Rowan Companies 10-Q 2005 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, 2005

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM_____TO_____

1-5491

Commission File

Number

ROWAN COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	75-0759420
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	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 No____

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

The number of shares of common stock, $.125 par value, outstanding at July 31, 2005 was 108,912,353.

ROWAN COMPANIES, INC.

INDEX

		Page No.
PART I.	Financial Information:
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets -- June 30, 2005 and December 31, 2004	2
	Consolidated Statements of Operations -- Three and Six Months Ended June 30, 2005 and 2004	4
	Consolidated Statements of Cash Flows -- Three and Six Months Ended June 30, 2005 and 2004	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II.	Other Information:
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 6.	Exhibits	22
SIGNATURES		22

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ROWAN COMPANIES, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

 

	June 30,		December 31,
	2005		2004
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	487,821	$	465,977
Receivables - trade and other		169,962		132,445
Inventories - at cost:
Raw materials and supplies		127,449		126,706
Work-in-progress		51,862		36,016
Finished goods		588		1,391
Prepaid expenses		19,435		13,578
Deferred tax assets - net		46,067		19,332
Current assets of discontinued boat operations		3,667		11,652
Total current assets		906,851		807,097
PROPERTY, PLANT AND EQUIPMENT - at cost:
Drilling equipment		2,285,247		2,278,832
Manufacturing plant and equipment		160,975		154,364
Construction in progress		148,144		97,214
Other property and equipment		89,753		98,860
Total		2,684,119		2,629,270
Less accumulated depreciation and amortization		989,410		959,776
Property, plant and equipment - net		1,694,709		1,669,494
GOODWILL AND OTHER ASSETS		15,565		15,695
TOTAL	$	2,617,125	$	2,492,286
See Notes to Consolidated Financial Statements.

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ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

	June 30,			December 31,
	2005			2004
LIABILITIES AND STOCKHOLDERS' EQUITY	(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	64,922		$	64,922
Accounts payable - trade		42,371			26,095
Other current liabilities		90,674			139,719
Current liabilities of discontinued boat operations					4,064
Total current liabilities		197,967			234,800
LONG-TERM DEBT - less current maturities		573,180			574,350
OTHER LIABILITIES		118,612			110,916
DEFERRED INCOME TAXES - net		234,918			163,336
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 108,864,937 shares at
June 30, 2005 and 107,408,721 shares at December 31, 2004		13,608			13,426
Additional paid-in capital		942,393			917,764
Retained earnings		607,229			548,476
Accumulated other comprehensive loss		(70,782	)		(70,782	)
Total stockholders' equity		1,492,448			1,408,884
TOTAL	$	2,617,125		$	2,492,286
See Notes to Consolidated Financial Statements.

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ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

	For The Three Months						For The Six Months
		Ended June 30,						Ended June 30,
		2005			2004			2005			2004
		(Unaudited)						(Unaudited)
REVENUES:
Drilling services	$	182,637		$	111,301		$	342,916		$	212,129
Manufacturing sales and services		61,923			51,544			124,036			95,248
Total		244,560			162,845			466,952			307,377
COSTS AND EXPENSES:
Drilling services		99,182			81,736			188,607			164,179
Manufacturing sales and services		51,687			42,814			108,361			81,605
Depreciation and amortization		20,106			19,456			39,960			38,345
Selling, general and administrative		16,086			9,269			29,346			18,367
Gain on sale of property and equipment		(9,592	)		(110	)		(10,182	)		(403	)
Total		177,469			153,165			356,092			302,093
INCOME FROM OPERATIONS		67,091			9,680			110,860			5,284
OTHER INCOME (EXPENSE):
Interest expense		(6,318	)		(5,039	)		(12,174	)		(10,104	)
Less interest capitalized		1,088			535			1,859			1,332
Interest income		3,565			867			6,111			1,527
Gain on sale of investments		1,852			-			9,553			-
Other - net		233			91			569			174
Other income (expense) - net		420			(3,546	)		5,918			(7,071	)
INCOME (LOSS) BEFORE INCOME TAXES		67,511			6,134			116,778			(1,787	)
Provision (credit) for income taxes		24,325			2,160			43,053			(603	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		43,186			3,974			73,725			(1,184	)
Income (loss) from discontinued operations, net of tax		(920	)		(6,099	)		11,963			(12,249	)
NET INCOME (LOSS)	$	42,266		$	(2,125	)	$	85,688		$	(13,433	)
PER SHARE AMOUNTS (Note 3):
Income (loss) from continuing operations - basic	$	.40		$	.04		$	.68		$	(.01	)
Income (loss) from continuing operations - diluted	$	.39		$	.04		$	.67		$	(.01	)
Income (loss) from discontinued operations - basic	$	(.01	)	$	(.06	)	$	.11		$	(.12	)
Income (loss) from discontinued operations - diluted	$	(.00	)	$	(.06	)	$	.11		$	(.12	)
Net income (loss) - basic	$	.39		$	(.02	)	$	.79		$	(.13	)
Net income (loss) - diluted	$	.39		$	(.02	)	$	.78		$	(.13	)
See Notes to Consolidated Financial Statements.

