EXHIBIT 13.1
1999 ANNUAL REPORT TO SHAREHOLDERS
THE COMPANY
Atwood Oceanics, Inc. is engaged in the business of international offshore
drilling of exploratory and developmental oil and gas wells and related support,
management and consulting services. Presently, the Company owns and operates a
modern fleet of seven mobile offshore rigs and one modular platform rig, as well
as manages the operations of two operator-owned platform rigs in Northwest
Australia. The Company also owns a fifty percent interest in a platform rig
located in Australia. The Company supports its operations from headquarters in
Houston and affiliated offices in Australia, Malaysia, Indonesia, Philippines,
United Kingdom, Egypt, India and Israel.
TO OUR SHAREHOLDERS AND EMPLOYEES:
Operating results for fiscal 1999 represent the Company's second best
financial performance in its thirty-year history, despite 1999 not being a good
year, in general, for the offshore drilling market. The Company remained
financially strong and continued to enhance shareholders' equity during fiscal
year 1999 with revenues of $150.0 million, operating cash flows (before changes
in working capital and other assets and liabilities) of $55.7 million and net
income of $27.7 million.
Even though market conditions resulted in the Company having certain
periods of idle time during fiscal 1999 on the ATWOOD SOUTHERN CROSS, RICHMOND,
RIG-19 and RIG-200, term contracts in place for the ATWOOD HUNTER, ATWOOD
FALCON, VICKSBURG and SEAHAWK, as well as contributions from the ATWOOD EAGLE,
assisted in maintaining the Company's strong financial performance. With the
cyclical nature of the drilling business, the recent downturn reinforces our
belief that the strategy of maintaining a mix of long-term contracts at good
margins, coupled with short-term contracts, provides downside protection during
market declines with upside potential for enhanced earnings in an improving
market environment. With this strategy, the Company has been well-positioned to
capitalize on future market improvements and will continue to explore all
possible growth opportunities and current fleet enhancements.
Upgrade of the semisubmersible tender-assist unit SEAHAWK for a four-year
contract extension is progressing satisfactorily. A new derrick equipment set
for the SEAHAWK is being loaded on the tender-assist unit for mobilization to
the unit's first drill location. It is anticipated that commencement of dayrate
operations under the contract extension should occur during our second fiscal
2000 quarter. Dayrates in the contract extension have upside potential based on
higher average oil prices.
The ATWOOD FALCON and ATWOOD HUNTER have term commitments that should keep
both units employed into fiscal years 2001 and 2002, respectively. The jack-up
VICKSBURG has a conditional letter of intent which could also keep that unit
employed through fiscal year 2000. The SEAHAWK should remain employed into
fiscal year 2004. The submersible RICHMOND has been back at work since
September 1999 utilizing its unique operating characteristics, and is
benefiting from increasing dayrates and an improving outlook for shallow-water
units in the Gulf of Mexico. The ATWOOD EAGLE achieved virtually 100%
utilization during fiscal year 1999, though at significantly reduced dayrates in
the fourth quarter following market deterioration, and should remain employed
until late in the first quarter of fiscal year 2000. The ATWOOD EAGLE is then
scheduled to undergo an upgrade in its variable deck load and water depth
capability utilizing a wire insert system, which could take up to ninety days to
complete. The ATWOOD SOUTHERN CROSS is being bid for opportunities commencing
next year and has the potential for providing the Company with additional upside
in an improving market environment.
The successful completion during 1997 and 1998 of four major rig upgrades
ATWOOD FALCON, ATWOOD HUNTER, VICKSBURG and ATWOOD SOUTHERN CROSS have already
proven beneficial to the Company's financial results. We believe these upgrades
will also be beneficial in terms of future opportunities and financial upside in
a strengthening market.
We remain committed to a strategy of international operations,
highly-skilled personnel, premium equipment and financial strength. The recent
improvement in oil and gas prices is encouraging and, if sustained, should
ultimately lead to an increase in operators' drilling budgets. Accordingly, we
are optimistic about the longer-term outlook and gradually improving
fundamentals. Our goal of achieving safe operations receives our day-to-day
attention. As always, we want to thank our employees for their efforts and
contributions, and our shareholders for their continuing support.
John R. Irwin
FINANCIAL HIGHLIGHTS
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(In thousands) 1999 1998
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FOR THE YEAR
REVENUES FROM CONTRACT DRILLING AND MANAGEMENT $150,009 $151,809
NET INCOME 27,720 39,364
CAPITAL EXPENDITURES 38,760 79,607
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AT YEAR END
CASH AND SECURITIES HELD FOR INVESTMENT $ 43,041 $ 34,529
NET PROPERTY AND EQUIPMENT 218,914 205,632
TOTAL ASSETS 293,604 281,737
TOTAL SHAREHOLDERS' EQUITY 192,229 163,766
Atwood Oceanics, Inc. and Subsidiaries
FIVE YEAR FINANCIAL REVIEW
At or For the Years Ended September 30,
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(In thousands, except per share amounts,
fleet data and ratios) 1999 1998 1997 1996 1995
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STATEMENTS OF OPERATIONS DATA:
Contract revenues $150,009 $151,809 $89,082 $79,455 $72,231
Drilling costs and general
and administrative expenses (77,874) (72,616)(54,890)(56,653) (55,311)
-------- ------- ------ ------ -------
OPERATING MARGIN 72,135 79,193 34,192 22,802 16,920
Depreciation (23,904) (17,596) (9,979) (9,742) (11,134)
-------- ------- ------ ------ -------
OPERATING INCOME 48,231 61,597 24,213 13,060 5,786
Other income (expense) (1,724) (1,278) 1,165 2,783 3,146
Tax provision (18,787) (20,955) (9,759) (4,475) (1,872)
------- ------ ------ ------ ------
NET INCOME $ 27,720 $39,364 $15,619 $11,368 $ 7,060
======= ======= ======= ======= =======
PER SHARE DATA:
Earnings per common share: (1)
Basic $ 2.03 $ 2.90 $ 1.16 $ .85 $ .54
Diluted 2.01 2.84 1.14 .84 .53
Average common shares outstanding: (1)
Basic 13,649 13,592 13,474 13,328 13,182
Diluted 13,791 13,884 13,715 13,544 13,230
FLEET DATA:
Number of rigs owned or managed,
at end of period 11 11 11 11 10
Utilization rate for in-service rigs
(excludes contractual downtime for
rig upgrades in 1999, 1998 and
1997) 77% 100% 100% 100% 99%
BALANCE SHEETS DATA:
Cash and securities held for
investment $ 43,041 $34,529 $42,234 $40,492 $37,922
Working capital 31,519 24,864 27,549 26,151 13,761
Net property and equipment 218,914 205,632 143,923 91,124 91,427
Total assets 293,604 281,737 215,330 159,309 152,853
Total long-term debt 54,000 72,000 59,500 34,473 39,319
Shareholders' equity 192,229 163,766 122,689 105,554 94,892
Ratio of current assets to
current liabilities 2.66 1.93 2.41 2.45 1.67
Note -
(1) Retroactively adjusted to reflect 100% stock dividend declared in
November 1997.
(The Company has never paid any cash dividends on its common stock.)
OFFSHORE DRILLING OPERATIONS
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PERCENTAGE
OF 1999 MAXIMUM
CONTRACT YEAR WATER CONTRACT STATUS AT
NAME OF RIG TYPE OF RIG REVENUES BUILT DEPTH LOCATION CUSTOMER NOVEMBER 30, 1999
DRILLING RIGS WHOLLY OR PARTIALLY OWNED
ATWOOD FALCON Third-generation 23% 1983 3,500 FT. Malaysia Sabah Shell Rig is under long-term contract which
semisubmersible (Enhanced Petroleum terminates in November 2001.
and water Company Upon completion of current well in
depth Limited through Malaysia, the rig will be relocated
upgrade in assignment from to Philippines to commence drilling
1998) Shell Philippines program for Shell Philippines.
Exploration B.V.
