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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
Form 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 2004
COMMISSION FILE NUMBER 1-13167
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
ATWOOD OCEANICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1611874
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15835 Park Ten Place Drive 77084
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
281-749-7800
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filings
requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes X No __.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of April 30, 2004: 13,856,701 shares of Common Stock $1 par
value
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ATWOOD OCEANICS, INC.
FORM 10-Q
For the Quarter Ended March 31, 2004
INDEX
Part I. Financial Information
Item 1. Unaudited Financial Statements Page
a) Condensed Consolidated Statements of Operations
For the Three Months and Six Months Ended March 31, 2004 and 2003..............4
b) Condensed Consolidated Balance Sheets
As of March 31, 2004 and September 30, 2003....................................5
c) Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2004 and 2003...............................7
d) Notes to Condensed Consolidated Financial Statements...........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................12
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................16
Item 4. Controls and Procedures.......................................................17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders...........................18
Item 6. Exhibits and Reports on Form 8-K..............................................19
Signatures.....................................................................................21
PART I. FINANCIAL INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
This Form 10-Q for the quarterly period ended March 31, 2004 includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended. All statements other than statements of historical
facts included in this Form 10-Q regarding the Company's financial position,
business strategy, budgets and plans and objectives of management for future
operations are forward-looking statements. These forward-looking statements
involve risks and uncertainties that may cause the Company's actual future
activities and results of operation to be materially different from those
suggested or described in the Form 10-Q.
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -------------------------
2004 2003 2004 2003
------ ------ ------- -------
(Unaudited) (Unaudited)
REVENUES:
Contract drilling $ 36,810 $ 35,073 $ 72,135 $ 64,914
-------- -------- -------- --------
COSTS AND EXPENSES:
Contract drilling 21,414 24,114 43,947 43,459
Depreciation 7,847 5,850 15,689 11,242
General and administrative 2,987 3,119 5,675 5,799
-------- -------- ------- -------
32,248 33,083 65,311 60,500
-------- -------- -------- -------
OPERATING INCOME 4,562 1,990 6,824 4,414
-------- -------- -------- -------
OTHER INCOME (EXPENSE):
Interest expense (2,334) (598) (4,668) (711)
Interest income 7 36 15 99
-------- -------- -------- -------
(2,327) (562) (4,653) (612)
-------- -------- -------- -------
INCOME BEFORE INCOME TAXES 2,235 1,428 2,171 3,802
PROVISION FOR INCOME TAXES 1,773 841 3,613 2,265
-------- --------- -------- --------
NET INCOME (LOSS) $ 462 $ 587 $ (1,442) $ 1,537
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE:
Basic $ .03 $ .04 $ (.10) $ .11
Diluted $ .03 $ .04 $ (.10) $ .11
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 13,855 13,845 13,855 13,846
Diluted 14,019 13,900 13,855 13,903
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
2004 2003
------------ ---------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,369 $ 21,551
Accounts receivable 32,710 30,864
Income tax receivable 3,278 3,278
Inventories of materials and supplies,
at lower of average cost or market 12,359 12,583
Deferred tax assets 550 550
Prepaid expenses and other 8,280 7,186
-------- --------
Total Current Assets 67,546 76,012
-------- --------
NET PROPERTY AND EQUIPMENT 429,824 443,102
-------- --------
DEFERRED COSTS AND OTHER ASSETS 4,032 3,560
-------- --------
$501,402 $522,674
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, September 30,
2004 2003
----------- -------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable $ 30,000 $ 24,000
Accounts payable 4,184 10,403
Accrued liabilities 8,326 8,851
Deferred credits 6,307 6,695
-------- ---------
Total Current Liabilities 48,817 49,949
-------- ---------
LONG-TERM DEBT, net of current maturities: 163,000 181,000
-------- --------
OTHER LONG-TERM LIABILITIES:
Deferred income taxes 20,468 21,217
Deferred credits and other 7,041 7,041
-------- --------
27,509 28,258
-------- --------
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 13,857,000
and 13,851,000 shares issued and outstanding
at March 31, 2004 and September 30, 2003, respectively 13,857 13,851
Paid-in-capital 57,449 57,404
Retained earnings 190,770 192,212
Total Shareholders' Equity 262,076 263,467
-------- --------
$501,402 $522,674
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended March 31,
-------------------------------
2004 2003
----------- ----------
