Rowan Companies 10-Q 2004 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM_____TO_____

 

ROWAN COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	1-5491	75-0759420
(State or other jurisdiction of	Commission File	(I.R.S. Employer
incorporation or organization)	Number	Identification No.)

2800 Post Oak Boulevard, Suite 5450 Houston, Texas	77056-6127
(Address of principal executive offices)	(Zip Code)

(713) 621-7800

Registrant's telephone number, including area code

Inapplicable

(Former name, former address and former fiscal year, if changed since last report)

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 x   Noo 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes x   Noo 

The number of shares of common stock, $.125 par value, outstanding at July 31, 2004 was 106,803,942.

ROWAN COMPANIES, INC.

INDEX

		Page No.
PART I.	Financial Information:
Item 1.	Financial Statements:
	Consolidated Balance Sheet -- June 30, 2004 and December 31, 2003	2
	Consolidated Statement of Operations -- Three and Six Months Ended June 30, 2004 and 2003	4
	Consolidated Statement of Cash Flows -- Six Months Ended June 30, 2004 and 2003	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II.	Other Information:
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 6.	Exhibits and Reports on Form 8-K	17
SIGNATURES		18

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

		June 30,		December 31,
		2004		2003
ASSETS		(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	294,680	$	58,227
Receivables - trade and other		149,522		135,538
Inventories - at cost:
Raw materials and supplies		139,881		140,413
Work-in-progress		36,691		29,421
Finished goods		11,115		11,203
Prepaid expenses		12,026		2,948
Deferred tax assets - net		10,429		66,474
Total current assets		654,344		444,224
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment		2,263,448		2,133,365
Aircraft and related equipment		257,583		265,165
Manufacturing plant and equipment		142,643		138,803
Construction in progress		64,506		135,707
Other property and equipment		164,958		162,010
Total		2,893,138		2,835,050
Less accumulated depreciation and amortization		1,141,111		1,106,831
Property, plant and equipment - net		1,752,027		1,728,219
GOODWILL AND OTHER ASSETS		18,305		18,366
TOTAL	$	2,424,676	$	2,190,809
See Notes to Consolidated Financial Statements.

-2-

ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

	June 30,			December 31,
		2004			2003
LIABILITIES AND STOCKHOLDERS' EQUITY		(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	59,883		$	55,267
Accounts payable - trade		29,571			25,898
Other current liabilities		65,774			69,200
Total current liabilities		155,228			150,365
LONG-TERM DEBT - less current maturities		585,278			569,067
OTHER LIABILITIES		134,212			116,268
DEFERRED INCOME TAXES - net		155,244			218,279
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value:
Authorized 5,000,000 shares issuable in series:
Series III Preferred Stock, authorized 10,300 shares, none outstanding
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 105,901,619 shares atJune 30, 2004 and 95,845,180 sharesat December 31, 2003		13,238			11,981
Additional paid-in capital		899,845			659,849
Retained earnings		536,316			549,749
Cost of 1,734,440 treasury sharesat December 31, 2003		-			(30,064	)
Accumulated other comprehensive loss		(54,685	)		(54,685	)
Total stockholders' equity		1,394,714			1,136,830
TOTAL	$	2,424,676		$	2,190,809
See Notes to Consolidated Financial Statements.

-3-

ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

		For The Three Months						For The Six Months
		Ended June 30,						Ended June 30,
		2004			2003			2004			2003
	(Unaudited)
REVENUES:
Drilling services	$	115,545		$	95,138		$	221,234		$	173,024
Manufacturing sales and services		48,878			30,631			89,984			59,671
Aviation services		26,433			32,331			50,119			56,760
Total		190,856			158,100			361,337			289,455
COSTS AND EXPENSES:
Drilling services		88,186			79,121			176,604			156,631
Manufacturing sales and services		43,775			28,693			83,184			55,319
Aviation services		28,829			29,936			55,479			53,370
Depreciation and amortization		23,652			20,923			47,034			41,233
General and administrative		6,169			6,789			12,384			13,294
Total		190,611			165,462			374,685			319,847
INCOME (LOSS) FROM OPERATIONS		245			(7,362	)		(13,348	)		(30,392	)
OTHER INCOME (EXPENSE):
Interest expense		(5,039	)		(4,797	)		(10,104	)		(9,656	)
Less interest capitalized		535			1,355			1,332			2,453
Interest income		868			362			1,528			884
Other - net		134			259			330			379
Other income (expense) - net		(3,502	)		(2,821	)		(6,914	)		(5,940	)
INCOME (LOSS) BEFORE INCOME TAXES		(3,257	)		(10,183	)		(20,262	)		(36,332	)
Provision (credit) for income taxes		(1,132	)		(3,559	)		(6,829	)		(12,526	)
NET INCOME (LOSS)	$	(2,125	)	$	(6,624	)	$	(13,433	)	$	(23,806	)
NET INCOME (LOSS) PER SHAREOF COMMON STOCK (Note 3):
Basic	$	(.02	)	$	(.07	)	$	(.13	)	$	(.25	)
Diluted	$	(.02	)	$	(.07	)	$	(.13	)	$	(.25	)
See Notes to Consolidated Financial Statements.