ATWOOD HUNTER Third-generation 21% 1981 3,500 FT. United British-Borneo Rig is under long-term contract which
semisubmersible (Enhanced States Petroleum terminates in November 2000.
and water Gulf of Inc.
depth Mexico
upgrade in
1997)
ATWOOD EAGLE Third-generation 25% 1982 2,500 FT. Israel Isramco Upon completion of current well, the
semisubmersible rig will enter a shipyard for
a water-depth upgrade which could
take up to 90 days to complete.
Upon completion of the upgrade, the
rig will return to Israel to
drill a short-term program for
Samedan, Mediterranean Sea, Inc.
Discussion ongoing for additional
contract work.
VICKSBURG Jack-up 7% 1976 300 FT. India Enron Oil & Gas Rig is under term contract which
(Enhanced India Ltd. expires December 2000.
and upgraded
in 1998)
SEAHAWK Second-generation 6% 1974/1992 450 FT. Malaysia Esso Rig is currently undergoing an
semisubmersible (Enhanced Production upgrade for four-year contract
Tender assist and upgraded Malaysia Inc. extension. Upgrade should be
in 1999) completed in early 2000,
with contract to extend to 2004.
RICHMOND Submersible 3% 1982 75 FT. United Triton USA, Inc. Rig has current commitments through
States and first half of fiscal year 2000.
Gulf of Cockrell Oil
Mexico Corporation
ATWOOD Second-generation 0% 1976 2,000 FT. Australia Rig is available for contract since
SOUTHERN CROSS semisubmersible (Refurbished it became idle at the end of
and upgraded September 1998.
in 1997)
RIG-19 Modular platform 5% 1988 N/A Australia Rig is available for contract since
it became idle in September 1999.
RIG-200 Modular platform 4% 1995 N/A Australia Rig is available for contract since
it became idle in June 1999.
MANAGEMENT/LABOR CONTRACTS
GOODWYN 'A' and Modular platforms 6% N/A N/A Australia Woodside Rigs are under term contract for
NORTH RANKIN 'A' Energy management of drilling operations
into the year 2001.
Current plans project drilling
operations to alternate between the
two rigs.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report to Shareholders and the related Form 10-K for the fiscal
year ended September 30, 1999 includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this report and the related Form
10-K regarding the Company's financial position, business strategy, budgets and
plans and objectives of management for future operations are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. These forward-looking
statements involve risks and uncertainties that may cause the Company's actual
future activities and results of operations to be materially different from
those suggested or described in this Annual Report to Shareholders and related
Form 10-K. These risks include: the Company's dependence on the oil and gas
industry; the Company's ability to secure adequate financing; the risks involved
in the construction and upgrade to the Company's rigs; competition; operations
risks; risks involved in foreign operations; and governmental regulation and
environmental matters. These factors ("Cautionary Statements") are disclosed in
various places throughout this report and the related Form 10-K. All subsequent
written and oral forward- looking statements attributable to the Company, or
persons acting on its behalf, are expressly qualified in their entirety by the
Cautionary Statements.
OUTLOOK
At the beginning of fiscal 1999, the price for oil was around $12 per
barrel, with worldwide fleet utilization for mobile offshore rigs on a decline.
Even though the oil price has recovered to over $20 per barrel, worldwide fleet
utilization for mobile offshore rigs has remained around 75 percent for most of
1999. Due to this weakness in the worldwide offshore drilling market, the
Company has been unable to identify an ongoing contract for the ATWOOD SOUTHERN
CROSS since it completed its last contract at the end of September 1998, and has
incurred certain periods of idle time during fiscal year 1999 on the RICHMOND,
RIG-19 and RIG-200.
Despite a down trend in the offshore drilling market and certain idle rig
time, term contracts in place for the ATWOOD HUNTER, ATWOOD FALCON, VICKSBURG
and SEAHAWK, as well as a good year for the ATWOOD EAGLE, resulted in the
Company generating in 1999 the second highest level of revenue, operating cash
flows and net income in its history. There are some encouraging indications that
the offshore drilling market environment could improve in 2000. Historically,
worldwide fleet utilization of mobile offshore rigs needs to approach 90 percent
before significant improvement in dayrate levels will occur. Even without market
improvement, the Company's contract backlog should provide a high level of
revenues and cash flows in fiscal 2000. The Company remains confident in the
long-term future of the worldwide offshore drilling market.
RESULTS OF OPERATIONS
Fiscal Year 1999 Versus Fiscal Year 1998
Despite the Company's active rig utilization decreasing from 100% in 1998
to 77% in 1999, contract revenues only declined approximately 1 percent. An
analysis of contract revenues by rig for fiscal year 1999 and 1998 is as
follows:
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CONTRACT REVENUES
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(In millions)
Fiscal Fiscal
1999 1998 Variance
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ATWOOD FALCON $ 34.7 $ 17.3 $ 17.4
VICKSBURG 10.6 1.9 8.7
ATWOOD EAGLE 37.9 32.2 5.7
GOODWYN 'A'/NORTH RANKIN 'A' 8.6 7.5 1.1
RIG-19 6.8 6.7 0.1
RIG-200 6.8 7.9 (1.1)
SEAHAWK 9.5 11.4 (1.9)
ATWOOD HUNTER 31.0 35.2 (4.2)
RICHMOND 4.1 11.3 (7.2)
ATWOOD SOUTHERN CROSS 0.0 20.4 (20.4)
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$ 150.0 $ 151.8 $ (1.8)
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The ATWOOD FALCON was in a shipyard from May 1998 to November 1998
undergoing a water-depth upgrade. The VICKSBURG entered a shipyard in December
1997 for refurbishment and upgrade which was not completed until November 1998.
The ATWOOD FALCON and VICKSBURG have worked continuously since the completion of
their upgrades. The ATWOOD EAGLE was relocated from West Africa to the
Mediterranean Sea area in March 1998. The increase in revenues for the ATWOOD
EAGLE is due to enhanced dayrate for a portion of the year from term contract
commitments. The increase in revenues from the GOODWYN 'A' and NORTH RANKIN 'A'
rigs is due to the Company providing additional labor and assistance to the
rigs' Australian owner in upgrading the rigs during fiscal 1999. The Company
expects to be involved in the operation of both rigs at least into the year
2001; however, the Company expects revenues from these rigs to decline in 2000.
RIG-200 and RIG-19 are currently idle following completion of their contracts in
June and September 1999, respectively. In preparation for a four-year contract
extension, the SEAHAWK entered a shipyard in April 1999 for upgrade, with a
reduced dayrate paid during the upgrade period which accounts for the decline in
revenues. The decline in revenues for the ATWOOD HUNTER is due to a temporary
reduction in dayrate, with an extension in the contract term, during a period
when the rig could not drill due to extremely strong underwater currents. Market
conditions resulted in a reduced dayrate and some idle time for the RICHMOND;
with the ATWOOD SOUTHERN CROSS idle for the entire year.
Contract drilling and management costs during fiscal 1999 increased 8
percent from $65.3 million to $70.4 million. An analysis of contract drilling
and management costs by rig is as follows:
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CONTRACT DRILLING AND MANAGEMENT COSTS
(In millions)
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Fiscal Fiscal
1999 1998 Variance
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VICKSBURG $ 4.5 $ 1.4 $ 3.1
ATWOOD EAGLE 14.3 11.5 2.8
ATWOOD FALCON 6.8 4.9 1.9
RIG-19 6.0 4.5 1.5
SEAHAWK 7.1 6.1 1.0
ATWOOD HUNTER 9.8 9.4 0.4
GOODWYN 'A'/NORTH RANKIN 'A' 6.6 6.3 0.3
RIG-200 1.5 2.6 (1.1)
RICHMOND 4.8 6.0 (1.2)
ATWOOD SOUTHERN CROSS 6.8 10.6 (3.8)
OTHER 2.2 2.0 0.2
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$ 70.4 $ 65.3 $ 5.1
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The increase in the drilling costs for the VICKSBURG and ATWOOD FALCON are
due to the rigs working continuously since completing their upgrades during the
first quarter of fiscal 1999. The increase in operating costs for the ATWOOD
EAGLE was due primarily to an increase in maintenance costs and higher operating
costs associated with working the entire year in the Mediterranean Sea area. The
increase in operating expense for RIG-19 was due to costs being lower in 1998
due to the receipt of certain payroll related tax refunds. Reductions in
operating costs for the RICHMOND, RIG-200 and ATWOOD SOUTHERN CROSS were due to
cost savings associated with idle rig time.