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $ (1,442) $ 1,537
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 15,689 11,242
Amortization of debt issuance costs 344 203
Amortization of deferred items 239 170
Deferred income tax provision (benefit) (750) 350
Changes in assets and liabilities:
Increase in accounts receivable (1,846) (2,027)
(Increase) decrease in inventory 224 (1,498)
Decrease in prepaids and other 3,234 3,386
Increase in deferred costs and other assets (687) (134)
Decrease in accounts payable (6,219) (1,887)
Decrease in accrued liabilities (525) (2,210)
Net mobilization fees and credits (4,714) (7,794)
--------- --------
4,989 (199)
--------- --------
Net cash provided by operating activities 3,547 1,338
--------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (2,394) (66,384)
Other (17) 7
--------- -------
Net cash used by investing activities (2,411) (66,377)
--------- -------
CASH FLOW FROM FINANCING ACITIVITES:
Proceeds from credit facilities --- 57,500
Debt issuance costs paid (369) (667)
Principal payments on debt (12,000) (3,593)
Proceeds from exercises of stock options 51 10
--------- --------
Net cash provided (used) by financing activities (12,318) 53,250
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (11,182) (11,789)
CASH AND CASH EQUIVALENTS, at beginning of period 21,551 27,055
--------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 10,369 $ 15,266
========= ========
- ---------------------------
Supplemental disclosure of cash flow information:
Cash paid for domestic and foreign income taxes $ 3,189 $ 3,310
========= =========
Cash paid for interest, net of amounts capitalized $ 4,681 $ ---
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PART I. ITEM 1 - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED INTERIM INFORMATION
The unaudited interim condensed consolidated financial statements as of
March 31, 2004 and for each of the three month and six month periods ended March
31, 2004 and 2003, included herein, have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. The year end condensed consolidated balance sheet
data was derived from the audited financial statements as of September 30, 2003.
Although these financial statements and related information have been prepared
without audit, and certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, we believe that the note disclosures
are adequate to make the information not misleading. The interim financial
results may not be indicative of results that could be expected for a full year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the consolidated financial statements and the notes thereto
included in our Annual Report to Shareholders for the year ended September 30,
2003. In our opinion, the unaudited interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the financial position and results of operations of
our Company for the periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES
We apply the recognition and measurement principles of APB Opinion No. 25
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, no compensation costs have been recognized in net income (loss)
from the granting of options pursuant to our stock option plans, as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Had compensation costs been
determined based on the fair value at the grant dates consistent with the method
of SFAS No. 123, our net income (loss) and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below (in thousands, except for
per share amounts):
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------------
2004 2003 2004 2003
------- ------- ------- -----
Net income (loss), as reported $ 462 $ 587 $(1,442) $1,537
------- ------ ------- ------
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects (625) (537) (1,250) (1,075)
------ ------ ------- ------
Pro Forma, net income $ (163) $ 50 $ (2,692) $ 462
======= ====== ======== =======
==
Earnings (loss) per share:
Basic - as reported $ .03 $ .04 $ (.10) $ .11
Basic - pro forma $ (.01) $ --- $ (.19) $ .03
Diluted - as reported $ .03 $ .04 $ (.10) $ .11
Diluted - pro forma $ (.01) $ --- $ (.19) $ .03
3. EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per share is as follows
(in thousands, except per share amounts):
Three Months Ended Six Months Ended
-------------------------------- ----------------------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ ---------- ------ ------ ---------
March 31, 2004:
Basic earnings per share $ 462 13,855 $ .03 $(1,442) 13,855 $ (.10)
Effect of dilutive securities-
Stock Options --- 164 --- --- --- ---
------- ------ ----- ------- ------- -------
Diluted earnings per share $ 462 14,019 $ .03 $(1,442) 13,855 $ (.10)
======= ====== ===== ======= ======= =======
March 31, 2003:
Basic earnings per share $ 587 13,845 $ .04 $1,537 13,846 $ .11
Effect of dilutive securities-
Stock Options --- 55 --- --- 57 ---
------- ------- ----- ------ ------ ------
Diluted earnings per share $ 587 13,900 $ .04 $1,537 13,903 $ .11
======= ====== ===== ====== ====== ======
The calculation of diluted earnings per share for the three month and six
month periods ending March 31, 2004 excludes consideration of potential common
shares related to 193,000 and all outstanding stock options, respectively,
because such options were anti-dilutive. These options could potentially dilute
basic EPS in the future.
4. PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as follows (in
thousands):
March 31, September 30,
2004 2003
---------------- ---------------
Drilling vessels and related equipment
Cost $ 621,367 $ 618,943
Accumulated depreciation (196,600) (181,924)
--------- ---------
424,767 437,019
--------- ---------
Drill pipe
Cost 10,173 10,224
Accumulated depreciation (6,668) (6,010)
--------- ---------
Net book value 3,505 4,214
--------- ---------
Furniture and other
Cost 9,079 9,072
Accumulated depreciation (7,527) (7,203)
--------- ---------
Net book value 1,552 1,869
--------- ---------
NET PROPERTY AND EQUIPMENT $ 429,824 $ 443,102
========= =========
Effective October 1, 2003, we extended the remaining depreciable life of
the RICHMOND from 2 to 5 years, due to our recent assessment of the rig's
commercial viability, coupled with our intent to continue marketing and
operating the rig beyond 2 years. We believe that this change in depreciable
life provides a better matching of the revenues and expenses of this asset over
its anticipated remaining useful life. As a result of this change in depreciable
life, depreciation expense was reduced and net income was increased for the
three months and six months ended March 31, 2004 by approximately $300,000, or
$.02 per share, and $600,000, or $.04 per share, respectively.
5. LONG-TERM DEBT
In November 2003, the $250 million Senior Secured Credit Facility was
amended to redefine the calculation of the ratio of outstanding debt to
earnings, before interest, income taxes and depreciation. The amendment
increased the permitted ratio levels from 5.75 to 6.25 at December 31, 2003
through and including March 30, 2004, reducing to 5.50 at March 31, 2004 through
and including September 29, 2004, 4.00 at September 30, 2004 through and
including December 30, 2004 and 3.00 thereafter. We are in compliance with all
financial covenants at March 31, 2004.
6. COMMITMENTS AND CONTINGENCIES
We are party to a number of lawsuits which are ordinary, routine litigation
incidental to our business, the outcome of which, individually, or in the
aggregate, is not expected to have a material adverse effect on our financial
position or results of operations.
During the current quarter, we settled a dispute with a customer relating
to operations during fiscal year 1998. We reserved approximately $600,000 to
drilling costs to settle this dispute during fiscal year 2002. As the dispute
was settled with no liability or claims to be paid by us, we reversed the
reserve and recorded a corresponding reduction to drilling costs during the
current quarter.
7. INCOME TAXES
Virtually all of our tax provision for the three months and six months
ended March 31, 2004 and 2003 relates to taxes in foreign jurisdictions. Our
consolidated effective income tax rate for the current quarter and year-to-date
period is significantly higher as compared to the prior fiscal year primarily
due to an increased level of operating losses during the current fiscal year in
foreign jurisdictions with low or zero effective tax rates.
PART I. ITEM 2
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
All non-historical information set forth herein is based upon expectations
and assumptions deemed reasonable by the Company. The Company can give no
assurance that such expectations and assumptions will prove to be correct, and
actual results could differ materially from the information presented herein.
The Company's periodic reports filed with the SEC should be consulted for a
description of risk factors associated with an investment in the Company.
MARKET OUTLOOK
The current worldwide utilization of offshore drilling units is now over
80%. The utilization of jack-up drilling units continues as the strongest sector
of the market with the semisubmersible utilization remaining the weakest sector.
We continue to emphasize utilization over higher dayrates. Our equipment
utilization for the first half of fiscal year 2004 was 91%. Currently, all eight
of our active drilling units have contract commitments. Despite incurring a net
loss in the first half of fiscal year 2004, based upon current contract
commitments, we currently expect to be profitable in the second half of fiscal
year 2004.
