
|
|
|
9,163 |
|
|
|
(30,914 |
) |
Other income (expense) — net |
|
|
7,660 |
|
|
|
4,870 |
|
|
|
(13,892 |
) |
|
|
(14,284 |
) |
|
|
145,608 |
(1) |
Provision (credit) for income taxes |
|
|
176,377 |
|
|
|
127,633 |
|
|
|
17,108 |
|
|
|
(1,788 |
) |
|
|
40,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
316,977 |
|
|
|
217,837 |
|
|
|
27,485 |
|
|
|
(3,333 |
) |
|
|
74,500 |
|
Income (loss) from discontinued operations
including gain (loss) on sale, net of taxes
(2) |
|
|
1,269 |
|
|
|
11,963 |
|
|
|
(28,758 |
) |
|
|
(4,441 |
) |
|
|
11,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
318,246 |
|
|
$ |
229,800 |
|
|
$ |
(1,273 |
) |
|
$ |
(7,774 |
) |
|
$ |
86,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
2.87 |
|
|
$ |
2.00 |
|
|
$ |
.26 |
|
|
$ |
(.04 |
) |
|
$ |
.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
.01 |
|
|
$ |
.11 |
|
|
$ |
(.27 |
) |
|
$ |
(.04 |
) |
|
$ |
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2.89 |
|
|
$ |
2.11 |
|
|
$ |
(.01 |
) |
|
$ |
(.08 |
) |
|
$ |
.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
2.84 |
|
|
$ |
1.97 |
|
|
$ |
.26 |
|
|
$ |
(.04 |
) |
|
$ |
.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
.01 |
|
|
$ |
.11 |
|
|
$ |
(.27 |
) |
|
$ |
(.04 |
) |
|
$ |
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2.85 |
|
|
$ |
2.08 |
|
|
$ |
(.01 |
) |
|
$ |
(.08 |
) |
|
$ |
.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
258,041 |
|
|
$ |
675,903 |
|
|
$ |
465,977 |
|
|
$ |
58,227 |
|
|
$ |
178,756 |
|
Property, plant and equipment — net |
|
|
2,133,226 |
|
|
|
1,720,734 |
|
|
|
1,669,494 |
|
|
|
1,620,988 |
|
|
|
1,457,834 |
|
Total assets |
|
|
3,435,398 |
|
|
|
2,975,183 |
|
|
|
2,492,286 |
|
|
|
2,190,809 |
|
|
|
2,054,504 |
|
Long-term debt |
|
|
485,404 |
|
|
|
550,326 |
|
|
|
574,350 |
|
|
|
569,067 |
|
|
|
512,844 |
|
Stockholders’ equity |
|
|
1,874,046 |
|
|
|
1,619,739 |
|
|
|
1,408,884 |
|
|
|
1,136,830 |
|
|
|
1,131,777 |
|
Statistical Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio |
|
|
2.13 |
|
|
|
3.55 |
|
|
|
3.44 |
|
|
|
2.95 |
|
|
|
4.05 |
|
Long-term debt/total capitalization |
|
|
.21 |
|
|
|
.25 |
|
|
|
.29 |
|
|
|
.33 |
|
|
|
.31 |
|
Book value per share of common stock |
|
$ |
16.97 |
|
|
$ |
14.75 |
|
|
$ |
13.12 |
|
|
$ |
12.08 |
|
|
$ |
12.09 |
|
Price range of common stock |
|
$ |
29.03-48.15 |
|
|
$ |
24.53-39.50 |
|
|
$ |
20.95-27.26 |
|
|
$ |
17.70-26.72 |
|
|
$ |
15.89-26.84 |
|
Cash dividends |
|
$ |
.55 |
|
|
$ |
.50 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Rowan recorded a $157.1 million gain in 2002 from the settlement of a drilling contract dispute. |
| |
| (2) |
|
Amounts reflect the aggregate after-tax results of Rowan’s aviation and boat operations which
were sold in 2004 and 2005, including the resulting gain (loss) of $(16.0) million and $13.1
million, respectively. See Note 12 of the Notes to Consolidated Financial Statements on page
59 of this Form 10-K for further information regarding the Company’s discontinued operations. |
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table highlights Rowan’s operating results for the years indicated (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
$ |
1,067.4 |
|
|
$ |
775.4 |
|
|
$ |
472.1 |
|
Manufacturing |
|
|
443.3 |
|
|
|
293.4 |
|
|
|
207.6 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,510.7 |
|
|
$ |
1,068.8 |
|
|
$ |
679.7 |
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
$ |
447.7 |
|
|
$ |
332.9 |
|
|
$ |
51.7 |
|
Manufacturing |
|
|
38.0 |
|
|
|
7.7 |
|
|
|
6.8 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
485.7 |
|
|
$ |
340.6 |
|
|
$ |
58.5 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
317.0 |
|
|
$ |
217.8 |
|
|
$ |
27.5 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
$ |
1.2 |
|
|
$ |
12.0 |
|
|
$ |
(28.8 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
318.2 |
|
|
$ |
229.8 |
|
|
$ |
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
As indicated in the preceding table, Rowan’s results of operations are heavily dependent upon
the performance of our drilling division, which comprises about 94% of our fixed assets and, over
the past three years, has generated 71% of our aggregate revenues and 94% of our aggregate
operating income. Our manufacturing division has led the strategic expansion and upgrade of our
drilling fleet and, in recent years, has improved its contribution to our operating results. The
performance of each of our continuing operations over the 2004-2006 period is discussed more fully
below.
The amounts shown in the table above for Income (loss) from discontinued operations reflect the
aggregate after-tax results of our aviation and boat operations for each of the past three years,
including a $13.1 million after-tax gain recognized on the sale of our boat purchase options in
2005 and a $16.0 million after-tax loss recognized on the sale of our aviation operations in 2004.
See Note 12 of the Notes to Consolidated Financial Statements on page
59 of this Form 10-K for
further information regarding the Company’s discontinued operations.
Drilling Operations
Rowan’s drilling operating results are a function of rig activity and day rates in our
principal operating areas, which have historically been offshore in the Gulf of Mexico, the North
Sea and eastern Canada and onshore in Texas and Louisiana. In 2006, we returned to the Middle East
market with four jack-up rigs and have doubled our presence there in
early 2007. We are
selective in pursuing work in other overseas markets where our premium and harsh environment
jack-up rigs are well-suited, and seek opportunities to maximize long-term returns. Rig activity
and day rates are primarily determined by energy company exploration and development expenditures,
which are heavily influenced by oil and natural gas prices, and the availability of competitive
equipment. Day rates generally follow the trend in rig activity and, due to intense competition in
the contract drilling industry, both have historically declined much faster than they have risen.
Our
rig fleets consist currently of 21 offshore jack-up rigs and 26 land rigs. Our offshore
fleet features three Gorilla class jack-ups built during the early 1980s, four Super Gorilla class
jack-ups constructed during the 1998-2003 period, and three Tarzan Class jack-ups delivered in the
2004-2006 period. Three additional jack-ups are under construction or on order with deliveries
expected over the next three years. Our land fleet includes nine newly-constructed rigs, four rigs
built during 2001-2002 and 11 rigs that have been refurbished in recent years. Three
additional land rigs are expected to be completed during 2007.
For the past several years, our offshore drilling operations have been focused in the Gulf of
Mexico, where nine of our offshore rigs are currently deployed. This market is extremely fragmented
among many oil and gas companies, many of whom are independent operators whose drilling activities
are often highly dependent upon near-term operating cash flows. A typical drilling assignment may
call for 30-60 days of exploration or development work, performed under a single-well contract with
negotiable renewal options. Long-term contracts have been rare, and generally are available only
from the major integrated oil companies and a few of the larger independent operators. Thus,
drilling activity and day rates in this market have tended to fluctuate rather quickly, and
generally follow trends in natural gas prices. Rowan generally avoided long-term commitments in
the past unless they provided opportunities for rate adjustments in the future.
23
As discussed more fully below, high natural gas prices and the continued migration of rigs to
foreign markets in recent years, coupled with the significant loss of equipment in 2005 due to
hurricanes, have created a jack-up supply deficit in the Gulf of Mexico. As a result, rig day
rates, which increased dramatically in 2005, continued to set new records in 2006, and the
occasional term drilling contract, ranging from six months to two years, has become available for
high specification rigs. These opportunities have been more prevalent in other markets, however,
and Rowan has recently moved rigs from the Gulf of Mexico in pursuit of longer-term commitments.
The North Sea is a mature, harsh environment offshore drilling market that has long been
dominated by major oil and gas companies operating within a relatively tight regulatory
environment. Project lead times are often lengthy and drilling assignments, which typically require
ultra premium equipment capable of handling high down-hole pressures and temperatures, can range
from several months to several years. Thus, drilling activity and day rates in the North Sea move
slowly in response to market conditions, and generally follow trends in oil prices.
Following a two-year absence, we returned to the North Sea with the newbuild Gorilla VII in
early 2002, and added Gorilla V to that market in late 2004. Gorilla VII is currently committed
through the third quarter of 2007 while the Gorilla V commitment should extend into the fourth
quarter of 2008. Gorilla VI recently relocated to the North Sea from eastern Canada for work in
both the UK and Norwegian sectors that should extend into the second quarter of 2008.
We have operated offshore eastern Canada at varying levels since the early 1980s, and our
presence there peaked at three fully utilized rigs in mid-2000. More recently, demand for harsh
environment jack-ups in the area has been sporadic and the departure of Gorilla VI leaves us with
no drilling operations there at the present time.
In August 2005, we obtained a three-year contract from Saudi Aramco covering four jack-up rigs
offshore Saudi Arabia, our first drilling assignment in the Middle East in 25 years. The
Rowan-Middletown, Charles Rowan, Arch Rowan and Rowan-California departed the Gulf of Mexico in
January 2006 and commenced operations in the Persian Gulf in April. During 2006, we obtained two
additional commitments in the Middle East market: a two-year contract for two jack-up rigs for
Maersk offshore Qatar, which we commenced in late January 2007 with the Rowan-Paris and Gilbert
Rowe, and a four-year contract for Saudi Aramco for two Tarzan Class jack-ups, the Scooter Yeargain
and Hank Boswell, which should begin in late March 2007.
Rowan has never cold-stacked its drilling rigs during slack periods as we believe the
long-term costs of retraining personnel and restarting equipment negates any short-term savings.
Thus, our drilling expenses do not typically fluctuate with rig activity, though they have
increased as our rig fleets have been expanded and relocated. Rig fleet additions in recent years
have included the Tarzan Class jack-ups Hank Boswell (September 2006), Bob Keller (August 2005) and
Scooter Yeargain (April 2004), eight new land rigs delivered in 2006 and four existing land rigs
that were refurbished during 2005 (two rigs) and 2003 (two rigs).
2006 Compared to 2005
The following table highlights the performance of our drilling division during 2006 compared
to 2005 (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
% increase |
|
Revenues |
|
$ |
1,067.4 |
|
|
$ |
775.4 |
|
|
|
38 |
% |
Operating income |
|
|
447.7 |
|
|
|
332.9 |
|
|
|
34 |
% |
Operating income as a % of revenues |
|
|
42 |
% |
|
|
43 |
% |
|
|
|
|
Drilling revenues increased by $292.0 million in 2006, due primarily to the effects of
increased average day rates, which more than offset the net impact of changes in our rigs fleets
and reduced drilling activity for relocating rigs, as follows (in millions):
| |
|
|
|
|
Increase in average day rates |
|
$ |
357.3 |
|
Rigs lost/damaged in 2005 hurricanes |
|
|
(75.4 |
) |
Rigs sold |
|
|
(28.8 |
) |
New rigs |
|
|
28.0 |
|
Increase in rebillable expenses |
|
|
23.9 |
|
Other, primarily reduced activity for relocating rigs |
|
|
(13.0 |
) |
24
Our overall offshore fleet utilization was 86% in 2006, down from 96% in 2005, as several rigs
were being prepared for long-term assignments overseas. We compute rig utilization as
revenue-producing days divided by total available rig-days. Our average offshore day rate was
$141,500 in 2006, an increase of approximately 81% over 2005. Average day rates are determined as
recorded revenues, excluding rebilled expenses, divided by revenue-producing days. Total
revenue-producing days declined by just over 1,000 or 7% between years, with much of that decrease
associated with the rigs that were being prepared for long-term assignments overseas.
Natural gas prices remained at historically high levels throughout 2006, though mild weather
contributed to a decline from the record average prices experienced during 2005. The migration of
competitive jack-ups from the Gulf of Mexico continued during 2006, which enabled higher rates for
those rigs that remained in the area, and our day rates easily surpassed our all time high levels.
The following table summarizes average natural gas prices and our Gulf of Mexico fleet utilization
and average day rates during the year:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Natural |
|
|
Average |
|
|
Average |
|
| |
|
Gas (MCF)* |
|
|
Utilization |
|
|
Day Rate |
|
First quarter 2006 |
|
$ |
7.84 |
|
|
|
96 |
% |
|
$ |
123,500 |
|
Second quarter 2006 |
|
|
6.65 |
|
|
|
96 |
% |
|
|
143,500 |
|
Third quarter 2006 |
|
|
6.18 |
|
|
|
88 |
% |
|
|
150,600 |
|
Fourth quarter 2006 |
|
|
7.24 |
|
|
|
83 |
% |
|
|
140,300 |
|
Full year 2006 |
|
|
6.98 |
|
|
|
91 |
% |
|
|
139,000 |
|
Full year 2005 |
|
|
9.02 |
|
|
|
97 |
% |
|
|
71,100 |
|
|
|
|
| * |
|
Source: New York Mercantile Exchange (NYMEX) |
As shown in the preceding table, our average Gulf of Mexico day rate increased by 95% in 2006,
though rates began to weaken somewhat during the fourth quarter. The onset of the hurricane season
in June dampened overall drilling activity during the third quarter, forcing available rigs to
compete for fewer, shallow-water opportunities, and many operators had exhausted much of their
drilling budgets before the end of the year.
Our third Tarzan Class jack-up, the Hank Boswell, was delivered and commenced operations in
the Gulf of Mexico in September. The Rowan-Louisiana, which was severely damaged in 2005 during
Hurricane Katrina, was returned to service in December 2006. Eight rigs either began or ended the
year mobilizing from the Gulf of Mexico: four rigs commenced operations in Saudi Arabia in April
2006, two rigs began drilling in Qatar in January 2007 and two additional rigs were in the shipyard
preparing to relocate to Saudi Arabia at year end. In addition, the Gorilla III left the Gulf of
Mexico in August and began work in Trinidad in September. As a result, our total revenue-producing
days in the Gulf of Mexico decreased by 3,479 or 47% during 2006.
Spot oil prices continued to set records in 2006. Prices on the NYMEX traded between $55 and
$70 per barrel for almost the entire year, reaching an all time high of $77 per barrel in July, and
ended the year at around $60. Thus, many foreign markets like the Middle East continued to lure
jack-ups from the Gulf of Mexico with long-term contracts at attractive rates. Our four jack-ups
working offshore Saudi Arabia generated approximately $115 million of drilling revenues in 2006,
averaging more than $113,000 per day.
Demand for harsh environment equipment in the North Sea improved during the year enabling us
to keep our rigs fully utilized and, as noted previously, increase our contracted backlog in the
area. Gorilla V was 95% utilized in the UK sector of the North Sea in 2006 and generated more than
$138,000 per day in drilling revenues during the year. Gorilla VII was 98% utilized offshore
Denmark in 2006 and averaged more than $198,000 per day there in drilling revenues during the year.
Gorilla VI was 85% utilized and generated almost $184,000 per day in drilling revenues
offshore eastern Canada during 2006. Gorilla III was relocated from the Gulf of Mexico to Trinidad
during the third quarter of 2006, where the rig was fully utilized and averaged more than $186,000
per day in drilling revenues during the remainder of the year.
Our 25 land rigs were 97% utilized in Texas, Louisiana and Oklahoma in 2006, and achieved an
average day rate of $22,600 during the year, compared to 98% and $18,400 in 2005. The fleet
included eight of twelve new 2000 horsepower rigs that were constructed during the year. One
additional new land rig was completed in early 2007 and the remaining three rigs are expected to be
delivered during the first and third quarters of 2007. Ten of the twelve new rigs have been contracted for terms ranging from
two to three years.
25
Drilling operating costs increased by $117.1 million or 30% in 2006 compared to 2005, due
primarily to effects of the following (in millions):
| |
|
|
|
|
Insurance increased by 355% |
|
$ |
37.0 |
|
Rebillable expenses — primarily towing costs — increased by 90% |
|
|
23.9 |
|
Repairs and maintenance for existing rigs increased by 28% |
|
|
17.0 |
|
New rigs — primarily Bob Keller (September 2005), Hank Boswell (September 2006) and eight land rigs |
|
|
14.5 |
|
Labor costs increased by 8% |
|
|
11.2 |
|
Selling, general and administrative costs increased by $4.5 million or 10% in 2006, due
primarily to additional incentive compensation costs following the adoption of Statement of Financial Accounting Standards No. 123R. Depreciation and amortization increased by
$8.1 million or 12% in 2006, due primarily to the addition of the rigs noted above.
Drilling operating income in 2006 included $28.2 million of gains on asset disposals during
the year, $24.5 million of which related to the installment sale of the Rowan-Midland and related
equipment, compared to $66.8 million in 2005, which resulted from both asset disposals and the net
excess insurance recoveries related to our losses during Hurricanes Katrina and Rita. Our 2006
operating results also included a $9 million charge for fines and environmental fund payments
expected to be made in connection with a Department of Justice investigation. This matter is
discussed more fully under Liquidity and Capital Resources on page 34.
2005 Compared to 2004
The following table highlights the performance of our drilling division during 2005 compared
to 2004 (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
|
% increase |
|
Revenues |
|
$ |
775.4 |
|
|
$ |
472.1 |
|
|
|
64 |
% |
Operating income |
|
|
332.9 |
|
|
|
51.7 |
|
|
|
544 |
% |
Operating income as a % of revenues |
|
|
43 |
% |
|
|
11 |
% |
|
|
|
|
Drilling revenues increased by $303.3 million in 2005, due primarily to the effects of
increased average day rates, as follows (in millions):
| |
|
|
|
|
Increase in average day rates |
|
$ |
254.6 |
|
Increase in drilling activity, including net impact of changes in rig fleets |
|
|
31.2 |
|
Increase in rebillable expenses |
|
|
17.5 |
|
Our overall offshore fleet utilization was 96% in 2005, up from 92% in 2004. Our average
offshore day rate was $78,100 in 2005, an increase of approximately 60% over 2004. We compute rig
utilization as revenue- producing days divided by total available rig-days. Average day rates are
determined as recorded revenues, excluding rebilled expenses, divided by revenue-producing days.
Natural gas prices were at historically high levels in early 2005, and increased further
during the year primarily due to declining domestic production and growing demand. Prices went even
higher following Hurricanes Katrina and Rita, as significant gas production from the Gulf of Mexico
was shut-in due to damaged platforms and pipelines. These storms also removed eight units from the
competitive jack-up fleet, including four of our rigs. Another six rigs migrated to foreign markets
during the year. As a result, we were able to consistently increase our Gulf of Mexico day rates
during 2005. The following table summarizes average natural gas prices and our Gulf of Mexico fleet
utilization and average day rates during 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Natural |
|
|
Average |
|
|
Average |
|
| |
|
Gas (MCF)* |
|
|
Utilization |
|
|
Day Rate |
|
First quarter 2005 |
|
$ |
6.50 |
|
|
|
98 |
% |
|
$ |
58,000 |
|
Second quarter 2005 |
|
|
6.95 |
|
|
|
97 |
% |
|
|
66,500 |
|
Third quarter 2005 |
|
|
9.73 |
|
|
|
99 |
% |
|
|
74,400 |
|
Fourth quarter 2005 |
|
|
12.88 |
|
|
|
94 |
% |
|
|
92,100 |
|
Full year 2005 |
|
|
9.02 |
|
|
|
97 |
% |
|
|
71,100 |
|
Full year 2004 |
|
|
6.18 |
|
|
|
92 |
% |
|
|
45,200 |
|
|
|
|
| * |
|
Source: New York Mercantile Exchange |
26
As shown in the preceding table, our average Gulf of Mexico day rate increased by 57% in 2005.
Our Gulf of Mexico fleet declined to 17 units during the year as four rigs were lost during the
hurricanes, two rigs were sold and one rig was relocated to eastern
Canada. Another rig was severely damaged during Hurricane Katrina. Our second Tarzan Class
jack-up, the Bob Keller, was delivered in August and commenced operations in September. As a result,
our total revenue-producing days in the Gulf of Mexico decreased by 221 or 3% during 2005. Four of
our rigs departed the area in early 2006 for work in Saudi Arabia.
Oil prices reached new heights during 2005, peaking at just below $70 per barrel, and ended
the year at around $65. Thus, rig demand remained strong in most foreign markets, which contributed
to the further migration of jack-ups from the Gulf of Mexico.
Market conditions in our principal foreign areas, the North Sea and offshore eastern Canada,
improved during the year, enabling Rowan to secure more profitable drilling assignments. Gorilla V
was 94% utilized in the North Sea in 2005, and generated more than $160,000 per day in drilling
revenues during the year. The Gorilla VII simultaneous drilling/production assignment in the United
Kingdom sector ended during the second quarter of 2005 and the rig was relocated to Denmark during
the third quarter. Gorilla VII was 94% utilized in the area and averaged more than $175,000 per day
in revenues thereafter. Gorilla VI was relocated from the Gulf of Mexico to offshore eastern Canada
during the second quarter of 2005, where the rig was 82% utilized and generated almost $160,000 per
day in revenues during the remainder of the year.
Rowan’s 17 deep-well land rigs were 98% utilized in Texas, Louisiana and
Oklahoma in 2005, and achieved an average day rate of $18,400 during the year, compared to 97% and
$12,200 in 2004. The fleet includes one rig, idle since 2002, that
was refurbished during
the year and returned to service in late December 2005. Twelve new 2000 horsepower land rigs were
at varying stages of construction at year end, ten of which are contracted for terms ranging from two to three
years.
Drilling operating costs increased by $67.9 million or 21% in 2005 compared to 2004, due
primarily to effects of the following (in millions):
| |
|
|
|
|
Rebillable expenses — primarily towing costs |
|
$ |
17.5 |
|
Wage increases |
|
|
14.5 |
|
Rig repairs
and maintenance |
|
|
13.2 |
|
New rigs — primarily Scooter Yeargain (May 2004) and Bob Keller (September 2005) |
|
|
11.5 |
|
UK drilling/production assignment field abandonment costs |
|
|
4.5 |
|
Incentive compensation and retirement plan costs |
|
|
3.6 |
|
Selling, general and administrative costs increased by 18.3 million or 68% in 2005, due
primarily to higher professional services fees associated with Sarbanes-Oxley Act compliance and
incremental incentive compensation costs. Depreciation and amortization increased by $0.8 million
or 1% in 2005, due primarily to the addition of the rigs shown above.
