EXHIBIT 13.1
2002 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 drilling units as well as manages the
operations of two operator-owned platform drilling units in Northwest Australia.
In December 2000, the Company purchased a semisubmersible (named SEASCOUT) for
future conversion to a tender assist vessel once an acceptable contract
opportunity is secured. The Company is also constructing an ultra-premium
jack-up unit (ATWOOD BEACON) for the international non-North Sea drilling
market. Since 1996, the Company has expended approximately $340 million in
upgrading its mobile offshore drilling units. The Company supports its
operations from headquarters in Houston and affiliated offices currently located
in Australia, Malaysia, Egypt, Indonesia, Italy and the United Kingdom.
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
2002 2001
-------- --------
(In Thousands)
FOR THE YEAR ENDED SEPTEMBER 30,
CONTRACT REVENUES $149,157 $147,541
NET INCOME 28,285 27,346
CAPITAL EXPENDITURES 89,416 107,778
AT SEPTEMBER 30,
NET PROPERTY AND EQUIPMENT $368,397 $306,254
TOTAL ASSETS 444,530 353,878
TOTAL SHAREHOLDERS' EQUITY 276,133 247,636
</Table>
TO OUR SHAREHOLDERS AND EMPLOYEES:
The Company recorded its ninth consecutive year of profitability in
fiscal year 2002 with net income of $28.3 million. This was the second highest
net income in our history and was achieved while the ATWOOD EAGLE was undergoing
a major $90 million shipyard upgrade from April through November 2002. All seven
of our operating mobile offshore drilling units ("MODUs") have undergone
upgrades since 1996, at a total cost of around $340 million. Our fleet upgrade
program has been accomplished within overall budget. Excluding the ATWOOD EAGLE
while undergoing upgrade, our other six operating MODUs achieved high
utilization again this year with operating margins, once again, high by industry
standards.
Our cantilever jack-up, the VICKSBURG, began a two-year contract in
Malaysia in early October 2002. The contract is subject to 120 days early
termination notice after twelve months. The SEAHAWK, our self-erecting,
semi-submersible, tender-assist unit, is on a term contract until December 2003.
The ATWOOD HUNTER, which underwent a major upgrade in 2001, finished a
successful eleven-well contract in Egypt and is now working on an additional
four-well program that is expected to keep it employed through second quarter
fiscal year 2003. In late November 2002, following mobilization to Australia,
the ATWOOD FALCON commenced a new contract with current expected duration of
three to four months. The ATWOOD EAGLE has a commitment, subject to concluding a
final contract, to commence work in Angola around late second quarter of fiscal
year 2003. The ATWOOD SOUTHERN CROSS mobilized to Italy following a successful
drilling and completions program in the Mediterranean. After upgrades to meet
Italian requirements, it went on a special standby dayrate in late November
2002, and subsequently commenced operations at full dayrate on December 12,
2002. The RICHMOND, our only unit in the Gulf of Mexico, has remained busy on
well-to-well work and currently has commitments that should keep it employed
into the second quarter of fiscal year 2003.
Major upgrades of both the ATWOOD HUNTER, undertaken in 2001, and the
ATWOOD EAGLE, undertaken in 2002, included 5,000 feet water-depth drilling
capability (for certain environments), new 120-bed quarters, enhanced drilling
systems, and sub-sea tree handling systems. The strategy behind the improved
drilling efficiency and sub-sea completion capability of these units focused on
understanding and meeting the future needs of our clients for the international
deepwater drilling and sub-sea completions markets. The ATWOOD HUNTER has now
performed successfully for over a year in Egypt on a drilling and sub-sea
completions program immediately following its major upgrade.
Construction of our new $125 million ultra-premium jack-up, the ATWOOD
BEACON, is progressing well in Singapore and is currently within budget.
Delivery is still expected around June 2003. We believe the ATWOOD BEACON will
provide broad coverage for our clients in international non-North Sea markets
and is an investment in the future growth of the Company. Several work
opportunities for the ATWOOD BEACON are currently being pursued.
While the short-term outlook reflects softness in certain
semi-submersible markets, it is our goal to be profitable again in fiscal year
2003. By the third quarter of fiscal year 2003, all seven of our operating MODUs
should be operating concurrently for the first time since our fleet upgrade
program commenced in 1997. We remain optimistic about the longer-term
fundamentals in our business and believe the Company is well-positioned to take
advantage of the future upside from longer-term market improvements with our
existing upgraded fleet and for future growth with the ATWOOD BEACON.
During fiscal year 2002, we have stayed committed to our goal of
satisfying our clients with safe, quality operations and value-adding services.
Safety, health, the environment and security are at the forefront of our agenda
in building the Company in the future. We thank our shareholders for their
support; our employees for their contributions; and our clients and various
other stakeholders on whom the Company's existence and success depends in so
many different ways.
/s/ John R. Irwin
John R. Irwin
2
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
FIVE-YEAR FINANCIAL REVIEW
<Table>
<Caption>
At or For the Years Ended September 30,
-----------------------------------------------------------------
(In thousands, except per share amounts, fleet 2002 2001 2000 1999 1998
data and ratios) --------- --------- --------- --------- ---------
STATEMENTS OF OPERATIONS DATA:
Contract revenues $ 149,157 $ 147,541 $ 135,973 $ 152,850 $ 153,388
Contract drilling costs (75,088) (70,014) (60,709) (73,196) (66,864)
General and administrative expenses (10,080) (9,250) (8,449) (7,519) (7,331)
Depreciation (23,882) (25,579) (29,624) (23,904) (17,596)
--------- --------- --------- --------- ---------
OPERATING INCOME 40,107 42,698 37,191 48,231 61,597
Other expense (1,330) (1,577) (1,293) (1,724) (1,278)
Tax provision (10,492) (13,775) (12,750) (18,787) (20,955)
--------- --------- --------- --------- ---------
NET INCOME $ 28,285 $ 27,346 $ 23,148 $ 27,720 $ 39,364
========= ========= ========= ========= =========
PER SHARE DATA:
Earnings per common share:
Basic $ 2.04 $ 1.98 $ 1.68 $ 2.03 $ 2.90
Diluted 2.02 1.96 1.66 2.01 2.84
Average common shares outstanding:
Basic 13,839 13,828 13,763 13,649 13,592
Diluted 13,994 13,978 13,916 13,791 13,884
FLEET DATA:
Number of rigs owned or managed, at end of
period 10 11 11 11 11
Utilization rate for in-service rigs (excludes
managed rigs and contractual downtime for
rigs upgraded in 2002, 2001, 2000, 1999, and 86% 80% 71% 77% 100%
1998)
BALANCE SHEETS DATA:
Cash and securities held for investment $ 27,055 $ 12,621 $ 42,661 $ 43,041 $ 34,529
Working capital 47,397 25,057 47,433 31,519 24,864
Net property and equipment 368,397 306,254 224,107 218,914 205,632
Total assets 444,530 353,878 313,251 293,604 281,737
Total long-term debt 115,000 60,000 46,000 54,000 72,000
Shareholders' equity(1) 276,133 247,636 218,205 192,229 163,766
Ratio of current assets to current liabilities 2.94 2.21 3.71 2.66 1.93
</Table>
- ---------
NOTES -
(1) The Company has never paid any cash dividends on its common stock.
3
OFFSHORE DRILLING OPERATIONS
<Table>
<Caption>
PERCENTAGE
MAXIMUM OF 2002
YEAR BUILT WATER CONTRACT CONTRACT STATUS AT
RIG NAME (UPGRADED) DEPTH REVENUES LOCATION CUSTOMER DECEMBER 15, 2002
-------- ---------- ------- ---------- -------- -------- ------------------
SEMISUBMERSIBLES -
ATWOOD FALCON 1983(1998) 3,500 Ft. 23% Australia Woodside Energy, In November 2002, the rig
Ltd. commenced a two-well plus
four-option wells contract in
Australia, which could take
three to five months to
complete.
ATWOOD HUNTER 1981(1997/ 5,000 Ft. 18% Egypt Burullus Gas The rig has contract
2001) Company commitments in Egypt, which
should keep it employed into
the second quarter of fiscal
2003. Contract opportunities to
commence following completion
of the rig's current
commitments are being pursued
internationally.
