Rowan Reports Fourth Quarter and Full-Year 2018 Results

ROWAN COMPANIES PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

Three months ended December 31,

Twelve months ended December 31,

2018

2017

2018

2017

REVENUE

$

179.4

$

296.7

$

824.8

$

1,282.8

COSTS AND EXPENSES:

Direct operating costs (excluding items below)

166.7

176.2

682.7

685.0

Depreciation and amortization

94.6

99.7

388.9

403.7

Selling, general and administrative

20.0

33.3

96.1

104.6

Gain on sale of assets to unconsolidated subsidiary

(65.8)

(157.4)

(65.8)

(157.4)

Loss on disposals of property and equipment

7.1

0.1

12.1

9.4

Merger and related costs

7.6

—

8.9

—

Total costs and expenses

230.2

151.9

1,122.9

1,045.3

Equity in earnings of unconsolidated subsidiary

6.9

0.9

10.3

0.9

INCOME (LOSS) FROM OPERATIONS

(43.9)

145.7

(287.8)

238.4

OTHER INCOME (EXPENSE):

Interest expense

(39.7)

(38.7)

(156.3)

(155.7)

Interest income

10.5

6.5

33.1

15.4

Gain on extinguishment of debt

—

—

—

1.7

Other - net

1.4

(4.2)

12.0

(0.5)

Total other (expense) - net

(27.8)

(36.4)

(111.2)

(139.1)

INCOME (LOSS) BEFORE INCOME TAXES

(71.7)

109.3

(399.0)

99.3

Provision (benefit) for income taxes

(57.4)

(2.7)

(51.6)

26.6

NET INCOME (LOSS)

$

(14.3)

$

112.0

$

(347.4)

$

72.7

NET INCOME (LOSS) PER SHARE - DILUTED

$

(0.11)

$

0.89

$

(2.74)

$

0.57

WEIGHTED AVERAGE SHARES - BASIC

127.1

126.3

126.9

126.1

WEIGHTED AVERAGE SHARES - DILUTED

127.1

128.1

126.9

127.7

ROWAN COMPANIES PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

December 31,

2018

2017

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,026.7

$

1,332.1

Receivables - trade and other

251.2

212.8

Prepaid expenses and other current assets

22.4

15.5

Total current assets

1,300.3

1,560.4

Property and equipment - net

6,201.0

6,552.7

Long-term note receivable from unconsolidated subsidiary

456.0

270.2

Investment in unconsolidated subsidiary

41.2

30.9

Other assets

119.2

44.1

$

8,117.7

$

8,458.3

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt

$

201.2

$

—

Accounts payable - trade

122.3

97.2

Deferred revenue

16.7

1.1

Accrued liabilities

113.4

159.1

Total current liabilities

453.6

257.4

Long-term debt

2,309.7

2,510.3

Other liabilities

307.7

293.6

Deferred income taxes - net

11.7

10.9

Shareholders' equity

5,035.0

5,386.1

$

8,117.7

$

8,458.3

ROWAN COMPANIES PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Twelve months ended December 31,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$

(347.4)

$

72.7

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

388.9

403.7

Equity in earnings of unconsolidated subsidiary

(10.3)

(0.9)

Deferred income taxes

(68.1)

24.7

Pension and other postretirement benefits (income) expense

(9.0)

12.5

Share-based compensation expense

24.0

29.0

Gain on sale of assets to unconsolidated subsidiary

(65.8)

(157.4)

Loss on disposals of property and equipment

12.1

9.4

Non-cash interest income from unconsolidated subsidiary (receipt in kind)

(12.0)

—

Other

8.1

1.6

Net changes in current assets and liabilities

(47.9)

103.0

Other postretirement benefit claims paid

(1.4)

(18.4)

Contributions to pension plans

(24.2)

(29.3)

Deferred revenue

5.5

(112.8)

Net changes in other noncurrent assets and liabilities

(12.6)

(38.0)

Net cash provided by (used in) operating activities

(160.1)

299.8

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(169.2)

(100.6)