Drilling operating income in 2005 included $52.8 million of gains on asset disposals during
the year, $39.1 million of which was recognized on the sale of our 32-year old jack-up Rowan-Texas
during the third quarter. Another $13.9 million of operating income reflects the net of insurance
proceeds received over the carrying values of our four jack-up rigs that were lost during
Hurricanes Katrina and Rita and related uninsured salvage costs.
Outlook
Worldwide rig demand is inherently volatile and has historically varied from one market to the
next, as has the supply of competitive equipment. Exploration and development expenditures are
affected by many local factors, such as political and regulatory policies, seasonal weather
patterns, lease expirations, and new oil and gas discoveries. In the end, however, the level and
expected direction of oil and natural gas prices are what most impact drilling activity, and oil
and gas prices are ultimately a function of the supply of and demand for those commodities. With consistently
high prices in recent years, energy companies have realized substantial cash flows which we believe
should continue to result in additional drilling projects.
27
Currently, the outlook for most worldwide drilling markets appears to be strong. Expected
demand for jack-ups exceeds the current supply of rigs in the Middle East, West Africa, India and
Southeast Asia. Thus, energy companies in mature markets like the Gulf of Mexico and the North Sea
may continue to be forced to aggressively compete for competitive drilling equipment, which could
continue to pressure day rates upward and cause drilling assignments to lengthen. Assuming these
events occur, our drilling operations should continue to benefit
during 2007. The volatility inherent in this
business, however, makes any prediction of future market conditions speculative. Thus, we can offer
no assurance that existing market conditions will continue beyond the near term, or that any
expected improvements will materialize.
Our long-term contracts covering eight rigs in the Middle East have brought significantly more
global diversification to our drilling operations. During 2006, we also committed a third rig in
the North Sea market and began an 18-month drilling assignment in Trinidad. We will continue to
pursue overseas assignments that we believe will maximize the contribution of our offshore rigs and
enhance our operating results.
Hurricanes Katrina and Rita caused tremendous damage to drilling and production equipment and
facilities throughout the Gulf Coast during 2005, and we suffered a significant loss of current and
prospective revenues. These storms also reduced the supply of available drilling equipment in the
Gulf of Mexico, which contributed to the dramatic increase in drilling day rates in late 2005
through mid 2006, though the average contract remains relatively short. During 2006, there was a
noticeable decline in demand for drilling equipment that coincided with the onset of hurricane
season in June and grew more pronounced as natural gas prices continued to weaken during the third
and early fourth quarters. This ultimately forced jack-up contractors, including Rowan, to accept
reduced rates in certain cases in order to keep available rigs fully utilized. Though gas prices
have recently rebounded, Gulf of Mexico rig demand has not returned to peak 2006 levels. This
pattern of reduced rig demand during hurricane season may repeat itself in future years.
The heightened global demand for drilling equipment over the past few years has naturally led
to increased demand for parts, supplies and people, which has in turn
increased the cost of each
category. Fully utilized drilling equipment ultimately requires more extensive maintenance
and repairs as well. We expect these inflationary pressures to
continue somewhat in 2007 which,
unless we are able to recover the increased costs through higher day rates, will reduce our future
profitability. In addition, the cost of insurance in the Gulf of Mexico has risen dramatically
since 2005. Though we were able to obtain coverage for our offshore operations and fleet in 2006,
the cost of our coverage was almost five times the pre-storm level even after we assumed more of
the risk of certain losses. Our relocation of rigs from the Gulf of Mexico has helped to offset
the increase in insurance rates.
Our drilling operations are currently benefiting from predominantly favorable market
conditions worldwide and are profitable. There is no assurance, however, that such conditions will
be sustained beyond the near term or that our drilling operations will remain profitable. Our
drilling operations will be adversely affected if market conditions deteriorate.
Manufacturing Operations
We have manufacturing facilities in Longview and Houston, Texas and Vicksburg, Mississippi
that collectively produce mining, timber and transportation equipment, alloy steel and steel plate,
and drilling rigs and various rig components. Our manufacturing division built the first jack-up
drilling rig in 1955 and has designed or built more than 200 rigs since, including all 21 in our
fleet. During 2006, the division delivered the third Tarzan Class jack-up, the Hank Boswell,
achieved significant construction progress on the fourth, the J. P. Bussell, and began construction
on the first two of a new jack-up rig design, the 240C.
2006 Compared to 2005
Rowan’s manufacturing division achieved a $149.9 million or 51% increase in revenues in 2006,
comprised as follows (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% increase |
|
| |
|
2006 |
|
|
2005 |
|
|
(decrease) |
|
Mining Products group |
|
$ |
164.7 |
|
|
$ |
147.0 |
|
|
|
12 |
% |
Offshore Products group |
|
|
148.8 |
|
|
|
53.5 |
|
|
|
178 |
% |
Drilling Systems group |
|
|
64.0 |
|
|
|
35.1 |
|
|
|
82 |
% |
Power Systems group |
|
|
27.5 |
|
|
|
15.7 |
|
|
|
74 |
% |
Steel Products group |
|
|
25.0 |
|
|
|
32.1 |
|
|
|
(22 |
)% |
Forestry Products group |
|
|
13.3 |
|
|
|
10.0 |
|
|
|
33 |
% |
28
The Mining Products group shipped 30 new front-end loaders in 2006, down from 31 units in
2005, though many were the larger units which carry a higher selling price; thus, mining equipment
revenues increased by 9% between periods. Mining parts sales improved by $20.0 million or 66% between
periods. Offshore Products group revenues in 2006 included $103.8 million recognized on long-term
rig and rig kit construction projects, up from $36.1 million in 2005. The Drilling Systems group
shipped 69 mud pumps to outside customers during 2006, up from 39 in 2005. Total volumes shipped by
the Steel Products group were virtually unchanged at 37,100 tons in 2006, though the mix changed
from 61% external in 2005 to 45% external in 2006, causing the drop in sales shown in the preceding
table. The Forestry Products group shipped five log stackers in 2006, up from three units in 2005,
but experienced a 46% decrease in parts sales between periods.
Our manufacturing profitability is greatly influenced by the mix of our product sales. Our
mining equipment, for example, has traditionally yielded lower margins than the related
after-market parts sales. A rig construction project takes longer to complete and involves a
significantly greater labor effort than a rig kit, and thus typically yields a lower margin.
Efforts by the Offshore Products group to deliver the Hank Boswell almost three months ahead of
schedule caused it to incur additional costs on the other rig being built at Vicksburg, and our
2006 operating results included a $2.1 million charge for the estimated loss on that project. In
addition, we recorded a $7.8 million charge during the year for the costs incurred to collect and
dispose of a radioactive material that was released while processing scrap at our steel mill. As a
result, along with revenues, our direct cost of sales increased in 2006 by $116.6 million or 51%, and our average margin during the year was unchanged at 22% of revenues.
Other manufacturing operating expenses increased by $2.0 million or 8% in 2006 compared to
2005, due primarily to incremental engineering efforts and higher shipping and warehousing costs.
Selling, general and administrative costs increased by $1.8 million or 9% in 2006, due primarily to
higher selling-related expenses and professional service fees associated with Sarbanes-Oxley Act
compliance. Depreciation and amortization increased by $0.6 million or 5% in 2006, due primarily to
ongoing capacity improvements at our manufacturing facilities.
As a result, operating income produced by our manufacturing division increased by $30.3
million or almost four-fold during the year, and improved to 9% of revenues in 2006, up from 3% in
2005.
Our 2006 manufacturing operating results exclude the effects of approximately $230 million of
products and services provided at cost to our drilling division during the year, most of which was
attributable to completion of the Hank Boswell and construction progress on the J. P. Bussell.
2005 Compared to 2004
Rowan’s manufacturing division achieved an $85.8 million or 41% increase in revenues in 2005,
comprised as follows (dollars in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
% increase |
|
| |
|
2005 |
|
|
2004 |
|
|
(decrease) |
|
Mining Products group |
|
$ |
147.0 |
|
|
$ |
104.2 |
|
|
|
41 |
% |
Offshore Products group |
|
|
53.5 |
|
|
|
28.1 |
|
|
|
91 |
% |
Drilling Systems group |
|
|
35.1 |
|
|
|
16.1 |
|
|
|
118 |
% |
Steel Products group |
|
|
32.1 |
|
|
|
30.5 |
|
|
|
5 |
% |
Power Systems group |
|
|
15.7 |
|
|
|
18.6 |
|
|
|
(16 |
)% |
Forestry Products group |
|
|
10.0 |
|
|
|
10.1 |
|
|
|
(1 |
)% |
The Mining Products group shipped 31 new front-end loaders in 2005, up from 19 units in 2004,
and mining parts sales improved by $2.0 million or 7% between periods. Offshore Products group
revenues in 2005 included $36.1 million recognized on long-term rig and rig kit construction
projects that began during the year. The Drilling Systems group shipped 39 mud pumps to outside
customers during 2005, up from 23 in 2004. The Steel Products group experienced an 18% decrease in
external steel shipments in 2005 that was more than offset by a 28% increase in average steel
prices during the year. Internal steel shipments increased by 300% in 2005. Power Systems group
revenues declined during 2005 due primarily to efforts required to complete a $10 million dredge
barge for the US Army Corps of Engineers. The Forestry Products group shipped three log stackers
in 2005, down from four units in 2004, but achieved a 23% increase in parts sales between periods.
29
Our mining equipment, especially the smaller loaders, has traditionally yielded lower margins
than the related after-market parts sales. In addition, a rig construction project usually takes
longer to complete and involves a significantly greater labor effort than a rig kit, and thus
typically yields a lower margin. As a result of the significantly greater activity in these areas
in 2005, our direct cost of sales increased by $71.9 million or 46% during the year, and our
average margin declined to 22% of revenues in 2005 from 25% in 2004. A $2.3 million loss incurred
on the Power Systems dredge barge project contributed to the decline in margins in 2005.
Other manufacturing operating expenses increased by $4.7 million or 22% in 2005 compared to
2004, due primarily to incremental engineering efforts and higher shipping and warehousing costs.
Selling, general and administrative costs increased by $6.1 million or 44% in 2005, due primarily
to higher selling-related expenses, professional service fees associated with Sarbanes-Oxley Act
compliance and incentive compensation costs. Depreciation and amortization increased by $1.9
million or 19% in 2005, due primarily to ongoing capacity improvements at our manufacturing
facilities. As a result, operating income increased by only $0.9 million or 13% during the year,
and remained unchanged at 3% of revenues in 2005.
Our 2005 manufacturing operating results exclude the effects of approximately $118 million of
products and services provided at cost to our drilling division during the year, most of which was
attributable to completion of the Bob Keller and construction progress on the Hank Boswell.
Outlook
Though considerably less volatile than our drilling operations, our manufacturing operations,
especially the Mining Products group, are impacted by world commodities prices; in particular, prices for
copper, iron ore, coal and gold. In addition, the prospects for our
Offshore Products and Drilling Systems
groups are closely tied to the condition of the overall drilling industry and its demand for
equipment, parts and services.
Many
commodity prices continue to be at historically high levels due to
strong worldwide
demand. Our external manufacturing backlog at December 31, 2006, of approximately $530 million, was
more than one-third higher than the prior-year level and near an all-time high. The backlog
included $363 million related to long-term rig or rig kit construction projects that are expected
to run through mid 2008 and $85 million associated with 9 mining loaders, three log stackers and 57
mud pumps that we expect to ship during 2007. Thus far, we have been able to pass along the effects
of raw material and labor cost increases to our customers in the form of higher sales prices.
During 2005 and 2006, in order to meet the growing demand for the Company’s manufacturing
products, we expanded our steel production capacity and upgraded facilities and machinery to enable
faster delivery of rig components and other manufacturing products.
We are optimistic that prices will remain firm, sustaining the demand for the types of
equipment that we provide, and that our increased volumes will yield improved profitability. We
cannot, however, accurately predict the duration of current business conditions or their impact on
our operations. Our manufacturing operations will be adversely affected if conditions deteriorate.
30
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet amounts and ratios for 2006 and 2005 were as follows (dollars in millions):
| |
|
|
|
|
|
|
|
|
| DECEMBER 31, |
|
2006 |
|
|
2005 |
|
Cash and cash equivalents |
|
$ |
258.0 |
|
|
$ |
675.9 |
|
Current assets |
|
$ |
1,102.8 |
|
|
$ |
1,208.1 |
|
Current liabilities |
|
$ |
516.7 |
|
|
$ |
340.6 |
|
Current ratio |
|
|
2.13 |
|
|
|
3.55 |
|
Current maturities of long-term debt |
|
$ |
64.9 |
|
|
$ |
64.9 |
|
Long-term debt |
|
$ |
485.4 |
|
|
$ |
550.3 |
|
Stockholders’ equity |
|
$ |
1,874.0 |
|
|
$ |
1,619.7 |
|
Long-term debt/total capitalization. |
|
|
.21 |
|
|
|
.25 |
|
Reflected in the comparison above are the effects of the following sources and uses of cash
and cash equivalents in 2006:
| |
• |
|
net cash provided by operations of $292.1 million |
| |
| |
• |
|
proceeds from asset disposals of $39.1 million |
| |
| |
• |
|
proceeds from stock option and convertible debenture plans of $9.2 million |
| |
| |
• |
|
capital expenditures of $479.1 million |
| |
| |
• |
|
creation of a $156.1 million restricted cash balance |
| |
| |
• |
|
debt repayments of $64.9 million |
| |
| |
• |
|
cash dividend payments to our stockholders of $60.5 million |
Operating cash flows in 2006 included non-cash or non-operating adjustments to our net income
totaling $201.0 million, less a net investment in working capital of $221.6 million. Non-cash or
non-operating adjustments included deferred income taxes of $94.3 million, depreciation of $90.0
million and net retirement plan expenses in excess of funding of $23.9 million, partially offset by
net gains on asset disposals of $30.5 million, compensation expense of $14.3 million and a $9.0
million charge for an estimated environmental fine. Working capital grew with additional
investments in inventories and trade receivables in 2006 of $150 million and $135 million,
respectively, which were only partially offset by net additional customer advances under sales
contracts and toward future drilling services of $61 million during the year.
Capital expenditures in 2006 included $113.5 million towards construction of our third and
fourth Tarzan Class jack-up rigs, the Hank Boswell and the J.P. Bussell, which are being financed
through operating cash flows. The Tarzan Class was designed specifically for deep drilling in water
depths up to 300 feet, offering drilling capabilities similar to our Super Gorilla class jack-ups,
but with reduced environmental criteria (wind, wave and current) and at around one-half the
construction cost.
Rowan’s first two Tarzan Class jack-up rigs and each of our four Super Gorilla class rigs were
substantially financed through long-term bank loans guaranteed by the U.S. Department of
Transportation’s Maritime Administration (“MARAD”). Under the MARAD Title XI program, we obtained
reimbursements for qualifying expenditures up to a pre-approved limit based upon actual
construction progress. Outstanding borrowings initially bear a floating rate of interest and notes
require semi-annual payments of principal and accrued interest. The notes are secured by a
preferred mortgage on the rig. The following table summarizes the status of each of our Title XI
borrowings at December 31, 2006 (dollars in millions).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
Repayment |
|
|
Repayment |
|
|
Final |
|
| Rig |
|
Delivery |
|
|
Borrowings |
|
|
Repayments |
|
|
Balance |
|
|
Rate |
|
|
Dates |
|
|
Amounts |
|
|
Maturity |
|
Gorilla V |
|
Dec 1998 |
|
$ |
153.1 |
|
|
$ |
102.1 |
|
|
$ |
51.0 |
|
|
|
6.94%, 6.15 |
% |
|
Jan 1, July 1 |
|
$ |
6.4 |
|
|
July 2010 |
Gorilla VI |
|
June 2000 |
|
|
171.0 |
|
|
|
92.6 |
|
|
|
78.4 |
|
|
|
5.88 |
% |
|
Mar 15, Sep 15 |
|
|
7.1 |
|
|
Mar 2012 |
Gorilla VII |
|
Dec 2001 |
|
|
185.4 |
|
|
|
77.2 |
|
|
|
108.2 |
|
|
|
2.8 |
% |
|
Apr 20, Oct 20 |
|
|
7.7 |
|
|
Oct 2013 |
Bob Palmer |
|
Aug 2003 |
|
|
187.3 |
|
|
|
31.2 |
|
|
|
156.1 |
|
|
5.64% floating |
|
Jan 15, July 15 |
|
|
5.2 |
|
|
July 2021 |
Scooter Yeargain |
|
April 2004 |
|
|
91.2 |
|
|
|
15.2 |
|
|
|
76.0 |
|
|
|
4.33 |
% |
|
May 1, Nov 1 |
|
|
3.0 |
|
|
May 2019 |
Bob Keller |
|
Aug 2005 |
|
|
89.7 |
|
|
|
9.0 |
|
|
|
80.7 |
|
|
5.54% floating |
|
May 10, Nov 10 |
|
|
3.0 |
|
|
May 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
877.7 |
|
|
$ |
327.3 |
|
|
$ |
550.4 |
|
|
|
|
|
|
|
|
|
|
$ |
32.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Our outstanding Bob Palmer and Bob Keller borrowings bear interest at a short-term
commercial paper rate plus .25% and .15%, respectively. Rowan may fix these interest rates at any
time and must fix them by August 18, 2007 and August 31, 2009, respectively. As discussed more
fully below, the Bob Palmer note is fully collateralized by a secured restricted cash account.
The Hank Boswell was constructed at our Vicksburg, Mississippi facility and delivered in
September 2006. Construction of the J.P. Bussell, for which we have subcontracted the hull to
another shipyard, is in progress and should be completed by late 2007 or early 2008. We have
applied to MARAD for Title XI government-guaranteed financing for up to $176 million of the cost of
the third and fourth Tarzan Class rigs on terms and conditions similar to those in effect for the
Bob Keller. If we are unable to obtain this or any other outside financing, we could be forced to
continue using working capital, if available, or postpone construction.
During 2006, we began construction of the first of two of a new class of jack-up rig. The 240C
will be equipped for high pressure/high temperature drilling in water depths of up to 400 feet. We
believe the 240C design will set a new standard as a replacement for the 116C, which has been the
“workhorse” of the global drilling industry for the past 25 years. The 240C will have more deck
space, higher variable load, more drilling capacity (two million pound hook-load capability), more
cantilever reach (up to 100 feet) and greater personnel capacity (108 man) than the 116C. Each rig
will cost approximately $165 million and will be constructed at Vicksburg, Mississippi with
delivery expected in 2008 and 2009. Capital expenditures in 2006 included $20.4 million for
progress towards the construction of the first rig, which was funded from available cash. We
currently anticipate funding construction of both 240C rigs with available cash, but will consider
attractive financing alternatives. If we are unable to obtain any outside financing, we could be
forced to continue using working capital, if available, or postpone construction.
Capital expenditures in 2006 included $164.7 million for progress towards the construction of
12 new 2000 horsepower land rigs, eight of which were delivered
during 2006 and one in early 2007. The three remaining
rigs are expected to be delivered during the first and third quarters
of 2007. These expenditures have been and should continue to
be financed from existing working capital.
Capital expenditures are for new assets or enhancements to existing assets, as expenditures
for maintenance and repairs are charged to operations as incurred. The remainder of 2006 capital
expenditures was primarily for major enhancements to existing offshore rigs and manufacturing
facilities. Our 2007 capital budget has initially been set at approximately $393 million, and
includes $75 million for the J. P. Bussell, $146 million toward the two 240C class rigs and $17
million for the four remaining new land rigs. We will periodically review and adjust the capital
budget as necessary based upon our existing working capital and anticipated market conditions in
our drilling and manufacturing businesses.
Rowan received $120.7 million in 2005 in connection with the disposal of various assets. In
February, we sold the purchase options on four leased anchor-handling boats for approximately $21
million in cash. In September, we sold one of our oldest jack-up rigs, the Rowan-Texas, for
approximately $45 million in cash, after selling expenses. Another $9.6 million was received
earlier in 2005 as proceeds from the sale of marketable investment securities that had a nominal
carrying cost.
In October 2005, we sold our only semi-submersible rig for approximately $60 million in cash.
Payment for the rig occurred over a 15-month period ending in January 2007, at which point the
title to the rig was transferred to the buyer. Rowan retained ownership of much of the drilling
equipment on the rig, which was sold in 2006, and has continued to provide a number of operating personnel under a separate
services agreement. The transaction was accounted for as a sales-type lease with the expected gain
on the sale and imputed interest income of approximately $46 million deferred until the net book
value of the rig has been recovered. At December 31, 2006, we had received payments totaling $35.6
million, and Trade and other receivables at that date included the balance of expected future
collections of $23.4 million, which we received in January 2007.
Contractual Obligations and Commercial Commitments
The following is a summary of our contractual obligations at December 31, 2006 (dollars in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period |
|
| Contractual Obligations |
|
Total |
|
|
Within 1 Year |
|
|
2-3 Years |
|
|
4-5 Years |
|
|
After 5 Years |
|
Long-term debt and interest (1) |
|
$ |
704.3 |
|
|
$ |
91.7 |
|
|
$ |
173.5 |
|
|
$ |
147.8 |
|
|
$ |
291.3 |
|
Purchase obligations |
|
|
127.2 |
|
|
|
125.5 |
|
|
|
1.7 |
|
|
|
— |
|
|
|
— |
|
Operating leases |
|
|
17.4 |
|
|
|
8.2 |
|
|
|
7.7 |
|
|
|
1.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
848.9 |
|
|
$ |
225.4 |
|
|
$ |
182.9 |
|
|
$ |
149.2 |
|
|
$ |
291.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Amounts represent contractual principal and interest payments.
Interest amounts reflect either stated fixed rates or assume current
floating rates remain constant throughout the period. |
32
We periodically employ letters of credit or other bank-issued guarantees in the normal course
of our businesses, and were contingently liable for performance under such agreements to the extent
of approximately $49 million at December 31, 2006. We do not hold or issue derivative financial
instruments.
Our debt agreements contain provisions that require minimum levels of working capital and
stockholders’ equity, limit the amount of long-term debt and, in the event of noncompliance,
restrict investment activities, asset purchases and sales, lease obligations, borrowings and
mergers or acquisitions. These agreements also contain minimum insurance requirements for our
collateralized drilling rigs. The extent of hurricane damage sustained throughout the Gulf Coast
area in recent years has dramatically increased the cost and reduced the availability of insurance
coverage for windstorm losses and, during our 2006 policy renewal, we determined that windstorm
coverage meeting these requirements was cost-prohibitive. Thus, we requested and received from
MARAD a waiver of any defaults related to insurance requirements and provided additional security
to MARAD. We have established a separate cash account containing the amount necessary to repay in
full the outstanding Bob Palmer note, and in which MARAD has a security interest. This amount is
shown separately as Restricted cash on our Consolidated Balance Sheet. We are not obligated to
repay the Bob Palmer note in advance of its scheduled maturity. In addition, we agreed to maintain
at least $100 million of unrestricted cash. Finally, we agreed to restrictions on the use of
certain insurance proceeds should we experience further losses. Each of these additional security
provisions will be released by MARAD if we obtain windstorm coverage that satisfies our existing
debt requirements. We were in compliance with each of our debt covenants at December 31, 2006.