An analysis of depreciation expense by rig is as follows:
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DEPRECIATION EXPENSE
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(In millions)
Fiscal Fiscal
1999 1998 Variance
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ATWOOD FALCON $ 5.8 $ 1.8 $ 4.0
VICKSBURG 2.0 0.0 2.0
ATWOOD SOUTHERN CROSS 3.8 3.0 0.8
RICHMOND 0.8 0.5 0.3
ATWOOD HUNTER 5.1 5.0 0.1
ATWOOD EAGLE 2.4 2.2 0.2
RIG-200 2.1 2.1 0.0
RIG-19 0.0 0.2 (0.2)
SEAHAWK 1.3 2.5 (1.2)
OTHER 0.6 0.3 0.3
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$23.9 $ 17.6 $ 6.3
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The increase in depreciation expense was primarily due to the commencing of
depreciation in fiscal 1999 of upgrade costs of the ATWOOD FALCON and VICKSBURG.
The Company does not recognize depreciation expense during the period a rig is
out of service for a significant upgrade. This accounts for the decline in
depreciation expense for the SEAHAWK in fiscal 1999.
Fiscal Year 1998 Versus Fiscal Year 1997
Despite the ATWOOD FALCON and VICKSBURG being idle for a significant
portion of fiscal 1998 while undergoing upgrades, contract revenues increased 70
percent to $151.8 million from $89.1 million. This increase was primarily
attributable to the ATWOOD HUNTER returning to work at a significant increase in
dayrate revenues following upgrade in fiscal 1997, the initial commencement of
drilling operations for the ATWOOD SOUTHERN CROSS following its upgrade and
refurbishment in fiscal 1997 and the increase in dayrate revenues for the ATWOOD
EAGLE. An analysis of contract revenues by rig for fiscal years 1998 and 1997 is
as follows:
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CONTRACT REVENUES
(In millions)
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Fiscal Fiscal
1998 1997 Variance
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ATWOOD HUNTER $ 35.2 $ 5.2 $ 30.0
ATWOOD SOUTHERN CROSS 20.4 0.0 20.4
ATWOOD EAGLE 32.2 19.3 12.9
RICHMOND 11.3 8.8 2.5
RIG-200 7.9 5.9 2.0
ATWOOD FALCON 17.3 16.9 0.4
SEAHAWK 11.4 11.3 0.1
RIG-19 6.7 7.1 (0.4)
GOODWYN 'A'/NORTH RANKIN 'A' 7.5 9.5 (2.0)
VICKSBURG 1.9 5.1 (3.2)
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$ 151.8 $ 89.1 $ 62.7
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In September 1997, the ATWOOD HUNTER commenced drilling under a three-year
contract in the United States Gulf of Mexico. Due to the rig being upgraded, it
generated less than 100 days of revenue during fiscal 1997. The ATWOOD SOUTHERN
CROSS, which generated no revenues prior to fiscal 1998, commenced drilling in
Australia in November 1997. The ATWOOD EAGLE commenced working in the
Mediterranean Sea area in March 1998, with enhanced dayrate revenues. Due to a
strong market during the first half of fiscal 1998, revenue from the RICHMOND
increased in fiscal 1998 compared to fiscal 1997. The decline in revenues for
the VICKSBURG was due to the rig undergoing upgrade during most of fiscal year
1998.
Contract drilling and management costs during fiscal 1998 increased 34
percent from $48.8 million to $65.3 million. This increase was primarily due to
the ATWOOD HUNTER and ATWOOD SOUTHERN CROSS commencing drilling operations
following their upgrades during fiscal 1997. An analysis of contract drilling
and management costs by rig is as follows:
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CONTRACT DRILLING AND MANAGEMENT COSTS
(In millions)
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Fiscal Fiscal
1998 1997 Variance
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ATWOOD SOUTHERN CROSS $ 10.6 $ 0.0 $ 10.6
ATWOOD HUNTER 9.4 1.7 7.7
ATWOOD EAGLE 11.5 9.8 1.7
RICHMOND 6.0 5.0 1.0
RIG-200 2.6 2.0 0.6
GOODWYN 'A'/NORTH RANKIN 'A' 6.3 6.8 (0.5)
RIG-19 4.5 5.3 (0.8)
SEAHAWK 6.1 7.0 (0.9)
ATWOOD FALCON 4.9 6.3 (1.4)
VICKSBURG 1.4 3.6 (2.2)
OTHER 2.0 1.3 0.7
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$ 65.3 $ 48.8 $ 16.5
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The Company acquired the ATWOOD SOUTHERN CROSS in October 1993, but did
not place the rig into service until after the completion of its refurbishment
and upgrade in November 1997. The ATWOOD HUNTER worked the entire fiscal 1998
compared to only approximately one quarter of fiscal 1997. The increase in
operating costs for the ATWOOD EAGLE was due primarily to an increase in
maintenance costs and higher operating costs associated with working in the
Mediterranean Sea area as compared to West Africa. The increase in operating
costs for the RICHMOND was due primarily to higher payroll related costs. As a
result of certain payroll related tax refunds received in fiscal 1998, operating
costs for RIG-19 declined. During the ATWOOD FALCON and VICKSBURG upgrade
periods, no operating costs are being incurred, resulting in lower operating
costs in the current year than in fiscal 1997.
An analysis of depreciation expense by rig is as follows:
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DEPRECIATION EXPENSE
(In millions)
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Fiscal Fiscal
1998 1997 Variance
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ATWOOD HUNTER $ 5.0 $ 0.6 $ 4.4
ATWOOD SOUTHERN CROSS 3.0 0.0 3.0
RIG-200 2.1 1.5 0.6
ATWOOD EAGLE 2.2 2.1 0.1
RICHMOND 0.5 0.4 0.1
SEAHAWK 2.5 2.2 0.3
ATWOOD FALCON 1.8 2.7 (0.9)
VICKSBURG 0.0 0.0 0.0
RIG-19 0.2 0.2 0.0
OTHER 0.3 0.3 0.0
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$17.6 $ 10.0 $ 7.6
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The increase in depreciation expense was primarily due to the commencing of
depreciation in fiscal 1998 of upgrade costs of the ATWOOD HUNTER and ATWOOD
SOUTHERN CROSS. The Company does not recognize depreciation expense during the
period a rig is out of service for a significant upgrade. This accounts for the
decline in depreciation expense for the ATWOOD FALCON in fiscal 1998 and the
ATWOOD HUNTER in fiscal 1997. The increase in depreciation expense of RIG-200
was due to the rig having active drilling operations for all of fiscal 1998
compared to only three quarters of fiscal 1997.
General and administrative expense increased 20 percent in fiscal 1998
compared to fiscal 1997. This increase was attributed to an increase in payroll
related costs and in professional fees. The $2.4 million increase in interest
expense was primarily related to the increase in funds borrowed under the
Company's revolving credit agreement. With a significant increase in pre-tax
income and virtually no carryforward tax attributes, both the foreign and
domestic tax provision increased.
LIQUIDITY AND CAPITAL RESOURCES
Even though, net income in fiscal 1999 declined 30 percent from fiscal
1998, operating cash flows (before changes in working capital and other assets
and liabilities) for fiscal 1999 only declined 9 percent from $61.4 million to
$55.7 million. During fiscal 1999, the Company utilized available cash and
internally generated funds to invest approximately $16 million in completing the
water-depth upgrade of the ATWOOD FALCON, to invest approximately $5 million in
completing the refurbishment and upgrade of the VICKSBURG, to invest
approximately $11 million in the upgrade of the SEAHAWK, to fund approximately
$7 million in other capital expenditures and to reduce outstanding debt by
approximately $19 million.