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ROWAN COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	For The Six Months
		Ended June 30,
		2005			2004
		(Unaudited)
CASH PROVIDED BY (USED IN):
Operations:
Net income (loss)	$	85,688		$	(13,433	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization		40,047			47,034
Deferred income taxes		44,847			(6,990	)
Provision for pension and postretirement benefits		13,836			17,665
Compensation expense		1,936			3,600
Gain on disposals of property, plant and equipment		(10,182	)		(5,500	)
Gain on sales of investments		(9,553	)
Contributions to pension plans		(66,052	)		(1,071	)
Postretirement benefit claims paid		(1,950	)		(1,785	)
Changes in current assets and liabilities:
Receivables- trade and other		(30,120	)		(14,889	)
Inventories		(18,771	)		(6,650	)
Other current assets		(5,269	)		(9,078	)
Current liabilities		29,114			3,503
Net changes in other noncurrent assets and liabilities		65			902
Net cash provided by operations		73,636			13,308
Investing activities:
Capital expenditures		(76,059	)		(76,914	)
Proceeds from disposals of property, plant and equipment		24,030			11,636
Proceeds from sales of investments		9,553
Net cash used in investing activities		(42,476	)		(65,278	)
Financing activities:
Proceeds from borrowings		28,302			47,259
Repayments of borrowings		(29,472	)		(26,432	)
Payment of cash dividend		(26,935	)
Proceeds from stock option and convertible debenture plans		18,789			2,616
Proceeds from common stock offering, net of issue costs					264,980
Net cash provided by (used in) financing activities		(9,316	)		288,423
INCREASE IN CASH AND CASH EQUIVALENTS		21,844			236,453
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		465,977			58,227
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	487,821		$	294,680
See Notes to Consolidated Financial Statements.

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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 2004 Annual Report to Stockholders and incorporated by reference in our Form 10-K for the year ended December 31, 2004.

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, 2005 and December 31, 2004, and the results of its operations and cash flows for the three and six months ended June 30, 2005 and 2004.

Rowan’s results of operations and cash flows for the six months ended June 30, 2005 are not necessarily indicative of results to be expected for the full year. Certain reclassifications have been made in the 2004 amounts to conform to the 2005 presentations.

2.   Rowan has two principal operating segments: contract drilling of oil and gas wells, both onshore and offshore (“Drilling”) and the manufacture and sale of heavy equipment for the mining and timber 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, 2005 and 2004 and for the six month periods then ended (in thousands). See Note 8 for further information regarding Rowan’s discontinued operations.

					Discontinued
		Drilling		Manufacturing		Operations		Consolidated
2005
Total assets	$	2,289,243	$	324,215	$	3,667	$	2,617,125
Goodwill		1,493		10,863		-		12,356
Revenues		342,916		124,036		-		466,952
Income from operations		110,000		860		-		110,860
2004
Total assets	$	1,980,164	$	289,582	$	154,930	$	2,424,676
Goodwill		1,493		10,863		-		12,356
Revenues		212,129		95,248		-		307,377
Income from operations		2,926		2,358		-		5,284

Excluded from the preceding table are the effects of transactions between segments. During the six months ended June 30, 2005 and 2004, Rowan’s manufacturing division provided approximately $48 million and $49 million, respectively, of products and services to its drilling division.

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3.   Rowan’s computations of basic and diluted income (loss) per share for the three and six months ended June 30, 2005 and 2004 are as follows (in thousands except per share amounts):

	Three Months Ended						Six Months Ended
		June 30,						June 30,
		2005			2004			2005		2004
Weighted average shares of common stock outstanding		108,559			105,819			108,188		103,975
Dilutive securities:
Stock options		994			-			1,168		-
Convertible debentures		199			-			211		-
Weighted average shares for diluted calculations		109,752			105,819			109,567		103,975
Income (loss) from continuing operations	$	43,186		$	3,974		$	73,725	$	(1,184	)
Income (loss) from continuing operations per share:
Basic	$	.40		$	.04		$	.68	$	(.01	)
Diluted	$	.39		$	.04		$	.67	$	(.01	)
Income (loss) from discontinued operations	$	(920	)	$	(6,099	)	$	11,963	$	(12,249	)
Income (loss) from discontinued operations per share:
Basic	$	(.01	)	$	(.06	)	$	.11	$	(.12	)
Diluted	$	(.00	)	$	(.06	)	$	.11	$	(.12	)
Net income (loss)	$	42,266		$	(2,125	)	$	85,688	$	(13,433	)
Net income (loss) per share:
Basic	$	.39		$	(.02	)	$	.79	$	(.13	)
Diluted	$	.39		$	(.02	)	$	.78	$	(.13	)

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, 2004		June 30, 2004
Convertible debentures		906		920
Stock options		763		855

Rowan had 4,445,047 and 5,342,008 stock options outstanding at June 30, 2005 and 2004, respectively. Another 1,176,830 and 2,293,869 shares, respectively, were issuable at those dates through the conversion of debentures.