We have contributed more than $145 million to our defined benefit pension plans over the past
five years, including almost $90 million during 2005. Minimum contribution amounts are determined
based upon actuarial calculations of pension assets and liabilities that involve, among other
things, assumptions about long-term asset returns and interest rates. Similar calculations were
used to estimate pension costs and obligations as reflected in our consolidated financial
statements, which showed an unfunded pension liability of $119.1 million at December 31, 2006. We
expect to make additional pension contributions over the next several years even if plan assets
perform as expected, and our funding requirement for 2007 is expected to be approximately $11
million. The Pension Protection Act of 2006 generally requires that plans be fully funded within
seven years, and will therefore increase and accelerate our annual funding requirements beginning
in 2008. We currently estimate that our 2007 pension expense will decrease by approximately $2.6
million or about 10% from the 2006 amount.
On February 25, 2005, in conjunction with the sale of our aviation operations, we paid a
special cash dividend of $.25 per share of our common stock to stockholders of record on February
9, 2005. On September 1, 2005, in conjunction with the sale of several non-core assets, we paid a
special cash dividend of $.25 per share of our common stock to stockholders of record on August 17,
2005. On February 24, 2006, we paid a special cash dividend of $.25 per common share to
stockholders of record on February 8, 2006. On May 2, 2006, we instituted a regular quarterly cash
dividend of $.10 per share, which we have since paid on each of May 26, August 18 and November 29,
2006 and February 20, 2007. At December 31, 2006, we had approximately $158 million of retained
earnings available for distribution to stockholders under the most restrictive provisions of our
debt agreements. Future dividends, if any, will only be paid at the discretion of our Board of
Directors.
In early 2004, we sold 11.5 million shares of common stock, consisting of approximately 1.7
million shares of treasury stock and 9.8 million newly issued shares. The net proceeds of
approximately $265 million were retained for general corporate purposes, including working capital
and capital expenditures. The treasury shares were acquired in the open market at various dates
during 2000-2002 and had an average cost of $17.33 per share.
Based on current and anticipated near-term operating levels, we believe that operating cash
flows together with existing working capital will be adequate to sustain planned capital
expenditures and debt service and other requirements at least through the remainder of 2007. We
currently have no other available credit facilities, but believe financing could be obtained if
deemed necessary.
33
During the third quarter of 2005, we lost four offshore rigs, including the Rowan-Halifax, and
incurred significant damage on a fifth as a result of Hurricanes Katrina and Rita. Since that
time, we have been working to locate the lost or damaged rigs, salvage related equipment, remove
debris, wreckage and pollutants from the water, mark or clear navigational hazards and clear rights
of way. At December 31, 2006, we had incurred $87.5 million of costs related to such efforts, of
which $42.2 million had been reimbursed through insurance, leaving $45.3 million included in
Receivables. We have since received another $17.7 million of insurance reimbursements. We expect
to incur additional costs in the near term to fulfill our obligations to remove wreckage and debris
in amounts that may approach our expenditures to date. Such additional costs will depend on the
extent and nature of work ultimately required and the duration thereof. Previously, we reported
the filing of a lawsuit styled Rowan Companies, Inc. vs. Certain Underwriters at Lloyd’s and
Insurance Companies Subscribing to Cover Note ARS 4183 in the 215th Judicial District
Court of Harris County, Texas. The lawsuit was withdrawn following the agreement by such
underwriters to reimburse us for the reasonable cost of removing wreckage and debris remaining on
the drilling locations. Certain of our insurance underwriters at higher limits of liability have
notified us that they are reserving their right to deny coverage for any costs incurred in wreckage
and debris removal activities that they believe are outside the scope of their policy. We do not
expect the costs will reach these higher limits until the second quarter of 2007, and are working
to resolve this issue. Although the Company believes that it has adequate insurance coverage and
will be reimbursed for costs incurred and to be incurred, it is possible that a portion of such
costs will not be reimbursed, requiring a charge to future operations for any shortfall.
We leased the jack-up Rowan-Halifax under a charter agreement that commenced in 1984 and was
scheduled to expire in March 2008. The rig was insured for $43.4 million prior to being lost during
Hurricane Rita in September 2005. We believe the insured value satisfied the requirements of the
charter agreement, and by a margin sufficient to cover the $6.3 million carrying value of our
equipment installed on the rig. However, the owner of the rig claimed that the rig should have been
insured for its fair market value and sought recovery from us for compensation above the insured
value. Thus, we assumed no insurance proceeds related to the Rowan-Halifax and recorded a charge
during the third quarter of 2005 for the full carrying value of our equipment. On November 3, 2005,
we filed a declaratory judgment action styled Rowan Companies, Inc. vs. Textron Financial
Corporation and Wilmington Trust Company as Owner Trustee of the Rowan-Halifax 116-C Jack-Up Rig in
the 215th Judicial District Court of Harris County, Texas. The owner filed a similar
declaratory judgment action, claiming a value of approximately $83 million for the rig. The
owner’s motion for summary judgment was granted on January 25, 2007 which, unless overturned on
appeal, would make us liable to the owner for the approximately $40 million difference between the
owner’s claim and the insurance coverage, plus interest and costs. We continue to believe that our
interpretation of the charter agreement is correct and intend to vigorously pursue an appeal to
overturn the summary judgment ruling.
During 2004, we learned that the Environmental and Natural Resources Division, Environmental
Crimes Section of the U. S. Department of Justice (DOJ) had begun conducting a criminal investigation
of environmental matters involving several of our offshore drilling rigs. Since that time, we have
fully cooperated with the investigation, including responding to the DOJ’s subpoenas for certain
documentation regarding our operations.
The DOJ has a broad range of civil and criminal sanctions under environmental and other laws
which it may pursue such as injunctive relief, fines (including multi-million dollar fines),
penalties and modifications to business practices and compliance programs.
We have been engaged in discussions with the DOJ regarding a possible resolution of its
investigation, including fines and additional sanctions against the Company. As a result of recent
discussions with the DOJ, we expect to pay fines and environmental fund
payments of $9 million and have recognized such amount as a charge to our fourth quarter
2006 operations.
During 2005, we learned that the DOJ was conducting an investigation of potential antitrust
violations among helicopter transportation providers in the Gulf of Mexico. Our former aviation
subsidiary, which was sold effective December 31, 2004, received a subpoena in connection with the
investigation. We have not been contacted by the DOJ, but the purchaser claimed that we are
responsible for any exposure it may have. We have disputed that claim.
We are involved in various other legal proceedings incidental to our businesses and are
vigorously defending our position in all such matters. We believe that there are no other known
contingencies, claims or lawsuits that could have a material adverse effect on our financial
position, results of operations or cash flows.
34
Critical Accounting Policies and Management Estimates
Rowan’s significant accounting policies are outlined in Note 1 of the Notes to Consolidated
Financial Statements beginning on page 43 of this Form 10-K. These policies, and management
judgments, assumptions and estimates made in their application, underlie reported amounts of assets
and liabilities at the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. We believe that Rowan’s most critical accounting policies and
management estimates involve revenue recognition, primarily upfront service fees for equipment
moves and modifications, long-term manufacturing projects, property and depreciation,
particularly capitalizable costs, useful lives and salvage values, and pension and other
postretirement benefit liabilities and costs, specifically assumptions used in actuarial
calculations, as changes in such policies and/or estimates would produce significantly different
amounts from those reported herein.
Revenue Recognition. Rowan’s drilling contracts generally provide for payment on a
day rate basis, and revenues are recognized as the work progresses with the passage of time. We
frequently receive lump-sum payments at the outset of a drilling assignment as upfront service fees
for equipment moves or modifications, and such payments (and related costs) are recognized as
drilling revenues (and expenses) over the contract period. At December 31, 2006, we had deferred
$60.9 million of revenues and $48.8 million of costs related to such upfront service fees, compared
to $0.7 million and $2.7 million, respectively, one year earlier. We also typically receive
reimbursement for certain “rebillable” costs, which are recognized as both revenues and expenses
when incurred.
Rowan generally recognizes manufacturing sales and related costs when title passes as products
are shipped. Revenues from long-term manufacturing projects such as rigs and rig kits are
recognized on the percentage-of-completion basis using costs incurred relative to total estimated
costs. We do not recognize any estimated profit until such projects are at least 10% complete,
though a full provision is made immediately for any anticipated losses. Total estimated costs,
which incorporate the latest manufacturing standards and engineering estimates, are critical to
this process and are therefore reviewed on a regular basis. At December 31, 2006, we had received
$179.8 million of progress payments toward in-process long-term manufacturing projects, of which
$65.8 million had not yet been recognized as revenues. During 2006, we recognized $103.8 million
of manufacturing revenues and $93.4 million of costs related to such projects on the
percentage-of-completion basis, including an estimated $2.1 million loss on the rig construction
project, compared to $36.1 million and $29.8 million, respectively, in 2005.
Property and depreciation. We provide depreciation under the straight-line method
from the date an asset is placed into service based upon estimated service lives ranging up to 40
years and salvage values ranging up to 20%. We continue to operate 14 offshore rigs that were
placed into service during 1972 — 1986 and assigned lives ranging from 12 to 15 years. Our newest
and most significant assets, the Super Gorilla and Tarzan Class rigs, which collectively comprise
almost two-thirds of our property, plant and equipment carrying value, carry a 25-year service
life. We continue to provide depreciation expense when our rigs are idle.
Expenditures for new property or enhancements to existing property are capitalized and
expenditures for maintenance and repairs are charged to operations as incurred. Capitalized cost
includes labor expended during installation and, on newly constructed assets, a portion of interest
cost incurred during the construction period. Long-lived assets are reviewed for impairment
whenever circumstances indicate their carrying amounts may not be recoverable, such as following a
sustained deficit in operating cash flows caused by a prominent decline in overall rig activity and
average day rates.
Pension and other postretirement benefit liabilities and costs. As previously
mentioned, our pension and other postretirement benefit liabilities and costs are based upon
actuarial computations that reflect our assumptions about future events, including long-term asset
returns, interest rates, annual compensation increases, mortality rates and other factors. Key
assumptions at December 31, 2006 included discount rates ranging from 5.82% to 5.92%, an expected
long-term rate of return on pension plan assets of 8% and annual healthcare cost increases ranging
from 10% in 2007 to 5% in 2011 and beyond. The assumed discount rate is based upon the average
yield for Moody’s Aa-rated corporate bonds with maturities matched to expected benefit payments and
the rate of return assumption reflects a probability distribution of expected long-term returns
that is weighted based upon plan asset allocations. A 1-percentage-point decrease in the assumed
discount rate would increase our recorded pension and other postretirement benefit liabilities by
approximately $83 million, while a 1% change in the expected long-term rate of return on plan
assets would change annual net benefits cost by approximately $3 million. The effects of a 1%
change in the assumed healthcare cost trend rate are disclosed in Note 6 of the Notes to
Consolidated Financial Statements beginning on page 51 of this Form 10-K.
35
New Accounting Pronouncements
Our adoption, effective January 1, 2006, of Statement of Financial Accounting Standards No.
123 (revised 2004), “Share-Based Payment”, which requires the measurement and recognition of
stock-based compensation expense based upon grant date fair value, reduced our net income by
approximately $3.2 million or $.03 per share in 2006. Prior to 2006, we used the intrinsic value
method of accounting for stock-based employee compensation pursuant to Accounting Principles Board
Opinion No. 25. We estimate that the provisions of Statement 123R would have reduced
(increased) reported amounts of net income (loss) and net income (loss) per share by $3.0 million
or $.02 per diluted share in 2005 and $(3.1) million or $(.03) per diluted share in 2004.
Our adoption, effective January 1, 2006, of Statement of Financial Accounting Standards No.
151, “Inventory Costs”, which clarifies the distinction between costs that are allocable to
inventory and those that are expensed as incurred, did not materially impact our financial position
or results of operations.
Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans”, which requires that the funded status of our
pension and other postretirement benefit plans be fully recognized in our December 31, 2006
Consolidated Balance Sheet, had the effect of increasing our balances for Other liabilities,
Deferred income taxes and Accumulated other comprehensive loss at that date by $67.1 million, $23.5
million and $43.6 million, respectively. Previously, balance sheet recognition was not required
for items excluded from net pension and other benefits cost, including unamortized gains and
losses, prior service cost and transition assets and liabilities, except where necessary to meet
minimum liability thresholds, the after-tax effect of which was reflected within Accumulated other
comprehensive income (loss). Under Statement 158, the unamortized portion of such items will
continue to be excluded from net periodic benefits cost and included within other comprehensive
income (loss).
Our adoption, effective January 1, 2007, of Financial Accounting Standards Board
Interpretation (FIN) No. 48, which clarifies the measurement and financial statement recognition of
the effects of tax positions taken or expected to be taken in a tax
return, did not materially impact our
financial position or results of operations. We have recorded an
adjustment to reduce retained earnings on January 1, 2007 by
approximately $2 million.
Securities and Exchange Commission Staff Accounting Bulletin No. 108, which sets forth the
Staff’s views regarding the process of quantifying financial statement misstatements, did not
materially affect our financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Rowan’s outstanding debt at December 31, 2006 was comprised as follows: $313.6 million of
fixed-rate notes bearing a weighted average annual interest rate of 4.54% and $236.8 million of
floating-rate notes bearing a weighted average annual interest rate of 5.61%. Rowan believes that
its exposure to risk of earnings loss due to changes in market interest rates is limited in that
the Company may fix the interest rate on its outstanding floating-rate debt at any time. In
addition, the majority of Rowan’s transactions are carried out in United States dollars; thus, the
Company’s foreign currency exposure is not material. Fluctuating commodity prices affect Rowan’s
future earnings materially to the extent that they influence demand for the Company’s products and
services. Rowan does not hold or issue derivative financial instruments.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| |
|
|
|
|
| INDEX |
|
Page |
|
|
|
|
38 |
|
|
|
|
39 |
|
|
|
|
40 |
|
|
|
|
41 |
|
|
|
|
42 |
|
|
|
|
43 |
|
|
|
|
61 |
|
|
|
|
62 |
|
|
|
|
63 |
|
|
|
|
64 |
|
37
Rowan Companies, Inc.
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
| |
|
(In thousands except |
|
| |
|
share amounts) |
|
Assets
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
258,041 |
|
|
$ |
675,903 |
|
Receivables — trade and other |
|
|
418,985 |
|
|
|
253,194 |
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
|
260,319 |
|
|
|
169,361 |
|
Work-in-progress |
|
|
84,466 |
|
|
|
26,172 |
|
Finished goods |
|
|
310 |
|
|
|
477 |
|
Prepaid expenses and other current assets |
|
|
62,307 |
|
|
|
17,041 |
|
Deferred tax assets — net |
|
|
18,421 |
|
|
|
65,984 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,102,849 |
|
|
|
1,208,132 |
|
|
|
|
|
|
|
|
Restricted cash |
|
|
156,077 |
|
|
|
— |
|
Property, plant and equipment — at cost: |
|
|
|
|
|
|
|
|
Drilling equipment |
|
|
2,639,036 |
|
|
|
2,251,714 |
|
Manufacturing plant and equipment |
|
|
210,448 |
|
|
|
165,185 |
|
Construction in progress |
|
|
137,265 |
|
|
|
112,939 |
|
Other property and equipment |
|
|
106,642 |
|
|
|
92,992 |
|
|
|
|
|
|
|
|
Total |
|
|
3,093,391 |
|
|
|
2,622,830 |
|
Less accumulated depreciation and amortization |
|
|
960,165 |
|
|
|
902,096 |
|
|
|
|
|
|
|
|
Property, plant and equipment — net |
|
|
2,133,226 |
|
|
|
1,720,734 |
|
Goodwill and other assets |
|
|
43,246 |
|
|
|
46,317 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,435,398 |
|
|
$ |
2,975,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
64,922 |
|
|
$ |
64,922 |
|
Accounts payable — trade |
|
|
141,206 |
|
|
|
82,935 |
|
Other current liabilities |
|
|
310,578 |
|
|
|
192,756 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
516,706 |
|
|
|
340,613 |
|
|
|
|
|
|
|
|
Long-term debt — less current maturities |
|
|
485,404 |
|
|
|
550,326 |
|
|
|
|
|
|
|
|
Other liabilities |
|
|
212,177 |
|
|
|
149,782 |
|
|
|
|
|
|
|
|
Deferred income taxes — net |
|
|
347,065 |
|
|
|
314,723 |
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 9) |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $1.00 par value: |
|
|
|
|
|
|
|
|
Authorized 5,000,000 shares issuable in series: |
|
|
|
|
|
|
|
|
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 E Preferred Stock, authorized 1,194 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
110,461,531 shares at December 31, 2006 and 109,776,426 shares at December
31, 2005 |
|
|
13,808 |
|
|
|
13,722 |
|
Additional paid-in capital |
|
|
988,998 |
|
|
|
970,256 |
|
Retained earnings |
|
|
981,610 |
|
|
|
724,096 |
|
Unearned equity compensation |
|
|
— |
|
|
|
(4,675 |
) |
Accumulated other comprehensive income (loss) |
|
|
(110,370 |
) |
|
|
(83,660 |
) |
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
1,874,046 |
|
|
|
1,619,739 |
|
|
|
|
|
|
|
|
Total |
|
$ |
3,435,398 |
|
|
$ |
2,975,183 |
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
38
Rowan Companies, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(In thousands except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
$ |
1,067,448 |
|
|
$ |
775,356 |
|
|
$ |
472,103 |
|
Manufacturing sales and services |
|
|
443,286 |
|
|
|
293,426 |
|
|
|
207,573 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,510,734 |
|
|
|
1,068,782 |
|
|
|
679,676 |
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
|
511,664 |
|
|
|
394,595 |
|
|
|
326,687 |
|
Manufacturing sales and services |
|
|
372,219 |
|
|
|
253,688 |
|
|
|
177,041 |
|
Depreciation and amortization |
|
|
89,971 |
|
|
|
81,204 |
|
|
|
78,489 |
|
Selling, general and administrative |
|
|
71,452 |
|
|
|
65,092 |
|
|
|
40,721 |
|
Gain on sale of property and equipment |
|
|
(29,266 |
) |
|
|
(52,449 |
) |
|
|
(1,747 |
) |
Charge for estimated environmental fine |
|
|
9,000 |
|
|
|
— |
|
|
|
— |
|
Gain on hurricane-related events |
|
|
— |
|
|
|
(13,948 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,025,040 |
|
|
|
728,182 |
|
|
|
621,191 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
485,694 |
|
|
|
340,600 |
|
|
|
58,485 |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(28,321 |
) |
|
|
(25,802 |
) |
|
|
(20,911 |
) |
Less interest capitalized |
|
|
7,756 |
|
|
|
3,803 |
|
|
|
2,195 |
|
Interest income |
|
|
28,023 |
|
|
|
16,843 |
|
|
|
4,408 |
|
Gain on sale of investments |
|
|
— |
|
|
|
9,553 |
|
|
|
— |
|
Other — net |
|
|
202 |
|
|
|
473 |
|
|
|
416 |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) — net |
|
|
7,660 |
|
|
|
4,870 |
|
|
|
(13,892 |
) |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
493,354 |
|
|
|
345,470 |
|
|
|
44,593 |
|
Provision for income taxes |
|
|
176,377 |
|
|
|
127,633 |
|
|
|
17,108 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
316,977 |
|
|
|
217,837 |
|
|
|
27,485 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations before income taxes |
|
|
1,952 |
|
|
|
18,914 |
|
|
|
(46,685 |
) |
Provision (credit) for income taxes |
|
|
683 |
|
|
|
6,951 |
|
|
|
(17,927 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
1,269 |
|
|
|
11,963 |
|
|
|
(28,758 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
318,246 |
|
|
$ |
229,800 |
|
|
$ |
(1,273 |
) |
|
|
|
|
|
|
|
|
|
|
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations — Basic |
|
$ |
2.87 |
|
|
$ |
2.00 |
|
|
$ |
.26 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations — Diluted |
|
$ |
2.84 |
|
|
$ |
1.97 |
|
|
$ |
.26 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations — Basic |
|
$ |
.01 |
|
|
$ |
.11 |
|
|
$ |
(.27 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations — Diluted |
|
$ |
.01 |
|
|
$ |
.11 |
|
|
$ |
(.27 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) — Basic |
|
$ |
2.89 |
|
|
$ |
2.11 |
|
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) — Diluted |
|
$ |
2.85 |
|
|
$ |
2.08 |
|
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
39
Rowan Companies, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(In thousands) |
|
Net income (loss) |
|
$ |
318,246 |
|
|
$ |
229,800 |
|
|
$ |
(1,273 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other benefit
liability adjustments, net of
income taxes of $9,114,
$(6,935) and $(8,677)
respectively |
|
|
16,926 |
|
|
|
(12,878 |
) |
|
|
(16,097 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
335,172 |
|
|
$ |
216,922 |
|
|
$ |
(17,370 |
) |
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
40
Rowan Companies, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, 2006, 2005 and 2004 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Common Stock |
|
|
Additional |
|
|
Unearned |
|
|
Other |
|
|
|
|
| |
|
Issued |
|
|
In Treasury |
|
|
Paid-In |
|
|
Equity |
|
|
Comprehensive |
|
|
Retained |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Compensation |
|
|
Income (Loss) |
|
|
Earnings |
|
| |
|
(In thousands) |
|
Balance, January 1, 2004 |
|
|
95,845 |
|
|
$ |
11,981 |
|
|
|
(1,734 |
) |
|
$ |
(30,064 |
) |
|
$ |
659,849 |
|
|
$ |
— |
|
|
$ |
(54,685 |
) |
|
$ |
549,749 |
|
Exercise of stock options |
|
|
716 |
|
|
|
89 |
|
|
|
— |
|
|
|
— |
|
|
|
8,556 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion of subordinated debentures |
|
|
1,082 |
|
|
|
135 |
|
|
|
— |
|
|
|
— |
|
|
|
7,165 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Sale of common stock |
|
|
9,766 |
|
|
|
1,221 |
|
|
|
1,734 |
|
|
|
30,064 |
|
|
|
233,667 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation expense, including
$553 reduction of related tax benefits |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,527 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Minimum pension liability adjustment, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,097 |
) |
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004 |
|
|
107,409 |
|
|
|
13,426 |
|
|
|
— |
|
|
|
— |
|
|
|
917,764 |
|
|
|
— |
|
|
|
(70,782 |
) |
|
|
548,476 |
|
Exercise of stock options |
|
|
2,090 |
|
|
|
261 |
|
|
|
— |
|
|
|
— |
|
|
|
33,247 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion of subordinated debentures |
|
|
35 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
496 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of restricted stock |
|
|
242 |
|
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
6,042 |
|
|
|
(6,073 |
) |
|
|
— |
|
|
|
— |
|
Cash dividends ($.25 per common share in first
and third quarters) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54,180 |
) |
Stock-based compensation expense, including
$9,990 reduction of related tax benefits |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,707 |
|
|
|
1,398 |
|
|
|
— |
|
|
|
— |
|
Minimum pension liability adjustment, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,878 |
) |
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
229,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
109,776 |
|
|
|
13,722 |
|
|
|
— |
|
|
|
— |
|
|
|
970,256 |
|
|
|
(4,675 |
) |
|
|
(83,660 |
) |
|
|
724,096 |
|
Exercise of stock options |
|
|
489 |
|
|
|
61 |
|
|
|
— |
|
|
|
— |
|
|
|
7,890 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Conversion of subordinated debentures |
|
|
71 |
|
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
991 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of restricted stock |
|
|
126 |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cash dividends ($.25 per common share in first
quarter and $.10 per common share in second,
third and fourth quarters) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(60,733 |
) |
Stock-based compensation expense, including
$2,380 reduction of related tax benefits |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,536 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Minimum pension liability adjustment prior to
adoption of Statement of Financial Accounting
Standards No. 158, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,926 |
|
|
|
— |
|
Adjustment of pension and other benefits
liabilities from adoption of Statement 158, net
of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(43,636 |
) |
|
|
— |
|
Adjustment resulting from adoption of Statement
of Financial Accounting Standards No. 123
(revised) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,675 |
) |
|
|
4,675 |
|
|
|
— |
|
|
|
— |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
318,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
110,462 |
|
|
$ |
13,808 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
988,998 |
|
|
$ |
— |
|
|
$ |
(110,370 |
) |
|
$ |
981,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
41
Rowan Companies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Years Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
| |
|
(In thousands) |
|
Cash Provided By (Used In): |
|
|
|
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
318,246 |
|
|
$ |
229,800 |
|
|
$ |
(1,273 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
89,971 |
|
|
|
81,291 |
|
|
|
95,650 |
|
Deferred income taxes |
|
|
94,287 |
|
|
|
121,660 |
|
|
|
866 |
|
Provision for pension and postretirement benefits |
|
|
33,592 |
|
|
|
25,478 |
|
|
|
34,936 |
|
Compensation expense |
|
|
14,349 |
|
|
|
4,115 |
|
|
|
6,480 |
|
Gain on disposals of property, plant and equipment |
|
|
(29,266 |
) |
|
|
(52,449 |
) |
|
|
(6,845 |
) |
Contributions to pension plans |
|
|
(6,229 |
) |
|
|
(89,207 |
) |
|
|
(19,494 |
) |
Postretirement benefit claims paid |
|
|
(3,440 |
) |
|
|
(3,283 |
) |
|
|
(3,612 |
) |
(Gain) loss on sale of aviation operations |
|
|
(1,269 |
) |
|
|
— |
|
|
|
24,441 |
|
Charge for estimated environmental fine |
|
|
9,000 |
|
|
|
— |
|
|
|
— |
|
Gain on sale of investments |
|
|
— |
|
|
|
(9,553 |
) |
|
|
— |
|
Gain on hurricane-related events |
|
|
— |
|
|
|
(18,948 |
) |
|
|
— |
|
Gain on sale of boat operations |
|
|
— |
|
|
|
(20,736 |
) |
|
|
— |
|
Insurance proceeds from hurricane-related events |
|
|
— |
|
|
|
51,448 |
|
|
|
— |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables — trade and other |
|
|
(134,929 |
) |
|
|
(101,040 |
) |
|
|
(25,219 |
) |
Inventories |
|
|
(150,028 |
) |
|
|
(34,951 |
) |
|
|
(13,622 |
) |
Other current assets |
|
|
(45,266 |
) |
|
|
(2,875 |
) |
|
|
(12,325 |
) |
Accounts payable |
|
|
27,467 |
|
|
|
52,776 |
|
|
|
4,261 |
|
Income taxes payable |
|
|
(2,369 |
) |
|
|
4,653 |
|
|
|
179 |
|
Deferred revenues |
|
|
46,754 |
|
|
|
40,085 |
|
|
|
22,895 |
|
Billings in excess of uncompleted contract costs and estimated profit |
|
|
14,330 |
|
|
|
56,821 |
|
|
|
— |
|
Other current liabilities |
|
|
22,424 |
|
|
|
4,017 |
|
|
|
8,974 |
|
Net changes in other noncurrent assets and liabilities |
|
|
(5,555 |
) |
|
|
(5,932 |
) |
|
|
815 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations |
|
|
292,069 |
|
|
|
333,170 |
|
|
|
117,107 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment additions |
|
|
(479,082 |
) |
|
|
(199,798 |
) |
|
|
(136,886 |
) |
Proceeds from disposals of property, plant and equipment |
|
|
37,129 |
|
|
|
90,294 |
|
|
|
14,680 |
|
Increase in restricted cash balance |
|
|
(156,077 |
) |
|
|
— |
|
|
|
— |
|
Proceeds from sale of boat operations |
|
|
— |
|
|
|
20,866 |
|
|
|
— |
|
Proceeds from sale of aviation operations — net |
|
|
1,953 |
|
|
|
— |
|
|
|
117,014 |
|
Proceeds from sale of investments |
|
|
— |
|
|
|
9,553 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(596,077 |
) |
|
|
(79,085 |
) |
|
|
(5,192 |
) |
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
— |
|
|
|
37,909 |
|
|
|
70,842 |
|
Repayments of borrowings |
|
|
(64,922 |
) |
|
|
(61,933 |
) |
|
|
(55,904 |
) |
Payment of cash dividends |
|
|
(60,488 |
) |
|
|
(54,143 |
) |
|
|
— |
|
Proceeds from common stock offering, net of issue costs |
|
|
— |
|
|
|
— |
|
|
|
264,952 |
|
Excess tax benefits from stock-based compensation |
|
|
2,380 |
|
|
|
— |
|
|
|
— |
|
Proceeds from stock option and convertible debenture plans |
|
|
9,176 |
|
|
|
34,008 |
|
|
|
15,945 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(113,854 |
) |
|
|
(44,159 |
) |
|
|
295,835 |
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
(417,862 |
) |
|
|
209,926 |
|
|
|
407,750 |
|
Cash and cash equivalents, beginning of year |
|
|
675,903 |
|
|
|
465,977 |
|
|
|
58,227 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
258,041 |
|
|
$ |
675,903 |
|
|
$ |
465,977 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42
Rowan Companies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Rowan Companies, Inc. and all of
its wholly-owned subsidiaries, hereinafter referred to as “Rowan” or “the Company”. Intercompany
balances and transactions are eliminated in consolidation.