During the quarter ended March 31, 2004, the ATWOOD EAGLE completed its
mobilization from Angola to Australia; the ATWOOD SOUTHERN CROSS completed its
mobilization from India to Malaysia after previously being moved from the
Mediterranean to India; and the ATWOOD FALCON completed its mobilization from
Malaysia to Japan. The total costs incurred in these mobilizations have been
reimbursed by our clients. This is a significant improvement from fiscal year
2003, where we incurred approximately $6 million in net unreimbursed
mobilization costs. During the March 2004 quarter (excluding mobilization
periods), the ATWOOD EAGLE, ATWOOD SOUTHERN CROSS, and SEAHAWK had idle revenue
days of 37, 41 and 5, respectively. Our remaining five active drilling units,
the VICKSBURG, ATWOOD FALCON, ATWOOD BEACON, ATWOOD HUNTER and RICHMOND were
fully utilized during the quarter.
We expect all eight of our active drilling units to be highly utilized
during the quarter ending June 30, 2004. The ATWOOD HUNTER, VICKSBURG and most
likely, RICHMOND have current contract commitments into fiscal year 2005. We
expect that the ATWOOD EAGLE, ATWOOD FALCON, ATWOOD BEACON and SEAHAWK will
remain highly utilized for the remainder of fiscal year 2004. The only drilling
unit with a high degree of utilization uncertainty, especially for our fourth
quarter of fiscal year 2004, is the ATWOOD SOUTHERN CROSS. We are pursuing
contract opportunities for the ATWOOD SOUTHERN CROSS with various clients. The
rig's current contract has options solely exercisable by the customers, which,
if exercised, could extend the rig's contractual commitment. We remain
optimistic about the longer-term outlook and fundamentals of the offshore
drilling market, and believe that we are well positioned, in an improving market
environment, for increase in earnings and cash flows.
RESULTS OF OPERATIONS
Contract revenues for the three months and six months ended March 31, 2004
increased 5% and 11%, respectively, compared to the three months and six months
ended March 31, 2003. A comparative analysis of contract revenues is as follows:
CONTRACT REVENUES
(In Millions)
------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- -----------------------------
2004 2003 Variance 2004 2003 Variance
---- ---- -------- ---- ---- --------
ATWOOD BEACON $ 4.7 $ --- $ 4.7 $ 9.1 $ --- $ 9.1
ATWOOD HUNTER 5.8 3.5 2.3 8.4 9.9 (1.5)
ATWOOD EAGLE 3.3 2.9 0.4 8.0 2.9 5.1
VICKSBURG 6.3 5.9 0.4 12.2 12.3 (0.1)
RICHMOND 2.3 2.1 0.2 4.5 4.1 0.4
ATWOOD FALCON 7.8 8.9 (1.1) 13.8 15.9 (2.1)
SEAHAWK 4.3 5.8 (1.5) 9.5 11.0 (1.5)
ATWOOD SOUTHERN CROSS 1.8 5.5 (3.7) 5.6 7.9 (2.3)
OTHER 0.5 0.5 --- 1.0 0.9 0.1
----- ----- ----- ----- ----- ------
$36.8 $35.1 $ 1.7 $72.1 $64.9 $ 7.2
===== ===== ===== ===== ===== ======
The ATWOOD BEACON was under construction during the three month and six
month periods of fiscal year 2003 and thus, generated no revenue compared to
being fully utilized during fiscal year 2004. The ATWOOD HUNTER was fully
utilized during the second quarter of both fiscal years; however, the average
dayrate was approximately $65,000 for the second quarter of fiscal year 2004
compared to approximately $40,000 for the same quarter of the prior fiscal year.
The decrease in revenue for the ATWOOD HUNTER in the six month period is due to
being utilized only five months in current fiscal year compared to being fully
utilized in the prior fiscal year. The increase in revenue for the ATWOOD EAGLE
during the six month period of fiscal year 2004 is due to the rig having higher
utilization during 2004 compared to 2003 due to the rig being upgraded and then
subsequently relocated to West Africa in fiscal year 2003. The ATWOOD FALCON was
fully utilized during the quarter and for approximately 160 days for the
year-to-date period for both the current and prior fiscal year. However, the
current fiscal year average dayrate is approximately $85,000 per day compared to
approximately $100,000 per day in the prior fiscal year. The decrease in revenue
for the SEAHAWK for the three month and six month periods ended March 31, 2004
is due to the completion of amortizing the client reimbursement of its fiscal
year 2000 upgrade at the end of the first quarter of the current fiscal year.