-4-

ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

		For the Six Months
		Ended June 30,
		2004			2003
	(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss)	$	(13,433	)	$	(23,806	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization		47,034			41,233
Provision for pension and postretirement benefits		17,665			13,865
Compensation expense		3,600			3,456
Deferred income taxes		(6,990	)		(12,496	)
Gain on disposals of property, plant and equipment		(5,500	)		(3,687	)
Contributions to pension plans		(1,071	)		(597	)
Postretirement benefit claims paid		(1,785	)		(867	)
Changes in current assets and liabilities:
Receivables- trade and other		(14,889	)		(5,961	)
Inventories		(6,650	)		(25,483	)
Other current assets		(9,078	)		(1,561	)
Current liabilities		3,503			802
Net changes in other noncurrent assets and liabilities		902			(664	)
Net cash provided by (used in) operations		13,308			(15,766	)
Investing activities:
Property, plant and equipment additions		(76,914	)		(137,370	)
Proceeds from disposals of property, plant and equipment		11,636			5,692
Net cash used in investing activities		(65,278	)		(131,678	)
Financing activities:
Proceeds from borrowings		47,259			61,151
Repayments of borrowings		(26,432	)		(21,229	)
Proceeds from common stock offering, net of issue costs		264,980
Proceeds from stock option and convertible debenture plans		2,616			2,417
Net cash provided by financing activities		288,423			42,339
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		236,453			(105,105	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		58,227			178,756
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	294,680		$	73,651
See Notes to Consolidated Financial Statements.

-5-

ROWAN COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  The consolidated financial statements of Rowan included in this Form 10-Q have been prepared without audit in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission. Certain information and notes have been condensed or omitted as permitted by those rules and regulations. We believe that the disclosures included herein are adequate, but suggest that you read these consolidated financial statements in conjunction with the financial statements and related notes included in our 2003 Annual Report to Stockholders and incorporated by reference in our Form 10-K for the year ended December 31, 2003.

We believe the accompanying unaudited consolidated financial statements contain all adjustments, which are of a normal recurring nature, necessary to present fairly Rowan’s financial position as of June 30, 2004 and December 31, 2003, and the results of its operations for the three and six months ended June 30, 2004 and 2003 and its cash flows for the six months ended June 30, 2004 and 2003.

      Rowan’s results of operations and cash flows for the six months ended June 30, 2004 are not necessarily indicative of results to be expected for the full year.

2.  Rowan has three principal operating segments: contract drilling of oil and gas wells, both onshore and offshore (“Drilling”), helicopter and fixed-wing aircraft services (“Aviation”) and the manufacture and sale of heavy equipment for the mining, timber and transportation industries, alloy steel and steel plate and drilling products (“Manufacturing”). The following table presents certain financial information of Rowan by operating segment as of June 30, 2004 and 2003 and for the six month periods then ended (in thousands).

	Drilling			Manufacturing		Aviation			Consolidated
2004
Total assets	$	1,983,851		$	289,582	$	151,243		$	2,424,676
Unamortized goodwill		1,493			10,863		-			12,356
Revenues		221,234			89,984		50,119			361,337
Operating profit (loss) (1)		11,041			2,356		(14,361	)		(964	)
2003
Total assets	$	1,664,246		$	278,648	$	167,912		$	2,110,806
Unamortized goodwill		1,493			10,863		-			12,356
Revenues		173,024			59,671		56,760			289,455
Operating profit (loss) (1)		(12,262	)		297		(5,133	)		(17,098	)
(1)General and administrative expenses, which are incurred in support of all segments, are added back to Income (loss) from operations to arriveat Operating profit (loss), which Rowan believes is a better measure of segment financial performance.