ATWOOD EAGLE 1982(2000/ 5,000 Ft. 10% Enroute to ESSO Exploration The Company has a commitment
2002) Angola Angola (Block 15) from ESSO to enter into a
Limited ("ESSO") contract for the use of the
rig to drill three firm wells,
plus options for four
additional wells, off the coast
of Angola. The rig should
arrive in Angola in late
February 2003. If all seven
wells are drilled, it could
take approximately one year to
complete the drilling program.
ATWOOD 1976(1997) 2,000 Ft. 13% Italy Eni S.P.A. - AGIP At the end of November 2002,
SOUTHERN CROSS the rig Division commenced a
two-well plus one option well
contract in Italy, which is
expected to take three to five
months to complete.
SEAHAWK 1974(1992/ 600 Ft. 15% Malaysia ExxonMobil The rig's current contract
1999) Exploration & terminates in December 2003.
Production Malaysia
Inc. ("EMEPMI")
</Table>
4
<Table>
<Caption>
PERCENTAGE
MAXIMUM OF 2002
YEAR BUILT WATER CONTRACT CONTRACT STATUS AT
RIG NAME (UPGRADED) DEPTH REVENUES LOCATION CUSTOMER DECEMBER 15, 2002
-------- ---------- ------- ---------- -------- -------- ------------------
SEASCOUT 1974 1,000 Ft. 0% United States The rig was purchased in
Gulf of Mexico December 2000 for future
conversion to a tender assist
unit similar to the SEAHAWK,
once an acceptable contract
opportunity is secured.
CANTILEVER JACK-UPS -
VICKSBURG 1976/1998 300 Ft. 15% Malaysia EMEPMI In early October 2002, the rig
commenced a two-year drilling
program (with an option by
EMEPMI for one additional year)
with EMEPMI having the right
to terminate the drilling
program after one-year at any
time with a 120 days notice
period.
ATWOOD BEACON Under 350 Ft. 0% Singapore The Company expects the
construction of Construction
this ultra-premium jack-up
drilling unit to be completed
in June 2003.
SUBMERSIBLE -
RICHMOND 1982/2000 75 Ft. 5% United States Burlington Contract opportunities to
Gulf of Mexico Resources commence following completion
Oil & Gas of the rig's current contract
Company in January 2003 are being
pursued in the U.S. Gulf of
Mexico.
MODULAR PLATFORMS -
MANAGEMENT CONTRACT
GOODWYN 'A' and N/A N/A 1% Australia Woodside Energy There is currently an
NORTH RANKIN 'A' Ltd. indefinite planned break in
drilling activity for the two
client-owned rigs. The Company
is involved in maintenance
of the two rigs for future
drilling programs.
</Table>
5
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, 2002 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. Our Company and
its representatives may from time to time make written or verbal forward-looking
statements, including statements contained in this report and other Company
filings with the Securities and Exchange Commission and in our reports to
Shareholders. Generally, the words "believe", "expect", "intend", "estimate",
"anticipate", "plan", and similar expressions identify forward-looking
statements. 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. The forward-looking statements are and will be based on
management's then current views and assumptions regarding future events and
operating performances. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. 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, but are not limited to: 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; risks
associated with possible disruptions in operations due to terrorism 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
Fiscal year 2002 marked the Company's ninth consecutive profitable
year, with the period fiscal year 1998 through fiscal year 2002 representing the
Company's highest revenue, cash flows, and net income in its thirty-plus year
history. Current worldwide operations of the Company revolve around seven core
active offshore mobile drilling units, which collectively have undergone
approximately $340 million in upgrades since 1996. In June 2003, an eighth
drilling unit, the ATWOOD BEACON, an ultra-premium jack-up drilling vessel now
under construction, is scheduled to be added to the Company's drilling fleet.
The construction of this $125 million (including capitalized interest) unit is
progressing within costs and delivery expectation. By the end of fiscal year
2003, of the approximately $465 million estimated to have been expended by the
Company since 1996 on upgrades and new construction activities, around
two-thirds is expected to be funded from internally generated proceeds and
around one-third from a $175 million Revolving Credit Facility.
Of the Company's current seven active drilling units, only the
VICKSBURG and SEAHAWK have contract terms that extend beyond fiscal year 2003.
The ATWOOD HUNTER, which has worked continuously in Egypt since December 2001
earned an average dayrate of approximately $94,000 in fiscal year 2002. Due to
the current soft market conditions in mid and deep water activities, the ATWOOD
HUNTER is currently earning dayrates of $50,000 to $55,000 on short-term
commitments that extend into the second quarter of fiscal year 2003. The ATWOOD
EAGLE completed its shipyard upgrade at the end of November 2002 and is
currently being mobilized to Angola pursuant to a commitment from ESSO
Exploration Angola (Block 15) Limited to enter into a contract for the use of
this rig to drill three firm wells plus options for four additional wells. The
contract, which should be formalized in December 2002, will provide for a
dayrate of $83,000 and will include a $2.7 million mobilization payment. The
Company anticipates that market conditions during fiscal year 2003, especially
during the first half of the year, to be challenging, with a lower level of
dayrates for deep-water work. Despite current market conditions, the Company
hopes to maintain a relatively high level of equipment utilization during fiscal
year 2003; however, revenues, operating cash flows and net income are expected
to be below results of fiscal year 2002. The current near-term outlook has not
weakened the Company's optimism about the longer-term outlook and fundamentals
of the offshore drilling market.
6
RESULTS OF OPERATIONS
FISCAL YEAR 2002 VERSUS FISCAL YEAR 2001
Since the Company commenced its upgrade program in 1997, one to two
drilling units have undergone upgrades for a portion of each year. In December
2001, the ATWOOD HUNTER returned to work following completion of its upgrade and
mobilization to Egypt, while in May 2002, the ATWOOD EAGLE commenced its
upgrade, which was completed in November 2002. An analysis of contract revenues
by rig for fiscal years 2002 and 2001 is as follows:
<Table>
<Caption>
CONTRACT REVENUES
(In millions)
-------------------------------
FISCAL Fiscal
2002 2001 Variance
------ ------ --------
ATWOOD HUNTER $ 27.4 $ 15.8 $11.6
VICKSBURG 22.5 12.7 9.8
ATWOOD SOUTHERN CROSS 19.3 17.9 1.4
SEAHAWK 22.3 23.4 (1.1)
RICHMOND 7.1 11.3 (4.2)
GOODWYN 'A' / NORTH RANKIN 'A' 1.9 6.1 (4.2)
ATWOOD EAGLE 15.2 19.9 (4.7)
ATWOOD FALCON 33.5 40.4 (6.9)
------ ------ -----
$149.2 $147.5 $ 1.7
====== ====== =====
</Table>
The ATWOOD HUNTER has worked continuously in Egypt since December 2001
at dayrates ranging from $90,000 to $110,000 during fiscal year 2002, compared
to being idle for upgrade during a significant portion of fiscal year 2001,
which accounts for its increase in revenue. In April/May 2001, the VICKSBURG was
relocated from India to Southeast Asia. Since its relocation to Southeast Asia,
the rig has received higher dayrates than those received while in India, which
accounts for its increase in revenue. The ATWOOD SOUTHERN CROSS has been highly
utilized since its relocation from Australia to the Mediterranean in fiscal year
2000. In February 2000, the SEAHAWK commenced its four-year contract extension
in Malaysia, with its dayrate ranging from a high of $50,000 to a low of $30,000
depending upon the price of oil. The rig was at the top of this dayrate range in
fiscal year 2002 and fiscal year 2001. RICHMOND revenues declined in fiscal year
2002 compared to fiscal year 2001 due to 78 days of idle time incurred during
the year for certain repairs and inspections and to a decline in dayrate levels
in the Gulf of Mexico. At the end of fiscal year 2001, an indefinite planned
break in drilling activities was instigated on the GOODWYN 'A'/NORTH RANKIN 'A'
platform rigs, which accounts for the decline in revenues from these units in
fiscal year 2002. The decline in revenues for the ATWOOD EAGLE was due to the
rig undergoing upgrades in a shipyard in Greece from April 2002 to November
2002. In May 2002, the ATWOOD FALCON was relocated from the Philippines to
Malaysia following the completion of a long-term contract. The rig's effective
dayrate in the Philippines was over $100,000 compared to $70,000 in Malaysia,
which accounts for the decline in revenues.