The decrease in revenue for the quarter for the ATWOOD SOUTHERN CROSS is due to
the rig being utilized for one month at approximately $35,000 per day in the
current fiscal year compared to being fully utilized at $60,000 per day in the
prior fiscal year. The decrease in revenue for the six month period is due to
the rig being utilized for two months at approximately $35,000 per day plus $3.7
million of mobilization revenue recognized compared to being utilized for four
months at $60,000 per day in the prior fiscal year.
Contract drilling costs for the three months and six months ended March 31,
2004 decreased 11% and increased 1%, respectively, as compared to the same
periods in the prior fiscal year. An analysis of contract drilling costs by rig
is as follows:
CONTRACT DRILLING COSTS
(In Millions)
----------------------------------------------------------------
Three Months Ended Six Months Ended
March 31, March 31,
----------------------------- -------------------------------
2004 2003 Variance 2004 2003 Variance
----- ---- -------- ---- ---- --------
ATWOOD BEACON $ 2.3 $ --- $ 2.3 $ 4.5 $ --- $ 4.5
ATWOOD EAGLE 3.0 2.2 0.8 6.7 2.2 4.5
RICHMOND 2.0 2.0 --- 3.9 4.1 (0.2)
VICKSBURG 2.2 2.3 (0.1) 4.4 4.8 (0.4)
ATWOOD HUNTER 2.9 3.3 (0.4) 5.8 6.8 (1.0)
SEAHAWK 2.1 3.0 (0.9) 4.2 5.4 (1.2)
ATWOOD FALCON 3.9 5.6 (1.7) 6.2 9.7 (3.5)
ATWOOD SOUTHERN CROSS 2.4 4.2 (1.8) 6.8 8.0 (1.2)
OTHER 0.6 1.5 (0.9) 1.4 2.5 (1.1)
----- ----- ------ ----- ----- -----
$21.4 $24.1 $ (2.7) $43.9 $43.5 $ 0.4
===== ===== ====== ===== ===== =====
The ATWOOD BEACON was under construction during the three month and six
month periods of fiscal year 2003 and thus, incurred no operating costs compared
to a full quarter and six month period of operations for fiscal year 2004.
During the current fiscal year, the ATWOOD EAGLE incurred operating costs for
two months and five months for the quarter and six month period, respectively,
compared to only one month of operating costs for both the quarter and six month
period in the prior fiscal year as the rig was being upgraded and then
subsequently relocated to West Africa. The decrease in costs for the ATWOOD
HUNTER for both the quarter and six month period is due to a reduction of
payroll costs and repairs and maintenance items. The decrease in costs for the
SEAHAWK during fiscal year 2004 is primarily due to lower repair and maintenance
costs in the current fiscal year compared to the prior fiscal year. During most
of the first half of fiscal year 2003, the ATWOOD FALCON operated in Australia
at approximately $20,000 per day higher operating costs than in Asia, where the
rig has worked during the first half of fiscal year 2004. The decrease in costs
for the ATWOOD SOUTHERN CROSS is due to the rig incurring lower operating costs
in India and Malaysia during the current fiscal year compared to operating in
the higher cost area of Italy in the prior year along with amortization of the
planned maintenance and upgrade costs to meet Italian operating standards. This
decrease is partially offset by incurring $1.6 million of boat towing costs
during the first quarter of the current fiscal year to relocate the rig to
India. The current quarter and year-to-date decrease in OTHER is primarily due
to the settlement of a dispute with a customer which resulted in a reduction to
drilling costs of approximately $600,000.