Purchase of rigs

(70.8)

—

Deposit on purchase of rigs

—

(7.7)

Investment in unconsolidated subsidiary

—

(30.0)

Contributions to unconsolidated subsidiary for note receivable

(271.3)

(357.7)

Proceeds from sale of assets to unconsolidated subsidiary

266.0

357.7

Repayments of note receivable from unconsolidated subsidiary

98.5

87.5

Proceeds from disposals of property and equipment

12.7

3.3

Net cash used in investing activities

(134.1)

(47.5)

CASH FLOWS FROM FINANCING ACTIVITIES:

Reductions of long-term debt

—

(170.0)

Debt issue costs

(6.1)

—

Proceeds from exercise of share options

0.1

—

Shares repurchased for tax withholdings on vesting of restricted share units

(5.2)

(5.7)

Net cash used in financing activities

(11.2)

(175.7)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(305.4)

76.6

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,332.1

1,255.5

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,026.7

$

1,332.1

ROWAN COMPANIES PLC

SUPPLEMENTAL OPERATING SEGMENT INFORMATION

(In millions)

(Unaudited) 

Three months ended December 31,

Deepwater

Jack-ups

ARO

Unallocated and other

Reportable segments total

Eliminations and adjustments

Consolidated

2018

Revenue

$

26.3

$

146.2

$

130.5

$

6.9

$

309.9

$

(130.5)

$

179.4

Operating expenses:

Direct operating costs (excluding items below)

50.4

116.3

73.5

—

240.2

(73.5)

166.7

Depreciation and amortization

27.3

67.0

17.0

0.3

111.6

(17.0)

94.6

Selling, general and administrative

—

—

7.0

20.0

27.0

(7.0)

20.0

Gain on sale of assets to unconsolidated subsidiary

—

(65.8)

—

—

(65.8)

—

(65.8)

Other operating items - expense

1.6

0.3

1.4

5.2

8.5

(1.4)

7.1

Merger and related costs

—

—

—

7.6

7.6

—

7.6

Equity in earnings of unconsolidated subsidiary

—

—

—

—

—

6.9

6.9

Income (loss) from operations

$

(53.0)

$

28.4

$

31.6

$

(26.2)

$

(19.2)

$

(24.7)

$

(43.9)

2017 ⁽¹⁾

Revenue

$

96.1

$

193.2

$

48.6

$

7.4

$

345.3

$

(48.6)

$

296.7

Operating expenses:

Direct operating costs (excluding items below)

34.3

141.9

22.2

—

198.4

(22.2)

176.2

Depreciation and amortization

27.5

71.6

12.9

0.6

112.6

(12.9)

99.7

Selling, general and administrative

—

—

6.1

33.3

39.4

(6.1)

33.3

Gain on sale of assets to unconsolidated subsidiary

—

(157.4)

—

—

(157.4)

—

(157.4)

Other operating items - expense (income)

0.1

—

(0.1)

—

—

0.1

0.1

Equity in earnings of unconsolidated subsidiary

—

—

—

—

—

0.9

0.9

Income (loss) from operations

$

34.2

$

137.1

$

7.5

$

(26.5)

$

152.3

$

(6.6)

$

145.7

⁽¹⁾ ARO commenced operations October 17, 2017.

ROWAN COMPANIES PLC

SUPPLEMENTAL OPERATING SEGMENT INFORMATION

(In millions)

(Unaudited)

Twelve months ended December 31,

Deepwater

Jack-ups

ARO

Unallocated and other

Reportable segments total

Eliminations and adjustments

Consolidated

2018

Revenue

$

158.1

$

632.9

$

348.8

$

33.8

$

1,173.6

$

(348.8)

$

824.8

Operating expenses:

Direct operating costs (excluding items below)

168.6

514.1

194.0

—

876.7

(194.0)

682.7

Depreciation and amortization

108.5

278.3

67.4

2.1

456.3

(67.4)

388.9

Selling, general and administrative

—

—

27.0

96.1

123.1

(27.0)

96.1

Gain on sale of assets to unconsolidated subsidiary

—

(65.8)

