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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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Form 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED DECEMBER 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 January 31, 2005: 15,169,426 shares of common stock $1 par
value
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ATWOOD OCEANICS, INC.
FORM 10-Q
For the Quarter Ended December 31, 2004
INDEX
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements Page
a) Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 2004 and 2003..............6
b) Condensed Consolidated Balance Sheets
As of December 31, 2004 and September 30, 2004.....................7
c) Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2004 and 2003..............8
d) Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended December 31, 2004................9
e) Notes to Condensed Consolidated Financial Statements..............10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................15
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......20
Item 4. Controls and Procedures..........................................21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................................22
Signature....................................................................24
Certifications...............................................................26
-2-
PART I. FINANCIAL INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
This Form 10-Q for the quarterly period ended December 31, 2004 includes
statements about Atwood Oceanics, Inc. (which together with its subsidiaries is
identified as the "Company," "we" or "our," unless the context requires
otherwise) which are not historical facts (including any statements concerning
plans and objectives of management for future operations or economic
performance, or assumptions related thereto) which are forward-looking
statements. In addition, we and our representatives may from to time to time
make other oral or written statements which are also forward-looking statements.
These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us and therefore involve a number of risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied in the
forward-looking statements.
Important factors that could cause our actual results of operations or our
actual financial conditions to differ include, but are not necessarily limited
to:
- our dependence on the oil and gas industry;
- the operational risks involved in drilling for oil and gas;
- changes in rig utilization and dayrates in response to the level of
activity in the oil and natural gas industry, which is significantly
affected by indications and expectations regarding the level and
volatility of oil and natural gas prices, which in turn are affected by
such things as political, economic and weather conditions affecting or
potentially affecting regional or worldwide demand for oil and natural
gas, actions or anticipated actions by OPEC, inventory levels,
deliverability constraints, and future market activity;
- the extent to which customers and potential customers continue to pursue
deepwater drilling;
- exploration success or lack of exploration success by our customers and
potential customers;
- the highly competitive and cyclical nature of our business, with periods
of low demand and excess rig availability;
- the impact of the war with Iraq or other military operations, terrorist
acts or embargoes elsewhere;
- our ability to enter into and the terms of future drilling contracts;
- the availability of qualified personnel;
- our failure to retain the business of one or more significant customers;
- the termination or renegotiation of contracts by customers;
-3-
- the availability of adequate insurance at a reasonable cost;
- the occurrence of an uninsured loss;
- the risks of international operations, including possible economic,
political, social or monetary instability, and compliance with foreign
laws;
- the effect SARS or other public health concerns could have on our
international operations and financial results;
- compliance with or breach of environmental laws;
- the incurrence of secured debt or additional unsecured indebtedness or
other obligations by us or our subsidiaries;
- the adequacy of sources of liquidity;
- currently unknown rig repair needs and/or additional opportunities to
accelerate planned maintenance expenditures due to presently
unanticipated rig downtime;
- higher than anticipated accruals for performance-based compensation due
to better than anticipated performance by us, higher than anticipated
severance expenses due to unanticipated employee terminations, higher
than anticipated legal and accounting fees due to unanticipated
financing or other corporate transactions and other factors that could
increase general and administrative expenses;
- the actions of our competitors in the oil and gas drilling industry,
which could significantly influence rig dayrates and utilization;
- changes in the geographic areas in which our customers plan to operate,
which in turn could change our expected effective tax rate;
- changes in oil and natural gas drilling technology or in our competitors'
drilling rig fleets that could make our drilling rigs less competitive or
require major capital investments to keep them competitive;
- rig availability;
- the effects and uncertainties of legal and administrative proceedings
and other contingencies;
- the impact of governmental laws and regulations and the uncertainties
involved in their administration, particularly in some foreign
jurisdictions;
- changes in accepted interpretations of accounting guidelines and other
accounting pronouncements and tax laws;
- the risks involved in the construction and upgrade of our drilling units.
