EXHIBIT 13.1
2004 ANNUAL REPORT TO SHAREHOLDERS
THE COMPANY
We are engaged in the international offshore drilling and completion of
exploratory and developmental oil and gas wells and related support, management
and consulting services. Presently, we own and operate a premium, modern fleet
of eight mobile offshore drilling units as well as manage the operations of two
operator-owned platform drilling units in Northwest Australia. We also own a
semisubmersible hull, named the SEASCOUT, which we plan to convert to a tender
assist vessel once an acceptable contract opportunity is secured. From fiscal
year 1997 to 2003, we have invested approximately $460 million in upgrading
seven mobile offshore drilling units and constructing an ultra-premium jack-up
unit. We support our operations from our Houston headquarters and offices
located in Australia, Malaysia, Egypt, Indonesia, Singapore and the United
Kingdom.
FINANCIAL HIGHLIGHTS
2004 2003
------ ------
(In Thousands)
FOR THE YEAR ENDED SEPTEMBER 30:
REVENUES $163,454 $144,765
NET INCOME (LOSS) 7,587 (12,802)
CAPITAL EXPENDITURES 6,527 101,819
AT SEPTEMBER 30:
NET PROPERTY AND EQUIPMENT $401,141 $443,102
TOTAL ASSETS 498,936 522,674
TOTAL SHAREHOLDERS' EQUITY 271,589 263,467
1
TO OUR SHAREHOLDERS AND EMPLOYEES:
During fiscal year 2004, we returned to profitability with a net income of
approximately $8 million or $.54 per diluted share after incurring our first
loss in ten years in fiscal year 2003. The past year has also been positive in
other respects with a recent successful stock offering enabling us to strengthen
our balance sheet by reducing our outstanding long-term debt, an equipment
utilization rate of 93%, continuing high standards of safety, health,
environmental and security performance and recent activity in the offshore
industry that indicates an improving market.
With our fleet's improved capability and competitiveness, we are now
well-positioned to benefit from market improvements. Our $460 million major
capital program which commenced in fiscal year 1997 to upgrade seven existing
units and construct a new unit was successfully completed last year. We now have
eight premium offshore units, targeted to meet our clients' future needs,
available to operate and take advantage of the upside from an improving market
environment. Our strategy continues to focus on providing premium equipment and
safe, quality services in attractive international markets based on
long-standing client relationships. We believe this strategy, our current
positioning in four key markets, and the ability to take advantage of attractive
international opportunities will provide attractive financial returns over the
longer term.
For fiscal year 2004, our short-term goals were (1) to strive for full
utilization of our fleet, (2) to stay strong in all respects and (3) to be
well-positioned to benefit from longer-term market improvements and
opportunities. We believe those goals were accomplished. Our current contract
backlog provides the opportunity to seek improving dayrates in late fiscal year
2005 and into fiscal year 2006.
Of our current drilling contracts, the VICKSBURG has the only contract term
that extends beyond fiscal year 2005, with the contract term for the ATWOOD
HUNTER expected to extend to the end of fiscal year 2005. We expect options to
be exercised on the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD BEACON that could
also extend those contracts through fiscal year 2005. Despite not currently
having long-term commitments, we are pursuing opportunities that should keep the
RICHMOND, in the Gulf of Mexico, and the ATWOOD SOUTHERN CROSS, in Southeast
Asia, highly utilized during fiscal year 2005. The SEAHAWK has commenced a
short-term drilling program in Malaysia which is expected to extend to the end
of January 2005. Contract opportunities for the SEAHAWK, following that work,
are being pursued in Southeast Asia and West Africa for fiscal years 2005 and
2006.
At the beginning of fiscal year 2004, world-wide utilization of offshore
drilling units was less than 80% and today it is around 85%. We believe that oil
and gas demand fundamentals and the potential for increasing exploration and
development expenditures support further market improvement, increasing
worldwide utilization and higher dayrates.
We are pleased and proud of the Company's performance during fiscal year
2004 which was achieved through the hard work and talent of our employees around
the world. Our achievement of safe operations and value-adding performance
during the year has been recognized by our clients. Being responsive to our
clients' needs and building longer-term client relationships are the
cornerstones of our endeavor to be a preferred provider of offshore drilling and
completion services.
We look forward to the challenges and opportunities ahead and will continue
striving to reward the confidence and trust of our shareholders and our other
stakeholders.
/s/ John R. Irwin
John R. Irwin
2
Atwood Oceanics, Inc. and Subsidiaries
FIVE-YEAR FINANCIAL REVIEW
(In thousands, except per share amounts, fleet At or For the Years Ended September 30,
data and ratios) 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
Revenues $ 163,454 $ 144,765 $ 149,157 $ 147,541 $ 135,973
Contract drilling costs (98,936) (98,500) (75,088) (70,014) (60,709)
General and administrative expenses (11,389) (14,015) (10,080) (9,250) (8,449)
Depreciation (31,582) (25,758) (23,882) (25,579) (29,624)
------- ------- ------- ------- -------
OPERATING INCOME 21,547 6,492 40,107 42,698 37,191
Other expense (9,145) (4,856) (1,330) (1,577) (1,293)
Tax provision (4,815) (14,438) (10,492) (13,775) (12,750)
------ ------- ------- ------- -------
NET INCOME (LOSS) $ 7,587 $ (12,802) $ 28,285 $ 27,346 $ 23,148
======= ========= ======== ======== ========
PER SHARE DATA:
Earnings (loss) per common share:
Basic $ 0.55 $ (0.92) $ 2.04 $ 1.98 $ 1.68
Diluted $ 0.54 $ (0.92) $ 2.02 $ 1.96 $ 1.66
Average common shares outstanding:
Basic 13,859 13,846 13,839 13,828 13,763
Diluted 14,032 13,846 13,994 13,978 13,916
FLEET DATA:
Number of rigs owned or managed, at end
of period 11 11 10 11 11
Utilization rate for in-service rigs (1) 93% 92% 86% 83% 71%
BALANCE SHEET DATA:
Cash and cash equivalents $ 16,416 $ 21,551 $ 27,655 $ 12,621 $ 42,661
Working capital 32,913 26,063 43,735 25,057 47,433
Net property and equipment 401,141 443,102 368,397 306,254 224,107
Total assets 498,936 522,674 445,238 353,878 313,251
Total long-term debt (including current portion) 181,000 205,000 115,000 60,000 46,000
Shareholders' equity (2) 271,589 263,467 276,133 247,636 218,205
Ratio of current assets to current liabilities 1.55 1.52 2.44 2.21 3.71
- ---------
Notes -
(1) Excludes managed rigs, the SEASCOUT, and contractual downtime on
rigs upgraded. (2) We have never paid any cash dividends on our common
stock.
3
OFFSHORE DRILLING OPERATIONS
PERCENTAGE
MAXIMUM WATER OF 2004 CONTRACT STATUS AT
RIG NAME YEAR UPGRADED DEPTH REVENUES LOCATION CUSTOMER DECEMBER 10, 2004
- -------- ------------ ------------- ----------- -------- -------- --------------------
SEMISUBMERSIBLES -
- ------------------
ATWOOD EAGLE 2000/2002 5,000 Ft. 18% AUSTRALIA BHP Billiton The rig has commenced drilling one well for
Petroleum Pty. BHP which is expected to be completed at
("BHP") the end of December 2004. BHP retains the
right to drill two option wells using the
rig. The rig has been awarded additional
work under its current contract with
Woodside to drill four firm wells with
option to drill three additional wells off
the coast of Australia. The drilling of
the four firm wells is expected to take
approximate four months to complete, and if
all the option wells are drilled, the
contract could extend into September 2005.
The additional work with Woodside will not
commence until February 1, 2005.
ATWOOD HUNTER 1997/2001 5,000 Ft. 12% EGYPT BURULLUS On December 31, 2003, the rig commenced a
GAS CO. drilling program for Burullus which after
("BURULLUS") the exercise of all six options will be a
drilling program totaling sixteen wells.
The drilling of all sixteen wells is
expected to take until approximately
September 2005 to complete.
ATWOOD FALCON 1998 3,700 Ft. 16% MALAYSIA SARAWAK SHELL The rig is currently drilling the second of
BERHAD ("SHELL") four firm wells for Shell. This contract
is currently anticipated to extend into
February 2005. One option remains under
the Shell contract. Immediately upon
completion of the Shell contract, the rig
will be move to Japan to commence a
two-firm well program for Japan Energy
Development Co., Ltd. The drilling of
4
these two wells could take until
approximately August 2005 to complete.
ATWOOD 1997 2,000 Ft. 8% MALAYSIA MURPHY SARAWAK The rig is currently drilling the fourth of
SOUTHERN CROSS OIL COMPANY, LTD. now five firm wells. This contract is
("MURPHY") currently anticipated to extend into
January 2005. The rig has been awarded a
contract by Daewoo International
Corporation ("Daewoo") to drill two firm
wells plus an option to drill one
additional well offshore Myanmar. The
Daewoo work will commence immediately after
completing the Murphy program, and is
expected to take 90 days to complete.
CANTILEVER JACK-UPS -
- ----------------------
ATWOOD BEACON Constructed in 400 Ft. 13% UNDER REPAIR AT The process of repairing the damage
2003 A SINGAPORE incurred by the ATWOOD BEACON on July 25,
SHIPYARD 2004 continues on schedule. The rig is
expected to return to service in January
2005. The ATWOOD BEACON has been awarded a
contract by HOANG LONG and HOAN VU Joint
Operating Companies to drill three firm
wells, with options to drill three
additional wells, offshore Vietnam. The
three firm wells have a combined expected
duration of 200 days and if all option
wells are drilled, the program could extend
for another 200 days. The drilling of this
program must commence between January 15,
2005 and April 15, 2005.
VICKSBURG 1998 300 Ft. 15% MALAYSIA EXXONMOBIL In May 2004, the rig's contract with EMEPMI
EXPLORATION & was suspended and the rig moved to Thailand
5
PRODUCTION to commence a drilling program for Chevron
MALAYSIA INC. Offshore (Thailand) Limited. This program
("EMEPMI") has now been completed. The rig has been
relocated back to Malaysia and the EMEPMI
contract reinstated. The EMEPMI drilling
commitment includes the five months that
the contract was suspended plus an
extension of twelve months, for a total of
seventeen months commencing in October
2004. EMEPMI retains its right to terminate
the contract by providing 120 days notice.
SUBMERSIBLE -
- -------------
RICHMOND 2000/2002 70 Ft. 6% UNITED APPLIED DRILLING The rig is currently drilling a third well
STATES TECHNOLOGY INC. for ADTI which was assigned from Helis Oil
GULF OF ("ADTI") & Gas Company ('Helis"). Upon completion
MEXICO of this well, the rig will have three firm
wells to drill for Helis, with Helis
retaining one option to drill two
additional wells. The drilling of the three
remaining firm wells is expected to take
until February/March 2005 to complete and
if the option wells are drilled, the
contract could extend to June/July 2005.
SEMISUBMERSIBLE TENDER ASSIST UNITS -
- -------------------------------------
SEAHAWK 1992/1999 600 Ft. 11% MALAYSIA SARAWAK SHELL The rig is currently working on a two well
BERHAD ("SHELL") drilling program for Shell. This drilling
program is expected to extend into late
January 2005. Additional work, following
the Shell contract, is being pursued in
Southeast Asia as well as other areas of
the world.
6
SEASCOUT N/A N/A UNITED STATES The SEASCOUT was purchased in December 2000
GULF OF MEXICO for future conversion to a tender-assist
unit, similar to the SEAHAWK. There are
currently no upgrade plans and the rig is
currently cold stacked.
MODULAR PLATFORMS -
- -------------------- MANAGEMENT CONTRACT
GOODWYN 'A' and N/A 1% AUSTRALIA WOODSIDE ENERGY There is currently an indefinite planned
NORTH RANKIN 'A' LTD. break in drilling activity for the two
client-owned rigs managed by the Company.
The Company is involved in maintenance of
the two rigs for future drilling programs.
7
SECURITIES LITIGATION SAFE HARBOR STATEMENT
Statements included in this report which are not historical facts
(including any statements concerning plans and objectives of management for
future operations or economic performance, or assumptions related thereto) are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, we and our representatives may from
to time to time make other oral or written statements which are also
forward-looking statements.