7
Contract drilling costs during fiscal 2002 increased 7% primarily due to the
ATWOOD HUNTER returning to work following its upgrade and to higher operating
costs associated with the VICKSBURG, RICHMOND, ATWOOD FALCON, SEAHAWK and ATWOOD
SOUTHERN CROSS. An analysis of contract drilling costs by rig for fiscal year
2002 and 2001 is as follows:
<Table>
<Caption>
CONTRACT DRILLING COSTS
(In millions)
-------------------------------
FISCAL Fiscal
2002 2001 Variance
------ ------ --------
ATWOOD HUNTER $ 13.4 $8.1 $ 5.3
VICKSBURG 9.5 7.4 2.1
RICHMOND 9.3 7.6 1.7
ATWOOD FALCON 10.2 8.6 1.6
SEAHAWK 9.2 7.8 1.4
ATWOOD SOUTHERN CROSS 11.1 10.3 0.8
ATWOOD EAGLE 9.0 11.9 (2.9)
GOODWYN 'A'/NORTH RANKIN 'A' 2.1 5.7 (3.6)
OTHER 1.3 2.6 (1.3)
------ ------ -----
$ 75.1 $ 70.0 $ 5.1
====== ====== =====
</Table>
During the period that the ATWOOD HUNTER was in a shipyard in the United States
for upgrades and its subsequent relocation to Egypt (April 2001 through November
2001), no drilling costs were incurred. Higher drilling costs for the VICKSBURG
were due to operating costs being higher in Southeast Asia than India. During
fiscal year 2002, the RICHMOND incurred higher repairs and maintenance costs.
The increase in operating costs for the ATWOOD FALCON is primarily due to
additional costs incurred on relocating the rig from the Philippines to
Malaysia. The decline in costs for the ATWOOD EAGLE was due to the rig being in
a shipyard during the last few months of fiscal year 2002 for upgrade, whereby
no drilling costs were incurred. Drilling costs on the GOODWYN 'A'/NORTH RANKIN
'A' platforms declined due to the planned break in drilling activities.
An analysis of depreciation expense by rig is as follows:
<Table>
<Caption>
DEPRECIATION EXPENSE
(In millions)
-------------------------------
FISCAL Fiscal
2002 2001 Variance
------ ------ --------
ATWOOD HUNTER $ 4.2 $ 1.5 $ 2.7
RICHMOND 1.6 1.5 0.1
ATWOOD SOUTHERN CROSS 3.9 3.9 0.0
ATWOOD FALCON 2.7 2.7 0.0
VICKSBURG 2.3 2.6 (0.3)
ATWOOD EAGLE 2.2 3.6 (1.4)
SEAHAWK 4.8 6.9 (2.1)
OTHER 2.2 2.9 (0.7)
------ ------ -----
$ 23.9 $ 25.6 $(1.7)
====== ====== =====
</Table>
The Company does not recognize depreciation expense during the period a
rig is out of service for a significant upgrade, which accounts for the reduced
depreciation with the ATWOOD HUNTER in fiscal year 2001 and the ATWOOD EAGLE in
fiscal year 2002. The decrease in depreciation expense for the SEAHAWK was due
to the rig's 1992 upgrade costs becoming fully depreciated, thereby leaving only
$11 million of its 2000 fiscal year upgrade cost of approximately $22 million to
be depreciated over a remaining period of approximately three years.
8
The Company's general and administrative expenses increased 9% in both fiscal
year 2002 and year 2001, primarily due to higher travel, communication, and
other personnel related costs. The Company's effective tax rate was 27% in
fiscal year 2002 compared to 33% in fiscal year 2001. The Company's effective
tax rate in fiscal year 2002 was reduced by a $2.3 million foreign income tax
credit benefit generated in September 2002. The 44% decline in net interest
expense was primarily due to a $1.8 million increase in capitalized interest.
Investment income in fiscal year 2002 declined 78% due to the Company having
less funds to invest due to its capital expenditure requirements.
FISCAL YEAR 2001 VERSUS FISCAL YEAR 2000
Contract revenues during fiscal year 2001 were 9% higher than revenues
in fiscal year 2000 primarily due to increased revenues from the ATWOOD SOUTHERN
CROSS, RICHMOND, and SEAHAWK, which more than offset a decline in revenues from
the ATWOOD HUNTER. An analysis of contract revenues by rig for fiscal years 2001
and 2000 is as follows:
<Table>
<Caption>
CONTRACT REVENUES
(In millions)
-------------------------------
FISCAL Fiscal
2001 2000 Variance
------ ------ --------
ATWOOD SOUTHERN CROSS $ 17.9 $ 5.1 $ 12.8
RICHMOND 11.3 4.2 7.1
SEAHAWK 23.4 19.5 3.9
ATWOOD EAGLE 19.9 16.7 3.2
GOODWYN 'A'/NORTH RANKIN 'A' 6.1 3.1 3.0
VICKSBURG 12.7 12.0 0.7
ATWOOD FALCON 40.4 40.9 (0.5)
ATWOOD HUNTER 15.8 34.5 (18.7)
------ ------- -------
$147.5 $ 136.0 $ 11.5
====== ======= =======
</Table>
ATWOOD SOUTHERN CROSS has been highly utilized since it was relocated to the
Mediterranean Sea in June 2000 from Australia, where it had been idle since
September 1998. The increase in revenues for the RICHMOND is due to higher
dayrates in the Gulf of Mexico during 2001. The SEAHAWK's dayrate for fiscal
year 2001 averaged $50,000 compared to an average dayrate of $43,000 in 2000,
which accounts for its increase in revenues. The ATWOOD EAGLE was fully utilized
in fiscal 2001 with an average per day revenue of $54,000 compared to being off
dayrate in January 2000 while undergoing some shipyard work which reduced its
average per day revenue for fiscal year 2000 to around $45,000. Revenues were
higher on the GOODWYN 'A' and NORTH RANKIN 'A' platform rigs due to increased
drilling activities in 2001 compared to 2000. The increase in revenues of the
VICKSBURG was due to higher dayrates received in 2001 compared to 2000. The
significant decline in revenues for the ATWOOD HUNTER was due to a significant
reduction in dayrate revenues following the completion of its three-year
contract term in November 2000 and to the rig being off dayrate while in a
shipyard for an upgrade from early June 2001 to early November 2001.
9
Contract drilling and management costs during fiscal year 2001 increased 15%
primarily due to higher operating costs associated with the GOODWYN 'A'/NORTH
RANKIN 'A' platform rigs, and the ATWOOD EAGLE, ATWOOD SOUTHERN CROSS, RICHMOND,
and VICKSBURG. An analysis of contract drilling and management costs by rig for
fiscal years 2001 and 2000 is as follows:
<Table>
<Caption>
CONTRACT DRILLING AND
MANAGEMENT COSTS
(In millions)
-------------------------------
FISCAL Fiscal
2001 2000 Variance
------ ------ --------
GOODWYN 'A'/NORTH RANKIN 'A' $ 5.7 $ 2.7 $ 3.0
ATWOOD EAGLE 11.9 9.0 2.9
ATWOOD SOUTHERN CROSS 10.3 7.6 2.7
RICHMOND 7.6 5.0 2.6
VICKSBURG 7.4 5.7 1.7
SEAHAWK 7.8 7.7 0.1
ATWOOD FALCON 8.6 8.6 0.0
ATWOOD HUNTER 8.1 12.5 (4.4)
OTHER 2.6 1.9 0.7
------ ------ -----
$ 70.0 $ 60.7 $ 9.3
====== ======= =====
</Table>
Higher drilling costs for the GOODWYN 'A'/NORTH RANKIN 'A' platform rigs were
due to an increase in drilling activities during 2001 following refurbishment by
their Australian owner in 2000. Drilling costs for the ATWOOD EAGLE increased
due to the rig having no downtime in 2001, thus, operating at a full cost level,
compared to no drilling costs being incurred in January 2000 when the rig was in
a shipyard for a brief period. The increase in drilling costs for the ATWOOD
SOUTHERN CROSS was due to the rig being fully utilized since it returned to work
in June 2000. Drilling costs for the RICHMOND and VICKSBURG increased due to
higher maintenance and some personnel related costs. The reduction in drilling
costs for the ATWOOD HUNTER was due to its upgrade, whereby no drilling costs
were incurred during the upgrade period. An analysis of depreciation expenses by
rig is as follows:
<Table>
<Caption>
DEPRECIATION EXPENSE
(In millions)
-------------------------------
FISCAL Fiscal
2001 2000 Variance
------ ------ --------
SEAHAWK $ 6.9 $ 5.1 $ 1.8
RICHMOND 1.5 0.2 1.3
ATWOOD EAGLE 3.6 3.0 0.6
ATWOOD SOUTHERN CROSS 3.9 3.9 0.0
VICKSBURG 2.6 2.9 (0.3)
ATWOOD HUNTER 1.5 5.2 (3.7)
ATWOOD FALCON 2.7 6.5 (3.8)
OTHER 2.9 2.8 0.1
------ ------ -----
$ 25.6 $ 29.6 $ (4.0)
====== ====== =======
</Table>
The SEAHAWK, RICHMOND, and ATWOOD EAGLE had some reduction in depreciation
expense in early fiscal 2000 due to upgrades, which accounts for a portion of
the increased depreciation expense in 2001. Higher depreciable basis for these
rigs following their upgrades also contributed to increased depreciation expense
in 2001. The reduction in depreciation expense for the ATWOOD HUNTER and ATWOOD
FALCON was primarily due to an increase in their depreciable lives from 12 to 22
years effective October 1, 2000.