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4.   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 months ended June 30, 2005 and 2004:

	Three Months Ended June 30,
					Per Share
		Total			Basic			Diluted
2005
Net income, as reported	$	42,266		$	.39		$	.39
Stock-based compensation, net of related tax effects:
As recorded under APB 25		537
Pro forma under SFAS 123		(1,025	)
Pro forma net income	$	41,778		$	.38		$	.38
2004
Net income (loss), as reported	$	(2,125	)	$	(.02	)	$	(.02	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		1,100
Pro forma under SFAS 123		(1,754	)
Pro forma net income (loss)	$	(2,779	)	$	(.03	)	$	(.03	)

	Six Months Ended June 30,
					Per Share
		Total			Basic			Diluted
2005
Net income, as reported	$	85,688		$	.79		$	.78
Stock-based compensation, net of related tax effects:
As recorded under APB 25		1,167
Pro forma under SFAS 123		(2,826	)
Pro forma net income	$	84,029		$	.78		$	.77
2004
Net income (loss), as reported	$	(13,433	)	$	(.13	)	$	(.13	)
Stock-based compensation, net of related tax effects:
As recorded under APB 25		2,385
Pro forma under SFAS 123		(3,926	)
Pro forma net income (loss)	$	(14,974	)	$	(.14	)	$	(.14	)

Under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, as amended, Rowan will be required to expense stock-based compensation associated with unvested awards using the fair value method beginning January 1, 2006. We currently expect that the provisions of Statement No. 123 (revised) will reduce our 2006 quarterly net income by approximately $.01 per share from that measured under APB 25.

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5.   Rowan had no items of other comprehensive income during the six months ended June 30, 2005 and 2004. Interest payments (net of amounts capitalized) were $9.9 million and $9.1 million for the six months ended June 30, 2005 and 2004, respectively. Tax payments (net of refunds) were $1.1 million and $0.2 million for the six months ended June 30, 2005 and 2004, respectively.  During the six months ended June 30, 2005, Rowan received approximately $9.6 million from the sale of marketable investment securities that had a nominal carrying cost.

6.   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, 2005 and 2004 included the following components (in thousands):

	Three Months						Six Months
		Ended June 30,						Ended June 30,
		2005			2004			2005			2004
Service cost	$	2,805		$	3,450		$	5,580		$	6,900
Interest cost		5,396			5,200			10,733			10,399
Expected return on plan assets		(5,721	)		(4,158	)		(11,378	)		(8,316	)
Recognized actuarial loss		2,571			2,257			5,114			4,296
Amortization of prior service cost		42			52			84			104
Total	$	5,093		$	6,801		$	10,133		$	13,383

Other benefits cost for the three and six months ended June 30, 2005 and 2004 included the following components (in thousands):

	Three Months						Six Months
		Ended June 30,						Ended June 30,
		2005			2004			2005			2004
Service cost	$	437		$	679		$	869		$	1,358
Interest cost		848			1,032			1,686			2,065
Recognized actuarial loss		66			319			132			638
Amortization of transition obligation		165			188			328			376
Amortization of prior service cost		(51	)		(77	)		(101	)		(155	)
Total	$	1,465		$	2,141		$	2,914		$	4,282

During the first six months of 2005, Rowan contributed approximately $68 million toward its pension and other benefit plans.

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7.   During the second quarter of 2005, the Company learned that a unit of the U. S. Department of Justice is conducting an investigation of potential anti-trust violations among helicopter transportation providers in the Gulf of Mexico. Rowan’s former aviation subsidiary, which was sold effective December 31, 2004, has received a subpoena in connection with the investigation. The Company has not been served with a subpoena in this matter and believes any involvement by it in the investigation will be minimal.

In the third quarter of 2004, the Company learned that a unit of the U. S. Department of Justice is conducting a criminal investigation of environmental matters involving several of Rowan’s offshore drilling rigs. Rowan is cooperating with the investigation. The Company does not have sufficient information at this time to comment on the outcome of the investigation.

The Company is involved in various other legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. We believe that there are no known contingencies, claims or lawsuits that will have a material adverse effect on Rowan’s financial position, results of operations or cash flows.

8.   On December 31, 2004, Rowan completed the sale of its aviation operations as conducted by Era Aviation, Inc. During the first six months of 2005, the Company recorded an incremental loss on the sale of $2.0 million, net of a related tax benefit of $1.1 million, which resulted from post-closing working capital adjustments pursuant to the sale agreement. For the first six months of 2004, the Company’s aviation operations incurred a loss of $9.7 million, net of a related tax benefit of $4.9 million.