These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us and therefore involve a number of risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied in the
forward-looking statements.
Important factors that could cause our actual results of operations or our
actual financial conditions to differ include, but are not necessarily limited
to:
o our dependence on the oil and gas industry;
o the operational risks involved in drilling for oil and gas;
o changes in rig utilization and dayrates in response to the level of
activity in the oil and gas industry, which is significantly affected
by indications and expectations regarding the level and volatility of
oil and gas prices, which in turn are affected by such things as
political, economic and weather conditions affecting or potentially
affecting regional or worldwide demand for oil and gas, actions or
anticipated actions by OPEC, inventory levels, deliverability
constraints, and future market activity;
o the extent to which customers and potential customers continue to
pursue deepwater drilling;
o exploration success or lack of exploration success by our customers
and potential customers;
o the highly competitive and cyclical nature of our business, with
periods of low demand and excess rig availability;
o the impact of the war with Iraq or other military operations, terrorist
acts or embargoes elsewhere;
o our ability to enter into and the terms of future drilling contracts;
o the availability of qualified personnel;
o our failure to retain the business of one or more significant customers;
o the termination or renegotiation of contracts by customers;
o the availability of adequate insurance at a reasonable cost;
o the occurrence of an uninsured loss;
o the risks of international operations, including possible economic,
political, social or monetary instability, and compliance with
foreign laws;
o the effect SARS or other public health concerns could have on our
international operations and financial results;
o compliance with or breach of environmental laws;
8
o the incurrence of secured debt or additional unsecured indebtedness
or other obligations by us or our subsidiaries;
o the adequacy of sources of liquidity;
o currently unknown rig repair needs and/or additional opportunities to
accelerate planned maintenance expenditures due to presently
unanticipated rig downtime;
o higher than anticipated accruals for performance-based compensation due
to better than anticipated performance by us, higher than anticipated
severance expenses due to unanticipated employee terminations, higher
than anticipated legal and accounting fees due to unanticipated
financing or other corporate transactions, and other factors that could
increase general and administrative expenses;
o the actions of our competitors in the offshore drilling industry, which
could significantly influence rig dayrates and utilization;
o changes in the geographic areas in which our customers plan to operate,
which in turn could change our expected effective tax rate;
o changes in oil and gas drilling technology or in our competitors'
drilling rig fleets that could make our drilling rigs less competitive
or require major capital investments to keep them competitive;
o rig availability;
o the effects and uncertainties of legal and administrative proceedings
and other contingencies;
o the impact of governmental laws and regulations and the uncertainties
involved in their administration, particularly in some foreign
jurisdictions;
o changes in accepted interpretations of accounting guidelines and other
accounting pronouncements and tax laws;
o the risks involved in the construction, upgrade, and repair of our
drilling units; and
o such other factors as may be discussed in our reports filed with the
Securities and Exchange Commission, or SEC.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. The words "believe," "impact,"
"intend," "estimate," "anticipate," "plan" and similar expressions identify
forward-looking statements. These forward-looking statements are found at
various places throughout this report. When considering any forward-looking
statement, you should also keep in mind the risk factors described in other
reports or filings we make with the SEC from time to time. Undue reliance should
not be placed on these forward-looking statements, which are applicable only on
the date hereof. Neither we nor our representatives have a general obligation to
revise or update these forward-looking statements to reflect events or
circumstances that arise after the date hereof or to reflect the occurrence of
unanticipated events.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OUTLOOK
After incurring our first loss in ten years in fiscal year 2003, we
returned to profitability in fiscal year 2004. Of our eight active drilling
units, seven have current drilling commitments with one, the ATWOOD BEACON,
currently in a shipyard in Singapore being repaired from the damages it incurred
on July 25, 2004 to all three legs and the derrick while positioning for its
next well offshore Indonesia. We have insurance to cover the costs of repairs in
excess of a $1 million deductible which was recorded as an expense in the fourth
quarter of fiscal year 2004. At September 30, 2004, the book basis of the ATWOOD
BEACON has been reduced by $16.3 million which is the estimated reduction in
value caused by the incident. In addition, $7.7 million of costs were incurred
related to the recovery of the rig of which $6.7 million is recorded as an
insurance receivable at September 30, 2004 and $1.0 million was expensed during
the fourth quarter of fiscal year 2004 to account for the insurance deductible.
We also have loss of hire insurance coverage of $70,000 per day up to 180 days,
which began after a 30-day waiting period commencing July 28, 2004. Revenue
recognized from this insurance coverage totaled approximately $2.4 million in
fiscal year 2004, and accordingly, a $2.4 million insurance receivable is
recorded related to these revenues as of September 30, 2004.
The ATWOOD BEACON has been awarded a contract in Vietnam which is to
commence between January 15 and April 15, 2005. Based on our current schedule of
repairs, we believe the rig will be ready to begin operations under the contract
by the end of January 2005, with our loss of hire coverage not scheduled to
expire until the end of February 2005. We will continue our emphasis on
maintaining high utilization of our drilling equipment throughout industry
cycles. We had a 93% equipment utilization rate in fiscal year 2004 and have
averaged approximately 90% utilization over the last ten years.
In October 2004, we sold in a public offering 1,175,000 shares of our
common stock at an effective net price (before expenses) of $45.83 for total
proceeds (before expenses) of approximately $53.9 million. We used these
proceeds and on cash on hand to repay $55 million outstanding under our
revolving credit agreement. Prior to the stock offering, our ratio of
outstanding debt to total capitalization was around 40%. It is now approximately
30%. With our premium, modern fleet of drilling units and a strengthened balance
sheet, we feel that we are well positioned to benefit from an improving market
environment.
At the beginning of fiscal year 2004, worldwide utilization of offshore
drilling units was less that 80%. Today, worldwide utilization is approximately
85%, with semisubmersibles continuing to be the weakest sector of the drilling
market with current utilization of approximately 84% compared to current jack-up
utilization of approximately 90%. Despite continuing geopolitical uncertainties
in Iraq, Venezuela, Nigeria as well as other areas of the world, we expect
increasing world energy demand. The oil and gas industry will play a major part
in meeting this increasing demand. At the current level of worldwide utilization
of offshore drilling units, we anticipate that oil and gas companies will be
unable to provide crude oil and natural gas to consumers in sufficient
quantities such that prices will be near the averages of the last decade. We
believe that based on the current gap between crude oil demand and the world's
current supply potential, a significant drilling campaign will be required to
increase the world's crude oil and natural gas supply capacity. Thus, we expect
continued improvement in worldwide offshore drilling activities during fiscal
year 2005; however, a major slow down in world economic activity could
negatively impact this expectation.
Of our current drilling contracts, the VICKSBURG has the only contract term
that extends beyond fiscal year 2005, with the contract term for the ATWOOD
HUNTER expected to extend to the end of fiscal year 2005. We expect options to
be exercised on the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD BEACON that could
also extend these contracts through fiscal year 2005. Despite not currently
having long-term contract commitments, we expect that the RICHMOND, in the Gulf
of Mexico, and the ATWOOD SOUTHERN CROSS, in Southeast Asia, will be highly
utilized during fiscal year 2005. The SEAHAWK has commenced a short-term
drilling program in Malaysia which is expected to extend to the end of January
2005. Contract opportunities for the SEAHAWK, following that contract, are being
pursued in Southeast Asia and West Africa. With market trends supporting
continued increases in drilling activities, coupled with our leverage to
improving dayrates, we expect improved cash flows and operating results in
fiscal year 2005 compared to fiscal year 2004 and remain optimistic about the
longer-term utilization and fundamentals of the offshore drilling market.
10
RESULTS OF OPERATIONS
Fiscal Year 2004 Versus Fiscal Year 2003
Revenues for the current fiscal year increased 13% compared to prior fiscal
year. A comparative analysis of revenues by rig for fiscal years 2004 and 2003
is as follows:
REVENUES
(In millions)
------------------------------------
Fiscal Fiscal
2004 2003 Variance
------ ----- --------
ATWOOD BEACON $ 20.7 $ 3.0 $ 17.7
ATWOOD EAGLE 30.4 19.8 10.6
ATWOOD HUNTER 19.4 17.2 2.2
RICHMOND 9.6 8.3 1.3
GOODWYN `A' / NORTH RANKIN `A' 2.0 1.8 0.2
VICKSBURG 24.3 25.0 (0.7)
ATWOOD SOUTHERN CROSS 12.5 14.5 (2.0)
SEAHAWK 18.6 22.8 (4.2)
ATWOOD FALCON 26.0 32.4 (6.4)
---- ---- ----
$163.5 $144.8 $ 18.7
====== ====== ======
The ATWOOD BEACON was available for operations during the fiscal year 2004
year-to-date period up to its July accident compared to only two months in the
prior fiscal year while rig was under construction. The increase in revenue for
the ATWOOD EAGLE was due to higher dayrates earned during fiscal year 2004 of
approximately $90,000 to $110,000 compared to fiscal year 2003 dayrate of
approximately $85,000 and to higher utilization in the current fiscal year as
the rig was undergoing its upgrade and relocating to West Africa during the
first five months of the prior fiscal year. The increase in revenue for the
ATWOOD HUNTER and the RICHMOND was due to higher average dayrates earned during
the current fiscal year of $57,000 and $27,000, respectively as compared to the
prior fiscal year average dayrates of $54,000 and $23,000, respectively. The
ATWOOD HUNTER was also utilized for approximately 20 more days during fiscal
year 2004 as compared to fiscal year 2003. Since the end of fiscal year 2001,
there has been a planned break in drilling activities on the GOODWYN `A' and
NORTH RANKIN `A' platform rigs. We continue to provide a limited amount of
maintenance services to these platform rigs during this planned idle period. The
VICKSBURG had average per day revenues of $66,000 during fiscal year 2004
compared to $68,500 during fiscal year 2003. The decrease in revenue for the
ATWOOD SOUTHERN CROSS was due to lower dayrates earned in the current fiscal
year of $30,000 to $35,000 compared to the prior fiscal year of $45,000 to
$60,000. The impact of lower dayrates during fiscal year 2004 was partially
offset by higher utilization of the rig during fiscal year 2004 of 83% compared
to 70% during fiscal year 2003. During the first quarter of the current fiscal
year, the amortization of deferred revenue related to the 1999 client
reimbursement of the upgrade costs for the SEAHAWK was completed, leading to the
decrease in revenue for this rig. The decrease in revenue for the ATWOOD FALCON
was primarily due to lower dayrates earned during the current fiscal year of
$70,000 to $85,000 compared to $75,000 to $110,000 in the prior fiscal year and
also due to the rig being idle during July 2004 while undergoing quarters
upgrade and planned maintenance compared to being fully utilized during fiscal
year 2003.
11
In total, contract drilling costs for the current fiscal year were
comparable to the prior fiscal year. A comparative analysis of contract drilling
costs by rig for fiscal years 2004 and 2003 is as follows:
CONTRACT DRILLING COSTS
(In millions)
----------------------------------
Fiscal Fiscal
2004 2003 Variance
------ ------ --------
ATWOOD BEACON $10.2 $ 1.4 $ 8.8
ATWOOD EAGLE 20.7 19.4 1.3
GOODWYN `A'/NORTH RANKIN `A' 2.1 2.0 0.1
RICHMOND 7.9 8.2 (0.3)
SEAHAWK 9.0 9.7 (0.7)
ATWOOD HUNTER 12.0 12.9 (0.9)
VICKSBURG 8.3 9.3 (1.0)
ATWOOD SOUTHERN CROSS 12.3 14.3 (2.0)
ATWOOD FALCON 15.1 18.7 (3.6)
OTHER 1.3 2.6 (1.3)
----- ----- -----
$98.9 $98.5 $ 0.4
===== ===== =====
The ATWOOD BEACON incurred operating costs for all of fiscal year 2004
compared to only two months in the prior fiscal year, as the rig was under
construction for most of fiscal year 2003. The recording of a $1 million
insurance deductible resulting from the damage incurred by the ATWOOD BEACON in
its July 2004 incident also contributed to an increase in costs. The increase in
daily operating costs of the ATWOOD EAGLE from $53,200 in fiscal year 2003 to
$56,700 in fiscal year 2004 was primarily due to an increase in labor costs.