Discontinued Operations
On December 31, 2004, Rowan completed the sale of its aviation operations as conducted by Era
Aviation, Inc. In February 2005, Rowan sold the purchase options it held on four leased
anchor-handling boats. The leases covering the Company’s two remaining boats expired during the
second quarter of 2005, when they were returned to the lessor and Rowan exited the marine vessel
business.
The revenues and expenses resulting from Rowan’s discontinued aviation and marine vessel
operations for the three years ended December 31, 2006, including the gain or loss recognized upon
their sale, are shown collectively and net of tax as Income (loss) from discontinued operations in
the Consolidated Statements of Operations. See Note 12 for further information regarding the
Company’s discontinued operations.
Goodwill
and Intangibles
Rowan had goodwill with a carrying value of $12.4 million at each of December 31, 2006 and
2005, of which $10.9 million related to the manufacturing division and $1.5 million related to the
drilling division. Goodwill is reviewed for possible impairment at
least annually. At December 31, 2006 and 2005, the Company had intangible assets subject to
amortization totaling $1.2 million and $1.3 million, respectively.
Revenue and Expense Recognition
Rowan’s drilling contracts generally provide for payment on a day rate basis, and revenues are
recognized as the work progresses. Rowan frequently collects up-front fees to reimburse the Company
for the cost of relocating its drilling equipment, and occasionally receives reimbursement for
equipment modifications and upgrades requested by its customers. Such fees and reimbursements, and
any related costs, are deferred and subsequently recognized in operations on a straight-line basis
over the period that the drilling services are performed. Deferred drilling revenues included in
current and other liabilities were $60.9 million and $0.7 million at December 31, 2006 and 2005,
respectively. Deferred drilling costs included in prepaid expenses and other assets were $48.8
million and $2.7 million at December 31, 2006 and 2005, respectively. Rowan also typically receives
reimbursement for certain “rebillable” costs, which are recognized as both revenues and expenses
when incurred.
Manufacturing sales and related costs are generally recognized when title passes as products
are shipped. Revenues from long-term manufacturing projects such as rigs and rig kits are
recognized on a percentage-of-completion basis using costs incurred relative to total estimated
project costs. The Company does not recognize any estimated profit until such projects are at least
10% complete, though full provision is made immediately for any anticipated losses. The following
table summarizes the status of Rowan’s long-term construction projects in progress, including any
advance payments received for projects not yet begun (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Total contract value of long-term projects in process (or not yet begun ) |
|
$ |
344,406 |
|
|
$ |
261,371 |
|
Payments received |
|
|
179,843 |
|
|
|
90,207 |
|
Revenue recognized |
|
|
114,011 |
|
|
|
36,080 |
|
Costs recognized |
|
|
106,686 |
|
|
|
29,764 |
|
Payments received in excess of revenues recognized |
|
|
65,832 |
|
|
|
54,127 |
|
| |
Billings in
excess of uncompleted contract costs and estimated profit (included
in other current liabilities) |
|
$ |
71,151 |
|
|
$ |
56,821 |
|
|
|
|
|
|
|
|
Uncompleted
contract costs and estimated profit in excess of billings (included
in other current assets) |
|
$ |
5,319 |
|
|
$ |
2,694 |
|
|
|
|
|
|
|
|
43
Manufacturing revenues and costs and expenses included product sales and costs of sales of
$421.4 million and $345.6 million, $270.9 million and $231.1 million, and $190.8 million and $144.4
million in 2006, 2005 and 2004, respectively.
Income (Loss) Per Common Share
“Basic” income (loss) per share is determined as income (loss) available to common
stockholders divided by the weighted-average number of common shares outstanding during the period.
“Diluted” income (loss) per share reflects the issuance of additional shares in connection with the
assumed conversion of stock options and other convertible securities, and corresponding adjustments
to income for any charges related to such securities.
The computation of basic and diluted per share amounts of income from continuing operations
for each of the past three years is as follows (in thousands except per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Income From |
|
|
|
|
|
|
|
| |
|
Continuing |
|
|
Average |
|
|
Per Share |
|
| Year Ended December 31, |
|
Operations |
|
|
Shares |
|
|
Amount |
|
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
316,977 |
|
|
|
110,280 |
|
|
$ |
2.87 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures |
|
|
|
|
|
|
358 |
|
|
|
|
|
Stock options |
|
|
|
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
316,977 |
|
|
|
111,775 |
|
|
$ |
2.84 |
|
|
|
|
|
|
|
|
|
|
|
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
217,837 |
|
|
|
108,719 |
|
|
$ |
2.00 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures |
|
|
|
|
|
|
261 |
|
|
|
|
|
Stock options |
|
|
|
|
|
|
1,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
217,837 |
|
|
|
110,304 |
|
|
$ |
1.97 |
|
|
|
|
|
|
|
|
|
|
|
2004: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
27,485 |
|
|
|
105,472 |
|
|
$ |
.26 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures |
|
|
|
|
|
|
645 |
|
|
|
|
|
Stock options |
|
|
|
|
|
|
1,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
27,485 |
|
|
|
107,133 |
|
|
$ |
.26 |
|
|
|
|
|
|
|
|
|
|
|
See Note 3 for further information regarding the Company’s stock option and debenture plans.
Statement of Cash Flows
Rowan invests only in highly liquid U.S. Government securities, bank time deposits,
A1/P1-rated commercial paper, money market preferred stock custodial receipts or repurchase
agreements with terms no greater than three months, all of which are considered to be cash
equivalents.
Noncash investing and financing activities excluded from the Company’s Consolidated Statements
of Cash Flows were as follows: in 2006 — the conversion of $1,000,000 of Series B employee
debentures into 71,112 shares of common stock, the reduction of $2,380,000 of tax benefits related
to employee stock options and $30,171,000 of accrued property and equipment additions; in 2005 —
the conversion of $500,000 of Series B employee debentures into 35,556 shares of common stock, the
reduction of $9,990,000 of tax benefits related to employee stock options and $8,159,000 of accrued
property and equipment additions; in 2004 — the conversion of $7,300,001 of Series III employee
debentures into 1,081,483 shares of common stock and the reduction of $553,000 of tax benefits
related to employee stock options.
Inventories
Inventories
are carried at lower of average cost or market. Costs include labor, material and production overhead. Management periodically reviews inventory for obsolescence and reserves for items unlikely to be sold.
44
Rowan’s adoption, effective January 1, 2006, of Statement of Financial Accounting Standards
No. 151, which clarifies the distinction between costs that are allocable to inventory and those
that are expensed as incurred, did not materially impact its financial position or results of
operations.
Property and Depreciation
Rowan provides depreciation under the straight-line method from the date an asset is placed
into service until it is sold or becomes fully depreciated based on the following estimated lives
and salvage values:
| |
|
|
|
|
|
|
|
|
| |
|
Years |
|
|
Salvage Value |
|
Offshore drilling equipment: |
|
|
|
|
|
|
|
|
Super Gorilla jack-ups |
|
|
25 |
|
|
|
20 |
% |
Tarzan Class jack-up |
|
|
25 |
|
|
|
20 |
% |
Gorilla and other cantilever jack-ups |
|
|
15 |
|
|
|
20 |
% |
Conventional jack-ups |
|
|
12 |
|
|
|
20 |
% |
Land drilling equipment |
|
|
12 |
|
|
|
20 |
% |
Drill pipe and tubular equipment |
|
|
4 |
|
|
|
10 |
% |
Manufacturing plant and equipment: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
|
10 to 25 |
|
|
|
10 to 20 |
% |
Other |
|
|
2 to 12 |
|
|
various |
Other property and equipment |
|
|
3 to 40 |
|
|
various |
Expenditures for new property or enhancements to existing property are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred. Rowan capitalizes,
during the construction period, a portion of interest cost incurred. See Note 10 for further
information regarding the Company’s depreciation and amortization, capital expenditures and repairs
and maintenance. Long-lived assets are reviewed for impairment whenever circumstances indicate
their carrying amounts may not be recoverable, based upon estimated future cash flows.
Environmental Matters
Environmental remediation costs are accrued using estimates of future monitoring, testing and
clean-up costs where it is probable that such costs will be incurred. Estimates of future
monitoring, testing and clean-up costs and assessments of the probability that such costs will be
incurred incorporate many factors, including: approved monitoring, testing and/or remediation
plans; ongoing communications with environmental regulatory agencies; the expected duration of
remediation measures; historical monitoring, testing and clean-up costs and current and anticipated
operational plans and manufacturing processes. Ongoing environmental compliance costs are expensed
as incurred and expenditures to mitigate or prevent future environmental contamination are
capitalized. See Note 9 for further information regarding the Company’s environmental liabilities.
Income Taxes
Rowan recognizes deferred income tax assets and liabilities for the estimated future tax
consequences of differences between the financial statement and tax bases of assets and
liabilities. Valuation allowances are provided against deferred tax assets that are not likely to
be realized. See Note 7 for further information regarding the Company’s income tax assets and
liabilities.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income
(loss). During 2006, 2005 and 2004, Rowan recognized other comprehensive income or loss relating to
pension and other benefit liabilities. See Note 6 for further information regarding the Company’s
pension and other benefit liabilities.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
45
NOTE 2. LONG-TERM DEBT
Long-term debt consisted of (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
6.94% Title XI note payable; secured by the Gorilla V |
|
$ |
22,344 |
|
|
$ |
27,926 |
|
6.15% Title XI note payable; secured by the Gorilla V |
|
|
28,699 |
|
|
|
35,873 |
|
5.88% Title XI note payable; secured by the Gorilla VI |
|
|
78,369 |
|
|
|
92,621 |
|
2.80% Title XI note payable; secured by the Gorilla VII |
|
|
108,148 |
|
|
|
123,598 |
|
Floating-rate Title XI note payable; secured by the Bob Palmer |
|
|
156,077 |
|
|
|
166,483 |
|
4.33% Title XI note payable; secured by the Scooter Yeargain |
|
|
75,998 |
|
|
|
82,078 |
|
Floating-rate Title XI note payable; secured by the Bob Keller |
|
|
80,691 |
|
|
|
86,669 |
|
|
|
|
|
|
|
|
Total |
|
|
550,326 |
|
|
|
615,248 |
|
Less current maturities |
|
|
64,922 |
|
|
|
64,922 |
|
|
|
|
|
|
|
|
Remainder |
|
$ |
485,404 |
|
|
$ |
550,326 |
|
|
|
|
|
|
|
|
Annual maturities of long-term debt are $64.9 million for each of the next five years ending
December 31, 2007, 2008, 2009, 2010 and 2011.
Rowan financed $153.1 million of the cost of the Gorilla V through a floating-rate bank loan
guaranteed by the U.S. Department of Transportation’s Maritime Administration (“MARAD”) under its
Title XI program. On July 1, 1997, the Company fixed $67 million of outstanding borrowings at
6.94%. On July 1, 1998, Rowan fixed the remaining $86.1 million principal amount at 6.15%.
Principal and accrued interest on each note are payable semi-annually on each January 1 and July 1
through 2010. The Gorilla V is pledged as security for the government guarantees.
Rowan financed $171.0 million of the cost of the Gorilla VI through a floating-rate bank loan
guaranteed under MARAD’s Title XI program. On March 15, 2001, the Company fixed the $156.8 million
of outstanding borrowings at 5.88%. Principal and accrued interest are payable semi-annually on
each March 15 and September 15 through March 2012. The Gorilla VI is pledged as security for the
government guarantee.
Rowan financed $185.4 million of the cost of the Gorilla VII through a floating-rate bank loan
guaranteed under MARAD’s Title XI program. On June 30, 2003, the Company fixed the $162.2 million
of outstanding borrowings at 2.80%. Principal and accrued interest are payable semi-annually on
each April 20 and October 20 through 2013. The Gorilla VII is pledged as security for the
government guarantee.
Rowan financed $187.3 million of the cost of the Bob Palmer through a floating-rate bank loan
guaranteed under MARAD’s Title XI program. The Company may fix the interest rate at any time and
must fix the rate on all outstanding principal amounts by August 18, 2007. Principal and accrued
interest are payable semi-annually on each January 15 and July 15 through 2021. The Bob Palmer is
pledged as security for the government guarantee. At December 31, 2006, outstanding borrowings bore
interest at an annual rate of 5.64%.
Rowan financed $91.2 million of the cost of the Scooter Yeargain through a 15-year
floating-rate bank loan guaranteed under MARAD’s Title XI program. On June 15, 2005, the Company
fixed the $85.1 million of outstanding borrowings at 4.33%. Principal and accrued interest are
payable semi-annually on each May 1 and November 1 through May 2019. The Scooter Yeargain is
pledged as security for the government guarantee.
Rowan financed $89.7 million of the cost of the Bob Keller through a 15-year floating-rate
bank loan guaranteed under MARAD’s Title XI program. Rowan may fix the interest rate at any time
and must fix the rate on all outstanding principal by August 31, 2009. Principal and accrued
interest are payable semi-annually on each May 10 and November 10 through May 2020. The Bob Keller
is pledged as security for the government guarantee. At December 31, 2006, outstanding borrowings
bore interest at an annual rate of 5.54%.
Rowan’s $4.8 million of Series A Floating Rate Subordinated Convertible Debentures outstanding
at December 31, 2006 are ultimately convertible into common stock at the rate of $29.75 per share
for each $1,000 principal amount of debenture through April 24, 2008.
46
Rowan’s $3.0 million of Series B Floating Rate Subordinated Convertible Debentures outstanding
at December 31, 2006 are ultimately convertible into common stock at the rate of $14.06 per share
for each $1,000 principal amount of debenture through April 22, 2009.
Rowan’s $9.6 million of Series C Floating Rate Subordinated Convertible Debentures outstanding
at December 31, 2006 are ultimately convertible into common stock at the rate of $28.25 per share
for each $1,000 principal amount of debenture through April 27, 2010.
Rowan’s $9.6 million of Series D Floating Rate Subordinated Convertible Debentures outstanding
at December 31, 2006 are ultimately convertible into common stock at the rate of $32.00 per share
for each $1,000 principal amount of debenture through April 26, 2011.
Rowan’s $1.2 million of Series E Floating Rate Subordinated Convertible Debentures outstanding
at December 31, 2006 are ultimately convertible into common stock at the rate of $13.12 per share
for each $1,000 principal amount of debenture through September 20, 2011.
All of the Company’s outstanding subordinated convertible debentures were originally issued in
exchange for promissory notes containing provisions for setoff, protecting Rowan against any credit
risk. Accordingly, the debentures and notes, and the related interest amounts, have been offset in
the consolidated financial statements pursuant to Financial Accounting Standards Board
Interpretation No. 39. See Note 3 for further information regarding the Company’s convertible
debenture incentive plans.
Rowan weighted average annual interest rate was 5.0% at December 31, 2006 and 4.56% at
December 31, 2005. Cash interest payments exceeded interest capitalized by $20.3 million in 2006,
$20.6 million in 2005, and $18.6 million in 2004.
Rowan’s debt agreements contain provisions that require minimum levels of working capital and
stockholders’ equity and limit the amount of long-term debt, and, in the event of noncompliance,
restrict investment activities, asset purchases and sales, lease obligations, borrowings and
mergers or acquisitions. These agreements also contain minimum insurance requirements for the
Company’s collateralized drilling rigs. The extent of hurricane damage sustained throughout the
Gulf Coast area in recent years has dramatically increased the cost and reduced the availability of
insurance coverage for windstorm losses and, during its 2006 policy renewal, the Company determined
that windstorm coverage meeting these requirements was cost-prohibitive. Thus, the Company
requested and received from MARAD a waiver of any defaults related to insurance requirements and
provided additional security to MARAD. The Company has established a separate cash account
containing the amount necessary to repay in full the outstanding Bob Palmer note, and in which
MARAD has a security interest. This amount is shown separately as Restricted cash on the Company’s
Consolidated Balance Sheet at December 31, 2006. Rowan is not obligated to repay the Bob Palmer
note in advance of its scheduled maturity. In addition, the Company agreed to maintain at least
$100 million of unrestricted cash. Finally, the Company agreed to restrictions on the use of
certain insurance proceeds should it experience further losses. Each of these additional security
provisions will be released by MARAD if Rowan obtains windstorm coverage that satisfies the
Company’s existing debt requirements. The Company believes that it was in compliance with each of
its debt covenants at December 31, 2006. See Note 5 for further information regarding the
Company’s dividend restrictions.
NOTE 3. STOCKHOLDERS’ EQUITY
Rowan’s 2005 Long-Term Incentive Plan (“LTIP”) authorizes the Company’s Board of Directors to
issue, through April 22, 2015, up to 3,400,000 shares of Rowan common stock in a variety of forms,
including stock options, restricted stock, restricted stock units, performance shares, stock
appreciation rights and common stock grants, whose terms are governed by the LTIP. The LTIP
replaced and superseded the Restated 1988 Nonqualified Stock Option Plan, as amended, and the 1998
Nonemployee Directors Stock Option Plan. At December 31, 2006, awards covering 843,360 shares had
been made under the LTIP, as follows: 315,060 in 2006 and 528,300 in 2005.
