ROWAN COMPANIES, INC. 2001 Annual Report COMPANY PROFILE DRILLING Rowan Companies, Inc., founded in 1923, is a major international offshore and land drilling contractor. MANUFACTURING LeTourneau, Inc. operates a mini-steel mill, a manufacturing facility that produces heavy equipment for the mining, timber and transportation industries, and a drilling products division that has designed or built about one-third of all mobile offshore jack-up drilling rigs. AVIATION Era Aviation, Inc. is an international aviation organization operating helicopters and fixed-wing aircraft. TABLE OF CONTENTS Financial Highlights 1 Letter to Stockholders 4 Questions and Answers about Rowan 6 Operations Review 8 Equipment 12 Ten-Year Financial Review 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Selected Quarterly Financial Data 22 Common Stock Price Range, Cash Dividends and Stock Splits 22 Independent Auditors’ Report 23 Consolidated Balance Sheet 24 Consolidated Statement of Operations 25 Consolidated Statement of Comprehensive Income (Loss) 25 Consolidated Statement of Changes in Stockholders’ Equity 26 Consolidated Statement of Cash Flows 27 Notes to Consolidated Financial Statements 28 Corporate Directory 38 Stockholders’ Information 39 Directors and Officers 40 2 FINANCIAL HIGHLIGHTS FOR THE YEARS ENDED DECEMBER 31, (In thousands except per share amounts and ratios) 2001 2000 1999 Revenues $ 731,064 $ 645,959 $ 460,562 Income (loss) before income taxes $ 120,207 $ 110,863 $ (14,536) Net income (loss) $ 76,998 $ 70,213 $ (9,666) Income (loss) per diluted share $ .80 $ .74 $ (.12) Net cash provided by operations $ 281,728 $ 104,033 $ 37,906 Price range of common stock $ 11.10–33.89 $ 19.06–34.25 $ 8.50–21.69 Capital expenditures $ 305,180 $ 223,082 $ 204,689 AT DECEMBER 31, 2001 2000 1999 Working capital $ 305,188 $ 379,003 $ 122,792(1) ROWAN’S BUSINESS Current ratio 2.51 4.63 1.61(1) Current maturities of long-term debt $ 42,458 $ 28,008 $ 129,123(1) PLAN IS VERY Long-term debt $ 438,484 $ 372,212 $ 296,677 STRAIGHTFORWARD: Long-term debt/total capitalization .28 .26 .29 Stockholders’ equity $ 1,108,087 $ 1,052,757 $ 723,724 SEEK AND RETAIN Property, plant and equipment – net $ 1,418,843 $ 1,182,780 $ 1,025,739 FINANCIALLY SOUND Shares of common stock outstanding 93,567 94,235 83,303 Book value per share of common stock $ 11.84 $ 11.17 $ 8.69 AND TRUSTWORTHY (1) Amounts reflect advances of $110 million outstanding under the Company’s $155 million revolving credit facility expiring in October CUSTOMERS AND 2000. The Company repaid such advances during February 2000 from the $247 million net proceeds from a stock offering and cancelled the facility. Giving effect to these transactions at December 31, 1999, the Company’s Working capital, Current ratio and Current maturi- CAREFULLY MANAGE ties of long-term debt would have been $370 million, 5.00 and $19 million, respectively. THE ASSETS OF MAN- POWER, MACHINES AND MONEY. REVENUES YEAR ENDED DECEMBER 31, 2001 TOTAL DRILLING MANUFACTURING AVIATION Drilling 66% United States 91% Equipment 67% Alaska 58% I Manufacturing 14% I Eastern Canada 9% I Steel 15% I Gulf of Mexico 42% I Aviation 20% I Drilling Products 18% PROPERTY, PLANT AND EQUIPMENT – NET DECEMBER 31, 2001 TOTAL DRILLING MANUFACTURING AVIATION Drilling 87% United States 81% Equipment 35% Alaska 55% I Manufacturing 5% I Eastern Canada 18% I Steel 12% I Gulf of Mexico 45% I Aviation 8% I North Sea 1% I Drilling Products 53% 1 2 Rowan has been in existence since 1923 – 79 years, the last 35 as a public company.We have met every financial commitment on time and in full. We do not manage earnings – quarterly or annually. And for any that have studied the ups and downs of our financial statements – that should be obvious. 3 TO OUR STOCKHOLDERS nly one year ago, it less than fifty percent. The industry jack-up rig count fell O seemed that Rowan from 146 in April to 75 in November. Rowan rigs contin- was poised to enjoy ued to receive premium rates, but utilization suffered. another year in paradise. Our average rate for the fourth quarter was down to Our rig utilization was $36,400 and demand for Gorilla class rigs in the Gulf of near 100%, our premium Mexico was virtually non-existent at only 21% utilization. long-legged jack-up rigs Longer term, there is no question that U.S. demand for oil were achieving $70,000 and gas will increase faster than new supply, thus the out- day rates and rates for our look for energy prices is favorable. Perhaps the worst is newest 2000 horsepower behind us. On March 8, the Gulf of Mexico jack-up rig count land rigs were moving was 86, up by 11 from the November low. All of Rowan’s Bob Palmer, Chairman of the Board above $20,000. In addition, and President