Since drilling activities were suspended on the GOODWYN `A' and NORTH RANKIN `A'
platforms at the end of fiscal year 2001, we have continued to provide a limited
level of maintenance services to these rigs. Decreases in operating costs for
the RICHMOND, SEAHAWK and ATWOOD HUNTER were due to declines in maintenance
related costs. The decrease in drilling costs for the VICKSBURG was due to the
temporary suspension of its contract with ExxonMobil during the current fiscal
year (the contract resumed during the first quarter of fiscal year 2005), which
in turn, suspended the amortization of expenses related to the upgrade costs
incurred for this specific contract. In addition, agent fees were lower compared
to prior fiscal year as the VICKSBURG did not incur any agent fees while working
in Thailand during the second half of fiscal year 2004. During fiscal 2004, the
ATWOOD SOUTHERN CROSS worked in India and Malaysia where daily operating costs
are lower than Italy, its primary operating area in fiscal year 2003. The
decrease in drilling costs for the ATWOOD FALCON was due to the rig operating in
Australia for seven months of fiscal year 2003 at an approximate $25,000 per day
higher operating costs compared to Asia, its location for all of fiscal year
2004. The higher operating costs resulted from Australian labor regulations
requiring that marine union personnel must be employed for all offshore vessels
that have propulsion. During the period that the ATWOOD FALCON worked in
Australia, it was equipped with propulsion assist, which required the employment
of marine personnel that was not required when the rig worked in Asia.
12
Depreciation expense for the current fiscal year increased 22% as compared
to the prior fiscal year. A comparative analysis of depreciation expense by rig
for fiscal years 2004 and 2003 is as follows:
DEPRECIATION EXPENSE
(In millions)
--------------------------------
Fiscal Fiscal
2004 2003 Variance
------- ------ --------
ATWOOD BEACON $ 5.2 $ 0.7 $ 4.5
ATWOOD EAGLE 4.8 3.1 1.7
SEAHAWK 5.1 4.7 0.4
ATWOOD SOUTHERN CROSS 4.2 4.0 0.2
VICKSBURG 2.6 2.5 0.1
ATWOOD FALCON 2.7 2.6 0.1
ATWOOD HUNTER 5.4 5.4 -
RICHMOND 0.9 1.9 (1.0)
OTHER 0.7 0.9 (0.2)
------ ------ -----
$ 31.6 $ 25.8 $ 5.8
====== ====== =====
The increase in depreciation expense for the ATWOOD BEACON was due to a
full year of depreciation expense during fiscal year 2004 compared to only two
months in fiscal year 2003 as the rig was under construction for most of the
prior fiscal year. The increase in depreciation expense for the ATWOOD EAGLE was
also due to a full year of depreciation expense during the current fiscal year
compared to only seven months in the prior fiscal year as the rig was being
upgraded during the first five months of fiscal year 2003. During the period
when a rig is out of service for a significant upgrade that extends its useful
life, no depreciation is recognized. The decrease in depreciation expense for
the RICHMOND was due to extending its remaining useful life from 2 to 5 years
effective October 1, 2003. The depreciable life of this rig was extended based
upon an assessment of its commercial viability, coupled with our intent to
continue marketing and operating the rig beyond 2 years.
General and administrative expense decreased 19% in fiscal year 2004
compared to fiscal year 2003 primarily due to a reduction in professional fees
related to our worldwide restructuring initiative incurred in the prior fiscal
year. Our worldwide group of consolidated entities derives substantially all of
their operating revenues from international offshore drilling of exploratory and
developmental oil and gas wells and related support services. At the beginning
of fiscal year 2003, we initiated a restructuring of our foreign subsidiaries
and deployment of our worldwide assets to focus potential civil litigation which
may arise from future offshore activities in foreign operations in the
jurisdictions of the areas of those operations, to simplify our worldwide
organizational structure for administrative and marketing reasons, to facilitate
more efficient management and control of business operations, and to deploy our
worldwide assets and capital in a more efficient manner among our consolidated
group of companies. In addition to these operational efficiencies, it is
expected that this restructuring will also provide long-term tax efficiencies. A
significant part of this restructuring involved the contribution of a majority
of our non-U.S. operations to Atwood Oceanics Pacific Limited, a wholly-owned
Cayman Islands company, which had historically served as our offshore company
for marketing, negotiating, and performing drilling contracts outside of the
United States. At September 30, 2003, most of our planned restructuring
initiative had been completed, with approximately $3 million of the increase in
general and administrative expenses related to professional fees associated with
this restructuring process.
The $4.2 million increase in net interest expense was due to having no
capitalized interest in fiscal year 2004 compared to $4.2 million of capitalized
interest in fiscal year 2003 as a result of the completion of the upgrades
program and construction of the ATWOOD BEACON during fiscal year 2003.
Virtually all of our tax provision for fiscal year 2004 relates to taxes in
foreign jurisdictions. The $9.6 million decrease in provision for income taxes
in fiscal year 2004 compared to fiscal year 2003 was primarily due to the
recording of a $4.7 million deferred foreign tax liability in fiscal year 2003
relating to Australian and Malaysian taxes after reassessing certain tax
planning strategies in conjunction with the reorganization of our foreign
subsidiaries undertaken in fiscal year 2003 and a reduction of $2.1 million in
current foreign tax provisions in fiscal year 2004 compared to fiscal year 2003
primarily due to tax efficiencies resulting from the fiscal year 2003
reorganization.
13
Fiscal Year 2003 Versus Fiscal Year 2002
Revenues for fiscal year 2003 decreased 3% compared to the prior year. A
comparative analysis of revenues by rig for fiscal years 2003 and 2002 is as
follows:
REVENUES
(In millions)
--------------------------------
Fiscal Fiscal
2003 2002 Variance
------ ------ --------
ATWOOD EAGLE $ 19.8 $ 15.2 $ 4.6
ATWOOD BEACON 3.0 - 3.0
VICKSBURG 25.0 22.5 2.5
RICHMOND 8.3 7.1 1.2
SEAHAWK 22.8 22.3 0.5
GOODWYN `A' / NORTH RANKIN `A' 1.8 1.9 (0.1)
ATWOOD FALCON 32.4 33.5 (1.1)
ATWOOD SOUTHERN CROSS 14.5 19.3 (4.8)
ATWOOD HUNTER 17.2 27.4 (10.2)
------ ------ -----
$144.8 $149.2 $(4.4)
====== ====== =====
While utilization was consistent with prior year, the average dayrate for
ATWOOD EAGLE during fiscal year 2003 was approximately $85,000 compared to
$75,000 in the prior year. Fiscal year 2003 also included $2.7 million of
mobilization revenue for the rig's relocation to West Africa. The ATWOOD BEACON
commenced operations in August 2003 while being under construction all of the
prior fiscal year. Fiscal year 2003 revenues for the VICKSBURG included $2.0
million of client reimbursements for capital upgrades, as utilization and
average dayrates were consistent with the prior year. The increase in revenue
for the RICHMOND was primarily due to the rig being 100% utilized in fiscal year
2003 compared to having 76 days of idle time in fiscal year 2002. The decrease
in revenue for the ATWOOD FALCON was due to its mobilization to Australia and
back to Malaysia during fiscal year 2003 compared to working at full operating
dayrates for all of fiscal year 2002. Due to the softness of the Mediterranean
market, utilization for the ATWOOD SOUTHERN CROSS decreased from approximately
85% in fiscal year 2002 to 70% in fiscal year 2003. Average dayrates for the
ATWOOD HUNTER decreased from approximately $90,000 to $54,000 for the same
periods.
Contract drilling costs for fiscal year 2003 increased 31% as compared to
the prior year. As discussed below, in order to maintain relatively high
utilization of our fleet during a downturn in the offshore drilling market, we
pursued short-term contract opportunities for the ATWOOD EAGLE, ATWOOD FALCON
and ATWOOD SOUTHERN CROSS in high operating cost areas of West Africa, Australia
and Italy. Compared to fiscal year 2002, approximately 95% of the increase in
contract drilling costs in fiscal year 2003 related to these three rigs. A
comparative analysis of contract drilling costs by rig for fiscal years 2003 and
2002 is as follows:
14
CONTRACT DRILLING COSTS
(In millions)
-----------------------------------
Fiscal Fiscal
2003 2002 Variance
------- ------ --------
ATWOOD EAGLE $ 19.4 $ 9.0 $ 10.4
ATWOOD FALCON 18.7 10.2 8.5
ATWOOD SOUTHERN CROSS 14.3 11.1 3.2
ATWOOD BEACON 1.4 - 1.4
SEAHAWK 9.7 9.2 0.5
GOODWYN `A'/NORTH RANKIN `A' 2.0 2.1 (0.1)
VICKSBURG 9.3 9.5 (0.2)
ATWOOD HUNTER 12.9 13.4 (0.5)
RICHMOND 8.2 9.3 (1.1)
OTHER 2.6 1.3 1.3
------ ------ ------
$ 98.5 $ 75.1 $ 23.4
====== ====== ======
Contract drilling costs for the ATWOOD EAGLE include $8.2 million of
mobilization expenses incurred during the rig's relocation to West Africa. In
addition, daily operating costs of the ATWOOD EAGLE increased as operating costs
in West Africa were approximately 30% higher than in the Mediterranean, the
rig's previous location. This increase in daily operating costs relates
primarily to a significantly higher onshore cost of services to support our
offshore operations, plus higher local labor costs. Due to limited office and
living facilities in West Africa compared to the rig's previous location in the
Mediterranean, the daily costs for such facilities and other services in West
Africa were significantly higher than most other areas of the world. During
fiscal year 2003, the ATWOOD FALCON worked seven months in Australia, where
operating costs are higher than Southeast Asia, its primary operating location
for all of the prior fiscal year, by approximately $25,000 per day due to
increased personnel-related costs. Australian labor regulations require that
marine union personnel must be employed for all offshore vessels that have
propulsion. During the period that the ATWOOD FALCON worked in Australia, it was
equipped with propulsion assist, which required the employment of marine
personnel that was not required when the rig worked in Southeast Asia. We also
incurred approximately $2.0 million in mobilization costs re-locating the ATWOOD
FALCON to and from Australia.
The increase in costs for the ATWOOD SOUTHERN CROSS resulted from the
amortization of the planned maintenance and upgrade costs to meet Italian
operating standards, as well as higher costs of operating in Italy for travel,
shorebase operations and rentals. In addition, Italian regulations do not allow
drilling rigs to operate in Italian waters without having original certification
for all electrical equipment. We incurred additional operating costs in
complying with this requirement. The ATWOOD BEACON commenced operations in
August 2003 while being under construction all of the prior fiscal year. The
decrease in costs for the RICHMOND for fiscal year 2003 was due to the shipyard
repairs incurred during the prior fiscal year.
15
Depreciation expense for fiscal year 2003 increased 8% as compared to the
prior fiscal year. A comparative analysis of depreciation expense by rig for
fiscal year 2003 and 2002 is as follows:
DEPRECIATION EXPENSE
(In millions)
-----------------------------------
Fiscal Fiscal
2003 2002 Variance
-------- ------- --------
ATWOOD HUNTER $ 5.4 $ 4.2 $ 1.2
ATWOOD EAGLE 3.1 2.2 0.9
ATWOOD BEACON 0.7 - 0.7
RICHMOND 1.9 1.6 0.3
VICKSBURG 2.5 2.3 0.2
ATWOOD SOUTHERN CROSS 4.0 3.9 0.1
SEAHAWK 4.7 4.8 (0.1)
ATWOOD FALCON 2.6 2.7 (0.1)
OTHER 0.9 2.2 (1.3)
------ ------ -----
$ 25.8 $ 23.9 $ 1.9
====== ====== =====
During the period when a rig is out of service for a significant upgrade
that extends its useful life, no depreciation expense is recognized. The
increased depreciation on the ATWOOD HUNTER in fiscal year 2003 was due to a
full year of depreciation expense compared to only three quarters in the prior
fiscal year as the rig was completing its upgrade and relocation to the
Mediterranean during the first quarter of fiscal year 2002. The increase for the
ATWOOD EAGLE was due to an increase in the rig's depreciable basis resulting
from the completion of its $90 million upgrade during fiscal year 2003. The
ATWOOD BEACON commenced operations in August 2003 while being under construction
during all of fiscal year 2002. We increased the depreciable basis of the
RICHMOND by approximately $1 million during fiscal year 2003 which will be
depreciated over the rig's remaining useful life which was 5 years at the time
the change was made. Other depreciation expense decreased due to the fact that
RIG-200 (sold in May 2003) was fully depreciated to its salvage value in fiscal
year 2002 and thus had no depreciation expense for fiscal year 2003.