In February 2005, Rowan sold the purchase options it held on four leased anchor-handling boats for approximately $21 million in cash. 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. During the first six months of 2005, Rowan recognized $14.6 million of revenues and $13.3 million of expenses related to the marine vessel operations, and a $20.7 million gain on the sale of the purchase options. The aggregate effect of these items was reduced by an $8.1 million provision for income taxes. For the first six months of 2004, the Company’s marine vessel operations incurred a loss of $2.6 million, net of a related tax benefit of $1.3 million.

The revenues and expenses resulting from Rowan’s discontinued aviation and marine vessel operations for the three and six months ended June 30, 2005 and 2004, including the gain recognized upon sale of the boat purchase options, are shown collectively and net of tax as Income (loss) from discontinued operations in the Consolidated Statements of Operations.

9.   During the second quarter of 2005, Rowan entered into an agreement to sellone of its 52-class jack-up rigs, the Rowan-Texas, for approximately $45 million in cash, after selling expenses. The closing of the sale is pending completion of the rig’s current drilling assignment, which should occur during the third quarter at which time the Company expects to record an after-tax gain on the transaction of approximately $25 million.

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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, 2005 Compared to Six Months Ended June 30, 2004

Rowan generated net income of $85.7 million in the first six months of 2005 compared to a net loss of $13.4 million in the same period of 2004. Income from continuing operations was $73.7 million in the first six months of 2005 compared to a loss of $1.2 million in the same period of 2004. This improvement was largely due to the effects of increased rig utilization and average day rates in the Company’s drilling operations, which more than offset a nominal decrease in manufacturing results. In addition, the current period included significant after-tax gains from certain asset sales, including $6.4 from property and equipment and $6.0 from marketable investment securities.

Our after-tax income from discontinued operations was $12.0 million in the first six months of 2005 compared to a loss of $12.2 million in the same period of 2004. The current period included a $13.1 after-tax gain from the sale of the purchase options we held on four leased boats.

A comparison of the revenues and income (loss) from drilling, manufacturing and consolidated operations for the first six months of 2005 and 2004, respectively, is reflected below (dollars in thousands):

		Drilling						Manufacturing						Consolidated
		2005			2004			2005			2004			2005			2004
Revenues	$	342,916		$	212,129		$	124,036		$	95,248		$	466,952		$	307,377
Percent of Consolidated Revenues		73	%		69	%		27	%		31	%		100	%		100	%
Income from operations	$	110,000		$	2,926		$	860		$	2,358		$	110,860		$	5,284
Percent of Revenues		32	%		1	%		1	%		2	%		24	%		2	%
Net interest and other income (expense)													$	5,918		$	(7,071	)
Income (loss) from continuing operations													$	73,725		$	(1,184	)

As shown in the preceding table, Rowan’s consolidated operating results improved by $105.6 million when comparing the first six months of 2005 and 2004. Rowan’s drilling operations generated a $107.1 million improvement in operating income between periods. Drilling revenues increased by $130.8 million or 62% as our offshore fleet of 24 jack-ups and one semi-submersible was 97% utilized during the first six months of 2005, compared to 86% in the first six months of 2004, and achieved a 60% increase in average day rates between periods. Our fleet of 16 actively-marketed land rigs was 97% utilized during the first six months of 2005, compared to 93% in the first six months of 2004, and achieved a 49% increase in average day rates between periods.

Drilling expenses increased by $24.4 million or 15% between periods. The addition, in April 2004, of the first Tarzan Class jack-up Scooter Yeargain and the reactivation of one land rig in February 2005 collectively caused a $5.0 increase in expenses between periods. Our North Sea operations included $6.2 million of incremental costs, including $3.7 million resulting from the recognition of deferred contract start-up costs and $2.5 million incurred to abandon the Ardmore Field following termination of the Tuscan contract. Labor costs were approximately $4.6 million higher due to incremental short-term incentive plan compensation and an average 8% wage increase effective May 1, 2005. Repairs and maintenance expenses increased by $5.3 million between periods.

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Income from drilling operations included $10.2 million in net gains on property and equipment sold during the first half of 2005, an increase of $9.8 million over the comparable period of 2004. Selling, general and administrative expenses increased by $8.2 million or 68% between periods due primarily to increased professional services costs and the effects of incentive-based compensation increases.

Rowan’s manufacturing results declined despite a $28.8 million or 30% increase in revenues between periods. The aggregate effects of an $18.8 million or 33% increase in equipment group revenues, a $3.6 million or 27% increase in steel group revenues and a $6.3 million or 26% increase in drilling products group revenues between periods were offset by the recognition of a $2.3 million loss on the drilling products group’s dredge barge project. As a result, our average margin on direct costs decreased to 13% of revenues in 2005 from 14% in 2004, and our operating income as a percentage of revenues declined between periods. The equipment group shipped 16 mining loaders during the first half of 2005 compared to nine units in the first half of 2004.

Manufacturing operations exclude approximately $48 million of products and services provided to the drilling division during the first six months of 2005, most of which was attributable to construction progress on the second Tarzan Class rig, the Bob Keller, compared to about $49 million in the same period of 2004, which was primarily attributable to the Scooter Yeargain and the Bob Keller.