Restricted stock represents a full share of Rowan common stock issued with a restrictive
legend that prevents its sale until the restriction is later removed. The restrictions will
generally lapse pro rata over a three or four-year service period. The Company measures total
compensation related to each share based upon the market value of the common stock on the date of
the award and recognizes the resulting expense on a straight-line basis over the service period.
During 2005, Rowan issued 241,100 shares of restricted stock to 77 key employees, with an average
fair value of $25.09 per share. The total related compensation was measured at $6.1 million, of
which $3.7 million had been recognized at December 31, 2006. During 2006, Rowan issued 120,867
shares of restricted stock to 84 key employees, with an average fair value of $42.98 per share.
The total related compensation was measured at $5.2 million, of which $1.3 million had been
recognized at December 31, 2006.
47
Restricted stock units are awards that may be settled through the issuance of Rowan common
stock or the payment of cash where vesting generally occurs over a defined service period but the
restriction lapses only upon termination of service. The Company measures compensation related to
each unit based upon the market value of the underlying common stock on the date of the award and
recognizes the resulting expense on a straight-line basis over the service period. During 2005,
Rowan issued 36,900 restricted stock units to its nonemployee
directors, with an average fair value of
$25.12 per unit. During 2006, Rowan issued 15,000 restricted stock units to its nonemployee
directors, with an average fair value of $43.41 per unit, and issued 8,890 shares of Rowan common
stock in settlement of previous restricted stock unit awards and related dividends. At December 31,
2006, Rowan had accrued $1.2 million toward future settlement of restricted stock units.
Performance shares are shares of Rowan common stock whose future issuance is contingent upon
the achievement of certain performance criteria. During 2005, the Company awarded 99,500
performance shares to 12 key employees, under which as many as 199,000 (and as few as zero) shares
of Rowan common stock will be issued in May 2008 depending upon the Company’s total stockholder
return (TSR) in comparison to a selected industry peer group over the three-year period then ended.
The Company measures and recognizes compensation expense at each period end using the market value
of the common stock on the date of the award and the expected number of shares to be issued based
upon Rowan’s relative TSR performance. No compensation expense was recognized during 2005 or 2006.
During 2006, the Company awarded 115,791 performance shares to 15 key employees, under which
as many as 231,582 (and as few as zero) shares of Rowan common stock will be issued in April 2009
based upon an equal weighting of the Company’s TSR and return on investment (ROI) ranking versus a
selected industry peer group over the three-year period then ended. With respect to the TSR
metric, the Company estimated a fair value of $42.51 per share, which is being recognized as
compensation expense over the three-year performance period. The total related compensation was
measured at $2.5 million, of which $0.5 million had been recognized at December 31, 2006. With
respect to the ROI metric, the Company estimated compensation expense using the market value of the
common stock on the date of the award of $43.85 per share and the target number of shares to be
issued. The total related compensation was measured at $2.5 million, of which $0.6 million had
been recognized at December 31, 2006. Compensation expense will be re-measured annually using the
expected number of shares to be issued based upon Rowan’s relative ROI performance.
Stock options granted to employees generally become exercisable pro rata over a four-year
service period, and all options not exercised expire ten years after the date of grant. Stock
option activity for each of the last three years was as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
| |
|
Number of |
|
|
Exercise |
|
| |
|
Options |
|
|
Price |
|
Outstanding at January 1, 2004 |
|
|
5,648,958 |
|
|
$ |
16.08 |
|
Granted |
|
|
582,525 |
|
|
|
24.99 |
|
Exercised |
|
|
(716,490 |
) |
|
|
12.13 |
|
Forfeited |
|
|
(41,242 |
) |
|
|
13.06 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2004 |
|
|
5,473,751 |
|
|
|
17.57 |
|
Granted |
|
|
150,800 |
|
|
|
24.98 |
|
Exercised |
|
|
(2,090,384 |
) |
|
|
15.91 |
|
Forfeited |
|
|
(67,774 |
) |
|
|
15.93 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2005 |
|
|
3,466,393 |
|
|
|
18.93 |
|
Granted |
|
|
63,402 |
|
|
|
43.85 |
|
Exercised |
|
|
(488,230 |
) |
|
|
16.82 |
|
Forfeited |
|
|
(14,807 |
) |
|
|
21.89 |
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
3,026,758 |
|
|
$ |
21.15 |
|
|
|
|
|
|
|
|
Exercisable at December 31, 2004 |
|
|
3,477,288 |
|
|
$ |
17.15 |
|
|
|
|
|
|
|
|
Exercisable at December 31, 2005 |
|
|
2,393,579 |
|
|
$ |
18.85 |
|
|
|
|
|
|
|
|
Exercisable at December 31, 2006 |
|
|
2,353,668 |
|
|
$ |
19.93 |
|
|
|
|
|
|
|
|
48
The following table summarizes information about stock options outstanding at December 31,
2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
Weighted |
|
|
Average |
|
| |
|
Number of |
|
|
Exercise |
|
|
Average |
|
|
Remaining |
|
| |
|
Options |
|
|
Price |
|
|
Fair Value |
|
|
Life (Years) |
|
Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.06 to $9.81 |
|
|
199,424 |
|
|
$ |
5.88 |
|
|
|
|
|
|
|
2.7 |
|
$13.12 to $19.75 |
|
|
827,816 |
|
|
|
16.46 |
|
|
|
|
|
|
|
3.7 |
|
$21.19 to $22.00 |
|
|
1,016,066 |
|
|
|
21.34 |
|
|
|
|
|
|
|
6.0 |
|
$24.98 to $43.85 |
|
|
983,452 |
|
|
|
28.00 |
|
|
|
|
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,026,758 |
|
|
$ |
21.15 |
|
|
$ |
12.12 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.06 to $9.81 |
|
|
197,248 |
|
|
$ |
5.88 |
|
|
|
|
|
|
|
|
|
$13.12 to $19.75 |
|
|
827,816 |
|
|
|
16.46 |
|
|
|
|
|
|
|
|
|
$21.19 to $22.00 |
|
|
771,054 |
|
|
|
21.38 |
|
|
|
|
|
|
|
|
|
$24.98 to $32.00 |
|
|
557,550 |
|
|
|
28.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,353,668 |
|
|
$ |
19.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2006, Rowan had $3.8 million of unrecognized future compensation expense
related to stock options.
On January 1, 2006, Rowan adopted Statement of Financial Accounting Standards No. 123 (revised
2004) “Share-Based Payment”, as amended (“Statement 123R”), which requires recognition as expense
over future service or vesting periods of stock-based compensation cost measured based upon grant
date fair value. Prior to 2006, Rowan accounted for stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, whereby cost was measured based upon intrinsic
value, or the difference, if any, between the quoted market price on the date of grant and the
amount the employee was required to pay for the common stock. Accordingly, Rowan did not recognize
compensation expense for stock options having an exercise price equal to the market price on the
date of grant. The provisions of Statement 123 required a fair value measurement for all option
awards, and disclosure of the effects of any stock-based compensation cost not recognized on that
basis.
Rowan applied the modified prospective method of adoption, whereby the provisions of Statement
123R are applied to all stock-based awards made on or after January 1, 2006 and any outstanding but
unvested awards as of that date. Accordingly, the Company’s consolidated financial statements as
of and for the year ended December 31, 2005 have not been restated to give effect to Statement
123R. In addition, there was no material cumulative effect to be recognized upon adoption of
Statement 123R. The adoption of Statement 123R did impact the Company’s Stockholders’ equity
components as the $4.7 million balance of Unearned equity compensation, which originated in
connection with the 2005 restricted stock awards, was reclassified to, and reduced the balance of,
Additional paid-in capital effective January 1, 2006.
During 2006, Rowan recognized stock-based compensation expense of $12.5 million under
Statement 123R, including $7.2 million related to stock options, $4.2 million related to restricted
stock and units and $1.1 million related to performance shares. Rowan estimates that the
provisions of Statement 123R reduced the Company’s net income by approximately $3.2 million or $.03
per share during 2006. The following table illustrates the estimated effects of Statement 123R on
results for the comparable periods of 2005 and 2004.
| |
|
|
|
|
|
|
|
|
| |
|
2005 |
|
|
2004 |
|
Net income (loss), as reported |
|
$ |
229,800 |
|
|
$ |
(1,273 |
) |
Stock-based compensation, net of related tax effects: |
|
|
|
|
|
|
|
|
As recorded under APB 25 |
|
|
1,718 |
|
|
|
4,000 |
|
Pro forma under SFAS 123 |
|
|
(4,697 |
) |
|
|
(7,161 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
226,821 |
|
|
$ |
(4,434 |
) |
|
|
|
|
|
|
|
Net income (loss) per basic share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
2.11 |
|
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
Pro forma |
|
$ |
2.09 |
|
|
$ |
(.04 |
) |
|
|
|
|
|
|
|
Net income (loss) per diluted share: |
|
|
|
|
|
|
|
|
As reported |
|
$ |
2.08 |
|
|
$ |
(.01 |
) |
|
|
|
|
|
|
|
Pro forma |
|
$ |
2.06 |
|
|
$ |
(.04 |
) |
|
|
|
|
|
|
|
49
The weighted average per-share fair values at date of grant for options granted during 2006,
2005 and 2004 were estimated to be $18.48, $10.10 and $10.38, respectively. The foregoing fair
value estimates were determined using the Black-Scholes option valuation model with the following
weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Expected life in years |
|
|
4.0 |
|
|
|
3.5 |
|
|
|
3.6 |
|
Risk-free interest rate |
|
|
5.0 |
% |
|
|
3.9 |
% |
|
|
3.3 |
% |
Expected volatility |
|
|
51.1 |
% |
|
|
51.1 |
% |
|
|
52.3 |
% |
Under the Rowan Companies, Inc. 1998 Convertible Debenture Incentive Plan, as amended,
floating-rate subordinated convertible debentures totaling $30 million were issued by the Company.
The debentures are initially convertible into preferred stock, which has no voting rights (except
as required by law or the Company’s charter), no dividend and a nominal liquidation preference. The
preferred stock is immediately convertible into common stock. At December 31, 2006, all $4.8
million principal amount of Series A debentures issued in 1998, $3.0 million of the $4.8 million
principal amount of Series B debentures issued in 1999, all $9.6 million principal amount of Series
C debentures issued in 2000, all $9.6 million principal amount of Series D debentures issued in
2001 and all $1.2 million principal amount of Series E debentures issued in 2001 were outstanding.
The outstanding Series A, B, C, D and E debentures are collectively convertible into 1,105,718
shares of Rowan’s common stock.
Under the Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan, floating-rate
subordinated convertible debentures totaling $19.9 million were issued by the Company. At December
31, 2006, all of such debentures had been converted into Rowan common stock, including $7.3 million
that was converted into 1,081,483 shares during 2004.
In 1992, Rowan adopted a Stockholder Rights Agreement to protect against coercive takeover
tactics. The agreement, as amended, provides for the distribution to Rowan’s stockholders of one
Right for each outstanding share of common stock. Each Right entitles the holder to purchase from
the Company one one-hundredth of a share of Series A Junior Preferred Stock of Rowan at an exercise
price of $80. In addition, under certain circumstances, each Right will entitle the holder to
purchase securities of Rowan or an acquiring entity at one-half market value. The Rights are
exercisable only if a person or group knowingly acquires 15% or more of Rowan’s outstanding common
stock or makes a tender offer for 30% or more of the Company’s outstanding common stock. The Rights
will expire on January 24, 2012.
NOTE 4. OTHER CURRENT LIABILITIES
Other current liabilities consisted of (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Deferred revenues |
|
$ |
146,230 |
|
|
$ |
74,490 |
|
Billings in excess of uncompleted contract costs and estimated profit |
|
|
71,151 |
|
|
|
56,821 |
|
Accrued liabilities: |
|
|
|
|
|
|
|
|
Income taxes |
|
|
3,182 |
|
|
|
4,867 |
|
Compensation and related employee costs |
|
|
49,767 |
|
|
|
33,287 |
|
Interest |
|
|
8,936 |
|
|
|
8,670 |
|
Taxes and other |
|
|
31,312 |
|
|
|
14,621 |
|
|
|
|
|
|
|
|
Total |
|
$ |
310,578 |
|
|
$ |
192,756 |
|
|
|
|
|
|
|
|
The balance in Deferred revenues primarily reflects customer prepayments for products and
services to be provided and lump-sum mobilization fees to be recognized during the next year. The
balance also included $23.4 million at December 31, 2006 and $18.8 million at December 31, 2005
related to the sale of the Rowan-Midland. See Note 13 for further information regarding the sale of
the Rowan-Midland.
The balance in Compensation and related employee costs includes estimated pension and other
benefit plan funding contributions to be provided during the next year. See Note 6 for further
information regarding the Company’s pension and other benefit plans.
Taxes and other included accrued manufacturing warranty claims of $5.1 million at December 31,
2006 and $3.8 million at December 31, 2005. The balance at December 31, 2006 also included a $9.0
million charge for expected fines and environmental fund payments to be made in settlement of a
Department of Justice investigation. See Note 9 for further information regarding the Company’s
environmental matters.
50
NOTE 5. RESTRICTIONS ON RETAINED EARNINGS
Rowan’s Title XI debt agreements contain financial covenants that limit the amount the Company
may distribute to its stockholders. Under the most restrictive of such covenants, Rowan had
approximately $158 million of retained earnings available for distribution at December 31, 2006.
Subject to this and other restrictions, the Board of Directors will determine payment, if any, of
future dividends or distributions in light of conditions then existing, including the Company’s
earnings, financial condition and requirements, opportunities for reinvesting earnings, business
conditions and other factors. See Note 14 for further information regarding the Company’s
dividends.
NOTE 6. BENEFIT PLANS
Since 1952, Rowan has sponsored defined benefit pension plans covering substantially all of
its employees. In addition, Rowan provides health care and life insurance benefits for certain
retired employees.
During September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”.
Statement 158, which requires that the funded status of our pension and other postretirement benefit plans
be fully recognized in our December 31, 2006 Consolidated Balance Sheet, had the effect of increasing our
balances for Other liabilities, Deferred income taxes and Accumulated other comprehensive loss at that date
by $67.1 million, $23.5 million and $43.6 million, respectively. Previously, balance sheet recognition was
not required for items excluded from net pension and other benefits cost, including unamortized gains and
losses, prior service cost and transition assets and liabilities, except where necessary to meet minimum
liability thresholds, the after-tax effect of which was reflected within Accumulated other comprehensive
income (loss). Under Statement 158, the unamortized portion of such items will continue to be excluded
from net periodic benefits cost and included within other comprehensive income (loss).
The following table shows changes in plan assets and obligations during 2006 and the funded
status of the plans at December 31, 2006 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension |
|
|
Other |
|
|
|
|
| |
|
Benefits |
|
|
Benefits |
|
|
Total |
|
Benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1 |
|
$ |
440,884 |
|
|
$ |
69,886 |
|
|
$ |
510,770 |
|
Interest cost |
|
|
25,299 |
|
|
|
3,901 |
|
|
|
29,200 |
|
Service cost |
|
|
12,450 |
|
|
|
1,989 |
|
|
|
14,439 |
|
Actuarial loss |
|
|
8,480 |
|
|
|
2,117 |
|
|
|
10,597 |
|
Plan amendment |
|
|
(3,178 |
) |
|
|
— |
|
|
|
(3,178 |
) |
Benefits paid |
|
|
(16,239 |
) |
|
|
(3,367 |
) |
|
|
(19,606 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31 |
|
|
467,696 |
|
|
|
74,526 |
|
|
|
542,222 |
|
|
|
|
|
|
|
|
|
|
|
Plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, January 1 |
|
|
321,724 |
|
|
|
— |
|
|
|
321,724 |
|
Actual return |
|
|
36,908 |
|
|
|
— |
|
|
|
36,908 |
|
Employer contributions |
|
|
6,229 |
|
|
|
— |
|
|
|
6,229 |
|
Benefits paid |
|
|
(16,239 |
) |
|
|
— |
|
|
|
(16,239 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value, December 31 |
|
|
348,622 |
|
|
|
— |
|
|
|
348,622 |
|
|
|
|
|
|
|
|
|
|
|
Net benefit liabilities |
|
$ |
(119,074 |
) |
|
$ |
(74,526 |
) |
|
$ |
(193,600 |
) |
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the Consolidated Balance Sheet: |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets — Trade and other receivables |
|
$ |
— |
|
|
$ |
136 |
|
|
$ |
136 |
|
Other current liabilities |
|
|
(10,750 |
) |
|
|
(3,990 |
) |
|
|
(14,740 |
) |
Other liabilities |
|
|
(108,324 |
) |
|
|
(70,672 |
) |
|
|
(178,996 |
) |
|
|
|
|
|
|
|
|
|
|
Net benefit liabilities |
|
$ |
(119,074 |
) |
|
$ |
(74,526 |
) |
|
$ |
(193,600 |
) |
|
|
|
|
|
|
|
|
|
|
Net (expense) credit recognized in net benefit cost |
|
$ |
29,768 |
|
|
$ |
(53,569 |
) |
|
$ |
(23,801 |
) |
|
|
|
|
|
|
|
|
|
|
Amounts not yet reflected in net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(151,622 |
) |
|
|
(18,462 |
) |
|
|
(170,084 |
) |
Transition obligation |
|
|
— |
|
|
|
(3,973 |
) |
|
|
(3,973 |
) |
Prior service (cost) credit |
|
|
2,780 |
|
|
|
1,478 |
|
|
|
4,258 |
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss |
|
|
(148,842 |
) |
|
|
(20,957 |
) |
|
|
(169,799 |
) |
|
|
|
|
|
|
|
|
|
|
Net benefit liabilities |
|
$ |
(119,074 |
) |
|
$ |
(74,526 |
) |
|
$ |
(193,600 |
) |
|
|
|
|
|
|
|
|
|
|
51
Rowan expects that the following amounts of Accumulated other comprehensive loss will be
recognized as net periodic benefits cost in 2007 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension |
|
|
Other |
|
|
|
|
| |
|
Benefits |
|
|
Benefits |
|
|
Total |
|
Actuarial loss |
|
$ |
10,679 |
|
|
$ |
665 |
|
|
$ |
11,344 |
|
Transition obligation |
|
|
— |
|
|
|
662 |
|
|
|
662 |
|
Prior service cost (credit) |
|
|
(211 |
) |
|
|
(205 |
) |
|
|
(416 |
) |
|
|
|
|
|
|
|
|
|
|
Total net increase |
|
$ |
10,468 |
|
|
$ |
1,122 |
|
|
$ |
11,590 |
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets and obligations during 2005 and the funded status of the plans at
December 31, 2005 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension |
|
|
Other |
|
|
|
|
| |
|
Benefits |
|
|
Benefits |
|
|
Total |
|
Benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1 |
|
$ |
384,747 |
|
|
$ |
60,792 |
|
|
$ |
445,539 |
|
Service cost |
|
|
10,428 |
|
|
|
1,816 |
|
|
|
12,244 |
|
Interest cost |
|
|
21,817 |
|
|
|
3,521 |
|
|
|
25,338 |
|
Actuarial loss |
|
|
39,975 |
|
|
|
7,040 |
|
|
|
47,015 |
|
Benefits paid |
|
|
(16,083 |
) |
|
|
(3,283 |
) |
|
|
(19,366 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, December 31 |
|
|
440,884 |
|
|
|
69,886 |
|
|
|
510,770 |
|
|
|
|
|
|
|
|
|
|
|
Plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, January 1 |
|
|
217,317 |
|
|
|
— |
|
|
|
217,317 |
|
Actual return |
|
|
31,283 |
|
|
|
— |
|
|
|
31,283 |
|
Employer contributions |
|
|
89,207 |
|
|
|
— |
|
|
|
89,207 |
|
Benefits paid |
|
|
(16,083 |
) |
|
|
— |
|
|
|
(16,083 |
) |
|
|
|
|
|
|
|
|
|
|
Fair value, December 31 |
|
|
321,724 |
|
|
|
— |
|
|
|
321,724 |
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
(119,160 |
) |
|
|
(69,886 |
) |
|
|
(189,046 |
) |
Amounts not yet reflected in net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss |
|
|
(168,637 |
) |
|
|
(17,145 |
) |
|
|
(185,782 |
) |
Transition obligation |
|
|
— |
|
|
|
(4,635 |
) |
|
|
(4,635 |
) |
Prior
service (cost) credit |
|
|
(570 |
) |
|
|
1,682 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
Total
amounts not yet recognized |
|
|
(169,207 |
) |
|
|
(20,098 |
) |
|
|
(189,305 |
) |
|
|
|
|
|
|
|
|
|
|
Net benefit asset (liabilities) recognized |
|
|
50,047 |
|
|
|
(49,788 |
) |
|
|
259 |
|
Additional minimum liability |
|
|
(129,270 |
) |
|
|
— |
|
|
|
(129,270 |
) |
|
|
|
|
|
|
|
|
|
|
Net benefit liabilities |
|
$ |
(79,223 |
) |
|
$ |
(49,788 |
) |
|
$ |
(129,011 |
) |
|
|
|
|
|
|
|
|
|
|
The additional minimum pension liability shown in the preceding table reflects
actuarially-determined unfunded accumulated benefit obligations at December 31, 2005, and is
included in the Company’s Consolidated Balance Sheet, as follows: Goodwill and other assets —
$562,000; Other liabilities — $129,270,000; Deferred income taxes — net — $45,048,000 and
Accumulated other comprehensive loss —$83,660,000.
