Houston-headquartered offshore drilling contractor Rowan Companies, Inc. (NYSE: RDC) today announced a plan that would see the company’s legal domicile change from Delaware to the United Kingdom (U.K.).
Rowan says that the offshore drilling industry is a global business and that the change aligns the company’s structure with its significant shift in strategic focus toward key global markets over the past decade. It also reflects the central role of its U.K. base to Rowan’s management and oversight of its global operations. Rowan estimates approximately 81 percent of revenue will be derived from non-U.S. operations in 2012, compared with just ten percent in 2004.
Rowan expects that over the long term the proposed plan will lead to further growth and job creation in the U.S. and globally and says it will have no effect on employees’ jobs, wages, or current benefits.
Rowan’s Board of Directors believes the plan reflects and reinforces many operating benefits from its growing base of activity in the U.K., including:
- Improving access to key customers in the U.K., Europe and Egypt, which collectively comprise 59 percent of Rowan’s contract backlog;
- Enhancing the company’s ability to further expand in the North Sea and other markets by continuing to build an efficient shore base from which to reach its rigs and communicate with key customers in those important markets;
- Improving the general perception with customers and the investment community that Rowan is a global contract driller with an increasing focus on international markets, which generally offer longer-term contracts, a stronger backlog and more predictable cash flow; and
- Allowing Rowan, over the long term, to remain competitive with the effective tax rates of its global competitors, most of which are domiciled outside the U.S.
W. Matt Ralls, President and Chief Executive Officer, commented, “With this change in our structure, we formally recognize that the base of operations we first established in the U.K. more than three decades ago is now a central and efficient location from which we manage the markets that will be our largest source of revenue this year. The changes we are making will increase shareholder value over time by improving our competitiveness as a global contract driller and by giving us greater flexibility to manage our global operations. Our industry has already moved in this direction, and over the long term, by making the company even more competitive, we can grow and reinvest in our business, leading to the creation of more high-paying jobs both in the U.S. and in the other markets we serve.”
The plan provides that the company would consummate a merger with one of its subsidiaries. As a result of the merger, all common stock of the company – including shares granted under the company’s equity based incentive plans — will be exchanged for American depositary shares (“ADS”) of its new U.K. parent company – a newly formed English public limited company to be named “Rowan Companies plc” (“Rowan UK”). ADS will represent Class A Ordinary Shares of Rowan UK. Upon completion of the merger, Rowan’s business and operations will continue in substantially the same manner except that Rowan UK will be the parent company of the Rowan group of companies. Rowan will submit an application to the New York Stock Exchange (“NYSE”) and anticipates that, immediately following the effective time of the merger, the ADS will be listed on the NYSE under the symbol “RDC,” the current symbol for Rowan Delaware common stock. The plan is subject to stockholder approval and other conditions, including receipt of applicable consents and approvals. Rowan currently anticipates that it will complete the proposed change in corporate structure by late spring.
Rowan UK will remain subject to U.S. Securities and Exchange Commission (“SEC”) reporting requirements, the mandates of the Sarbanes-Oxley Act and the applicable corporate governance rules of the NYSE. The company will continue to report its financial results in U.S. dollars under U.S. generally accepted accounting principles.
FOURTH QUARTER REPORT
Rowan’s fourth quarter results for the three months ended December 31, 2011, announced today, saw it report inet income from continuing operations of $33.1 million or $0.27 per share, compared to $35.1 million or $0.28 per share in the fourth quarter of 2010.
Costs and expenses during fourth quarter of 2011 included $10.7 million of unusual or one-time items, or $0.05 per share after tax, for employee personal injury claims development, accelerated recognition of equity awards in connection with employee severance and professional fees related to the planned corporate redomestication.
Income from discontinued manufacturing and land drilling operations totaled $12.0 million in the fourth quarter of 2011 or $0.09 per share, compared to $22.2 million or $0.17 per share in the fourth quarter of 2010.
Net income totaled $45.1 million or $0.36 per share in the fourth quarter of 2011, compared to $57.3 million or $0.45 per share in the fourth quarter of 2010.
For the year ended December 31, 2011, the company generated net income from continuing operations of $135.7 million or $1.07 per share on revenues of $939.2 million, compared to net income from continuing operations of $267.6 million or $2.25 per share on revenues of $1,017.7 million in 2010.
Rowan’s revenues were $275.1 million in the fourth quarter of 2011, up by 32 percent over the prior-year quarter due to incremental activity from fleet additions and rig start-ups and slightly higher average day rates between periods. Gross drilling margin was 41 percent of revenues in the fourth quarter of 2011, down from 52 percent in the prior-year quarter primarily due to increased rig shipyard and other downtime together with higher labor and maintenance costs. The higher costs result largely from the relocation of equipment to various international markets either for term contracts or where follow on opportunities are expected to keep the rig working beyond 2012.
Mr. Ralls, commented, “2011 was a year of major transformation for Rowan. We sold our manufacturing and land drilling operations at attractive prices and are reinvesting those proceeds into a significant expansion of our core business, offshore drilling. We completed our jack-up newbuilding projects and began an ultra-deepwater newbuild program, entering that fast growing part of the business with three drillships to be built by Hyundai Heavy Industries that will offer industry- leading capabilities. Since the beginning of 2011, we have added more than $2.6 billion of contract backlog for our jack-up fleet, bringing our total backlog to just over $3 billion, an all time high for the company.”
Commenting on the plan to redomicile the company, he said, “Having our board and management meetings in the U.K., with its central location between the Middle East and the Gulf of Mexico – our second and third largest revenue areas – will improve our ability to manage those operations and communicate with our customers and regional management teams. We do not expect our U.S. employment to be impacted by this move. Rather, we believe this transaction will position the Company competitively to increase its earnings power over the long term so that we can continue to grow our fleet and employment opportunities in all the markets in which we operate.”
February 28, 2012