General and administrative expense increased 39% in fiscal year 2003
primarily due to higher professional fees related to our worldwide restructuring
initiative. Our worldwide group of consolidated entities derives substantially
all of their operating revenues from international offshore drilling of
exploratory and developmental oil and gas wells and related support services. At
the beginning of fiscal year 2003, we initiated a restructuring of our foreign
subsidiaries and deployment of our worldwide assets to focus potential civil
litigation which may arise from future offshore activities in foreign operations
in the jurisdictions of the areas of those operations, to simplify our worldwide
organizational structure for administrative and marketing reasons, to facilitate
more efficient management and control of business operations, and to deploy our
worldwide assets and capital in a more efficient manner among our consolidated
group of companies. In addition to these operational efficiencies, it is
expected that this restructuring will also provide long-term tax efficiencies. A
significant part of this restructuring involved the contribution of a majority
of our non-U.S. operations to Atwood Oceanics Pacific Limited, a wholly-owned
Cayman Islands company, which had historically served as our offshore company
for marketing, negotiating, and performing drilling contracts outside of the
United States. At September 30, 2003, most of our planned restructuring
initiative had been completed, with approximately $3 million of the increase in
general and administrative expenses related to professional fees associated with
this restructuring process.
The $3.4 million increase in net interest expense was due to an increase in
the average amount of debt outstanding, a $1.2 million write off of deferred
financing costs related to the prior credit facility, and due to a $1.9 million
decrease in capitalized interest as compared to prior fiscal year as a results
of the completion of the upgrade program and construction of the ATWOOD BEACON
during fiscal year 2003.
Virtually all of our tax provision for fiscal year 2003 relates to taxes in
foreign jurisdictions. Due to the low level of operating income in the United
States, in addition to operating losses in certain nontaxable foreign
jurisdictions, our effective tax rate for the fiscal year 2003 significantly
exceeded the United States statutory rate. During fiscal year 2003, we recorded
deferred foreign tax liabilities of $4.7 million relating to Australian and
16
Malaysian taxes after reassessing certain tax planning strategies in
conjunction with the reorganization of our foreign subsidiaries undertaken in
fiscal year 2003. This deferred tax expense had no cash effect during fiscal
year 2003.
LIQUIDITY AND CAPITAL RESOURCES
We currently operate eight active offshore drilling units. Since fiscal
year 1997, we have expended approximately $340 million on upgrading seven
existing drilling units and approximately $120 million on constructing our
eighth drilling unit, the ATWOOD BEACON. After expending approximately $100
million in each of the fiscal years 2001, 2002 and 2003 on our upgrade and rig
construction programs, our capital expenditures declined to approximately $6.5
million in fiscal year 2004. We operate in a cyclical industry. Maintaining high
equipment utilization in up, as well as down, cycles, is a key factor in
generating cash to satisfy current and future obligations. For fiscal years 1999
though 2003, net cash provided by operating activities ranged from a low of
approximately $13.7 million in fiscal year 2003 to a high of approximately $70.9
million in fiscal year 1999 compared to net cash provided by operating
activities of approximately $25.6 million for fiscal year 2004. Our operating
cash flows are primarily driven by our operating income, which reflects dayrates
and rig utilization. The low level of net cash provided by operating activities
in fiscal year 2003 was due to a downturn in market conditions during which we
pursued short-term contract opportunities in high operating cost areas in order
to maintain a high utilization of our fleet. Market conditions improved in
fiscal year 2004 which enabled us to have higher cash flows and earnings
compared to fiscal year 2003. We anticipate continuing improvements in market
conditions in fiscal year 2005 and accordingly, expect continuing improvements
in cash flows and earnings. Our existing cash commitments for fiscal year 2005
and beyond, outside of completing the funding of repair costs of the ATWOOD
BEACON and funding current rig operations, include annual capital expenditures
of $6 to $10 million for maintenance of our eight active drilling rigs and
required quarterly repayments under the term facility of our credit agreement
which will total $36 million for fiscal year 2005. We expect to generate
sufficient cash flows from operations to satisfy these obligations. Repair costs
for the ATWOOD BEACON are estimated to be approximately $25 million, all of
which is expected to be covered by insurance proceeds, and current rig
operations will be funded from current operating cash flows.
We funded our equipment upgrade and construction programs through a
combination of internally generated funds and funds borrowed under credit
facilities. On April 1, 2003, we executed a $225 million senior secured credit
facility, or the Credit Facility, with four industry banks to refinance our
prior existing indebtedness and to provide for on-going working capital and
general corporate needs. In June 2003, the borrowing capacity under the Credit
Facility was increased to $250 million, with five additional banks joining the
syndication group. The Credit Facility contains financial covenants, including
but not limited to, requirements for maintaining certain net worth and other
financial ratios, and restrictions on disposing of any material assets, paying
cash dividends or repurchasing any of our outstanding common stock and incurring
any additional indebtedness in excess of $3 million. In June 2003, we also
amended the Credit Facility to increase the allowed ratio limit of outstanding
debt to earnings before interest, income taxes and depreciation. However, the
ratio, as amended in June 2003, was based upon estimates that did not assume a
continuing decline in market conditions which negatively impacted our fiscal
year 2003 fourth quarter results. Therefore, in November 2003, the Credit
Facility was further amended, effective as of September 30, 2003, to redefine
the calculation of the ratio of outstanding debt to earnings, before interest,
income taxes and depreciation. The November amendment increased the permitted
ratio levels from 5.75 to 6.25 at December 31, 2003, reducing to 5.50 at March
31 and June 30, 2004, 4.00 at September 30, 2004 and 3.00 thereafter. We are in
compliance with all financial covenants at September 30, 2004 and expect to
remain in compliance with all financial covenants during fiscal year 2005.
Further, at all times during fiscal years 2002, 2003 and 2004 when we were
required to determine compliance with our financial covenants, we were in
compliance with the covenants. Aside from the financial covenants, no other
provisions exist in the Credit Facility that could result in acceleration of the
April 1, 2008 maturity date.
The Credit Facility consists of a 5-year $150 million amortizing Term Loan
Facility and a 5-year $100 million non-amortizing revolving loan facility. The
term loan facility requires quarterly payments of $6 million commencing on
December 31, 2003, increasing to quarterly payments of $9 million commencing on
December 31, 2004 until maturity on April 1, 2008. The Credit Facility permits
prepayment of principal at anytime without incurring a penalty. At September 30,
2004, we had $55 million outstanding under the revolving loan facility and $126
million outstanding under the term loan facility. With the repayment in October
2004 of the then $55 million outstanding under our revolving loan facility from
proceeds received from the public offering of 1,175,000 shares of our common
stock and cash on hand, we currently have approximately $99 million of available
borrowing capacity and with a debt to total capitalization ratio currently less
that 30%, we expect to remain in compliance with all financial covenants during
fiscal year 2005.
17
The collateral at September 30, 2004 for the Credit Facility consists
primarily of preferred mortgages on all eight of our active drilling units (with
an aggregate net book value at September 30, 2004 totaling approximately $384
million). We are not required to maintain compensating balances; however, we are
required to pay a fee of approximately .80% per annum on the unused portion of
the revolving loan facility and certain other administrative costs.
The SEASCOUT, a semisubmersible hull planned for future conversion and
upgrade to a semisubmersible tender assist vessel, continues to be cold-stacked.
The cost to convert and upgrade the SEASCOUT will be around $70 million. There
are no current capital commitments on the SEASCOUT, with a conversion and
upgrade not to be undertaken until an acceptable contract opportunity has been
secured and adequate financing is in place. We continue to periodically increase
and adjust our planned capital expenditures and financing of such expenditures
in light of current market conditions.
Our portfolio of accounts receivable is comprised of major international
corporate entities with stable payment experience. Historically, we have not
encountered significant difficulty in collecting receivables and typically do
not require collateral for our receivables. The insurance receivable of
approximately $25 million at September 30, 2004 relates to repairs being made to
the ATWOOD BEACON. We expect to encounter no difficulty in collecting these
receivables. We have no allowances for doubtful accounts at September 30, 2004.
COMMITMENTS (In Thousands)
The following table summarizes our obligations and commitments at September
30, 2004:
Fiscal Fiscal Fiscal Fiscal
2005 2006 2007 2008
------- ------- ------- -------
Long-Term Debt (1) $36,000 $36,000 $36,000 $73,000
Operating Leases 628 647 647 108
------- ------- ------- -------
$36,628 $36,647 $36,647 $73,108
======= ======= ======= =======
(1) The $55 million loan outstanding under the revolving credit facility,
due 2008, was repaid from the proceeds of our stock offering in October
2004 and cash on hand.
Excluded from the above table is interest associated with borrowings under
the Credit Facility because the applicable interest rate is variable. After
payment of the $55 million revolving portion of the Credit Facility, the
principal amount outstanding under the Credit Facility included in the above
table is $126 million which currently bears interest at a rate of approximately
3.8%.
CRITICAL ACCOUNTING POLICIES
Significant accounting policies are included in Note 2 to our consolidated
financial statements for the year ended September 30, 2004. These policies,
along with the underlying assumptions and judgments made by management in their
application, have a significant impact on our consolidated financial statements.
We identify our most critical accounting policies as those that are the most
pervasive and important to the portrayal of our financial position and results
of operations, and that require the most difficult, subjective and/or complex
judgments by management regarding estimates about matters that are inherently
uncertain. Our most critical accounting policies are those related to property
and equipment, impairment of assets, income taxes, and employee stock-based
compensation.
We currently operate eight active offshore drilling units. All of these
assets are premium equipment and should provide many years of quality service.
At September 30, 2004, the carrying value of our property and equipment totaled
$401.1 million, which represents 80% of total assets. This carrying value
reflects the application of our property and equipment accounting policies,
which incorporate estimates, assumptions and judgments by management relative to
the useful lives and salvage values of our rigs and vessels. The estimated
useful lives of our drilling units and related equipment range from 3 years to
25 years and our salvage values are generally based on 5% of capitalized costs.
Any future increases in our estimates of useful lives or salvage values will
have the effect of decreasing future depreciation expense in earlier future
years and spreading the expense to later years. Any future decreases in our
useful lives or salvage values will have the effect of accelerating future
depreciation expense. For example, effective October 1, 2003, we extended the
18
remaining depreciable life of the RICHMOND from 2 to 5 years, due to our recent
assessment of the rig's commercial viability, coupled with our intent to
continue marketing and operating the rig beyond 2 years. Depreciation expense
was recorded over the past fiscal year on a straight-line method and will
continue to be recorded on a straight-line method over the next 4 years.
However, as a result of the change in depreciable life and related depreciation
expenses being extended into years 3 to 5, depreciation expense was lower in the
last fiscal year than it otherwise would have been, and the same will be true
for fiscal year 2005.
We evaluate the carrying value of our property and equipment when events or
changes in circumstances indicate that the carrying value of such assets may be
impaired. Asset impairment evaluations are, by nature, highly subjective.
Operations of our drilling equipment are subject to the offshore drilling
requirements of oil and gas exploration and production companies and agencies of
foreign governments. These requirements are, in turn, subject to fluctuations in
government policies, world demand and price for petroleum products, proved
reserves in relation to such demand and the extent to which such demand can be
met from onshore sources. The critical estimates which result from these
dynamics include projected utilization, dayrates, and operating expenses, each
of which impact our estimated future cash flows. Over the last ten years, our
equipment utilization rate has averaged approximately 90%; however, if a
drilling vessel incurs significant idle time or receives dayrates below
operating costs, its carrying value could become impaired. The estimates,
assumptions and judgments used by management in the application of our property
and equipment and asset impairment policies reflect both historical experience
and expectations regarding future industry conditions and operations. The use of
different estimates, assumptions and judgments, especially those involving the
useful lives of our rigs and vessels and expectations regarding future industry
conditions and operations, would likely result in materially different carrying
values of assets and results of operations.