Excluded from the preceding table are the effects of transactions between segments. During the six months June 30, 2004 and 2003, Rowan’s manufacturing division provided approximately $49 million and $70 million, respectively, of products and services to its drilling division and Rowan’s aviation division provided approximately $1.2 million and $0.8 million, respectively, of flight services to its drilling division.

-6-

3.   Rowan’s computations of basic and diluted income (loss) per share for the three and six months ended June 30, 2004 and 2003 are as follows (in thousands except per share amounts):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2004			2003			2004			2003
Weighted average shares of common stock outstanding		105,819			93,716			103,975			93,667
Dilutive securities:
Convertible debentures		-			-			-			-
Stock options		-			-			-			-
Weighted average shares for diluted calculation		105,819			93,716			103,975			93,667
Net income (loss) for basicand diluted calculation	$	(2,125	)	$	(6,624	)	$	(13,433	)	$	(23,806	)
Net income (loss) per share:
Basic	$	(.02	)	$	(.07	)	$	(.13	)	$	(.25	)
Diluted	$	(.02	)	$	(.07	)	$	(.13	)	$	(.25	)

Incremental shares related to convertible debentures and stock options as set forth in the following table are excluded from the preceding computations of diluted income (loss) per share as their inclusion would have reduced the per share amount of loss for each period.

	Three Months Ended			Six Months Ended
	June 30,			June 30,
		2004	2003		2004	2003
Convertible debentures		906	1,181		920	747
Stock options		763	917		855	887

-7-

Rowan uses the intrinsic value method of accounting for stock-based employee compensation, whereby the cost of each option is measured as the difference between the market price per share and the option price per share on the date of grant, in accordance with Accounting Principles Board Opinion No. 25. The following table is provided pursuant to Statement of Financial Accounting Standards No. 148 to illustrate the effect on Rowan’s net income (loss) and net income (loss) per share of measuring stock-based compensation cost based upon estimated fair values in accordance with Statement of Financial Accounting Standards No. 123 for the three and six month periods ended June 30, 2004 and 2003:

	Three Months Ended June 30,
				Per Share
	Total				Basic			Diluted
2004
Net income (loss), as reported	$	(2,125	)	$	(.02	)	$	(.02	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		1,108
Pro forma under SFAS 123		(1,875	)
Pro forma net income (loss)	$	(2,892	)	$	(.03	)	$	(.03	)
2003
Net income (loss), as reported	$	(6,624	)	$	(.07	)	$	(.07	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		1,157
Pro forma under SFAS 123		(2,134	)
Pro forma net income (loss)	$	(7,601	)	$	(.08	)	$	(.08	)

	Six Months Ended June 30,
				Per Share
	Total				Basic			Diluted
2004
Net income (loss), as reported	$	(13,433	)	$	(.13	)	$	(.13	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		2,387
Pro forma under SFAS 123		(4,303	)
Pro forma net income (loss)	$	(15,349	)	$	(.15	)	$	(.15	)
2003
Net income (loss), as reported	$	(23,806	)	$	(.25	)	$	(.25	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		2,264
Pro forma under SFAS 123		(4,170	)
Pro forma net income (loss)	$	(25,712	)	$	(.27	)	$	(.27	)

4.  Rowan had no items of other comprehensive income during the six months ended June 30, 2004 and 2003.

-8-

5.   Since 1952, Rowan has sponsored defined benefit pension plans covering substantially all of its employees. In addition, Rowan provides certain health care and life insurance benefits for retired drilling and aviation employees.

      Net periodic pension cost for the three and six months ended June 30, 2004 and 2003 included the following components (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2004			2003			2004			2003
Service cost	$	3,450		$	2,824		$	6,900		$	5,616
Interest cost		5,200			4,458			10,399			8,866
Expected return on plan assets		(4,158	)		(3,845	)		(8,316	)		(7,647	)
Recognized actuarial loss		2,257			1,818			4,296			3,186
Amortization of prior service cost		52			48			104			95
Total	$	6,801		$	5,303		$	13,383		$	10,116

Other benefits cost for the three and six months ended June 30, 2004 and 2003 included the following components (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2004			2003			2004			2003
Service cost	$	679		$	602		$	1,358		$	1,198
Interest cost		1,032			965			2,065			1,919
Recognized actuarial loss		319			271			638			412
Amortization of transition obligation		188			188			376			375
Amortization of prior service cost		(77	)		(78	)		(155	)		(155	)
Total	$	2,141		$	1,948		$	4,282		$	3,749

Rowan has contributed $2.9 million for its pension and other benefit plans during the first six months of 2004 and currently expects to contribute another $20 million over the last half of the year, most of which should occur during the third quarter.