Additional information related to Rowan’s pension plans are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Projected benefit obligation |
|
$ |
467,696 |
|
|
$ |
440,884 |
|
Accumulated benefit obligation |
|
|
421,628 |
|
|
|
400,934 |
|
Fair value of plan assets |
|
|
348,622 |
|
|
|
321,724 |
|
52
Net periodic pension cost included the following components (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Service cost |
|
$ |
12,450 |
|
|
$ |
10,428 |
|
|
$ |
13,579 |
|
Interest cost |
|
|
25,299 |
|
|
|
21,817 |
|
|
|
20,799 |
|
Expected return on plan assets |
|
|
(24,759 |
) |
|
|
(23,701 |
) |
|
|
(16,760 |
) |
Recognized actuarial loss |
|
|
13,348 |
|
|
|
10,586 |
|
|
|
8,844 |
|
Amortization of prior service cost |
|
|
170 |
|
|
|
170 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,508 |
|
|
$ |
19,300 |
|
|
$ |
26,673 |
|
|
|
|
|
|
|
|
|
|
|
Other benefits cost included the following components (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Service cost |
|
$ |
1,989 |
|
|
$ |
1,816 |
|
|
$ |
2,764 |
|
Interest cost |
|
|
3,901 |
|
|
|
3,521 |
|
|
|
4,104 |
|
Recognized actuarial loss |
|
|
736 |
|
|
|
383 |
|
|
|
951 |
|
Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Transition obligation |
|
|
662 |
|
|
|
662 |
|
|
|
756 |
|
Prior service cost |
|
|
(204 |
) |
|
|
(204 |
) |
|
|
(312 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,084 |
|
|
$ |
6,178 |
|
|
$ |
8,263 |
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine benefit obligations were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
Discount rate |
|
|
5.82 - 5.92 |
% |
|
|
5.56 - 5.68 |
% |
Rate of compensation increase |
|
|
4.15 |
% |
|
|
4.15 |
% |
Assumptions used to determine net periodic benefit costs were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Discount rate |
|
|
5.56 - 5.68 |
% |
|
|
5.75 |
% |
|
|
6.25 |
% |
Expected return on plan assets |
|
|
8.0 |
% |
|
|
8.5 |
% |
|
|
8.5 |
% |
Rate of compensation increase. |
|
|
4.15 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
The assumed increase in per capita health care costs ranged from 10% for 2007 to 5% for 2012
and thereafter. A one-percentage-point change in assumed health care cost trend rates would change
reported amounts as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
1-Percentage-Point Change |
|
| |
|
Increase |
|
|
Decrease |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Service and interest cost |
|
$ |
565 |
|
|
$ |
(490 |
) |
Postretirement benefit obligation |
|
|
5,338 |
|
|
|
(4,803 |
) |
The pension plans had weighted average asset allocations as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Allocation at December 31, |
|
| Asset Category |
|
2006 |
|
|
2005 |
|
Rowan common stock |
|
|
3 |
% |
|
|
4 |
% |
Other equity securities |
|
|
68 |
% |
|
|
68 |
% |
Debt securities |
|
|
28 |
% |
|
|
28 |
% |
Cash and other |
|
|
1 |
% |
|
|
0 |
% |
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
53
The pension plans have target allocations for plan investments that attempt to diversify
assets among equity securities (70%) and fixed income and cash (30%) and reduce performance
volatility. The target allocation to equities is further subdivided among the S&P index (25%),
large cap value (12.5%), large cap growth (12.5%), small cap (8%), international (8%) and the
Company’s stock (4%), and provides for ranges above and below the targets. The plans employ several
active managers with proven long-term out-performance in their specific investment discipline and
periodically reallocate assets in accordance with the allocation targets. The plans will attempt to
remain fully invested and limit the amount of cash on hand.
To develop the expected long-term rate of return on assets assumption, Rowan considered the
current level of expected returns on risk-free investments (primarily government bonds), the
historical level of the risk premium associated with the plans’ other asset classes and the
expectations for future returns of each asset class. The expected return for each asset class was
then weighted based upon the current asset allocation to develop the expected long-term rate of
return on assets assumption for the Plans, which was maintained at 8% at December 31, 2006,
unchanged from December 31, 2005.
Rowan
estimates that the plans will make the following annual payments for
pension and other benefits based upon existing
benefit formulas and including amounts attributable to future employee service
(in millions):
| |
|
|
|
|
|
|
|
|
| |
|
Pension |
|
|
Other |
|
| Year Ended December 31, |
|
Benefits |
|
|
Benefits |
|
2007 |
|
$ |
19.5 |
|
|
$ |
4.0 |
|
2008 |
|
|
20.6 |
|
|
|
4.2 |
|
2009 |
|
|
21.9 |
|
|
|
4.5 |
|
2010 |
|
|
23.0 |
|
|
|
4.8 |
|
2011 |
|
|
24.4 |
|
|
|
5.1 |
|
2012-2016 |
|
|
145.0 |
|
|
|
28.5 |
|
Rowan currently expects to contribute up to approximately $14.7 million in 2007 for its
pension and other benefit plans.
During 2004, Rowan initiated cash bonus and profit sharing plans covering approximately 400
employees. At December 31, 2006, the Company had accrued approximately $7.2 million of bonus and
profit sharing awards, most of which it expects to pay to eligible employees in 2007. At December
31, 2005, the Company had accrued approximately $9.2 million of bonus and profit sharing awards,
most of which was paid to eligible employees in 2006.
Rowan also sponsors defined contribution plans covering substantially all employees. Rowan
contributed to the plans about $4.6 million in 2006, $3.7 million in 2005, and $4.4 million in
2004.
NOTE 7. INCOME TAXES
The detail of income tax provisions (credits) for continuing operations is presented below (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
69,447 |
|
|
$ |
6,708 |
|
|
$ |
64 |
|
Foreign |
|
|
11,936 |
|
|
|
6,535 |
|
|
|
29 |
|
State |
|
|
1,008 |
|
|
|
454 |
|
|
|
77 |
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
|
82,391 |
|
|
|
13,697 |
|
|
|
170 |
|
Deferred |
|
|
93,986 |
|
|
|
113,936 |
|
|
|
16,938 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
176,377 |
|
|
$ |
127,633 |
|
|
$ |
17,108 |
|
|
|
|
|
|
|
|
|
|
|
54
Rowan’s provision for income taxes differs from that determined by applying the federal income
tax rate (statutory rate) to income from continuing operations before income taxes, as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Statutory rate |
|
|
35 |
% |
|
|
35 |
% |
|
|
35 |
% |
Tax at statutory rate |
|
$ |
172,674 |
|
|
$ |
120,915 |
|
|
$ |
15,608 |
|
Increase (decrease) due to: |
|
|
|
|
|
|
|
|
|
|
|
|
Nondeductible environmental charge. |
|
|
3,150 |
|
|
|
— |
|
|
|
— |
|
Domestic production activities |
|
|
(2,400 |
) |
|
|
— |
|
|
|
— |
|
Research and development tax credit |
|
|
(1,318 |
) |
|
|
— |
|
|
|
— |
|
Foreign companies’ operations |
|
|
(534 |
) |
|
|
1,126 |
|
|
|
401 |
|
State tax expense |
|
|
(89 |
) |
|
|
2,324 |
|
|
|
342 |
|
Valuation allowance |
|
|
— |
|
|
|
(3,363 |
) |
|
|
— |
|
Repatriation of foreign earnings |
|
|
— |
|
|
|
2,851 |
|
|
|
— |
|
Other — net |
|
|
4,894 |
|
|
|
3,780 |
|
|
|
757 |
|
|
|
|
|
|
|
|
|
|
|
Total provision |
|
$ |
176,377 |
|
|
$ |
127,633 |
|
|
$ |
17,108 |
|
|
|
|
|
|
|
|
|
|
|
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities
at December 31, 2006 and 2005, were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
| |
|
Current |
|
|
Non-Current |
|
|
Current |
|
|
Non-Current |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued employee benefit plan costs |
|
$ |
4,892 |
|
|
$ |
59,355 |
|
|
$ |
1,478 |
|
|
$ |
43,734 |
|
Rig relocation operations — net |
|
|
4,628 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Installment sale of rig |
|
|
6,049 |
|
|
|
— |
|
|
|
10,693 |
|
|
|
— |
|
Net operating loss carryforward |
|
|
— |
|
|
|
— |
|
|
|
36,995 |
|
|
|
— |
|
Alternative minimum tax |
|
|
— |
|
|
|
— |
|
|
|
8,900 |
|
|
|
— |
|
Research and development tax credit |
|
|
— |
|
|
|
— |
|
|
|
3,363 |
|
|
|
— |
|
Other |
|
|
2,852 |
|
|
|
8,543 |
|
|
|
4,555 |
|
|
|
4,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
18,421 |
|
|
|
67,898 |
|
|
|
65,984 |
|
|
|
48,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
— |
|
|
|
410,149 |
|
|
|
— |
|
|
|
356,080 |
|
Other |
|
|
— |
|
|
|
4,814 |
|
|
|
— |
|
|
|
7,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
414,963 |
|
|
|
— |
|
|
|
363,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability) — net |
|
$ |
18,421 |
|
|
$ |
(347,065 |
) |
|
$ |
65,984 |
|
|
$ |
(314,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management has determined that no valuation allowances are necessary, as of December 31, 2006,
as the future tax benefits anticipated relating to all deferred income tax assets are expected to
be fully realized when measured against a more likely than not standard. At December 31, 2005,
Rowan reevaluated the valuation allowance that had been established in 2003 relating to its
research and development credit carryforward. Based upon an analysis of expected future taxable
income and other factors, the Company determined that it was more likely than not that the deferred
tax asset associated with its research and development claims would be realized.
At December 31, 2005, Rowan had net operating loss carryforwards of $105.7 million, an Alternative Minimum Tax (AMT) credit carryforward of $8.9 million and a research and development tax credit carryforward of $3.4 million, all of which were utilized in 2006 to reduce federal income taxes otherwise payable.
The American Jobs Creation Act of 2004 (the Act) created a temporary incentive for United
States corporations to repatriate accumulated income earned abroad by providing an 85% dividends
received deduction for certain dividends from controlled foreign corporations. During the fourth
quarter of 2005, Rowan declared and paid a qualifying dividend of $54.3 million under the Act
resulting in additional tax of approximately $2.9 million. As of December 31, 2006, management has
determined that the proceeds arising from the dividend has been invested in the United States as
required under the Act.
Undistributed earnings of Rowan’s foreign subsidiaries in the amount
of approximately $28 million could potentially be subjected to
additional income taxes of approximately $9 million. The Company has
not provided any deferred income taxes on such undistributed foreign
earnings because it considers such earnings to be permanently
invested abroad.
55
In June 2006, the
Financial Accounting Standards Board (FASB) issued Interpretation
(FIN) No. 48, “Accounting for Uncertainty
in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB SFAS 109,
“Accounting for Income Taxes”. This Interpretation
defines the minimum recognition threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company
has completed its initial evaluation of the impact of the adoption of FIN 48 and determined that such
adoption did not have a material impact on the Company’s financial position or results from operations.
The Company has recorded an adjustment to reduce retained earnings on January 1, 2007 by approximately $2
million.
Income from continuing operations before income taxes consisted of $467.2 million, $326.3
million, and $41.8 million of domestic earnings, and $26.2 million, $19.2 million, and $2.8 million
of foreign earnings in 2006, 2005, and 2004, respectively.
We are under routine tax audit examinations in various foreign, U.S. federal, state and local taxing
jurisdictions in which we have operated. These examinations cover various tax years and are in various
stages of finalization. We believe that any income taxes ultimately assessed by any foreign, U.S. federal,
state and local taxing authorities will not materially exceed amounts for which we have already provided.
Income
tax payments exceeded refunds by $97.7 million in 2006 and $9.2 million in 2005, while
income tax refunds exceeded payments by $0.3 million in 2004.
NOTE 8. FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 2006, the carrying amounts of Rowan’s cash and cash equivalents, receivables
and payables approximated their fair values due to the short maturity of such financial
instruments. The carrying amount of the Company’s floating-rate debt approximated its fair value at
December 31, 2006 as such instruments bear short-term, market-based interest rates. The fair value
of Rowan’s fixed-rate debt at December 31, 2006 was estimated to be approximately $309 million, or
a $4 million discount to carrying value, based upon quoted market prices for similar issues.
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
During 1984 and 1985, Rowan sold two cantilever jack-ups, the Rowan-Halifax and the Cecil
Provine, and leased each rig back under operating leases with initial lease periods that expired
during 2000. At that time, Rowan exercised its option to extend each lease for a period of seven
and one-half years, with semi-annual lease payments equal to one-half of the weighted average lease
payments made during the original lease periods.
In September 2005, the Rowan-Halifax was lost during Hurricane Rita. The rig was insured for
$43.4 million, a value the Company believes satisfied the requirements of the charter agreement,
and by a margin sufficient to cover the $6.3 million carrying value of its equipment installed on
the rig. However, the owner of the rig claimed that the rig should have been insured for its fair
market value and sought recovery from Rowan for compensation above the insured value. Thus, the
Company assumed no insurance proceeds related to the Rowan-Halifax and recorded a charge during
2005 for the full carrying value of its equipment. On November 3, 2005, the Company filed a
declaratory judgment action styled Rowan Companies, Inc. vs. Textron Financial Corporation and
Wilmington Trust Company as Owner Trustee of the Rowan-Halifax 116-C Jack-Up Rig in the
215th Judicial District Court of Harris County, Texas. The owner filed a similar
declaratory judgment action, claiming a value of approximately $83 million for the rig. The
owner’s motion for summary judgment was granted on January 25, 2007 which, unless overturned on
appeal, would make Rowan liable to the owner for the approximately $40 million difference between
the owner’s claim and the insurance coverage, plus costs. The Company continues to believe that
its interpretation of the charter agreement is correct and intends to vigorously pursue an appeal
to overturn the summary judgment ruling.
The Company’s operating lease of the Cecil Provine continues until June 2008 and provides
negotiable renewal and purchase options.
In February 2005, Rowan assigned the leases and sold the purchase options it held on four
leased anchor-handling boats. The leases covering the Company’s two remaining boats expired during
the second quarter of 2005, when they were returned to the lessor and Rowan exited the marine
vessel business. See Note 12 for further information regarding the Company’s discontinued
operations.
The Company has other operating leases covering offices and computer equipment. Net rental
expense under all operating leases was $19.5 million in 2006, $29.3 million in 2005, and $53.1
million in 2004.
56
At December 31, 2006, the future minimum payments to be made under noncancelable operating
leases were as follows (in thousands):
| |
|
|
|
|
2007 |
|
$ |
8,217 |
|
2008 |
|
|
5,321 |
|
2009 |
|
|
2,345 |
|
2010 |
|
|
1,343 |
|
2011 |
|
|
74 |
|
Later years |
|
|
68 |
|
|
|
|
|
Total |
|
$ |
17,368 |
|
|
|
|
|
Rowan periodically employs letters of credit or other bank-issued guarantees in the normal
course of its businesses, and was contingently liable for performance under such agreements to the
extent of approximately $49 million at December 31, 2006.
Rowan has ongoing environmental responsibilities related primarily to its manufacturing
operations and facilities. During 2006, the Company recorded a $7.8 million charge for the costs
incurred to collect and dispose of a radioactive material that was released while processing scrap
at its Longview, Texas steel mill. The measurement of remediation costs is subject to
uncertainties, including the evolving nature of environmental regulations and the extent of any
agreements to mitigate remediation costs.
During 2004, Rowan learned that the Environmental and Natural Resources Division,
Environmental Crimes Section of the U. S. Department of Justice
(DOJ) had begun conducting a criminal
investigation of environmental matters involving several of the Company’s offshore drilling rigs.
Since that time, the Company has fully cooperated with the investigation, including responding to
the DOJ’s subpoenas for certain documentation regarding its operations.
The DOJ has a broad range of civil and criminal sanctions under environmental and other laws
which it may pursue such as injunctive relief, fines (including multi-million dollar fines),
penalties and modifications to business practices and compliance programs.
Rowan has been engaged in discussions with the DOJ regarding a possible resolution of its
investigation, including fines and additional sanctions against the Company. As a result of recent
discussions with the DOJ, Rowan expects to pay fines and environmental
fund payments of $9 million and has recognized such amount as a charge to its fourth
quarter 2006 operations.
During 2005, the Company learned that the DOJ was conducting an investigation of potential
antitrust violations among helicopter transportation providers in the Gulf of Mexico. Rowan’s
former aviation subsidiary, which was sold effective December 31, 2004, received a subpoena in
connection with the investigation. The Company has not been contacted by the DOJ, but the purchaser
claimed that Rowan is responsible for any exposure it may have. The Company has disputed that
claim.
Rowan is involved in various legal proceedings incidental to its businesses and is vigorously
defending its position in all such matters. The Company believes that there are no other known
contingencies, claims or lawsuits that could have a material adverse effect on its financial
position, results of operations or cash flows.
NOTE 10. SEGMENTS OF BUSINESS
Rowan has two principal operating segments: contract drilling of oil and gas wells, both
onshore and offshore (“Drilling”) and the manufacture of equipment for the drilling, mining and
timber industries (“Manufacturing”). Rowan’s reportable segments reflect separately managed,
strategic business units that provide different products and services, and for which financial
information is separately prepared and monitored. The Company
evaluates segment performance based upon operating income. The accounting policies of each segment are as
described in Rowan’s summary of significant accounting policies within Note 1.
Drilling services are provided in domestic and foreign areas. Manufacturing operations are
primarily conducted in Longview and Houston, Texas and Vicksburg, Mississippi, though products are
shipped throughout the United States and to many foreign locations.
The following tables exclude information pertaining to Rowan’s boat operations and aviation
segment, which were sold in 2005 and 2004, respectively. See Note 12 for more information regarding
the Company’s discontinued operations.
57
Assets are ascribed to a segment based upon their direct use. Rowan classifies its drilling
rigs as domestic or foreign based upon the rig’s operating location. Accordingly, drilling rigs
operating in or offshore the United States are considered domestic assets and rigs operating in
other areas are deemed foreign assets. At December 31, 2006, 34 drilling rigs, including 11
offshore rigs, were located in domestic areas and 10 offshore rigs were located in foreign areas.
Rowan’s total assets are identified by operating segment, and its fixed assets are shown
geographically as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Consolidated assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
$ |
2,871,640 |
|
|
$ |
2,601,708 |
|
|
$ |
2,193,556 |
|
Manufacturing |
|
|
563,758 |
|
|
|
373,475 |
|
|
|
298,730 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,435,398 |
|
|
$ |
2,975,183 |
|
|
$ |
2,492,286 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment — net: |
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,145,642 |
|
|
$ |
1,093,183 |
|
|
$ |
1,223,089 |
|
Europe |
|
|
406,648 |
|
|
|
422,952 |
|
|
|
444,215 |
|
Middle East |
|
|
359,495 |
|
|
|
— |
|
|
|
— |
|
Canada |
|
|
193,880 |
|
|
|
201,768 |
|
|
|
701 |
|
Other foreign |
|
|
27,561 |
|
|
|
2,831 |
|
|
|
1,489 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,133,226 |
|
|
$ |
1,720,734 |
|
|
$ |
1,669,494 |
|
|
|
|
|
|
|
|
|
|
|
Information regarding revenues and profitability by operating segment is as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
$ |
1,067,448 |
|
|
$ |
775,356 |
|
|
$ |
472,103 |
|
Manufacturing sales and services |
|
|
443,286 |
|
|
|
293,426 |
|
|
|
207,573 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
1,510,734 |
|
|
$ |
1,068,782 |
|
|
$ |
679,676 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling services |
|
$ |
447,706 |
|
|
$ |
332,926 |
|
|
$ |
51,721 |
|
Manufacturing sales and services |
|
|
37,988 |
|
|
|
7,674 |
|
|
|
6,764 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
485,694 |
|
|
$ |
340,600 |
|
|
$ |
58,485 |
|
|
|
|
|
|
|
|
|
|
|
Excluded from the preceding table are the effects of transactions between segments, which are
recorded at cost. During 2006, 2005, and 2004, Rowan’s manufacturing division provided
approximately $230 million, $118 million, and $83 million, respectively, of products and services
to the drilling division. Certain administrative costs are allocated between segments generally
based upon revenues.
Foreign-source revenues were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Drilling services: |
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
$ |
121,457 |
|
|
$ |
88,878 |
|
|
$ |
36,472 |
|
Middle East |
|
|
115,182 |
|
|
|
— |
|
|
|
— |
|
Canada |
|
|
58,587 |
|
|
|
26,221 |
|
|
|
18,414 |
|
Trinidad |
|
|
21,230 |
|
|
|
— |
|
|
|
— |
|
Manufacturing sales and services, primarily Australia |
|
|
22,373 |
|
|
|
27,763 |
|
|
|
9,978 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
338,829 |
|
|
$ |
142,862 |
|
|
$ |
64,864 |
|
|
|
|
|
|
|
|
|
|
|
During 2006, 2005 and 2004, no customer accounted for more than 10% of consolidated revenues.
Rowan believes that it has no significant concentrations of credit risk. The Company has never
experienced any significant credit losses and its drilling segment customers have heretofore
primarily been large energy companies and government bodies. Rowan’s manufacturing operations help
diversify the Company’s operations and attendant credit risk. Further, Rowan retains the ability to
relocate its major drilling assets over significant distances on a timely basis in response to
changing market conditions.
58
Certain other financial information for each of Rowan’s principal operating segments is
summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
$ |
77,519 |
|
|
$ |
69,376 |
|
|
$ |
68,529 |
|
Manufacturing |
|
|
12,452 |
|
|
|
11,828 |
|
|
|
9,960 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
|
457,493 |
|
|
|
192,282 |
|
|
|
121,578 |
|
Manufacturing |
|
|
51,760 |
|
|
|
16,185 |
|
|
|
6,341 |
|
Repairs and maintenance: |
|
|
|
|
|
|
|
|
|
|
|
|
Drilling |
|
|
83,636 |
|
|
|
62,440 |
|
|
|
47,586 |
|
Manufacturing |
|
|
18,622 |
|
|
|
13,949 |
|
|
|
9,579 |
|
NOTE 11. RELATED PARTY TRANSACTIONS
A Rowan director serves as Of Counsel for one of the law firms that represents Rowan on
certain matters and to which the Company paid approximately $143,000, $923,000 and $688,000 for
legal fees and expenses in 2006, 2005 and 2004, respectively. Rowan believes that the fees
reflected market rates and the services were approved by the Company’s Board of Directors.
A Rowan director
serves as an Advisory Director for an investment banking firm to which the Company paid an underwriting
commission in 2004 in connection with its 11.5 million share common stock sale. The underwriting agreement
provided that the investment banking firm’s commission depended upon the proceeds it received upon its sale
of Rowan’s common stock, and such proceeds and, therefore, such commission are not known by the Company. Both
the common stock sale and the underwriting agreement were negotiated by Rowan and approved by the Company’s
Board of Directors.
NOTE 12. DISCONTINUED OPERATIONS
In February 2005, Rowan sold the purchase options it held on four leased anchor-handling boats
for approximately $21 million in cash which resulted in a gain of $13.1 million (net of a provision
for income taxes of $7.6 million). The leases covering the Company’s two remaining boats expired
during the second quarter of 2005, when they were returned to the lessor and Rowan exited the
marine vessel business.
On December 31, 2004, the Company completed the sale of its aviation operations, for
approximately $118.1 million in cash, before selling expenses and subject to post-closing working
capital adjustments, which resulted in a loss of $16.0 million (net of a credit for income taxes of
$8.4 million). During 2005, the Company recorded an incremental loss on the sale of $1.9 million
(net of a related tax benefit of $1.1 million) which resulted from post-closing working capital
adjustments pursuant to the sale agreement. During 2006, the Company received a refund of excise
taxes related to its aviation operations that were paid under protest in 2004.
The following table summarizes Rowan’s marine vessel and aviation operating results for each
of the past three years, the net effects of which have been presented as discontinued operations in
the Company’s Consolidated Statements of Operations (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2006 |
|
|
2005 |
|
|
2004 |
|
Revenues |
|
$ |
¯ |
|
|
$ |
14,556 |
|
|
$ |
153,987 |
|
Income (loss) from operations |
|
|
1,953 |
|
|
|
18,914 |
|
|
|
(46,685 |
) |
Net income (loss) |
|
|
1,269 |
|
|
|
11,963 |
|
|
|
(28,758 |
) |
The amount shown for Income from operations in 2005 includes a $20.7 million gain on the sale
of the Company’s marine vessel business. The amount shown for Loss from operations in 2004 includes
a $24.4 million loss on the sale of the aviation division.
