Rowan Reports Fourth Quarter and Full-Year 2017 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,

2017

2016

2017

2016

REVENUE

$

296.7

$

351.8

$

1,282.8

$

1,843.2

COSTS AND EXPENSES:

Direct operating costs (excluding items below)

179.9

179.9

684.8

778.2

Depreciation and amortization

99.7

101.7

403.7

402.9

Selling, general and administrative

33.9

25.6

104.9

102.1

Gain on sale of assets to unconsolidated subsidiary

(157.4)

—

(157.4)

—

Loss on disposals of property and equipment

0.1

3.4

9.4

8.7

Material charges and other operating items

—

—

—

32.9

Total costs and expenses

156.2

310.6

1,045.4

1,324.8

Equity in earnings of unconsolidated subsidiary

0.9

—

0.9

—

INCOME FROM OPERATIONS

141.4

41.2

238.3

518.4

OTHER INCOME (EXPENSE):

Interest expense

(38.7)

(38.9)

(155.7)

(155.5)

Interest income

6.5

1.7

15.4

3.8

Gain (loss) on extinguishment of debt

—

(33.6)

1.7

(31.2)

Other - net

0.1

(4.5)

(0.4)

(9.9)

Total other (expense), net

(32.1)

(75.3)

(139.0)

(192.8)

INCOME (LOSS) BEFORE INCOME TAXES

109.3

(34.1)

99.3

325.6

Provision (benefit) for income taxes

(2.7)

(9.7)

26.6

5.0

NET INCOME (LOSS)

$

112.0

$

(24.4)

$

72.7

$

320.6

NET INCOME (LOSS) PER SHARE - DILUTED

$

0.89

$

(0.19)

$

0.57

$

2.55

WEIGHTED AVERAGE SHARES - BASIC

126.3

125.4

126.1

125.3

WEIGHTED AVERAGE SHARES - DILUTED

128.1

125.4

127.7

126.3

ROWAN COMPANIES PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

December 31,
2017

December 31,
2016

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

1,332.1

$

1,255.5

Receivables - trade and other

212.8

301.3

Prepaid expenses and other current assets

15.5

23.5

Total current assets

1,560.4

1,580.3

Property and equipment - net

6,552.7

7,060.0

Long-term note receivable from unconsolidated subsidiary

270.2

—

Investment in unconsolidated subsidiary

30.9

—

Other assets

44.1

35.3

$

8,458.3

$

8,675.6

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Current portion of long-term debt

$

—

$

126.8

Accounts payable - trade

97.2

94.3

Deferred revenue

1.1

103.9

Accrued liabilities

159.1

158.8

Total current liabilities

257.4

483.8

Long-term debt, less current portion

2,510.3

2,553.4

Other liabilities

293.6

338.8

Deferred income taxes - net

10.9

185.7

Shareholders' equity

5,386.1

5,113.9

$

8,458.3

$

8,675.6

ROWAN COMPANIES PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Twelve months ended December 31,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

72.7

$

320.6

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

403.7

402.9

Equity in earnings of unconsolidated subsidiary

(0.9)

—

Deferred income taxes

24.7

(37.9)

Provision for pension and other postretirement benefits

12.5

15.0

Share-based compensation expense

29.0

34.6

Gain on sale of assets to unconsolidated subsidiary

(157.4)

—

Loss on disposals of property and equipment

9.4

8.7

Contingent payment derivative

0.1

(6.1)

Asset impairment charges

—

34.3

Other

1.5

3.7

Net changes in current assets and liabilities

103.0

83.8

Other postretirement benefit claims paid

(18.4)

(7.9)

Contributions to pension plans

(29.3)

(22.5)

Deferred revenue

(112.8)

63.7

Net changes in other noncurrent assets and liabilities

(38.0)

12.7

Net cash provided by operating activities

299.8

905.6

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(100.6)

(117.6)

Deposit on purchase of rigs

(7.7)

—

Investment in unconsolidated subsidiary

(30.0)

—

Contributions to unconsolidated subsidiary for note receivable

(357.7)

—

Proceeds from sale of assets to unconsolidated subsidiary

357.7

—

Repayments of note receivable from unconsolidated subsidiary

87.5

—

Proceeds from disposals of property and equipment

3.3

6.2

Net cash used in investing activities

(47.5)

(111.4)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings

—

500.0

Reductions of long-term debt

(170.0)

(511.8)

Debt issue costs

—

(8.7)

