<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] 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.
Incorporated in Delaware Commission File I. R. S. Employer
Number 1-5491 Identification:
75-0759420
5450 Transco Tower
2800 Post Oak Boulevard, Houston, Texas 77056-6196
Registrant's telephone number, including area code: (713) 621-7800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ----------------------------- -----------------------
Common Stock, $.125 Par Value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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 [ ].
The aggregate market value as of March 1, 1999 of the Common Stock
held by non-affiliates of the registrant was approximately $701 million.
The number of shares of Common Stock, $.125 par value, outstanding at
March 1, 1999 was 83,022,407.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
-------- -----------------
Annual Report to Stockholders for
fiscal year ended December 31, 1998 Parts I, II and IV
Proxy Statement for the 1999 Annual
Meeting of Stockholders Part III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<S> <C>
Item 1. Business .................................................... 1
Drilling Operations................................................. 1
Offshore Operations ............................................. 1
Onshore Operations .............................................. 3
Contracts ....................................................... 3
Competition ..................................................... 4
Regulations and Hazards ......................................... 4
Manufacturing Operations............................................ 6
Raw Materials.................................................... 7
Competition...................................................... 7
Regulations and Hazards.......................................... 8
Aviation Operations ................................................ 8
Contracts ....................................................... 10
Competition ..................................................... 10
Regulations and Hazards ......................................... 10
Employees .......................................................... 10
Item 2. Properties .................................................. 11
Drilling Rigs ...................................................... 11
Manufacturing Facilities............................................ 15
Aircraft ........................................................... 15
Item 3. Legal Proceedings ........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ......... 16
Additional Item. Executive Officers of the Registrant ................ 17
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters ....................................... 18
Item 6. Selected Financial Data ..................................... 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .. 19
Item 8. Financial Statements and Supplementary Data ................. 19
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ....................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant .......... 19
Item 11. Executive Compensation ...................................... 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................ 19
Item 13. Certain Relationships and Related Transactions .............. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ....................................... 20
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Rowan Companies, Inc. (the "Company") is a major provider of international and
domestic contract drilling and aviation services. The Company also operates a
mini-steel mill, a manufacturing facility that produces heavy equipment for the
mining, timber and transportation industries and a marine construction division
that has designed and built over one-third of all mobile offshore jack-up
drilling rigs. The Company was organized in 1947 as a Delaware corporation and
a successor to a contract drilling business conducted since 1923 under the name
Rowan Drilling Company, Inc.
Information regarding each of the Company's industry segments, including
revenues, operating profit (loss), assets and foreign sales for 1996, 1997 and
1998, is incorporated herein by reference to Footnote 10 of the Notes to
Consolidated Financial Statements on pages 29 and 30 of the Company's 1998
Annual Report to Stockholders ("Annual Report"), incorporated portions of which
are filed as Exhibit 13 hereto.
DRILLING OPERATIONS
The Company provides contract drilling services utilizing a fleet of 21
self-elevating mobile offshore drilling platforms ("jack-up rigs"), one mobile
offshore floating platform ("semi-submersible rig") and 14 land drilling rigs.
The Company's drilling operations are conducted primarily in the Gulf of
Mexico, the North Sea, offshore eastern Canada and in Texas and Louisiana. In
1998, drilling operations generated an operating profit (income from operations
before deducting general and administrative expenses) of $180.1 million.
Offshore Operations
Since 1970, the Company's drilling operations have featured jack-up rigs
performing both exploratory and development drilling and, in certain areas,
well workover operations. The Company operates larger, deep-water type jack-up
rigs capable of drilling to depths of 20,000 to 30,000 feet in maximum water
depths ranging from 225 to 550 feet, depending on the size of the rig and its
location.
A jack-up rig is a floating hull with three independently elevating legs,
drilling equipment, supplies, crew quarters, loading and unloading facilities,
a helicopter landing deck and other related equipment. Drilling equipment
includes engines, drawworks or hoist, derrick, pumps to circulate the drilling
fluid, drill pipe and drilling bits. The Company's rigs are equipped with
propulsion thrusters to assist in towing. At the drilling site, the legs are
lowered until they penetrate the ocean floor and the hull is jacked-up on the
legs to the desired elevation above the water. The hull then serves as a
drilling platform until the well is completed at which time the hull is lowered
into the water, the legs are elevated and the rig is towed to the next drilling
site.
The Company's cantilever jack-ups can extend that portion of the hull
containing the drilling equipment over fixed production platforms so that
development or workover operations on the platforms can be carried out with a
minimum of interruption to production. In 1989, the Company acquired and
developed "skid base" technology enabling its conventional jack-up rigs to work
over wells on a production platform that previously required a cantilever
jack-up or platform rig.
At December 31, 1998, the Company's offshore drilling fleet included 13
cantilever jack-up rigs, featuring three harsh environment "Gorilla Class rigs"
and one enhanced "Super Gorilla Class rig", eight conventional jack-up rigs,
including five rigs with skid base capability, and one semi-submersible rig.
The Company operates two of the cantilever jack-up rigs under sale/leaseback
arrangements expiring during 2000.
-1-
<PAGE> 4
The Company's Gorilla Class rigs, Gorillas II, III and IV, are a heavier-duty
class of jack-up rig, intended to drill up to 30,000 feet in water depths up to
328 feet in extreme hostile environments (winds up to 100 miles per hour and
seas up to 90 feet).
During the fourth quarter of 1998, the Company completed construction of the
first of three Super Gorilla Class rigs, Rowan Gorilla V, which is an enhanced
version of the Company's Gorilla Class rigs and the world's largest bottom
supported mobile offshore drilling unit. Gorilla V is a combination drilling
and production unit capable of operating year-round in 400 feet of water south
of the 61st parallel in the North Sea, within the worst case combination of
100-year storm criteria for waves, wave periods, winds and currents. The
Company financed $153.1 million of the cost of Gorilla V through bank loans
guaranteed by the U.S. Department of Transportation's Maritime Administration
under its Title XI Program.
In October 1996, the Company announced plans for the construction of two
additional Super Gorilla Class rigs, Rowan Gorilla VI and Rowan Gorilla VII. To
date, the Company has assembled a significant portion of Gorilla VI and has
ordered most long lead-time components for Gorilla VII. The Company has secured
Title XI bank financing for up to $171.0 million of the cost of Gorilla VI on
terms and conditions similar to those obtained for Gorilla V. Gorilla VI should
be completed by mid-2000 and Gorilla VII about one year thereafter.
This fleet expansion program began in 1995 and represents the Company's first
new construction since the mid-1980s. Since that time, the Company's capital
expenditures have been primarily for enhancements to existing drilling rigs and
manufacturing facilities and for the purchase of aircraft. Of the Company's 17
remaining jack-up rigs, six cantilever rigs and one conventional rig have been
modified to provide a degree of hostile environment operating capability, while
five cantilever rigs and three conventional rigs can operate in water depths up
to 350 feet.
The Company takes advantage of lulls in drilling activity, as is currently
being experienced, to perform needed maintenance and make certain enhancements
to its drilling fleet. Within the past six months, the Company has completed
the following enhancements: upgrading solids control mud systems on all nine of
the Company's Class 116-C jack-up rigs and one of its four Class 52 rigs;
adding one to two engines to six of the Class 116-C rigs, each such rig now
being equipped with six engines; installing new generation top-drives on four
of the Class 116-C rigs and one of the Gorilla Class Rigs; upgrading the
electrical systems on one of the Class 84 rigs; and reconditioning the subsea
equipment on the Company's semi-submersible rig.
For a further discussion of the Company's availability of funds in 1999 to
sustain operations, debt service and planned capital expenditures, including
those related to construction of Gorillas VI and VII, see "Liquidity and
Capital Resources" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 15, 16 and 17 of the Annual
Report, which information is incorporated herein by reference. Also, see ITEM
2. PROPERTIES on page 11 of this Form 10-K for additional information with
respect to the capabilities and operating status of the Company's rigs.
The Company's semi-submersible rig is utilized principally for offshore
exploratory drilling from a floating position and is capable of drilling to a
depth of 25,000 feet in water depths up to 1,200 feet. A semi-submersible
drilling rig consists of a drilling platform raised above multiple hulls by
columns. The hulls are flooded and submerged beneath the water surface, in
which position the rig is anchored during drilling operations. The drilling
platform contains the same type of equipment found on a jack-up rig. After
completion of the well, the submerged hull is deballasted to reduce vessel
draft and facilitate towing to another drilling location.
-2-
<PAGE> 5
Onshore Operations
The Company has drilling equipment, personnel and camps available on a contract
basis for exploration and development of onshore areas. It currently owns 14
deep-well land rigs located as follows: two in Oklahoma, three in Texas, five
in Louisiana, and four in Alaska, which are winterized. Three trailer-mounted
land rigs, along with the Company's Argentina subsidiary, were sold in
late-1996.
Three deep-well land rigs have worked fairly consistently since mid-1994 in
Texas and Louisiana. Four additional rigs have been reactivated since mid-1996,
two of which have worked sporadically in Louisiana. Two other deep-well land
rigs have worked intermittently in Louisiana and Texas since returning from
Argentina in 1997. The Company's five remaining deep-well land rigs based in
Alaska and Oklahoma have been idle since mid-1988 due to inadequate rates, and
remain "mothballed" at March 26, 1999. The cost of maintaining these rigs is
modest and the remaining investment in the rigs is not significant.
The drilling equipment comprising an onshore rig consists basically of engines,
drawworks or hoist, derrick, pumps to circulate the drilling fluid, drill pipe
and drilling bits. The type of rig required by a customer depends upon the
anticipated well depth, terrain and conditions in the drilling area.
Contracts
The Company's drilling contracts generally provide for compensation on a day
rate basis and are usually obtained either through competitive bidding or
individual negotiations. A number of factors affect a drilling contractor's
ability, both onshore and offshore, to obtain contracts at a profitable rate
within an area. Such factors include the location and availability of
equipment, its suitability for the project, the comparative cost of the
equipment, the competence of personnel and the reputation of the contractor.
Profitability may also be dependent upon receiving adequate compensation for
the cost of moving equipment to drilling locations.
When weak market conditions characterized by declining drilling day rates
prevail, as in the current environment, the Company generally accepts lower
rate contracts in an attempt to maintain its competitive position and to offset
the substantial costs of maintaining and reactivating stacked rigs. When
drilling markets are strong and increasing rates prevail, the Company generally
pursues short rather than long-term contracts for its offshore rigs to maximize
its ability to obtain rate increases and pass through any cost increases to
customers.
The Company's drilling contracts are either "well-to-well", "multiple well" or
for a fixed term generally ranging from four to twelve months. Well-to-well
contracts are cancelable by either party upon completion of drilling at any one
site, and fixed-term contracts usually provide for termination by either party
if drilling operations are suspended for extended periods by events of force
majeure. While most fixed-term contracts are for relatively short periods, some
fixed-term and well-to-well contracts continue for a longer period than the
original term or for a specific series of wells. Many offshore contracts
contain renewal or extension provisions exercisable at the option of the
customer at prices agreeable to the Company and most require additional
payments for mobilization and demobilization costs. The Company's contracts for
work in foreign countries generally provide for payment in United States
dollars except for minimal amounts required to meet local expenses.
From 1992 through early 1997, the Company pursued work on a turnkey basis where
the Company's entire compensation was contingent upon it successfully drilling
a well to a specified depth for a fixed price. In the event operational
problems occurred that prevented the Company from reaching the specified
turnkey depth, the Company was not entitled to any portion of the turnkey
price, thereby causing it to absorb substantial out-of-pocket expenses. For
this reason, wells drilled on a turnkey basis generally involved greater
economic risk to the Company than wells drilled on a day rate basis. Due to the
increasing demand for the Company's daywork drilling services and the
unfavorable results of its
-3-
<PAGE> 6
turnkey drilling operations during the recent past, the Company elected in
early 1997 to focus on daywork drilling contracts. The Company is not pursuing
additional turnkey work at this time.
The Company believes that the contract status of its onshore and offshore rigs
is more informative than backlog calculations, and that backlog information is
neither calculable nor meaningful given the cancellation options contained in,
and the short duration of, fixed-term contracts and the indeterminable duration
of well-to-well and multiple well contracts. See ITEM 2. PROPERTIES beginning
on page 11 of this Form 10-K for the contract status of the Company's rigs as
of March 26, 1999.
Competition
The Company competes with approximately 21 offshore drilling contractors having
available to operate more than 500 mobile rigs, approximately 25 domestic
drilling contractors having available about 100 deep-well land rigs, and five
domestic drilling contractors having available about 19 winterized land rigs on
the Alaskan North Slope. Some of the Company's competitors have greater
financial and other resources and may be more able to make technological
improvements to existing equipment or replace equipment that becomes obsolete.
Technological advances can create competitive advantages and eventually cause
older, less capable equipment to be less suitable for certain drilling
operations. As a result, during the 1980-1986 period, the Company carried out a
drilling rig expansion program, culminating with the development of a heavier
jack-up rig class known as the Gorilla rig. Since that time, the Company has
employed a drilling rig modification and enhancement program designed to
provide a fleet of jack-up rigs reflecting the latest technological
advancements. In 1995, the Company began a drilling rig expansion program
featuring the development of an enhanced version of the Gorilla Class rig.
The offshore markets in which the Company competes are characterized by their
economic viability and political stability. At March 26, 1999, the Company had
13 jack-ups and its semi-submersible located in the Gulf of Mexico, six
jack-ups in the North Sea and two jack-ups offshore eastern Canada. Relocation
of drilling rigs from one geographic location to another is dependent upon
changing market dynamics, with moves occurring only when the likelihood of
higher returns makes such action economical.
The Company markets its drilling services by directly contacting present and
potential customers, including large international energy companies, many
smaller energy companies and foreign government-owned or controlled energy
companies. Since 1992, with the many restructurings, downsizings and, more
recently, mergers by major energy companies, followed by significant reductions
in their domestic budgets, the Company has increased its marketing emphasis on
independent operators.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 12 through 17 of the Company's Annual Report, the
information under which caption is incorporated herein by reference, for a
discussion of current industry conditions and their impact on operations.
Regulations and Hazards
The Company's drilling operations are subject to many hazards, including
blowouts and well fires, which could cause personal injury, suspend drilling
operations, seriously damage or destroy the equipment involved and cause
substantial damage to producing formations and the surrounding areas. Offshore
drilling operations are also subject to marine hazards, either while on site or
under tow, such as vessel capsizing, collision or grounding. Raising and
lowering the legs of jack-up rigs into the ocean bottom and ballasting
semi-submersible units require skillful handling to avoid capsizing or other
serious damage. Drilling into high pressure formations is a complex process and
problems can frequently occur.
-4-
<PAGE> 7
The Company believes that it is adequately insured for physical damage to its
rigs, and for marine liabilities, worker's compensation, Maritime Employees
Liability, automobile liability and for various other types of exposures
customarily encountered in the Company's operations. Certain of the Company's
liability insurance policies specifically exclude coverage for fines, penalties
and punitive or exemplary damages. Under current conditions, the Company
anticipates that its present insurance coverage will be maintained, but no
assurance can be given that insurance coverage will continue to be available at
rates considered reasonable, that self-insured amounts or deductibles will not
increase or that certain types of coverage will be available at any cost.
Foreign operations are often subject to political, economic and other
uncertainties not encountered in domestic operations, such as arbitrary
taxation policies, onerous customs restrictions, unstable currencies and the
risk of asset expropriation due to foreign sovereignty over operating areas. As
noted previously, the Company attempts to minimize the risk of currency rate
fluctuations by generally contracting for payment in United States dollars.
Many aspects of the Company's operations are subject to government regulation,
as in the areas of equipping and operating vessels, drilling practices and
methods and taxation. In addition, various countries (including the United
States) have regulations relating to environmental protection and pollution
control. Recent events have also increased the sensitivity of the oil and gas
industry to environmental matters. The Company could become liable for damages
resulting from pollution of offshore waters and, under United States
regulations, must establish financial responsibility. Generally, the Company is
substantially indemnified under its drilling contracts for pollution damages,
except in certain cases of pollution emanating above the surface of land or
water from spills of pollutants, or in the case of pollutants emanating from
the Company's drilling rigs, but no assurance can be given regarding the
enforceability of such indemnification provisions.
Under turnkey contracts, the Company assumed responsibility for certain risks
that would customarily be assumed by the customer under a day rate contract,
such as pollution resulting from a blowout or uncontrolled flow from the well
bore, an underground blowout and the expense to redrill a well which has blown
out. The Company carried insurance to cover such risks and generally obtained
an indemnity from its customers for any liabilities exceeding the coverage
amount.
The Company believes that it complies with all material legislation and
regulations affecting the drilling of oil and gas wells and the discharge of
wastes. To date, the Company has made significant modifications to its Gulf of
Mexico rigs to reduce waste and rain water discharge and believes that it could
operate those rigs at "zero discharge" without material additional
expenditures. Otherwise, regulatory compliance has not materially affected the
capital expenditures, earnings or competitive position of the Company to date,
although such measures do increase drilling costs and may reduce drilling
activity. Further regulations may reasonably be anticipated, but any effects
thereof on the Company's drilling operations cannot be accurately predicted.
The Company is subject to the requirements of the Federal Occupational Safety
and Health Act ("OSHA") and comparable state statutes. OSHA's hazard
communication standard, the Environmental Protection Agency's "community
right-to-know" regulations and comparable state statutes require the Company to
organize and report certain information about the hazardous materials used in
its operations to employees, state and local government authorities and local
citizens.
Since the exploration activities of the Company's present and potential
customers are directly impacted by state, federal and foreign regulations
associated with the production and transportation of oil and gas, the demand
for the Company's drilling services is also affected.
-5-
<PAGE> 8
MANUFACTURING OPERATIONS
In 1994, LeTourneau, Inc. ("LeTourneau"), a wholly-owned subsidiary of the
Company, acquired the net assets of Marathon LeTourneau Company, headquartered
in Longview, Texas. LeTourneau operates a mini-steel mill that recycles scrap
and produces steel plate; a manufacturing facility that produces heavy
equipment such as front-end loaders with a 50-ton capacity; and a marine group
that has designed and built over one-third of all mobile offshore jack-up
drilling rigs, including all 21 operated by the Company. In 1998, the
manufacturing division generated an operating profit of $18.9 million. External
manufacturing backlog for all product lines was approximately $15 million at
February 28, 1999, all of which should be realized in 1999, compared with $70
million one year earlier. The Company holds a number of patents on its
inventions and the "LeTourneau" name is considered to be significant to its
product lines.
The mining equipment product line features front-end loaders with bucket
capacities of 17, 22, 28 and 33 cubic yards and off-road trucks with capacities
of 190 and 200 tons. LeTourneau's loaders and trucks are generally used in
coal, gold, copper and iron ore mines and utilize LeTourneau's patented diesel
electric-drive system with solid state controls. This system allows large,
mobile equipment to stop, start and reverse without gear shifting and high
maintenance braking. LeTourneau loaders can load LeTourneau rear-dump trucks
and competitive trucks in the 85-ton to 310-ton range. LeTourneau's mining
equipment and parts are distributed through a worldwide network of independent
distributors and a Company-owned distribution network serving the western
United States.
The timber equipment product line features diesel electric powered log stackers
with either two or four wheel drive configurations and load capacities ranging
from 35 to 65 tons. LeTourneau is the only manufacturer that sells electrically
powered jib cranes rated from 25,000 to 52,000 lbs. at a reach of 100 to 150
feet and with a 360-degree rotation. LeTourneau's timber equipment is marketed
primarily in North America through independent distributors and a Company-owned
distribution network in the northwestern United States.
LeTourneau's transportation equipment line produces several different types of
material handling equipment, such as 50-ton capacity, diesel electric, gantry
cranes and large forklift-type vehicles, called side porters, used for lifting,
transporting and stacking large shipping containers and trailers at ports and
rail yards. Gantry cranes can span up to seven container rows plus a truck
aisle and stack 9 1/2-feet tall containers up to five high. Gantry cranes
equipped with a spreader can lift containers from the top and have retractable
arms for loading and unloading piggyback trailers. LeTourneau's transportation
equipment is marketed primarily in North America through independent
distributors and a Company-owned distribution network in the northwestern
United States.
LeTourneau also sells parts and components to repair and maintain mining,
timber and transportation equipment. Equipment parts are marketed through one
independent distributor and a Company-owned distribution network in the United
States with 17 parts-stocking locations, one independent distributor in Canada
with 19 parts-stocking locations, and 31 other international distributors with
more than 50 parts-stocking locations.
LeTourneau's Longview, Texas mini-steel mill produces carbon, alloy and
specialty steel plate products. LeTourneau concentrates on "niche" markets that
require alloy, specialty steel grades, or "exotic" versions of carbon steel
products, including mold steels, tool steels, aircraft quality steels, 400
series stainless steel and hydrogen-induced, crack-resistant steels. External
steel sales, which are garnered through a direct sales force, consist primarily
of steel plate, but also include forging ingots and value-added fabrication of
steel products. Steel products are generally sold to steel service centers,
fabricators, manufacturers and forge shops. The market for carbon steel plate
products and fabricated products is regional and encompasses Texas, Oklahoma,
Louisiana, Mississippi and Arkansas. LeTourneau ships alloy and specialty
grades of plate products nationally and exports quantities to Mexico and
Canada. The forging ingot market is concentrated in the Gulf Coast region of
Texas. Carbon and alloy plate products are also used internally in the
production of heavy equipment and parts.
-6-
<PAGE> 9
LeTourneau's Vicksburg, Mississippi shipyard was reactivated during 1995-1996
following the Company's announcement of the planned construction of Rowan
Gorilla V and is dedicated to providing equipment, spare parts and engineering
support to the offshore drilling industry. The yard currently employs about
850, most of whom have been hired since 1995. Some rig component manufacturing
and marine repair services, as well as marine design engineering, continue to
be performed at the Company's Longview, Texas facility.
As noted previously, the marine group delivered Rowan Gorilla V in late-1998
and is currently constructing for the Company two additional Super Gorilla
Class jack-up rigs. Also in 1998, the marine group completed two Super
116-C Class drilling rig kits for others.
LeTourneau engages in a limited amount of research and product development,
primarily to increase the capacity of and provide innovative improvements to
its product lines. The Company evaluates on an ongoing basis the LeTourneau
product and service lines with the intention of making enhancements.
Raw Materials
The principal raw material utilized in LeTourneau's manufacturing operations is
steel plate, most of which is supplied by LeTourneau's mini-steel mill. Other
required materials are generally available in sufficient quantities to meet its
manufacturing needs through purchases in the open market. LeTourneau does not
believe that it is dependent on any single supplier.
Competition
LeTourneau's mining equipment competes worldwide with several competitors.
LeTourneau's loader product line has only two direct competitors; however, the
larger loader models compete with other types of loading equipment, primarily
electric and hydraulic mining shovels. The LeTourneau truck competes with five
truck manufacturers all of whom offer a broader range of truck sizes than
LeTourneau, including trucks in the 240-ton class. Three competitors have
models in the 260-ton to 310-ton class.
The market for LeTourneau's timber and transportation equipment is also
characterized by vigorous competition. Though LeTourneau's jib crane is unique,
it does encounter competition from other equipment manufacturers that offer
alternative methods for meeting customer requirements. The number of major
competitors by type of equipment is as follows: log stackers - four, jib cranes
- - three, side porters - six and gantry cranes - more than ten.
LeTourneau's mini-steel mill encounters competition from a total of eight major
competitors, with the breakdown by product line being as follows: plate
products - four; fabricated products - two and forging ingots - two.
The competition LeTourneau encounters in the parts business is extremely
fragmented with only three other companies being considered to be direct
competitors. Vendors supplying parts directly to end-users and well-fitters who
obtain and copy parts for cheaper and lower quality substitutes provide more
intense competition than LeTourneau's direct competitors.
To be competitive in the mining and timber equipment markets, LeTourneau offers
warranties at the time of purchase and parts guarantees. The warranties extend
for stipulated periods of ownership or hours of usage, whichever occurs first.
Parts consumption guaranties and maintenance and repair contracts are made on
the same basis. LeTourneau's parts return policy provides that returned parts
must be in new, usable condition, be in current production and be readily
resalable.
At present, LeTourneau has a limited number of competitors in the marine rig
construction and support industry. However, if demand for marine rigs
increases, new competitors can be expected to enter the market.
-7-
<PAGE> 10
Historically, LeTourneau's customer base has been diverse, such that none of
its product lines have been dependent upon any one customer or small group of
customers.
Regulations and Hazards
LeTourneau's manufacturing operations and facilities are subject to regulation
by a variety of local, state and federal agencies which regulate safety and the
discharge of materials into the environment, including the Environmental
Protection Agency (EPA), the Texas Natural Resources Conservation Commission
(TNRCC) and the Mississippi Department of Environmental Quality. LeTourneau's
manufacturing facilities are also subject to the requirements of OSHA and
comparable state statutes.