Since 1997, the Company has successfully upgraded four drilling units; the
ATWOOD HUNTER, the ATWOOD SOUTHERN CROSS, the ATWOOD FALCON and the VICKSBURG at
a cost of approximately $160 million. Currently, the Company is completing the
$23 million upgrade of the SEAHAWK required for its four year contract
extension, of which approximately $20 million will be reimbursed by the
customer. The Company is currently preparing to increase the water-depth
drilling capacity of the ATWOOD EAGLE from 2,500 feet to approximately 3,200
feet at a cost of between $8 and $10 million and to enhance the operating
performance of the RICHMOND at an estimated cost of $2.5 to $3.0 million. Except
for funding remaining costs associated with the upgrade of the SEAHAWK
(approximately $12 million, excluding reimbursement from the customer),
water-depth upgrade of the ATWOOD EAGLE, the RICHMOND enhancement and general
capital maintenance of the Company's other rigs, the Company currently has no
significant capital commitments.
The Company's revolving line of credit converted to a reducing facility at
March 31, 1999, with commitment reductions of $8.3 million per quarter until
final maturity on March 31, 2002. At September 30, 1999, the reduced line of
credit commitment was approximately $100 million with an actual outstanding
amount of $54 million, with another $3 million being repaid subsequently to
September 30, 1999. Depending upon additional capital investments, anticipated
future operating cash flows are expected to continue to provide the Company with
the option of repaying funds borrowed under the credit facility prior to its
required maturity.
Working capital increased from $24.9 million at September 30, 1998 to $31.5
million at September 30, 1999, a 27 percent increase. The Company's portfolio of
accounts receivable is comprised of major international corporate entities with
stable payment experience. Historically, the Company has experienced no
significant difficulties in receivable collection; however, at September 30,
1999, the Company was continuing to pursue legal action in Australia to collect
approximately $2 million billed in 1998.
The Company continues to pursue growth opportunities. With the Company
currently two years ahead of its required debt repayment schedule, the Company
would expect to finance additional capital expenditures through a combination of
operating cash flows or additional debt financing; however, there are no
assurances that additional debt financing would be available on terms acceptable
to the Company. The Company continues to periodically review and adjust its
planned capital expenditures and financing of such expenditures in light of
current market conditions.
YEAR 2000
The Company has used both internal and external resources in assessing the
Year 2000 readiness of its operations. An outside consultant visited the
Company's various drilling units to review and assess their Year 2000
compliance. The majority of the operating systems on its various drilling rigs
are mechanical with no Year 2000 compliance issues; however, there were some
systems that required assessment and where necessary, reprogramming or
replacement. The Company's internal information systems have been assessed and
where necessary, reprogrammed or replaced with fully compliant, new or modified
systems. The Company has incurred approximately $350,000 in Year 2000 assessment
costs which has been expensed over the last two years. In addition to the
assessment costs, the Company has incurred approximately $1.2 million in
purchasing new software and implementation of an inventory, purchasing and
maintenance system for Year 2000 compliance, the cost of which has been
capitalized. After assessing its operations and making required modifications or
replacements, the Company believes that the Year 2000 issues will not pose
significant operational problems; however, the extent and magnitude of the Year
2000 problem as it will affect the Company is difficult to predict. Due to the
Company's international operations, foreign governments, suppliers and customers
who do not successfully and timely achieve Year 2000 compliance could adversely
affect the Company's operations. Accordingly, there can be no assurance that the
Company will not have some disruption in its business due to Year 2000 issues.
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including adverse changes in
interest rates and foreign currency exchange rates as discussed below.
Interest Rate Risk
Total long-term debt at September 30, 1999, included $54 million of
floating rate debt. As a result, the Company's annual interest costs in fiscal
2000 will fluctuate based on interest rate changes. Because the interest rate on
the Company's long-term debt is a floating rate, the fair value of the Companys
long-term debt approximates carrying value as of September 30, 1999. The impact
on annual cash flow of a 10 percent change in the floating rate (approximately
70 basis points) would be approximately $0.4 million. The Company did not have
any open derivative contracts relating to its floating rate debt at September
30, 1999.
Foreign Currency Risk
Certain of the Company's subsidiaries have monetary assets and liabilities
that are denominated in a currency other than their functional currencies. A
decrease in the value of 10 percent in the foreign currencies relative to the
U.S. dollar from the year-end exchange rates would result in a foreign currency
transaction loss of approximately $1 million, based on September 30, 1999
amounts. The Company considers its current risk exposure to foreign currency
exchange rate movements, based on net cash flows, to be immaterial. The Company
did not have any open derivative contracts relating to foreign currencies at
September 30, 1999.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Board of Directors of Atwood Oceanics, Inc.:
We have audited the accompanying consolidated balance sheets of Atwood
Oceanics, Inc. (a Texas corporation) and subsidiaries as of September 30, 1999
and 1998, and the related consolidated statements of operations, cash flows and
changes in shareholders' equity for each of the three years in the period ended
September 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atwood Oceanics, Inc. and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
November 23, 1999
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
- --------------------------------------------------------------------------------
(In thousands) 1999 1998
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $20,105 $ 11,621
Accounts receivable, net 18,289 27,730
Inventories of materials and supplies,
at lower of average cost or market 8,010 8,076
Deferred tax assets 720 880
Prepaid expenses 3,408 3,280
------- --------
Total Current Assets 50,532 51,587
------- --------
SECURITIES HELD FOR INVESTMENT:
Held-to-maturity, at amortized cost 22,589 22,585
Available-for-sale, at fair value 347 323
------- --------
22,936 22,908
------- --------
PROPERTY AND EQUIPMENT, at cost:
Drilling vessels, equipment and drill pipe 358,372 327,520
Other 7,317 6,128
------- -------
365,689 333,648
Less-accumulated depreciation 146,775 128,016
------- -------
Net Property and Equipment 218,914 205,632
------- -------
DEFERRED COSTS AND OTHER ASSETS 1,222 1,610
-------- --------
$293,604 $281,737
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
- --------------------------------------------------------------------------
(In thousands, except share data) 1999 1998
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ --- $ 750
Accounts payable 7,640 14,250
Accrued liabilities 11,373 11,723
-------- -------
Total Current Liabilities 19,013 26,723
-------- -------
LONG-TERM DEBT, net of current maturities 54,000 72,000
-------- -------
DEFERRED CREDITS:
Income taxes 8,168 4,820
Mobilization fees and other 20,194 14,428
-------- -------
28,362 19,248
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 13,675,000 and
13,625,000 issued and outstanding in 1999
and 1998, respectively 13,675 13,625
Paid-in capital 52,458 51,781
Accumulated other comprehensive income (loss) (139) (155)
Retained earnings 126,235 98,515
-------- -------
Total Shareholders' Equity 192,229 163,766
-------- -------
$293,604 $281,737
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended September 30,
- -------------------------------------------------------------------------------
(In thousands, except per share amounts) 1999 1998 1997
- -------------------------------------------------------------------------------
REVENUES:
Contract drilling $148,051 $148,570 $86,833
Contract management 1,958 3,239 2,249
-------- -------- --------
150,009 151,809 89,082
-------- -------- --------
COSTS AND EXPENSES:
Contract drilling 68,868 62,364 47,714
Contract management 1,487 2,921 1,076
Depreciation 23,904 17,596 9,979
General and administrative 7,519 7,331 6,100
-------- ------- -------
101,778 90,212 64,869
-------- ------- -------
OPERATING INCOME 48,231 61,597 24,213
OTHER INCOME (EXPENSE):
Interest expense (4,172) (3,599) (1,212)
Investment income 2,448 2,321 2,377
-------- ------- -------
(1,724) (1,278) 1,165
-------- ------- -------
INCOME BEFORE INCOME TAXES 46,507 60,319 25,378
PROVISION FOR INCOME TAXES 18,787 20,955 9,759
-------- ------- -------
NET INCOME $27,720 $39,364 $15,619
======== ======= =======
EARNINGS PER COMMON SHARE:
Basic $ 2.03 $ 2.90 $ 1.16
Diluted 2.01 2.84 1.14
AVERAGE COMMON SHARES OUTSTANDING:
Basic 13,649 13,592 13,474
Diluted 13,791 13,884 13,715
The accompanying notes are an integral part of these consolidated financial
statements.