Excess tax benefits from share-based compensation

—

2.6

Shares repurchased for tax withholdings on vesting of restricted share units

(5.7)

(5.0)

Net cash used in financing activities

(175.7)

(22.9)

INCREASE IN CASH AND CASH EQUIVALENTS

76.6

771.3

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

1,255.5

484.2

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,332.1

$

1,255.5

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

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)

35.2

144.7

22.2

—

202.1

(22.2)

179.9

Depreciation and amortization

27.5

71.6

12.9

0.6

112.6

(12.9)

99.7

Selling, general and administrative

—

—

6.1

33.9

40.0

(6.1)

33.9

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

$

33.3

$

134.3

$

7.5

$

(27.1)

$

148.0

$

(6.6)

$

141.4

(1) ARO commenced operations October 17, 2017.

2016

Revenue

$

128.5

$

223.3

$

—

$

—

$

351.8

$

—

$

351.8

Operating expenses:

Direct operating costs (excluding items below)

46.6

133.3

—

—

179.9

—

179.9

Depreciation and amortization

29.0

71.6

—

1.1

101.7

—

101.7

Selling, general and administrative

—

—

—

25.6

25.6

—

25.6

Other operating items - expense (income)

(0.3)

3.6

—

0.1

3.4

—

3.4

Income (loss) from operations

$

53.2

$

14.8

$

—

$

(26.8)

$

41.2

$

—

$

41.2

Year ended December 31,

Deepwater

Jack-ups

ARO

Unallocated
and other

Reportable
segments total

Eliminations
and
adjustments

Consolidated

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

533.4

22.2

—

707.0

(22.2)

684.8

Depreciation and amortization

111.6

289.4

12.9

2.7

416.6

(12.9)

403.7

Selling, general and administrative

—

—

6.1

104.9

111.0

(6.1)

104.9

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

$

132.8

$

7.5

$

(100.2)

$

244.9

$

(6.6)

$

238.3

(1) ARO commenced operations October 17, 2017.

2016

Revenue

$

827.5

$

1,015.7

$

—

$

—

$

1,843.2

$

—

$

1,843.2

Operating expenses:

Direct operating costs (excluding items below)

222.0

556.2

—

—

778.2

—

778.2

Depreciation and amortization

115.0

282.6

—

5.3

402.9

—

402.9

Selling, general and administrative

—

—

—

102.1

102.1

—

102.1

Other operating items - expense

0.1

40.9

—

0.6

41.6

—

41.6

Income (loss) from operations

$

490.4

$

136.0

$

—

$

(108.0)

$

518.4

$

—

$

518.4

ARO DRILLING

SUPPLEMENTAL FINANCIAL INFORMATION

(In millions)

(Unaudited)

October 17, 2017 to

December 31, 2017

Revenue

$

48.6

Direct operating costs (excluding items below)

22.2

Depreciation and amortization

12.9

Selling, general and administrative

6.1

Gain on disposals of property and equipment

(0.1)

Income from Operations

7.5

Interest expense

(4.2)

Provision for income taxes

1.6

Net Income

$

1.7

October 17, 2017 to

December 31, 2017

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

GAAP NET INCOME (LOSS)

$

1.7

 Depreciation and amortization

12.9

 Gain on disposals of property and equipment

(0.1)

 Interest expense

4.2

 Provision for income taxes

1.6

NON-GAAP ADJUSTED EBITDA

$

20.3

ROWAN COMPANIES PLC

SUPPLEMENTAL OPERATING INFORMATION

(Unaudited)

Three months ended

Twelve months ended

December 31,

September 30,

December 31,

December 31,

2017

2017

2016

2017

2016

RIG DAYS ⁽¹⁾

Deepwater:

Revenue-producing ⁽²⁾

125

184

276

783

1,238

Available

368

368

368

1,460

1,464

Jack-up:

Revenue-producing ⁽³⁾

1,448

1,646

1,389

6,144

5,999

Available ⁽³⁾

1,883

2,115

2,208

8,162

8,784

Total:

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

1,573

1,830

1,665

6,927

7,237

Available ⁽³⁾

2,251

2,483

2,576

9,622

10,248

UTILIZATION ⁽¹⁾

Deepwater ⁽²⁾

34

%

50

%

75

%

54

%

85

%

Jack-up ⁽³⁾

77

%

78

%

63

%

75

%

68

%

Total ^{(2) (3)}

70

%

74

%

65

%

72

%

71

%

AVERAGE DAY RATES ⁽⁴⁾ (in thousands)