Hazardous materials are generated at LeTourneau's Longview Texas plant in
association with the steel making process. Industrial wastewater generated at
the mini-steel mill facility for cooling purposes is recirculated and quality
tests are conducted regularly. The facility has permits for wastewater
discharges, solid waste disposal and air emissions. Waste products considered
hazardous by the EPA are disposed of by shipment to an EPA or state approved
waste disposal facility.
During the Company's 1994 acquisition of the net assets of Marathon LeTourneau
Company, the sellers agreed to remediate certain environmental conditions at
the Longview, Texas and Vicksburg, Mississippi sites. In September 1996, the
Company assumed certain environmental remediation obligations related to these
facilities in exchange for $4.0 million of cash and a $5.5 million reduction in
a promissory note. The remediation efforts include, among other things,
post-closure care for a landfill at the Longview facility closed by Marathon
LeTourneau Company prior to LeTourneau's acquisition.
LeTourneau jack-up designs are subject to regulatory approval by various
agencies, depending upon the geographic areas where the rig will be qualified
for drilling. The rules vary by location and are subject to frequent change,
and primarily relate to safety and environmental issues in addition to those
which classify the jack-up as a vessel.
LeTourneau may be liable for damages resulting from pollution of air, land and
inland waters associated with its manufacturing operations. LeTourneau believes
that compliance with environmental protection laws and regulations will have no
material effect on its capital expenditures, earnings or competitive position
during 1999. Further regulations may reasonably be anticipated, but any effects
thereof on the Company's manufacturing operations cannot be accurately
predicted.
As a manufacturing company, LeTourneau may be responsible for certain risks
associated with the use of its products. These risks include product liability
claims for personal injury and/or death, property damage, loss of product use,
business interruption and necessary legal expenses to defend LeTourneau against
such claims. LeTourneau carries insurance that it believes adequately covers
such risks. LeTourneau did not assume certain liabilities of Marathon
LeTourneau Company, such as product liability and tort claims, associated with
all products manufactured, produced, marketed or distributed prior to the date
of the acquisition.
LeTourneau anticipates incurring expenses associated with the warranty of its
products. In the equipment business, dealers of LeTourneau's products perform
the warranty work while in the marine business, LeTourneau generally performs
warranty work directly.
AVIATION OPERATIONS
The Company's wholly-owned subsidiary, Era Aviation, Inc. ("Era"), provides
contract and charter helicopter and fixed-wing aviation services principally in
Alaska, the coastal areas of Louisiana and Texas, and the western United
States, with its fleet consisting on March 26, 1999 of 92 helicopters and 18
fixed-wing aircraft. In 1998, the aviation division generated an operating
profit of $1.6 million.
-8-
<PAGE> 11
The Company's helicopter services in recent years have featured flightseeing,
forest fire control and support for oil and gas related operations from Era's
primary bases in Alaska, Louisiana and Nevada. Services provided offshore
Louisiana and Texas are primarily oil and gas-related while the majority of
helicopter services in the western United States are provided to governmental
agencies in support of forest fire control, construction, and onshore and
offshore oil field support.
Based on the number of helicopters operating, the Company is the largest
helicopter operator in Alaska. It provides charter services from bases at
Anchorage, Deadhorse (on the North Slope), Juneau, Kenai and Valdez. The
Company's charter and contract services are provided throughout Alaska with
particular emphasis in the oil, mining and high density tourist regions within
the state.
Helicopters are usually operated on a seasonal basis in Alaska because of the
prevalent climatic conditions. The peak utilization period in Alaska is May
through September, with the winter months comprising the least active period.
The seasonal nature of the Alaska business has been ameliorated in prior years
by moving helicopters on a limited basis to the Gulf of Mexico area and to the
west and northwest regions of the United States and various overseas locations.
Since 1983, the Company has operated a scheduled commuter airline service in
Alaska encompassing the transportation of passengers, mail and cargo. Era
currently serves Valdez, Kenai, Homer, Kodiak, Iliamna and Cordova, with
seasonal service to Whitehorse from its base hub in Anchorage. In addition, it
services 17 remote villages from its hub in Bethel, Alaska. The Company
operates under a code sharing agreement with Alaska Airlines which is the
largest carrier of passengers from the contiguous United States to Alaska. The
Company's commuter airline is the largest airline operation of that type within
the state of Alaska and is the second largest carrier of passengers into and
out of the Anchorage International Airport, including the large jet carriers.
Since 1979, the Company has been providing charter and contract helicopter
services in the Gulf of Mexico area, primarily to the offshore oil and gas
industry. Operations are conducted from the division office in Lake Charles,
Louisiana and from bases in the Louisiana cities of Morgan City, Cameron, New
Iberia, Intracoastal City, Venice, Fourchon, Houma, Schriever and Johnson Bayou
and the Texas cities of Houston, Corpus Christi, Bay City and Sabine Pass.
Based on the number of helicopters operating, the Company is the third largest
helicopter operator in the Gulf of Mexico.
Since 1987, the Company has manufactured and marketed, from its Gulf Coast
Division facility at Lake Charles, Louisiana, a composite external auxiliary
fuel tank for use on several helicopters, including the Bell 205, 212 and 412,
the military "Huey" and the American Eurocopter BK-117. The tank system
provides enhanced flight range with nominal drag while increasing the passenger
capacity. Sales to date have been to both civilian and military customers,
including emergency float systems for US Army UH-1 Helicopters. Other aircraft
accessories are also manufactured at the facility.
From 1991 until January 1998, the Company owned a 49% interest in KLM
Helikopters B.V., a wholly-owned subsidiary of KLM Royal Dutch Airlines, as a
means of gaining access to the North Sea aviation market. The joint venture
company, KLM ERA Helicopters B.V. ("KLM ERA"), served principally the offshore
oil and gas drilling, production and service companies operating in the Dutch
and British Sectors of the North Sea with its fleet of as many as 15
helicopters. In January 1998, the Company agreed to terminate its ownership in
KLM ERA in return for cash and equipment approximating the carrying value of
its investment.
-9-
<PAGE> 12
Contracts
Era's flight services generally are provided through master service agreements,
term contracts or day-to-day charter arrangements. Master service agreements
require incremental payments based on usage, usually have fixed terms ranging
from one month to one year and generally are cancelable upon notice by either
party in 30 days or less. Term contracts generally are noncancelable and
require payments, depending upon their duration, as follows: up to one month -
either incremental payments based on usage or incremental payments plus a base
daily rental; and one month to one year - incremental payments based on usage
plus a base monthly rental. Day-to-day charters have the same compensation
arrangements as up to one- month term contracts. Because master service
agreements and day-to-day charters are Era's most prevalent contracts, the
Company believes that the contract status of its aircraft as discussed in the
following paragraph is more informative than backlog information, which it
believes is neither calculable nor meaningful.
Era aircraft available for operation on March 26, 1999 consisted of 92
helicopters (including 46 based in Alaska and 46 in the Gulf of Mexico area)
and 18 fixed-wing aircraft (based in Alaska). The fleet contract status at that
date included 88 master helicopter service agreements and 34 term contracts.
The remaining aircraft were being operated under day charters or were available
for operation under day charter or contract arrangements.
Competition
Approximately six other operators compete directly with the Company in Alaska
on a contract or charter basis. Era competes over its scheduled airline routes
with up to four other carriers. In the Gulf of Mexico area, the Company
competes directly with five other operators and ranks third in the number of
helicopters operating with approximately 8% of the market. A number of other
helicopter operators compete with Era in the west and northwest regions of the
United States and in overseas locations.
Regulations and Hazards
The operation of a scheduled airline in the United States requires a
certificate under the Federal Aviation Act of 1958, as presently administered
by the Department of Transportation. The granting of a certificate is
conditioned upon a demonstration of financial ability and operational
expertise. A similar certificate authorizing the right to operate a charter
service is not presently required by any jurisdiction in Era's operating areas.
Operation of helicopters and fixed-wing aircraft, particularly under weather
conditions prevailing in Alaska, is considered potentially hazardous, although
the Company conducts rigorous training and safety programs to minimize these
hazards. The Company believes that it is adequately protected by public
liability and property damage insurance, including hull insurance against loss
of equipment, but carries no insurance against loss of earnings.
EMPLOYEES
The total numbers of employees of the Company at March 9, 1999 and at December
31, 1998, 1997 and 1996 were as follows: 4,896, 4,978, 5,004 and 4,587,
respectively. Some of the employees included in these numbers are not United
States citizens. None of the Company's employees are covered by collective
bargaining agreements with labor unions. The Company considers relations with
its employees to be satisfactory.
-10-
<PAGE> 13
ITEM 2. PROPERTIES
The Company leases as its corporate headquarters 59,600 square feet of
space in an office tower located at 2800 Post Oak Boulevard in Houston, Texas.
DRILLING RIGS
The following is a summary of the principal drilling equipment owned or
operated by the Company and in service at March 26, 1999. See "Liquidity and
Capital Resources" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 15 through 17 in the Annual
Report, which pages are incorporated herein by reference.
OFFSHORE
<TABLE>
<CAPTION>
(b)
Depth: Year Contracting Party/
Water/ in (n) Type of Contract
Name/Class (a) Drilling Service Location (o) Estimated Release Date
- -------------- -------- ------- -------- --------------------------
<S> <C> <C> <C> <C>
Cantilever Jack-up Rigs:
Rowan Gorilla II 328'/30,000' 1984 Eastern Canada Mobil Oil Canadian Properties
200-C (d)(f)(g) (n) Multiple Well (o) January 2000
Rowan Gorilla III 328'/30,000' 1984 Eastern Canada PanCanadian Petroleum Limited
200-C (d)(f)(g) (n) Term (o) December 1999
Rowan Gorilla IV 328'/30,000' 1986 North Sea Phillips Petroleum Company Limited
200-C (d)(f)(g) United Kingdom
(n) Term (o) January 2000
Rowan Gorilla V 400'/30,000' 1998 North Sea Amoco (U.K.) Exploration Company
219-C (e)(f)(h) (n) Term (contract is currently
under dispute)
Rowan-California 225'/30,000' 1983 North Sea Shell U.K. Limited
116-C (c)(f) (n) Term (o) April 1999
Rowan-Halifax 225'/30,000' 1982 North Sea Mobil North Sea Limited
116-C (c)(f)(l) (n) Well-to-well (o) May 1999
Cecil Provine 225'/30,000' 1982 North Sea Not Committed
116-C (c)(f)(m)
Arch Rowan 225'/30,000' 1981 North Sea BHP Petroleum Limited
116-C (c)(f)(g) (n) Term (o) April 1999;
Lasmo (ULX) Limited
(n) Well-to-well (o) June 1999
Gilbert Rowe 350'/30,000' 1981 Gulf of Mexico Anadarko Petroleum Corporation
116-C (c)(f)(g)(k) (n) Well-to-well (o) June 1999
</TABLE>
-11-
<PAGE> 14
ITEM 2. PROPERTIES
OFFSHORE (Continued)
<TABLE>
<CAPTION>
(b)
Depth: Year Contracting Party/
Water/ in (n) Type of Contract
Name/Class (a) Drilling Service Location (o) Estimated Release Date
- -------------- -------- ------- -------- --------------------------
<S> <C> <C> <C> <C>
Cantilever Jack-up Rigs:
Charles Rowan 350'/30,000' 1981 Gulf of Mexico BP Amoco Corporation
116-C (c)(f)(g)(k) (n) Well-to-well (o) June 1999
Rowan-Paris 350'/30,000' 1980 Gulf of Mexico Not Committed
116-C (f)(g)(k)
Rowan-Middletown 350'/30,000' 1980 Gulf of Mexico (n) Well-to-Well (o) August 1999
116-C (f)(g)(k)
Rowan-Fort Worth 350'/30,000' 1978 Gulf of Mexico Not Committed
116-C (f)(g)(k)
Conventional Jack-up Rigs:
Rowan-Juneau 300'/30,000' 1977 Gulf of Mexico Not Committed
116 (c)(f)(i)
Rowan-Odessa 350'/30,000' 1977 Gulf of Mexico Anadarko Petroleum Corporation
116 (f)(i)(k) (n) Well-to-well (o) June 1999
Rowan-Louisiana 350'/30,000' 1975 Gulf of Mexico Not Committed
84 (f)(i)(k)
Rowan-Alaska 350'/30,000' 1975 Gulf of Mexico Not Committed
84 (f)(i)(k)
Rowan-Texas 250'/20,000' 1973 Gulf of Mexico Hall Houston Oil Company
52 (f) (n) Multiple Well (o) May 1999
Rowan-Anchorage 250'/20,000' 1972 Gulf of Mexico Equitable Resources Energy Co.
52 (f) (n) Well-to-well (o) April 1999
</TABLE>
-12-
<PAGE> 15
ITEM 2. PROPERTIES
OFFSHORE (Continued)
<TABLE>
<CAPTION>
(b)
Depth: Year Contracting Party/
Water/ in (n) Type of Contract
Name/Class (a) Drilling Service Location (o) Estimated Release Date
- -------------- -------- ------- -------- --------------------------
<S> <C> <C> <C> <C>
Conventional Jack-up Rigs:
Rowan-New Orleans 250'/20,000' 1971 Gulf of Mexico (n) Multiple Well (o) May 1999
52 (f)(i)(j)
Rowan-Houston 250'/20,000' 1970 Gulf of Mexico Coastal Oil & Gas Corp.
52 (f) (n) Multiple Well (o) April 1999
Semi-Submersible Rig:
Rowan-Midland (f) 1,200'/25,000' 1976 Gulf of Mexico Coastal Oil & Gas Corp.
(n) Multiple Well (o) August 1999
</TABLE>
(a) Classes 219-C ("Super Gorilla"), 200-C ("Gorilla"), 116-C, 116, 84 and
52 are nomenclature assigned by LeTourneau, Inc. to jack-ups of its
design and construction.
(b) Indicates rated water depth in current location and rated drilling
depth, respectively.
(c) Unit modified to increase operating capability in hostile
environments.
(d) Gorilla Class unit designed for extreme hostile environment
capability.
(e) Super Gorilla Class Unit (an enhanced version of the Gorilla Class)
designed for extreme hostile environment capability.
(f) Unit equipped with a "top-drive" drilling system.
(g) Unit equipped with three mud pumps.
(h) Unit equipped with four mud pumps.
(i) Unit equipped with a "skid base" unit.
(j) Unit equipped with drilling/heavy-lift crane option.
(k) Unit equipped with leg extensions.
(l) Rig sold in December 1984 and leased back through September 2000.
(m) Rig sold in December 1985 and leased back through December 2000.
(n) Refer to "Contracts" on page 3 of this Form 10-K for a definition of
types of contracts.
(o) Indicates estimated completion date of work to be performed.
-13-
<PAGE> 16
ITEM 2. PROPERTIES
ONSHORE (a)
<TABLE>
<CAPTION>
Contracting Party/
Maximum (b) Type of Contract
Description Drilling Depth Location (c) Estimated Release Date
- ----------- -------------- -------- --------------------------
<S> <C> <C> <C>
Rig 7 20,000' Louisiana Not Committed
Rig 9 25,000' Louisiana Not Committed
Rig 12 20,000' Texas Not Committed
Rig 14 30,000' Louisiana Chesapeake Operating, Inc.
(b) Well-to-well (c) April 1999
Rig 15 30,000' Oklahoma Not Committed
Rig 18 30,000 Oklahoma Not Committed
Rig 26 25,000' Louisiana Snyder Oil Corporation
(b) Well-to-well (c) April 1999
Rig 30 20,000' Texas Not Committed
Rig 31 30,000' Louisiana Panaco, Inc.
(b) Well-to-well (c) April 1999
Rig 41 20,000' Texas Not Committed
Four rigs 25,000' Alaska Not Committed
</TABLE>
(a) Onshore rigs were constructed at various dates between 1960 and 1982,
utilizing, in some instances, new as well as used equipment. Most of
the rigs have been substantially rebuilt subsequent to their
respective dates of construction.
(b) Refer to "Contracts" on page 3 of this Form 10-K for definition of
types of contracts.
(c) Indicates estimated completion date of work to be performed.
-14-
<PAGE> 17
The Company's drilling division leases and, in some cases, owns various
operating and administrative facilities generally consisting of office,
maintenance and storage space in the states of Alaska, Texas and Louisiana and
in the countries of Canada, England, Scotland and The Netherlands.
MANUFACTURING FACILITIES
LeTourneau's principal manufacturing facility and headquarters are located in
Longview, Texas on approximately 2,400 acres with about 1.2 million square feet
of covered working area. The facility contains:
o a mini-steel mill with 330,000 square feet of covered working area;
the mill has two 25-ton electric arc furnaces capable of producing
120,000 tons per year;
o a fabrication shop with 300,000 square feet of covered working area;
the shop has a 3,000 ton vertical bender for making roll-ups or
flattening materials down to 2 1/2 inches thick by 11 feet wide;
o a machine shop with 140,000 square feet of covered working area;
o an assembly shop with 124,000 square feet of covered working area.
The marine group's facility is located in Vicksburg, Mississippi on 1,850 acres
of land and has approximately 560,000 square feet of covered work area.
The Company-owned distributor of forest products in the northwestern United
States is located on a six-acre site in Troutdale, Oregon with approximately
22,000 square feet of building space.
The Company-owned distributor of LeTourneau's mining equipment products in the
western United States is located in a 20,000 square foot leased facility in
Tucson, Arizona.
AIRCRAFT
At March 26, 1999, the Company's aviation division owned a fleet of 92
helicopters and 18 fixed-wing aircraft, consisting of the following:
o 64 twin-engine turbine aircraft, including:
o 3 Sikorsky S-61Ns (26 passengers)
o 2 Eurocopter AS-332L Super Pumas (19 passengers)
o 16 Bell 212s (14 passengers)
o 14 Bell 412s (14 passengers)
o 2 Sikorsky S-76A+s (13 passengers)
o 27 Eurocopter BO-105CBSs (5 passengers)
o 28 single-engine turbine aircraft, including:
o 5 Bell 206LRs (6 passengers)
o 23 Eurocopter AS350B-2 AStars (6 passengers)
o 18 fixed-wing aircraft, including:
o 5 Convair 580s (50 passengers)
o 9 DeHavilland Twin Otters (9-19 passengers)
o 2 DeHavilland Dash 8s (37 passengers)
o 2 Douglas DC-3s (28 passengers).
-15-
<PAGE> 18
Era's principal aircraft bases in Alaska, all located on leased property, are a
fixed-wing air service center (57,000 square feet of hangar, repair and office
facilities) at Anchorage International Airport, with two adjacent hangars
housing the Company's helicopter and fixed-wing operations totaling
approximately 45,000 square feet, and hangar, office and repair facilities at
Fairbanks International Airport (13,000 square feet). The Company also
maintains similar, smaller helicopter facilities in Alaska at Deadhorse,
Juneau, Valdez and Yakutat.
Era's principal base for its Gulf of Mexico operations is located on leased
property at Lake Charles Regional Airport. The facility has 63,000 square feet
of space, including helicopter hangars, a repair facility and an operations and
administrative building. The Company also operates a helicopter base (20,700
square feet of hangar, repair and office facilities) located on leased property
at the Terrebonne Airport in Houma, Louisiana, a helicopter base (5,700 square
feet of hangar, repair and office facilities) located on leased property in New
Iberia, Louisiana and a helicopter base (10,000 square feet of hangar, repair
and office facilities) located on leased property in Fourchon, Louisiana.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the normal
course of the Company's business and other matters, not all of the potential
liabilities from which are covered by the terms of the Company's insurance
policies. While the Company is unable to predict the ultimate liabilities which
may result from such litigation, the Company believes that no such litigation
in which the Company was involved as of March 26, 1999 will have a material
adverse effect on its financial position or results of operations.
On January 19, 1999, the Company received notice from Amoco (UK) Exploration
Company that its one-year North Sea drilling contract for Gorilla V, which
commenced in late-December 1998, was being terminated. Amoco alleged a
performance breach relating to certain equipment problems as the basis for the
termination. The Company believes that it did not breach the contract and is
vigorously pursuing all legal remedies to enforce its rights under the
contract.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's common stockholders
during the fourth quarter of the fiscal year ended December 31, 1998.
-16-
<PAGE> 19
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, positions, years of credited service and ages of the officers of the
Company and a certain officer of one of the Company's wholly-owned
subsidiaries, LeTourneau Inc., as of March 26, 1999 are listed below. Officers
of both entities are normally appointed annually by each entity's Board of
Directors at the bylaws-prescribed meetings held in the spring and serve at the
discretion of the Board of Directors. There are no family relationships among
these officers, nor any arrangements or understandings between any officer and
any other person pursuant to which the officer was selected.
<TABLE>
<CAPTION>
Years of
Credited
Name Position Service Age
---- -------- ------- ---
<S> <C> <C> <C>
EXECUTIVE OFFICERS:
C. R. Palmer Chairman of the Board, President 38 64
and Chief Executive Officer
R. G. Croyle Executive Vice President and Director 25 56
Paul L. Kelly Senior Vice President, Special Projects 16 59
D. F. McNease Senior Vice President, Drilling and Director 25 47
E. E. Thiele Senior Vice President, Finance, 29 59
Administration and Treasurer
John L. Buvens Vice President, Legal 18 43
C. W. Johnson Vice President, Aviation 21 55
Mark A. Keller Vice President, Marketing - 7 46
North American Drilling
Bill S. Person Vice President, Industrial Relations 31 50
William C. Provine Vice President, Investor Relations 12 52
OTHER OFFICERS:
William H. Wells Controller 5 36
Mark H. Hay Secretary and Assistant Treasurer 20 54
P. G. Wheeler Assistant Treasurer 24 51
Lynda A. Aycock Assistant Treasurer and 27 52
Assistant Secretary
CERTAIN OFFICER:
Dan C. Eckermann President and Chief Executive 12 51
Officer - LeTourneau, Inc.
</TABLE>
Each of the officers listed above continuously served in the position shown
above for more than the past five years except as noted in the following
paragraphs.
Since April 1996, Mr. Kelly's principal occupation has been in the position set
forth. For more than five years prior to that time Mr. Kelly served as Vice
President, Special Projects.
Since April 1994, Mr. Thiele's principal occupation has been in the position
set forth. From January 1994 to April 1994, Mr. Thiele served in the position
of Vice President, Finance, Administration and Treasurer. From February 1989 to
January 1994, he served as Vice President, Finance and Administration.
Since April 1994, Mr. Johnson's principal occupation has been in the position
set forth. From December 1993 to present, Mr. Johnson has also served in the
position of President and Chief Operating Officer of Era Aviation, Inc., a
subsidiary of the Company. For more than five years prior to that time, he
served as Executive Vice President of Era.
-17-
<PAGE> 20
Since April 1994, Mr. Keller's principal occupation has been in the position
set forth. From July 1992 to present and April 1993 to present, Mr. Keller has
also served in the positions of Vice President of Terminator, Inc. and
Rowandrill, Inc., respectively, both subsidiaries of the Company.
Since joining the Company in March 1994, Mr. Wells' occupation has been in the
position set forth. For more than five years prior to that time, Mr. Wells
served in various positions with the independent accounting firm of Deloitte &
Touche LLP, including Audit Manager and, most recently, Senior Audit Manager.
Deloitte & Touche LLP is not a parent, subsidiary or affiliate of the Company
but does serve as the Company's independent auditors.
Since April 1994, Ms. Aycock's principal occupation has been in the position
set forth. From October 1993 to April 1994, Ms. Aycock served in the position
of Assistant Treasurer. For more than five years prior to that time, Ms. Aycock
served as an Accountant for the Company.
Since September 1996, Mr. Eckermann's principal occupation has been in the
position set forth. From February 1994 to September 1996, Mr. Eckermann served
in the position of President of LeTourneau Marine Group and Vice President,
Operations of LeTourneau, Inc, a subsidiary of the Company. From May 1990 to
February 1994, he served as President of Marathon LeTourneau Marine Company, a
subsidiary of Marathon LeTourneau Company. Marathon LeTourneau was a company
whose net assets were purchased by LeTourneau, Inc. in February 1994. Marathon
LeTourneau was not, and is not now, a parent, subsidiary or affiliate of the
Company.