As previously announced, Rowan was awarded a contract by Perforadora Central, S.A. de C.V., a Mexican drilling contractor, to construct a Super 116E class jack-up rig. The rig will be an enhanced version of our Super 116-C class jack-up rig, with greater environmental and payload capacity. It will have 511 feet of leg, enabling operations in water depths up to 350 feet in areas like the Gulf of Mexico, Asia and the Persian Gulf. The rig will be constructed at the Company’s Vicksburg, Mississippi shipyard with delivery expected during the second quarter of 2007. In addition, we have obtained a contract to furnish vessel design and components (a kit) for the construction of two Super 116 Class jack-up drilling rigs. The rigs will be built by Keppel AmFELS for Scorpion Offshore. The kits, which comprise the rig’s legs, jacking systems, cranes and certain other components, will be delivered in stages in accordance with the construction schedules. Rowan estimates that the rig and kit construction contracts will provide an aggregate of approximately $182 million of revenues during 2006 and 2007. The division’s external backlog was approximately $252 million at June 30, 2005, up from approximately $59 million one year earlier.

Approximately $9.6 million of the $13.0 million increase in Net interest and other income shown in the preceding table was due to proceeds from the sale of marketable investment securities that had a nominal carrying cost. The remaining increase resulted primarily from rising short-term investment rates applied to a growing balance of cash and cash equivalents.

In February 2005, Rowan sold the purchase options it held on four leased anchor-handling boats for approximately $21 million in cash. 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. During the first six months of 2005, Rowan recognized $14.6 million of revenues and $13.3 million of expenses related to the marine vessel operations, and a $20.7 million gain on the sale of the purchase options. The aggregate effect of these items was reduced by an $8.1 million provision for income taxes.  For the first six months of 2004, the Company’s marine vessel operations incurred a loss of $2.6 million, net of a related tax benefit of $1.3 million.

On December 31, 2004, Rowan completed the sale of its aviation operations as conducted by Era Aviation, Inc. During the first six months of 2005, the Company recorded an incremental loss on the sale of $2.0 million, net of a related tax benefit of $1.1 million, which resulted from post-closing working capital adjustments pursuant to the sale agreement. For the first six months of 2004, the Company’s aviation operations incurred a loss of $9.7 million, net of a related tax benefit of $4.9 million.

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The revenues and expenses resulting from Rowan’s discontinued aviation and marine vessel operations for the six months ended June 30, 2005 and 2004, including the gain recognized upon sale of the boat purchase options, are shown collectively and net of tax as Income (loss) from discontinued operations in the Consolidated Statements of Operations.

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

Rowan generated net income of $42.3 million in the second quarter of 2005 compared to a net loss of $2.1 million in the same period of 2004. Income from continuing operations was $43.2 million in the second quarter of 2005 compared to income of $4.0 million in the same period of 2004. This improvement was largely due to the effects of increased rig utilization and average day rates in the Company’s drilling operations, which more than offset a nominal decrease in manufacturing results. In addition, the current period included significant after-tax gains from certain asset sales, including $6.1 from property and equipment and $1.2 from marketable investment securities. Our after-tax loss from discontinued operations was $0.9 million in the second quarter of 2005 compared to a loss of $6.1 million in the same period of 2004.

A comparison of the revenues and income (loss) from drilling, manufacturing and consolidated operations for the second quarters of 2005 and 2004, respectively, is reflected below (dollars in thousands):

		Drilling						Manufacturing						Consolidated
		2005			2004			2005			2004			2005			2004
Revenues	$	182,637		$	111,301		$	61,923		$	51,544		$	244,560		$	162,845
Percent of Consolidated Revenues		75	%		68	%		25	%		32	%		100	%		100	%
Income from operations	$	64,628		$	6,794		$	2,463		$	2,886		$	67,091		$	9,680
Percent of Revenues		35	%		6	%		4	%		6	%		27	%		6	%
Net interest and other income (expense)													$	420		$	(3,546	)
Income from continuing operations													$	43,186		$	3,974

As shown in the preceding table, Rowan’s consolidated operating results improved by $57.4 million when comparing the second quarters of 2005 and 2004. Rowan’s drilling operations generated a $57.8 million improvement in operating income between periods. Drilling revenues increased by $71.3 million or 64% as our offshore fleet of 24 jack-ups and one semi-submersible was 96% utilized during the second quarter of 2005, compared to 88% in the second quarter of 2004, and achieved a 47% increase in average day rates between periods. Our fleet of 16 actively-marketed land rigs was 100% utilized during the second quarter of 2005, compared to 99% in the second quarter of 2004, and achieved a 50% increase in average day rates between periods.