59
NOTE 13. ASSET DISPOSITIONS
Rowan received approximately $109 million in 2005 in connection with the sale or
hurricane-related loss of various offshore drilling rigs. In September, the Company sold one of its
oldest jack-up rigs, the Rowan-Texas, for approximately $45 million in cash, after selling
expenses. During the fourth quarter, the Company received approximately $51 million in insurance
proceeds related to the loss of its jack-up drilling rigs Rowan-New Orleans, Rowan-Odessa and
Rowan-Fort Worth during Hurricanes Katrina and Rita.
During October 2005, Rowan agreed to sell its only semi-submersible rig, the Rowan-Midland,
for approximately $60 million in cash. Payment for the rig occurred over a 15-month period ending in
January 2007, at which point the title to the rig was transferred to the buyer. Rowan retained
ownership of much of the drilling equipment on the rig, which was sold in 2006, and has continued
to provide a number of operating personnel under a separate services agreement. The Rowan-Midland
transaction was accounted for as a sales-type lease with the expected gain on the sale and imputed
interest income of approximately $46 million deferred until the net book value of the rig has been
recovered. At December 31, 2006, Rowan had received payments totaling $35.6 million and, at that
date, Trade and other receivables included the present value of expected future collections of
$24.0 million and Other current liabilities included deferred income from this transaction of $23.4
million.
NOTE 14. SUBSEQUENT EVENT
On January 18, 2007, the Board of Directors of the Company declared a cash dividend of $.10
per share of common stock that was paid on February 20, 2007 to stockholders of record on February
5, 2007.
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Rowan Companies, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of Rowan Companies, Inc. and
subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated
statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2006. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2006 and 2005, and the results
of their operations and their cash flows for each of the three years in the period ended December
31, 2006, in conformity with accounting principles generally accepted in the United States of
America.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2006, based on the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2007 expressed an unqualified opinion on management’s
assessment of the effectiveness of the Company’s internal control over financial reporting and an
unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 2007
61
Rowan Companies, Inc.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
PURSUANT TO SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002
The management of Rowan is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide
reasonable assurance as to the reliability of our financial reporting and the preparation and
presentation of consolidated financial statements in accordance with accounting principles
generally accepted in the United States, as well as to safeguard assets from unauthorized use or
disposition.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to assess the
effectiveness of our internal controls relative to a suitable framework. The Committee of
Sponsoring Organizations of the Treadway Commission (COSO) developed a formalized,
organization-wide framework that embodies five interrelated components — the control environment,
risk assessment, control activities, information and communication and monitoring, as they relate
to three internal control objectives — operating effectiveness and efficiency, financial reporting
reliability and compliance with laws and regulations.
Our assessment included an evaluation of the design of our internal control over financial
reporting relative to COSO and testing of the operational effectiveness of our internal control
over financial reporting. Based upon our assessment, we have concluded that our internal controls
over financial reporting were effective as of December 31, 2006.
The registered public accounting firm Deloitte & Touche LLP has audited Rowan’s consolidated
financial statements included in our 2006 Annual Report on Form 10-K and has issued an attestation
report on management’s assessment of the Company’s internal control over financial reporting.
| |
|
|
/s/ D. F. MCNEASE
|
|
/s/ W. H. WELLS |
|
|
|
D. F. McNease
|
|
W. H. Wells |
Chairman of the Board, President and Chief
|
|
Vice President, Finance and Chief |
Executive Officer
|
|
Financial Officer |
|
|
|
February 26, 2007
|
|
February 26, 2007 |
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Rowan Companies, Inc.
Houston, Texas
We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control over Financial Reporting Pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, that Rowan Companies, Inc. and subsidiaries (the “Company”) maintained effective internal
control over financial reporting as of December 31, 2006, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control
over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based
on the criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2006, based on the criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended
December 31, 2006 of the Company, and our report dated February 26, 2007 expressed an unqualified
opinion on those financial statements.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 26, 2007
63
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited information for the quarters ended March 31, June 30, September 30 and
December 31, 2005 and 2006 includes, in the Company’s opinion, all adjustments (which comprise only
normal recurring accruals) necessary for a fair presentation of such amounts (in thousands except
per share amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
| |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
222,392 |
|
|
$ |
244,560 |
|
|
$ |
284,398 |
|
|
$ |
317,432 |
|
Income from operations |
|
|
43,769 |
|
|
|
67,091 |
|
|
|
119,916 |
|
|
|
109,824 |
|
Income from continuing operations |
|
|
30,539 |
|
|
|
43,186 |
|
|
|
74,625 |
|
|
|
69,487 |
|
Income (loss) from discontinued operations |
|
|
12,883 |
|
|
|
(920 |
) |
|
|
— |
|
|
|
— |
|
Net income |
|
|
43,422 |
|
|
|
42,266 |
|
|
|
74,625 |
|
|
|
69,487 |
|
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations — Basic |
|
|
.28 |
|
|
|
.40 |
|
|
|
.68 |
|
|
|
.63 |
|
Income from continuing operations — Diluted |
|
|
.28 |
|
|
|
.39 |
|
|
|
.67 |
|
|
|
.63 |
|
Income (loss) from discontinued operations — Basic |
|
|
.12 |
|
|
|
(.01 |
) |
|
|
— |
|
|
|
— |
|
Income (loss) from discontinued operations — Diluted |
|
|
.12 |
|
|
|
(.01 |
) |
|
|
— |
|
|
|
— |
|
Net income — Basic |
|
|
.40 |
|
|
|
.39 |
|
|
|
.68 |
|
|
|
.63 |
|
Net income — Diluted |
|
|
.40 |
|
|
|
.39 |
|
|
|
.67 |
|
|
|
.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
299,787 |
|
|
$ |
382,886 |
|
|
$ |
417,114 |
|
|
$ |
410,947 |
|
Income from operations |
|
|
89,529 |
|
|
|
165,958 |
|
|
|
131,402 |
|
|
|
98,805 |
|
Income from continuing operations |
|
|
59,105 |
|
|
|
109,691 |
|
|
|
85,771 |
|
|
|
62,410 |
|
Income from discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
1,269 |
|
|
|
— |
|
Net income |
|
|
59,105 |
|
|
|
109,691 |
|
|
|
87,040 |
|
|
|
62,410 |
|
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations — Basic |
|
|
.54 |
|
|
|
.99 |
|
|
|
.78 |
|
|
|
.57 |
|
Income from continuing operations — Diluted |
|
|
.53 |
|
|
|
.98 |
|
|
|
.77 |
|
|
|
.56 |
|
Income from discontinued operations — Basic |
|
|
— |
|
|
|
— |
|
|
|
.01 |
|
|
|
— |
|
Income from discontinued operations — Diluted |
|
|
— |
|
|
|
— |
|
|
|
.01 |
|
|
|
— |
|
Net income — Basic |
|
|
.54 |
|
|
|
.99 |
|
|
|
.79 |
|
|
|
.57 |
|
Net income — Diluted |
|
|
.53 |
|
|
|
.98 |
|
|
|
.78 |
|
|
|
.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The sum of the per share amounts for the quarters may not equal the per share amounts for the
full year since the quarterly and full year per share computations are made independently.
The amounts shown in the table above for Income (loss) from discontinued operations reflect
the aggregate after-tax results of our aviation and boat operations for each period, in total and
on a per share basis, and include a $13.1 million or $.12 per share after-tax gain recognized on
the sale of our boat purchase options during the first quarter of 2005. See Note 12 of the Notes
to Consolidated Financial Statements on page 59 of this Form 10-K for further information regarding
the Company’s discontinued operations.
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
The Company’s management has evaluated, with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure
controls and procedures, as of the end of the period covered by this report, pursuant to Exchange
Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer, along with the
Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2006.
Our management is responsible for establishing and maintaining internal control over financial
reporting (ICFR). Our internal control system was designed to provide reasonable assurance to the
Company’s management and Board of Directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no matter how well designed, have
inherent limitations, and therefore can only provide reasonable assurance with respect to financial
statement preparation and presentation.
Our management’s assessment is that the Company did maintain effective ICFR as of December 31,
2006 within the context of the framework established by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
Management’s report on the Company’s internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act of 2002, and the attestation report of the independent
registered public accounting firm, are set forth on pages 62 and 63, respectively, of this Form
10-K.
ITEM 9B. OTHER INFORMATION
Not applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors will appear in our Proxy Statement for the 2007 Annual
Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 30, 2007, under
the caption “Election of Directors.” Such information is incorporated herein by reference.
Information concerning our executive officers appears in PART I, ITEM 4A, EXECUTIVE OFFICERS
OF THE REGISTRANT, beginning on page 20 of this Form 10-K.
Information concerning our Audit Committee will appear in our Proxy Statement for the 2007
Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before April 30, 2007,
under the caption “Committees of the Board of Directors.” Such information is incorporated herein
by reference.
Information concerning compliance with Section 16(a) of the Securities Exchange Act will
appear in our Proxy Statement for the 2007 Annual Meeting of Stockholders, to be filed pursuant to
Regulation 14A on or before April 30, 2007, under the caption “Additional Information — Section
16(a) Beneficial Ownership Reporting Compliance.” Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning director and executive compensation will appear in our Proxy Statement
for the 2007 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before
April 30, 2007, under the captions “Director Compensation and Attendance,” “Compensation Discussion
& Analysis,” “Compensation Committee Report,” and “Executive Compensation.” Such information is
incorporated herein by reference.
65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information concerning the security ownership of management will appear in our Proxy Statement
for the 2007 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before
April 30, 2007, under the caption “Security Ownership of Certain Beneficial Owners and Management.”
Such information is incorporated herein by reference.
The business address of all directors is the principal executive offices of the Company as set
forth on the cover page of this Form 10-K.
The following table provides information about our common stock that may be issued upon the
exercise of options and rights or the conversion of debentures under all of our existing equity
compensation plans as of December 31, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Securities |
|
|
Weighted Average |
|
|
Number of |
|
| |
|
to be Issued upon Exercise |
|
|
Exercise Price of |
|
|
Securities |
|
| |
|
of Outstanding Options, |
|
|
Outstanding Options, |
|
|
Available for |
|
| Plan Category |
|
Warrants and Rights |
|
|
Warrants and Rights |
|
|
Future Issuance |
|
Equity compensation plans approved by security holders |
|
|
4,132,476 |
(a) |
|
$ |
23.37 |
(a) |
|
|
2,556,640 |
(b) |
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders. |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,132,476 |
|
|
$ |
23.37 |
|
|
|
2,556,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Includes the following equity compensation plans: the Restated 1988
Nonqualified Stock Option Plan, as amended, had options for 2,728,556
shares of common stock outstanding at December 31, 2006 with a
weighted average exercise price of $21.10 per share; the 1998
Nonemployee Directors Stock Option Plan had options for 86,000 shares
of common stock outstanding at December 31, 2006 with a weighted
average exercise price of $22.80 per share; the 1998 Convertible
Debenture Incentive Plan, as amended, had $28.2 million of employee
debentures outstanding at December 31, 2006, convertible into
1,105,718 shares of common stock at a weighted average conversion
price of $27.63 per share and the 2005 Long-Term Incentive Plan (LTIP)
had options for 212,202 shares of common stock outstanding at December
31, 2006 with a weighted average exercise price of $30.62 per share. |
| |
| (b) |
|
Amount reflects shares of common stock available for issuance under
the LTIP. Amount (1) reflects the issuance of 43,200 restricted stock
units to our non-employee directors and (2) assumes the issuance of
215,291 shares in connection with outstanding performance awards,
under which from 0 to 430,582 shares collectively may be issued in May
2008 and April 2009 depending upon the Company’s total shareholder
return and return on investment (as defined) over the three-year
periods then ended. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning director and executive compensation will appear in our Proxy Statement
for the 2007 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before
April 30, 2007, under the caption “Additional Information — Certain Transactions.” Such
information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information concerning principal account fees and services will appear in our Proxy Statement
for the 2007 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A on or before
April 30, 2007, in the last paragraph under the caption “Audit Committee Report.” Such information
is incorporated herein by reference.
66
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
See
Part II, Item 8. Financial Statements and Supplementary
Data beginning on page 37 of this
Form 10-K.
2. Financial Statement Schedules
Financial Statement Schedules I, II, III, IV, and V are not included in this Form 10-K because
such schedules are not required or the required information is not significant.
3. Exhibits:
Unless otherwise indicated below as being incorporated by reference to another filing of the
Company with the Securities and Exchange Commission, each of the following exhibits is filed
herewith:
| |
|
|
3a
|
|
Restated Certificate of Incorporation dated February 17, 1984, incorporated by reference to
Exhibit 4.1 to Registration Statement No. 333-84369 on Form S-8 (File No. 1-5491) and
Exhibits 4a, 4b, 4c, 4d, 4e, 4f, 4g, 4h and 4i below. |
|
|
|
3b
|
|
Bylaws amended as of April 23, 2004, incorporated by reference to Exhibit 3b to Form 10-K
for fiscal year ended December 31, 2005 (File No. 1-5491). |
|
|
|
4a
|
|
Certificate of Change of Address of Registered Office and of Registered Agent dated July
25, 1984, incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-84369
on Form S-8 (File No. 1-5491). |
|
|
|
4b
|
|
Certificate of Amendment of Certificate of Incorporation dated April 24, 1987, incorporated
by reference to Exhibit 4.5 to Registration Statement No. 333-84369 on Form S-8 (File No.
1-5491). |
|
|
|
4c
|
|
Certificate of Designation of the Series A Junior Preferred Stock dated March 2, 1992,
incorporated by reference to Exhibit 4.2 to Registration Statement on Form 8-A/A filed on
February 12, 2002 (File No. 1-5491). |
|
|
|
4d
|
|
Certificate of Designation of (and Certificate of Correction related thereto) the Series A
Preferred Stock dated August 5, 1998 and January 28, 1999, respectively, incorporated by
reference to Exhibit 4.8 to Registration Statement No. 333-84369 on Form S-8 (File No.
1-5491). |
|
|
|
4e
|
|
Certificate of Designation of the Series B Preferred Stock dated June 24, 1999,
incorporated by reference to Exhibit 4d to Form 10-K for the fiscal year ended December 31,
1999 (File No. 1-5491). |
|
|
|
4f
|
|
Certificate of Designation of the Series C Preferred Stock dated July 28, 2000,
incorporated by reference to Exhibit 4.10 to Registration Statement No. 333-44874 on Form
S-8 (File No. 1-5491). |
|
|
|
4g
|
|
Certificate of Designation of the Series D Preferred Stock dated May 22, 2001, incorporated
by reference to Exhibit 4.11 to Registration Statement No. 333-82804 on Form S-3 filed on
February 14, 2002 (File No. 1-5491). |
|
|
|
4h
|
|
Certificate of Designation of the Series E Preferred Stock dated October 30, 2001,
incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-82804 on Form
S-3 filed on February 14, 2002 (File No. 1-5491). |
|
|
|
4i
|
|
Amended and Restated Rights Agreement, dated as of January 24, 2002, between Rowan and
Computershare Trust Co. Inc. as Rights Agent, incorporated by reference to Exhibit 4.2 to
Registration Statement on Form 8-A/A filed on March 21, 2003 (File No. 1-5491). |
|
|
|
4j
|
|
Specimen Common Stock certificate, incorporated by reference to Exhibit 4k to Form 10-K for
the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
4k
|
|
Form of Promissory Note dated April 24, 1998 between purchasers of Series A Floating Rate
Subordinated Convertible Debentures due 2008 and Rowan, incorporated by reference to
Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1998 (File No. 1-5491). |
67
| |
|
|
4l
|
|
Form of Promissory Note dated April 22, 1999 between purchasers of Series B Floating Rate
Subordinated Convertible Debentures due 2009 and Rowan, incorporated by reference to
Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
4m
|
|
Form of Promissory Note date April 27, 2000 between purchasers of Series C Floating Rate
Subordinated Convertible Debentures due 2010 and Rowan, incorporated by reference to
Exhibit 4n to Form 10-K for the fiscal year ended December 31, 2000 (File No. 1-5491). |
|
|
|
4n
|
|
Form of Promissory Note date April 26, 2001 between the purchaser of Series D Floating Rate
Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to
Exhibit 4p to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
4o
|
|
Form of Promissory Note date September 20, 2001 between the purchaser of Series E Floating
Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference to
Exhibit 4q to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
10a
|
|
Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C to
the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491) and
Form of Stock Option Agreement related thereto, incorporated by reference to Exhibit 10c to
Form 10-K for the fiscal year ended December 31, 2004 (File No. 1-5491). |
|
|
|
10b
|
|
1998 Nonemployee Director Stock Option Plan, incorporated by reference to Exhibit 10b of
Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491) and Form of Stock
Option Agreement related thereto, incorporated by reference to Exhibit 10c to Form 10-K for
the fiscal year ended December 31, 2004 (File No. 1-5491). |
|
|
|
10c
|
|
1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to the
Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491) and
Form of Debenture related thereto, incorporated by reference to Exhibit 10c to Form 10-K
for the fiscal year ended December 31, 2004 (File No. 1-5491). |
|
|
|
10d
|
|
Pension Restoration Plan, incorporated by reference to Exhibit 10h to Form 10-K for the
fiscal year ended December 31, 1992 (File No. 1-5491). |
|
|
|
10e
|
|
Pension Restoration Plan of LeTourneau, Inc., a wholly owned subsidiary of the Company,
incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December
31, 1994 (File No. 1-5491). |
|
|
|
10f
|
|
Participation Agreement dated December 1, 1984 between Rowan and Textron Financial
Corporation et al. and Bareboat Charter dated December 1, 1984 between Rowan and Textron
Financial Corporation et al., incorporated by reference to Exhibit 10c to Form 10-K for the
fiscal year ended December 31, 1985 (File No. 1-5491). |
|
|
|
10g
|
|
Participation Agreement dated December 1, 1985 between Rowan and Eaton Leasing Corporation
et. al. and Bareboat Charter dated December 1, 1985 between Rowan and Eaton Leasing
Corporation et. al., incorporated by reference to Exhibit 10d to Form 10-K for the fiscal
year ended December 31, 1985 (File No. 1-5491). |
|
|
|
10h
|
|
Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal
Option set forth in the Bareboat Charter dated December 1, 1984 between Rowan and Textron
Financial Corporation et al, incorporated by reference to Exhibit 10j to Form 10-K for the
fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
10i
|
|
Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal
Option set forth in the Bareboat Charter dated December 1, 1985 between Rowan and Eaton
Leasing Corporation et. al, incorporated by reference to Exhibit 10k to Form 10-K for the
fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
10j
|
|
Commitment to Guarantee Obligations dated December 17, 1996 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation (relating to Gorilla V), incorporated by reference to Exhibit 10t to Form
10-K for fiscal year ended December 31, 1996 (File No. 1-5491). |
|
|
|
10k
|
|
Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee Obligations between Rowan
and the Maritime Administration of the U.S. Department of Transportation (relating to
Gorilla V), incorporated by reference to Exhibit 10p to 10-K for the fiscal year ended
December 31, 1997 (File No. 1-5491). |
|
|
|
10l
|
|
Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee Obligations between Rowan and
the Maritime Administration of the U.S. Department of Transportation (relating to Gorilla
V), incorporated by reference to Exhibit 10o to Form 10-K for the fiscal year ended
December 31, 1998 (File No. 1-5491). |
|
|
|
10m
|
|
Credit Agreement and Trust Indenture both dated December 17, 1996 between Rowan and
Citibank, N.A. (relating to Gorilla V), incorporated by reference to Exhibit 10u to Form
10-K for the fiscal year ended December 31, 1996 (File No. 1-5491). |
68
| |
|
|
10n
|
|
Amendment No. 1 to the Credit Agreement and Supplement No. 1 to Trust Indenture both dated
July 1, 1997 between Rowan and Citibank, N.A. (relating to Gorilla V), incorporated by
reference to Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1997 (File No.
1-5491). |
|
|
|
10o
|
|
Supplement No. 2 dated July 1, 1998 to Trust Indenture between Rowan and Citibank, N.A.
(relating to Gorilla V), incorporated by reference to Exhibit 10r to Form 10-K for the
fiscal year ended December 31, 1998 (File No. 1-5491). |
|
|
|
10p
|
|
Commitment to Guarantee Obligations dated September 29, 1998 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation (relating to Gorilla VI), incorporated by reference to Exhibit 10a to Form
10-Q for fiscal quarter ended September 30, 1998 (File No. 1-5491). |
|
|
|
10q
|
|
Credit Agreement and Trust Indenture both dated September 29, 1998 between Rowan and
Citibank, N.A. (relating to Gorilla VI), incorporated by reference to Exhibit 10b to Form
10-Q for the fiscal quarter ended September 30, 1998 (File No. 1-5491). |
|
|
|
10r
|
|
Amendment No. 1 dated March 15, 2001 to Commitment to Guarantee Obligations between Rowan
and the Maritime Administration of the U.S. Department of Transportation (relating to
Gorilla VI), incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year
ended December 31, 2000 (File No. 1-5491). |
|
|
|
10s
|
|
Supplement No. 1 dated March 15, 2001 to Trust Indenture between Rowan and Citibank, N.A.
(relating to Gorilla VI), incorporated by reference to Exhibit 10v to Form 10-K for the
fiscal year ended December 31, 2000 (File No. 1-5491). |
|
|
|
10t
|
|
Commitment to Guarantee Obligations dated October 29, 1999 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation (relating to Gorilla VII), incorporated by reference to Exhibit 10v to Form
10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
10u
|
|
Credit Agreement and Trust Indenture both dated October 29, 1999 between Rowan and
Citibank, N.A. (relating to Gorilla VII), incorporated by reference to Exhibit 10w to Form
10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
10v
|
|
Amendment No. 1 dated June 30, 2003 to the Commitment to Guarantee Obligations between
Rowan and the Maritime Administration of the U.S. Department of Transportation (relating to
Gorilla VII), incorporated by reference to Exhibit 10x to Form 10-K for the fiscal year
ended December 31, 2003 (File No. 1-5491). |
|
|
|
10w
|
|
Supplement No. 1 dated June 30, 2003 to Trust Indenture between Rowan and Citibank, N.A.
(relating to Gorilla VII), incorporated by reference to Exhibit 10y to Form 10-K for the
fiscal year ended December 31, 2003 (File No. 1-5491). |
|
|
|
10x
|
|
Commitment to Guarantee Obligations dated May 23, 2001 and First Preferred Ship Mortgage
between Rowan and the Maritime Administration of the U.S. Department of Transportation
(relating to the Bob Palmer, formerly Gorilla VIII), incorporated by reference to Exhibit
10y to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
10y
|
|
Credit Agreement and Trust Indenture both dated May 23, 2001 between Rowan and Citibank,
N.A. (relating to the Bob Palmer, formerly Gorilla VIII), incorporated by reference to
Exhibit 10z to Form 10-K for the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
10z
|
|
Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage
between Rowan and the Maritime Administration of the U.S. Department of Transportation
(relating to the Scooter Yeargain), incorporated by reference to Exhibit 10bb to Form 10-K
for the fiscal year ended December 31, 2003 (File No. 1-5491). |
|
|
|
10aa
|
|
Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank,
N.A. (relating to the Scooter Yeargain), incorporated by reference to Exhibit 10cc to Form
10-K for the fiscal year ended December 31, 2003 (File No. 1-5491). |
|
|
|
10bb
|
|
Amendment No. 1 dated June 15, 2005 to the Commitment to Guarantee Obligations between
Rowan and the Maritime Administration of the U.S. Department of Transportation (relating to
the Scooter Yeargain), incorporated by reference to Exhibit 10a to Form 10-Q for the
quarterly period ended June 30, 2005 (File No. 1-5491). |
|
|
|
10cc
|
|
Supplement No. 1 dated June 15, 2005 to Trust Indenture between Rowan and Citibank, N.A.