In addition to serving in the position shown above, Mr. Wheeler has also served
as Corporate Tax Director of the Company for more than five years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required hereunder regarding the Common Stock price range and
cash dividend information for 1998 and 1997 and the number of holders of Common
Stock is set forth on page 33 of the Company's Annual Report under the title
"Common Stock Price Range, Cash Dividends and Stock Splits (Unaudited)", and is
incorporated herein by reference, except for the final two paragraphs under
such title. Also incorporated herein by reference to the Annual Report is the
ninth full paragraph appearing on page 16 within "Management's Discussion and
Analysis of Financial Condition and Results of Operations", which provides
information pertinent to the Company's ability to pay cash dividends subject to
certain restrictions. The Company's Common Stock is listed on the New York
Stock Exchange and the Pacific Stock Exchange.
ITEM 6. SELECTED FINANCIAL DATA
The information required hereunder is set forth on pages 10 and 11 of the
Company's Annual Report under the title "Ten-Year Financial Review" and is
incorporated herein by reference except for the information for the years 1993,
1992, 1991, 1990 and 1989.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required hereunder is set forth on pages 12 through 17 under
the title "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report and is incorporated
herein by reference.
-18-
<PAGE> 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company believes that its exposure to risk of earnings loss due to changes
in market interest rates is not significant. The Company did not enter into
derivative financial instruments in 1996, 1997 or 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K on pages 20 through 24 of this Form 10-K for a listing of financial
statements of the registrant and its subsidiaries, all of which financial
statements are incorporated by reference under this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information provided in the table spanning pages 2 and 3, in footnotes
(1) and (3) on page 3 and in the paragraph under the caption, "Section 16(a)
Beneficial Ownership Reporting Compliance" on page 14 of the Proxy Statement for
the Company's 1999 Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference. There are no family relationships among the
directors or nominees for directors and the executive officers of the Company,
nor any arrangements or understandings between any director or nominee for
director and any other person pursuant to which such director or nominee for
director was selected. Except as otherwise indicated, each director or nominee
for director of the Company has been employed or engaged for the past five years
in the principal occupation set forth opposite his name in the information
incorporated by reference. See ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE
REGISTRANT on pages 17 and 18 of this Form 10-K for information relating to
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The standard arrangement for compensating directors described under the title,
"Director Compensation" on page 4 of the Proxy Statement and the information
appearing under the titles "Summary Compensation Table", "Aggregated Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values", "Debentures
Offered in Last Fiscal Year" and "Pension Plans" on pages 9 through 11 of the
Proxy Statement are incorporated herein by reference. In accordance with the
instructions to Item 402 of Regulation S-K, the information contained in the
Proxy Statement under the titles "Board Compensation Committee Report on
Executive Compensation" and "Stock Performance Graphs" shall not be deemed to
be filed as part of this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding security ownership of management of the Company set
forth under the heading "Director and Officer Stock Ownership" appearing on
page 6 and the information appearing under the title "Principal Stockholders"
appearing on page 14 of the Proxy Statement is incorporated herein by
reference.
The business address of all directors is the principal executive offices of the
Company as set forth on the facing page of this Form 10-K.
-19-
<PAGE> 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain business relationships and transactions between
the Company and certain of the directors of the Company under the heading
"Compensation Committee Interlocks and Insider Participation; Certain
Transactions" appearing on page 13 of the Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements and independent auditors' report,
included in the Annual Report, are incorporated herein by reference:
<TABLE>
<CAPTION>
Page of 1998
Annual Report
<S> <C>
Consolidated Balance Sheet, December 31, 1998 and 1997 ........ 18
Consolidated Statement of Income for the Years
Ended December 31, 1998, 1997 and 1996 .................... 19
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended December 31, 1998,
1997 and 1996 ............................................. 20
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 .................... 21
Notes to Consolidated Financial Statements .................... 22
Independent Auditors' Report .................................. 32
Selected Quarterly Financial Data (Unaudited) for the
Quarters Ended March 31, June 30, September 30
and December 31, 1998 and 1997 ............................ 33
</TABLE>
2. Financial Statement Schedules
Financial Statement Schedules I, II, III, IV, and V are not included
in this Form 10-K because such schedules are not required, not
significant or because the required information is shown in Notes to
the Consolidated Financial Statements of the Company's Annual Report.
3. Exhibits:
Unless otherwise indicated below as being incorporated by reference to
another filing of the Company with the Securities and Exchange
Commission, each of the following exhibits is filed herewith:
3a Restated Certificate of Incorporation of the Company, dated
February 17, 1984, incorporated by reference to: Exhibit 3a to
the Company's Form 10-K for the fiscal year ended December 31,
1983 (File No. 1-5491); Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration No.
33-13544); and Exhibits 4a, 4b, 4c and 4d below.
3b Bylaws of the Company amended as of July 14, 1998, incorporated
by reference to Exhibit 3 to the Company's Form 10-Q for the
fiscal quarter ended June 30, 1998 (File No. 1-5491).
4a Certificate of Designation of the Company's Series III Preferred
Stock dated November 30, 1994 incorporated by reference to
Exhibit 4d to the Company's Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-5491).
-20-
<PAGE> 23
4b Certificate of Designation of the Company's Series A Junior
Preferred Stock dated March 2, 1992 incorporated by reference to
Exhibit 4d to the Company's Form 10-K for the fiscal year ended
December 31, 1991 (File No. 1-5491).
4c Certificate of Designation of (and Certificate of Correction
related thereto) the Company's Series A Preferred Stock dated
August 5, 1998 and January 28, 1999, respectively.
4d Certificate of Elimination related to the Company's $2.125
Convertible Exchangeable Preferred Stock, Series I Preferred
Stock and Series II Preferred Stock.
4e Rights Agreement as amended between the Company and Citibank,
N.A. as Rights Agent incorporated by reference to Exhibit 4d to
the Company's Form 10-K for the fiscal year ended December 31,
1997 (File No. 1-5491).
4f Specimen Common Stock certificate incorporated by reference to
Exhibit 4h to the Company's Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-5491).
4g Form of Promissory Note dated November 30, 1994 between the
purchasers of Series III Floating Rate Subordinated Convertible
Debentures due 2004 and the Company incorporated by reference to
Exhibit 4j to the Company's Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-5491).
4h Form of Promissory Note date April 24, 1998 between the
purchasers of Series A Floating Rate Subordinated Convertible
Debentures due 2008 and the Company.
10a 1980 Nonqualified Stock Option Plan of the Company incorporated
by reference to Exhibit 5.10 to the Company's Registration
Statement on Form S-7 (Registration No. 2-68622).
10b Restated 1988 Nonqualified Stock Option Plan of the Company
incorporated by reference to Exhibit 10a of the Company's Form
10-Q for the fiscal quarter ended March 31, 1998 (File No.
1-5491).
10c 1998 Nonemployee Director Stock Option Plan of the Company
incorporated by reference to Exhibit 10b of the Company's Form
10-Q for the fiscal quarter ended March 31, 1998 (File No.
1-5491).
10d 1986 Convertible Debenture Incentive Plan of the Company as
amended incorporated by reference to Exhibit 10h to the
Company's Form 10-K for the fiscal year ended December 31, 1996
(File No. 1-5491).
10e 1998 Convertible Debenture Incentive Plan of the Company
incorporated by reference to Exhibit 10c to the Company's Form
10-Q for the fiscal quarter ended March 31, 1998 (File No.
1-5491).
10f Pension Restoration Plan of the Company incorporated by
reference to Exhibit 10h to the Company's Form 10-K for the
fiscal year ended December 31, 1992 (File No. 1-5491).
10g Pension Restoration Plan of LeTourneau, Inc. incorporated by
reference to Exhibit 10j to the Company's Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-5491).
10h Participation Agreement dated December 1, 1984 between the
Company and Textron Financial Corporation et al. and Bareboat
Charter dated December 1, 1984 between the Company and Textron
Financial Corporation et al. incorporated by reference to
Exhibit 10c to the Company's Form 10-K for the fiscal year ended
December 31, 1985 (File No. 1-5491).
-21-
<PAGE> 24
10i Participation Agreement dated December 1, 1985 between the
Company and Eaton Leasing Corporation et. al. and Bareboat
Charter dated December 1, 1985 between the Company and Eaton
Leasing Corporation et. al. incorporated by reference to Exhibit
10d to the Company's Form 10-K for the fiscal year ended
December 31, 1985 (File No.1-5491).
10j Amendment No. 4 dated January 1, 1998 to the Consulting
Agreement between the Company and C. W. Yeargain.
10k Consulting Agreement as amended as of January 1, 1998 between
the Company and C. W. Yeargain.
10l Consulting Agreement dated January 1, 1990 and Amendment No. 1
thereto dated August 30, 1994, but effective January 1, 1994,
between Rowan Energy Investments Inc., wholly-owned subsidiary
of the Company, and Hans M. Brinkhorst.
10m Commitment to Guarantee Obligations and First Preferred Ship
Mortgage both dated December 17, 1996 between the Company and
the Maritime Administration of the U.S. Department of
Transportation incorporated by reference to Exhibit 10t to the
Company's Form 10-K for fiscal year ended December 31, 1996
(File No. 1-5491).
10n Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee
Obligations between the Company and the Maritime Administration
of the U.S. Department of Transportation incorporated by
reference to Exhibit 10p to the Company's 10-K for the fiscal
year ended December 31, 1997 (File No. 1-5491).
10o Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee
Obligations between the Company and the Maritime Administration
of the U.S. Department of Transportation.
10p Credit Agreement and Trust Indenture both dated December 17,
1996 between the Company and Citibank, N.A. incorporated by
reference to Exhibit 10u to the Company's Form 10-K for the
fiscal year ended December 31, 1996 (File No. 1-5491).
10q Amendment No. 1 to the Credit Agreement and Supplement No. 1 to
Trust Indenture both dated July 1, 1997 between the Company and
Citibank, N.A. incorporated by reference to Exhibit 10r to the
Company's Form 10-K for the fiscal year ended December 31, 1997
(File No. 1-5491).
10r Supplement No. 2 to Trust Indenture dated July 1, 1998 between
the Company and Citibank, N.A.
10s Commitment to Guarantee Obligations and First Preferred Ship
Mortgage both dated September 29, 1998 between the Company and
the Maritime Administration of the U.S. Department of
Transportation incorporated by reference to Exhibit 10a to the
Company's Form 10-Q for fiscal quarter ended September 30, 1998
(File No. 1-5491).
10t Credit Agreement and Trust Indenture both dated September 30,
1998 between the Company and Citibank, N.A. incorporated by
reference to Exhibit 10b to the Company's Form 10-Q for the
fiscal quarter ended September 30, 1998 (File No. 1-5491).
10u Revolving Credit Agreement dated as of October 30, 1997 among
the Company, Citibank, N.A., Christiania Bank og Kreditkasse
(New York Branch), Arab Banking Corporation (B.S.C.), Wells
Fargo Bank (Texas) National Association, Credit Lyonnais (New
York Branch) and Sumitomo Bank Limited incorporated by reference
to Exhibit 10s to the Company's Form 10-K for the fiscal year
ended December 31, 1997 (File No. 1-5491).
-22-
<PAGE> 25
11 Computation of Basic and Diluted Earnings Per Share for the years
ended December 31, 1998, 1997 and 1996 appearing on page 26 in
this Form 10-K.
13* Annual Report to Stockholders for fiscal year ended December 31,
1998.
21 Subsidiaries of the Registrant as of March 26, 1999.
23 Independent Auditors' Consent.
24 Powers of Attorney pursuant to which names were affixed to this
Form 10-K for the fiscal year ended December 31, 1998.
27 Financial Data Schedule for the year ended December 31, 1998.
The Company agrees to furnish to the Commission upon request a copy
of all instruments defining the rights of holders of long-term debt
of the Company and its subsidiaries.
- --------------------------
* Only portions specifically incorporated herein are deemed to be
filed.
EXECUTIVE COMPENSATION PLANS
AND ARRANGEMENTS
Compensatory plans in which directors and executive officers of the Company
participate are listed as follows:
o 1980 Nonqualified Stock Option Plan of the Company incorporated by
reference to Exhibit 5.10 to the Company's Registration Statement on
Form S-7 (Registration No. 2-68622).
o Restated 1988 Nonqualified Stock Option Plan of the Company
incorporated by reference to Exhibit 10a to the Company's Form 10-Q
for the fiscal year ended March 31, 1998 (File No. 1-5491).
o 1998 Nonemployee Director Stock Option Plan of the Company
incorporated by reference to Exhibit 10b of the Company's Form 10Q for
the fiscal quarter ended March 31, 1998 (File No. 1-5491).
o 1986 Convertible Debenture Incentive Plan of the Company as amended
included as Exhibit 10h of this Form 10-K incorporated by reference to
Exhibit 10h to the Company's Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-5491).
o 1998 Convertible Debenture Incentive Plan of the Company incorporated
by reference to Exhibit 10c to the Company's Form 10-Q for the fiscal
quarter ended March 31, 1998 (File No. 1-5491).
o Pension Restoration Plan of the Company incorporated by reference to
Exhibit 10i to the Company's Form 10-K for the fiscal year ended
December 31, 1992 (File 1-5491).
o Pension Restoration Plan of LeTourneau, Inc. incorporated by reference
to Exhibit 10j to the Company's Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-5491).
-23-
<PAGE> 26
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the fourth
quarter of fiscal year 1998.
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act
of 1933, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into
Registrant's Registration Statements on Form S-8 Nos. 2-67866 (filed
May 22, 1980), 2-58700, as amended by Post-Effective Amendment No. 4
(filed June 11, 1980), 33-33755, as amended by Amendment No. 1 (filed
March 29, 1990),33-61444 (filed April 23, 1993), 33-51103 (filed
November 18, 1993) 33-51105 (filed November 18, 1993), 33-51109
(filed November 18, 1993), 333-25041 (filed April 11, 1997) and
333-25125 (filed April 14, 1997):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the act and will be
governed by the final adjudication of such issue.
-24-
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ C. R. PALMER
---------------------------
(C. R. Palmer, Chairman of
the Board, President and
Chief Executive Officer)
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ C. R. PALMER
--------------------------------------------------------- Chairman of the Board, March 26, 1999
(C. R. Palmer) President and Chief
Executive Officer
/s/ E. E. THIELE
--------------------------------------------------------- Principal Financial Officer March 26, 1999
(E. E. Thiele)
/s/ WILLIAM H. WELLS
--------------------------------------------------------- Principal Accounting Officer March 26, 1999
(William H. Wells)
* /s/ RALPH E. BAILEY
--------------------------------------------------------- Director March 26, 1999
(Ralph E. Bailey)
* /s/ HENRY O. BOSWELL
--------------------------------------------------------- Director March 26, 1999
(Henry O. Boswell)
* /s/ HANS M. BRINKHORST
--------------------------------------------------------- Director March 26, 1999
(Hans M. Brinkhorst)
* /s/ R. G. CROYLE
--------------------------------------------------------- Director March 26, 1999
(R. G. Croyle)
--------------------------------------------------------- Director
(H. E. Lentz)
* /s/ D. F. MCNEASE
--------------------------------------------------------- Director March 26, 1999
(D. F. McNease)
* /s/ LORD MOYNIHAN
--------------------------------------------------------- Director March 26, 1999
(Lord Moynihan)
* /s/ WILFRED P. SCHMOE
--------------------------------------------------------- Director March 26, 1999
(Wilfred P. Schmoe)
* /s/ CHARLES P. SIESS, JR.
--------------------------------------------------------- Director March 26, 1999
(Charles P. Siess, Jr.)
* /s/ C. W. YEARGAIN
--------------------------------------------------------- Director March 26, 1999
(C. W. Yeargain)
* By /s/ C. R. PALMER
---------------------------------------------------------
(C. R. Palmer, Attorney-in-fact)
</TABLE>
-25-
<PAGE> 28
EXHIBIT 11
ROWAN COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF BASIC AND
DILUTED EARNINGS PER SHARE
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended December 31
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average shares of common stock
outstanding 85,641 86,184 85,335
Stock options (treasury stock method) 804 1,803 1,580
Shares issuable from assumed conversion of
floating rate subordinated debentures 844 1,236 1,186
-------- -------- --------
Weighted average shares for diluted
earnings per share calculation 87,289 89,223 88,101
======== ======== ========
Income before extraordinary charges $124,460 $156,425 $ 61,338
Extraordinary charges from early redemption 9,766
of debt
-------- -------- --------
Net income for basic calculation 124,460 146,659 61,338
Subordinated debenture interest 172 323
-------- -------- --------
Net income for diluted calculation $124,460 $146,831 $ 61,661
======== ======== ========
Basic earnings per share:
Income before extraordinary charges $ 1.45 $ 1.82 $ .72
Extraordinary charges .12
-------- -------- --------
Net income $ 1.45 $ 1.70 $ .72
======== ======== ========
Diluted earnings per share:
Income before extraordinary charges $ 1.43 $ 1.76 $ .70
Extraordinary charges .11
-------- -------- --------
Net income $ 1.43 $ 1.65 $ .70
======== ======== ========
</TABLE>
Note: Reference is made to Note 1 to Consolidated Financial
Statements regarding computation of per share amounts.
26
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ------------- ---------- ------------------------------------------------------------
<S> <C> <C>
(1) 3a Restated Certificate of Incorporation of the Company, dated February
17, 1984, incorporated by reference to: Exhibit 3a to the Company's
Form 10-K for the fiscal year ended December 31, 1983 (File No.
1-5491); Exhibit 4.2 to the Company's Registration Statement on Form
S-3 (Registration No. 33-13544); and Exhibits 4a, 4b, 4c and 4d
below.
(1) 3b Bylaws of the Company amended as of July 14, 1998, incorporated by
reference to Exhibit 3 to the Company's Form 10-Q for the fiscal
quarter ended June 30, 1998 (File No. 1-5491).
(1) 4a Certificate of Designation of the Companies Series III Preferred
Stock dated November 30, 1994 incorporated by reference to Exhibit
4d to the Company's Form 10-K for the fiscal year ended December 31,
1994 (File No. 1-5491).
(1) 4b Certificate of Designation of the Company's Series A Junior
Preferred Stock dated March 2, 1992 incorporated by reference to
Exhibit 4d to the Company's Form 10-K for the fiscal year ended
December 31, 1991 (File No. 1-5491).
(2) 4c Certificate of Designation of (and Certificate of Correction related
thereto) the Company's Series A Preferred Stock dated August 5, 1998
and January 28, 1999, respectively.
(2) 4d Certificate of Elimination related to the Company's $2.125
Convertible Exchangeable Preferred Stock, Series I Preferred Stock
and Series II Preferred Stock.
(1) 4e Rights Agreement as amended between the Company and Citibank, N.A.
as Rights Agent incorporated by reference to Exhibit 4d to the
Company's Form 10-K for the fiscal year ended December 31, 1997
(File No. 1-5491).
(1) 4f Specimen Common Stock certificate incorporated by reference to
Exhibit 4h to the Company's Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-5491).
(1) 4g Form of Promissory Note dated November 30, 1994 between the
purchasers of Series III Floating Rate Subordinated Convertible
Debentures due 2004 and the Company incorporated by reference to
Exhibit 4j to the Company's Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-5491).
(2) 4h Form of Promissory Note date April 24, 1998 between the purchasers
of Series A Floating Rate Subordinated Convertible Debentures due
2008 and the Company.
(1) 10a 1980 Nonqualified Stock Option Plan of the Company together with
form of Stock Option Agreement related thereto incorporated by
reference to Exhibit 5.10 to the Company's Registration Statement on
Form S-7 (Registration No. 2-68622).
</TABLE>
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ------------- ---------- ------------------------------------------------------------
<S> <C> <C>
(1) 10b Restated 1988 Nonqualified Stock Option Plan of the Company
incorporated by reference to Exhibit 10a of the Company's Form 10-Q
for the fiscal quarter ended March 31, 1998 (File No. 1-5491).
(1) 10c 1998 Nonemployee Director Stock Option Plan of the Company
incorporated by reference to Exhibit 10b of the Company's Form 10-Q
for the fiscal quarter ended March 31, 1998 (File No. 1-5491).
(1) 10d 1986 Convertible Debenture Incentive Plan of the Company as amended
incorporated by reference to Exhibit 10h to the Company's Form 10-K
for the fiscal year ended December 31, 1996 (File No. 1-5491).
(1) 10e 1998 Convertible Debenture Incentive Plan of the Company
incorporated by reference to Exhibit 10c to the Company's Form 10-Q
for the fiscal quarter ended March 31, 1998 (File No. 1-5491).
(1) 10f Pension Restoration Plan of the Company incorporated by reference to
Exhibit 10h to the Company's Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-5491).
(1) 10g Pension Restoration Plan of LeTourneau, Inc incorporated by
reference to Exhibit 10j to the Company's Form 10-K for the fiscal
year ended December 31, 1994 (File No. 1-5491).
(1) 10h Participation Agreement dated December 1, 1984 between the Company
and Textron Financial Corporation et al. and Bareboat Charter dated
December 1, 1984 between the Company and Textron Financial
Corporation et al. incorporated by reference to Exhibit 10c to the
Company's Form 10-K for the fiscal year ended December 31, 1985
(File No. 1-5491).
(1) 10i Participation Agreement dated December 1, 1985 between the Company
and Eaton Leasing Corporation et. al. and Bareboat Charter dated
December 1, 1985 between the Company and Eaton Leasing Corporation
et. al. incorporated by reference to Exhibit 10d to the Company's
Form 10-K for the fiscal year ended December 31, 1985 (File
No.1-5491).
(2) 10j Amendment No. 4 dated January 1, 1998 to the Consulting Agreement
between the Company and C. W. Yeargain.
(2) 10k Consulting Agreement as amended as of January 1, 1998 between the
Company and C. W. Yeargain.
(2) 10l Consulting Agreement dated January 1, 1990 and Amendment No. 1
thereto dated August 30, 1994, but effective January 1, 1994,
between Rowan Energy Investments Inc., wholly-owned subsidiary of
the Company, and Hans M. Brinkhorst.
</TABLE>
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
FOOTNOTE EXHIBIT
REFERENCE NUMBER EXHIBIT DESCRIPTION
- ------------- ---------- ------------------------------------------------------------
<S> <C> <C>
(1) 10m Commitment to Guarantee Obligations and First Preferred Ship
Mortgage both dated December 17, 1996 between the Company and the
Maritime Administration of the U.S. Department of Transportation
incorporated by reference to Exhibit 10t to the Company's Form 10-K
for fiscal year ended December 31, 1996 (File No. 1-5491).
(1) 10n Amendment No. 1 dated June 30, 1997 to Commitment to Guarantee
Obligations between the Company and the Maritime Administration of
the U.S. Department of Transportation incorporated by reference to
Exhibit 10p to the Company's 10-K for the fiscal year ended December
31, 1997 (File No. 1-5491).
(2) 10o Amendment No. 2 dated July 1, 1998 to Commitment to Guarantee
Obligations between the Company and the Maritime Administration of
the U.S. Department of Transportation.
(1) 10p Credit Agreement and Trust Indenture both dated December 17, 1996
between the Company and Citibank, N.A. incorporated by reference to
Exhibit 10u to the Company's Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-5491).
(1) 10q Amendment No. 1 to the Credit Agreement and Supplement No. 1 to
Trust Indenture both dated July 1, 1997 between the Company and
Citibank, N.A. incorporated by reference to Exhibit 10r to the
Company's 10-K for the fiscal year ended December 31, 1997 (File No.
1-5491).
(2) 10r Supplement No. 2 to Trust Indenture dated July 1, 1998 between the
Company and Citibank, N.A.
(1) 10s Commitment to Guarantee Obligations and First Preferred Ship
Mortgage both dated September 29, 1998 between the Company and the
Maritime Administration of the U.S. Department of Transportation
incorporated by reference to Exhibit 10a to the Company's Form 10-Q
for fiscal quarter ended September 30, 1998 (File No. 1-5491).
(1) 10t Credit Agreement and Trust Indenture both dated September 30, 1998
between the Company and Citibank, N.A. incorporated by reference to
Exhibit 10b to the Company's Form 10-Q for the fiscal quarter ended
September 30, 1998 (File No. 1-5491).
</TABLE>
<PAGE> 1
EXHIBIT 4c
ROWAN COMPANIES, INC.
CERTIFICATE OF DESIGNATIONS
Providing for an Issue of Series A Preferred Stock
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
ROWAN COMPANIES, INC., a Delaware corporation (the "Corporation"),
certifies that, pursuant to the authority contained in Article Fourth of its
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, the 1998 Debenture
Plan Committee of the Board of Directors duly approved at its April 23, 1998
meeting (at which a quorum was present), and the Board of Directors duly
ratified and approved at its April 24, 1998 meeting (at which a quorum was
present), the following resolutions creating and providing for the issuance of a
series of shares of Preferred Stock as hereinafter described, and further
providing for the voting powers, designations, preferences and relative,
participating, optional or other rights thereof, and the qualifications,
limitations or restrictions thereof, in addition to those set forth in said
Certificate of Incorporation, all in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, and that such
resolutions have at all times since remained in effect and are now in effect and
unamended:
"RESOLVED, that pursuant to Paragraph A of Article Fourth of the
Certificate of Incorporation of the Corporation, as amended (which creates and
authorizes 5,000,000 shares of preferred stock, par value of $1.00 per share,
hereinafter called the "Preferred Stock"), the Board of Directors hereby
establishes and provides for the issue of a series of 2,300 shares of Preferred
Stock, designated as Series A Preferred Stock (the "Series Stock"), which shares
shall be issuable only upon conversion of the Series A Floating Rate
Subordinated Convertible Debentures (the "Related Debentures") of the
Corporation and shall be convertible into shares of common stock, $.125 par
value, of the Corporation (the "Common Stock"), pursuant to the terms and
conditions hereinafter set forth.