6.  The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed into law on December 8, 2003 (the “Act”), introduced a prescription drug benefit under Medicare (Part D) and a federal subsidy to sponsors of retiree healthcare plans that provide benefits at least actuarially equivalent to Part D. We are currently evaluating our post-65 drug coverage to determine whether or not it is actuarially equivalent to Part D. We will recognize any effects of the Act on our plan benefit obligations and benefits costs pursuant to Financial Accounting Standards Board Staff Position No. FAS 106-2.

-9-

ROWAN COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Rowan incurred a net loss of $13.4 million, or $.13 per diluted share, in the first half of 2004 compared to a net loss of $23.8 million, or $.25 per share, in the same period of 2003. The improvement in operating performance between periods was largely due to an increase in average drilling day rates which combined with better manufacturing division results to more than offset a decline in aviation division performance.

A comparison of the revenues and operating profit (loss) from drilling, manufacturing, aviation and consolidated operations for the first six months of 2004 and 2003, respectively, is reflected below (dollars in thousands):

	Drilling		Manufacturing		Aviation		Consolidated
	2004	2003	2004	2003	2004	2003	2004	2003
Revenues	$ 221,234	$    173,024	$    89,984	$   59,671	$    50,119	$    56,760	$   361,337	$ 289,455
Percent of Consolidated
Revenues	61%	60%	25%	21%	14%	19%	100%	100%
Operating Profit (Loss) (1)	$     11,041	$ (12,262)	$      2,356	$        297	$   (14,361)	$   (5,133)	$    (964)	$ (17,098)
(1)General and administrative expenses, which are incurred in support of all segments, are added back to Income (loss) from operations to arriveat Operating profit (loss), which Rowan believes is a better measure of segment financial performance.

As reflected above, Rowan’s consolidated operating results improved by $16.1 million when comparing the first six months of 2004 and 2003. Drilling revenues increased by $48.2 million or 28% as our offshore fleet of 24 jack-ups and one semi-submersible was 86% utilized during the first half of 2004, compared to 85% in the first six months of 2003, and achieved a 26% increase in average day rates between periods. Rowan’s fleet of 18 land rigs was 78% utilized during the first half of 2004, compared to 71% in the first six months of 2003, and achieved a 10% increase in average day rates between periods. Drilling expenses increased by $20.0 million between periods, primarily due to the addition to our offshore fleet of the Bob Palmer in August 2003 and the Scooter Yeargain in May 2004, an increase in the number of land rigs operating and higher pension costs between periods.

The $2.1 million increase in Rowan’s manufacturing results shown above primarily reflects a $22.8 million or 77% increase in equipment group revenues and a $5.7 million or 74% increase in steel group sales between periods. The equipment group shipped nine mining loaders in the first half of 2004, compared to six loaders and log stackers in 2003, and achieved a 28% increase in parts sales between periods. Manufacturing operations exclude approximately $49 million of products and services provided to the drilling division during the first six months of 2004, most of which was attributable to construction progress on the first two Tarzan Class rigs, the Scooter Yeargain and the Bob Keller, compared to about $70 million in the same period of 2003, which was primarily attributable to the Bob Palmer and the Scooter Yeargain. The division’s external backlog was approximately $59 million at June 30, 2004, up from about $17 million one year earlier.

-10-

Rowan’s aviation operating results in the first six months of 2004 and 2003 reflect the normal seasonal slowdown in helicopter flying activity in Alaska during the first four months of each year. Contributing to the decline in operating results between periods as shown in the preceding table are a $4.3 million reduction in estimated airline revenue accruals in 2004, following the introduction of a new passenger ticket tracking system, and the effects of increased excise taxes and higher pension, payroll, maintenance and fuel costs. Gains on helicopter sales reduced aviation operating expenses by $5.1 million in 2004 compared to $2.4 million in 2003.