10
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows (before changes in working capital and other
assets and liabilities) for fiscal year 2002 decreased 2% from $56.3 million to
$55.1 million. During fiscal year 2002, the Company utilized available cash and
internally generated funds plus $55 million in net proceeds from its Credit
Facility, for a total of $88 million in capital expenditures for the current
fiscal year, to invest approximately $15 million in the upgrade of the ATWOOD
HUNTER, to invest approximately $29 million in the upgrade of the ATWOOD EAGLE,
to invest approximately $40 million in the construction of the ATWOOD BEACON and
to fund approximately $4 million in other capital expenditures.
With the completion of the upgrade of the ATWOOD EAGLE in November
2002, the Company's total expenditure on its upgrade since 1996 should
approximate $340 million, of which all but approximately $28 million had been
incurred through September 30, 2002. The construction of the ATWOOD BEACON
(estimated to cost $125 million including capital interest) continues to
progress on schedule with delivery expected in June 2003. Currently, the
Company's primary capital commitments are the completion of the upgrade of the
ATWOOD EAGLE (with approximately $28 million remaining to be expended in fiscal
year 2003) and the completion of the construction of the ATWOOD BEACON (with an
estimated $60 million to be expended in fiscal year 2003). The Company expects
to fund these Capital commitments from its credit facility discussed below,
internally generated funds, and available cash.
To assist the Company in funding all of its capital commitments, in
February 2002 the Company increased its borrowing capacity under its revolving
credit facility from $150 million to $175 million. Subsequent to September 2002,
the Company has borrowed an additional $20 million under its revolving credit
facility for a current outstanding balance of $135 million. In December 2002,
the revolving credit facility was amended to increase the allowed ratio of
outstanding debt to earnings, before interest, income taxes and depreciation and
to add the ATWOOD SOUTHERN CROSS and SEAHAWK to the bank group collateral
package.
The Company has completed its engineering work on the SEASCOUT for a future
conversion and upgrade to a semisubmersible tender assist vessel, which could
range in costs from $50 million to $70 million. The rig is currently cold
stacked. A conversion and upgrade will not be undertaken until an acceptable
contract opportunity has been secured and additional capital funding identified.
The Company continues to periodically review and adjust its planned capital
expenditures and financing of such expenditures in light of current market
conditions.
Working capital increased from $25.1 million at September 30, 2001 to
$47.4 million at September 30, 2002, primarily due to higher cash and accounts
receivable balances. The Company's portfolio of accounts receivables is
comprised of major international corporate entities with stable payment
experiences; thus, historically the Company has not encountered significant
difficulties in collecting receivables. At September 30, 2001, the Company was
pursuing legal action to collect approximately $2.1 million billed in 1998 and
approximately $1.5 million billed in 2001. The Company continues to pursue the
collection of the $2.1 million; however, during 2002 a settlement was reached
concerning the $1.5 million issue with no material effect to the Company's
consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are included in Note 2 to
the consolidated financial statements for the year ended September 30, 2002 and
are incorporated into the Company's Annual Report on Form 10-K. These policies,
along with the underlying assumptions and judgments made by the Company's
management in their application, have a significant impact on the Company's
consolidated financial statements. The Company identifies its most critical
accounting policies as those that are the most pervasive and important to the
portrayal of the Company's 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. The
Company's most critical accounting policies are those related to property and
equipment, impairment of assets and income taxes.
At September 30, 2002, the carrying value of the Company's property and
equipment totaled $368.4 million, which represents 83% of total assets. This
carrying value reflects the application of the Company's property and equipment
accounting policies, which incorporate estimates, assumptions and judgments by
management relative to the capitalized costs, useful lives and salvage values of
the Company's rigs and vessels. The Company evaluates the carrying value of its
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.
11
The estimates, assumptions and judgments used by management in the application
of the Company's 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 the Company's 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.
The Company conducts operations and earns income in numerous foreign
countries and is subject to the laws of taxing jurisdictions within those
countries, as well as U.S. federal and state tax laws. At September 30, 2002,
the Company has a $15.5 million net deferred income tax liability, with a
current U.S. federal income tax refund of approximately $3 million. These
balances reflect the application of the Company's 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Goodwill and
Other Intangible Assets, which established Standards for reporting acquired
goodwill and other intangible assets. This Statement accounts for goodwill based
on the reporting units of the combined entity into which an acquired entity is
integrated. In accordance with the statement, goodwill and indefinite lived
intangible assets will not be amortized, but will be tested for impairment at
least annually at the reporting unit level, and the amortization period of
intangible assets with finite lives will not be limited to forty years. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001 (October 1, 2002 for the Company) with
early application permitted for entities with fiscal years beginning after March
15, 2001. This statement will not have a material impact on the consolidated
financial statement of the Company.
In July 2001, the FASB issued the Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations
(ARO), which requires that an asset retirement cost be capitalized as part of
the cost of the related long-lived asset and allocated to expense using a
systematic and rational method. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002 (October 1,
2002 for the Company). This statement will not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued the Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of
Long-lived Assets, which addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of. The
purpose of this Statement was to establish a single accounting model for
long-lived assets to be disposed of by sale, based on the framework established
in FASB Statement No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and to resolve
certain implementation issues related to SFAS 121. This Statement also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations; however, it retains the requirement of
Opinion 30 to report discontinued operations separately from continuing
abandonment and extends that reporting to a Corporate entity that either has
been disposed of (by sale, by abandonment, or in a distribution to owners) or is
classified as held for sale. This Statement shall generally be effective for
financial statements issued for fiscal years beginning after December 15, 2001
(October 1, 2002 for the Company) and interim periods within those fiscal years.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections. SFAS 145 rescinds
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt. By rescinding
FASB Statement No. 4, gains or losses from extinguishment of debt that do not
meet the criteria of APB No. 30 should not be reported as an extraordinary item
and should be reclassified to income from continuing operations in all periods
presented. APB No. 30 states that extraordinary items are events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. This Statement is effective for fiscal years
beginning after May 15, 2002 (October 1, 2002 for the Company).
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability
12
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF Issue 94-3, a
liability for an exit cost as defined in EITF Issue 94-3 was recognized at the
date of an entity's commitment to an exit plan. The provisions of this Statement
are effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. Previously issued financial
statements shall not be restated upon adoption of SFAS 146. Management does not
expect the adoption of SFAS 146 to have a material impact on its financial
statements or results of operations.
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
All of the $115 million of long-term debt outstanding at September 30,
2002, was floating rate debt. As a result, the Company's annual interest costs
in fiscal year 2003 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 Company's long-term debt approximates carrying value as of September 30,
2002. The impact on annual cash flow of a 10% change in the floating rate
(approximately 40 basis points) would be approximately $0.5 million. The Company
did not have any open derivative contracts relating to its floating rate debt at
September 30, 2002.
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. Based on September 30, 2002 amounts, a decrease in the value of 10%
in the foreign currencies relative to the U.S. dollar from the year-end exchange
rates would not result in any material foreign currency transaction loss. Thus,
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, 2002.