RESOLVED, that the voting powers, preferences and relative,
participating, optional, conversion, and other rights of the shares of the
Series Stock, and the qualifications, limitations or restrictions thereof, in
addition to those set forth in said Article Fourth, are as follows:
Section 1. Dividends. The holders of shares of Series Stock
shall not be entitled to receive cash dividends on such shares.
Section 2. Liquidation Preference. (A) Upon the complete
liquidation, dissolution, or winding-up of the Corporation, whether
voluntarily or involuntarily, the Series Stock shall be entitled,
before any distribution is made to the holders of Common Stock and of
any other capital stock of the Corporation which ranks
<PAGE> 2
junior to the Series Stock in respect of distributions of assets on
liquidation, dissolution or winding-up of the Corporation, to be paid
$1.00 per share, and shall not be entitled to any further payment.
(B) In case the net assets of the Corporation are insufficient to pay
all outstanding shares of Series Stock, and any other class of stock of the
Corporation ranking in parity upon a liquidation, dissolution, or winding-up
with the Series Stock ("Parity Stock"), the liquidation preferences to which all
such shares are entitled, then the entire net assets of the Corporation shall be
distributed ratably to all outstanding shares of the Series Stock and Parity
Stock, if any, in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution, or winding-up.
(C) The merger or consolidation of the Corporation into or with another
corporation or the merger or consolidation of any other corporation into or with
the Corporation, or the sale, lease or conveyance of all or substantially all
the assets, property or business of the Corporation shall not be deemed to be a
liquidation, dissolution, or winding-up of the Corporation within the meaning of
this Section 2.
Section 3. Certain Restrictions. Without the consent of the holders of
at least two-thirds of the total number of shares of Series Stock outstanding,
given in person or by proxy, either in writing or by vote at a meeting called
for the purpose, the Corporation shall not create or authorize any additional
shares of Series Stock or amend, alter or repeal any of the rights, preferences
or powers of the holders of Series Stock so as to affect adversely any such
rights, preferences or powers; provided, however, that without the consent of
the holders of all outstanding shares of Series Stock, the Corporation shall not
amend the Series Stock to adversely affect the Conversion Ratio thereof.
Section 4. Conversion. Each share of the Series Stock may be converted
at any time within thirty days of the issuance thereof, at the option of the
holder thereof, into shares of Common Stock of the Corporation, on the terms and
conditions set forth below in this Section 4.
(A) Subject to the provisions for adjustment hereinafter set forth, the
number of shares of Common Stock which shall be deliverable upon conversion of a
share of Series Stock shall not exceed the face value of the Related Debenture
which was converted into such share of Series Stock divided by the mean of the
high and low sales price of the Company's Common Stock on the date of sale of
such Related Debenture. For the purpose of this subparagraph (A) of this Section
4, the terms "closing price" and "Trading Date" shall have the meanings
attributed to them in subparagraph (B)(6) of this Section 4.
2
<PAGE> 3
(B) The number of shares of Common Stock which shall be deliverable
upon conversion of a share of Series Stock (the "Conversion Ratio") shall be
adjusted from time to time as follows:
(1) In case the Corporation at any time or from time to time
following the date of issuance of the Related Debentures which may be
converted into shares of Series Stock shall pay or make a dividend or
other distribution on any class of capital stock of the Corporation in
Common Stock, the Conversion Ratio in effect at the opening of business
on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be increased by multiplying such Conversion Ratio by a fraction
of which the numerator shall be the sum of the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination and the total number of shares of Common Stock
constituting such dividend or other distribution, and the denominator
shall be the total number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination, such
increase to become effective immediately after the opening of business
on the day following the date fixed for such determination. For the
purposes of this subparagraph (B)(1), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Corporation will not pay any dividend on shares of
Common Stock held in the treasury of the Company.
(2) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them (for periods ending
within 180 days) to subscribe for or purchase shares of Common Stock at
a price per share less than the current market price per share
(determined as provided in subparagraph (B)(6) of this Section) of the
Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights or warrants, the Conversion Ratio in
effect at the opening of business on the day following the date fixed
for such determination shall be increased by multiplying such
Conversion Ratio by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business
on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, and the
denominator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination plus
the number of shares of Common Stock which the aggregate of the
offering price of the total number of shares of Common Stock so offered
for subscription or purchase would purchase
3
<PAGE> 4
at such current market price, such increase to become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subparagraph
(B)(2), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Corporation but
shall include shares issuable in respect of scrip certificates issued
in lieu of fractions of shares of Common Stock. The Corporation will
not issue any rights or warrants in respect of shares of Common Stock
held in the treasury of the Corporation.
(3) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Ratio in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately increased, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number of
shares of Common Stock, the Conversion Ratio in effect at the opening
of business on the day following the day upon which such combination
becomes effective shall be proportionately decreased, such increase or
reduction, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(4) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding any rights
or warrants referred to in subparagraph (B)(2) of this Section, any
dividend or distribution paid in cash out of the earned surplus of the
Company and any dividend or distribution referred to in subparagraph
(B)(1) of this Section), the Conversion Ratio shall be adjusted so that
the same shall equal that number determined by multiplying the
Conversion Ratio in effect immediately prior to the close of business
on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be
the current market price per share (determined as provided In
subparagraph (B)(6) of this Section) of the Common Stock on the date
fixed for such determination and the denominator shall be such current
market price per share of the Common Stock less the then fair market
value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of such Board of
Directors) of the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock, such adjustment to
become effective immediately prior to the opening of business on the
day following the date fixed the determination of stockholders entitled
to receive such distribution.
4
<PAGE> 5
(5) The reclassification (including any reclassification upon
a consolidation or merger in which the Corporation is the continuing
corporation) of Common Stock into securities including other than
Common Stock shall be deemed to involve (a) a distribution of such
securities other than Common Stock to all holders of Common Stock (and
the effective date of such reclassification shall be deemed to be "the
date fixed for the determination of stockholders entitled to receive
such distribution" and "the date fixed for such determination" within
the meaning of subparagraph (B)(4) of this Section), and (b) a
subdivision or combination, as the case may be, of the number of shares
of Common Stock outstanding immediately prior to such reclassification
into the number of shares of Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or
"the day upon which such combination becomes effective," as the case
may be, and "the day upon which such subdivision or combination becomes
effective" within the meaning of subparagraph (B)(3) of this Section).
(6) For the purpose of any computation under subparagraphs
(B)(2) and (B)(4) of this Section, the current market price per share
of Common Stock on any date shall be deemed to be the average of the
daily closing prices for the 15 consecutive "Trading Days" selected by
the Company commencing not less than 20 nor more than 30 Trading Days
before the day in question. The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sale
takes place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock Exchange
or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the average of
the closing bid and asked prices as furnished by any New York Stock
Exchange member firm selected from time to time by the Corporation for
that purpose. The term "Trading Date" shall mean a day on which the
principal national securities exchange on which shares of the Common
Stock are listed or admitted to trading is open for the transaction of
business or, if not listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday
on which banking institutions in the City of Houston, Texas are not
authorized or obligated by law or executive order to close.
(7) The Corporation may make such increases in the Conversion
Ratio, in addition to those required by subparagraphs (B)(1), (B)(2),
(B)(3) and (B)(4) of this Section. as it considers to be advisable in
order
5
<PAGE> 6
that any event treated for Federal Income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
(8) No adjustment in the Conversion Ratio shall be required
unless such adjustment would require an increase or decrease of at
least one percent in such Conversion Ratio; provided, however, that any
adjustment which by reason of this subparagraph (B)(8) is not required
to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article shall be
made to the nearest 1/100 of a share.
(C) The holder of any shares of the Series Stock may exercise his
option to convert such shares into shares of Common Stock by surrendering for
such purpose to the Corporation, at its principal office or at such other office
or agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series Stock to be converted accompanied
by a written notice stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the provisions of this
Section 4. As promptly as practicable, and in any event within five business
days after the surrender of such certificates and the receipt of such notice
relating thereto, the Corporation shall deliver or cause to be delivered (i)
certificates representing the number of validly issued, fully paid and
nonassessable shares of Common Stock of the Corporation to which the holder of
the Series Stock so converted shall be entitled and (ii) if less than the full
number of shares of the Series Stock evidenced by the surrendered certificate or
certificates are being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificate or
certificates less the number of shares converted. Conversions shall be deemed to
have been made at the close of business on the date of giving of such notice and
of such surrender of the certificate or certificates representing the shares of
the Series Stock to be converted so that the rights of the holder shall cease
with respect to such surrendered certificates except for the right to receive
Common Stock of the Corporation in accordance herewith, and the converting
holder shall be treated for all purposes as having become the record holder of
such Common Stock of the Corporation at such time.
(D) In connection with the conversion of any shares of the Series
Stock, no fractions of shares or Common Stock shall be issued, but the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the market value of such fractional interest. In such
event, the market value of a share of Common Stock of the Corporation shall be
the current market price per share (as defined in subparagraph (B)(6) of this
Section 4) of such shares on the last Trading Date on which such shares were
traded immediately preceding the date upon which such shares of Series Stock are
deemed to have been converted.
(E) The Corporation shall at all times reserve and keep available out
of its authorized Common Stock the full number of shares of Common Stock of the
6
<PAGE> 7
Corporation issuable upon (a) the conversion of all outstanding shares of the
Series Stock, and (b) the conversion or exercise of any other outstanding
securities or rights convertible or exercisable into Common Stock, including
outstanding Related Debentures.
Section 5. Adjustments for Certain Corporate Transactions. In case of
any consolidation of the Corporation with, or merger of the Corporation into,
any other corporation (other than a consolidation or merger in which the
Corporation is the continuing corporation and in which no change is made in the
outstanding Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, the corporation formed by
such consolidation or the corporation resulting from such merger or the person
which shall have acquired such assets, as the case may be, shall make adequate
provision providing that the holder of each share of Series Stock then
outstanding shall have the right thereafter to convert such Series Stock into
the kind and amount of stock or other securities and property receivable upon
such consolidation, merger, sale or transfer by a holder of the number of shares
of Common Stock into which such Series Stock might have been converted
immediately prior to such consolidation, merger, sale or transfer. Adequate
provision shall also be made to provide for adjustments which, for events
subsequent to such consolidation, merger, sale or transfer, shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 4.
The above provisions of this Section 5 shall similarly apply to successive
consolidations, mergers, sales or transfers.
Section 6. Reports Of Adjustments. Whenever the Conversion Ratio is
adjusted as provided in Sections 4 and 5, the Corporation shall promptly compute
such adjustment and promptly mail to each registered holder of the Series Stock
and the Related Debentures a certificate, signed by the chief financial officer
of the Corporation, setting forth the number of shares of Common Stock into
which each share of the Series Stock is convertible as a result of such
adjustment, a brief statement of the facts requiring such adjustment and the
computation thereof and when such adjustment will become effective.
Section 7. Voting. Except as otherwise provided elsewhere in the
Certificate of Incorporation of the Corporation or required by law, the holders
of Series Stock shall have no voting power in the election of directors or for
any other purposes.
RESOLVED, that, before the Corporation shall issue any shares of the
Series Stock, a certificate of designations pursuant to Section 151 of the
General Corporation Law of the State of Delaware shall be made, executed,
acknowledged, filed and recorded in accordance with the provisions of said
Section 151; and the proper officers of the Corporation are hereby authorized
and directed to do all acts and things which may be necessary or proper in their
opinion to carry into effect the purposes and intent of this and the foregoing
resolutions."
7
<PAGE> 8
IN WITNESS WHEREOF, ROWAN COMPANIES, INC. has caused this Certificate
to be duly executed by its Senior Vice President and attested to by its
Secretary and has caused its corporate seal to be affixed hereto, this 5th day
of August 1998.
ROWAN COMPANIES, INC.
By:
--------------------
Senior Vice President
[Corporate Seal]
ATTEST:
- ----------------------
Secretary
8
<PAGE> 9
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
Before me, a Notary Public, on this day personally appeared E. E.
Thiele, known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of Rowan
Companies, Inc., a Delaware corporation, that he has executed the same as the
act of such corporation for the purposes and consideration therein expressed,
and that the facts stated therein are true.
Given under my hand and seal of office this 5th day of August, 1998.
-------------------------
Notary Public, in and for
the State of Texas
My Commission Expires:
- --------------------
9
<PAGE> 10
ROWAN COMPANIES, INC.
CERTIFICATE OF CORRECTION FILED TO CORRECT A
CERTAIN ERROR IN THE CERTIFICATE OF DESIGNATIONS
PROVIDING FOR THE ISSUE OF SERIES A PREFERRED STOCK
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON AUGUST 6, 1998
Rowan Companies, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is ROWAN COMPANIES, INC.
2. That a Certificate of Designations providing for the issue of
Series A Preferred Stock was filed in the office of the
Secretary of State of Delaware on August 6, 1998 and that said
Certificate of Designations requires correction as permitted
by Section 103 of The General Corporation Law of the State of
Delaware.
3. The inaccuracy or defect of said Certificate of Designations
to be corrected is as follows:
As a result of a subtotal mistakenly being construed to be the total,
the number of shares of the Company's Series A Preferred Stock
established and provided for in such Certificate of Designations was
inadvertently shown as 2,300 instead of 4,800. To correct this
misstatement, the first "Resolved" paragraph (the one and only
paragraph or provision containing such number) in the Certificate of
Designations is corrected to read as follow:
"RESOLVED, that pursuant to Paragraph A of Article Fourth of
the Certificate of Incorporation of the Corporation, as amended (which
creates and authorizes 5,000,000 shares of preferred stock, par value
of $1.00 per share, hereinafter called the "Preferred Stock"), the
Board of Directors hereby establishes and provides for the issue of a
series of 4,800 shares of Preferred Stock, designated as Series A
Preferred Stock (the "Series Stock"), which shares shall be issuable
only upon conversion of the Series A Floating Rate Subordinated
Convertible Debentures (the "Related Debentures") of the Corporation
and shall be convertible into shares of common stock, $.125 par value,
of the Corporation (the "Common Stock"), pursuant to the terms and
conditions hereinafter set forth."
10
<PAGE> 11
IN WITNESS WHEREOF, ROWAN COMPANIES, INC. has caused this Certificate
to be duly executed by its Senior Vice President and attested to by its
Secretary and has caused its corporate seal to be affixed hereto this 28th day
of January 1999.
ROWAN COMPANIES, INC.
By:
-----------------------
Senior Vice President
[Corporate Seal] E. E. Thiele
ATTEST:
- ----------------------
Secretary
Mark H. Hay
11
<PAGE> 1
EXHIBIT 4d
CERTIFICATE OF ELIMINATION
OF
ROWAN COMPANIES, INC.
Series I Preferred Stock
$2.125 Convertible Exchangeable Preferred Stock
Series II Preferred Stock
Rowan Companies, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY
CERTIFY:
FIRST: At a duly constituted meeting of the Board of Directors of
the Company held on April 24, 1998, resolutions were duly adopted
setting forth the elimination of the Company's Series I Preferred
Stock, $2.125 Convertible Exchangeable Preferred Stock and Series
II Preferred Stock (the "Preferred Issues"), and that such
resolutions have not been amended or rescinded and are presently
in full force and effect:
RESOLVED, that this Board hereby determines
that none of the authorized shares of any
series of the Preferred Issues are
outstanding and none will be issued, and
FURTHER RESOLVED, that the proper officers
of the Company are hereby empowered to
execute, acknowledge, file and have recorded
in the State of Delaware a Certificate of
Elimination which, when filed and recorded
in Delaware, shall have the effect of
eliminating from the Restated Certificate of
Incorporation all references to these
Preferred Issues.
SECOND: None of the authorized shares of any series of the
Preferred Issues are outstanding and none will be issued.
THIRD: In accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Restated
Certificate of Incorporation is hereby amended to eliminate all
references to the Preferred Issues.
In WITNESS WHEREOF, said Rowan Companies, Inc. has caused this
certificate to be signed by Mark H. Hay, its Corporate Secretary, this 4th day
of May, 1998.
ROWAN COMPANIES, INC.
By
-------------------------
Title Corporate Secretary
----------------------
(Title)
<PAGE> 1
EXHIBIT 4h
PROMISSORY NOTE
Houston, Texas April 24, 1998
___________________, for value received, promises and agrees to pay on
or before April 24, 2008 unto the order of Rowan Companies, Inc. (hereinafter
called "Payee"), at the offices of the Payee in Houston, Texas in lawful money
of the United States of America, the principal sum of _____________________and
No/100 Dollars ($_______________), together with interest thereon, from and
after the date hereof, on March 31, June 30, September 30 and December 31 of
each year unless such day is not a business day, in which case it shall mean the
immediately succeeding business day, the first such interest payment for the
period beginning on and including the date hereof and ending on and excluding
June 30, 1998, at the per annum interest rate announced publicly by Citibank,
N.A. in New York, New York from time to time as its Base Rate plus 1/2% per
annum; provided, that if any such interest rate shall be lower than the
applicable interest rate for such period determined under Sections 483 and 1274
(d) of the Internal Revenue Code of 1954, as amended (the "Federal Rate"), such
Federal Rate shall apply. The amount of interest payable for any such period is
computed by multiplying the decimal equivalent of the applicable interest rate
for such period by the actual number of days in such period, dividing by 360 and
multiplying the resulting quotient by the principal amount hereof. If the
principal of this Note is prepaid in whole or in part, all accrued and unpaid
interest with respect to such principal amount prepaid is due and payable on the
date of such prepayment.
Payment of this Note when due is secured by a pledge of and lien on the
Series A Floating Rate Subordinated Convertible Debenture due 2008 of the Payee
dated April 24, 1998 in the principal amount of $______________, issued in the
name of the undersigned, which Debenture, accompanied by an executed transfer
power for such Debenture and in proper form for transfer, has been delivered to
the Payee.
In the event of the non-payment when due of any liability of the
undersigned to the Payee hereunder, then, or at any time after the happening of
such event, the holder of this Note may, without demand upon or notice to the
undersigned (both of which are expressly waived by the undersigned), declare all
sums owing hereon to be, and such sums shall become, due and payable. Upon such
declaration, the Payee will, to the extent practicable, set off any amounts
owing hereon by the undersigned with amounts owing by the Payee pursuant to the
Series A Floating Rate Subordinated Debenture due 2008. This Note shall be
construed according to and governed by the laws of the State of Texas.
<PAGE> 2
By its acceptance hereof, the Payee of this promissory note, hereby
acknowledges and agrees that if (i) Rowan Companies, Inc., a Delaware
corporation (the "Company") fails, at any time, to fulfill its payment
obligations owing in respect of its Series A Floating Rate Subordinated
Convertible Debentures due 2008 (collectively, the "Debentures") or (ii) an
Event of Default (as such term is defined in the Debentures) has occurred and is
continuing, the payment obligations (with respect to principal and interest) of
the undersigned maker of this promissory note under the terms hereof will,
automatically be suspended and terminated until such time, if any, that the
Company has fulfilled all of its payment obligations then due and owing in
respect of the Debentures or such Event of Default no longer exists, as the case
may be.
-----------------------------
<PAGE> 1
EXHIBIT 10j
ROWAN COMPANIES, INC.
Amendment No. 4 to the Consultancy
Agreement Dated March 1, 1991
Between Rowan Companies, Inc.
And C. W. Yeargain
Effective January 1, 1998:
(1) Section 2. Duties of the Consultant
Section 2 of the Agreement, Duties of the Consultant, is
amended by adding an additional paragraph as follows:
(B) The Consultant also shall serve as a Director of
LeTourneau, Inc. and as Chairman of the Board of Directors of
LeTourneau, Inc. and shall provide such services as may be
required, from time to time, in connection with serving in
such capacities.
(C) The Consultant shall provide advice as may be required for
the design and construction of the enhanced Gorilla design
jack-up rigs, designated GORILLA V AND GORILLA VI.
(2) Section 4. Consideration and Expenses:
Section 4 of the Agreement, Consideration and Expenses, is
hereby deleted and the following is substituted therefor:
(A) The Company shall pay $300,000 annually (payable
quarterly) for services rendered. Further, the Company shall
reimburse to the Consultant all proper and reasonable
out-of-pocket expenses (including, but not limited to, all
travel and accommodation expenses).
<PAGE> 1
EXHIBIT 10k
DATED MARCH 1, 1991
ROWAN COMPANIES, INC. (1)
-AND-
C. W. YEARGAIN (2)
AGREEMENT
FOR THE PROVISION OF CONSULTANCY SERVICES,
AS AMENDED
Page 1
<PAGE> 2
THIS AGREEMENT is dated March 1, 1991 and is entered into BY and BETWEEN:
(1) ROWAN COMPANIES, INC. OF 5450 Transco Tower Building, Houston, Texas
77056-6196 ("the Company"); and
(2) C. W. YEARGAIN ("the Consultant") of #8 Tokeneke Trail, Houston, Texas
77024
NOW IT IS HEREBY AGREED as follows:
1. Appointment
(A) The Company hereby engages the Consultant and the Consultant hereby
agrees to act as consultant to the Company including any of its incorporated
affiliates (hereafter referred to as "the Group") pursuant to the terms of this
Agreement.
(B) The said engagement, which shall be deemed to have commenced on March
1, 1991, shall continue hereafter unless and until terminated (i) by either
party by not less than three (3) months prior notice in writing given to the
other party or (ii) pursuant to the provisions of clause 6.
2. Duties of the Consultant
(A) The Consultant shall advise the Group on a when-requested basis in
connection with matters pertaining to the Group's existing and prospective
worldwide business operations.
(B) The Consultant also shall serve as a Director of LeTourneau, Inc. and
as Chairman of the Board of Directors of LeTourneau, Inc. and shall provide such
services as may be required, from time to time, in connection with serving in
such capacities.
(C) The Consultant shall provide advice as may be required for the design
and construction of the enhanced Gorilla design jack-up rigs, designated GORILLA
V AND GORILLA VI.
3. Conflict of Interest
(A) The Consultant hereby undertakes at all times to perform his
obligations hereunder with the utmost good faith and shall not deliberately do
or omit to do anything whereby a conflict is likely to arise between the
interests of the Group and the Consultant's own interests or the interests of
any other person or organization on whose behalf the Consultant is so employed.
(B) The Consultant shall not at any time knowingly make or cause or permit
to be made any untrue or misleading statement in relation to the Group nor in
particular after the termination of this Agreement represent or cause or permit
any representation to be made that he is connected with the Group.
Page 2
<PAGE> 3
4. Consideration and Expenses
(A) The Company shall pay $300,000 annually (payable quarterly) for
services rendered. Further, the Company shall reimburse to the Consultant all
proper and reasonable out-of-pocket expenses (including, but not limited to,
all travel and accommodation expenses).
(B) All payments to be made pursuant to this agreement shall be made by
the Company upon receipt of an invoice from the Consultant specifying the amount
payable.
5. Confidentiality
(A) The Consultant undertakes that he shall not, either during or after
the termination of this Agreement without limit in point of time:
(i) divulge or communicate or cause or permit to be divulged or
communicated whether directly or indirectly to any other
person or persons (except to those of the officials of the
Group whose province it is to know the same); or
(ii) use for his own purposes or for any purpose other than those
of the Group
any secret, confidential or other information:
(a) relating to the private affairs of the Group;
or
(b) which the Group has obtained from any third party on
terms restricting its disclosure or use
but these restrictions shall cease to apply to any information or knowledge
which may come into the public domain (otherwise than through the default of the
Consultant).
(B) All notes, memoranda, records and other documents made or created in
relation to the performance by the Consultant of his duties hereunder shall be
and remain the property of the Company and shall be handed over by the
Consultant to the Company from time to time on demand and in any event on the
termination of this Agreement.