We conduct operations and earn income in numerous foreign countries and are
subject to the laws of taxing jurisdictions within those countries, as well as
United States federal and state tax laws. At September 30, 2004, we have an
$18.6 million net deferred income tax liability. This balance reflects the
application of our income tax accounting policies in accordance with statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Such
accounting policies incorporate estimates, assumptions and judgments by
management relative to the interpretation of applicable tax laws, the
application of accounting standards, and future levels of taxable income. The
estimates, assumptions and judgments used by management in connection with
accounting for income taxes reflect both historical experience and expectations
regarding future industry conditions and operations. Changes in these estimates,
assumptions and judgments could result in materially different provisions for
deferred and current income taxes.
We currently measure compensation expense for our employee stock-based
compensation plan using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees
and provide pro forma disclosures of the effect on net income and earnings per
share as if the fair value-based method had been applied in measuring
compensation expense. We have elected to follow APB Opinion No. 25 because, as
further discussed at Note 2 of the Notes to Consolidated Financial Statements,
the alternative fair value accounting provided for under SFAS No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options and employee
stock purchase plan shares. Under APB Opinion No. 25, when the exercise price of
employees' stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
On March 31, 2004, the FASB issued a proposed Statement, Share-Based
Payment, that addresses the accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the fair
value of the enterprise's equity instruments or that may be settled by the
issuance of such equity instruments. The proposed Statement would eliminate the
ability to account for share-based compensation transaction using APB Opinion
No. 25 and generally would require instead that such transactions be accounted
for using a fair-value-based method. If adopted, it is currently anticipated
that the proposed Statement would be effective for us beginning in the fourth
quarter of fiscal year 2005.
19
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revised version of Interpretation No.
46, "Consolidation of Variable Interest Entities--An Interpretation of ARB No.
51 ("FIN 46-R") which was originally issued in January 2003. A variable interest
entity ("VIE") is created when: (i) the equity investment at risk is not
sufficient to permit the entity from financing its activities without additional
subordinated financial support for other parties; (ii) equity holders at risk
either: (a) lack direct or indirect ability to make decisions about the entity,
(b) are not obligated to absorb expected losses of the entity or (c) do not have
the right to receive expected residual returns of the entity if they occur; or
(iii) the equity holders have voting rights that are disproportionate to their
economic interests, and the activities of the VIE involve or are conducted on
behalf of an equity holder with a disproportionately small voting interest. If
an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that
absorbs the majority of the expected losses of the VIE is considered the primary
beneficiary and must consolidate the VIE. The application of FIN 26 (as amended
by FIN 46-R) is required in financial statements of public entities that have
interest in variable interest entities or potential variable interest entities
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application by public entities (other than small business
issuers) for all other types of entities is required in financial statements for
periods ending after March 15, 2004. We adopted this interpretation in December
2003 and implementation of this interpretation did not have a material effect on
our results of operations, our financial position or cash flows.
In December 2003, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which supersedes SAB
No. 101, "Revenue Recognition in Financial Statements." SAB No. 104's primary
purpose is to rescind accounting guidance contained in SAB No. 101 related to
multiple element revenue arrangements, which was superseded as a result of the
issuance of Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements
with Multiple Deliverables." While the wording of SAB No. 104 has changed to
reflect the issuance of EITF No. 00-21, the revenue recognition principles of
SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The
implementation of SAB No. 104 is not expected to affect our financial position,
results of operations or cash flows.
DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including adverse changes in interest rates
and foreign currency exchange rates as discussed below.
Interest Rate Risk
All of the $181 million of long-term debt outstanding at September 30,
2004, was floating rate debt. As a result, our annual interest costs in fiscal
year 2005 will fluctuate based on interest rate changes. Because the interest
rate on our long-term debt is a floating rate, the fair value of our long-term
debt approximates carrying value as of September 30, 2004. The impact on annual
cash flow of a 10% change in the floating rate (approximately 40 basis points)
would be approximately $0.7 million, which we believe to be immaterial. We did
not have any open derivative contracts relating to our floating rate debt at
September 30, 2004.
Foreign Currency Risk
Certain of our subsidiaries have monetary assets and liabilities that are
denominated in a currency other than their functional currencies. Based on
September 30, 2004 amounts, a decrease of 10% in the foreign currency value
relative to the United States dollar from the year-end exchange rates would not
result in a material foreign currency transaction loss. Thus, we consider our
current risk exposure to foreign currency exchange rate movements, based on net
cash flows, to be immaterial. We did not have any open derivative contracts
relating to foreign currencies at September 30, 2004.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Atwood Oceanics, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
shareholder's equity present fairly, in all material respects, the financial
position of Atwood Oceanics, Inc. (the "Company") and its subsidiaries as of
September 30, 2004, and September 30, 2003, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 2004, in conformity with accounting principles generally accepted in the
United States of America. 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 of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
December 10, 2004
21
CONSOLIDATED BALANCE SHEETS
Atwood Oceanics, Inc. and Subsidiaries
September 30,
- ----------------------------------------------------------------------------------------------
(In thousands) 2004 2003
- ----------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,416 $ 21,551
Accounts receivable 32,475 30,864
Insurance receivable 25,433 -
Income tax receivable - 3,278
Inventories of materials and supplies 12,648 12,583
Deferred tax assets 290 550
Prepaid expenses and other 5,704 7,186
--------- ---------
Total Current Assets 92,966 76,012
--------- ---------
NET PROPERTY AND EQUIPMENT 401,141 443,102
--------- ---------
DEFERRED COSTS AND OTHER ASSETS 4,829 3,560
--------- ---------
$ 498,936 $ 522,674
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 36,000 $ 24,000
Accounts payable 9,398 10,403
Accrued liabilities 13,822 8,851
Deferred credits 833 6,695
------- --------
Total Current Liabilities 60,053 49,949
------- --------
LONG-TERM DEBT, net of current maturities 145,000 181,000
------- --------
OTHER LONG-TERM LIABILITIES:
Deferred income taxes 18,930 21,217
Deferred credits and other 3,364 7,041
------- --------
22,294 28,258
======== ========
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 shares authorized, none outstanding - -
Common stock, $1 par value; 20,000,000 shares authorized
with 13,873,000 and 13,851,000 issued and outstanding
at September 30, 2004 and 2003, respectively 13,873 13,851
Paid-in capital 57,917 57,404
Retained earnings 199,799 192,212
--------- ---------
Total Shareholders' Equity 271,589 263,467
--------- ---------
$ 498,936 $ 522,674
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
22
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts) 2004 2003 2002
- ------------------------------------------------------------------------------------------------------
REVENUES:
Contract drilling $ 161,074 $144,765 $ 149,157
Business interruption proceeds 2,380 - -
------- ------- -------
163,454 144,765 149,157
COSTS AND EXPENSES:
Contract drilling 98,936 98,500 75,088
Depreciation 31,582 25,758 23,882
General and administrative 11,389 14,015 10,080
------- ------- ---------
141,907 138,273 109,050
------- ------- ---------
OPERATING INCOME 21,547 6,492 40,107
------- ------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest (9,202) (5,014) (1,658)
Investment income 57 158 328
------- ------- ---------
(9,145) (4,856) (1,330)
------- ------- ---------
INCOME BEFORE INCOME TAXES 12,402 1,636 38,777
PROVISION FOR INCOME TAXES 4,815 14,438 10,492
------- ------- ---------
NET INCOME (LOSS) $ 7,587 $(12,802) $ 28,285
======= -======== =========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ 0.55 $ (0.92) $ 2.04
Diluted 0.54 (0.92) 2.02
AVERAGE COMMON SHARES OUTSTANDING:
Basic 13,859 13,846 13,839
Diluted 14,032 13,846 13,994
The accompanying notes are an integral part of these consolidated financial
statements.
23
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended September 30,
- -------------------------------------------------------------------------------------------------------------------------
(In thousands) 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,587 $ (12,802) $ 28,285
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 31,582 25,758 23,882
Amortization of debt issuance costs 711 2,101 358
Amortization of deferred items 603 185 77
Deferred federal income tax provision (benefit) (2,040) 5,350 2,500
(Gain) loss on sale of assets 163 (421)
Changes in assets and liabilities:
Increase in accounts receivable 1,667 (5,200) (8,930)
Increase in insurance receivable (9,133) - -
Increase in inventory (65) (3,449) (23)
Increase in deferred costs and other assets (970) (94) (6,275)
Increase (decrease) in accounts payable (487) 4,780 759
Increase (decrease) in accrued liabilities 4,971 (4,958) 600
Increase in deferred credits and other liabilities (3,678) 4,051 6,615
Net mobilization fees and credits (5,311) (1,062) (1,177)
Other decreases 13 (565) (3,229)
------ ------ ------
18,026 26,476 15,157
------ ------ ------
Net Cash Provided by Operating Activities 25,613 13,674 43,442
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (6,527) (101,819) (89,416)
Non-cash portion of capital expenditures - - 1,269
Proceeds from sale of assets - 1,131 -
Other - (23) 92
------ -------- -------
Net Cash Used by Investing Activities (6,527) (100,711) (88,055)
------ -------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercises of stock options 460 78 181
Debt issuance costs paid (681) (4,122) (557)
Proceeds from credit facilities - 264,500 60,000
Proceeds from short-term note payable - - 6,154
Principal payments on debt (24,000) (179,523) (6,131)
------- -------- ------
Net Cash Provided by Financing Activities (24,221) 80,933 59,647
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (5,135) $ (6,104) $ 15,034
CASH AND CASH EQUIVALENTS, at beginning of period $ 21,551 $ 27,655 $ 12,621
-------- -------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 16,416 $ 21,551 $ 27,655
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for domestic and foreign income taxes $ 5,549 $ 7,914 $ 10,589
======== ======== ========
Cash paid during the year for interest, net of amounts capitalized $ 9,208 $ 4,003 $ 1,704
======== ======== ========
Non-cash Activities:
Increase in receivable related to reduction in value of the ATWOOD BEACON $ 16,300 $ - $ -
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
24
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
Total
Common Stock Paid-in Retained Stockholders'
(In thousands) Shares Amount Capital Earnings Equity
- ------------------------------------------------------------------------------------------------------------------------------
September 30, 2001 13,832 $13,832 $57,075 $176,729 $247,636
Net income - - - 28,285 28,285
Exercise of employee stock options 13 13 168 - 181
Tax benefit from exercise of employee stock options - - 31 - 31
------ -------- -------- ---------- --------
September 30, 2002 13,845 13,845 57,274 205,014 276,133
Net loss - - - (12,802) (12,802)
Exercise of employee stock options 6 6 72 - 78
Tax benefit from exercise of employee stock options - - 58 - 58
------ -------- -------- ---------- --------
September 30, 2003 13,851 13,851 57,404 192,212 263,467
Net income - - - 7,587 7,587
Exercise of employee stock options 22 22 438 - 460
Tax benefit from exercise of employee stock options - - 75 - 75
------ -------- -------- --------- --------
September 30, 2004 13,873 $13,873 $57,917 $199,799 $271,589
====== ======= ======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
25
Atwood Oceanics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Atwood Oceanics, Inc., together with its wholly owned subsidiaries
(collectively referred to herein as "we", "our" or the "Company"), is engaged in
offshore drilling and completion of exploratory and developmental oil and gas
wells and related support, management and consulting services principally in
international locations. Presently, we own and operate a premium, modern fleet
of eight mobile offshore drilling units and are involved in maintenance of two
operator-owned platform drilling units in Northwest Australia for future
drilling programs. In December 2000, we purchased a semisubmersible unit for a
future conversion to a tender assist vessel once an acceptable contract
opportunity is secured (see Note 3). Currently, we are involved in active
operations in the territorial waters of Australia, Malaysia, Egypt, and the
United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -
The consolidated financial statements include the accounts of Atwood
Oceanics, Inc. and all of its wholly owned domestic and foreign subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Foreign exchange -
The United States dollar is the functional currency for all areas of our
operations. Accordingly, monetary assets and liabilities denominated in foreign
currency are remeasured to United States dollars at the rate of exchange in
effect at the end of the year, items of income and expense are remeasured at
average monthly rates, and property and equipment and other nonmonetary amounts
are remeasured at historical rates. Gains and losses on foreign currency
transactions and remeasurements are included in contract drilling costs in the
consolidated statements of operations. We recorded no foreign exchange gains or
losses during fiscal year 2004 and recorded a foreign exchange loss of $.9
million in fiscal year 2003 and a foreign exchange gain of $.1 million in fiscal
year 2002.