—

—

(65.8)

—

(65.8)

Other operating items - expense

1.6

5.3

1.4

5.2

13.5

(1.4)

12.1

Merger and related costs

—

—

—

8.9

8.9

—

8.9

Equity in earnings of unconsolidated subsidiary

—

—

—

—

—

10.3

10.3

Income (loss) from operations

$

(120.6)

$

(99.0)

$

59.0

$

(78.5)

$

(239.1)

$

(48.7)

$

(287.8)

2017 ⁽¹⁾

Revenue

$

467.9

$

807.5

$

48.6

$

7.4

$

1,331.4

$

(48.6)

$

1,282.8

Operating expenses:

Direct operating costs (excluding items below)

151.4

533.6

22.2

—

707.2

(22.2)

685.0

Depreciation and amortization

111.6

289.4

12.9

2.7

416.6

(12.9)

403.7

Selling, general and administrative

—

—

6.1

104.6

110.7

(6.1)

104.6

Gain on sale of assets to unconsolidated subsidiary

—

(157.4)

—

—

(157.4)

—

(157.4)

Other operating items - expense (income)

0.1

9.3

(0.1)

—

9.3

0.1

9.4

Equity in earnings of unconsolidated subsidiary

—

—

—

—

—

0.9

0.9

Income (loss) from operations

$

204.8

$

132.6

$

7.5

$

(99.9)

$

245.0

$

(6.6)

$

238.4

(1) ARO commenced operations October 17, 2017.

ROWAN COMPANIES PLC

SUPPLEMENTAL OPERATING INFORMATION

(Unaudited)

Three months ended

Twelve months ended

December 31,

September 30,

December 31,

December 31,

2018

2018

2017

2018

2017

RIG DAYS ⁽¹⁾

Deepwater:

Revenue-producing ⁽²⁾

180

102

125

442

783

Available

368

368

368

1,460

1,460

Jack-up:

Revenue-producing ^{(3) (4)}

1,429

1,293

1,448

4,844

6,144

Available ⁽³⁾

1,564

1,748

1,883

6,751

8,162

Total:

Revenue-producing ^{(2) (3) (4)}

1,609

1,395

1,573

5,286

6,927

Available ⁽³⁾

1,932

2,116

2,251

8,211

9,622

UTILIZATION ⁽¹⁾

Deepwater ⁽²⁾

49

%

28

%

34

%

30

%

54

%

Jack-up ⁽³⁾

91

%

74

%

77

%

72

%

75

%

Total ^{(2) (3)}

83

%

66

%

70

%

64

%

72

%

AVERAGE DAY RATES ⁽⁵⁾ (in thousands)

Deepwater ^(2) (6)

$

138.1

$

135.0

$

767.1

$

351.2

$

594.8

Jack-up ⁽³⁾

$

84.2

$

115.9

$

123.3

$

114.8

$

127.7

Total ^{(2) (3) (6)}

$

90.2

$

117.3

$

174.5

$

134.6

$

180.5

REBILLABLES ⁽⁷⁾ (in millions)

Deepwater

$

1.4

$

0.1

$

0.2

$

2.7

$

2.2

Jack-up ^{(3) (8)}

24.2

18.3

13.8

70.9

21.2

Total ^{(3) (8)}

$

25.6

$

18.4

$

14.0

$

73.6

$

23.4

(1) Available rig days and utilization exclude cold-stacked days. For rigs leased to ARO, the number of available days is based on the number of days available for hire under the Bareboat Charter lease to ARO. Utilization for rigs leased to ARO, includes the number of days on hire under Bareboat Charter to ARO divided by the number of available days.

(2) Revenue-producing days for the three and twelve months ended December 31, 2017 includes 33 days and 125 days, respectively, for the Deepwater drillship Rowan Reliance when it was not operating. The drillship did not operate in the third and fourth quarter of 2017, but was available for Cobalt through November 2, 2017 per the 2016 contract amendment. Revenue of $41 million and $70 million, previously deferred in 2016, was recognized during the three and twelve months ended December 31, 2017, respectively, related to these days for which the rig was available to Cobalt but was not operating as well as the recognition of any remaining deferred revenue at November 2, 2017 as Cobalt did not exercise their right to use the rig.