Drilling expenses increased by $17.4 million or 21% between periods. The addition, in April 2004, of the first Tarzan Class jack-up Scooter Yeargain and the reactivation of one land rig in February 2005 collectively caused a $2.6 increase in expenses between periods. Our North Sea operations included $5.3 million of incremental costs, including $2.8 million resulting from the recognition of deferred contract start-up costs and $2.5 million incurred to abandon the Ardmore Field following termination of the Tuscan contract. Labor costs were approximately $3.1 million higher due to incremental short-term incentive plan compensation and an average 8% wage increase effective May 1, 2005. Repairs and maintenance expenses increased by $3.0 million between periods.

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Rowan’s manufacturing operating results declined slightly despite a $10.4 million or 20% increase in revenues between periods. The aggregate effects of a $10.1 million or 36% increase in equipment group revenues and a $1.8 million or 25% increase in steel group revenues were offset by a $1.5 million or 9% decrease in drilling products group revenues. Our average margin on direct costs was unchanged at 17% of revenues in 2005, though our operating income as a percentage of revenues declined between periods. The equipment group shipped seven mining loaders during the second quarter of 2005 compared to four units in the second quarter of 2004.

Manufacturing operations exclude approximately $31 million of products and services provided to the drilling division during the second quarter of 2005, most of which was attributable to construction progress on the second Tarzan Class rig, the Bob Keller, compared to about $21 million in the same period of 2004, which was primarily attributable to the Scooter Yeargain and the Bob Keller.

Approximately $1.9 million of the $4.0 million increase in Net interest and other income shown in the preceding table was due to proceeds from the sale of marketable investment securities that had a nominal carrying cost. The remaining increase resulted primarily from rising short-term investment rates applied to a growing balance of cash and cash equivalents.

In February 2005, Rowan sold the purchase options it held on four leased anchor-handling boats for approximately $21 million in cash. 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. During the second quarter of 2005, Rowan recognized $5.2 million of revenues and $5.4 million of expenses related to the marine vessel operations, which were offset by a $0.1 million income tax benefit. For the second quarter of 2004, the Company’s marine vessel operations incurred a loss of $1.6 million, net of a related tax benefit of $0.8 million.

On December 31, 2004, Rowan completed the sale of its aviation operations as conducted by Era Aviation, Inc. During the second quarter of 2005, the Company recorded an incremental loss on the sale of $0.8 million, net of a related tax benefit of $0.5 million, which resulted from post-closing working capital adjustments pursuant to the sale agreement. For the second quarter of 2004, the Company’s aviation operations incurred a loss of $4.5 million, net of a related tax benefit of $2.5 million.

Outlook

Worldwide rig demand is inherently volatile and generally varies from one market to the next, as does the supply of competitive equipment. Exploration and development expenditures on the part of energy companies are affected by many factors beyond oil and natural gas price levels and trends, such as political and regulatory policies, seasonal weather patterns, lease expirations, mergers and acquisitions and new oil and gas discoveries. The outlook for most worldwide drilling markets appears to be stable or improving. However, the volatility inherent in the drilling business prevents us from being able to accurately predict whether existing market conditions will continue beyond the near term, or whether any expected improvements will materialize. 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 we believe such moves are economically justified. Our recently announced three-year contract for five rigs in the Middle East will bring more global diversification to Rowan’s drilling operations and, over time, should improve the average return on our investments. Currently, Rowan’s drilling operations are benefiting from predominantly favorable market conditions 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.

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Though considerably less volatile than our drilling operations, our manufacturing operations, especially the equipment group, are impacted by world commodities prices; in particular, prices for copper, iron ore, coal and gold. In addition, prospects for our drilling products group are ultimately tied to the condition of the overall drilling industry and its demand for equipment, parts and services. Many commodity prices are at or near historically high levels due to growth in worldwide demand, and our external manufacturing backlog, at $252 million, has tripled over the past three months and is at an all-time high. We are optimistic that prices will remain firm, sustaining the demand for the types of mining and drilling equipment that we provide. We cannot, however, accurately predict the duration of current business conditions or their impact on our operations. Rowan’s manufacturing operations will be adversely affected if conditions deteriorate.

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LIQUIDITY AND CAPITAL RESOURCES

A comparison of key balance sheet figures and ratios as of June 30, 2005 and December 31, 2004 is as follows (dollars in thousands):

	June 30,	December 31,
	2005	2004
Cash and cash equivalents	$487,821	$465,977
Current assets	$906,851	$807,097
Current liabilities	$197,967	$234,800
Current ratio	4.58	3.44
Long-term debt - less current maturities	$573,180	$574,350
Stockholders' equity	$1,492,448	$1,408,884
Long-term debt/total capitalization	.28	.29

Reflected in the comparison above are the effects in the first six months of 2005 of net cash provided by operations of $73.6 million, proceeds from borrowings of $28.3 million, proceeds from the sale of investments of $9.6 million and proceeds from stock option and convertible debenture plans of $18.8 million, which were offset by capital expenditures of $76.1 million, a cash dividend payment of $26.9 million and debt repayments of $29.5 million. Operating cash flows included $80.9 million of non-cash charges or non-operating adjustments to Rowan’s net income, featuring deferred income taxes of $44.8 million and depreciation of $40.0 million, offset by $68.0 million of pension contributions and other benefit payments and a $25.0 million net investment in working capital during the period.