Accounts Receivable -
We record trade accounts receivable at the amount we invoice our customer.
These accounts do not bear interest. Our portfolio of accounts receivable is
comprised of major international corporate entities and government organizations
with stable payment experience. Historically, our uncollectible accounts
receivable have been immaterial, and typically, we do not require collateral for
our receivables. We provide an allowance for uncollectible accounts, as
necessary, on a specific identification basis. However, we had no allowance for
doubtful accounts at September 30, 2004 or 2003.
Inventories of Material and Supplies -
Inventories consist of spare parts, material and supplies held for
consumption and are stated principally at the lower of average cost or market,
net of reserves for excess and obsolete inventory of $1.3 million at both
September 30, 2004 and 2003.
Property and equipment -
Property and equipment are recorded at cost. Interest costs related to
property under construction are capitalized as a component of construction
costs. With our upgrades and new rig construction programs completed at the end
of fiscal year 2003, we had no capitalized interest during fiscal year 2004.
Interest capitalized during fiscal 2003 and 2002 was $3.3 million and $2.3
million, respectively.
26
Once a rig is placed in service, it is depreciated on the straight-line
method over its estimated useful life, with depreciation discontinued only
during the period when a drilling unit is out of service while undergoing a
significant upgrade that extends its useful life. Our estimated useful lives of
our various classifications of assets are as follows:
Years
Drilling vessels and related equipment...... 5-25
Drill pipe.................................. 3
Furniture and other......................... 3-10
Maintenance, repairs and minor replacements are charged against income as
incurred; major replacements and upgrades are capitalized and depreciated over
the remaining useful life of the asset as determined upon completion of the
work. The cost and related accumulated depreciation of assets sold, retired or
otherwise disposed are removed from the accounts at the time of disposition, and
any resulting gain or loss is reflected in the Consolidated Statements of
Operations for the applicable period.
Impairment of property and equipment -
We periodically evaluate our property and equipment to determine that their
net carrying value is not in excess of their net realizable value. These
evaluations are performed when our Company has sustained significant declines in
utilization and dayrates and recovery is not contemplated in the near future. We
consider a number of factors such as estimated future cash flows, appraisals and
current market value analysis in determining net realizable value. Assets are
written down to their fair value if they are below their net carrying value
Deferred drydocking costs -
We defer the costs of scheduled drydocking and charge such costs to expense
over the period to the next scheduled drydocking (normally 30 months). At
September 30, 2004 and 2003, deferred drydocking costs totaling $0.8 million and
$0.4 million, respectively, were included in Deferred Costs and Other Assets in
the accompanying Consolidated Balance Sheets.
Income taxes -
We account for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, deferred income taxes are recorded to reflect the tax consequences on
future years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end given the provisions of
enacted tax laws in each respective jurisdiction. Deferred tax assets are
reduced by a valuation allowance when, based upon management's estimates, it is
more likely than not that a portion of the deferred tax assets will not be
realized in a future period.
Revenue recognition -
We account for drilling and management contract revenue in accordance with
the term of the underlying drilling or management contract. These contracts
generally provide that revenue is earned and recognized on a daily basis. We
provide crewed rigs to customers on a daily rate (i.e. "dayrate") basis. Dayrate
contracts can be for a specified period of time or the time required to drill a
specified well or number of wells. Revenues from dayrate drilling operations,
which are classified under contract drilling services, are recognized on a per
day basis as the work progresses. In addition, business interruption proceeds
are also recognized on a per day basis. See Note 3 for further discussion of the
ATWOOD BEACON incident.
Deferred fees and costs related to mobilization periods -
Lump-sum fees received as compensation for the cost of relocating drilling
rigs from one major operating area to another, whether received at commencement
or upon termination of the drilling contract, are recognized as earned on a
straight-line method over the term of the related drilling contract, as are the
dayrates associated with the drilling contract. Dayrates are typically earned
uniformly for a particular level of service over the life of a contract. In
27
addition, we defer the mobilization costs relating to moving a drilling rig to a
new area and amortize such costs on a straight-line basis over the life of the
applicable drilling contract as well. Contract revenues and drilling costs are
reported in the Statements of Operations at their gross amounts.
At September 30, 2004 and 2003, deferred mobilization revenues totaled $0.8
million and $3.3 million, respectively, and deferred mobilization costs totaled
$0.4 million and $0.9 million, respectively. Deferred mobilization revenues and
deferred mobilization costs are classified as current or long-term in the
accompanying Consolidated Balance Sheets based on the expected term of the
applicable drilling contracts.
Cash and cash equivalents -
Cash and cash equivalents consist of cash in banks and highly liquid debt
instruments, which mature within three months of the date of purchase.
Insurance receivable -
As of September 30, 2004, we have an insurance receivable of $25.4 million
related to a claim filed as a result of damage sustained by the ATWOOD BEACON in
July 2004 while positioning for its next well offshore Indonesia. We expect to
collect this receivable during fiscal year 2005. See Note 3 for further
discussion regarding the ATWOOD BEACON incident.
Earnings per common share -
Basic and diluted earnings per share have been computed in accordance with
SFAS No. 128, "Earnings per Share" (EPS). "Basic" EPS excludes dilution and is
computed by dividing net income (loss) by the weighted-average number of common
shares outstanding for the period. "Diluted" EPS reflects the issuance of
additional shares in connection with the assumed conversion of stock options.
The computation of basic and diluted earnings per share under SFAS No. 128
for each of the past three fiscal years is as follows (in thousands, except per
share amounts):
Per Share
Net Income Shares Amount
---------- ------ ---------
Fiscal 2004:
Basic earnings per share $ 7,587 13,859 $ 0.55
Effect of dilutive securities -
Stock options - 173 (0.01)
------- ------ ------
Diluted earnings per share $ 7,587 14,032 $ 0.54
======= ====== ======
Fiscal 2003:
Basic earnings per share $(12,802) 13,846 $(0.92)
Effect of dilutive securities -
Stock options - - -
-------- ------ ------
Diluted earnings per share $(12,802) 13,846 $ (0.92)
======== ====== =======
Fiscal 2002:
Basic earnings per share $ 28,285 13,839 $ 2.04
Effect of dilutive securities -
Stock options - 155 (0.02)
-------- ------ -------
Diluted earnings per share $ 28,285 13,994 $ 2.02
======== ====== ======
The calculation of diluted earnings per share for the years ended September
30, 2004, 2003 and 2002 excludes consideration of shares of common shares which
may be issued in connection with outstanding stock options of 101,275, 825,000
and 183,000, respectively, (see Note 6) because such options were antidilutive.
These options could potentially dilute basic EPS in the future.
28
Stock-Based compensation -
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies the choice of either using a fair
value method of accounting for options, which would result in expense
recognition for all options granted, or using an intrinsic value method as
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", with pro forma disclosure of the impact on net
income (loss) of using the fair value option expense recognition method.
We apply the recognition and measurement principles of APB Opinion No. 25
and related interpretations. Accordingly, no compensation costs have been
recognized in net income from the granting of options pursuant to its stock
option plans, as all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
See Note 6 for additional information related to our stock incentive plans.
Had compensation costs been determined based on the fair value at the grant
dates consistent with the method of SFAS No. 123, our net income and earnings
per share would have been reduced to the pro forma amounts indicated below (in
thousands, except for per share amounts):
Fiscal Fiscal Fiscal
2004 2003 2002
------ ------ -----
Net (loss) income, as reported $7,587 $ (12,802) $ 28,285
Deduct: Total stock-based
employee compensation
expense determined under fair
value based method for all
awards, net of related tax effects (2,517) (2,150) (1,696)
------ ------ ------
Pro Forma, net income $5,070 $ (14,952) $ 26,589
====== ========= ========
Earnings per share:
Basic - as reported $ 0.55 $ (0.92) $ 2.04
Basic - pro forma $ 0.37 $ (1.08) $ 1.92
Diluted - as reported $ 0.54 $ (0.92) $ 2.02
Diluted - pro forma $ 0.36 $ (1.08) $ 1.90
The fair value of grants made for the past three fiscal years were
estimated on the date of grant using the Black-Sholes Option Pricing model with
the following weighted-average assumptions:
Fiscal Fiscal Fiscal
2004 2003 2002
------ ------ -----
Risk-Free Interest Rate 4.38% 3.58% 3.58%
Expected Volatility 50.00% 50.00% 46.95%
Expected Life (Years) 6 6 6-7
Dividend Yield None None None
Use of estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make extensive use of
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.
29
NOTE 3 - PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as follows (in
thousands):
September 30,
------------------------
2004 2003
------ ------
Drilling vessels and related equipment
Cost $ 608,584 $ 618,943
Accumulated depreciation (211,544) (181,924)
-------- --------
Net book value 397,040 437,019
-------- --------
Drill Pipe
Cost 10,240 10,224
Accumulated depreciation (7,259) (6,010)
-------- -------
Net book value 2,981 4,214
-------- -------
Furniture and other
Cost 7,635 9,072
Accumulated depreciation (6,515) (7,203)
--------- -------
Net book value 1,120 1,869
--------- -------
NET PROPERTY AND EQUIPMENT $ 401,141 $ 443,102
========= =========
ATWOOD HUNTER -
In 1997, the ATWOOD HUNTER was initially upgraded to extend its water-depth
drilling capabilities to 3,600 feet at an aggregate cost of approximately $40
million. From June 2001 to November 2001, the ATWOOD HUNTER was in a shipyard in
the United States undergoing another upgrade which included among other
improvements, the extension of its water-depth drilling capacity to 5,000 feet
for certain environmental conditions, new 120 bed living quarters, a new high
capacity crane and the enhancement of its completion and sub-sea tree handling
capabilities. The aggregate cost of this upgrade and improvements was
approximately $58 million.
ATWOOD EAGLE -
In January 2000, the water depth drilling capability of the ATWOOD EAGLE
was increased from 2,500 feet to 3,300 feet at a cost of approximately $8
million. From April 2002 to late November 2002, the ATWOOD EAGLE was in a
shipyard in Greece undergoing another upgrade which included among other
improvements, the extensions of its water-depth drilling capacity to 5,000 feet,
new 120 bed living quarters, two new high capacity cranes and the enhancement of
its completion and sub-sea tree handling capabilities. The aggregate cost of
this upgrade and improvements was approximately $90 million.
RICHMOND -
During August and September 2000, the RICHMOND was upgraded and refurbished
at an aggregate cost of approximately $7 million. The upgrade included, among
other improvements, the installation of suction piles and the refurbishment of
its living quarters.
ATWOOD FALCON -
The ATWOOD FALCON was upgraded in 1998, at a cost of approximately $45
million.
30
SEAHAWK -
In January 2000, the SEAHAWK commenced drilling under its four-year
contract extension in Malaysia following completion of its approximate $22
million upgrade.
VICKSBURG -
In 1998, the VICKSBURG was refurbished and upgraded at a cost of
approximately $35 million.
ATWOOD SOUTHERN CROSS -
In 1997, the ATWOOD SOUTHERN CROSS was refurbished and upgraded to achieve
2,000 feet water-depth drilling capabilities at an aggregate cost of
approximately $35 million.
ATWOOD BEACON -
In July 2001, we entered into a vessel construction agreement to construct
an ultra-premium jack-up drilling unit in Singapore. The construction and
commission of the drilling unit was completed in July 2003 at a total cost,
including owner furnished equipment and capitalized interest, of approximately
$120 million and subsequently was placed into service in August 2003.
On July 25, 2004, the ATWOOD BEACON incurred damage to all three legs and
the derrick while positioning for its next well offshore Indonesia. The rig and
its damaged legs were transported to the builder's shipyard in Singapore for
inspections and repairs. We expect all repairs to be completed in January 2005.