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Rowan incurred a net loss of $2.1 million in the second quarter of 2004 compared to a loss of $6.6 million in the same period of 2003. The improvement in operating performance between periods was largely due to an increase in average drilling day rates which combined with better manufacturing division results to more than offset a decline in aviation division performance.

A comparison of the revenues and operating profit (loss) from drilling, manufacturing, aviation and consolidated operations for the second quarters of 2004 and 2003, respectively, is reflected below (dollars in thousands):

	Drilling		Manufacturing		Aviation		Consolidated
	2004	2003	2004	2003	2004	2003	2004	2003
Revenues	$ 115,545	$    95,138	$    48,878	$   30,631	$    26,433	$    32,331	$   190,856	$ 158,100
Percent of Consolidated
Revenues	60%	60%	26%	19%	14%	21%	100%	100%
Operating Profit (Loss) (1)	$     10,382	$   1,507	$      2,887	$        (119)	$   (6,855)	$   (1,961)	$    6,414	$   (573)
(1)General and administrative expenses, which are incurred in support of all segments, are added back to Income (loss) from operations to arriveat Operating profit (loss), which Rowan believes is a better measure of segment financial performance.

As reflected above, Rowan’s consolidated operating results improved by $7.0 million when comparing the second quarters of 2004 and 2003. Drilling revenues increased by $20.4 million or 21% as our offshore fleet of 24 jack-ups and one semi-submersible was 88% utilized during the second quarter of 2004, compared to 88% in the second quarter of 2003, and achieved a 21% increase in average day rates between periods. Rowan’s fleet of 18 land rigs was 82% utilized during the second quarter of 2004, compared to 76% in the second quarter of 2003, and achieved a 7% increase in average day rates between periods. Drilling expenses increased by $9.1 million or 11% between periods, primarily due to the addition to our offshore fleet of the Bob Palmer in August 2003 and the Scooter Yeargain in May 2004, an increase in the number of land rigs operating and higher pension costs between periods.

The $3.0 million increase in Rowan’s manufacturing results shown above primarily reflects a $11.1 million or 78% increase in equipment group revenues, a $2.9 million or 72% increase in steel group sales and a $4.3 million or 35% increase in drilling products revenues between periods. The equipment group shipped four mining loaders in the second quarter of 2004, compared to two loaders and log stackers in the second quarter of 2003, and achieved a 7% increase in parts sales between periods. Manufacturing operations exclude approximately $21 million of products and services provided to the drilling division during the second quarter of 2004, most of which was attributable to construction progress on the first two Tarzan Class rigs, the Scooter Yeargain and the Bob Keller, compared to about $26 million in the same period of 2003, which was primarily attributable to the Bob Palmer and the Scooter Yeargain.

-11-

Rowan’s aviation operating results in the second quarter of 2004 included an increase in energy-related revenues, primarily associated with deepwater activities in the Gulf of Mexico, which was partially offset by the effects of a slower start to our tourism and firefighting operations than in 2003. Contributing to the decline in operating results between periods as shown in the preceding table are a $4.3 million reduction in estimated airline revenue accruals in 2004, following the introduction of a new passenger ticket tracking system, and the effects of increased excise taxes and higher pension, payroll, maintenance and fuel costs. Gains on helicopter sales reduced aviation operating expenses by $4.8 million in 2004 compared to $0.1 million in 2003.

On March 23, 2004, we lost a Sikorsky S-76 helicopter in the Gulf of Mexico with two crew members and eight passengers onboard. The National Transportation Safety Board is conducting an investigation into the crash with our full cooperation. The impact of this incident on our financial statements has not been material due to our prevailing insurance coverage.

Expected near-term conditions in our principal drilling markets, based upon recent bid inquiries and other indications from our energy company customers, and the numbers of our rigs in each of those areas are as follows:

AREA	RIGS	EXPECTED NEAR-TERM CONDITIONS
Gulf of Mexico	23	Generally improving exploration and development activity, with continued emphasis on potential deep-well natural gas reserves on the outer continental shelf
North Sea	1	Generally improving jack-up drilling activity, fluctuating with oil prices
Eastern Canada	1	Generally improving demand for harsh environment equipment, fluctuating with oil and natural gas prices

Expected near-term conditions in our principal aviation markets and the numbers of our aircraft based in each of those markets are as follows:

AREA	AIRCRAFT	EXPECTED NEAR-TERM CONDITIONS
Alaska	56	Normal seasonal improvement
Gulf of Mexico	42	Generally improving levels of flight support activity

The drilling and aviation markets in which Rowan competes frequently experience significant changes in supply and demand. Drilling utilization and day rates are primarily a function of the demand for drilling services (as measured by the level of exploration and development expenditures) and the supply of capable drilling equipment. These expenditures, in turn, are affected by many factors such as existing and newly discovered oil and natural gas reserves, political and regulatory policies, seasonal weather patterns, contractual requirements under leases or concessions, effects of energy company consolidations, and, probably most influential, oil and natural gas prices. Our aviation operations are also affected by such factors, as flying in support of offshore energy operations remains a major source of business and Alaska operations are hampered by weather each winter. The volatile nature of such factors prevents us from being able to accurately predict whether existing market conditions will continue beyond the near term. In response to fluctuating market conditions, we can relocate our drilling rigs and aircraft from one geographic area to another, but only when we believe such moves are economically justified. Currently, Rowan’s drilling operations are profitable, but there can be no assurance that expected improvements in market conditions, as reflected in the preceding table, will materialize. Our operations will be adversely affected should market conditions begin to deteriorate.

-12-

Rowan’s drilling operating results for the first six months of 2004 were considerably enhanced by our North Sea drilling contract for Rowan Gorilla VII. The contract, under which operations began in June 2003, specified an 18-month minimum term, provided Rowan with a day rate tied to an average oil price and contained options for up to an additional 42 months of work. In March 2004, due to declining oil production caused by well bore and geological difficulties encountered in the first three wells, we agreed, in an attempt to extend the field’s economic life, to reduce the day rate under the contract for a five-month period through June 30, 2004. We also agreed at that time to defer receipt of day rate charges for the January through March 2004 period until an existing well could be recompleted and production resumed. Our agreement to temporarily reduce the day rate has been extended through August 31, 2004, and we are currently discussing terms for the remainder of the contract. We have recei ved payment of the day rate charges for January 2004 in accordance with the extension agreement, though our current balance of receivables related to this contract is $16.9 million. The drilling of an additional well currently under consideration could extend the productive life of the Ardmore Field into 2005. However, there is a risk that the contract could terminate earlier if oil production from the field again declines to an inadequate level. In either case, we could be faced with a write-off of receivables. Ultimately, Rowan is dependent upon the productive life of the Ardmore Field for payment of its compensation

Though considerably less volatile than our drilling and aviation operations, our manufacturing operations, especially the equipment group, had, for a number of years, been adversely impacted by a prolonged period of unfavorable world commodity prices, especially those for copper, iron ore, coal and gold. Over the past year, prices for many commodities have increased due to growing worldwide industrial demand. Rowan’s external manufacturing backlog has grown in recent months, and we are optimistic that a recovery in the demand for mining equipment may be underway. We cannot, however, accurately predict whether or not any such recovery will be sustained beyond the near term.

As part of Rowan’s ongoing review of its lines of businesses, the Board of Directors has requested that management determine the value of our aviation operations in the open market. We are going through that process currently and the Board of Directors has not made any final determination as to whether or not our aviation operations will be sold.

LIQUIDITY AND CAPITAL RESOURCES

A comparison of key balance sheet figures and ratios as of June 30, 2004 and December 31, 2003 is as follows (dollars in thousands):

	June 30, 2004		December 31, 2003
Cash and cash equivalents	$	294,680	$	58,227
Current assets	$	654,344	$	444,224
Current liabilities	$	155,228	$	150,365
Current ratio		4.22		2.95
Long-term debt - less current current maturities	$	585,278	$	569,067
Stockholders' equity	$	1,394,714	$	1,136,830
Long-term debt/total capitalization		.30		.33

Reflected in the comparison above are the effects in the first six months of 2004 of net cash provided by operations of $13.3 million, net proceeds from the issuance of 11.5 million shares of common stock of $265 million, proceeds from borrowings of $47.3 million, capital expenditures of $76.9 million, proceeds from fixed asset disposals of $11.6 million and debt repayments of $26.4 million.

-13-

Capital expenditures during the first half of 2004 were primarily related to the construction of the first two Tarzan Class jack-up rigs, the Scooter Yeargain and the Bob Keller. The Tarzan Class was designed specifically for deep drilling in water depths up to 300 feet on the outer continental shelf in the Gulf of Mexico, offering drilling capabilities similar to our Super Gorilla class jack-ups, but with reduced environmental criteria (wind, wave and current) and at less than one-half the construction cost.