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended September 30,
- -------------------------------------------------------------------------------
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $27,720 $39,364 $15,619
------- ------- -------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 23,904 17,596 9,979
Amortization of deferred items 566 427 539
Deferred federal income tax provision (benefit) 3,500 3,970 (330)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 9,441 (11,377) 334
Increase in accounts payable 402 954 2,708
Increase (decrease) in accrued liabilities (350) (1,706) 5,958
Net mobilization fees 7,074 2,779 6,286
Other (1,364) (1,924) (1,848)
------ ------ ------
43,173 10,719 23,626
------ ------ ------
Net Cash Provided by Operating Activities 70,893 50,083 39,245
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (38,760) (79,607) (62,778)
Non cash portion of capital expenditures (7,012) 7,973 ---
Other 1,574 --- ---
------ ------ ------
Net Cash Used by Investing Activities (44,198) (71,634) (62,778)
------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercises of stock options 539 658 1,019
Proceeds from revolving credit facility 13,000 14,000 58,000
Principal payments on debt (31,750) (750) (32,973)
Deferred financing costs --- --- (814)
------- ------ -------
Net Cash Provided (Used) by
Financing Activities (18,211) 13,908 25,232
------- ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,484 (7,643) 1,699
CASH AND CASH EQUIVALENTS, at beginning of period 11,621 19,264 17,565
------- ------ ------
CASH AND CASH EQUIVALENTS, at end of period $20,105 $11,621 $19,264
======= ======= =======
__________________________
Supplemental disclosure of cash flow information:
Cash paid during the year for domestic
and foreign income taxes $13,383 $18,549 $ 6,896
======= ======= =======
Cash paid during the year for interest,
net of amounts capitalized $ 4,614 $ 2,349 $ 1,295
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
Atwood Oceanics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Other
(In thousands) Comprehensive Common Stock Paid-In Comprehensive Retained
Income Shares (1) Amount (1) Capital (1) Income (Loss) Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
September 30, 1996 13,382 $13,382 $48,779 $ (139) $43,532
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $15,619 --- --- --- --- 15,619
Unrealized holding gain on
available-for-sale securities, net of
tax of $11 27 --- --- --- 27 ---
------
Comprehensive income $15,646
======
Exercises of employee stock options 164 164 855 --- ---
Tax benefit from exercises of
employee stock options --- --- 470 --- ---
----- ------- ------- -------- ------
September 30, 1997 13,546 13,546 50,104 (112) 59,151
Net Income $39,364 --- --- --- --- 39,364
Unrealized holding loss on
available-for-sale securities, net of
tax of $23 (43) --- --- --- (43) ---
------
Comprehensive income $39,321
======
Exercises of employee stock options 79 79 579 --- ---
Tax benefit from exercises of
employee stock options --- --- 1,098 --- ---
----- ----- ----- ------ -----
September 30, 1998 13,625 13,625 51,781 (155) 98,515
Net Income $27,720 --- --- --- --- 27,720
Unrealized holding gain on
available-for-sale securities, net of
tax of $8 16 --- --- --- 16 ---
------
Comprehensive income $27,736
======
Exercises of employee stock options 50 50 489 --- ---
Tax benefit from exercises of
employee stock options --- --- 188 --- ---
------ ------- -------- ------ --------
September 30, 1999 13,675 $13,675 $ 52,458 $ (139) $126,235
====== ======= ======== ====== ========
- ---------------------
NOTES
(1) Adjusted for 100% stock dividend declared in November 1997.
(2) Preferred stock, no par value, of 1,000,000 shares was authorized in
1975 and no shares have been issued.
The accompanying notes are an integral part of these consolidated financial
statements.
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 the "Company"), is engaged in the business
of international offshore drilling of exploratory and developmental oil and gas
wells and related support, management and consulting services. Presently, the
Company owns and operates a modern fleet of seven mobile offshore rigs and one
modular platform rig, as well as manages the operations of two operator-owned
platform rigs in Northwest Australia. The Company also owns a fifty percent
interest in a new generation platform rig. Currently, the Company is involved in
active operations in the territorial waters of Australia, Malaysia, Egypt,
Philippines, Israel, United States and India.
Demand for drilling equipment is dependent on the exploration and
development programs of oil and gas companies, which is in turn influenced by
the financial conditions of such companies, by general economic conditions, by
prices of oil and gas, and from time to time, by political considerations and
policies. The Company's business operations are subject to the risks associated
with a business having a limited number of customers for which it can operate at
any given time. A decrease in the drilling programs of customers in the areas
where the Company is employed may adversely affect the Company's revenues. The
contracts under which the Company operates its drilling rigs are obtained either
through individual negotiations with the customer or by submitting proposals in
competition with the other drilling contractors and vary in their terms and
conditions. The Company competes with several other drilling contractors, most
of which are substantially larger than the Company and possess appreciably
greater financial and other resources. Price competition is generally the most
important factor in the drilling industry, but the technical capability of
specialized drilling equipment and personnel at the time and place required by
customers are also important. Other competitive factors include work force
experience, rig suitability, efficiency, condition of equipment, reputation and
customer relations. The Company believes that it competes favorably with respect
to these factors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -
The consolidated financial statements include the accounts of Atwood
Oceanics, Inc. ("AOI") and all of its wholly owned domestic and foreign
subsidiaries. The Company's undivided 50 percent interest in RIG-200 is
accounted for using the proportionate consolidation method (See Note 4). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Foreign exchange -
The U.S. dollar is the functional currency for all areas of operations of
the Company. Accordingly, monetary assets and liabilities denominated in foreign
currency are remeasured to U.S. 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 drilling costs in the consolidated statements of
operations. The Company recorded a foreign exchange gain of $.4 million in 1999
and foreign exchange losses of $ 1 million and $.7 million in 1998 and 1997,
respectively.
Property and equipment -
Property and equipment is recorded at cost. Interest costs related to
property under construction are capitalized as a component of construction
costs. Interest capitalized during fiscal 1999 and 1998 totaled $.5 million and
$1.4 million, respectively.
Depreciation is provided on the straight-line method over the following
estimated useful lives of the various classifications of assets:
Years
-----
Drilling vessels and related equipment 5-15
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.
Deferred costs -
The Company defers the net costs of moving a drilling rig to a new area and
amortizes such costs on a straight-line basis over the life of the applicable
drilling contract. During fiscal years 1999 and 1998, the Company received
sufficient mobilization revenues on all rig moves to more than cover all
mobilization costs. Thus, there were no unamortized mobilization costs at
September 30, 1999 or 1998.
The Company defers the costs of scheduled drydocking and charges such costs
to expense over the period to the next scheduled drydocking (normally 30
months).
Federal income taxes -
The Company accounts 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. 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 -
The Company accounts for drilling and management contract revenues using
the percentage of completion method of accounting, under which revenues are
recognized on a daily basis as earned. Mobilization revenues are first used to
cover the costs of mobilization with the excess revenues deferred and amortized
on a straight-line basis over the life of the applicable drilling contract. At
September 30, 1999 and 1998, deferred revenues totaling $19.4 million and $12.3
million, respectively, were included in Deferred Credits on the accompanying
consolidated balance sheets.
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.
Investments -
Investments in held-to-maturity securities are stated at the amortized cost
at the balance sheet date. The Company has the ability and intent to hold such
securities to maturity. At September 30, 1999 and 1998, investments in
available-for-sale securities are carried at fair value with the unrealized
holding loss or gain, net of deferred tax, included in comprehensive income.