Capital expenditures during the first six months of 2005 were primarily related to the construction of our second and third Tarzan Class jack-up rigs.

Rowan’s second Tarzan Class rig, the Bob Keller, is at our Sabine Pass, Texas facility for final outfitting and should be delivered 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 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, 2005, and the Bob Keller secures the government guarantee. At June 30, 2005, we had borrowed about $80.1 million under this loan, which bore interest at an annual rate of about 3.4%.

Construction of our third TarzanClass jack-up, the Hank Boswell, is underway at our Vicksburg, Mississippi shipyard with delivery expected during the fourth quarter of 2006. A fourth Tarzan Class jack-up is tentatively planned, subject to current and anticipated market conditions. We have applied 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 first two. However, there can be no assurance that we will obtain such financing or that other outside financing or working capital will be available.

Rowan currently estimates that remaining 2005 capital expenditures will be between $110 million and $120 million, including approximately $50-55 million towards the construction of the second and third Tarzan Class rigs.

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. The Company was in compliance with each of its debt covenants at June 30, 2005.

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Our Board of Directors has declared, in conjunction with the sale of several non-core assets, a special cash dividend of $.25 per share of common stock that will be paid on September 1, 2005 to shareholders of record on August 17, 2005. In January 2005, in conjunction with the sale of our aviation operations, our Board of Directors declared a special cash dividend of $.25 per share of common stock that was paid on February 25, 2005 to shareholders of record on February 9, 2005. Rowan did not pay any dividends during 2004 and, at June 30, 2005, had approximately $436 million of retained earnings available for distribution to stockholders under the most restrictive provisions of our debt agreements.

During 2002-2004, Rowan contributed approximately $50 million in aggregate to its defined benefit pension plans. 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 accumulated other comprehensive loss resulting from unfunded pension liabilities of approximately $71 million at June 30, 2005. Recent actuarial calculations indicated that, assuming plan assets perform as expected and interest rates are unchanged from present levels, additional pension contributions would be required over the next several years, in average annual amounts that exceed the contribution rate of the past three years. For this reason, we elected to utilize a portion of the net proceeds received upon the sale of our aviation operations in December 2004 to make an additional contribution of $60 million to our pension plans in January 2005. Rowan currently expects to make additional contributions totaling approximately $2.7 million during the last half of 2005.

Based on current and anticipated near-term operating levels, we believe that 2005 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 2005. We currently have no other available credit facilities, but believe financing could be obtained if deemed necessary.

During the second quarter of 2005, the Company learned that a unit of the U. S. Department of Justice is conducting an investigation of potential anti-trust violations among helicopter transportation providers in the Gulf of Mexico. Rowan’s former aviation subsidiary, which was sold effective December 31, 2004, has received a subpoena in connection with the investigation. The Company has not been served with a subpoena in this matter and believes any involvement by it in the investigation will be minimal.

In the third quarter of 2004, the Company learned that a unit of the U. S. Department of Justice is conducting a criminal investigation of environmental matters involving several of Rowan’s offshore drilling rigs. Rowan is cooperating with the investigation. The Company does not have sufficient information at this time to comment on the outcome of the investigation.

The Company is involved in various other legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. We believe that there are no known contingencies, claims or lawsuits that will have a material adverse effect on Rowan’s financial position, results of operations or cash flows.

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Critical Accounting Policies and Management Estimates. Rowan’s significant accounting policies are outlined in Note 1 to our financial statements included in our 2004 Annual Report to Stockholders, which is incorporated by reference in our Form 10-K for the year ended December 31, 2004. 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 property and depreciation, specifically 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.

Property and depreciation. Rowan provides 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%. Rowan continues to operate 20 offshore rigs that were placed into service during 1971-1986 and assigned lives ranging from 12 to 15 years. Our newest and most significant assets, the Super Gorilla and TarzanClass rigs, which collectively comprise almost two-thirds of our property, plant and equipment carrying value, carry a 25-year service life. 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, Rowan’s 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 for 2005 include a discount rate of 5.75%, an expected long-term rate of return on pension plan assets of 8.5% and annual healthcare cost trend rates ranging from 10% in 2005 to 5% in 2010 and beyond. The assumed discount rate is based upon the average yield for Moody’s Aa-rated corporate bonds 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% change in the expected long-term rate of return on plan assets would change net benefits cost by approximately $2 million. A 1% increase in the assumed healthcare cost trend rate would increase 2005 other benefit costs by $0.7 million.

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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 $1.7 million, or $.01 per share for the six months ended June 30, 2005 and increased reported amounts of net loss and net loss per share by approximately $1.5 million, or $.01 per share, for the six months ended June 30, 2004.

Under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, as amended, Rowan will be required to expense stock-based compensation associated with unvested awards using the fair value method beginning January 1, 2006. We currently expect that the provisions of Statement No. 123 (revised) will reduce our 2006 quarterly net income by approximately $.01 per share from that measured under APB 25.