6. Events of Termination
The Company only on the occurrence of the events specified in (B) below and
either party on the occurrence of the events specified in (A) below shall have
the right at any time by giving notice in writing to the other party to
terminate this Agreement forthwith:
(A) if the other party commits a material breach of any of the terms of
this Agreement and fails to remedy the same within 30 days of being required in
writing to do so by the party not in breach (if such breach shall be capable of
remedy);
(B) upon the demise or incapacity of the Consultant;
Page 3
<PAGE> 4
(C) upon the termination of the engagement by not less than the period of
notice provided for in clause 1 or upon the proper termination as provided in
this clause 6, the Consultant shall not have any claims for damages or
compensation of any nature whatsoever other than to any outstanding fees and
properly documented expenses due pursuant to clause 4 hereof.
7. Status of Agreement
Nothing herein contained shall be deemed to constitute a partnership between the
parties hereto and the Consultant shall have no power to bind the Group or
pledge its credit. Consultant agrees that he is an independent contractor and is
solely responsible for the performance of any duties required under this
Agreement. The Consultant agrees that he shall solely be responsible for any
income tax liability asserted by any taxing jurisdiction upon payments of
consideration received under this Agreement.
8. Assignment
Neither party shall be entitled to assign its rights hereunder without the prior
written consent of the other.
9. Notice
All notices to be given under this Agreement shall be in writing and shall
either be delivered personally or sent by first class registered post to the
address of the party to be served given at the head of this Agreement or such
other address as shall from time to time be notified to the other party and
shall be deemed duly served (i) in the case of a notice delivered personally, at
the time of delivery, and (ii) in the case of a notice sent by post, five clear
business days after the date of dispatch.
10. Entire Agreement
This Agreement constitutes the entire Agreement between the parties hereto with
respect to its subject matter and shall have effect to the exclusion of any
other memorandum, agreement or understanding of any kind between the parties
hereto preceding the date of this Agreement and touching and concerning its
subject matter.
11. Amendments in Writing
This Agreement may be amended, superseded, cancelled or any of its terms and
conditions waived only by written instrument signed by or on behalf of the
Company and Consultant or, in the case of waiver, by the party which is waiving
compliance.
Page 4
<PAGE> 5
12. Governing Law
This Agreement shall be governed by and construed in accordance with the Laws of
the State of Texas and each of the parties hereto hereby agrees to submit to the
non-exclusive jurisdiction of the courts of Texas in connection with any matter
arising out of this Agreement.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
) /s/ C. R. Palmer
SIGNED BY )------------------------------
duly authorized signatory ) C. R. Palmer
for and on behalf of
ROWAN COMPANIES, INC. ------------------------------
in the presence of: President
/s/ Kitty Lindley
- ---------------------------
SIGNED BY ) /s/ C. W. Yeargain
C. W. Yeargain )------------------------------
) C. W. Yeargain
In the presence of:
/s/ Mary H. Cocca
- ---------------------------
<PAGE> 1
EXHIBIT 10L
DATED JANUARY 1, 1990
ROWAN ENERGY INVESTMENTS, INC. (1)
- AND -
H. M. BRINKHORST (2)
AGREEMENT
for the provision of consultancy services
<PAGE> 2
THIS AGREEMENT is dated January 1, 1990 and is entered in BY and BETWEEN:-
(1) ROWAN ENERGY INVESTMENTS, INC. of 5051 Westheimer, Suite 1900 Houston,
Texas 77056 ("the Company"); and
(2) H. M. BRINKHORST (the Consultant")
NOW IT IS HEREBY AGREED as follows:-
1. Appointment
(A) The Company hereby engages the Consultant and the Consultant hereby
agrees to Act as consultant to the Company including any of its incorporated
affiliates (hereafter referred to as "the Group") pursuant to the terms of this
Agreement.
(B) The said engagement, which shall be deemed to have commenced on
January 1, 1990, shall continue hereafter unless and until terminated (I) by
either party by not less than 3 months' prior notice in writing given to the
other party or (ii) pursuant to the provisions of clause 6.
2. Duties of the Consultant
The Consultant shall advise the Group on a when-requested
basis in connection with matters pertaining to the Group's existing and
prospective worldwide business operations.
3. Conflict of Interest
(A) The Consultant hereby undertakes at all times to perform his
obligations hereunder with the utmost good faith and shall not deliberately do
or omit to do anything whereby a conflict is likely to arise between the
interests of the Group and the Consultant's own interests or the interests of
any other person or organization on whose behalf the Consultant is so employed.
(B) The Consultant shall not at any time knowingly make or cause or
permit to be made any untrue or misleading statement in relation to the Group
nor in particular after the termination of this Agreement represent or cause or
permit any representation to be made that he is connected with the Group.
4. Consideration and Expenses
(A) In consideration of the performance by the Consultant of his
obligations hereunder, the Consultant shall be entitled to receive from the
<PAGE> 3
Company during the continuance of this Agreement the sum of US$ 12,000 (Twelve
Thousand Dollars) per annum (or such higher rate as the parties may from time to
time agree) such remuneration to be payable in equal quarterly payments
thereafter in arrears.
(B) The Company shall reimburse to the Consultant all proper and
reasonable out-of-pocket expenses (including, but not limited to, all traveling
and accommodation expenses) plus the per diem rate of US$ 500 (Five Hundred
Dollars) for services rendered.
(C) The payments provided for in this clause are exclusive of Value
Added Tax. All payments to be made pursuant to this agreement shall be made by
the Company upon receipt of an invoice from the Consultant specifying the amount
payable.
5. Confidentiality
(A) The Consultant undertakes that he shall not, either during or after
the termination of this Agreement without limit in point of time:-
(i) divulge or communicate or cause or permit to be divulged or
communicated whether directly or indirectly to any person or
persons (except to those of the officials of the Group whose
province it is to know the same); or
(ii) use for his own purposes or for any purpose other than those
of the Group
any secret, confidential or other information:-
(a) relating to the private affairs of the Group; or
(b) which the Group has obtained from any third party on
terms restricting its disclosure or use
but these restrictions shall cease to apply to any information or knowledge
which may come into the public domain (otherwise than through the default of the
Consultant).
(B) All notes, memoranda, records and other documents made or created
in relation to the performance by the Consultant of his duties hereunder shall
be and remain the property of the Company and shall be handed over by the
Consultant to the Company from time to time on demand and in any event on the
termination of this Agreement.
<PAGE> 4
6. Events and Termination
The Company only on the occurrence of the events specified in (C) and (D) below
and either party on the occurrence of the events specified in (A) and (B) below
shall have the right at any time by giving notice in writing to the other party
to terminate this Agreement forthwith:-
(A) if the other party commits a material breach of any of the terms of
this Agreement and fails to remedy the same within 30 days of being required in
writing to do so by the party not in breach (if such breach shall be capable of
remedy);
(B) if the other party is unable to pay its debts as they fall due or a
resolution is passed for the winding up of the other party or if the other party
compounds with its creditors generally or has a receiver appointed over all or a
substantial part of its assets;
(C) if the Consultant shall commit an act of bankruptcy or compound
with his creditors generally or be guilty of conduct tending to bring himself or
the Company into disrepute;
(D) upon the demise or incapacity of the Consultant;
(E) upon the termination of the engagement by not less than the period
of notice provided for in clause 1 or upon the proper termination as provided in
this clause 6, the Consultant shall not have any claims for damages or
compensation of any nature whatsoever other than to any outstanding fees and
properly documented expenses due pursuant to clause 4 hereof.
7. Status of Agreement
Nothing herein contained shall be deemed to constitute a partnership between the
parties hereto and the Consultant shall have no power to bind the Group or
pledge its credit. Consultant agrees that he is an independent contractor and is
solely responsible for the performance of any duties required under this
Agreement. The Consultant agrees that he shall solely be responsible for any
income tax liability asserted by any taxing jurisdiction upon payments of
consideration received under this Agreement.
8. Assignment
Neither party shall be entitled to assign its rights hereunder without the prior
written consent of the other.
<PAGE> 5
9. Notice
All notices to be given under this Agreement shall be in writing and shall
either be delivered personally or sent by first class registered post to the
address of the party to be served given at the head of this Agreement or such
other address as shall from time to time be notified to the other party and
shall be deemed duly served (i) in the case of a notice delivered personally, at
the time of delivery, and (ii) in the case of a notice sent by post, five clear
business days after the date of dispatch.
10. Entire Agreement
This Agreement constitutes the entire Agreement between the parties hereto with
respect to its subject matter and shall have effect to the exclusion of any
other memorandum, agreement or understanding of any kind between the parties
hereto preceding the date of this Agreement and touching and concerning its
subject matter.
11. Amendments in Writing
This Agreement may be amended, superseded, cancelled or any of its terms and
conditions waived only by written instrument signed by or on behalf of the
Company and Consultant or, in the case of waiver, by the party which is waiving
compliance.
12. Governing Law
This Agreement shall be governed by and construed in accordance with the Laws of
the State of Texas and each of the parties hereto hereby agrees to submit to the
non-exclusive jurisdiction of the courts of Texas in connection with any matter
arising out of this Agreement.
<PAGE> 6
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
SIGNED BY )
Duly authorized signatory )
For and on behalf of )----------------------------------
ROWAN ENERGY INVESTMENTS, INC. C. R. Palmer
In the presence of: Vice President
----------------------------------
- ----------------------------------
R. E. McWilliams of
Houston, Texas
SIGNED BY )
H. M. Brinkhorst, Esq. )
in the presence of:- )----------------------------------
H. M. Brinkhorst
- ----------------------------------
<PAGE> 7
AMENDMENT NO. 1
This Amendment No. 1 dated this 30th day of August 1994, but effective
as of January 1, 1994, constitutes an amendment to the Consultant Agreement for
the Provision of Consultancy Services ("the Agreement") dated January 1, 1990
between Rowan Energy Investments, Inc., ("the Company") and H. M. Brinkhorst
(the "Consultant"). The parties hereby agree that Article 4 of the Agreement
shall be amended in its entirety as follows:
4. Consideration and Expenses
(A) In consideration of the performance by the Consultant of his
obligations hereunder, the Consultant shall be entitled to receive from the
Company during the continuance of this Agreement the sum of $500.00 per day (or
such higher rate as the parties may from time to time agree) for each day the
Consultant renders services to the Company.
(B) The Company shall reimburse to the Consultant all proper and
reasonable out-of-pocket expenses (including, but not limited to, all traveling
and accommodation expenses) for services rendered.
(C) The payments provided for in Article 4 shall be exclusive of Value
Added Tax. All payments to be made pursuant to this Agreement shall be made by
the Company upon receipt of an invoice from the Consultant specifying the amount
payable.
All other terms of the Agreement shall remain in full force and effect
as originally written.
H. M. Brinkhorst
WITNESS:
----------------------- ------------------------------
Rowan Energy Investments, Inc.
WITNESS:
----------------------- ------------------------------
By:
---------------------------
Its:
--------------------------
<PAGE> 1
EXHIBIT 10o
AMENDMENT NO. 2
TO
COMMITMENT TO GUARANTEE OBLIGATIONS
THIS AMENDMENT NO. 2, dated as of July 1, 1998 (the "Amendment"), to
that certain Commitment to Guarantee Obligations, dated as of December 17, 1996
(the "Commitment") as amended by Amendment No. 1 dated June 30, 1997, is by and
between the United States of America, represented by the Secretary of
Transportation, acting by and through the Maritime Administration (the
"Secretary"), and ROWAN COMPANIES, INC. (the "Shipowner", and together with the
Secretary, the "Parties").
WHEREAS, on December 17, 1996, the Shipowner executed the Indenture,
and issued thereunder a Floating Rate Note designated, "United States Government
Guaranteed Ship Financing Obligations, GORILLA V Series" (the "Initial
Transaction") with a maximum principal amount of $153,091,000;
WHEREAS, on July 1, 1997, the Shipowner executed Supplement No. 1 to
the Indenture, and issued thereunder a Fixed Rate Note designated, "United
States Government Guaranteed Ship Financing Obligations, GORILLA V Series" (the
"Second Transaction") in the principal amount of $67,000,000; and
WHEREAS, on July 1, 1997, the Floating Rate Note dated December 17,
1996 was cancelled and a new Floating Rate Note was issued in the maximum amount
of $86,091,000;
WHEREAS, pursuant to Title XI of the Merchant Marine Act, 1936, the
Secretary guaranteed the payment of outstanding principal of and interest on the
Floating Rate Note and Fixed Rate Note ("the Obligations"); and
WHEREAS, Article Fourth of the Special Provisions of the Trust
Indenture provides that the Shipowner may redeem or repay the Floating Rate
Note, in whole or in part, on a Redemption Date designated by the Shipowner,
from the proceeds of the issuance of a fixed rate note; and
WHEREAS, the Parties wish to amend certain documents relating to the
Initial Transaction and Second Transaction in order to provide for the complete
redemption of the Floating Rate Note and for the escrow funding contemplated by
section 2.03 hereof, by the issuance of a second fixed rate note in the
aggregate amount of $86,091,000;
NOW THEREFORE, in consideration of the mutual rights and obligations
set forth herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
-1-
<PAGE> 2
SECTION 1.01 Annexed to each counterpart of this Amendment No. 2 to the
Commitment to Guarantee Obligations are the forms of the Obligation Purchase
Agreement, Supplement No. 2 to the Trust Indenture, Amendment No. 2 to the
Security Agreement, and the Obligations to be issued July 1, 1998, the forms of
which are hereby approved by the Secretary.
SECTION 1.02 Article III of the Commitment shall be amended pursuant to
Article VI thereof, as follows:
The Obligations to be issued as a second fixed rate note shall be as
provided in the Indenture and in the form of the Fixed Rate Note annexed as
Exhibit 3B to the Indenture. The Obligations shall be subject to all of the
terms and conditions set forth in the Indenture. Supplement No. 2 to the Trust
Indenture, Amendment No. 2 to the Security Agreement, and the Obligations to be
issued as a second fixed rate note shall be executed and delivered by the
Shipowner on the Second Effective Date.
Except as so amended, the provisions of the Commitment shall apply to
and govern this Amendment No. 2 to Commitment to Guarantee Obligations.
Capitalized terms not specifically defined herein shall have the
respective meanings stated in Schedule A to the Trust Indenture dated as of
December 17, 1996, as amended, between the Shipowner and the Indenture Trustee.
This Amendment No. 2 to Commitment to Guarantee Obligations may be
executed in several counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Notwithstanding any provision herein, in the event there are any
inconsistencies between the original of this document held by the Secretary, and
an original held by any other party to this transaction, the provisions of the
original held by the Secretary shall prevail.
-2-
<PAGE> 3
IN WITNESS WHEREOF, this Amendment No. 2 to Commitment to Guarantee
Obligations has been executed and sealed by the United States and accepted and
sealed by the Shipowner on the day and year first above written.
UNITED STATES OF AMERICA
SECRETARY OF TRANSPORTATION
BY: MARITIME ADMINISTRATOR
(SEAL)
ATTEST: --------------------------------------
Secretary
- ---------------------------------
Assistant Secretary
ROWAN COMPANIES, INC.
(SEAL)
By:
ATTEST: -----------------------------------
Senior Vice President
- ---------------------------------
Secretary
-3-
<PAGE> 1
EXHIBIT 10r
SUPPLEMENT NO. 2
TO
TRUST INDENTURE
THIS SUPPLEMENT NO. 2, dated as of July 1, 1998 ("Supplement No. 2"),
to that certain Trust Indenture dated as of December 17, 1996 as amended as of
June 30, 1997 effective July 1, 1997 ("Supplement No. 1") (the "Indenture") is
by and between CITIBANK, N.A., a national banking association, as indenture
trustee (the "Indenture Trustee"), and ROWAN COMPANIES, INC. (the "Shipowner",
and together with the Indenture Trustee, the "Parties").
WHEREAS, on December 17, 1996, the Shipowner executed the Indenture,
and issued thereunder a Floating Rate Note designated, "United States Government
Guaranteed Ship Financing Obligations, GORILLA V Series" (the "Initial
Transaction") with a maximum principal amount of $153,091,000;
WHEREAS, Article Fourth of the Special Provisions of the Indenture
provides that the Shipowner may redeem or repay the Floating Rate Note, in whole
or in part, on a Redemption Date designated by the Shipowner, from the proceeds
of the issuance of a fixed rate note;
WHEREAS, the Parties by Supplement No. 1 amended certain documents
relating to the Initial Transaction in order to provide for the redemption of a
part of the Floating Rate Note by the Shipowner's issuance of a fixed rate note
(the "Second Transaction"); and
WHEREAS, the Parties wish to further amend certain documents relating
to the Initial Transaction and Second Transaction in order to provide for the
complete redemption of the Floating Rate Note and for the escrow funding
contemplated by section 2.03 hereof, by the issuance of a second fixed rate note
in the aggregate amount of $86,091,000.
NOW THEREFORE, in consideration of the mutual rights and obligations
set forth herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
<PAGE> 2
ARTICLE FIRST
SECTION 1.01 SCHEDULE A. Schedule A to the Indenture is hereby
amended by adding the following definitions:
"Second Effective Date" means July 1, 1998.
"Fixed Rate Note" shall mean an Obligation substantially in the form of
Exhibit 3A or 3B to the Indenture, appropriately completed.
All other capitalized terms used herein have the meanings set forth in
Schedule A to the Indenture, as amended.
ARTICLE SECOND
The Indenture shall be amended as follows:
Section 2.01 The Obligations. Article Second (a) of the Special
Provisions of the Indenture is restated in its entirety as follows:
(a) The Obligations issued hereunder shall be designated
"United States Government Guaranteed Ship Financing Obligations,
GORILLA V Series," and shall be in the forms of Exhibits 3A and
3B to this Indenture; and, the aggregate principal amount of
Obligations which may be issued under this Indenture shall not
exceed $153,091,000 except as provided in Sections 2.09, 2.10,
2.12 and 3.10(b) of Exhibit 1 hereto.
Section 2.02 Endorsement of Floating Rate Note. On the Second Effective
Date, the Floating Rate Note issued on July 1, 1997 shall be endorsed to show
the redemption of the remaining outstanding amount and thereupon shall be
cancelled.
Section 2.03 Escrow Fund. Approximately $2,494,932 of the proceeds of
the Fixed Rate Note issued on July 1, 1998 is being placed in the Escrow Fund
and will not be disbursed to the Shipowner until the Actual Cost of the Vessel
equals or exceeds $175,042,902. In the estimation of the Shipowner, the Actual
Cost of the Vessel will exceed $175,042,902. In the event that the Actual Cost
of the Vessel does not equal or exceed $175,042,902, a special redemption of the
Fixed Rate Obligations dated July 1, 1998 will occur on a pro rata basis.
Notwithstanding anything to the contrary in the Indenture, in the event that a
special redemption occurs, such funds will be pre-paid on the Second Fixed Rate
Note issued July 1, 1998 and will not affect the
<PAGE> 3
First Fixed Rate Note issued July 1, 1997 and the Shipowner will pay a
Make-Whole Premium in connection therewith.
Section 2.04 Forms of Fixed Rate Notes. The form of Fixed Rate Note
attached as Exhibit 3 to the Indenture is renumbered as Exhibit 3A and the form
of Fixed Rate Note attached as an Exhibit to this Amendment is designated as
Exhibit 3B to the Indenture.
Section 2.05 Issuance of Fixed Rate Notes. On and after the Second
Effective Date, the Shipowner shall issue and deliver to the Holders thereof
Fixed Rate Note(s) in accordance with the Indenture in the form of Exhibit 3B to
the Indenture.
Except as so amended, the provisions of the Indenture are hereby
confirmed, and shall remain in full force and effect.
This Supplement No. 2 to the Indenture may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Notwithstanding any provision herein, in the event there are any
inconsistencies between the original of this document held by the Secretary, and
an original held by any other party to this transaction, the provisions of the
original held by the Secretary shall prevail.
<PAGE> 4
IN WITNESS WHEREOF, this Supplement No. 2 to the Indenture has
been duly executed by the Parties as of the day and year first above written.
(SEAL) ROWAN COMPANIES, INC.
ATTEST:
By:
--------------------------------------
Senior Vice President
- ----------------------------
Secretary
CITIBANK, N.A.
(SEAL) Indenture Trustee
ATTEST:
By:
--------------------------------------
Arthur W. Aslanian
Title: Vice President
- ----------------------------
Carol Ng
Vice President
CONSENT:
Pursuant to Section 10.05 of the General Provisions Incorporated into
the Trust Indenture by Reference attached as Exhibit 1 to the Trust Indenture,
the Secretary hereby consents to this Supplement No. 2 to the Trust Indenture.