13
REPORT OF INDEPENDENT ACCOUNTANTS
TO BOARD OF DIRECTORS AND SHAREHOLDERS OF ATWOOD OCEANICS, INC.:
In our opinion, the accompanying consolidated balance sheets as of September 30,
2002 and the related consolidated statements of operations, of cash flows, and
of changes in shareholders' equity present fairly, in all material respects, the
financial position of Atwood Oceanics, Inc. and it subsidiaries as of September
30, 2002, and the results of their operations and their cash flows for the year
then ended 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 audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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
audit provides a reasonable basis for our opinion. The financial statements of
the Company as of September 30, 2001 and for each of the two years then ended
were audited by other independent accountants whose report dated November 19,
2001 expressed an unqualified opinion on those statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Houston, Texas
December 18, 2002
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP:
TO THE 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, 2001
and 2000, 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, 2001. 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 auditing standards generally
accepted in the 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. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
November 19, 2001
14
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30,
-------------------
(In thousands) 2002 2001
- -------------- -------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,055 $ 12,621
Accounts receivable, net 28,776 19,815
Inventories of materials and supplies,
at lower of average cost or market 9,134 9,111
Deferred tax assets 223 780
Prepaid expenses 6,625 3,394
-------- --------
Total Current Assets 71,813 45,721
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Drilling vessels, equipment and drill pipe 583,241 497,821
Other 9,156 8,768
-------- --------
592,397 506,589
Less - accumulated depreciation 224,000 200,335
-------- --------
Net Property and Equipment 368,397 306,254
-------- --------
DEFERRED COSTS AND OTHER ASSETS 4,320 1,903
-------- --------
$444,530 $353,878
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
15
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30,
-------------------
(In thousands, except share data) 2002 2001
- --------------------------------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term note payable $ 5,023 $ --
Accounts payable 5,584 8,055
Accrued liabilities 13,809 12,609
-------- --------
Total Current Liabilities 24,416 20,664
-------- --------
LONG-TERM DEBT, net of current maturities 115,000 60,000
-------- --------
DEFERRED CREDITS:
Income taxes 15,545 13,600
Mobilization fees and other 13,436 11,978
-------- --------
28,981 25,578
-------- --------
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 13,845,000 and
13,832,000 issued and outstanding in 2002 and 2001,
respectively 13,845 13,832
Paid-in capital 57,274 57,075
Retained earnings 205,014 176,729
-------- --------
Total Shareholders' Equity 276,133 247,636
-------- --------
$444,530 $353,878
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
16
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
Years Ended September 30,
-----------------------------------
(In thousands, except per share amounts) 2002 2001 2000
- ---------------------------------------- --------- --------- ---------
REVENUES:
Contract drilling $ 149,157 $ 147,541 $ 135,973
--------- --------- ---------
COSTS AND EXPENSES:
Contract drilling 75,088 70,014 60,709
Depreciation 23,882 25,579 29,624
General and administrative 10,080 9,250 8,449
--------- --------- ---------
109,050 104,843 98,782
--------- --------- ---------
OPERATING INCOME 40,107 42,698 37,191
--------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (1,658) (2,939) (3,907)
Investment income 328 1,362 2,614
--------- --------- ---------
(1330) (1,577) (1,293)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 38,777 41,121 35,898
PROVISION FOR INCOME TAXES 10,492 13,775 12,750
--------- --------- ---------
NET INCOME $ 28,285 $ 27,346 $ 23,148
========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $ 2.04 $ 1.98 $ 1.68
Diluted 2.02 1.96 1.66
AVERAGE COMMON SHARES OUTSTANDING:
Basic 13,839 13,828 13,763
Diluted 13,994 13,978 13,916
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
17
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
For Years Ended September 30,
-----------------------------------
(In thousands) 2002 2001 2000
- -------------- --------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 28,285 $ 27,346 $ 23,148
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 23,882 25,579 29,624
Amortization of deferred items 435 107 403
Deferred federal income tax provision 2,500 3,298 2,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (8,961) 11,651 (13,177)
Increase (decrease) in accounts payable 159 1,090 (3,014)
Increase in accrued liabilities 600 1,011 225
Net mobilization fees and credits (1,177) (8,806) 981
Other increases (decreases) (3,438) 1,071 (1,103)
--------- --------- ---------
14,000 35,001 15,939
--------- --------- ---------
Net Cash Provided by Operating Activities 42,285 62,347 39,087
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (89,416) (107,778) (34,841)
Non-cash portion of capital expenditures 1,269 1,079 1,260
Maturities of Treasury notes -- 22,600 --
Proceeds from sale of securities -- 429 --
Other 92 51 24
--------- --------- ---------
Net Cash Used by Investing Activities (88,055) (83,619) (33,557)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercises of stock options 181 153 2,105
Proceeds from revolving credit facility 60,000 20,000 6,000
Proceeds from short-term note payable 6,154 -- --
Principal payments on debt (6,131) (6,000) (14,000)
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities 60,204 14,153 (5,895)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,434 (7,119) (365)
CASH AND CASH EQUIVALENTS, at beginning of period 12,621 19,740 20,105
--------- --------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 27,055 $ 12,621 $ 19,740
- -------------------------------- ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for domestic and foreign income taxes $ 10,589 $ 9,054 $ 10,713
========= ========= =========
Cash paid during the year for interest, net of amounts capitalized $ 1,704 $ 3,299 $ 3,914
========= ========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
18
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<Table>
<Caption>
Accumulated
Common Stock Other
(In thousands) Comprehensive ------------------ Paid-in Comprehensive Retained
Income Shares Amount Capital Income (Loss) Earnings
------------- ------ ------- ------- ------------- --------
SEPTEMBER 30, 1999 13,675 $13,675 $52,458 $ (139) $126,235
Net income $23,148 -- -- -- -- 23,148
Unrealized holding gain on
available-for-sale securities, net of
tax of $7 (13) -- -- -- (13) --
------- ------ ------- ------- ------ --------
Exercise of employee stock options -- 148 148 1,957 -- --
Tax benefit from exercises of
employee stock options -- -- -- 736 -- --
------- ------ ------- ------- ------ --------
SEPTEMBER 30, 2000 23,135 13,823 13,823 55,151 (152) 149,383
=======
Net income 27,346 -- -- -- -- 27,346
Unrealized holding gain on
available-for-sale securities, net of
tax of $36 66 -- -- -- 66 --
Reclassification adjustment for losses
realized in net income, net of tax
of $46 86 -- -- -- 86 --
Exercises of employee stock options -- 9 9 144 -- --
Tax benefit from exercises of
employee stock options -- -- -- 1,780 -- --
------- ------ ------- ------- ------ --------
SEPTEMBER 30, 2001 27,498 13,832 13,832 57,075 -- 176,729
=======
Net Income 28,285 -- -- -- -- 28,285
Exercise of employee stock options -- 13 13 168 -- --
Tax benefit from exercise of employee
Stock options -- -- -- 31 -- --
------- ------ ------- ------- ------ --------
SEPTEMBER 30, 2002 $28,285 13,845 $13,845 57,274 $ -- $205,014
======= ====== ======= ======= ====== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
19
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 drilling units
and is involved in maintenance of two operator-owned platform drilling units in
Northwest Australia for future drilling programs. The Company also owns a 50%
undivided interest in RIG-200, a platform drilling unit, which has been
depreciated to the estimated salvage value of $500,000 and has been idle in
Australia since June 1999. The rig is not being marketed as an operating unit
and is available for sale. In December 2000, the Company purchased a
semisubmersible unit for a future conversion to a tender assist vessel once an
acceptable contract opportunity is secured (see Note 3). The Company is also
constructing an ultra-premium jack-up drilling unit in Singapore, which is
scheduled to be completed in June 2003. Currently, the Company is involved in
active operations in the territorial waters of Australia, Malaysia, Egypt,
Italy, and the United States.
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 and other factors. Since most of the Company's operations are foreign,
such operations are subject to higher risks associated with possible disruptions
due to terrorism. 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, safety and environmental performance 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. and all of its wholly owned domestic and foreign subsidiaries.
The Company's undivided 50% interest in RIG-200 is accounted for using the
proportionate consolidation method (See Note 3). 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 contract drilling costs in the
consolidated statements of operations. The Company recorded a foreign exchange
gain of $.1 million in fiscal year 2002, and foreign exchange losses of $.4
million in both fiscal years 2001 and 2000.
20
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. Interest capitalized during fiscal 2002 and 2001 was $2.3 million and $.5
million, respectively, with no interest costs capitalized during fiscal 2000.