An analysis of depreciation expense by rig for the three months and six months
ended March 31, 2004 as compared to the same periods in the prior fiscal year is
as follows:
DEPRECIATION EXPENSE
--------------------------------------------------------------------------------
(In Millions)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------------- ---------------------------------------
2004 2003 Variance 2004 2003 Variance
-------- -------- ------------- ----------
ATWOOD BEACON $ 1.3 $ --- $ 1.3 $ 2.6 $ --- $ 2.6
ATWOOD EAGLE 1.2 0.4 0.8 2.5 0.4 2.1
VICKSBURG 0.7 0.6 0.1 1.3 1.2 0.1
ATWOOD HUNTER 1.4 1.3 0.1 2.7 2.7 ---
ATWOOD SOUTHERN CROSS 1.0 1.0 --- 2.1 2.0 0.1
ATWOOD FALCON 0.7 0.7 --- 1.3 1.3 ---
SEAHAWK 1.2 1.2 --- 2.5 2.3 0.2
RICHMOND 0.2 0.5 (0.3) 0.4 0.9 (0.5)
OTHER 0.1 0.2 (0.1) 0.3 0.4 (0.1)
----- ----- ----- ----- ----- -----
$ 7.8 $ 5.9 $ 1.9 $15.7 $11.2 $ 4.5
===== ===== ===== ===== ===== =====
We do not recognize depreciation expense during the period a rig is out of
service for a significant upgrade or construction, which accounts for the
increase in depreciation expense for the ATWOOD EAGLE and ATWOOD BEACON. The
decrease in depreciation expense for the RICHMOND is due to extending the
remaining depreciable life of the rig from 2 to 5 years at the beginning of the
current year fiscal year.
The increase in net interest expense for the three months and six months of
fiscal year 2004 compared to the same periods of fiscal year 2003 is due to an
increase in the average amount of debt outstanding and to having no capitalized
interest during fiscal year 2004 due to all upgrade and construction programs
being completed during fiscal year 2003. During the three months and six month
periods ended March 31, 2003, interest was capitalized in the amount of $1.8
million and $3.0 million, respectively. No interest has been capitalized during
the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal year 2004, we utilized $10.9 million
of cash on hand at the beginning of the fiscal year plus $3.5 million net cash
provided by operating activities to repay $12 million of long-term debt and
finance $2.4 million of capital expenditures.
With the completion of the ATWOOD EAGLE upgrade and ATWOOD BEACON
construction during fiscal year 2003, we have completed our $460 million fleet
upgrade and construction program that commenced in 1997 on time and within cost
estimates. We presently have no plans to incur any upgrade costs or other
significant capital projects during fiscal year 2004 other than planned capital
maintenance items of approximately $5 to 10 million. As we expect all of our 8
active drilling units to be highly utilized during the second half of fiscal
year 2004, net cash provided from operations is forecasted at $25 to $30 million
for this period. Including the $24 million required annual principal payments on
our long-term debt, we feel that our expected net cash provided by operating
activities will adequately meet all anticipated cash funding requirements for
fiscal year 2004.
In November 2003, the $250 million Senior Secured Credit Facility was
amended to redefine the calculation of the ratio of outstanding debt to
earnings, before interest, income taxes and depreciation. The amendment also
increased the permitted ratio levels from 5.75 to 6.25 at December 31, 2003
through and including March 30, 2004, reducing to 5.50 at March 31, 2004 through
and including September 29, 2004, 4.00 at September 30, 2004 through and
including December 30, 2004 and 3.00 thereafter. We are in compliance with all
financial covenants at March 31, 2004. The bank group's collateral for the
credit agreement consists primarily of preferred mortgages on all of our active
drilling fleet. Currently, we have an additional $45 million of borrowing
capacity under our current credit facilities, which as mentioned previously,
should not be needed for general operating purposes if we maintain a high
utilization of our drilling equipment. We will continue to periodically review
and adjust our planned capital expenditures and financing of such expenditures
in light of the current market conditions as previously discussed herein.
Virtually all of our tax provision for the three months and six months
ended March 31, 2004 and 2003 relates to taxes in foreign jurisdiction. Our
consolidated effective income tax rate for the current quarter and year-to-date
period is significantly higher as compared to the prior fiscal year primarily
due to an increased level of operating losses during the current fiscal year in
foreign jurisdictions with low or zero effective tax rates.
PART I. ITEM 3
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including adverse change in interest rates
and foreign currency exchange rates as discussed below.