-4-
Undue reliance should not be placed on these forward-looking statements,
which are applicable only on the date hereof. Neither we nor our representatives
have a general obligation to revise or update these forward-looking statements
to reflect events or circumstances that arise after the date hereof or to
reflect the occurrence of unanticipated events.
-5-
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
December 31,
---------------------------------
2004 2003
------- ------
(Unaudited)
REVENUES:
Contract drilling $38,986 $35,325
Business interruption proceeds 6,440 -
------- -------
45,426 35,325
------- -------
COSTS AND EXPENSES:
Contract drilling 25,203 22,533
Depreciation 6,526 7,842
General and administrative 3,571 2,688
------- -------
35,300 33,063
------- -------
OPERATING INCOME 10,126 2,262
------- -------
OTHER INCOME (EXPENSE)
Interest expense (2,018) (2,334)
Interest income 35 8
------- -------
(1,983) (2,326)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES 8,143 (64)
PROVISION (BENEFIT) FOR INCOME TAXES (507) 1,840
------- -------
NET INCOME (LOSS) $8,650 ($1,904)
======= =======
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ 0.57 $(0.14)
Diluted 0.56 (0.14)
AVERAGE COMMON SHARES OUTSTANDING:
Basic 15,079 13,852
Diluted 15,422 13,852
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-6-
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, September 30,
2004 2004
----------------- -----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $24,880 $16,416
Accounts receivable 29,559 32,475
Insurance receivable 9,820 25,433
Inventories of materials and supplies 13,506 12,648
Deferred tax assets 40 290
Prepaid expenses and other 4,352 5,704
--------- --------
Total Current Assets 82,157 92,966
--------- --------
NET PROPERTY AND EQUIPMENT 407,590 401,141
--------- --------
DEFERRED COSTS AND OTHER ASSETS 3,502 4,829
--------- --------
$493,249 $498,936
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable $36,000 $36,000
Accounts payable 6,505 9,398
Accrued liabilities 11,369 13,822
Deferred Credits 333 833
--------- --------
Total Current Liabilities 54,207 60,053
--------- --------
LONG-TERM DEBT,
net of current maturities: 81,000 145,000
--------- --------
81,000 145,000
--------- --------
OTHER LONG TERM LIABILITIES:
Deferred income taxes 18,630 18,930
Deferred credits and other 3,838 3,364
--------- --------
22,468 22,294
--------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000 shares authorized, none outstanding 0 0
Common stock, $1 par value, 20,000 shares
authorized with 15,110 and 13,873 issued
and outstanding at December 31, 2004 and
September 30, 2004, respectively 15,110 13,873
Paid-in capital 112,015 57,917
Retained earnings 208,449 199,799
--------- --------
Total Shareholders' Equity 335,574 271,589
--------- --------
$493,249 $498,936
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-7-
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended December 31,
-----------------------------------------
2004 2003
---------------- -------------
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $ 8,650 $ (1,904)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 6,526 7,842
Amortization of debt issuance costs 201 165
Amortization of deferred items 158 63
Deferred income tax benefit (50) (600)
Changes in assets and liabilities:
Collection of insurance receivable 4,233 -
Decrease in accounts receivable 2,916 10,085
Decrease (increase) in inventory (858) 507
Decrease (increase) in deferred costs and other assets 2,083 (83)
Decrease in accounts payable (2,893) (6,656)
Decrease in accrued liabilities (2,453) (321)
Net mobilization fees and credits 211 (5,327)
Other increases - 907
-------- -------
Net cash provided by operating activities 18,724 4,678
-------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (12,988) (647)
Collection of insurance receivable 11,380 -
Other 13 6
-------- -------
Net cash used by investing activities (1,595) (641)
-------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Debt issuance costs paid - (343)
Proceeds from stock offering 53,607 -
Proceeds from exercise of stock options 1,728 8
Principal payments on debt (64,000) (6,000)
-------- ------
Net cash used by financing activities (8,665) (6,335)
-------- ------
NET INCRESE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,464 (2,298)
CASH AND CASH EQUIVALENTS, at beginning of period $ 16,416 $ 21,551
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 24,880 $ 19,253
======== ========
---------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-8-
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------
Total
Common Stock Paid-in Retained Stockholders'
(In thousands) Shares Amount Capital Earnings Equity
--------------------------------------------------------------------------------------------------------------------
September 30, 2004 13,873 $13,873 $ 57,917 $199,799 $271,589
Net income - - - 8,650 8,650
Exercise of employee stock options 62 62 1,666 - 1,728
Stock offering 1,175 1,175 52,432 - 53,607
------ ------- -------- -------- --------
December 31, 2004 15,110 $15,110 $112,015 $208,449 $335,574
====== ======= ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-9-
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
December 31, 2004 and for each of the three month periods ended December 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, 2004. 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,
2004. In our opinion, the unaudited interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of our financial position and results of operations for
the periods presented.