ATTEST: UNITED STATES OF AMERICA,
SECRETARY OF TRANSPORTATION
BY: MARITIME ADMINISTRATION
By:
-------------------------------------
Secretary
<PAGE> 1
EXHIBIT 13
ROWAN COMPANIES, INC. AND SUBSIDIARIES
TEN-YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(In thousands except per share amounts and ratios) 1998 1997 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS
Revenues:
Drilling services $ 431,664 $ 434,004 $ 316,123 $ 250,080
Manufacturing sales and services 158,913 154,852 143,768 133,755
Aviation services 115,773 106,396 111,269 87,462
--------------- --------------- --------------- ---------------
Total 706,350 695,252 571,160 471,297
--------------- --------------- --------------- ---------------
Costs and expenses:
Drilling services 219,628 217,935 202,878 207,934
Manufacturing sales and services 134,542 134,422 131,665 120,378
Aviation services 101,899 96,390 93,473 79,993
Depreciation and amortization 49,703 47,078 47,882 50,555
General and administrative 18,366 16,971 16,591 14,692
--------------- --------------- --------------- ---------------
Total 524,138 512,796 492,489 473,552
--------------- --------------- --------------- ---------------
Income (loss) from operations 182,212 182,456 78,671 (2,255)
--------------- --------------- --------------- ---------------
Other income (expense):
Interest expense (17,500) (26,208) (27,547) (27,702)
Less interest capitalized 16,264 9,966 2,516
Gain on disposals of property, plant and equipment 5,125 1,541 2,359 6,598
Interest income 7,205 5,190 4,157 5,209
Other - net 395 343 374 468
--------------- --------------- --------------- ---------------
Other income (expense) - net 11,489 (9,168) (18,141) (15,427)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 193,701 173,288 60,530 (17,682)
Provision (credit) for income taxes 69,241 16,863 (808) 754
--------------- --------------- --------------- ---------------
Income (loss) before extraordinary charges 124,460 156,425 61,338 (18,436)
Extraordinary charges from redemption of debt 9,766
--------------- --------------- --------------- ---------------
Net income (loss) $ 124,460 $ 146,659 $ 61,338 $ (18,436)
--------------- --------------- --------------- ---------------
Per share of common stock:
Net income (loss):
Basic $ 1.45 $ 1.70(1) $ .72 $ (.22)
--------------- --------------- --------------- ---------------
Diluted $ 1.43 $ 1.65(1) $ .70 $ (.22)
--------------- --------------- --------------- ---------------
Cash dividends $ -- $ -- $ -- $ --
--------------- --------------- --------------- ---------------
FINANCIAL POSITION
Working capital $ 286,059 $ 330,852 $ 232,045 $ 200,588
--------------- --------------- --------------- ---------------
Property, plant and equipment - at cost:
Drilling equipment 1,238,361 965,292 954,249 944,021
Aircraft and related equipment 211,313 202,044 188,681 189,954
Manufacturing plant and equipment 75,949 60,902 37,377 25,037
Construction in progress 127,075 195,996 77,318
Other property and equipment 108,353 94,476 94,517 91,089
--------------- --------------- --------------- ---------------
Total 1,761,051 1,518,710 1,352,142 1,250,101
--------------- --------------- --------------- ---------------
Property, plant and equipment - net 877,197 677,160 546,200 487,039
Total assets 1,249,108 1,122,135 899,308 802,488
Capital expenditures 247,747 180,066 117,947 33,881
Long-term debt 310,250 256,150 267,321 247,744
Common stockholders' equity 729,996 653,098 496,219 429,155
--------------- --------------- --------------- ---------------
STATISTICAL INFORMATION
Current ratio 4.59 5.06 3.72 3.75
Long-term debt/total capitalization .30 .28 .35 .37
Book value per share of common stock $ 8.77 $ 7.53 $ 5.80 $ 5.06
Price range of common stock $ 9-32 1/2 $16 3/4-43 15/16 $ 8 7/8-24 1/2 $ 5 3/8-10
--------------- --------------- --------------- ---------------
<CAPTION>
(In thousands except per share amounts and ratios) 1994 1993 1992 1991
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS
Revenues:
Drilling services $ 245,917 $ 271,022 $ 162,121 $ 170,739
Manufacturing sales and services 96,664
Aviation services 95,578 82,174 87,877 101,433
--------------- --------------- --------------- ---------------
Total 438,159 353,196 249,998 272,172
--------------- --------------- --------------- ---------------
Costs and expenses:
Drilling services 207,577 211,095 162,816 147,853
Manufacturing sales and services 87,382
Aviation services 79,955 68,882 74,347 82,364
Depreciation and amortization 50,790 51,918 51,367 52,954
General and administrative 13,862 13,940 12,092 11,739
--------------- --------------- --------------- ---------------
Total 439,566 345,835 300,622 294,910
--------------- --------------- --------------- ---------------
Income (loss) from operations (1,407) 7,361 (50,624) (22,738)
--------------- --------------- --------------- ---------------
Other income (expense):
Interest expense (27,530) (25,361) (26,254) (21,379)
Less interest capitalized
Gain on disposals of property, plant and equipment 1,344 1,955 731 1,660
Interest income 4,813 2,348 2,658 4,763
Other - net 260 150 165 127
--------------- --------------- --------------- ---------------
Other income (expense) - net (21,113) (20,908) (22,700) (14,829)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes (22,520) (13,547) (73,324) (37,567)
Provision (credit) for income taxes 469 (288) 429 1,174
--------------- --------------- --------------- ---------------
Income (loss) before extraordinary charges (22,989) (13,259) (73,753) (38,741)
Extraordinary charges from redemption of debt 5,627
--------------- --------------- --------------- ---------------
Net income (loss) $ (22,989) $ (13,259) $ (73,753) $ (44,368)
--------------- --------------- --------------- ---------------
Per share of common stock:
Net income (loss):
Basic $ (.27) $ (.17) $ (1.01) $ (.61)(2)
--------------- --------------- --------------- ---------------
Diluted $ (.27) $ (.17) $ (1.01) $ (.61)(2)
--------------- --------------- --------------- ---------------
Cash dividends $ -- $ -- $ -- $ --
--------------- --------------- --------------- ---------------
FINANCIAL POSITION
Working capital $ 195,945 $ 172,117 $ 61,397 $ 125,996
--------------- --------------- --------------- ---------------
Property, plant and equipment - at cost:
Drilling equipment 961,391 950,538 939,793 913,379
Aircraft and related equipment 176,874 166,791 162,001 158,361
Manufacturing plant and equipment 18,955
Construction in progress
Other property and equipment 86,883 81,636 79,801 76,251
--------------- --------------- --------------- ---------------
Total 1,244,103 1,198,965 1,181,595 1,147,991
--------------- --------------- --------------- ---------------
Property, plant and equipment - net 506,121 507,193 537,819 552,481
Total assets 805,179 765,263 684,301 895,889
Capital expenditures 43,377 21,989 39,528 85,618
Long-term debt 248,504 207,137 212,907 220,764
Common stockholders' equity 442,347 460,300 375,754 445,368
--------------- --------------- --------------- ---------------
STATISTICAL INFORMATION
Current ratio 4.39 4.90 2.47 1.71(3)
Long-term debt/total capitalization .36 .31 .36 .33
Book value per share of common stock $ 5.25 $ 5.49 $ 5.13 $ 6.11
Price range of common stock $ 5 3/4 - 9 1/4 $6 5/8 - 10 3/4 $ 4 5/8 - 9 3/8 $4 3/4 - 11 3/8
--------------- --------------- --------------- ---------------
<CAPTION>
(In thousands except per share amounts and ratios) 1990 1989
--------------- ---------------
<S> <C> <C>
OPERATIONS
Revenues:
Drilling services $ 180,118 $ 128,818
Manufacturing sales and services
Aviation services 111,992 97,446
--------------- ---------------
Total 292,110 226,264
--------------- ---------------
Costs and expenses:
Drilling services 130,845 119,182
Manufacturing sales and services
Aviation services 88,182 75,943
Depreciation and amortization 50,702 52,062
General and administrative 9,549 7,690
--------------- ---------------
Total 279,278 254,877
--------------- ---------------
Income (loss) from operations 12,832 (28,613)
--------------- ---------------
Other income (expense):
Interest expense (21,601) (23,682)
Less interest capitalized
Gain on disposals of property, plant and equipment 3,996 2,320
Interest income 8,635 12,709
Other - net 178 161
--------------- ---------------
Other income (expense) - net (8,792) (8,492)
--------------- ---------------
Income (loss) before income taxes 4,040 (37,105)
Provision (credit) for income taxes 2,081 672
--------------- ---------------
Income (loss) before extraordinary charges 1,959 (37,777)
Extraordinary charges from redemption of debt
--------------- ---------------
Net income (loss) $ 1,959 $ (37,777)
--------------- ---------------
Per share of common stock:
Net income (loss):
Basic $ .03 $ (.52)
--------------- ---------------
Diluted $ .03 $ (.52)
--------------- ---------------
Cash dividends $ -- $ --
--------------- ---------------
FINANCIAL POSITION
Working capital $ 134,393 $ 143,963
--------------- ---------------
Property, plant and equipment - at cost:
Drilling equipment 885,264 867,540
Aircraft and related equipment 138,327 107,985
Manufacturing plant and equipment
Construction in progress
Other property and equipment 73,504 70,598
--------------- ---------------
Total 1,097,095 1,046,123
--------------- ---------------
Property, plant and equipment - net 549,608 542,995
Total assets 739,133 737,826
Capital expenditures 59,905 22,945
Long-term debt 153,621 163,473
Common stockholders' equity 485,748 479,287
--------------- ---------------
STATISTICAL INFORMATION
Current ratio 4.00 4.55
Long-term debt/total capitalization .24 .25
Book value per share of common stock $ 6.69 $ 6.64
Price range of common stock $9 7/8 - 15 7/8 $5 5/8 - 11 7/8
--------------- ---------------
</TABLE>
(1) After extraordinary charges from early debt redemption of $.12 and $.11 per
share, respectively.
(2) After extraordinary charge from early debt redemption of $.08 per share.
(3) At December 31, 1991, the $125,000,000 principal amount of the Company's
13 3/4% Senior Notes had been called for redemption and appeared as a
current liability. If redemption had occurred prior to year end, the
current ratio would have been 3.61.
page 11
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following analysis highlights the Company's operating results for the
years indicated (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
Drilling $ 431.7 $ 434.0 $ 316.1
Manufacturing 158.9 154.9 143.8
Aviation 115.8 106.4 111.3
------- ------- -------
Total $ 706.4 $ 695.3 $ 571.2
------- ------- -------
Operating Profit (Loss)*:
Drilling $ 180.1 $ 185.0 $ 79.3
Manufacturing 18.9 16.3 9.5
Aviation 1.6 (1.9) 6.5
------- ------- -------
Total $ 200.6 $ 199.4 $ 95.3
------- ------- -------
Net Income $ 124.5 $ 146.7 $ 61.3
------- ------- -------
</TABLE>
* Income (loss) from operations before deducting general and administrative
expenses.
The return of weakness and instability to oil and gas prices during 1998 had
significantly curtailed worldwide drilling activity by year end, effectively
reversing, in a period of months, the substantial industry improvements realized
over the previous three years.
During the 1995-1997 period, worldwide demand for energy products grew, the
spread between oil and natural gas prices and the cost of finding and recovering
reserves remained attractive and the availability of capable equipment
continually declined. Such increasingly favorable economic conditions prompted a
surge in drilling activity throughout the period that enabled the Company to
achieve record revenues and profitability in 1997. With its existing offshore
drilling fleet virtually 100% utilized from mid-1995 through mid-1998, and at
continually increasing drilling day rates, the Company implemented during this
period a strategic plan aimed at significantly expanding its revenue base
through the construction of newer and more capable offshore drilling equipment
and the reactivation of its domestic land drilling business.
Nineteen ninety-eight began with oil prices in decline, but still at
traditionally profitable levels. However, months of increased worldwide
production coupled with stagnant global demand kept downward pressure on oil
prices. When per barrel prices approached $15.00 during the second quarter,
market conditions began to measurably weaken. At that point, energy companies
began suspending portions of their drilling programs and reducing their 1998
drilling budgets. By mid-year, the Company began experiencing curtailed drilling
assignments in its most prominent market, the Gulf of Mexico, and was forced to
offer significantly reduced day rates. During the latter part of 1998, with oil
prices at historical lows, the Company's domestic day rates were at levels less
than half of that obtained earlier in the year, and its fleet utilization
suffered dramatically. Though the Company's 1998 drilling operations yielded
revenues and results comparable to the record levels attained in 1997, the trend
over the last half of the year was decidedly unfavorable.
The Company's manufacturing division has continued to provide meaningful
returns while assuming a lead role in the Company's offshore drilling fleet
expansion program. During 1998, the manufacturing division delivered the
Company's Gorilla V jack-up and completed for others the design and major
components comprising a "kit" for two new jack-up rigs. Also, during 1998, the
manufacturing division achieved significant progress on Gorilla VI and ordered
most long lead-time components for Gorilla VII.
During the past three years, the Company's aviation division has continued to
diversify its flight services and the variances in revenues and operating
results reflected above were largely due to fluctuating forest fire control
activities.
Results for 1998 included higher provisions for income taxes due primarily to
the availability, in prior years, of offsetting tax credit and loss
carryforwards.
From late-1995 through early-1997, the Company's results were impaired by
unsuccessful turnkey drilling operations. In early-1997, the Company ceased
turnkey drilling activities and recognized a $20.2 million loss on its one well
in progress. Turnkey operations incurred a loss of $4.0 million in 1996. The
Company is not pursuing any turnkey work at this time.
During 1997, the Company redeemed early its $200 million of 11 7/8% Senior
Notes and incurred $9.8 million of net extraordinary charges consisting
primarily of redemption premiums.
page 12
<PAGE> 3
Drilling Operations. The Company's drilling operating results are generally a
function of rig rates and activity achieved in its offshore drilling business
conducted primarily in the Gulf of Mexico, the North Sea and offshore eastern
Canada. Such rates and activity are primarily determined by the level of
offshore expenditures by energy companies and the availability of competitive
equipment.
Market conditions in the offshore drilling industry deteriorated in 1998
after improving almost continuously during the previous two years. For most of
the 1996-1997 period, the demand for offshore drilling equipment effectively
equaled or exceeded the supply, particularly in the areas in which the Company
operates. Throughout 1996, both the Gulf of Mexico and North Sea markets offered
improving returns primarily due to growing worldwide demand for oil and natural
gas. Activity and day rates in the Gulf of Mexico were enhanced by strong
natural gas prices, while North Sea utilization held at virtually 100% due to
the scarcity of harsh environment drilling equipment.
During this period, technological advances such as horizontal drilling and
production techniques and 3-D seismic took hold and substantially enhanced the
economics of oil and gas exploration and production. As a result, deep-water
prospects in the Gulf of Mexico became economically viable, budding drilling
markets such as west Africa, southeast Asia and The Netherlands strengthened and
drilling assignments began to lengthen. The tightening of drilling markets
worldwide continued throughout 1997 and the Company's operations, featuring
long-legged jack-ups designed for harsh environments, yielded record results.
In 1998, the dramatic weakening of oil and natural gas prices caused a
substantial decline in offshore drilling, especially in the highly competitive
Gulf of Mexico market. During the second quarter, energy companies began
reducing their drilling expenditures by first allowing options on the primarily
short-term contracts to lapse and eventually canceling planned drilling
projects. Activity was further impaired following announcements of several
energy company mergers due to the uncertainty created within the merging
companies' drilling staffs, plans and budgets. The more exclusive markets like
the North Sea, with premium equipment and generally longer-term contracts, were
more resilient, though by year end, indications of future deterioration, such as
the early cancellation of term contracts, became apparent. As a result, the
Company's Gulf of Mexico fleet suffered a 20% decline to 79% utilization in 1998
while its six North Sea rigs were 90% utilized. The Company's efforts to
maintain Gulf of Mexico day rates provided a nominal increase in average day
rates in 1998 compared to 1997, though average rates still declined by as much
as 50% during 1998, while the North Sea fleet averaged a 44% increase in day
rates between years. The Company expanded its Canadian presence during 1998 with
the relocation of Gorilla II and that market remained relatively strong
throughout the year.
Overall, the Company's worldwide fleet of 21 jack-ups (two of which are
leased) was utilized 85%, 99% and 97% in 1998, 1997 and 1996, respectively,
while the Company's semi-submersible achieved utilization of 62%, 99% and 100%,
respectively. The Company considers only revenue-producing days in computing rig
utilization.
The effects of fluctuations in activity and day rates are shown in the
following analysis of changes in the Company's contract drilling revenues (in
millions):
<TABLE>
<CAPTION>
1997 to 1998 1996 to 1997
----------- ------------
<S> <C> <C>
Utilization $ (54.4) $ 11.7
---------- ----------
Drilling rates 52.1 124.5
---------- ----------
</TABLE>
These fluctuations yielded a $2.3 million or less than 1% decrease in 1998
drilling revenues compared to 1997, which was 37% higher than 1996. Contract
drilling expenses were about 11% higher in 1998 compared to 1997, which was 7%
higher than 1996, primarily as a result of wage increases for operating
personnel and higher rig mobilization costs.
The Company's land drilling operations experienced a 25% decline in activity
in 1998 for the reasons noted previously, though average day rates were
maintained near 1997 levels. Two of the Company's deep-well land rigs were under
contract in Louisiana for most of 1998 and five other rigs worked sporadically
throughout the year in Louisiana and Texas.
During 1998, the Company completed the refurbishment of two additional land
rigs. These two rigs and the Company's five remaining land rigs were idle during
1998. The cost of maintaining the idle rigs is modest and the remaining
investment in such rigs is not significant.
page 13
<PAGE> 4
Perceptible trends existing in the offshore drilling markets in which the
Company operates are shown below:
GULF OF MEXICO - Reduced exploration and development activity in the near term
NORTH SEA - Generally reduced levels of drilling activity for jack-up rigs
EASTERN CANADA - Generally stable demand
The drilling markets in which the Company competes frequently experience
significant fluctuations in 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, trends in finding and extraction costs and,
probably most influential, oil and natural gas prices. The volatile nature of
such factors prevents the Company from being able to accurately predict whether
existing market conditions or the perceptible market trends reflected in the
preceding table will continue beyond the near term. In response to fluctuating
market conditions, the Company can, as it has done in the past, relocate its
drilling rigs from one geographic area to another, but only when such moves are
economically justified.
With historically low oil prices, virtually every energy company
significantly reduced its 1998 drilling program and has since announced further
reductions in its 1999 drilling budget. The Company experienced several
curtailed drilling assignments in 1998 and, as noted below, is currently
litigating a cancelled drilling contract. Currently, only seven of the Company's
14 Gulf of Mexico rigs are working, and at rates well below those averaged
during 1998, and two of the Company's six North Sea rigs are idle. At current
levels, the Company's drilling operations may not be profitable. There can be no
assurance that the Company's operations will not be more adversely affected
should current market conditions persist or that such conditions will not
deteriorate further. The Company is taking advantage of the current lull in
activity by utilizing its drilling personnel to make enhancements to and
carryout necessary maintenance on its idle rigs.
In January 1999, the Company received notification from a customer that its
one-year North Sea drilling contract for Gorilla V was being terminated for an
alleged performance breach relating to certain equipment problems. The Company
believes it did not breach the contract and will vigorously pursue all legal
remedies to enforce its rights under the contract.
Aviation Operations. Although the aviation division's operating results are
still heavily influenced by oil and natural gas exploration and production,
principally in the Gulf of Mexico, and seasonal weather conditions, primarily in
Alaska, the division has continued to diversify its flight services. The Company
offers, among other services, forest fire control, commuter airline services and
flightseeing, and has developed and sold auxiliary fuel tanks for helicopters.
Aviation revenues increased by 9% in 1998 compared to 1997, which was 4%
lower than 1996. Aviation division expenses in 1998 were up by 6% over 1997,
which was 3% higher than 1996. During 1998, the Company enjoyed increased
activity in virtually all markets, including a 149% increase in forest fire
control revenues and a 16% increase in tourism-related revenues. Flying for
energy companies in the Gulf of Mexico improved by about 16% in 1998 as a
late-1997 rate increase and the addition of longer-range aircraft to serve
primarily deep-water customers combined to offset the effects of the generally
deteriorating offshore drilling business.
The number of aircraft operated by the Company at the end of each of the last
three years and the revenue hours for each of those years are reflected in the
following table:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Twin-engine helicopters:
Number 64 63 62
Revenue hours 30,124 32,504 34,848
Single-engine helicopters:
Number 26 31 26
Revenue hours 14,422 14,652 11,466
Fixed-wing aircraft:
Number 21 21 21
Revenue hours 22,465 22,042 20,669
---------- ---------- ----------
</TABLE>
On January 30, 1998, the Company agreed to terminate its ownership in KLM ERA
Helicopters, its Dutch affiliate, in return for cash and equipment approximating
the carrying value of its 49% interest.
page 14
<PAGE> 5
Perceptible trends existing in the principal aviation markets in which the
Company operates are shown below:
ALASKA - Generally stable market conditions
GULF OF MEXICO - Generally stable market conditions
The Company cannot predict whether these market trends will continue. Changes
in energy company exploration and production activities, seasonal weather
patterns and other factors can affect the demand for flight services in the
aviation markets in which the Company competes. The Company can, as it has done
in the past, move aircraft from one market to another, but only when the
likelihood of higher returns makes such action economical. Assuming the
foregoing trends continue, the aviation division should contribute positive
operating results in 1999.
Manufacturing Operations. The Company's manufacturing division generated a 3%
increase in revenues in 1998 compared to 1997, which was 8% higher than 1996,
and a 16% increase in profitability between periods, while devoting substantial
efforts towards the design and construction of the Company's Gorilla V and
Gorilla VI jack-up rigs.
A 62% increase in marine group sales, primarily reflecting delivery of the
bulk of two Super 116-C jack-up rig kits, combined with a 13% increase in steel
sales, on a 10% increase in external shipments, more than offset a 14% decline
in heavy equipment group sales. Weak commodities prices constrained the heavy
equipment group to sales of 30 new cranes, mining loaders, log stackers and
container stackers during 1998, compared to 37 units in 1997, and no real
increase in parts sales over the prior year.
Consolidated manufacturing operations exclude approximately $109 million of
products and services provided to the Company's drilling division in 1998, most
of which was attributable to construction progress on Gorillas V and VI,
compared to $83 million in 1997. The marine group completed and delivered
Gorilla V during the fourth quarter.
External manufacturing backlog at December 31, 1998 was approximately $8
million, or $50 million less than a year ago, with the decline most prominent in
the marine group following completion of the two rig kits. Though considerably
less volatile than its drilling and aviation operations, the Company's
manufacturing operations are being adversely impacted by depressed world
commodities prices to such an extent that the Company believes that if such
prices do not improve, its manufacturing operations may not be profitable in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Key balance sheet amounts and ratios for 1998 and 1997 were as follows
(dollars in millions):
<TABLE>
<CAPTION>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 148.8 $ 108.3
Current assets $ 365.7 $ 412.4
Current liabilities $ 79.6 $ 81.5
Current ratio 4.59 5.06
Current maturities of long-term debt $ 12.8
Long-term debt $ 310.3 $ 256.2
Stockholders' equity $ 730.0 $ 653.1
Long-term debt/total capitalization .30 .28
---------- ----------
</TABLE>
Reflected in the comparisons above are the effects of the following: net cash
provided by operations of $247.7 million; capital expenditures of $247.7
million; proceeds from borrowings of $103.0 million; debt repayments of $36.2
million; repurchases of stock totaling $55.6 million and cash proceeds from the
disposition of the Company's investment in KLM ERA Helicopters of $19.6 million.
Capital expenditures for 1998 included $84.0 million for the completion of
Rowan Gorilla V, an enhanced version of the Company's Gorilla Class jack-ups
featuring a combination drilling and production capability for harsh
environments like the North Sea in water depths of up to 400 feet. The Company
financed $153.1 million of the cost of Gorilla V through two fixed-rate bank
notes guaranteed by the U.S. Department of Transportation's Maritime
Administration under its Title XI Program. The Company made the first of 24
semi-annual repayments in January 1999 and the outstanding notes, which are
secured by Gorilla V and a Company guarantee, bear interest through July 2010 as
follows: $64.2 million at 6.94% and $82.5 million at 6.15%.
Capital expenditures during 1998 also included $67.3 million towards
construction of Rowan Gorilla VI and $20.7 million for Rowan Gorilla VII, each
rig to be a harsh environment drilling and production unit like Gorilla V.
Construction of Gorilla VI is proceeding at the Company's Vicksburg, Mississippi
facility and should be completed by mid-2000. The Company has secured Title XI
page 15
<PAGE> 6
bank financing for up to 87.5% of the cost of Gorilla VI on terms and conditions
similar to those obtained for Gorilla V.
Under the Title XI Program, the Company obtains funding for Gorilla VI as
construction progress is achieved and outstanding borrowings initially bear
interest at .30% above a short-term LIBOR rate. The Company may fix the interest
rate at any time and must fix the rate on all outstanding principal amounts on
the earlier of September 15, 2002 or two years following completion of
construction. Interest is payable semi-annually beginning March 15, 1999 and the
principal will be repaid in semi-annual installments commencing September 15,
2000. Gorilla VI and a Company guarantee are pledged as security for the
government guarantee. At December 31, 1998, the Company had drawn down about $60
million of the $171 million total credit facility, with interest rates averaging
5.4% at year end.
The Company has ordered the majority of long lead-time items for Gorilla VII
and expects construction to be completed about one year following delivery of
Gorilla VI. The Company intends to pursue outside financing for Gorilla VII if
necessary, but believes internally generated working capital may continue to be
sufficient to fund its construction. However, given current and anticipated
near-term operating conditions, there can be no assurance that working capital
will be adequate throughout the period required to complete construction or that
outside financing will be available. The Company expects the combined
construction cost of Gorillas V, VI and VII to be around $600 million.
Capital expenditures encompass new assets or enhancements to existing assets
as expenditures for routine maintenance and major repairs are charged to
operations as incurred. The remainder of 1998 capital expenditures was primarily
for major enhancements to existing rigs and manufacturing facilities and
purchases of aircraft and components. The Company estimates 1999 capital
expenditures will be between $150 and $175 million, including $100-125 million
for Gorillas VI and VII. The Company may also spend amounts to acquire
additional aircraft as market conditions justify or to upgrade existing offshore
rigs.
At December 31, 1998, the Company had available $45 million under a $155
million bank revolving credit facility maturing in October 2000. The $110
million outstanding under the credit line bore interest at rates averaging about
6% during 1998, including 5.78% at December 31, 1998. The Company currently has
no other available credit facilities.
Despite current weak operating levels and the previously discussed market
trends, management believes that 1999 operations, together with existing working
capital and available financial resources, will generate sufficient cash flow to
sustain planned capital expenditures and debt service requirements at least
through the remainder of 1999.
In March 1998, the Company repaid the balance of $36.2 million of promissory
notes originally issued in February 1994 in connection with the acquisition of
its manufacturing operations. One of the five-year notes had been reduced by
$5.5 million in 1996 when the Company assumed, from the previous owners, certain
environmental remediation obligations related to its manufacturing facilities.
The Company also received $4 million in cash in the exchange. The Company
believes it has adequately accrued for environmental liabilities. See Notes 1
and 9 of the Notes to Consolidated Financial Statements.
On April 1, 1997, the Company redeemed $50 million of its 11 7/8% Senior
Notes due 2001 and paid a 6% prepayment premium from existing funds. On December
3, 1997, using proceeds from a newly established revolving credit facility and
existing funds, the Company redeemed the remaining $150 million of Senior Notes
and paid a 4% prepayment premium. As a result of such transactions, the Company
recorded extraordinary charges totaling $9.8 million, net of income taxes, in
1997.
The Company believes that its exposure to risk of earnings loss due to
changes in market interest rates is not significant.
The Company did not pay any dividends on its common stock during the
1996-1998 period. At December 31, 1998, approximately $156 million of the
Company's retained earnings was available for distribution under the most
restrictive provisions of the Company's debt agreements. See Note 5 of the Notes
to Consolidated Financial Statements.
During 1998, the Company repurchased in the open market 4,051,400 shares or
almost 5% of its outstanding common stock. The Company may purchase up to eight
million shares under its Share Repurchase Program begun in June 1998 and
expanded in October. In the first two months of 1999, the Company has
repurchased another 250,000 shares of its outstanding common stock.
The Company follows the provisions of Accounting Principles Board Opinion No.
25 for measurement
page 16
<PAGE> 7
and recognition of employee stock-based compensation. The Company estimates that
the alternative accounting provisions of Statement of Financial Accounting
Standards No. 123, if adopted, would not have materially affected reported
amounts of net income and earnings per share in 1998, 1997 and 1996. See Note 3
of the Notes to Consolidated Financial Statements.