INTEREST RATE RISK
With the interest rate on our long-term debt under our current credit
facilities at a floating rate, the outstanding long-term debt of $193 million at
March 31, 2004 approximates its fair value. The impact on annual cash flow of a
10% change in the floating rate (approximately 40 basis points) would be
approximately $0.8 million. We did not have any open derivative contracts
relating to our floating rate debt at March 31, 2004.
FOREIGN CURRENCY RISK
Certain of our subsidiaries have monetary assets and liabilities that are
denominated in a currency other than their functional currencies. Based on March
31, 2004 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 result in a
foreign currency transaction loss of approximately $0.2 million. We did not have
any open derivative contracts relating to foreign currencies at March 31, 2004.
PART I. ITEM 4
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure control
and procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures as of the end of the period covered
by this report have been designed and are functioning effectively to provide
reasonable assurance that the information required to be disclosed by us in our
periodic SEC Filing is recorded, process, summarized and reported within the
time periods specified in the SEC's rules and forms. We believe that a controls
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during
the fiscal quarter covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on February 12, 2004,
at which the shareholders voted on the election of six directors. Of the
13,401,556 shares of Common Stock present in person or by proxy, the number of
shares voted for or against in connection with the election of each director are
as follows:
NAME CAST FOR VOTES WITHHELD
- ---------------------- ---------- --------------
Deborah A. Beck 12,999,647 401,909
Robert W. Burgess 13,000,447 401,109
George S. Dotson 12,282,830 1,118,726
Hans Helmerich 12,388,030 1,013,526
John R. Irwin 13,065,434 336,122
William J. Morrissey 12,999,647 401,909
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1.1 Restated Articles of Incorporation dated January 1972
(Incorporated herein by reference to Exhibit 3.1.1 of our Form
10-K for the year ended September 30, 2002).
3.1.2 Articles of Amendment filed March 1975 (Incorporated herein
by reference to Exhibit 3.1.2 of our Form 10-K for the
year ended September 30, 2002).
3.1.3 Articles of Amendment dated March 1992 (Incorporated herein by
reference to Exhibit 3.1.3 of our Form 10-K for the year ended
September 30, 2002).
3.1.4 Articles of Amendment dated November 1997 (Incorporated herein
by reference to Exhibit 3.1.4 of our Form 10-K for
the year ended September 30, 2002).
3.1.5 Certificate of Designations of Series A Junior Participating
Preferred Stock of Atwood Oceanics, Inc. dated October 17,
2002 (Incorporated herein by reference to Exhibit 3.1.5 of our
Form 10-K for the year ended September 30, 2002).
3.2 Bylaws, as amended and restated, dated January 1993
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-K for the year ended September 30, 1993).
4.1 Rights Agreement dated effective October 18, 2002 between the
Company and Continental Stock & Transfer & Trust Company
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-A filed October 21, 2002).
10.1 Third Amendment to Credit Agreement dated November 12, 2003
between the Company and Nordea Bank Finland plc, and other
Financial Institutions (Incorporated herein by reference to
Exhibit 99.2 of our Form 8-K filed November 13, 2003).
*31.1 Certification of Chief Executive Officer
*31.2 Certification of Chief Financial Officer
*32.1 Certificate of Chief Executive Officer pursuant to Section
906 of Sarbanes - Oxley Act of 2002.
*32.2 Certificate of Chief Financial Officer pursuant to Section 906
of Sarbanes - Oxley Act of 2002.
*Filed herewith
(b) Reports on Form 8-K
1) On January 8, 2004, we furnished a report on Form 8-K
announcing that the ATWOOD FALCON had completed its
mobilization to Japan and was preparing to commence its
two-well drilling program for Japan Energy Development Co.
LTD, and that the ATWOOD HUNTER had commence its drilling
program for Burullus Gas Co. in Egypt, and the ATWOOD EAGLE
continued to prepare for its mobilization to Australia.
2) On January 29, 2004, we furnished a report of Form 8-K
announcing our earnings for the quarter ended December 31,
2003, along with supporting information.