Earnings per common share -
Basic and diluted earnings per share have been computed in accordance with
SFAS No. 128, Earnings per Share. Basic EPS, excludes dilution and is
computed by dividing income available to common shareholders 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 years is as follows (in thousands, except per share
amounts):
Per Share
Net Income Shares Amount
---------- ------ ---------
Fiscal 1999:
Basic earnings per share $ 27,720 13,649 $ 2.03
Effect of dilutive securities-
Stock options --- 142 (0.02)
-------- ------ ------
Diluted earnings per share $ 27,720 13,791 $ 2.01
======== ====== ======
Fiscal 1998:
Basic earnings per share $ 39,364 13,592 $ 2.90
Effect of dilutive securities-
Stock options --- 292 (.06)
-------- ------- -------
Diluted earnings per share $ 39,364 13,884 $ 2.84
======== ======= =======
Fiscal 1997:
Basic earnings per share $ 15,619 13,474 $ 1.16
Effect of dilutive securities-
Stock options --- 241 (.02)
-------- ------ ------
Diluted earnings per share $ 15,619 13,715 $ 1.14
======== ====== ======
Stock-Based compensation -
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". Accordingly, the adoption of
SFAS No. 123, "Accounting for Stock-Based Compensation" in fiscal 1996 had no
effect on the Company's results of operations.
Comprehensive income -
In the first quarter of 1999, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which requires companies to report the components of
comprehensive income in a financial statement with the same prominence as other
financial statements. The Company has chosen to disclose comprehensive income,
which is comprised of net income and unrealized holding gains (losses) on
available for sale equity securities, in the accompanying Consolidated
Statements of Changes in Shareholders' Equity. This information is shown for all
periods presented.
Use of estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 - SECURITIES HELD FOR INVESTMENT
All of the Company's investments in equity securities are classified as
"available-for-sale" and accordingly, are reflected in the September 30, 1999
and 1998 Consolidated Balance Sheets at fair value, with the aggregate
unrealized gain or loss, net of related deferred tax liability or asset,
included in shareholders' equity. All of the Company's investment in United
States Treasury Bonds (which mature in 2000 and 2001) are classified as
"held-to-maturity" and accordingly, are reflected in the September 30, 1999 and
1998 Consolidated Balance Sheets at amortized cost.
There were no sales of securities during fiscal 1999 or 1998. An analysis
of the Company's investment in marketable securities is as follows (in
thousands):
- --------------------------------------------------------------------------------
Amortized Unrealized
Cost Gain (Loss) Fair Value
- --------------------------------------------------------------------------------
September 30, 1999 -
Equity Securities $ 561 $ (214) $ 347
United States
Treasury Bonds 22,589 687 23,276
------- ------- -------
$23,150 $ 473 $23,623
======= ======= =======
September 30, 1998 -
Equity Securities $ 561 $ (238) $ 323
United States
Treasury Bonds 22,585 1,782 24,367
------- ------- -------
$23,146 $ 1,544 $24,690
======= ======= =======
NOTE 4 - PROPERTY AND EQUIPMENT
SEAHAWK -
In 1999, the Company commenced an approximately $23 million upgrade of the
SEAHAWK, in compliance with a four-year contract extension. Pursuant to the
contract, the Company will receive approximately $20 million in upgrade
reimbursement payments from the customer, of which $10 million was received at
September 30, 1999 and recorded to Deferred Credits. These upgrade reimbursement
payments, net after certain costs, will be amortized into revenues over the
four-year contract extension period.
ATWOOD FALCON -
In November 1998, the ATWOOD FALCON commenced drilling under its three-year
contract with Shell Philippines Exploration B.V., following completion of its
approximately $45 million water-depth upgrade. The contract provided for the
payments of $11.2 million in mobilization fees of which $10.4 million (net after
mobilization costs) was recorded to Deferred Credits and is being amortized into
revenue over the three-year contract period, with an unamortized balance of $7.0
million at September 30, 1999.
VICKSBURG -
In December 1998, the VICKSBURG commenced drilling in India under a
one-year plus option contract with Enron Oil & Gas India Ltd., following
completion of its approximately $35 million refurbishment and upgrade. The
VICKSBURG contract has been extended for another year in India.
ATWOOD HUNTER -
In fiscal 1997, the ATWOOD HUNTER was upgraded to achieve up to 3,500 feet
water-depth drilling capability and relocated from Southeast Asia to the United
States Gulf of Mexico at an aggregate cost of approximately $40 million. The rig
has one more year remaining on its three-year contract with British-Borneo
Petroleum Inc. The contract provided for the payment of a $10 million
mobilization fee of which $6.4 million (net after mobilization costs) was
recorded to Deferred Credits and is being amortized into revenues over the
three-year contract period, with an unamortized balance of $2.0 million at
September 30, 1999.
ATWOOD SOUTHERN CROSS -
During fiscal year 1997, the ATWOOD SOUTHERN CROSS was mobilized from
Australia to a Singapore shipyard, refurbished and upgraded to achieve 2,000
feet water-depth drilling capability at an aggregate cost of approximately $35
million. During November 1997, the rig was mobilized from Singapore to Australia
to commence working under a contract which it completed in September 1998. While
waiting for a new contract opportunity, the rig is currently idle in Australia.
RIG 200 -
RIG-200 (a modular platform rig built in 1995) is owned 50 percent by the
Company and 50 percent by Helmerich & Payne, Inc. (current owner of 22 percent
of the Company's outstanding common stock). Since the Company has a 50 percent
undivided ownership interest in RIG-200 and is actively involved in its
operations, the Company accounts for its investment in the rig on a
proportionate consolidation method. Accordingly, the Company's $12 million
investment in RIG-200 is reflected in "Drilling Vessels, Equipment and Drill
Pipe" in the Consolidated Balance Sheets, with 50 percent of the rig's operating
results for fiscal years 1999, 1998 and 1997 reflected in the Company's
Consolidated Statements of Operations. RIG-200 completed its initial contract in
June 1999 and is currently idle in Australia while waiting for a new contract
opportunity.
NOTE 5 - DEBT
LONG-TERM DEBT -
A summary of long-term debt is as follows (in thousands):
September 30,
--------------------------
1999 1998
--------- --------
Revolving credit agreement, bearing interest
(market adjustable) at approximately 7 percent
per annum at September 30, 1999 $54,000 $ 72,000
Term note, bearing interest at 6 percent per annum --- 750
------- --------
54,000 72,750
Less - current maturities --- 750
------- --------
$54,000 $ 72,000
======= ========
In July 1997, the Company entered into a $125 million revolving credit
facility with a bank group. The revolving line of credit converted to a reducing
facility on March 31, 1999, with commitment reduction of $8.3 million per
quarter until final maturity on March 31, 2002. The maximum amount permitted to
be outstanding at September 30, 1999 was $100 million. The credit facility
permits the Company to prepay principal at anytime without incurring penalty.
The bank group's collateral for this revolving credit facility consists
principally of preferred mortgages on the ATWOOD HUNTER, ATWOOD EAGLE and the
RICHMOND plus the assignment of $20 million in market value of United States
Treasury Bonds. The credit facility prohibits the Company from incurring any
additional indebtedness in excess of $5 million, disposing of any material
assets, paying dividends or repurchasing any of the Company's outstanding common
stock.
The maturities of long-term debt are as follows (in thousands):
FISCAL YEAR AMOUNT
2000 $ ---
2001 20,300
2002 33,700
-------
$54,000
=======
___________
LINE OF CREDIT -
The Company has a $5 million unsecured line of credit with a bank to
support issuance, when required, of standby letters of guarantee and the Indian
tax guarantee (see Note 6). At September 30, 1999, standby letters of guarantee
in the aggregate amount of approximately $2.4 million were outstanding under
this facility.