2. SIGNIFICANT ACCOUNTING POLICIES
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" allows companies the choice of either using a fair
value method of accounting for options, which would result in expense
recognition for all options granted, or using an intrinsic value method as
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", with pro forma disclosure of the impact on net
income (loss) of using the fair value option expense recognition method.
We apply the recognition and measurement principles of APB Opinion No. 25
and related interpretations. Accordingly, no compensation costs have been
recognized in net income from the granting of options pursuant to 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):
-10-
Three Months Ended
December 31,
------------------
2004 2003
------ -------
Net income (loss), as reported $8,650 $(1,904)
------ -------
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects (648) (625)
------ -------
Pro Forma, net income $8,002 $(2,529)
====== =======
Earnings (loss) per share:
Basic - as reported $ 0.57 $ (0.14)
Basic - pro forma 0.53 (0.18)
Diluted - as reported $ 0.56 $ (0.14)
Diluted - pro forma 0.52 (0.18)
The fair value of grants made during the current fiscal year-to-date period
were estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rate -
4.27%, expected volatility - 35%, expected life - 6 years, and no dividend
yield.
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (Revised 2004), "Share-Based Payment" (SFAS 123(R)). This Statement
revises SFAS No. 123 by eliminating the option to account for employee stock
options under APB No. 25 and generally requires companies to recognize the cost
of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards (the "fair-value-based" method). We
plan to adopt SFAS 123(R) on July 1, 2005 using the modified prospective method
without restatement of prior interim periods of the current fiscal year. The
impact of adopting SFAS 123(R) will be to record expense for previously-issued
but unvested employee stock options and any employee stock options that we issue
in the future. We expect the dollar impact on our financial statements to be
consistent with the impact previously disclosed above in the pro forma
disclosure requirements of SFAS No. 123, beginning with the fourth quarter of
fiscal year 2005.
-11-
3. EARNINGS (LOSS) PER COMMON SHARE
The computation of basic and diluted earnings (loss) per share is as
follows (in thousands, except per share amounts):
Three Months Ended
----------------------------------
Net Per Share
Income Shares Amount
---------- -------- ----------
December 31, 2004:
Basic loss per share $ 8,650 15,079 $ 0.57
Effect of dilutive securities -
Stock options --- 343 $(0.01)
------- ------ ------
Diluted earnings per share $ 8,650 15,422 $ 0.56
======= ====== ======
December 31, 2003:
Basic loss per share ($1,904) 13,852 ($0.14)
Effect of dilutive securities -
Stock options --- --- ---
------- ------- -------
Diluted loss per share $(1,904) 13,852 $ (0.14)
======= ====== =======
-12-
4. PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as
follows (in thousands):
December 31, September 30,
2004 2004
------------- -------------
Drilling vessels and related equipment
Cost $ 621,561 $ 608,584
Accumulated depreciation (217,725) (211,544)
--------- ---------
403,836 397,040
--------- ---------
Drill pipe
Cost 10,240 10,240
Accumulated depreciation (7,531) (7,259)
--------- ---------
Net book value 2,709 2,981
--------- ---------
Furniture and other
Cost 7,519 7,635
Accumulated depreciation (6,474) (6,515)
--------- ----------
Net book value 1,045 1,120
--------- ----------
NET PROPERTY AND EQUIPMENT $ 407,590 $ 401,141
========= =========
Effective October 1, 2004, we extended the remaining depreciable life of
the SEAHAWK from 2 months to 5 years, due to a recent contract that extends the
rig's commercial viability for up to 5 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 and will continue to depreciate
this rig on a straight-line method over for the remainder of the extended
period. As a result of the change in depreciable life from 2 months to 5 years,
depreciation expense was reduced and net income was increased for the three
months ended December 31, 2004, by approximately $950,000, or $.06 per share and
depreciation expense going forward will be higher than it otherwise would have
been.