3) On February 20, 2004, we furnished a report on Form 8-K
announcing that the ATWOOD SOUTHERN CROSS had a commitment
from Murphy Sarawak Oil Company to use the rig for a drilling
program in Malaysia which included two firm wells plus four
option wells, that the ATWOOD EAGLE had completed its
mobilization to Australia and had executed drilling contract
with BHP Billiton Petroleum and Apache Energy Limited, and
that the ATWOOD FALCON commenced drilling the last well under
its contract with Japan Energy Development CO. LTD.
4) On March 3, 2004, we filed a report on Form 8-K announcing
that ExxonMobil Exploration Production Malaysia had given
notice in accordance with the early termination provision of
the contract that they will terminate the SEAHAWK contract
upon completion of work in progress on June 29, 2004.
5) On March 9, 2004, we filed a report on Form 8-K announcing
that the RICHMOND had been awarded a contract by Bois D'ARC
Offshore Ltd. to drill one well plus deepen one well and
complete four wells in the United States Gulf of Mexico.
6) On March 16, 2004, we filed a report on Form 8-K announcing
that the VICKSBURG had been awarded a contract by Chevron
Offshore (Thailand) Limited for a drilling program offshore
Thailand.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATWOOD OCEANICS, INC.
(Registrant)
Date: May 11, 2004 /s/JAMES M. HOLLAND_
------------------
James M. Holland
Senior Vice President,
Chief Financial Officer and Chief
Accounting Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1.1 Restated Articles of Incorporation dated January 1972
(Incorporated herein by reference to Exhibit 3.1.1 of our Form
10-K for the year ended September 30, 2002).
3.1.2 Articles of Amendment filed March 1975 (Incorporated herein
by reference to Exhibit 3.1.2 of our Form 10-K for the
year ended September 30, 2002).
3.1.3 Articles of Amendment dated March 1992 (Incorporated herein by
reference to Exhibit 3.1.3 of our Form 10-K for the year ended
September 30, 2002).
3.1.4 Articles of Amendment dated November 1997 (Incorporated herein
by reference to Exhibit 3.1.4 of our Form 10-K for
the year ended September 30, 2002).
3.1.5 Certificate of Designations of Series A Junior Participating
Preferred Stock of Atwood Oceanics, Inc. dated October 17,
2002 (Incorporated herein by reference to Exhibit 3.1.5 of our
Form 10-K for the year ended September 30, 2002).
3.2 Bylaws, as amended and restated, dated January 1, 1993
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-K for the year ended September 30, 1993).
4.1 Rights Agreement dated effective October 18, 2002 between the
Company and Continental Stock & Transfer & Trust Company
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-A filed October 21, 2002).
10.1 Third Amendment to Credit Agreement dated November 12, 2003
between the Company and Nordea Bank Finland plc, and other
Financial Institutions (Incorporated herein by reference to
Exhibit 99.2 of our Form 8-K filed November 13, 2003).
*31.1 Certification of Chief Executive Officer
*31.2 Certification of Chief Financial Officer
*32.1 Certificate of Chief Executive Officer pursuant to Section
906 of Sarbanes - Oxley Act of 2002.
*32.2 Certificate of Chief Financial Officer pursuant to Section 906
of Sarbanes - Oxley Act of 2002.
*Filed herewith
EXHIBIT 31.1
CERTIFICATIONS
I, John R. Irwin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atwood
Oceanics, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
(b) [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986]; and
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and (b) Any fraud, whether or not
material, that involves management or other employees who have
a significant role in the registrant's internal control over
financial reporting.
Date: May 11, 2004
/s/ JOHN R. IRWIN
John R. Irwin
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, James M. Holland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atwood
Oceanics, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report
is being prepared;
(b) [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986]; and
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and (b) Any fraud, whether or not
material, that involves management or other employees who have
a significant role in the registrant's internal control over
financial reporting.
Date: May 11, 2004
/s/ JAMES M. HOLLAND
James M. Holland
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company")
on Form 10-Q for the period ended March 31, 2004, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, John R. Irwin,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company for the periods presented.
Date: May 11, 2004 /s/ JOHN R. IRWIN
John R. Irwin
President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company")
on Form 10-Q for the period ended March 31, 2004, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, James M. Holland,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to
the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company for the periods presented.
Date: May 11, 2004 /s/JAMES M. HOLLAND
James M. Holland
Senior Vice President and
Chief Financial Officer