(3) All revenue and performance metrics exclude the results of rigs owned by ARO beginning on October 17, 2017 and October 1, 2018, the dates such rigs were sold to ARO.

(4) For rigs leased to ARO, revenue-producing days includes the number of days on hire under Bareboat Charter lease to ARO.

(5) Average day rates exclude other revenue, which is revenue received for rebillabiles, secondment, transition services and other miscellaneous. Day rate revenue includes contractual rates, Bareboat Charter lease revenue from ARO and amounts for rig mobilization, unconstrained demobilization or capital improvements, which are amortized over the expected recognition period of the contract.

(6) For the twelve months ended December 31, 2018, revenue for this calculation includes $27.8 million related to the Anadarko early contract termination fee to which there are no associated revenue-producing days.

(7) Rebillable operating costs equally offset with rebillable revenue.

(8) Includes secondment revenue from ARO.

ROWAN COMPANIES PLC

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In millions, except per share amounts)

(Unaudited)

Three months ended December 31, 2018

Three months ended December 31, 2017

Pretax

Tax

Net

Diluted EPS*

Pretax

Tax

Net

Diluted EPS*

GAAP NET INCOME (LOSS)

$

(71.7)

$

57.4

$

(14.3)

$

(0.11)

$

109.3

$

2.7

$

112.0

$

0.89

Gain on sale of assets to unconsolidated subsidiary

(65.8)

—

(65.8)

(0.52)

(157.4)

5.7

(151.7)

(1.18)

Merger and related costs

7.6

—

7.6

0.06

—

—

—

—

Discrete tax item

—

(68.4)

(68.4)

(0.54)

—

—

—

—

NON-GAAP NET INCOME (LOSS)

$

(129.9)

$

(11.0)

$

(140.9)

$

(1.11)

$

(48.1)

$

8.4

$

(39.7)

$

(0.31)

Twelve months ended December 31, 2018

Twelve months ended December 31, 2017

Pretax

Tax

Net

Diluted EPS*

Pretax

Tax

Net

Diluted EPS*

GAAP NET INCOME (LOSS)

$

(399.0)

$

51.6

$

(347.4)

$

(2.74)

$

99.3

$

(26.6)

$

72.7

$

0.57

Gain on sale of assets to unconsolidated subsidiary

(65.8)

—

(65.8)

(0.52)

(157.4)

5.7

(151.7)

(1.19)

Gain on extinguishment of debt

—

—

—

—

(1.7)

—

(1.7)

(0.01)

Merger and related costs

8.9

—

8.9

0.07

—

—

—

—

Discrete tax item

—

(68.4)

(68.4)

(0.54)

—

—

—

—

NON-GAAP NET LOSS

$

(455.9)

$

(16.8)

$

(472.7)

$

(3.72)

$

(59.8)

$

(20.9)

$

(80.7)

$

(0.64)

* Per share amounts may not sum due to rounding.

Three months ended

Twelve months ended

December 31,

December 31,

2018

2017

2018

2017

ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA):

GAAP NET INCOME (LOSS)

$

(14.3)

$

112.0

$

(347.4)

$

72.7

Depreciation and amortization

94.6

99.7

388.9

403.7

Equity in earnings of unconsolidated subsidiary

(6.9)

(0.9)

(10.3)

(0.9)

Interest (income) expense and other, net

27.8

36.4

111.2

140.8

Income tax expense (benefit)

(57.4)

(2.7)

(51.6)

26.6

Gain on extinguishment of debt

—

—

—

(1.7)

Gain on sale of assets to unconsolidated subsidiary

(65.8)

(157.4)

(65.8)

(157.4)

Loss on disposals of property and equipment

7.1

0.1

12.1

9.4

Merger and related costs

7.6

—

8.9

—

NON-GAAP ADJUSTED EBITDA

$