The Scooter Yeargain was delivered on April 29, 2004. We financed $91.2 million of the cost of the Scooter Yeargain through a 15-year bank loan guaranteed by the U. S. Department of Transportation’s Maritime Administration (“MARAD”) under its Title XI Program. The loan requires semiannual interest payments in each May and November, with semiannual principal repayments commencing on November 10, 2004, and the Scooter Yeargain secures the government guarantee. At June 30, 2004, we had the full $91.2 million outstanding under this loan, which bore interest at an annual rate of about 1.42%.

The Bob Keller is being constructed at Vicksburg, Mississippi with delivery expected during the third quarter of 2005. We are financing up to $89.7 million of the cost of the Bob Keller through a 15-year bank loan guaranteed by MARAD under its Title XI Program. The loan requires semiannual interest payments in each May and November, with semiannual principal repayments commencing on May 10, 2005, and the Bob Keller secures the government guarantee. At June 30, 2004, we had borrowed about $28.2 million under this loan, which bore interest at an annual rate of about 1.42%.

Construction of two additional Tarzan Class jack-ups is tentatively planned, subject to current and anticipated market conditions, at an aggregate cost of around $200 million. We have applied to MARAD for Title XI government-guaranteed financing for up to $176 million of the cost of Tarzans III and IV on terms and conditions similar to those in effect for the first two Tarzan Class rigs. However, there can be no assurance that we will obtain such financing or that other outside financing or working capital will be available.

We have committed to purchase three Sikorsky S-92 helicopters for the deepwater drilling market, subject to our obtaining long-term operating contracts. The S-92 design features a 19-passenger capacity and a range of 475 nautical miles. We currently expect the helicopters to be available in the first half of 2005 and that their total cost, estimated to approach $50 million, will be funded from existing working capital or outside financing. However, there can be no assurance that we will obtain suitable operating contracts, that working capital will be adequate or that outside financing will be available.

Rowan currently estimates that remaining 2004 capital expenditures will be between $55 million and $65 million, including approximately $28-30 million towards the construction of the Bob Keller.

Rowan’s 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. We believe that the Company was in compliance with each of its debt covenants at June 30, 2004.

During the 2001-2003 period, Rowan contributed about $47 million to our defined benefit pension plans. Such 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 discount rates. Similar calculations were used to estimate pension costs and obligations as reflected in our consolidated financial statements, which showed an accumulated other comprehensive loss resulting from unfunded pension liabilities of $54.7 million at June 30, 2004. We currently estimate that our 2004 pension costs will increase by about $4.2 million or 19% over 2003, and expect to contribute approximately $20 million to our pension plans in 2004, most of which should occur during the third quarter.

-14-

In December 2003, Rowan filed a $500 million universal shelf registration statement. 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.

Based upon current and anticipated near-term operating levels, we believe that 2004 operations, together with existing working capital and available financial resources, will be adequate to sustain planned capital expenditures and debt service and other requirements at least through the remainder of 2004. We currently have no other available credit facilities, but believe financing could be obtained if deemed necessary.

Critical Accounting Policies and Management Estimates

Rowan’s significant accounting policies are outlined in Note 1 to our financial statements included in our 2003 Annual Report to Stockholders, which is incorporated by reference in our Form 10-K for the year ended December 31, 2003. Such 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 our most critical accounting policies and management estimates involve property and depreciation, specifically capitalizable costs, useful lives and salvage values, and pension 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.

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 upon estimated lives and salvage values. Such estimates of lives and salvage values include 25 years and 20%, respectively, for each of our Super Gorilla and Tarzan Class rigs, which collectively comprise more than 80% of our offshore drilling equipment carrying value. Expenditures for new property or enhancements to existing property are capitalized and expenditures for routine maintenance and major repairs are charged to operations as incurred. On construction projects, Rowan capitalizes a portion of interest cost incurred during the period required to complete the asset. Long-lived assets are reviewed for impairment whenever circumstances indicate their carrying amounts may not be recoverable.