Depreciation is provided on the straight-line method over the following
estimated useful lives of the various classifications of assets:
<Table>
<Caption>
Years
-----
Drilling vessels and related equipment 5-22
Drill pipe 3
Furniture and other 3-10
</Table>
In November 2000, the Company engaged an independent appraiser to
evaluate the expected useful lives of the recently upgraded ATWOOD HUNTER,
ATWOOD FALCON and ATWOOD EAGLE. Based, in part, upon such appraisal, the
Company, effective October 1, 2000, extended the depreciable lives of ATWOOD
HUNTER and ATWOOD FALCON from 12 to 22 years and will extend the depreciable
life of the ATWOOD EAGLE from 12 to 22 years following the completion of its
water-depth upgrade during the first quarter of fiscal 2003. The Company
believes that these changes in depreciable lives provide a better matching of
the revenues and expenses of these assets over their anticipated useful lives.
As a result of these changes in depreciable lives, depreciation expense for
fiscal 2002 and 2001 was reduced by approximately $5.0 million and $5.8 million,
respectively, resulting in enhancement to net income for fiscal 2002 of $.23 per
diluted share and fiscal 2001 of $.27 per diluted share. 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 MOBILIZATION REVENUES AND COSTS -
In the fourth quarter of fiscal 2001, the Company adopted the
Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 101
("SAB 101") "Revenue Recognition in Financial Statements". The Company defers
the net mobilization revenues or costs relating to moving a drilling rig to a
new area and amortizes such revenues or costs on a straight-line basis over the
life of the applicable drilling contract. One requirement of SAB 101 is that
mobilization revenues and costs be reported on a gross not a net basis; thus, as
required by SAB 101, contract revenues and drilling costs in the Statements of
Operations reflect the gross amounts. The adoption of SAB 101 had no impact on
net income or cash flow.
At September 30, 2002 and 2001, deferred mobilization revenues totaled
$10.4 million and $12.1 million, respectively, and deferred mobilization costs
totaled $2.7 million and $0.5 million, respectively, were included in Deferred
Credits on the accompanying consolidated balance sheets.
DEFERRED DRYDOCKING COSTS -
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). At September 30, 2002 and 2001, deferred drydocking costs were included
in Deferred Costs and Other Assets in the accompanying Consolidated Balance
Sheets.
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.
21
REVENUE RECOGNITION -
The Company accounts 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.
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.
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 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):
<Table>
<Caption>
PER SHARE
NET INCOME SHARES AMOUNT
---------- ------- ---------
FISCAL 2002-
Basic earnings per share $28,285 13,839 $ 2.04
Effect of dilutive securities-
Stock options -- 155 (.02)
------- ------- -------
Diluted earnings per share $28,285 13,994 $ 2.02
======= ======= =======
FISCAL 2001:
Basic earnings per share
Effect of dilutive securities - $27,346 13,828 $ 1.98
Stock options -- 150 (0.02)
------- ------- -------
Diluted earnings per share $27,346 13,978 $ 1.96
======= ======= =======
FISCAL 2000:
Basic earnings per share $23,148 13,763 $ 1.68
Effect of dilutive securities -
Stock options -- 153 (0.02)
------- ------- -------
Diluted earnings per share $23,148 13,916 $ 1.66
======= ======= =======
</Table>
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".
22
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 - PROPERTY AND EQUIPMENT
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 Company increased the water depth drilling
capability of the ATWOOD EAGLE 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.
SEAHAWK -
In January 2000, the SEAHAWK commenced drilling under its four-year
contract extension in Malaysia following completion of its approximately $22
million upgrade. Pursuant to the contract, the Company received approximately
$20 million in upgrade reimbursement payments, which were recorded to Deferred
Credits. These upgrade reimbursement payments, are being amortized into revenue
over the four-year contract extension period, with an unamortized balance of
$6.2 million at September 30, 2002.
VICKSBURG -
In 1998, the VICKSBURG was refurbished and upgraded at a cost of
approximately $35 million. In October 2002, the rig commenced a two-year
contract in Malaysia. The contract required that the Company purchase
approximately $2 million in additional equipment which will be capitalized and
expend approximately $1.5 million for inspections and repairs which will be
recorded to Deferred Credits. Pursuant to the contract, the Company received
$3.6 million in reimbursement payment and $400,000 in mobilization payments,
which will be recorded to Deferred Credits. All of these amounts recorded to
Deferred Credits will be amortized into revenue and costs over the anticipated
term of the VICKSBURG current contract.
23
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, the Company entered into a vessel construction agreement
to construct an ultra-premium jack-up drilling unit in Singapore. Presently, the
Company expects the construction of the drilling unit to be completed in June
2003, with a total estimated cost, including owner furnished equipment and
capitalized interest, of approximately $125 million.
SEASCOUT -
On December 5, 2000, the Company purchased the semisubmersible unit
SEASCOUT for $4.5 million. The Company 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 at a very low cost while awaiting an
opportunity for an acceptable contract.
RIG-200 -
RIG-200 (a modular platform rig built in 1995) is owned 50% by the
Company and 50% by Helmerich & Payne (current owner of 22% of the Company's
outstanding common stock). The rig has not worked since June 1999 and was
retired during 2002.
24
NOTE 4 - DEBT
LONG-TERM DEBT -
A summary of long-term debt is as follows (in thousands):
<Table>
<Caption>
September 30,
--------------------
2002 2001
-------- --------
Reducing revolving credit agreement, bearing interest
(market adjustable) at approximately 3.75% per annum at
September 30, 2002 $115,000 $ 60,000
Less - current maturities -- --
-------- --------
$115,000 $ 60,000
======== ========
</Table>
On June 30, 2000, the Company entered into a $150 million five-year non-reducing
Revolving Credit Facility with a bank group. In February 2002, the Revolving
Credit Facility was amended to increase the borrowing capacity under the
Facility to $175 million of which no more than $150 million can be outstanding
at December 31, 2003 and $125 million outstanding at December 31, 2004, with
final maturity on June 30, 2005. The Revolving Credit Facility permits the
Company to prepay principal at anytime without incurring penalty. Subsequent to
September 30, 2002, the Company borrowed an additional $20 million for a current
outstanding balance of $135 million. The bank group's collateral at September
30, 2002 for this Revolving Credit Facility consists principally of preferred
mortgages on the VICKSBURG, ATWOOD HUNTER, ATWOOD EAGLE and the ATWOOD FALCON
(with an aggregate net book value at September 30, 2002 totaling approximately
$195 million). The Company is not required to maintain compensating balances;
however, it is required to pay a fee of 1/4% to 1/2% per annum on the unused
portion of the total facility and certain other administrative costs. The
Revolving 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 the Company's outstanding common stock and
incurring any additional indebtness in excess of $10 million. The Company was in
compliance with all financial covenants at September 30, 2002. In December 2002,
the Revolving Credit Facility was amended to increase the allowed ratio of
outstanding debt to earnings, before interest, income taxes and depreciation
from 2.75 to 5.0 at December 31, 2002, reducing to 4.75 at March 31, 2003, 4.25
at June 30, 2003 and 2.75 thereafter. The ATWOOD SOUTHERN CROSS and SEAHAWK were
also added to the bank group collateral. The Revolving Credit Facility also
supports issuance, when required, of standby letters of guarantee. At September
30, 2002, standby letters of guarantee in the aggregate amount of approximately
$1.0 million were outstanding. The maturities of long-term debt are as follows
(in thousands):
<Table>
<Caption>
FISCAL YEAR AMOUNT
----------- --------
2002 $ --
2003 --
2004 --
2005 115,000
2006 --
2007 --
--------
$115,000
========
</Table>
25
NOTE 5 - INCOME TAXES
Domestic and foreign income before income taxes for the three years in
the period ended September 30, 2002 is as follows (in thousands):
<Table>
<Caption>
FISCAL Fiscal Fiscal
2002 2001 2000
-------- -------- --------
Domestic income 5,076 $20,414 $30,490
Foreign income 33,701 20,707 5,408
------- ------- -------
$38,777 $41,121 $35,898
======= ======= =======
</Table>
The provision for domestic and foreign taxes on income consists of the
following (in thousands):
<Table>
<Caption>
FISCAL Fiscal Fiscal
2002 2001 2000
-------- -------- --------
Current domestic provision (benefit) $ (3,025) $ 2,502 $ 4,720
Deferred domestic provision 2,500 3,298 2,000
Current foreign provision 11,017 7,975 6,030
-------- -------- --------
$ 10,492 $ 13,775 $ 12,750
======== ======== ========
</Table>
The components of the deferred income tax assets (liabilities) as of September
30, 2002 and 2001 are summarized as follows (in thousands):
<Table>
<Caption>
September 30,
---------------------
2002 2001
-------- --------
DEFERRED TAX ASSETS -
Net operating loss carryforwards $ 359 $ 926
Book reserves 106 422
-------- --------
465 1,348
-------- --------
DEFERRED TAX LIABILITIES -
Difference in book and tax basis of equipment 15,545 13,473
-------- --------
Net deferred tax assets (liabilities) before valuation
allowance (15,080) (12,125)
Valuation allowance (242) (695)
-------- --------
$(15,322) $(12,820)
======== ========
Net current deferred tax assets $ 223 $ 780
Net noncurrent deferred tax liabilities (15,545) (13,600)
-------- --------
$(15,322) $(12,820)
======== ========
</Table>
The Company does not provide federal income taxes on the undistributed
earnings of its foreign subsidiaries that the Company considers to be
permanently reinvested in foreign operations. The cumulative amount of such
undistributed earnings was approximately $39 million at September 30, 2002. If
these earnings were to be remitted to the Company, any U.S. income taxes payable
would be substantially reduced by foreign tax credits generated by the
repatriation of the earnings. Such foreign tax credits totaled approximately $19
million at September 30, 2002.