Effective December 15, 1997, the Company adopted Statements of Financial
Accounting Standards No. 128, "Earnings per Share", No. 129, "Disclosure of
Information about Capital Structure" and No. 131, "Disclosures about Segments of
an Enterprise and Related Information". In accordance with the provisions of
Statements 128 and 131, the Company restated its earnings per share and segment
information for all prior periods presented. See Notes 1 and 10 of the Notes to
Consolidated Financial Statements. The provisions of Statement 129 did not
materially affect the form or content of the Company's financial statements.
The Company's adoption, effective January 1, 1998, of Statements of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", and No. 132,
"Employers' Disclosures about Pension and Other Postretirement Benefits", did
not materially affect its financial statement disclosure. See Notes 1 and 6 of
the Notes to Consolidated Financial Statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 generally requires recognition of
derivative financial instruments as assets or liabilities, measured at fair
value. The Company held no derivatives in 1998, 1997 or 1996 and believes
Statement 133, when adopted effective January 1, 2000, will not materially
impact its financial position or result of operations.
The Company believes that its exposure to potential year 2000 ("Y2K")
computer-related problems is limited and the costs associated with readying its
information systems and computer-controlled equipment will not materially impact
its financial position or results of operations.
Over the past several years, the Company has devoted substantial efforts
towards upgrading and enhancing its drilling and aviation information systems as
a matter of course. Such modifications necessarily contemplated Y2K compliance,
the cost of which has been expensed as incurred, but is not separately
identifiable. These upgrades and enhancements are substantially complete and the
Company believes its drilling and aviation information systems will be fully Y2K
compliant by March 31, 1999.
Modifications to the Company's manufacturing information systems have been
undertaken only during the past two to three years. The Company estimates the
cost of Y2K compliance for its manufacturing systems will be approximately $2.5
million, $1.4 million of which has been expensed to date. The Company believes
that all necessary modifications will be completed by mid-1999, though some
third party software installation may slip into the third quarter.
The Company will continue to assess and test its computer-controlled
equipment for Y2K compatibility, but has heretofore discovered no significant
deficiencies. The Company generally maintains materials and supplies which may
be needed in the near term and its operations are not highly dependent upon any
single customer or vendor. As a result, the Company believes that the risk of a
material interruption in its business as a result of Y2K software problems
associated with a single customer or vendor is remote.
Although the Company expects to be Y2K compliant by mid-1999, in a
"most-reasonably-likely-worst-case-scenario", failure by the Company or by
third parties to fully implement appropriate Y2K plans could adversely affect
the Company's operations.
The Company has not yet deemed necessary any Y2K contingency plans, but will
continue to monitor its own Y2K status as well as that of its customers and
vendors and, if warranted, develop any necessary contingency plans.
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 the Company 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 the Company. Among the
factors that could cause actual results to differ materially are the following:
o oil and natural gas prices
o the level of offshore expenditures by energy companies
o the general economy, including inflation
o weather conditions in the Company's principal operating areas
o environmental and other laws and regulations
Other relevant factors have been disclosed in the Company's filings with the
U.S. Securities and Exchange Commission.
page 17
<PAGE> 8
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands except share amounts)
December 31, 1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 148,834 $ 108,332
Receivables - trade and other 81,097 133,627
Inventories:
Raw materials and supplies 84,797 69,621
Work-in-progress 26,494 25,974
Finished goods 2,625 6,321
Prepaid expenses 10,478 7,694
Deferred tax assets - net (Note 7) 11,327 60,809
------------ ------------
Total current assets 365,652 412,378
------------ ------------
Investment in and advances to 49% owned company 25,737
------------ ------------
Property, plant and equipment - at cost:
Drilling equipment 1,238,361 965,292
Aircraft and related equipment 211,313 202,044
Manufacturing plant and equipment 75,949 60,902
Construction in progress 127,075 195,996
Other property and equipment 108,353 94,476
------------ ------------
Total 1,761,051 1,518,710
Less accumulated depreciation and amortization 883,854 841,550
------------ ------------
Property, plant and equipment - net 877,197 677,160
------------ ------------
Other assets and deferred charges 6,259 6,860
------------ ------------
Total $ 1,249,108 $ 1,122,135
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 2) $ 12,756
Accounts payable - trade 17,744 $ 22,839
Other current liabilities (Note 4) 49,093 58,687
------------ ------------
Total current liabilities 79,593 81,526
------------ ------------
Long-term debt - less current maturities (Note 2) 310,250 256,150
------------ ------------
Other liabilities (Notes 6 and 9) 51,264 50,457
------------ ------------
Deferred credits:
Income taxes - net (Note 7) 75,255 74,956
Gain on sale/leaseback transactions (Note 9) 2,750 5,948
------------ ------------
Total deferred credits 78,005 80,904
------------ ------------
Commitments and contingent liabilities (Note 9)
------------ ------------
Stockholders' equity (Notes 3 and 5):
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 A Junior Preferred Stock, authorized 1,500,000 shares, none issued
Common stock, $.125 par value; authorized 150,000,000 shares; issued
88,752,976 shares at December 31, 1998
and 88,162,101 shares at December 31, 1997 11,094 11,020
Additional paid-in capital 420,767 411,812
Retained earnings 357,211 232,751
Less cost of 5,509,319 and 1,457,919 treasury shares, respectively 59,076 2,485
------------ ------------
Total stockholders' equity 729,996 653,098
------------ ------------
Total $ 1,249,108 $ 1,122,135
------------ ------------
</TABLE>
See notes to consolidated financial statements.
page 18
<PAGE> 9
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In thousands except per share amounts)
For the years ended December 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Drilling services $ 431,664 $ 434,004 $ 316,123
Manufacturing sales and services 158,913 154,852 143,768
Aviation services 115,773 106,396 111,269
----------- ----------- -----------
Total 706,350 695,252 571,160
----------- ----------- -----------
Costs and expenses:
Drilling services 219,628 217,935 202,878
Manufacturing sales and services 134,542 134,422 131,665
Aviation services 101,899 96,390 93,473
Depreciation and amortization 49,703 47,078 47,882
General and administrative 18,366 16,971 16,591
----------- ----------- -----------
Total 524,138 512,796 492,489
----------- ----------- -----------
Income from operations 182,212 182,456 78,671
----------- ----------- -----------
Other income (expense):
Interest expense (17,500) (26,208) (27,547)
Less interest capitalized 16,264 9,966 2,516
Gain on disposals of property, plant and equipment 5,125 1,541 2,359
Interest income 7,205 5,190 4,157
Other - net 395 343 374
----------- ----------- -----------
Other income (expense) - net 11,489 (9,168) (18,141)
----------- ----------- -----------
Income before income taxes 193,701 173,288 60,530
Provision (credit) for income taxes (Note 7) 69,241 16,863 (808)
----------- ----------- -----------
Income before extraordinary charges 124,460 156,425 61,338
Extraordinary charges from early redemption of debt
(net of income taxes of $1,207) (Note 2) 9,766
----------- ----------- -----------
Net income $ 124,460 $ 146,659 $ 61,338
----------- ----------- -----------
Per share of common stock (Note 1):
Basic:
Income before extraordinary charges $ 1.45 $ 1.82 $ .72
Extraordinary charges from early redemption of debt .12
----------- ----------- -----------
Net income $ 1.45 $ 1.70 $ .72
----------- ----------- -----------
Diluted:
Income before extraordinary charges $ 1.43 $ 1.76 $ .70
Extraordinary charges from early redemption of debt .11
----------- ----------- -----------
Net income $ 1.43 $ 1.65 $ .70
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
page 19
<PAGE> 10
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
(In thousands) ---------------------------------------------------
Issued In Treasury Additional
For the years ended ------------------------ ----------------------- Paid-in Retained
December 31, 1998, 1997 and 1996 Shares Amount Shares Amount Capital Earnings
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 86,354 $ 10,794 1,458 $ 2,485 $ 396,092 $ 24,754
Exercise of stock options 626 78 548
Value of services rendered
by participants in the Nonqualified
Stock Option Plans (Note 3) 4,600
Conversion of subordinated debentures 74 10 490
Net income 61,338
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 87,054 10,882 1,458 2,485 401,730 86,092
Exercise of stock options 623 78 1,247
Value of services rendered
by participants in the Nonqualified
Stock Option Plans (Note 3) 4,720
Conversion of subordinated debentures 485 60 4,115
Net income 146,659
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 88,162 11,020 1,458 2,485 411,812 232,751
Exercise of stock options 591 74 1,624
Value of services rendered
by participants in the Nonqualified
Stock Option Plans (Note 3) 7,331
Treasury stock purchases 4,051 56,591
Net income 124,460
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 88,753 $ 11,094 5,509 $ 59,076 $ 420,767 $ 357,211
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
page 20
<PAGE> 11
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
For the years ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Net income $ 124,460 $ 146,659 $ 61,338
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 49,703 47,078 47,882
Gain on disposals of property, plant and equipment (5,125) (1,541) (2,359)
Compensation expense 5,028 4,720 4,600
Change in sale/leaseback payable (1,131) (4,796) (1,232)
Amortization of sale/leaseback gain (3,198) (3,198) (3,198)
Provision for pension and postretirement benefits 4,517 5,922 1,217
Deferred income taxes 49,781 12,373 (2,372)
Extraordinary charges from early redemption of debt 10,973
Other - net 144 2,370 2,162
Changes in current assets and liabilities:
Receivables - trade and other 52,530 (20,791) (28,658)
Inventories (10,541) (13,243) (13,052)
Other current assets (2,784) 10,891 2,713
Current liabilities (15,953) 10,165 11,033
Net changes in other noncurrent assets and liabilities 262 (1,881) 3,673
---------- ---------- ----------
Net cash provided by operations 247,693 205,701 83,747
---------- ---------- ----------
Investing activities:
Property, plant and equipment additions (247,747) (180,066) (117,947)
Proceeds from disposals of property, plant and equipment 8,090 3,846 6,829
Proceeds from disposition of investment in 49% owned company 19,550
Repayments from affiliates 229 32
Proceeds from sale of a subsidiary 6,946
---------- ---------- ----------
Net cash used in investing activities (220,107) (175,991) (104,140)
---------- ---------- ----------
Financing activities:
Proceeds from borrowings 103,012 190,985 29,009
Repayments of borrowings (36,156) (202,488) (2,355)
Payments to acquire treasury stock (55,638)
Premiums on redemption of debt (9,000)
Other - net 1,698 1,900 626
---------- ---------- ----------
Net cash provided by (used in) financing activities 12,916 (18,603) 27,280
---------- ---------- ----------
Increase in cash and cash equivalents 40,502 11,107 6,887
Cash and cash equivalents, beginning of year 108,332 97,225 90,338
---------- ---------- ----------
Cash and cash equivalents, end of year $ 148,834 $ 108,332 $ 97,225
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
page 21
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of Rowan Companies, Inc. and all of its wholly and majority owned
subsidiaries, hereinafter referred to as "the Company".
The Company accounts for its investment in 49% owned companies using the
equity method. The excess of cost over the net assets of subsidiaries at dates
of acquisitions ($8,452,000) is being amortized over a 30-year period. At
December 31, 1998, the unamortized excess cost was $2,183,000.
Intercompany balances and transactions are eliminated in consolidation.
On January 30, 1998, the Company agreed to terminate its North Sea helicopter
joint venture, KLM ERA Helicopters. The Company received a distribution of KLM
ERA's assets approximating the carrying value of its 49% interest, including
$19.6 million in cash, two Sikorsky S-61N helicopters valued at $4.7 million and
spare engines and parts valued at $1.4 million.
Revenue Recognition. Most drilling contracts provide for payment on a day rate
basis, and revenues and expenses are recognized as the work progresses. The
Company has also operated under turnkey drilling contracts where revenues and
expenses are recognized on a completed contract basis.
The Company's aviation services generally are provided under master service
agreements calling for incremental payments based on usage, term contracts, or
day-to-day charter arrangements. Aviation revenues and expenses are recognized
as services are rendered.
Manufacturing sales and related costs are generally recognized as products
are shipped. Revenues and costs and expenses included sales and costs of sales
of $152,992,000 and $110,550,000, $148,348,000 and $110,476,000, and
$134,929,000 and $111,973,000 in 1998, 1997 and 1996, respectively. Revenues
from longer-term manufacturing projects such as rig kits are recognized on a
percentage-of-completion basis using costs incurred relative to total estimated
costs.
Full provision is made for any anticipated losses on turnkey drilling or
manufacturing projects.
Earnings Per Common Share. "Basic" earnings per share is determined as income
available to common stockholders divided by the weighted-average number of
common shares outstanding during the period. "Diluted" earnings per share
reflects the issuance of additional shares in connection with the assumed
conversion of stock options and other convertible securities, and corresponding
adjustments to income for any charges related to such securities.
The computation of basic and diluted earnings per share for each of the past
three years is as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Income Before
Extraordinary Per Share
Year ended December 31, Charges Shares Amount
---------- ---------- ----------
<S> <C> <C> <C>
1998:
Basic income per share $ 124,460 85,641 $ 1.45
Effect of dilutive securities:
Convertible debentures 844
Stock options 804
---------- ----------
Diluted income per share $ 124,460 87,289 $ 1.43
---------- ---------- ----------
1997:
Basic income per share $ 156,425 86,184 $ 1.82
Effect of dilutive securities:
Convertible debentures 172 1,236
Stock options 1,803
---------- ----------
Diluted income per share $ 156,597 89,223 $ 1.76
---------- ---------- ----------
1996:
Basic income per share $ 61,338 85,335 $ .72
Effect of dilutive securities:
Convertible debentures 323 1,186
Stock options 1,580
---------- ----------
Diluted income per share $ 61,661 88,101 $ .70
---------- ---------- ----------
</TABLE>
Statement of Cash Flows. The Company generally considers all highly liquid
instruments with a maturity of three months or less when purchased to be cash
equivalents.
Noncash financing activities excluded from the Company's Consolidated
Statement of Cash Flows were as follows: the reduction in 1998 of $2,303,000 of
tax benefits related to employee stock options; the purchase in 1998 of $953,000
of treasury stock which was unsettled at year end; the conversion in 1997 of the
remaining $3,600,000 of the Series II Floating Rate Convertible Subordinated
Debenture into 400,000 shares of common stock; the retirement in 1996 of
$4,684,000 of debt through the disposition of aviation equipment; and a
$5,500,000 reduction in debt in 1996 in exchange for the assumption of certain
environmental obligations. See Notes 2, 3 and 9 for further information.
page 22
<PAGE> 13
Inventories. Manufacturing inventories are stated principally at the lower of
average cost or market. Drilling and aviation materials and supplies are
carried at average cost.
Property and Depreciation. The Company 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 on the following estimated lives and
salvage values:
<TABLE>
<CAPTION>
Salvage
Years Value
---------- ----------
<S> <C> <C>
Offshore drilling equipment:
Super Gorillas 25 20%
Semi-submersible 15 20%
Gorilla and other cantilever jack-ups 15 20%
Conventional jack-ups 12 20%
Land drilling equipment 12 20%
Drill pipe and tubular equipment 4 10%
Aviation equipment:
Aircraft 7 to 10 15 to 25%
Other 2 to 10 various
Manufacturing plant and equipment:
Buildings and improvements 10 to 25 10 to 20%
Other 2 to 12 various
Other property and equipment 3 to 40 various
---------- ----------
</TABLE>
Expenditures for new property or enhancements to existing property are
capitalized. Expenditures for routine maintenance and major repairs are charged
to operations as incurred. See Note 10 for further information. The Company
capitalizes, during the construction period, interest cost incurred during the
period required to complete the asset. The Company's long-lived assets are
reviewed for impairment whenever circumstances indicate their carrying amounts
may not be recoverable.
Environmental Matters. Environmental remediation costs are accrued based on
estimates of known remediation requirements even if uncertainties about the
ultimate cost of the remediation exist. Ongoing environmental compliance costs
are expensed as incurred and expenditures to mitigate or prevent future
environmental contamination are capitalized. The Company's estimated liability
is not discounted. See Note 9 for further information.
Income Taxes. The Company accounts for income taxes under an asset and liability
approach that recognizes deferred income tax assets and liabilities for the
estimated future tax consequences of differences between the financial statement
and tax bases of assets and liabilities. Valuation allowances are provided
against deferred tax assets which are not likely to be realized. See Note 7 for
further information.
Comprehensive Income. The Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January 1, 1998.
Statement 130 essentially requires prominent disclosure of all non-shareholder
changes in equity during a period. The Company had no items of "other
comprehensive income", as defined in Statement 130, during 1998, 1997 or 1996.
Derivatives. Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities", issued in June 1998,
requires recognition of derivative financial instruments as assets or
liabilities, measured at fair value. The Company held no derivatives in 1998,
1997 or 1996 and believes Statement 133, when adopted effective January 1, 2000,
will not materially impact its financial position or results of operations.
Management Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications. Certain reclassifications have been made in the 1997 and 1996
amounts to conform with the 1998 presentations.
page 23
<PAGE> 14
NOTE 2 LONG-TERM DEBT
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
$155 million bank revolving credit
facility maturing in 2000 $ 110,000 $ 110,000
6.94% Title XI note payable due
2010; secured by Gorilla V 67,000 67,000
6.15% Title XI note payable due
2010; secured by Gorilla V 86,091
Floating-rate Title XI note payable;
secured by Gorilla V 42,994
Floating-rate Title XI note payable;
secured by Gorilla VI 59,915
7% notes payable due 1999 36,156
---------- ----------
Total 323,006 256,150
Less current maturities 12,756
---------- ----------
Remainder $ 310,250 $ 256,150
---------- ----------
</TABLE>
Maturities of long-term debt for the five years ending December 31, 2003 are
as follows: 1999-$12,756,000, 2000-$125,252,000, 2001-$17,749,000,
2002-$17,749,000 and 2003-$17,749,000.
At December 31, 1998, the Company had available $45,000,000 under a
$155,000,000 unsecured bank revolving credit facility maturing in October 2000.
Advances under the facility currently bear interest at either .40% above a
short-term LIBOR rate or the higher of a prime commercial lending rate or .50%
above a 3-month certificate of deposit rate, depending upon the Company's
election. The facility currently requires a commitment fee of .325% on the
average daily amount of the commitment. Interest and the commitment fee are
generally payable quarterly. Outstanding advances at December 31, 1998 totaled
$110,000,000 and bore interest at 5.78%. See Note 5 for further information.
The Company has financed $153,091,000 of the cost of Rowan Gorilla V through
two fixed-rate bank notes guaranteed by the U.S. Department of Transportation's
Maritime Administration ("MARAD") under its Title XI Program. On July 1, 1997,
the Company fixed $67,000,000 of outstanding borrowings at 6.94% until July
2010. On July 1, 1998, the Company fixed the remaining $86,091,000 principal
amount at 6.15% until July 2010. Interest is payable semi-annually and the
principal will be repaid in 24 semi-annual installments commencing January 1,
1999. Rowan Gorilla V and a Company guarantee are pledged as security for the
government guarantee.
In September 1998, the Company obtained financing for up to $171,007,000 of
the cost of designing and constructing Rowan Gorilla VI through a 12-year bank
loan guaranteed by MARAD under its Title XI Program. The Company obtains funding
as construction progress is achieved and outstanding borrowings initially bear
interest at .30% above a short-term LIBOR rate. The Company may fix the interest
rate at any time and must fix the rate on all outstanding principal by the
earlier of September 15, 2002 or two years following completion of construction.
Interest is payable semi-annually beginning March 15, 1999 and the principal
will be repaid in semi-annual installments commencing September 15, 2000. Rowan
Gorilla VI and a Company guarantee are pledged as security for the government
guarantee. At December 31, 1998, the Company had borrowed about $59,915,000,
which bore interest at floating rates ranging from 5.36% to 5.55%.
In April 1998, the Company issued $4,800,000 of Series A Floating Rate
Subordinated Convertible Debentures. The debentures are ultimately convertible
into common stock at the rate of $29.75 per share for each $1,000 principal
amount of debenture through April 24, 2008 as follows, unless earlier redeemed
or the conversion privilege is terminated: $1,200,000 on or after April 24,
1999, $2,400,000 on or after April 24, 2000, $3,600,000 on or after April 24,
2001 and $4,800,000 on or after April 24, 2002. At December 31, 1998, the
Company also had $8,625,000 principal amount of Series III Floating Rate
Convertible Subordinated Debentures outstanding which are ultimately convertible
into common stock at the rate of $6.75 per share for each $1,000 principal
amount of debenture through November 30, 2004. The Series A and Series III
debentures were originally issued in exchange for promissory notes containing
provisions for setoff. Accordingly, the debentures and notes, and the related
interest amounts, have been offset in the consolidated financial statements. See
Note 3 for further information.
In March 1998, the Company repaid the balance of $36,156,000 of 7% promissory
notes originally issued in February 1994 in connection with the acquisition of
its manufacturing operations.
During April and December 1997, the Company redeemed $50,000,000 and
$150,000,000, respectively, of its 11 7/8% Senior Notes due 2001. These
transactions resulted in extraordinary charges of $9,766,000, or $.11 per
diluted share, comprised of
page 24
<PAGE> 15
$9,000,000 of prepayment premiums and $1,973,000 of unamortized issue costs, net
of $1,207,000 of income tax benefits.
Interest payments in 1998 were less than interest capitalized by $1,088,000
and exceeded interest capitalized by $14,222,000 and $24,557,000 in 1997 and
1996, respectively.
The Company's debt agreements contain provisions that require an excess of
current assets over current liabilities, an excess of stockholders' equity over
consolidated debt and minimum levels of stockholders' equity and cash flow, and
restrict investments, sale/leaseback transactions, mergers, consolidations,
sales of assets, borrowings, creation of liens, purchases of the Company's
capital stock and common stock dividend payments. The Company believes it was in
compliance with each of its debt covenants at December 31, 1998. See Note 5 for
further information.
NOTE 3 STOCKHOLDERS' EQUITY
The Company has two nonqualified stock option plans through which options
have been granted to certain key employees.
The Company's 1980 Nonqualified Stock Option Plan authorized the Board of
Directors to grant, through January 25, 1990, options to purchase a total of
1,000,000 shares of the Company's common stock. Under the terms of the 1988
Nonqualified Stock Option Plan, as amended, the Board of Directors may grant,
before January 21, 2008, options to purchase a total of 10,000,000 shares of the
Company's common stock.
At December 31, 1998, options for 8,004,704 shares had been granted at
exercise prices ranging from $1.00 to $19.75 per share, or a weighted average of
$4.63 per share, and 366 active, key employees had been granted options. Options
become exercisable over a four-year service period to the extent of 25% per
year, and all options not exercised expire ten years after the date of grant.
In April 1998, following stockholder approval, the Company implemented the
1998 Nonemployee Directors Stock Option Plan, which provides for the issuance to
nonemployee Directors of the Company of nonqualified options to purchase up to
200,000 shares of the Company's common stock. At December 31, 1998, 40,000
shares had been granted under the plan at exercise prices ranging from
$17.47-$29.75. Options are 100% exercisable after one year and all options not
exercised expire five years after the date of grant.
Stock option activity for the last three years was as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Options outstanding,
January 1 2,568,025 2,498,288 2,499,700
Changes during the year:
Granted:
at $7.63-$9.81
per share 621,000 550,000
at $15.25-$19.75
per share 739,200 196,000 177,000
at $29.75 per share 35,000
Exercised:
at $1.00 per share (456,250) (522,013) (626,162)
at $7.63-$9.81
per share (128,375) (95,500)
at $15.25-$19.63
per share (6,250) (5,375)
Forfeited (79,525) (124,375) (102,250)
------------ ------------ ------------
Options outstanding,
December 31 2,671,825 2,568,025 2,498,288
------------ ------------ ------------
Options exercisable,
December 31 847,525 690,400 564,476
------------ ------------ ------------
Options available
for grant, December 31 3,796,021 1,291,446 1,984,071
------------ ------------ ------------
</TABLE>
The Company determines compensation expense for each option pursuant to
Accounting Principles Board Opinion No. 25 as the difference between the market
price per share and the option price per share on the date of grant. The
compensation is recognized as expense and additional paid-in capital over the
period in which the employee performs services to earn the right to exercise the
option. The Company estimates that the accounting provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which provides an alternative method for measuring compensation
cost, would have reduced reported amounts of net income by approximately
$1,152,000 in 1998, $627,000 in 1997 and $341,000 in 1996, or $.01 per share in
1998 and less than $.01 per share in each of 1997 and 1996.
The Rowan Companies, Inc. 1986 Convertible Debenture Incentive Plan provided
for the issuance to key employees of up to $20,000,000 in aggregate principal
amount of the Company's floating rate subordinated convertible debentures. The
debentures are initially convertible into preferred stock which has no voting
rights (except as required by law or the Company's charter), no dividend and a
page 25
<PAGE> 16
nominal liquidation preference. The preferred stock is immediately convertible
into common stock.