Statement of Financial Accounting Standards No. 151, “Inventory Costs”, clarifies the distinction between costs that are allocable to inventory and those that are expensed as incurred. We believe that the provisions of Statement No. 151, which are effective for fiscal years beginning after June 15, 2005, will not materially impact our financial position or results of operations.

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 interest rates and inflation; weather conditions in our principal operating areas; and environmental and other laws and regulations. Details of these and other risks have been disclosed in Rowan’s filings with the U. S. Securities and Exchange Commission.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Rowan believes that its exposure to risk of earnings loss due to changes in market interest rates is not significant. The Company’s outstanding debt at June 30, 2005 was comprised as follows: $386.4 million of fixed-rate notes bearing a weighted average annual interest rate of 4.6% and $251.7 million of floating-rate notes bearing a weighted average annual interest rate of 3.45%. In addition, virtually all of the Company’s transactions are carried out in U. S. dollars, thus Rowan’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 as of the end of the period covered by this report were not effective as a result of a material weakness in internal controls as of December 31, 2004, as remediation efforts were not complete at June 30, 2005.

Our management is responsible for establishing and maintaining internal control over financial reporting. 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.

An internal control material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely basis by employees in the normal course of their work.

In order to address the material weakness identified, management has made and will continue to make corrective measures during 2005 including: 1) adding experienced personnel to our accounting and reporting function to provide the necessary resources to adequately review and monitor transactions, accounting processes and control activities and 2) initiating processes and procedures to better document employee responsibilities including transaction review and monitoring activities. In this regard, Rowan has engaged the independent risk consulting firm Protiviti to assist us with documentation and remediation efforts.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

During the second quarter of 2005, the Company learned that a unit of the U. S. Department of Justice is conducting an investigation of potential anti-trust violations among helicopter transportation providers in the Gulf of Mexico. Rowan’s former aviation subsidiary, which was sold effective December 31, 2004, has received a subpoena in connection with the investigation. The Company has not been served with a subpoena in this matter and believes any involvement by it in the investigation will be minimal.

In the third quarter of 2004, the Company learned that a unit of the U. S. Department of Justice is conducting a criminal investigation of environmental matters involving several of Rowan’s offshore drilling rigs. Rowan is cooperating with the investigation. The Company does not have sufficient information at this time to comment on the outcome of the investigation.

The Company is involved in various other legal proceedings incidental to its businesses and is vigorously defending its position in all such matters. We believe that there are no known contingencies, claims or lawsuits that will have a material adverse effect on Rowan’s financial position, results of operations or cash flows.

Item 2.Unregistered Sale of Equity Securities and Use of Proceeds

The Company did not repurchase any shares of its outstanding common stock during the first six months of 2005 or 2004. Under the terms of a Share Repurchase Program begun in June 1998, the Company was authorized, at June 30, 2005, to buy back up to approximately 1.5 million shares of its common stock.

Our Board of Directors has declared, in conjunction with the sale of several non-core assets, a special cash dividend of $.25 per share of common stock that will be paid on September 1, 2005 to shareholders of record on August 17, 2005. In January 2005, in conjunction with the sale of our aviation operations, our Board of Directors declared a special cash dividend of $.25 per share of common stock that was paid on February 25, 2005 to shareholders of record on February 9, 2005. Rowan did not pay any dividends during 2004 and, at June 30, 2005, had approximately $436 million of retained earnings available for distribution to stockholders under the most restrictive provisions of our debt agreements.

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Item 6.Exhibits

The following is a list of Exhibits filed with this Form 10-Q:

10a	Amendment No. 1 dated June 15, 2005 to Commitment to Guarantee Obligations between Rowan and the Maritime Administration of the U. S. Department of Transportation
10b	Supplement No. 1 dated June 15, 2005 to Trust Indenture between Rowan and Citibank, N. A.
10c	Form of Non-Employee Director 2005 Restricted Stock Unit Grant Pursuant to the Terms of the Rowan Companies, Inc. 2005 Long-Term Incentive Plan
10d	Form of Non-Employee Director 2006 Restricted Stock Unit Grant Pursuant to the Terms of the Rowan Companies, Inc. 2005 Long-Term Incentive Plan
10e	Form of 2005 Rowan Companies, Inc. Long-Term Incentive Plan Restricted Stock Grant Agreement
10f	Form of 2005 Rowan Companies, Inc. Long-Term Incentive Plan Nonqualified Stock Option Agreement
10g	Form of 2005 Rowan Companies, Inc. Long-Term Incentive Plan Performance Share Award Agreement
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)

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 9, 2005	/s/ W. H. WELLS
	W. H. Wells
	Vice President - Finance
	and Treasurer
	(Chief Financial Officer)
Date: August 9, 2005	/s/ GREGORY M. HATFIELD
	Gregory M. Hatfield
	Controller
	(Chief Accounting Officer)

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