The differences between the statutory and the effective income tax rate
are as follows:
<Table>
<Caption>
FISCAL Fiscal Fiscal
2002 2001 2000
------ ------ ------
Statutory income tax rate 35% 35% 35%
Increase (decrease) in tax rate resulting from -
Foreign tax rate differentials, net of foreign tax credit utilization (8) (2) 1
------ ------ ------
Effective income tax rate 27% 33% 36%
------ ------ ------
</Table>
26
The majority of the foreign tax rate differentials, net of foreign tax
credit utilization is due to the carryback of fiscal year 2002 foreign tax
credits of $2.3 million to fiscal year 2000.
The Company has United States net operating loss carryforwards totaling
$0.9 million which expire in fiscal year 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
$0.2 million valuation allowance is recorded as of September 30, 2002. During
2002, the valuation allowance was reduced due to the utilization or expiration
of previously reserved net operating losses.
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.
STOCK INCENTIVE PLANS -
The Company has a stock incentive plan ("2001 Plan") whereby 1 million
shares of common stock may be granted to officers, board members and key
employees through December 5, 2011. At September 30, 2002 options to purchase
161,500 shares were outstanding under this Plan. The Company also has options
outstanding to purchase 601,775 shares under a 1996 Plan and 61,800 shares under
a 1990 Plan. Under all plans, the exercise price of each option equals the
market price of the Company's 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 the Company's 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 of the Company currently in effect have been approved by the
shareholders of the Company's outstanding common stock.
A summary of the status of the Company's Plans as of September 30,
2002, 2001 and 2000, and changes during the years ended on those dates is
presented below:
<Table>
<Caption>
FISCAL Fiscal Fiscal
2002 2001 2000
--------------------------- --------------------------- 0--------------------------
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 672,675 $ 30.93 423,700 $ 29.82 504,900 $ 23.88
Granted 171,500 31.46 274,500 32.26 97,000 37.75
Exercised (13,100) 13.83 (9,400) 16.36 (147,700) 14.26
Forfeited (6,000) 39.73 (16,125) 32.83 (30,500) 31.95
Expired -- -- -- -- --
------- -------- --------
OUTSTANDING AT END OF YEAR 825,075 $ 31.27 672,675 $ 30.93 423,700 $ 29.82
======= ======== ========
EXERCISABLE AT END OF YEAR 272,225 28.30 189,450 $ 25.85 109,450 $ 23.58
======= ======== ========
Available for grant at end of
Year 885,625 41,125 299,500
======= ======== ========
Weighted-average fair value of
options granted during the
year $ 15.67 $ 22.14 $ 26.61
======= ======== ========
</Table>
27
The following table summarizes information about stock options outstanding at
September 30, 2002:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
- --------------- ------- ---------------- -------------- ------- --------------
$ 5.38 to 6.69 11,750 1.8 years $ 6.39 11,750 $6.39
16.63 to 18.97 133,050 5.1 years 17.61 110,800 17.64
28.00 67,000 4.5 years 28.00 67,000 28.00
30.70 to 37.75 512,000 8.8 years 32.41 22,500 37.75
42.71 to 52.06 101,275 5.9 years 48.46 60,175 49.00
- --------------- ------- --------- ------ ------- -----
5.38 to 52.06 825,075 7.4 years $31.27 272,225 28.30
- --------------- ------- --------- ------ ------- -----
</Table>
As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation", 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 since fiscal 1996 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):
<Table>
<Caption>
Fiscal Fiscal Fiscal
2002 2001 2000
------- ------- -------
Net Income
As reported $28,285 $27,346 $23,148
Pro forma $26,589 26,081 22,335
Earnings per share
As reported --
Basic 2.04 1.98 1.68
Diluted 2.02 1.96 1.66
Pro forma
Basic 1.92 1.89 1.62
Diluted 1.90 1.87 1.61
</Table>
The fair value of grants made in fiscal 2002, 2001 and 2000 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used: fiscal 2002 - risk-free interest rate of
3.58%, expected volatility of 46.95%, expected lives of 6-7 years and no
dividend yield; fiscal 2001 - risk-free interest rate of 5.10%, expected
volatility of 51.61%, expected lives of 5 years and no dividend yield; fiscal
2000 - risk-free interest rate of 6.72%, expected volatility of 50%, expected
lives of 5 years and no dividend yield.
RIGHTS AGREEMENT -
In September 2002, the Company 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
dated effective October 18, 2002, which governs the Rights). The Rights are not
exercisable until a person or group of affiliated or associated persons commence
to acquire or acquires beneficial ownership of 15 percent or more of the
outstanding Common Stock of the Company. The provision does not apply to
shareholders already holding 15 percent or more of the outstanding common stock
of the Company as of November 5, 2002 until they acquire an additional 5
percent. When exercisable each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, no par value, of the Company, 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, 2002, 500,000 preferred shares have
been reserved for issuance in the event that Rights are exercised.
28
NOTE 7 - RETIREMENT PLAN
The Company has a contributory retirement plan (the "Plan") under which
qualified participants may make contributions, which together with Company
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"). The Company makes
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. The Company contributions vest 100% to each participant after three
years of service with the Company including any period of ineligibility mandated
by the Plan. 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 years 2002 and
2001, the Company used forfeitures of $200,000 and $115,000, respectively, to
reduce its cash requirements, which resulted in actual contributions of
approximately $2.2 million and $2.1 million, respectively. In fiscal year 2000,
the Company made actual contributions of approximately $1.7 million with no
forfeitures used during the year to reduce its cash requirements. As of
September 30, 2002, there are approximately $46,000 of contribution forfeitures,
which can be utilized to reduce future Company 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 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 2002 and 2001.
With the sale of all of its marketable securities during 2001, the Company had
no financial instruments at September 30, 2002 with a fair value different from
carrying value.
NOTE 9 - 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. At September 30, 2001, the Company had $3.6 million in allowance
for doubtful accounts related to two contract disputes, compared to no allowance
at September 30, 2002. During fiscal year 2002 one contract dispute was settled
which resulted in $1.5 million of allowance for doubtful accounts being offset
against accounts receivable. The Company continues to pursue collection of $2.1
million; however, due to the continuing uncertainty of collection, the remaining
$2.1 million of the allowance for doubtful accounts was offset against accounts
receivable.
Drilling revenues for fiscal 2002 include $33.5 million, $27.3 million,
$23.4 million, and $20.5 million in revenues received from Shell
Philippines/Sarawak Shell/Sabah Shell, Burullus Gas Company, ExxonMobil
Production Malaysia, Inc., and Carigali-Triton Operating Company, respectively.
Drilling revenues for fiscal 2001 include $38.0 million, $25.9 million and $15.7
million in revenues received from Shell Philippines Exploration B.V., ExxonMobil
Production Malaysia, Inc. and Rashid Petroleum Company, respectively.
29
NOTE 10 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its office space under an operating lease agreement,
which will expire in fiscal 2005.
Future minimum lease payments for operating leases are as follows (in
thousands):
Fiscal year ending September 30,
2003 ........................... 580
2004 ........................... 580
2005 ............................ 242
Total rent expense under operating leases was approximately $539,000,
$474,000 and $362,000 for fiscal years ended September 30, 2002, 2001, and 2000
respectively.