Under the plan, debentures in the aggregate principal amount of $19,925,000
were issued by the Company. At December 31, 1998, all $5,125,000 of Series I
debentures issued in 1986 and the $4,500,000 Series II debenture issued in 1987
had been converted into an aggregate 1,391,304 shares of the Company's common
stock at $5.75 per share and $9.00 per share, respectively. Of the $10,300,000
principal amount of Series III debentures issued in 1994, $8,625,000 were
outstanding at December 31, 1998 and are ultimately convertible into 1,277,778
shares of the Company's common stock.
The Rowan Companies, Inc. 1998 Convertible Debenture Incentive Plan, approved
at the Company's 1998 annual meeting of stockholders, provides for the issuance
to key employees of up to $30,000,000 in floating rate subordinated convertible
debentures. The debentures are initially convertible into preferred stock which
has no voting rights (except as required by law or the Company's charter), no
dividend and a nominal liquidation preference. The preferred stock is
immediately convertible into common stock. The initial issuance under the plan
of $4,800,000 principal amount of debentures was outstanding at December 31,
1998. This amount is ultimately convertible into 161,345 shares of the Company's
common stock.
On February 25, 1992, the Company adopted a Stockholder Rights Agreement to
protect against coercive takeover tactics. The agreement, as amended, provides
for the distribution to the Company's stockholders of one Right for each
outstanding share of common stock. Each Right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Junior Preferred Stock
of the Company at an exercise price of $75. In addition, under certain
circumstances, each Right will entitle the holder to purchase securities of the
Company or an acquiring entity at 1/2 market value. The Rights are exercisable
only if a person or group acquires 15% or more of the Company's outstanding
common stock or makes a tender offer for 30% or more of the Company's
outstanding common stock. The Rights will expire on February 25, 2002. The
Company may generally redeem the Rights at a price of $.01 per Right at any time
until the 10th business day following public announcement that a 15% position
has been acquired.
NOTE 4 OTHER CURRENT LIABILITIES
Other current liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997
---------- ----------
<S> <C> <C>
Gain on sale/leaseback transactions $ 3,198 $ 3,198
Customer deposits 2,784 14,927
Accrued liabilities:
Income taxes 839 425
Compensation and related
employee costs 21,106 22,027
Interest 5,944 3,765
Taxes and other 15,222 14,345
---------- ----------
Total $ 49,093 $ 58,687
---------- ----------
</TABLE>
NOTE 5 RESTRICTIONS ON RETAINED EARNINGS
Under the terms of its three-year revolving credit facility maturing in
October 2000, the Company's ability to declare dividends or make any
distribution on its common stock in any quarter is limited to the sum of a)
$20,000,000, plus b) 50% of cumulative consolidated net income, if positive,
subsequent to December 31, 1996, plus c) the net proceeds from the sale of any
class of capital stock after December 31, 1996, less d) 100% of cumulative
consolidated net income, if negative, subsequent to December 31, 1996. Under
this restriction, approximately $155,560,000 of the Company's retained earnings
was available for distribution at December 31, 1998. Subject to this and other
restrictions, the Board of Directors will determine payment, if any, of future
dividends or distributions in light of conditions then existing, including the
Company's earnings, financial condition and requirements, opportunities for
reinvesting earnings, business conditions and other factors.
NOTE 6 BENEFIT PLANS
Since 1952, the Company has sponsored defined benefit pension plans covering
substantially all of its employees. In addition, the Company provides certain
health care and life insurance benefits for retired drilling and aviation
employees.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", which essentially standardizes and simplifies disclosures required
about pension and other postretirement benefit plans. Changes in
page 26
<PAGE> 17
plan assets and obligations during 1998 and 1997 and the funded status of the
plans at December 31, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BENEFIT OBLIGATIONS
Balance, January 1 $ 155,935 $ 136,721 $ 36,075 $ 33,512
Service cost 6,423 5,471 1,542 1,666
Interest cost 11,599 10,340 2,416 2,528
Plan changes (5,067) (324)
Actuarial loss 19,523 9,490 4,750
Benefits paid (6,527) (6,087) (941) (1,307)
---------- ---------- ---------- ----------
Balance, December 31 186,953 155,935 38,775 36,075
---------- ---------- ---------- ----------
PLAN ASSETS
Fair value, January 1 168,699 142,017
Actual return (14,232) 32,769
Employer
contributions 624
Benefits paid (6,527) (6,087)
---------- ---------- ---------- ----------
Fair value,
December 31 148,564 168,699
---------- ---------- ---------- ----------
Funded status (38,389) 12,764 (38,775) (36,075)
Unrecognized amounts:
Actuarial (gain) loss 23,748 (26,087) 11,711 7,182
Transition (asset)
obligation (1,211) (2,422) 10,590 11,347
Prior service cost 209 324 (4,755)
---------- ---------- ---------- ----------
Accrued benefit cost $ (15,643) $ (15,421) $ (21,229) $ (17,546)
---------- ---------- ---------- ----------
</TABLE>
The plans' assets consist primarily of equity securities and U.S. Treasury
bonds and notes and, at December 31, 1998, included 1,500,000 shares of the
Company's common stock at an average cost of $4.81 per share. At December 31,
1998, $11,462,000 of the plans' assets were invested in a dedicated bond fund.
The plans had a basis in these assets of $7,633,000 yielding approximately 4.5%
to maturity.
Net periodic pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 6,423 $ 5,471 $ 5,757
Interest cost 11,599 10,340 9,477
Expected return on
plan assets (15,734) (13,225) (9,819)
Recognized actuarial gain (347)
Amortization:
Prior service cost 115 115 115
Transition asset (1,211) (1,211) (1,211)
---------- ---------- ----------
Total $ 845 $ 1,490 $ 4,319
---------- ---------- ----------
</TABLE>
Other benefits cost included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 1,542 $ 1,666 $ 1,686
Interest cost 2,416 2,528 2,269
Amortization of transi-
tion obligation 664 1,053 1,129
---------- ---------- ----------
Total $ 4,622 $ 5,247 $ 5,084
---------- ---------- ----------
</TABLE>
Assumptions used in actuarial calculations were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate 6.75% 7.25% 7.50%
Expected return on plan assets 9.5% 9.5% 9.0%
Rate of compensation increase 4.0% 4.0% 4.0%
---------- ---------- ----------
</TABLE>
The assumed increase in per capita health care costs ranged from 8.25% in
1998 to 5% in 2003 and thereafter. To demonstrate the significance of this
assumption, a one-percentage-point change in assumed health care cost trend
rates would change reported amounts as follows:
<TABLE>
<CAPTION>
1-Percentage-point Change
------------------------
Increase Decrease
---------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN:
Service and interest cost $ 592 $ (486)
Postretirement benefit obligation 5,119 (4,273)
---------- ----------
</TABLE>
The Company also sponsors pension restoration plans to supplement the
benefits for certain key executives that would otherwise be limited by section
415 of the Internal Revenue Code. The plans are unfunded and had projected
benefit obligations at December 31, 1998 and 1997 of $4,278,000 and $3,791,000,
respectively. The net pension liabilities included in the Company's consolidated
balance sheet were $3,462,000 and $2,846,000 at December 31, 1998 and 1997,
respectively. Net pension cost was $652,000 in 1998, $530,000 in 1997 and
$508,000 in 1996.
The Company also sponsors defined contribution 401(k) plans covering all
employees. The Company contributed to the plans about $2,621,000 in 1998,
$2,207,000 in 1997 and $2,007,000 in 1996.
page 27
<PAGE> 18
NOTE 7 INCOME TAXES
The detail of income tax provisions (credits) is presented below (in
thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 17,915 $ 3,296 $ 1,236
Foreign 1,285 78 141
State 260 128 187
---------- ---------- ----------
Total current
provision 19,460 3,502 1,564
Deferred 49,781 13,361 (2,372)
---------- ---------- ----------
Total $ 69,241 $ 16,863 $ (808)
---------- ---------- ----------
</TABLE>
The Company's provision (credit) for income taxes differs from that
determined simply by applying the federal income tax rate (statutory rate) to
income before extraordinary charges, as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Tax at statutory rate $ 67,795 $ 60,651 $ 21,186
Increase (decrease) in
taxes resulting from:
Change in valuation
allowance (38,415) (30,863)
Foreign companies'
operations 41 (10,443) (2,761)
Expiration of tax credits 9,593 12,772
Other - net 1,405 (4,523) (1,142)
---------- ---------- ----------
Total provision (credit) $ 69,241 $ 16,863 $ (808)
---------- ---------- ----------
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities at December 31, 1998 and 1997, were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
December 31, Current Noncurrent Current Noncurrent
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax assets:
Sale/leaseback gain $ 1,119 $ 967 $ 1,119 $ 2,086
Accrued employee
benefit plan costs 315 13,997 315 12,295
Alternative mini-
mum tax 5,017 5,165
Net operating losses 24,723
Investment tax credits 2,862 27,130
Other 2,014 4,539 2,446 5,375
---------- ---------- ---------- ----------
11,327 19,503 60,898 19,756
---------- ---------- ---------- ----------
Deferred tax liabilities:
Property, plant and
equipment 93,818 94,511
Other 940 89 201
---------- ---------- ---------- ----------
94,758 89 94,712
---------- ---------- ---------- ----------
Deferred tax asset
(liability) $ 11,327 $ (75,255) $ 60,809 $ (74,956)
---------- ---------- ---------- ----------
</TABLE>
The Company did not deem necessary a valuation allowance against its deferred
tax assets at December 31, 1998 and 1997.
At December 31, 1998, the Company had $2,397,000 of regular investment tax
credits and $465,000 of ESOP (Employee Stock Ownership Plan) tax credits
available for application against future federal taxes payable. Total credits,
if not utilized, will expire as follows:
2001-$2,634,000 and 2002-$228,000.
Deferred income taxes not provided on undistributed earnings of foreign
subsidiaries, because such earnings are considered permanently invested abroad,
amounted to approximately $16,422,000 at December 31, 1998.
Income before income taxes consisted of $189,207,000, $154,313,000 and
$58,573,000 of domestic earnings, and $4,494,000, $18,975,000 and $1,957,000 of
foreign earnings in 1998, 1997 and 1996, respectively.
Income tax payments exceeded refunds by $16,743,000 in 1998, $3,781,000 in
1997 and $1,747,000 in 1996.
page 28
<PAGE> 19
NOTE 8 FAIR VALUES OF FINANCIAL INSTRUMENTS
At December 31, 1998, the carrying amounts of the Company's cash and cash
equivalents, receivables and payables approximated their fair values due to the
short maturity of such financial instruments. The carrying amount of the
Company's long-term debt was estimated to approximate its fair value at December
31, 1998 based upon quoted market prices for similar issues.
NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES
During 1984 and 1985, the Company sold two cantilever jack-ups, Rowan-Halifax
and Cecil Provine, for a total of $126,500,000 in cash and leased each rig back
under operating leases at effective interest rates of 9.3% and 8.0%,
respectively. Each basic lease term expires in 2000, at which time the Company
can purchase each rig at its existing fair market value or renew each lease at
the lesser of a) 50% of the weighted average semi-annual installments during the
basic term, or b) a fair market rental renewal. Each sale resulted in a gain
which is being recognized over the respective basic lease term.
Total payments to be made under the sale/leaseback agreements are being
expensed on a straight-line basis. Current and other liabilities at December 31,
1998 and 1997 included the excess of inception-to-date sale/leaseback expenses
over related payments of $6,930,000 and $8,061,000, respectively.
The Company has operating leases covering aircraft hangars, offices and
computer equipment and the sale/leaseback rigs. Net rental expense under all
operating leases was $21,874,000 in 1998, $21,619,000 in 1997 and $20,820,000 in
1996.
As of December 31, 1998, the future minimum payments to be made under
noncancelable operating leases were (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------
<S> <C>
1999 $24,021
2000 18,852
2001 562
2002 306
2003 160
Later years 505
- -----------------------------------------------------
Total $44,406
- -----------------------------------------------------
</TABLE>
In September 1996, the Company assumed certain environmental liabilities
related to its manufacturing facilities in exchange for $4,000,000 in cash and a
$5,500,000 reduction in a promissory note. The measurement of remediation costs
is subject to uncertainties, including the evolving nature of environmental
regulations and the extent of any agreements to mitigate remediation costs.
Other liabilities at December 31, 1998 and 1997 included $8,684,000 and
$8,650,000, respectively, related to environmental matters. The Company believes
that it has adequately accrued for environmental liabilities.
The Company is involved in various legal proceedings incidental to its
business. The Company is vigorously pursuing such matters and is of the opinion
that there are no contingencies, claims or lawsuits against the Company which
will have a material adverse effect on its financial position, results of
operations or cash flows.
The Company estimates 1999 capital expenditures will be between $150,000,000
and $175,000,000, including $100,000,000 to $125,000,000 toward construction of
the offshore rigs Gorillas VI and VII.
NOTE 10 SEGMENTS OF BUSINESS
The Company 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 marine drilling equipment ("Manufacturing"). The Company's reportable
segments reflect separately managed, strategic business units that provide
different products and services, and for which financial information is
separately prepared and monitored. The accounting policies of each segment are
as described in the Company's summary of significant accounting policies. See
Note 1 for further information.
Drilling services are provided both onshore and offshore in domestic and
foreign areas. Aviation services are provided primarily in Alaska, the western
United States and along the Gulf Coast and include commuter airline,
flightseeing and forest fire control services as well as oil and gas related
flying. Manufacturing operations are primarily conducted in Longview, Texas and
Vicksburg, Mississippi, though products are shipped throughout the United States
and to many foreign locations.
Assets are ascribed to a segment based upon their direct use. The Company
classifies its drilling rigs as domestic or foreign based upon the rig's
operating location. Accordingly, drilling rigs operating in or offshore the
United States are
page 29
<PAGE> 20
considered domestic assets and rigs operating in other areas are deemed foreign
assets.
The Company's total assets are identified by operating segment and its fixed
assets are shown geographically as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Consolidated assets:
Drilling services $ 942,158 $ 803,747 $ 618,441
Manufacturing sales
and services 176,145 163,113 135,750
Aviation services 130,805 155,275 145,117
---------- ---------- ----------
Total $1,249,108 $1,122,135 $ 899,308
---------- ---------- ----------
Property, plant and
equipment - net:
Domestic $ 480,005 $ 551,853 $ 411,408
Foreign 397,192 125,307 134,792
---------- ---------- ----------
Total $ 877,197 $ 677,160 $ 546,200
---------- ---------- ----------
</TABLE>
At December 31, 1998, 28 drilling rigs, including 14 offshore rigs, were
located in domestic areas and eight offshore rigs were operating in foreign
locations. Aviation services assets included the Company's investment in KLM ERA
Helicopters in 1997 and 1996.
Information regarding revenues and profitability by operating segment is as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Drilling services $ 431,664 $ 434,004 $ 316,123
Manufacturing sales
and services 158,913 154,852 143,768
Aviation services 115,773 106,396 111,269
---------- ---------- ----------
Consolidated $ 706,350 $ 695,252 $ 571,160
---------- ---------- ----------
Operating profit (loss):*
Drilling services $ 180,091 $ 185,037 $ 79,247
Manufacturing sales
and services 18,902 16,294 9,468
Aviation services 1,585 (1,904) 6,547
---------- ---------- ----------
Consolidated $ 200,578 $ 199,427 $ 95,262
---------- ---------- ----------
</TABLE>
* Income (loss) from operations before deducting general and administrative
expenses.
Excluded from the preceding table are the effects of transactions between
segments. During 1998, 1997 and 1996 the Company's manufacturing division
provided approximately $108,981,000, $82,707,000 and $39,804,000, respectively,
of products and services to the drilling division and the Company's aviation
division provided approximately $1,313,000, $2,859,000 and $2,749,000,
respectively, of flight services to the drilling division.
Foreign-source revenues were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Drilling services $ 194,839 $ 127,479 $ 105,010
Manufacturing sales
and services 1,129 2,124 1,968
Aviation services 2,406 5,027 4,109
---------- ---------- ----------
Total $ 198,374 $ 134,630 $ 111,087
---------- ---------- ----------
</TABLE>
The Company did not have any customers which accounted for 10% or more of
consolidated revenues during 1998, 1997 or 1996.
The Company believes that it has no significant concentrations of credit
risk. The Company has never experienced any significant credit losses and its
drilling and aviation services customers have heretofore primarily been large
energy companies and government bodies. The addition of manufacturing operations
in 1994 has diversified the Company's operations and attendant credit risk.
Further, the Company retains the ability to relocate its major drilling and
aviation assets over significant distances on a timely basis in response to
changing market conditions.
Certain other financial information for each of the Company's principal
operating segments is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and
amortization:
Drilling $ 31,945 $ 31,032 $ 33,998
Aviation 12,289 11,910 11,248
Manufacturing 5,469 4,136 2,636
Capital expenditures:
Drilling 217,725 146,760 87,927
Aviation 16,256 16,977 8,913
Manufacturing 13,766 16,329 21,107
Maintenance and repairs:
Drilling 33,083 29,643 32,125
Aviation 23,408 21,293 18,248
Manufacturing 12,241 13,865 9,389
---------- ---------- ----------
</TABLE>
page 30
<PAGE> 21
NOTE 11 RELATED PARTY TRANSACTIONS
Two members of the Company's Board of Directors served in similar capacities
for one of the Company's drilling customers during 1998. Transactions with this
customer were on terms and conditions, and involved day rates and operating
costs, which were comparable to those experienced by the Company in connection
with third party contracts for similar rigs. Because of the aforementioned
relationships, the contracts between the Company and this customer were reviewed
and ratified by the full Board of Directors of the Company. Related 1998
revenues were approximately $968,000.
NOTE 12 SUBSEQUENT EVENT
On January 19, 1999, the Company received notice from a customer that its
one-year North Sea drilling contract for Gorilla V, which commenced in
late-December 1998, was being terminated. The customer alleged a performance
breach relating to certain equipment problems as the basis for termination. The
Company believes it did not breach the contract and will vigorously pursue all
legal remedies to enforce its rights under the contract.
page 31
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
ROWAN COMPANIES, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheet of Rowan
Companies, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 1, 1999
page 32
<PAGE> 23
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following unaudited information for the quarters ended March 31, June 30,
September 30 and December 31, 1997 and 1998 includes, in the Company's opinion,
all adjustments (which comprise only normal recurring accruals) necessary for a
fair presentation of such amounts (in thousands except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997:
Revenues $ 144,765 $ 164,785 $ 195,456 $ 190,246
Operating profit 15,278 51,327 67,775 65,047
Income before extra-
ordinary charges 7,631 40,580 54,287 53,927
Net income 4,153 40,580 54,287 47,639
Per common share:
Basic:
Income before extra-
ordinary charges .09 .47 .63 .62
Net income .05 .47 .63 .55
Diluted:
Income before extra-
ordinary charges .09 .46 .61 .60
Net income .05 .46 .61 .53
---------- ---------- ---------- ----------
1998:
Revenues $ 183,914 $ 204,240 $ 183,470 $ 134,726
Operating profit 69,020 71,001 51,865 8,692
Net income 42,759 44,389 32,495 4,817
Net income per
common share:
Basic .49 .51 .38 .06
Diluted .48 .50 .38 .06
---------- ---------- ---------- ----------
</TABLE>
During the first and fourth quarters of 1997, the Company redeemed early its
11 7/8% Senior Notes due 2001 and recognized extraordinary charges on each
transaction comprised primarily of prepayment premiums.
The sum of the per share amounts for the quarters may not equal the per share
amounts for the full year since the quarterly and full year per share
computations are made independently.
COMMON STOCK PRICE RANGE, CASH DIVIDENDS AND STOCK SPLITS (UNAUDITED)
The price range below is as reported by the New York Stock Exchange on the
Composite Tape. On March 1, 1999 there were approximately 3,200 holders of
record.
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Quarter High Low High Low
- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First $ 32.00 $ 22.44 $ 29.00 $ 18.63
Second 32.50 18.75 28.63 16.75
Third 20.63 9.00 36.88 28.19
Fourth 15.94 9.13 43.94 26.50
---------- ---------- ---------- ----------
</TABLE>
The Company did not pay any dividends on its common stock during 1998 and
1997. See Note 5 of the Notes to the Consolidated Financial Statements for
restrictions on dividends.
Stock splits and stock dividends since the Company became publicly owned in
1967 have been as follows: 2 for 1 stock splits on January 25, 1973, December
16, 1976 and May 13, 1980; 2 for 1 stock splits effected in the form of a stock
dividend on February 6, 1978 and January 20, 1981; and a 5% stock dividend on
May 21, 1975.
On the basis of these splits and dividends, each share acquired prior to
January 25, 1973 would be represented by 33.6 shares if still owned at present.
page 33
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of the Registrant:
Registrant and Parent:
Rowan Companies, Inc.
Wholly-Owned Subsidiaries of Registrant:
Era Aviation, Inc., a Washington corporation
Rowan International, Inc., a Panamanian corporation
Rowandrill, Inc., a Texas corporation
Rowan Drilling Company, Inc., a Texas corporation
Atlantic Maritime Services, Inc., a Texas corporation
Rowan Petroleum, Inc., a Texas corporation
LeTourneau, Inc., a Texas corporation
Note: Certain subsidiaries have been omitted from this listing because
such subsidiaries, when considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Rowan Companies, Inc.:
We consent to the incorporation by reference in Post-Effective Amendment No. 4
to Registration Statement No. 2-58700, Amendment No. 1 to Registration Statement
No. 33-33755, Registration Statement No. 33-61444, Registration Statement No.
33-51103, Registration Statement No. 33-51105, Registration Statement No.
33-51109, Registration Statement No. 333-25041 and Registration Statement No.
333-25125, each on Form S-8, and to the incorporation by reference in Amendment
No. 1 to Registration Statement No 33-15721, Amendment No. 2 to Registration
Statement No. 33-30057, Amendment No. 2 to Registration Statement No. 33-61696,
and Amendment No. 1 to Registration Statement No. 33-62885, each on Form S-3 of
Rowan Companies Inc., of our report dated March 1, 1999, incorporated by
reference in this Annual Report on Form 10-K of Rowan Companies, Inc., for the
year ended December 31, 1998, and to the reference to us under the heading
"Experts" in the Amendment No. 1 to Registration Statement No. 33-62885.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 26, 1999
<PAGE> 1
EXHIBIT 24
Form 10-K for the Year Ended December 31, 1998
The Exchange Act of 1934
--------------------
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints C. R. Palmer or E. E. Thiele, or either
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign to the Company's Form 10-K for the year ended
December 31, 1998 and any or all amendments, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
--------------------
Pursuant to the requirement of the Exchange Act of 1934, the Company's
Form 10-K for the year ended December 31, 1998 or amendment has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
--------------------------- President, Chairman of the
(C. R. Palmer) Board and Chief Executive Officer
RALPH E. BAILEY Director March 26, 1999
(Ralph E. Bailey)
HENRY O. BOSWELL Director March 26, 1999
(Henry O. Boswell)
HANS M. BRINKHORST Director March 26, 1999
(Hans M. Brinkhorst)
R. G. CROYLE Director March 26, 1999
(R. G. Croyle)
-------------------------- Director
(H. E. Lentz)
D. F. MCNEASE Director March 26, 1999
(D. F. McNease)
LORD MOYNIHAN Director March 26, 1999
(Lord Moynihan)
WILFRED P. SCHMOE Director March 26, 1999
(Wilfred P. Schmoe)
CHARLES P. SIESS, JR. Director March 26, 1999
(Charles P. Siess, Jr.)
C. W. YEARGAIN Director March 26, 1999
(C. W. Yeargain)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ROWAN COMPANIES, INC. FOR THE YEAR ENDED
DECEMBER 31, 1998 INCLUDED IN ITS 1998 ANNUAL REPORT TO STOCKHOLDERS AND
INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 148,834
<SECURITIES> 0
<RECEIVABLES> 81,097
<ALLOWANCES> 0
<INVENTORY> 113,916
<CURRENT-ASSETS> 365,652
<PP&E> 1,761,051
<DEPRECIATION> 883,854
<TOTAL-ASSETS> 1,249,108
<CURRENT-LIABILITIES> 79,593
<BONDS> 310,250
0
0
<COMMON> 11,094
<OTHER-SE> 718,902
<TOTAL-LIABILITY-AND-EQUITY> 1,249,108
<SALES> 152,992
<TOTAL-REVENUES> 706,350
<CGS> 110,550
<TOTAL-COSTS> 524,138
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,236)
<INCOME-PRETAX> 193,701
<INCOME-TAX> 69,241
<INCOME-CONTINUING> 124,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,460
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.43
</TABLE>