(relating to the Scooter Yeargain), incorporated by reference to Exhibit 10b to Form 10-Q
for the quarterly period ended June 30, 2005 (File No. 1-5491). |
|
|
|
10dd
|
|
Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship Mortgage
between Rowan and the Maritime Administration of the U.S. Department of Transportation
(relating to the Bob Keller, formerly Tarzan II), incorporated by reference to Exhibit 10dd
to Form 10-K for the fiscal year ended December 31, 2003 (File No. 1-5491). |
69
| |
|
|
10ee
|
|
Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and Citibank,
N.A. (relating to the Bob Keller, formerly Tarzan II), incorporated by reference to Exhibit
10ee to Form 10-K for the fiscal year ended December 31, 2003 (File No. 1-5491). |
|
|
|
10ff
|
|
Amendment No. 1 dated March 28, 2005 to Credit Agreement between Rowan and Citibank, N.A.
(relating to the Bob Keller, formerly Tarzan II), incorporated by reference to Exhibit 10a
to Form 10-Q for the quarterly period ended March 31, 2005 (File No. 1-5491). |
|
|
|
10gg
|
|
Amendment No. 2 dated May 4, 2005 to Credit Agreement between Rowan and Citibank, N.A.
(relating to the Bob Keller, formerly Tarzan II), incorporated by reference to Exhibit 10b
to Form 10-Q for the quarterly period ended March 31, 2005 (File No. 1-5491). |
|
|
|
10hh
|
|
Rowan Companies, Inc. 2006 Short-Term Incentive Plans, incorporated by reference to Exhibit
10.1 to Form 8-K filed May 4, 2006 (File No. 1-5491). |
|
|
|
10ii
|
|
Memorandum Agreement dated January 26, 2006 between Rowan and C. R. Palmer, incorporated by
reference to Exhibit 10jj to Form 10-K for fiscal year ended December 31, 2005 (File No.
1-5491). |
|
|
|
10jj
|
|
Rowan Companies, Inc. 2005 Long-Term Incentive Plan, incorporated by reference to Exhibit
10.1 to Form 8-K filed May 10, 2005 (File No. 1-5491) and Form of Non-Employee Director
2005 Restricted Stock Unit Grant, Form of Non-Employee Director 2006 Restricted Stock Unit
Grant, Form of 2005 Restricted Stock Grant Agreement, Form of 2005 Nonqualified Stock
Option Agreement, of 2005 Performance Share Award Agreement related thereto, each
incorporated by reference to Exhibits 10c, 10d, 10e, 10f and 10g, respectively, to Form
10-Q for the quarterly period ended June 30, 2005 (File No. 1-5491). |
|
|
|
14
|
|
Code of Business Conduct for Senior Financial Officers of the Company, incorporated by
reference to Exhibit 14 to Form 10-K for the fiscal year ended December 31, 2003 (File No.
1-5491). |
|
|
|
21
|
|
Subsidiaries of the Registrant as of February 26, 2007. |
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
24
|
|
Powers of Attorney pursuant to which names were affixed to this Form 10-K for the fiscal
year ended December 31, 2006. |
|
|
|
31a
|
|
Rule 13a-14(a)/15d-14(a) Certification (Section 302 of the Sarbanes-Oxley Act of 2002). |
|
|
|
31b
|
|
Rule 13a-14(a)/15d-14(a) Certification (Section 302 of the Sarbanes-Oxley Act of 2002). |
|
|
|
32
|
|
Section 1350 Certifications (furnished under Section 906 of the Sarbanes-Oxley Act of 2002). |
|
|
|
99
|
|
Annual CEO Certification to the New York Stock Exchange. |
|
|
|
| * |
|
Only portions specifically incorporated herein are deemed to be filed. |
70
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Compensatory plans in which Rowan’s directors and executive officers participate are listed as
follows:
| |
• |
|
Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C to
the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). |
| |
| |
• |
|
1998 Nonemployee Director Stock Option Plan, incorporated by reference to Exhibit 10b of
Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491). |
| |
| |
• |
|
1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to the
Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491). |
| |
| |
• |
|
Pension Restoration Plan, incorporated by reference to Exhibit 10i to Form 10-K for the
fiscal year ended December 31, 1992 (File 1-5491). |
| |
| |
• |
|
Pension Restoration Plan of LeTourneau, Inc., a wholly owned subsidiary of the Company,
incorporated by reference to Exhibit 10j to Form 10-K for the fiscal year ended December 31,
1994 (File No. 1-5491). |
| |
| |
• |
|
Rowan Companies, Inc. 2006 Profit Sharing Plan. |
| |
| |
• |
|
Rowan Companies, Inc. 2006 Bonus Plan. |
| |
| |
• |
|
Rowan Companies, Inc. 2005 Long-Term Incentive Plan. |
Rowan agrees to furnish to the Commission upon request a copy of all instruments defining the
rights of holders of long-term debt of the Company and its subsidiaries.
For the purposes of complying with the amendments to the rules governing Form S-8 (effective
July 13, 1990) under the Securities Act of 1933, the undersigned registrant hereby undertakes as
follows, which undertaking shall be incorporated by reference into Registrant’s Registration
Statements on Form S-8 Nos. 2-58700, as amended by Post-Effective Amendment No. 4 (filed June 11,
1980), 33-33755, as amended by Amendment No. 1 (filed March 29, 1990), 33-61444 (filed April 23,
1993), 33-51103 (filed November 18, 1993), 33-51105 (filed November 18, 1993), 33-51109 (filed
November 18, 1993), 333-25041 (filed April 11, 1997), 333-25125 (filed April 14, 1997), 333-84369
(filed August 3, 1999), 333-84405 (filed August 3, 1999) and 333-101914 (filed December 17, 2002):
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the act and will be governed by the final adjudication of such issue.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
| |
By: |
/s/ D. F. McNease
|
|
| |
|
(D. F. McNease |
|
| |
|
Chairman of the Board, President
and Chief Executive Officer) |
|
| |
Date:
February 26, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ D. F. MCNEASE
(D. F. McNease)
|
|
Chairman of the Board, President and
Chief Executive Officer
|
|
February 26, 2007 |
|
|
|
|
|
/s/ W. H. WELLS
(W. H. Wells)
|
|
Principal Financial Officer
|
|
February 26, 2007 |
|
|
|
|
|
/s/ GREGORY M. HATFIELD
(Gregory M. Hatfield)
|
|
Principal Accounting Officer
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *R. G. CROYLE
(R. G. Croyle)
|
|
Vice Chairman of the Board
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *WILLIAM T. FOX III
(William T. Fox III)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *SIR GRAHAM HEARNE
(Sir Graham Hearne)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *JOHN R. HUFF
(John R. Huff)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *ROBERT E. KRAMEK
(Robert E. Kramek)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *FREDERICK R. LAUSEN
(Frederick R. Lausen)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *H. E. LENTZ
(H. E. Lentz)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *LORD MOYNIHAN
(Lord Moynihan)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
/s/ *P. DEXTER PEACOCK
(P. Dexter Peacock)
|
|
Director
|
|
February 26, 2007 |
|
|
|
|
|
*By: /s/ D. F. MCNEASE |
|
|
|
|
|
|
|
|
|
(D. F. McNease,
Attorney-in-Fact) |
|
|
|
|
72
EXHIBIT INDEX
| |
|
|
|
|
| Footnote |
|
Exhibit |
|
|
| Reference |
|
Number |
|
Exhibit Description |
|
|
|
|
|
(1)
|
|
3a
|
|
Restated Certificate of Incorporation of the Company, dated February 17, 1984,
incorporated by reference to Exhibit 4.1 to Registration Statement No. 333-84369 on
Form S-8 (File No. 1-5491) and Exhibits 4a, 4b, 4c, 4d, 4e, 4f, 4g 4h and 4i. |
|
|
|
|
|
(1)
|
|
3b
|
|
Bylaws amended as of April 23, 2004, incorporated by reference to Exhibit 3b to Form
10-K for fiscal year ended December 31, 2005 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4a
|
|
Certificate of Change of Address of Registered Office and of Registered Agent dated
July 25, 1984, incorporated by reference to Exhibit 4.4 to Registration Statement No.
333-84369 on Form S-8 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4b
|
|
Certificate of Amendment of Certificate of Incorporation dated April 24, 1987,
incorporated by reference to Exhibit 4.5 to Registration Statement No. 333-84369 on
Form S-8 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4c
|
|
Certificate of Designation of the Company’s Series A Junior Preferred Stock dated March
2, 1992 incorporated by reference to Exhibit 4.2 to Registration Statement No.
333-84369 on Form 8A/A filed on February 12, 2002 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4d
|
|
Certificate of Designation of (and Certificate of Correction related thereto) the
Company’s Series A Preferred Stock dated August 5, 1998 and January 28, 1999,
respectively, incorporated by reference to Exhibit 4.8 to Registration Statement No.
333-84369 on Form S-8 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4e
|
|
Certificate of Designation of the Company’s Series B Preferred Stock dated June 24,
1999, incorporated by reference to Exhibit 4d to Form 10-K for the fiscal year ended
December 31, 1999 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4f
|
|
Certificate of Designation of the Series C Preferred Stock dated July 28, 2000,
incorporated by reference to Exhibit 4.10 to Registration Statement No. 333-44874 on
Form S-8 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4g
|
|
Certificate of Designation of the Series D Preferred Stock dated May 22, 2001,
incorporated by reference to Exhibit 4.11 to Registration Statement No. 333-82804 on
Form S-3 filed on February 14, 2002 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4h
|
|
Certificate of Designation of the Series E Preferred Stock dated October 30, 2001,
incorporated by reference to Exhibit 4.12 to Registration Statement No. 333-82804 on
Form S-3 filed on February 14, 2002 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4i
|
|
Amended and Restated Rights Agreement, dated January 24, 2002, between the Company and
Citibank, N.A. as Rights Agent incorporated by reference to Exhibit 4.1 to Registration
Statement on Form 8-A/A filed on February 12, 2002 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4j
|
|
Specimen Common Stock certificate, incorporated by reference to Exhibit 4k to Form 10-K
for the fiscal year ended December 31, 2001 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
4k
|
|
Form of Promissory Note date April 24, 1998 between the purchasers of Series A Floating
Rate Subordinated Convertible Debentures due 2008 and the Company, incorporated by
reference to Exhibit 4h to Form 10-K for the fiscal year ended December 31, 1998 (File
No. 1-5491). |
|
|
|
|
|
(1)
|
|
4l
|
|
Form of Promissory Note date April 22, 1999 between the purchasers of Series B Floating
Rate Subordinated Convertible Debentures due 2009 and the Company incorporated by
reference to Exhibit 4j to Form 10-K for the fiscal year ended December 31, 1999 (File
No. 1-5491). |
|
|
|
|
|
(1)
|
|
4m
|
|
Form of Promissory Note date April 27, 2000 between purchasers of Series C Floating
Rate Subordinated Convertible Debentures due 2010 and Rowan incorporated by reference
to Exhibit 4n to Form 10-K for the fiscal year ended December 31, 2000 (File No.
1-5491). |
|
|
|
|
|
(1)
|
|
4n
|
|
Form of Promissory Note date April 26, 2001 between the purchaser of Series D Floating
Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by reference
to Exhibit 4p to Form 10-K for the fiscal year ended December 31, 2001 (File No.
1-5491). |
|
|
|
|
|
(1)
|
|
4o
|
|
Form of Promissory Note date September 20, 2001 between the purchaser of Series E
Floating Rate Subordinated Convertible Debentures due 2011 and Rowan, incorporated by
reference to Exhibit 4q to Form 10-K for the fiscal year ended December 31, 2001 (File
No. 1-5491). |
73
| |
|
|
|
|
(1)
|
|
10a
|
|
Restated 1988 Nonqualified Stock Option Plan, incorporated by reference to Appendix C
to the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No.
1-5491) and Form of Stock Option Agreement related thereto, incorporated by reference
to Exhibit 10c to Form 10-K for the fiscal year ended December 31, 2004 (File No.
1-5491). |
|
|
|
|
|
(1)
|
|
10b
|
|
1998 Nonemployee Director Stock Option Plan of the Company incorporated by reference to
Exhibit 10b of Form 10-Q for the fiscal quarter ended March 31, 1998 (File No. 1-5491)
and Form of Stock Option Agreement related thereto thereto, incorporated by reference
to Exhibit 10c to Form 10-K for the fiscal year ended December 31, 2004 (File No.
1-5491). |
|
|
|
|
|
(1)
|
|
10c
|
|
1998 Convertible Debenture Incentive Plan, incorporated by reference to Appendix B to
the Notice of Annual Meeting and Proxy Statement dated March 20, 2002 (File No. 1-5491)
and Form of Debenture related thereto, incorporated by reference to Exhibit 10c to Form
10-K for the fiscal year ended December 31, 2004 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10d
|
|
Pension Restoration Plan of the Company incorporated by reference to Exhibit 10h to
Form 10-K for the fiscal year ended December 31, 1992 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10e
|
|
Pension Restoration Plan of LeTourneau, Inc incorporated by reference to Exhibit 10j to
Form 10-K for the fiscal year ended December 31, 1994 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10f
|
|
Participation Agreement dated December 1, 1984 between the Company and Textron
Financial Corporation et al. and Bareboat Charter dated December 1, 1984 between the
Company and Textron Financial Corporation et al. incorporated by reference to Exhibit
10c to Form 10-K for the fiscal year ended December 31, 1985 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10g
|
|
Participation Agreement dated December 1, 1985 between the Company and Eaton Leasing
Corporation et. al. and Bareboat Charter dated December 1, 1985 between the Company and
Eaton Leasing Corporation et. al. incorporated by reference to Exhibit 10d to Form 10-K
for the fiscal year ended December 31, 1985 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10h
|
|
Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal
Option set forth in the Bareboat Charter dated December 1, 1984 between the Company and
Textron Financial Corporation et. al., incorporated by reference to Exhibit 10j to Form
10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10i
|
|
Election and acceptance letters with respect to the exercise of the Fixed Rate Renewal
Option set forth in the Bareboat Charter dated December 1, 1985 between the Company and
Eaton Leasing Corporation et. al., incorporated by reference to Exhibit 10K to Form
10-K for the fiscal year ended December 31, 1999 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10j
|
|
Commitment to Guarantee Obligations and First Preferred Ship Mortgage both dated
December 17, 1996 between the Company and the Maritime Administration of the U.S.
Department of Transportation incorporated by reference to Exhibit 10t to Form 10-K for
fiscal year ended December 31, 1996 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10k
|
|
Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee Obligations between the
Company and the Maritime Administration of the U.S. Department of Transportation
incorporated by reference to Exhibit 10p to Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10l
|
|
Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee Obligations between the
Company and the Maritime Administration of the U.S. Department of Transportation,
incorporated by reference to Exhibit 10o to Form 10-K for the fiscal year ended
December 31, 1998 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10m
|
|
Credit Agreement and Trust Indenture both dated December 17, 1996 between the Company
and Citibank, N.A. incorporated by reference to Exhibit 10u to Form 10-K for the fiscal
year ended December 31, 1996 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10n
|
|
Amendment No. 1 to the Credit Agreement and Supplement No. 1 to Trust Indenture both
dated July 1, 1997 between the Company and Citibank, N.A. incorporated by reference to
Exhibit 10r to Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-5491). |
|
|
|
|
|
(1)
|
|
10o
|
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Supplement No. 2 dated July 1, 1998 to Trust Indenture between the Company and
Citibank, N.A, incorporated by reference to Exhibit 10r to Form 10-K for the fiscal
year ended December 31, 1998 (File No. 1-5491). |
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(1)
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10p
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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 incorporated by reference to Exhibit 10a to Form 10-Q for
fiscal quarter ended September 30, 1998 (File No. 1-5491). |
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(1)
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10q
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Credit Agreement and Trust Indenture both dated September 29, 1998 between the Company
and Citibank, N.A. incorporated by reference to Exhibit 10b to Form 10-Q for the fiscal
quarter ended September 30, 1998 (File No. 1-5491). |
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(1)
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10r
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Amendment No. 1 dated March 15, 2001 to Commitment to Guarantee Obligations between
Rowan and the Maritime Administration of the U.S. Department of Transportation
incorporated by reference to Exhibit 10v to Form 10-K for the fiscal year ended
December 31, 2000 (File No. 1-5491). |
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(1)
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10s
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Supplement No. 1 dated March 15, 2001 to Trust Indenture between Rowan and Citibank,
N.A. incorporated by reference to Exhibit 10w to Form 10-K for the fiscal year ended
December 31, 2000 (File No. 1-5491). |
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(1)
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10t
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Commitment to Guarantee Obligations dated October 29, 1999 and First Preferred Ship
Mortgage between the Company and the Maritime Administration of the U.S. Department of
Transportation, incorporated by reference to Exhibit 10v to Form 10-K for the fiscal
year ended December 31, 1999 (File No. 1-5491). |
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(1)
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10u
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Credit Agreement and Trust Indenture both dated October 29, 1999 between the Company
and Citibank, N.A., incorporated by reference to Exhibit 10w to Form 10-K for the
fiscal year ended December 31, 1999 (File No. 1-5491). |
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(1)
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10v
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Amendment No. 1 dated June 30, 2003 to the Commitment to Guarantee Obligations between
Rowan and Citibank, N.A., incorporated by reference to Exhibit 10x to Form 10-K for the
fiscal year ended December 31, 2003 (File No. 1-5491). |
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(1)
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10w
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Supplement No. 1 dated June 30, 2003 to Trust Indenture between Rowan and Citibank,
N.A., incorporated by reference to Exhibit 10y to Form 10-K for the fiscal year ended
December 31, 2003 (File No. 1-5491). |
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(1)
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10x
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Commitment to Guarantee Obligations dated May 23, 2001 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation, incorporated by reference to Exhibit 10y to Form 10-K for the fiscal
year ended December 31, 2001 (File No. 1-5491). |
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(1)
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10y
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Credit Agreement and Trust Indenture both dated May 23, 2001 between Rowan and
Citibank, N.A., incorporated by reference to Exhibit 10z to Form 10-K for the fiscal
year ended December 31, 2001 (File No. 1-5491). |
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(1)
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10z
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Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation, incorporated by reference to Exhibit 10bb to Form 10-K for the fiscal
year ended December 31, 2003 (File No. 1-5491). |
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(1)
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10aa
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Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and
Citibank, N.A., incorporated by reference to Exhibit 10cc to Form 10-K for the fiscal
year ended December 31, 2003 (File No. 1-5491). |
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(1)
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10bb
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Amendment No. 1 dated June 15, 2005 to the Commitment to Guarantee Obligations between
Rowan and the Maritime Administration of the U.S. Department of Transportation,
incorporated by reference to Exhibit 10a to Form 10-Q for the quarterly period ended
June 30, 2005 (File No. 1-5491). |
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(1)
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10cc
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Supplement No. 1 dated June 15, 2005 to Trust Indenture between Rowan and Citibank,
N.A., incorporated by reference to Exhibit 10b to Form 10-Q for the quarterly period
ended June 30, 2005 (File No. 1-5491). |
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(1)
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10dd
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Commitment to Guarantee Obligations dated May 28, 2003 and First Preferred Ship
Mortgage between Rowan and the Maritime Administration of the U.S. Department of
Transportation , incorporated by reference to Exhibit 10dd to Form 10-K for the fiscal
year ended December 31, 2003 (File No. 1-5491). |
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(1)
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10ee
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Credit Agreement and Trust Indenture both dated May 28, 2003 between Rowan and
Citibank, N.A., incorporated by reference to Exhibit 10ee to Form 10-K for the fiscal
year ended December 31, 2003 (File No. 1-5491). |
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(1)
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10ff
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Amendment No. 1 dated March 28, 2005 to Credit Agreement between Rowan and Citibank,
N.A., incorporated by reference to Exhibit 10a to Form 10-Q for the quarterly period
ended March 31, 2005 (File No. 1-5491). |
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(1)
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10gg
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Amendment No. 2 dated May 4, 2005 to Credit Agreement between Rowan and Citibank, N.A.,
incorporated by reference to Exhibit 10b to Form 10-Q for the quarterly period ended
March 31, 2005 (File No. 1-5491). |
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(1)
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10hh
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Rowan Companies, Inc. 2005 Short-Term Incentive Plans, incorporated by reference to
Exhibit 10.1 to Form 8-K filed May 4, 2006 (File No. 1-5491). |
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(1)
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10ii
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Memorandum Agreement dated January 26, 2006 between Rowan and C. R. Palmer incorporated
by reference to Exhibit 10jj to Form 10-K for fiscal year ended December 31, 2005 (File
No. 1-5491). |
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(1)
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10jj
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Rowan Companies, Inc. 2005 Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.1 to Form 8-K filed May 10, 2005 (File No. 1-5491) and Form of Non-Employee
Director 2005 Restricted Stock Unit Grant, Form of Non-Employee Director 2006
Restricted Stock Unit Grant, Form of 2005 Restricted Stock Grant Agreement, Form of
2005 Nonqualified Stock Option Agreement, of 2005 Performance Share Award Agreement
related thereto, each incorporated by reference to Exhibits 10c, 10d, 10e, 10f and 10g,
respectively, to Form 10-Q for the quarterly period ended June 30, 2005 (File No.
1-5491). |
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(1)
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14 |
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Code of Business Conduct for Senior Financial Officers of the Company, incorporated by
reference to Exhibit 14 to Form 10-K for the fiscal year ended December 31, 2003 (File
No. 1-5491). |
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(2)
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21 |
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Subsidiaries of the Registrant as of February 26, 2007. |
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(2)
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23 |
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Consent of Independent Registered Public Accounting Firm |
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(2)
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24 |
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Powers of Attorney pursuant to which names were affixed to this Form 10-K for the
fiscal year ended December 31, 2006. |
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(2)
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31a |
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Rule 13a-14(a)/15d-14(a) Certification (Section 302 of the Sarbanes-Oxley Act of 2002). |
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(2)
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31b |
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Rule 13a-14(a)/15d-14(a) Certification (Section 302 of the Sarbanes-Oxley Act of 2002). |
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(2)
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32 |
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Section 1350 Certifications (Section 906 of the Sarbanes-Oxley Act of 2002). |
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(2)
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99 |
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Annual CEO Certification to the New York Stock Exchange. |
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| (1) |
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Incorporated herein by reference to another filing of the Company with the Securities and Exchange Commission. |
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| (2) |
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Included herein. |
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