-15-

Rowan uses the intrinsic value method of accounting for stock-based employee compensation pursuant to Accounting Principles Board Opinion No. 25. We estimate that use of the fair value method outlined by Statement of Financial Accounting Standards Nos. 123 and 148 would have reduced reported amounts of net income and net income per share by approximately $1.9 million or $.02 per share for each of the six month periods ended June 30, 2004 and 2003.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003, signed into law on December 8, 2003 (the “Act”), introduced a prescription drug benefit under Medicare (Part D) and a federal subsidy to sponsors of retiree healthcare plans that provide benefits at least actuarially equivalent to Part D. We are currently evaluating our post-65 drug coverage to determine whether or not it is actuarially equivalent to Part D. We will recognize any effects of the Act on our plan benefit obligations and benefits costs pursuant to Financial Accounting Standards Board Staff Position No. FAS 106-2.

This report contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to the expectations, beliefs and future expected financial performance of Rowan that are based on current expectations and are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those projected by us. Among the factors that could cause actual results to differ materially are the following: oil, natural gas and other commodity prices; the level of offshore expenditures by energy companies; energy demand; the general economy, including inflation; weather conditions in our principal operating areas; and environmental and other laws and regulations. Other relevant factors have been disclosed in Rowan’s filings with the U. S. Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Rowan’s outstanding debt at June 30, 2004 was comprised as follows: $343.7 million of fixed-rate notes bearing a weighted average annual interest rate of 4.71% and $301.5 million of floating-rate notes bearing a weighted average annual interest rate of 1.48%. 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, virtually all of Rowan’s transactions are carried out in U. S. dollars, thus the Company’s foreign currency exposure is not material. Fluctuating commodity prices affect Rowan’s future earnings materially only to the extent that they influence demand for the Company’s products and services. Rowan does not hold or issue derivative financial instruments.  

Item 4. 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 are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Exchange Act reports. There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company
46;s internal control over financial reporting.

-16- 

PART II. OTHER INFORMATION

Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

In December 2003, Rowan filed a $500 million universal shelf registration statement. In early 2004, we sold 11.5 million shares of common stock at $23.05 per share. The sale, which included 1.7 million shares of treasury stock and 9.8 million newly issued shares, was solely underwritten by Lehman Brothers Inc. The underwriting agreement provided that Lehman’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. These transactions were negotiated by the Company and approved by the Board of Directors. The net proceeds to Rowan of approximately $265 million were retained for working capital.

The Company did not repurchase any shares of its outstanding common stock during the first six months of 2004 or 2003. Under the terms of a Share Repurchase Program begun in June 1998, the Company was authorized, at June 30, 2004, to buy back up to approximately 1.5 million shares of its common stock.

Rowan did not pay any dividends during the first six months of 2004 or 2003 and, at June 30, 2004, had approximately $470 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 the Board of Directors.

Item 4.   Submission of Matters to a Vote of Security Holders

Information called for by this item with respect to the votes of our common shareholders at the Annual Meeting of Stockholders on April 23, 2004 was previously published in our Quarterly Report on Form 10-Q for the period ended March, 31, 2004.

Item 6. Exhibits and Reports on Form 8-K

(a)	The following is a list of Exhibits filed with this Form 10-Q:
	31	Rule 13a-14(a)/15d-14(a) Certifications(Section 302 of the Sarbanes-Oxley Act of 2002)
	32	Section 1350 Certifications (Section 906 of the Sarbanes-Oxley Act of 2002)
(b)	Reports on Form 8-K filed by the Registrant during the second quarter of fiscal year 2004:
	April 14, 2004 – pertaining to the Company’s press release announcing its results for the first quarter of 2004 and the Company’s Offshore Rig Utilization for the first quarter of 2004
	May 3, 2004 – containing the narrative portion of the Company’s Three Month Interim Report 2004
	May 11, 2004 – pertaining to the Company’s Offshore Rig Utilization for April 2004
	June 2, 2004 – pertaining to the contract status of the Company’s offshore drilling fleet
	June 10, 2004 – pertaining to the Company’s Offshore Rig Utilization for May 2004

-17-  

SIGNATURES

Pursuant to the requirements 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.
	(Registrant)
Date: August 6, 2004	/s/ E. E. THIELE
	E. E. Thiele
	Senior Vice President- Finance,
	Administration and Treasurer
	(Chief Financial Officer)
Date: August 6, 2004	/s/ W. H. WELLS
	W. H. Wells
	Controller
	(Chief Accounting Officer)