We have insurance to cover the costs of repairs in excess of a $1 million
deductible which was recorded as an expense in the fourth quarter of fiscal year
2004. At September 30, 2004, the book basis of the ATWOOD BEACON has been
reduced by $16.3 million which is the estimated reduction in value caused by the
incident. In addition, $7.7 million of costs were incurred related to the
recovery of the rig of which $6.7 million is recorded as an insurance receivable
at September 30, 2004 and $1.0 million was expensed during the fourth quarter of
fiscal year 2004 to account for the insurance deductible. We also have loss of
hire insurance coverage of $70,000 per day up to 180 days, which began after a
30-day waiting period commencing July 28, 2004. Revenue recognized from this
insurance coverage totaled approximately $2.4 million in fiscal year 2004 and is
reflected as business interruption proceeds on the Consolidated Statement of
Operations. Accordingly, a $2.4 million insurance receivable is recorded related
to these revenues as of September 30, 2004.
SEASCOUT -
On December 5, 2000, we purchased the semisubmersible unit SEASCOUT for
$4.5 million and subsequently have made certain improvements related to
engineering and equipment removal. We purchased this unit for conversion and
upgrade to a semisubmersible tender assist vessel. The conversion and upgrade
will not be undertaken until an acceptable contract opportunity has been
secured. The rig is currently cold stacked while awaiting an opportunity for an
acceptable contract.
NOTE 4 - DEBT
LONG-TERM DEBT -
A summary of long-term debt is as follows (in thousands):
September 30,
--------------------------
2004 2003
Credit facility, bearing interest
(market adjustable) at approximately 4.00%
per annum at September 30, 2004 $ 181,000 $ 205,000
Less - current maturities 36,000 24,000
--------- ---------
$ 145,000 $ 181,000
========= =========
31
On April 1, 2003, we executed a $225 million senior secured credit
facility, or the Credit Facility, with four industry banks to refinance our
prior existing indebtedness and to provide for on-going working capital and
general corporate needs. In June 2003, the borrowing capacity under the Credit
Facility was increased to $250 million, with five additional banks joining the
syndication group. The Credit Facility contains financial covenants, including
but not limited to, requirements for maintaining certain net worth and other
financial ratios, and restrictions on disposing of any material assets, paying
cash dividends or repurchasing any of our outstanding common stock and incurring
any additional indebtedness in excess of $3 million. In June 2003, we also
amended the Credit Facility to increase the allowed ratio limit of outstanding
debt to earnings before interest, income taxes and depreciation. However, the
ratio, as amended in June 2003, was based upon estimates that did not assume a
continuing decline in market conditions which negatively impacted our fiscal
year 2003 fourth quarter results. Therefore, in November 2003, the Credit
Facility was further amended, effective as of September 30, 2003, to redefine
the calculation of the ratio of outstanding debt to earnings, before interest,
income taxes and depreciation. The November amendment increased the permitted
ratio levels from 5.75 to 6.25 at December 31, 2003, reducing to 5.50 at March
31 and June 30, 2004, 4.00 at September 30, 2004 and 3.00 thereafter. We are in
compliance with all financial covenants at September 30, 2004 and expect to
remain in compliance with all financial covenants during fiscal year 2005.
Further, at all times during fiscal year 2002, 2003 and 2004 when we were
required to determine compliance with our financial covenants, we were in
compliance with the covenants. Aside from the financial covenants, no other
provisions exist in the Credit Facility that could result in acceleration of the
April 1, 2008 maturity date.
The Credit Facility consists of a 5-year $150 million amortizing Term Loan
Facility and a 5-year $100 million non-amortizing revolving loan facility. The
term loan facility requires quarterly payments of $6 million commencing on
December 31, 2003, increasing to quarterly payments of $9 million commencing on
December 31, 2004 until maturity on April 1, 2008. The Credit Facility permits
prepayment of principal at anytime without incurring a penalty. At September 30,
2004, we had $55 million outstanding under the revolving loan facility and $126
million outstanding under the term loan facility. In October 2004, we repaid the
$55 million outstanding under the revolving loan facility from proceeds received
from the public offering of 1,175,000 shares of our common stock and cash on
hand. The collateral at September 30, 2004 for the Credit Facility consists
primarily of preferred mortgages on all eight of our active drilling units (with
an aggregate net book value at September 30, 2004 totaling approximately $384
million). We are not required to maintain compensating balances; however, we are
required to pay a fee of approximately .80% per annum on the unused portion of
the revolving loan facility and certain other administrative costs.
The Credit Facility also supports issuance, when required, of standby
letters of guarantee. At September 30, 2004, standby letters of guarantee in the
aggregate amount of approximately $1.5 million were outstanding.
Future maturities of long-term debt are as follows (in thousands):
FISCAL YEAR AMOUNT
-----------
2005 $ 36,000
2006 36,000
2007 36,000
2008 73,000
---- --------
$181,000
=========
NOTE 5 - INCOME TAXES
Domestic and foreign income before income taxes for the three-year period
ended September 30, 2004 is as follows (in thousands):
Fiscal Fiscal Fiscal
2004 2003 2002
------ ------ ------
Domestic income (loss) $ 1,094 $(5,112) $ 5,076
Foreign income 11,308 6,748 33,701
-------- ------- --------
$ 12,402 $ 1,636 $ 38,777
======== ======= ========
32
The provision (benefit) for domestic and foreign taxes on income consists
of the following (in thousands):
Fiscal Fiscal Fiscal
2004 2003 2002
------ ------ ------
Current - domestic $ 277 $ 361 $ (3,025)
Deferred - domestic (990) 700 2,500
Current - foreign 6,578 8,727 11,017
Deferred - foreign (1,050) 4,650 -
------- ------- --------
$ 4,815 $ 14,438 $ 10,492
======= ======== ========
Virtually all of our tax provision for the current and prior fiscal years
relates to taxes in foreign jurisdictions. Due to the low level of operating
income in the United States during the current fiscal year, and the operating
loss in the United States in the prior fiscal year, in addition to operating
losses in certain nontaxable foreign jurisdictions for both fiscal years, our
effective tax rate for the fiscal year 2004 exceeds the United States statutory
rate and significantly exceeded the United States statutory rate during fiscal
year 2003.
In connection with our restructuring in fiscal year 2003, operational
changes, uncertainty of proposed changes in laws, and uncertainty in the
application of existing laws caused us to reassess our intention to implement
other tax planning strategies related to Malaysian and Australian rigs. As a
result of that reassessment, we determined that such strategies were no longer
viable given the potential risks involved. Therefore, we recorded deferred
foreign tax liabilities of $4.7 million relating to Australian and Malaysian
taxes in fiscal year 2003. This deferred tax expense had no cash effect during
fiscal year 2003.
The components of the deferred income tax assets (liabilities) as of
September 30, 2004 and 2003 are as follows (in thousands):
September 30,
-----------------------------
2004 2003
Deferred tax assets -
Net operating loss carryforwards $ 5,130 $ 5,368
Tax credit carryforwards 1,250 1,590
Book accruals 260 550
------ ------
6,640 7,508
------ ------
Deferred tax liabilities -
Difference in book and tax basis of equipment (24,090) (27,235)
Deferred income (820) -
------- -------
(24,910) (27,235)
------- -------
Net deferred tax assets (liabilities) before valuation allowance (18,270) (19,727)
Valuation allowance (370) (940)
------- --------
$(18,640) $(20,667)
======== ========
Net current deferred tax assets $ 290 $ 550
Net noncurrent deferred tax liabilities (18,930) (21,217)
------- --------
$(18,640) $(20,667)
======== ========
33
All of the $5.1 million of Australian net operating loss carryforwards and
$0.9 million of the $1.3 million of United States tax credit carryforwards do
not expire. Management estimates these tax attributes will be utilized to offset
tax obligations in future periods. However, $0.4 million of the United States
tax credit carryforwards expire in 2008, and management estimates these credits
will not be available to reduce future tax obligations. Thus, a $0.4 million
valuation allowance is recorded as of September 30, 2004. An analysis of the
change in the valuation allowance during the current fiscal year is as follows
(in thousands):
Valuation Allowance as of September 30, 2003 940
Utilization of foreign tax credit carryforwards (570)
-----
Valuation Allowance as of September 30, 2004 $ 370
=====
We do not provide federal income taxes on the undistributed earnings of our
foreign subsidiaries that we consider to be permanently reinvested in foreign
operations. In addition, there was no cumulative amount of such undistributed
earnings at September 30, 2004.
The differences between the statutory and the effective income tax rate are
as follows:
Fiscal Fiscal Fiscal
2004 2003 2002
------ ------ ------
Statutory income tax rate 35% 35% 35%
Impact of foreign reorganization - 361 -
Prior period foreign tax true-ups (3) - -
Increase (decrease) in tax rate resulting from -
Foreign tax rate differentials, net of foreign tax credit utilization 7 487 (8)
--- --- ---
Effective income tax rate 39% 883% 27%
=== === ===
NOTE 6 - CAPITAL STOCK
PREFERRED STOCK-
In 1975, 1,000,000 shares of preferred stock with no par value were
authorized. No shares have been issued.
EQUITY INCENTIVE PLANS -
We have a stock incentive plan ("2001 Plan") whereby 1,000,000 shares of
common stock may be granted to officers, board members and key employees through
December 5, 2011. At September 30, 2004, options to purchase 355,000 shares were
outstanding under this Plan. We also have options outstanding to purchase
578,525 shares under a 1996 Plan and 49,150 shares under a 1990 Plan; however,
under the 1996 and 1990 Plans, no additional shares are reserved for grant.
Under all plans, the exercise price of each option equals the market price of
one share of our common stock on the date of grant, with all outstanding options
having a maximum term of 10 years. Options vest over a period from the end of
the first to the fourth year from the date of grant under the 2001 Plan and from
the end of the second to the fifth year from the date of grant under the 1996
and 1990 Plans. Each option is for the purchase of one share of our common
stock. The stock incentive plans also provide for other types of awards,
including but not limited to, restricted stock awards. To date, no awards other
than options have been granted under the plans. All stock incentive plans
currently in effect have been approved by the shareholders of our outstanding
common stock.
34
A summary of the status of our Plans as of September 30, 2004, 2003 and
2002, and changes during the years ended on those dates is presented below:
Fiscal 2004 Fiscal 2003 Fiscal 2002
------------------------ ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
--------- --------- --------- --------- ----------- ---------
Outstanding at beginning of Year 823,575 $ 31.37 825,075 $ 31.27 672,675 $ 30.93
Granted 185,000 27.65 20,000 28.69 171,500 31.46
Exercised (21,400) 21.53 (6,000) 13.10 (13,100) 13.83
Forfeited (4,500) 31.07 (15,500) 26.78 (6,000) 39.73
Expired - - - - - -
-------- -------- -------- ------- -------- -------
Outstanding at end of year 982,675 $ 30.92 823,575 $ 31.37 825,075 $ 31.27
======= ======= ======= ======= ======= =======
Exercisable at end of year 547,800 $ 31.33 431,325 $ 30.32 272,225 $ 28.30
======= ======= ======= ======= ======= =======
Available for grant at end of Year 700,625 881,125 885,625
======= ======= =======
Weighted-average fair value of
options granted during the Year $ 14.15 $ 14.70 $ 15.67
======= ======= =======
The following table summarizes information about stock options outstanding
at September 30, 2004:
Options Outstanding Options Exercisable
--------------------------------------------------- -------------------------------------
Weighted Average
Range of Remaining Weighted Average Weighted Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------- -------- ------------------ ---------------- ------ -----------------
$ 6.56 to 6.69 5,300 0.3 years $ 6.56 5,300 $ 6.56
16.63 to 18.97 119,350 2.9 years 17.67 119,350 17.67
27.82 to 28.00 247,000 7.3 years 27.26 64,500 27.97
30.06 to 37.75 499,750 6.7 years 32.43 269,875 32.89
42.71 to 52.06 111,275 4.3 years 47.62 88,775 48.87
------- ------- ------- -------
6.56 to 52.06 982,675 6.1 years $30.92 547,800 $ 31.33
======= ======= ======= =======
RIGHTS AGREEMENT -
In September 2002, we authorized and declared a dividend of one Right for
each outstanding share of common stock as of November 5, 2002, subject to lender
approval and consent, which was obtained. One Right will also be associated with
each share of common stock that becomes outstanding after November 5, 2002 but
before the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as defined in Rights Agreement effective October 18, 2002,
which governs the Rights). The Rights are not exercisable until a person or
group of affiliated or associated persons begin to acquire or acquires
beneficial ownership of 15 percent or more of our outstanding common stock. This
provision does not apply to shareholders already holding 15 percent or more of
our outstanding common stock as of November 5, 2002 until they acquire an
additional 5 percent. When exercisable, each Right entitles the registered
holder to purchase from us one one-thousandth of a share of our Series A Junior
Participating Preferred Stock, no par value, at a price of $150 per one
one-thousandth of a preferred share, subject to adjustment. The Rights will
expire on November 5, 2012. At September 30, 2004, 500,000 preferred shares have
been reserved for issuance in the event that Rights are exercised.