LITIGATION
The Company is party to a number of lawsuits which are ordinary,
routine litigation incidental to the Company's business, the outcome of which,
individually, or in the aggregate, is not expected to have a material adverse
effect on the Company's financial position or results of operations.
CAPITAL EXPENDITURES
Currently, the Company has capital expenditure commitments estimated to
total $88 million relating to the ATWOOD EAGLE and ATWOOD BEACON. The Company
completed the upgrade of the ATWOOD EAGLE in November 2002, with an estimated
$28 million to be expended in fiscal year 2003. The Company estimates that $60
million will be expended on the construction of the ATWOOD BEACON in fiscal year
2003.
NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), Goodwill and
Other Intangible Assets, which established Standards for reporting acquired
goodwill and other intangible assets. This Statement accounts for goodwill based
on the reporting units of the combined entity into which an acquired entity is
integrated. In accordance with the statement, goodwill and indefinite lived
intangible assets will not be amortized, but will be tested for impairment at
least annually at the reporting unit level, and the amortization period of
intangible assets with finite lives will not be limited to forty years. The
provisions of this Statement are required to be applied starting with fiscal
years beginning after December 15, 2001 (October 1, 2002 for the Company) with
early application permitted for entities with fiscal years beginning after March
15, 2001. This statement will not have a material impact on the consolidated
financial statement of the Company.
In July 2001, the FASB issued the Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), Accounting for Asset Retirement Obligations
(ARO), which requires that an asset retirement cost be capitalized as part of
the cost of the related long-lived asset and allocated to expense using a
systematic and rational method. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002 (October 1,
2002 for the Company). This statement will not have a material impact on the
Company's financial statements.
In August 2001, the FASB issued the Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), Accounting for the Impairment or Disposal of
Long-lived Assets, which addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of. The
purpose of this Statement was to establish a single accounting model for
long-lived assets to be disposed of by sale, based on the framework established
in FASB Statement No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and to resolve
certain implementation issues related to SFAS 121. This Statement also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations; however, it retains the requirement of
Opinion 30 to report discontinued operations separately from continuing
abandonment and extends that reporting to a Corporate entity that
30
either has been disposed of (by sale, by abandonment, or in a distribution to
owners) or is classified as held for sale. This Statement shall generally be
effective for financial statements issued for fiscal years beginning after
December 15, 2001 (October 1, 2002 for the Company) and interim periods within
those fiscal years.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections. SFAS 145 rescinds
SFAS 4, Reporting Gains and Losses from Extinguishment of Debt. By rescinding
FASB Statement No. 4, gains or losses from extinguishment of debt that do not
meet the criteria of APB No. 30 should not be reported as an extraordinary item
and should be reclassified to income from continuing operations in all periods
presented. APB No. 30 states that extraordinary items are events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. This Statement is effective for fiscal years
beginning after May 15, 2002 (October 1, 2002 for the Company).
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), Accounting for Costs Associated with Exit or
Disposal Activities. This Statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue 94-3, a liability for an exit
cost as defined in EITF Issue 94-3 was recognized at the date of an entity's
commitment to an exit plan. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. Previously issued financial statements shall not
be restated upon adoption of SFAS 146. Management does not expect the adoption
of SFAS 146 to have a material impact on its financial statements or results of
operations.
NOTE 12 - 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 income (loss)
for each geographic area, none of the following items were considered: other
income (expense) and domestic and foreign income taxes. Total assets are those
assets that are used by the Company in operations in each geographic area.
General corporate assets in fiscal year 2000 were principally investments in
marketable securities, which were liquidated during fiscal year 2001.
A summary of revenues, operating margin and identifiable assets by geographic
areas is as follows (in thousands):
<Table>
<Caption>
FISCAL Fiscal Fiscal
2002 2001 2000
--------- --------- ---------
CONTRACT REVENUES:
United States $ 7,066 $ 27,128 $ 38,646
Southeast Asia 78,330 70,472 60,357
Mediterranean Sea 61,854 37,815 21,831
Australia 1,907 6,068 3,127
India -- 6,058 12,012
--------- --------- ---------
$ 149,157 $ 147,541 $ 135,973
========= ========= =========
OPERATING INCOME (LOSS):
United States $ (5,891) $ 3,223 $ 11,464
Southeast Asia 39,890 29,134 22,835
Mediterranean Sea 17,846 17,574 11,392
Australia (1,658) 57 (5,985)
India -- 1,960 5,934
General and administrative expenses (10,080) (9,250) (8,449)
--------- --------- ---------
$ 40,107 $ 42,698 $ 37,191
========= ========= =========
TOTAL ASSETS:
United States $ 43,548 $ 122,894 $ 83,355
Southeast Asia 176,763 133,369 90,889
Mediterranean Sea 219,019 90,849 71,798
Australia 3,720 5,264 4,476
India -- 123 37,303
General corporate and other 1,480 1,379 25,430
--------- --------- ---------
$ 444,530 $ 353,878 $ 313,251
========= ========= =========
</Table>
31
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly results for fiscal years 2002 and 2001 are as
follows (in thousands, except per share amounts):
<Table>
<Caption>
QUARTERS ENDED
-----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
------------ --------- -------- -------------
2002
Revenues $ 37,234 $ 43,740 $ 37,402 $30,781
Income before income taxes 12,387 10,715 9,174 6,501
Net income 8,158 6,830 6,132 7,165
Earnings per common share -
Basic .59 .49 .44 .52
Diluted .59 .49 .44 .51
2001
Revenues $ 39,524 $ 37,294 $ 35,029 $35,694
Income before income taxes 12,555 9,777 8,410 10,379
Net income 8,040 6,030 5,485 7,791
Earnings per common share -
Basic .58 .44 .40 .56
Diluted .58 .43 .39 .56
</Table>
- ------------
(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.
32
<Table>
<Caption>
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 (1,2,3) Senior Vice President, Chief Financial Officer
Vice President and Secretary
Helmerich & Payne, Inc.
President GLEN P. KELLEY
Helmerich & Payne International Vice President - Contracts and 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
</Table>
33
ANNUAL MEETING
The annual meeting of stockholders will be held on February 13, 2003 at
the Company's 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, 2003.
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
A copy may also be read and copied at the Securities and Exchange
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operations of the Public Reference Room may be
obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330.
The Securities and Exchange Commission maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically at http://www.sec.gov.
The Company also maintains an Internet site that contains information
about the Company along with reports, proxy and information statements filed
with the Securities and Exchange Commission at http://www.atwd.com. A copy of
the Company's Form 10-K may be obtained free of charge from the Company's
website.
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 2000 or 2001, and none are anticipated in the
foreseeable future. As of November 30, 2002, there were over 750 beneficial
owners of the common stock of Atwood Oceanics, Inc. As of November 30, 2002, the
closing sale price of the common stock of Atwood Oceanics, Inc., as reported by
NYSE, was $32.10 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.
<Table>
<Caption>
FISCAL FISCAL
2001 2002
----------------- -----------------
QUARTERS ENDED LOW HIGH LOW HIGH
- -------------- ------ ------ ------ ------
December 31 $30.20 $45.00 $24.23 $35.99
March 31 39.50 49.90 29.81 47.14
June 30 33.60 46.86 37.50 50.32
September 30 23.76 35.95 27.49 37.72
</Table>
34
APPENDIX
The following graphic and image information in the form of "Bar Charts" are
located in the Annual Report immediately following "Highlights".
<Table>
<Caption>
BAR CHART - CONTRACT REVENUES ($ MILLIONS)
1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------
$153.4 $152.9 $136.0 $147.5 $149.2
</Table>
<Table>
<Caption>
BAR CHART - EARNINGS, BEFORE DEPRECIATION, INTEREST, TAXES AND INVESTMENT INCOME ($ MILLIONS)
1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------
$ 79.2 $ 72.1 $ 66.8 $ 68.3 $ 64.0
</Table>
<Table>
<Caption>
BAR CHART - OPERATING CASH FLOW ($ MILLIONS)
1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------
$ 61.4 $ 55.7 $ 55.2 $ 56.3 $ 55.1
</Table>
<Table>
<Caption>
BAR CHART - NET INCOME ($ MILLIONS)
1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------
$ 39.4 $ 27.7 $ 23.1 $ 27.3 $ 28.3
</Table>
<Table>
<Caption>
BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS)
1998 1999 2000 2001 2002
- ------ ------ ------ ------ ------
$ 79.6 $ 38.8 $ 34.8 $107.8 $ 89.4
</Table>
35