NOTE 6 - INCOME TAXES
Domestic and foreign income before income taxes for the three years in the
period ended September 30, 1999 are as follows (in thousands):
- -------------------------------------------------------------------------------
Fiscal Fiscal Fiscal
1999 1998 1997
------- -------- --------
Domestic income $29,648 $ 39,553 $ 14,623
Foreign income 16,859 20,766 10,755
------- -------- --------
$46,507 $ 60,319 $ 25,378
======= ======== ========
The provision (benefit) for domestic and foreign taxes on income consists
of the following (in thousands):
Fiscal Fiscal Fiscal
1999 1998 1997
------- ------- -------
Current domestic provision $ 8,000 $11,487 $ 5,736
Deferred domestic provision (benefit) 3,500 3,970 (330)
Current foreign provision 7,287 5,498 4,353
------- ------- -------
$18,787 $20,955 $ 9,759
======= ======= =======
The components of the deferred income tax assets (liabilities) as of
September 30, 1999 and 1998 are summarized as follows (in thousands):
September 30,
-----------------------
1999 1998
------- -------
Deferred tax assets -
Net operating loss carryforwards $2,760 $ 2,860
Book reserves 700 1,200
Deferred mobilization revenues 700 2,100
------ -------
4,160 6,160
------ -------
Deferred tax liabilities -
Difference in book and tax basis of
equipment 9,190 7,360
Deferred charges 123 450
Unrealized holding loss on
available-for-sale securities (75) (80)
------ ------
9,238 7,730
------ ------
Net deferred tax assets (liabilities) before
valuation allowance (5,078) (1,570)
Valuation allowance (2,370) (2,370)
------ ------
$(7,448) $(3,940)
======= =======
Net current deferred tax assets $ 720 $ 880
Net noncurrent deferred tax liabilities (8,168) (4,820)
-------- -------
$ (7,448) $(3,940)
======== =======
U.S. deferred taxes have not been provided on foreign earnings totaling
approximately $ 24.5 million which are permanently invested abroad. Foreign tax
credits totaling approximately $ 12.4 million are available to reduce the U.S.
taxes on such amounts. The differences between the statutory and the effective
income tax rate are as follows:
Fiscal Fiscal Fiscal
1999 1998 1997
------ ------ ------
Statutory income tax rate 35% 35% 35%
Increase (decrease) in tax rate resulting from -
Foreign tax rate differentials,
net of foreign tax credit utilization 5 (1) 10
Change in valuation allowance --- --- (2)
Investment tax credit utilization --- --- (5)
Other, net --- 1 ---
----- ---- ----
Effective income tax rate 40% 35% 38%
===== ==== ====
The Company has United States net operating loss carryforwards totaling
$7.9 million which expire in fiscal years 2001 through 2003. Due to various
utilization limitations, management estimates that a significant portion of this
tax attribute will not be available to reduce future tax obligations;
accordingly, a $2.4 million valuation allowance is recorded as of September 30,
1999.
For several years, the Company has pursued legal action to collect certain
tax refund claims in India. As a result of favorable court decisions in India,
and upon the Company providing letters of guarantee, the Company received tax
refunds in 1997 and 1994 of $1.1 million and $.6 million, respectively, (net of
taxes on interest and other related expenses), which were recorded to other
Deferred Credits, pending ultimate resolution of the issue by Indian High Court.
During fiscal year 1999, all but approximately $400,000 of the amounts received
were favorably resolved and accordingly recognized (net of expenses) in income.
NOTE 7 - CAPITAL STOCK
STOCK OPTION PLANS -
The Company has an incentive equity plan ("1996 Plan") whereby 670,000
shares of common stock may be granted to officers and key employees through
February 12, 2007. At September 30, 1999, options to purchase 298,000 shares
were outstanding under this Plan. The Company also has options outstanding to
purchase 206,900 shares under a stock option plan ("1990 Plan"). Under both
plans, the exercise price of each option equals the market price of the
Company's common stock on the date of grant, all outstanding options have a
maximum term of 10 years, and options vest over a period from the second to the
fifth year from the date of grant.
A summary of the status of the Company's Plans as of September 30, 1999,
1998 and 1997, and changes during the years ended on those dates is presented
below:
Fiscal Fiscal Fiscal
1999 1998 1997
-------------------------- -------------------------- ----------------------------
Weighted- Weighted- Weighted-
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
--------- -------------- -------- -------------- ---------- --------------
Outstanding at
beginning of Year 566,200 $ 22.76 444,700 $ 15.42 506,800 $ 9.46
Granted --- --- 208,000 33.07 112,500 28.00
Exercised (49,925) 10.75 (78,500) 8.39 (164,000) 6.22
Forfeited (11,375) 26.00 (8,000) 23.73 (10,600) 6.46
Expired --- --- --- --- --- ---
------- ------ --------
Outstanding at
end of year 504,900 $ 23.88 566,200 $ 22.76 444,700 $ 15.42
Exercisable at
end of year 137,150 $ 13.14 88,950 $ 8.49 69,450 $ 5.67
Available for grant
at end of Year 374,375 366,000 567,000
Weighted-average fair
value of options
granted during the year --- $ 14.21 $ 23.36
The following table summarizes information about stock options outstanding
at September 30, 1999:
Options Outstanding Options Exercisable
------------------------------------------ ------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
---------------- ------- ---------------- -------------- ------ --------------
$ 4.87 to 5.38 33,000 3.0 years $ 5.17 33,000 $ 5.17
6.50 to 6.69 54,400 4.8 years 6.62 38,900 6.64
16.63 to 18.97 220,500 7.6 years 17.47 44,000 17.69
28.00 94,000 7.5 years 28.00 21,250 28.00
48.75 to 52.06 103,000 8.2 years 48.94 --- ---
------- ------- ------- -------
4.87 to 52.06 504,900 7.1 years $ 23.88 137,150 $ 13.14
======= ======= ======= =======
As permitted by SFAS No. 123, the Company applies APB Opinion No. 25 and
related Interpretations in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized from the granting of options pursuant
to its stock option plans. Had compensation costs been determined based on the
fair value at the grant dates for awards made in fiscal years 1998 and 1997
consistent with the method of SFAS No. 123, the Company's 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
1999 1998 1997
-------- -------- --------
Net Income
As reported $27,720 $39,364 $15,619
Pro forma 27,186 38,830 15,404
Earnings per share
As reported -
Basic 2.03 2.90 1.16
Diluted 2.01 2.84 1.14
Pro forma
Basic 1.99 2.86 1.14
Diluted 1.97 2.80 1.12
The fair value of grants made in fiscal 1998 and 1997 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used: fiscal 1998 - risk free interest rate of 5.4
percent, expected volatility of 42 percent, expected lives of 5 years and no
dividend yield; fiscal 1997 - risk-free interest rate of 6.7 percent, expected
volatility of 33.6 percent, expected lives of 5 years and no dividend yield.
COMMON STOCK DIVIDEND -
On November 19, 1997, the Company effected a 100 percent common stock
dividend resulting in the issuance of approximately 6,775,000 shares of common
stock and the transfer of approximately $ 6,775,000 from paid-in capital to
common stock which represented the par value of additional shares issued. All
share and per share information has been retroactively restated in the
Consolidated Financial Statements to reflect the stock dividend.
NOTE 8 - RETIREMENT PLAN
The Company has a contributory retirement plan (the "Plan") under which
qualified participants may make contributions of up to 5% of their compensation,
as defined (the basic contribution). The Company makes contributions to the Plan
equal to twice the basic contributions. Company contributions vest 100 percent
to each participant beginning with the fourth year of participation. If a
participant terminates employment before becoming fully vested, the unvested
portion is credited to the Company's account and can be used only to offset
Company contribution requirements. In fiscal 1999 and 1997, the Company used
forfeitures of $190,000 and $84,000 respectively, to reduce its cash
requirements, which resulted in actual contributions of approximately $1.3
million, and $.9 million, respectively. In 1998, the Company made actual
contributions of approximately $1.3 million, with no forfeitures used to reduce
its cash requirements. As of September 30, 1999, there are approximately $2,000
of contribution forfeitures which can be utilized to reduce future Company cash
contribution requirements.
NOTE 9 - 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 approximated fair value due to the short maturity of
these instruments. Since the bank debt has a market adjustable interest rate,
the carrying value approximated fair value as of fiscal year end 1999 and 1998.
The Company's only financial instruments at September 30, 1999 and 1998 with a
fair value different from carrying value are marketable securities; the
difference of which is shown in Note 3.