jack-up rigs were under contract, albeit at lower rates. our Gorilla class rigs were in high demand in the Gulf of Mexico. For our customers, I believe Rowan once again will be a major beneficiary as demand for natural gas in North America had out- drilling activity increases, particularly for natural gas. We stripped supply and prices over $9.00 per mcf had have the right machines, the right personnel, a strong been achieved. balance sheet and an exploration-motivated customer base. We remain steadfast and eager in our mission to And then – the wheels came off. The U.S. economy began build stockholder value. It will happen! to falter, industrial demand for energy ceased to grow and began to fall. The prices for oil and natural gas Sincerely, started a downward trend. By June, we were staring in disbelief that paradise had been so short-lived. But it happened! Once again, the scramble was on to continue our long-term business plan Bob Palmer while dealing with the harsh reality of a rig market that Chairman of the Board and President was collapsing. Gulf of Mexico rig utilization plunged to March 14, 2002 STATUS OF THE GORILLA V LITIGATION The London trial commenced on January 22, 2001. Final arguments were Without the admission of fault by either party, the essence of the agreement is: heard on October 2, 3 and 4. On November 16, Mr. Justice Langley handed • “To the extent that any negative allegations and/or communications down his judgement, which said in part that Amoco’s case “fails on the have been made by any representative of any of the BP Amoco Affiliated facts at every point”. As a result, Rowan received $88.6 million for dam- Parties relating to Gorilla V, those allegations and communications shall ages, interest and litigation costs. be and are hereby retracted.” On December 14, 2001, Amoco (now BP) asked the Court of Appeals for per- • The BP Amoco Affiliated Parties shall drop their application for permis- mission to appeal the judgement – so the agony and expenses continued. sion to appeal the U.K. Judgements. In the Houston litigation, BP and their co-venturers, Enterprise and • The Rowan Affiliated Parties shall dismiss the lawsuit in Houston, Texas. Amerada Hess, continued to maneuver in an attempt to delay. Notwithstanding these efforts, discovery and depositions continued. • The BP Amoco Affiliated Parties shall pay Rowan a total of $175 million, comprised of a total of $90.8 million previously awarded by the English Then on March 14, 2002, a settlement agreement was reached between Court plus $84.2 million. BP Amoco Corporation, BP Amoco, P.L.C., BP Exploration Operating Company, BP America, Inc., Amoco (UK) Exploration Company (“Amoco UK”), Amoco It is over. At least the three years of wasted time, money and business Production Company, Amerada Hess Limited, Amerada Hess Corporation, opportunities are history. Enterprise Oil P.L.C., (collectively, the “BP Amoco Affiliated Parties”), on the one hand, and Rowan Companies, Inc., LeTourneau, Inc., and British The major credit for the win goes to the Rowan Team that “made our American Offshore Limited (“BAO”), (collectively, the “Rowan Affiliated case”. On the following page is our Honor Roll, so that you and they know Parties”), on the other. who we are. From day one, I have believed Rowan’s cause was just. We had the Facts, the Law and the Resources to Win. As Winston Churchill once said, “Let us not for one moment lose our unshakable confidence that right will triumph.” I believe it did! 4 ROWAN HONOR ROLL (Position listed is the individual’s job classification at the time of the London litigation) ROWAN E. E. Thiele3 ENGLISH LITIGATION TEAM Senior Vice President Willie R. Aultman1 SOLICITORS 1 Driller Gary W. Welton Tool Pusher Freshfields Bruckhaus Deringer Alan G. Barker1, 2 1, 2, 3 Christopher R. Pugh CONSOLIDATED Assistant Driller Eric M. Wesselingh EVENUES Engineer R Jonathan J. Rawlings (IN MILLIONS OF DOLLARS) John L. Buvens3 Neil Wilson3 706.4 731.1 Vice President – Legal Timothy J. Boyce Safety and Quality Assurance 646.0 Thomas E. Devaney1, 2 Gerhard du Plessis Driller 460.6 LETOURNEAU Robert Fell Michael Duran1 Rig Superintendent James F. Benge3 Nicholas W. S. Brocklesby Metallurgist Michael D. Gray1, 2, 3 Karen Robinson Offshore Installation Manager Julian F. Bowes1, 2, 3 Robert Beardmore Vice President Scott Haggard, Jr.1, 2, 3 1998 1999 2000 2001 Linsey MacDonald Operations Manager Charles A. Burris1, 2 Electrical Supervisor Mark H. Hay3 1, 2 COUNSEL Corporate Secretary Dwayne J. Butler CONSOLIDATED OPERATING PROFIT Engineer, Marine Mechanical Lord Goldsmith QC Paul L. Kelly3 (IN MILLIONS OF DOLLARS) 3 Senior Vice President Donald M. Cross Richard Siberry QC 205.7 Vice President Kent E.