Deepwater ^(2) (5)

$

767.1

$

476.6

$

464.5

$

594.8

$

550.7

Jack-up ⁽³⁾

$

123.3

$

122.1

$

156.6

$

127.7

$

165.8

Total ^{(2) (3) (5)}

$

174.5

$

157.7

$

207.6

$

180.5

$

231.7

REBILLABLES ⁽⁶⁾ (in millions)

Deepwater

$

0.2

$

0.8

$

0.2

$

2.2

$

2.8

Jack-up ^{(3) (7)}

13.8

1.9

5.3

21.2

18.1

Total ⁽³⁾

$

14.0

$

2.7

$

5.5

$

23.4

$

20.9

(1) Available rig days and utilization exclude cold-stacked days.

(2) Revenue-producing days for the three months ended September 30, 2017 and the three and twelve months ended December 31, 2017 includes 92 days, 33 days and 125 days, respectively, for the Deepwater drillship Rowan Reliance during which 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 $29 million, $41 million and $70 million, was recognized during the three months ended September 30, 2017 and the three and twelve months ended December 31, 2017, respectively.

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

(4) Average day rates exclude other revenue, which is primarily revenue received for contract reimbursable costs.

(5) Average day rate for the twelve months ended December 31, 2016 includes operating days for the drillship Rowan Relentless up to the contract termination which was 143 days.

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

(7) 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, 2017

Three months ended December 31, 2016

Pretax

Tax

Net

Diluted
EPS*

Pretax

Tax

Net

Diluted
EPS*

GAAP NET INCOME (LOSS)

$

109.3

$

2.7

$

112.0

$

0.89

$

(34.1)

$

9.7

$

(24.4)

$

(0.19)

Gain on sale of assets to unconsolidated subsidiary

(157.4)

5.7

(151.7)

(1.18)

—

—

—

—

Loss on extinguishment of debt

—

—

—

—

33.6

—

33.6

0.27

NON-GAAP NET INCOME (LOSS)

$

(48.1)

$

8.4

$

(39.7)

$

(0.31)

$

(0.5)

$

9.7

$

9.2

$

0.08

Twelve months ended December 31, 2017

Twelve months ended December 31, 2016

Pretax

Tax

Net

Diluted
EPS*

Pretax

Tax

Net

Diluted
EPS*

GAAP NET INCOME

$

99.3

$

(26.6)

$

72.7

$

0.57

$

325.6

$

(5.0)

$

320.6

$

2.55

Gain on sale of assets to unconsolidated subsidiary

(157.4)

5.7

(151.7)

(1.19)

—

—

—

—

(Gain) loss on extinguishment of debt

(1.7)

—

(1.7)

(0.01)

31.2

—

31.2

0.25

Non-cash asset impairment charges

—

—

—

—

34.3

—

34.3

0.27

Litigation-related credit

—

—

—

—

(1.4)

—

(1.4)

(0.01)

Customer contract termination settlement

—

—

—

—

(120.0)

—

(120.0)

(0.95)

NON-GAAP NET INCOME (LOSS)

$

(59.8)

$

(20.9)

$

(80.7)

$

(0.64)

$

269.7

$

(5.0)

$

264.7

$

2.11

* Per share amounts may not sum due to rounding.

Three months ended

Twelve months ended

December 31,

December 31,

2017

2016

2017

2016

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

GAAP NET INCOME (LOSS)

$

112.0

$

(24.4)

$

72.7

$

320.6

Depreciation and amortization

99.7

101.7

403.7

402.9

Equity in earnings of unconsolidated subsidiary

(0.9)

—

(0.9)

—

Interest (income) expense and other, net

32.1

41.7

140.7

161.6

Income tax expense (benefit)

(2.7)

(9.7)

26.6

5.0

(Gain) loss on extinguishment of debt

—

33.6

(1.7)

31.2

Non-cash asset impairment charges

—

—

—

34.3

Litigation-related credit

—

—

—

(1.4)

Gain on sale of assets to unconsolidated subsidiary

(157.4)

—

(157.4)

—

(Gain) loss on disposals of property and equipment

0.1

3.4

9.4

8.7

Customer contract termination settlement

—

—

—

(120.0)

NON-GAAP ADJUSTED EBITDA

$

82.9

$

146.3

$

493.1

$

842.9