NOTE 10 - CONCENTRATION OF MARKET AND CREDIT RISK
All of the Company's customers are in the oil and gas offshore exploration
and production industry. This industry concentration has the potential to impact
the Company's overall exposure to market and credit risks, either positively or
negatively, in that the Company's customers could be affected by similar changes
in economic, industry or other conditions. However, the Company believes that
the credit risk posed by this industry concentration is offset by the
creditworthiness of the Company's customer base. The Company's portfolio of
accounts receivable is comprised of major international corporate entities and
government organizations with stable payment experience. Historically, the
Company's uncollectible accounts receivable have been immaterial, and typically,
the Company does not require collateral for its receivables.
Drilling revenues for fiscal 1999 include $34.7 million, $31.0 million and
$23.1 million in revenues received from Shell Philippines Exploration B.V./Sabah
Shell Petroleum Company Limited, British-Borneo Petroleum Inc. and ESSO
Australia Limited/ESSO Production Malaysia, Inc., respectively. Drilling
revenues for fiscal 1998 include $35.2 million, $25.9 million and $20.4 million
in revenues received from British-Borneo Petroleum Inc., ESSO Australian
Limited/ESSO Production Malaysia, Inc. and Santos Ltd., respectively. Drilling
revenues for fiscal 1997 include $24.3 million, $19.3 million and $16.9 million
in revenues received from ESSO Australia Limited/ESSO Production Malaysia, Inc.,
Mobil Equatorial Guinea Inc. and Carigali-Triton Operating Company Sdn. Bhd.,
respectively.
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued a new accounting
standard; SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Defferal of the Effective Date of FASB Statement No. 133". This
Statement is effective upon issuance and is an amendment to SFAS No. 133.
SFAS No. 133 has been amended to become effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. It establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. In the
opinion of management, the adoption of SFAS No. 133 will not have a material
impact on the Company's financial statements.
NOTE 12 - OPERATING LEASES
The Company leases its office space under an operating lease agreement.
This lease has essentially the same terms and conditions as the original lease,
and will expire in fiscal 2005.
Future minimum lease payments for operating leases are as follows (in
thousands):
Fiscal year ending September 30,
2000........................$348
2001........................ 408
2002........................ 408
2003........................ 408
2004 and thereafter......... 578
Total rent expense under operating leases was approximately $285,000,
$268,000 and $228,000 for fiscal years ended September 30, 1999, 1998 and 1997,
respectively.
NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS
The Company is engaged in offshore contract drilling. The contract drilling
operations consist of contracting Company 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 margin for each geographic area, none
of the following items were considered: other income (expense) and domestic and
foreign income taxes. Identifiable assets are those assets that are used by the
Company in operations in each geographic area. General corporate assets are
principally investments in marketable securities.
A summary of revenues, operating margin and identifiable assets by
geographic areas is as follows (in thousands):
Fiscal Fiscal Fiscal
1999 1998 1997
---------- --------- ----------
CONTRACT REVENUES:
United States $ 35,122 $ 46,454 $ 10,585
Australia 22,237 44,445 27,599
Southeast Asia 44,215 28,661 31,583
Mediterranean Sea 37,063 18,699 ---
India 11,372 --- ---
Africa --- 13,550 19,315
---------- --------- ---------
$ 150,009 $151,809 $ 89,082
========== ========= =========
OPERATING INCOME(LOSS):
United States $ 13,005 $ 24,102 $ 5,642
Australia (6,475) 13,822 8,236
Southeast Asia 14,378 9,911 8,235
Mediterranean Sea 26,164 12,274 ---
Africa --- 8,819 8,200
India 8,678 --- ---
General and administrative expenses (7,519) (7,331) (6,100)
---------- --------- ---------
$ 48,231 $ 61,597 $ 24,213
========== ========= =========
IDENTIFIABLE ASSETS:
United States $ 76,227 $ 76,557 $ 81,800
Australia 46,688 59,388 49,713
Southeast Asia 85,650 97,736 40,387
Mediterranean Sea 21,921 24,908 ---
Africa 2 2 20,457
India 40,180 238 3
General corporate 22,936 22,908 22,970
--------- --------- ---------
$ 293,604 $281,737 $ 215,330
========= ========= =========
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results for fiscal years 1999 and 1998 are as follows
(in thousands, except per share amounts):
QUARTERS ENDED
------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
----------- --------- -------- ------------
1999
Revenues $ 34,977 $ 41,325 $ 38,727 $ 34,980
Income before income taxes 10,588 13,722 11,784 10,413
Net income 6,776 8,724 7,394 4,826
Earnings per common share (1) -
Basic .50 .64 .54 .35
Diluted .49 .63 .53 .35
1998
Revenues $ 36,224 $ 41,428 $ 39,294 $ 34,863
Income before income taxes 13,289 17,966 15,503 13,561
Net income 8,677 11,682 10,034 8,971
Earnings per common share (1) -
Basic .64 .86 .74 .66
Diluted .63 .84 .72 .65
____________
(1) 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.
DIRECTORS OFFICERS
ROBERT W. BURGESS (2,3) JOHN R. IRWIN
Financial Executive, Retired President, Chief Executive Officer
Orleans, Massachusetts
JAMES M. HOLLAND
GEORGE S. DOTSON (1,3) Senior Vice President and Secretary
Vice President
Helmerich & Payne, Inc. GLEN P. KELLEY
President Vice President - Contracts and
Helmerich & Payne International Administration
Drilling Co.
Tulsa, Oklahoma
W. H. HELMERICH, III
Chairman
Helmerich & Payne, Inc.
Tulsa, Oklahoma
HANS HELMERICH (1, 3)
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)
Bank Executive, Retired
Elkhorn, Wisconsin
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
ANNUAL MEETING
The annual meeting of stockholders will be held on February 10, 2000 at the
Company's principal office: 15835 Park Ten Place Drive, Houston, Texas. A formal
notice of the meeting together with a proxy statement and form of proxy will be
mailed to stockholders about January 15, 2000.
TRANSFER AGENT AND REGISTRAR
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
FORM 10-K
A copy of the Company's 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
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 1998 or 1999, and none are anticipated in the foreseeable
future. As of September 30, 1999, there were over 750 beneficial owners of the
common stock of Atwood Oceanics, Inc. As of November 30, 1999, the closing sale
price of the common stock of Atwood Oceanics, Inc., as reported by NYSE, was $
33 5/8 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
1998 1999
------ ------
QUARTERS ENDED LOW HIGH LOW HIGH
- -------------- ----- ------- ------- ------
December 31 $ 40 1/16 $ 61 5/8 $ 15 7/8 $ 32 1/2
March 31 38 3/4 55 1/4 16 1/8 31 3/4
June 30 37 3/8 61 3/8 25 7/8 37 3/4
September 30 15 1/16 40 3/4 28 1/2 35 9/16
APPENDIX
The following graphic and image information in the form of "Bar Charts" are
located in the Annual Report immediately following "Highlights".
BAR CHART - CONTRACT REVENUES ($ MILLIONS)
1995 1996 1997 1998 1999
$72.2 $79.5 $89.1 $151.8 $150.0
BAR CHART - EARNINGS, BEFORE DEPRECIATION, INTEREST, TAXES AND
INVESTMENT INCOME ($ MILLIONS)
1995 1996 1997 1998 1999
$16.9 $22.8 $34.2 $79.2 $72.1
BAR CHART - OPERATING CASH FLOW ($ MILLIONS)
1995 1996 1997 1998 1999
$14.9 $20.3 $25.8 $61.4 $55.7
BAR CHART - NET INCOME ($ MILLIONS)
1995 1996 1997 1998 1999
$7.1 $11.4 $15.6 $39.4 $27.7
BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS)
1995 1996 1997 1998 1999
$25.7 $9.5 $62.8 $79.6 $38.8
BAR CHART - CASH AND SECURITIES HELD FOR INVESTMENT ($ MILLIONS)
1995 1996 1997 1998 1999
$38.0 $40.5 $42.2 $34.5 $43.0