35
NOTE 7 - RETIREMENT PLAN
We have a contributory retirement plan (the "Plan") under which qualified
participants may make contributions, which together with our contributions, can
be up to 100% of their compensation, as defined, to a maximum of $40,000.
Participants must contribute from 1 to 5 percent of their earnings as a required
contribution ("the basic contribution"). We make contributions to the Plan equal
to twice the basic contributions. After six consecutive months of service, an
employee can elect to become a participant in the Plan. Our contributions vest
100% to each participant after three years of service with us including any
period of ineligibility mandated by the Plan. If a participant terminates
employment before becoming fully vested, the unvested portion is credited to our
account and can be used only to offset our contribution requirements. During
fiscal years 2004 and 2002, $120,000 and $200,000 of forfeitures were utilized
to reduce our cash contribution requirements, respectively. In fiscal year 2003,
no forfeitures were utilized to reduce our cash contribution requirements. In
fiscal years 2004, 2003 and 2002, actual cash contributions totaled
approximately $2.4 million, $2.5 million and $2.2 million, respectively. As of
September 30, 2004, there are approximately $56,000 of contribution forfeitures,
which can be utilized to reduce our future cash contribution requirements.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities included in the accompanying
Consolidated Balance Sheets approximate fair value due to the short maturity of
these instruments. Since the Credit Facility (as described in Note 4) has a
market adjustable interest rate, the carrying value approximated fair value as
of September 30, 2004 and 2003.
NOTE 9 - CONCENTRATION OF MARKET AND CREDIT RISK
All of our customers are in the oil and gas offshore exploration and
production industry. This industry concentration has the potential to impact our
overall exposure to market and credit risks, either positively or negatively, in
that our customers could be affected by similar changes in economic, industry or
other conditions. However, we believe that the credit risk posed by this
industry concentration is offset by the creditworthiness of our customer base.
Revenues from significant customers from the prior three fiscal years are
as follows (in thousands):
Fiscal Fiscal Fiscal
2004 2003 2002
-------- -------- -------
ExxonMobil Production Malaysia, Inc. $ 33,256 $ 47,827 $ 23,417
Esso Exploration Angola 180 19,514 -
Woodside Energy Ltd. 5,825 25,324 1,907
Shell Philippines Exploration B.V. - - 22,370
Burullus Gas Company 16,734 5,541 27,319
Carigali - Triton Operating Company - - 20,474
Rashid Petroleum Company - 738 8,740
36
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
We lease our Houston, Texas office space under an operating lease agreement
which will expire in fiscal year 2008.
Future minimum lease payments for operating leases for the fiscal years
ending September 30 are as follows (in thousands):
2005.....................................628
2006.....................................647
2007.....................................647
2008.....................................108
Total rent expense under operating leases was approximately $597,000,
$567,000 and $539,000 for fiscal years ended September 30, 2004, 2003, and 2002
respectively.
LITIGATION
We are party to a number of lawsuits which are ordinary, routine litigation
incidental to our business, the outcome of which, individually, or in the
aggregate, is not expected to have a material adverse effect on our financial
position, results of operations, or cash flows.
NOTE 11 - SUBSEQUENT EVENTS
In October 2004, we sold in a public offering 1,175,000 shares of our
common stock at an effective net price (before expenses) of $45.83 for total
proceeds of approximately $53.9 million. We used these proceeds and cash on hand
to repay the $55 million outstanding as of September 30, 2004 under the
revolving portion of our Credit Facility.
NOTE 12 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revised version of Interpretation No.
46, "Consolidation of Variable Interest Entities-- An Interpretation of ARB No.
51 ("FIN 46-R") which was originally issued in January 2003. A variable interest
entity ("VIE") is created when: (i) the equity investment at risk is not
sufficient to permit the entity from financing its activities without additional
subordinated financial support for other parties; (ii) equity holders at risk
either, (a) lack direct or indirect ability to make decisions about the entity,
(b) are not obligated to absorb expected losses of the entity or (c) do not have
the right to receive expected residual returns of the entity if they occur; or
(iii) equity holders have voting rights that are disproportionate to their
economic interests, and the activities of the VIE involve or are conducted on
behalf of an equity holder with a disproportionately small voting interest. If
an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that
absorbs the majority of the expected losses of the VIE is considered the primary
beneficiary and must consolidate the VIE. The application of FIN 26 (as amended
by FIN 46-R) is required in financial statements of public entities that have
interest in variable interest entities or potential variable interest entities
commonly referred to as special-purpose entities for periods ending after
December 15, 2003. Application by public entities (other than small business
issuers) for all other types of entities is required in financial statements for
periods ending after March 15, 2004. We adopted this interpretation in December
2003 and implementation of this interpretation did not have a material effect on
our results of operations or our financial position or cash flows.
In December 2003, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which supersedes SAB
No. 101, "Revenue Recognition in Financial Statements." SAB No. 104's primary
purpose is to rescind accounting guidance contained in SAB No. 101 related to
multiple element revenue arrangements, which was superseded as a result of the
issuance of Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements
with Multiple Deliverables." While the wording of SAB No. 104 has changed to
reflect the issuance of EITF No. 00-21, the revenue recognition principles of
SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The
implementation of SAB No. 104 is not expected to affect our financial position,
results of operations or cash flows.
37
NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS
We are engaged in offshore contract drilling. Our contract drilling
operations consist of contracting owned or managed offshore drilling equipment
primarily to major oil and gas exploration companies. Operating income is
contract revenues less operating costs, general and administrative expenses and
depreciation. In computing operating income (loss) for each geographic area,
other income (expense) and domestic and foreign income taxes were not
considered. Total assets are those assets that we use in operations in each
geographic area.
A summary of revenues, operating margin and identifiable assets by
geographic areas is as follows (in thousands):
Fiscal Fiscal Fiscal
2004 2003 2002
--------- -------- ---------
CONTRACT REVENUES:
United States $ 9,565 $ 8,303 $ 7,066
Southeast Asia 97,654 59,671 78,330
Mediterranean Sea 28,627 51,468 61,854
Australia 27,608 25,323 1,907
--------- --------- --------
$ 163,454 $ 144,765 $ 149,157
========= ========= =========
OPERATING INCOME (LOSS):
United States $ (2,197) $ (4,232) $ (5,891)
Southeast Asia 30,070 23,163 39,890
Mediterranean Sea 385 (7,692) 17,846
Australia 4,678 9,268 (1,658)
General and administrative expenses (11,389) (14,015) (10,080)
--------- --------- ---------
$ 21,547 $ 6,492 $ 40,107
========= ========= =========
TOTAL ASSETS:
United States $ 30,370 $ 38,336 $ 43,548
Southeast Asia 258,648 245,446 176,763
Mediterranean Sea 95,253 122,586 219,019
Africa - 111,179 -
Australia 113,331 3,062 3,720
General corporate and other 1,334 2,065 2,188
--------- --------- ---------
$ 498,936 $ 522,674 $ 445,238
========= ========= =========
38
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results for fiscal years 2004 and 2003 are as follows
(in thousands, except per share amounts):
QUARTERS ENDED
---------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
------------- ----------- ------------ ---------------
FISCAL 2004
Revenues $ 35,325 $ 36,810 $ 48,386 $ 42,933
Income (loss) before income taxes (64) 2,235 8,589 1,642
Net income (loss) (1,904) 462 5,685 3,344
Earnings per common share -
Basic (0.14) 0.03 0.41 0.24
Diluted (0.14) 0.03 0.40 0.24
FISCAL 2003
Revenues $ 29,841 $ 35,073 $ 41,847 $ 38,004
Income (loss) before income taxes 2,374 1,428 2,207 (4,373)
Net income (loss) 950 587 (82) (14,257)
Earnings per common share -
Basic 0.07 0.04 (0.01) (1.03)
Diluted 0.07 0.04 (0.01) (1.03)
- -----
The sum of the individual quarterly net income per common share amounts may
not agree with year-to-date net income per common share as each quarterly
computation is based on the weighted average number of common shares outstanding
during that period.
39
DIRECTORS OFFICERS
DEBORAH A. BECK (2, 3, 4) JOHN R. IRWIN
Executive Vice President - Planning and Technology President, Chief Executive Officer
Northwest Mutual Life Insurance Company
Milwaukee, Wisconsin JAMES M. HOLLAND
Senior Vice President, Chief Financial Officer and
ROBERT W. BURGESS (2, 3, 4) Secretary
Financial Executive, Retired
Orleans, Massachusetts GLEN P. KELLEY
Senior Vice President - Marketing and Administration
GEORGE S. DOTSON (1, 2, 3, 4)
Vice President
Helmerich & Payne, Inc.
President
Helmerich & Payne International
Drilling Co.
Tulsa, Oklahoma
HANS HELMERICH (1, 4)
President, Chief Executive Officer
Helmerich & Payne, Inc.
Tulsa, Oklahoma
JOHN R. IRWIN (1)
President, Chief Executive Officer
Atwood Oceanics, Inc.
Houston, Texas
WILLIAM J. MORRISSEY (2, 4)
Bank Executive, Retired
Elkhorn, Wisconsin
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Nominating & Corporate Governance Committee
- -------------------------------------------
40
ANNUAL MEETING
The annual meeting of stockholders will be held at 10:00 A.M., Central
Standard Time, on Thursday, February 10, 2005 at our principal office: 15835
Park Ten Place Drive, Houston, Texas, 77084. A formal notice of the meeting
together with a proxy statement and form of proxy will be mailed to stockholders
on or about January 15, 2005.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
FORM 10-K
A copy of our Form 10-K as filed with the Securities and Exchange
Commission is available free on request by writing to:
Secretary, Atwood Oceanics, Inc.
P. O. Box 218350
Houston, Texas 77218
We file annual report on Form 10-K as well as quarterly and special
reports, proxy statements and other information with the SEC. Our SEC filings
are available to the public over the internet at the SEC's web site at
http://www.sec.gov. Our website address is www.atwd.com. We make available free
of charge on or through our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. Information on our website is not incorporated
by reference into this report or made a part hereof for any purpose. You may
also read and copy any document we file, including our Form 10-K, at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms
and copy charges.
STOCK PRICE INFORMATION -
The common stock of Atwood Oceanics, Inc. is traded on the New York Stock
Exchange ("NYSE") under the symbol "ATW". No cash dividends on common stock were
paid in fiscal year 2003 or 2004, and none are anticipated in the foreseeable
future. As of December 10, 2004, there were over 750 beneficial owners of the
common stock of Atwood Oceanics, Inc. As of December 10, 2004, the closing sale
price of the common stock of Atwood Oceanics, Inc., as reported by NYSE, was
$49.40 per share. The following table sets forth the range of high and low sales
prices per share of common stock as reported by the NYSE for the periods
indicated.
Fiscal Fiscal
2004 2003
----------------------- ------------------------
LOW HIGH LOW HIGH
----------------------- ------------------------
QUARTERS ENDED
December 31 $ 23.30 $ 33.69 $ 24.39 $ 32.96
March 31 31.53 40.27 24.45 31.10
June 30 33.64 42.90 24.81 30.30
September 30 36.48 48.75 23.06 28.20
41
BAR CHART - REVENUES ($ MILLIONS)
- ----------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
$136.0 $147.5 $149.2 $144.8 $163.5
BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS)
- ---------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
$34.8 $107.8 $89.4 $101.8 $6.5
BAR CHART - OPERATING INCOME ($ MILLIONS)
- -------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
$37.2 $42.7 $40.1 $6.5 $21.5
BAR CHART - NET INCOME (LOSS) ($ MILLIONS)
- -------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
$23.1 $27.3 $28.3 ($12.8) $7.6
42