5. 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, results of operations, or cash flows.
-13-
6. CAPITAL STOCK
In October 2004, we sold in a public offering 1,175,000 shares of our
common stock at an effective net price (before expenses) of $45.83 for net
proceeds of approximately $53.6 million. We used these proceeds and cash on hand
to repay the $55 million outstanding as of September 30, 2004 under the
revolving portion of our senior secured credit facility.
7. ATWOOD BEACON
The ATWOOD BEACON incurred damage to all three legs and the derrick while
positioning for a well offshore of Indonesia in July 2004. The rig and its
damaged legs were transported to the builder's shipyard in Singapore for
inspections and repairs. At September 30, 2004, the book basis of the ATWOOD
BEACON was reduced by $16.3 million which is the estimated reduction in value
caused by the incident. During the three months ended December 31, 2004,
approximately $11.4 million of capitalized costs were incurred to restore the
rig to its condition prior to the incident. During this period, we collected
approximately $15.6 million of the $25.4 million insurance receivable recorded
as of September 30, 2004. In addition, we also collected all of the $6.4 million
of business interruption proceeds earned during the current quarter. We expect
to collect the remaining approximate $9.8 million insurance receivable in the
second quarter of fiscal year 2005.
8. INCOME TAXES
Virtually all of our tax provision for each of the three months ended
December 31, 2004 and 2003 relates to taxes in foreign jurisdictions.
Accordingly, due to the operating loss in the United States and the operating
losses in certain nontaxable jurisdictions during the three months ended
December 31, 2003, our effective tax rate for the 2003 period exceeds the U.S.
statutory rate.
In December 2004, we received a $1.7 million tax refund in Malaysia related
to a previously reserved tax receivable. In addition, we earned revenue from our
loss of hire insurance coverage on the ATWOOD BEACON in a zero tax jurisdiction
during the three months ended December 31, 2004. As a result, our effective tax
rate for the 2004 period was significantly less than the United States statutory
rate.
-14-
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 we deem reasonable. We 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. Our periodic reports
filed with the Securities and Exchange Commission, or SEC, should be consulted
for a description of risk factors associated with an investment in us.
MARKET OUTLOOK
Current worldwide utilization of offshore drilling units is approximately
87% compared to approximately 80% in January 2004. Recent contract awards for
some of our drilling units reflect higher dayrates resulting from strengthening
market conditions. We have experienced higher bid activity levels for our
drilling units for near term contracts and increasing inquiries from our clients
for programs commencing in the second half of calendar 2005 and in calendar
2006. We believe that our eight key drilling units (seven upgraded units and one
newly constructed unit) are well placed to take advantage of the upside from
increasing dayrates and improvement in our international markets.
During the quarter ended December 31, 2004, all eight of our active
drilling units were 100% utilized except for the SEAHAWK and the ATWOOD BEACON.
The SEAHAWK incurred 12 days of idle time between the completion of its contract
in Malaysia with ExxonMobil and the commencement of its current contract in
Malaysia with Sarawak Shell. The impact of this idle time was offset by the $1.8
million in demobilization revenue received from ExxonMobil. The SEAHAWK has been
awarded a contract commitment for two years firm work in Equatorial Guinea
starting in calendar 2006. We are in discussions for work for the SEAHAWK to
bridge most of the gap between the completion of its current work (estimated in
late February to early March 2005) and its preparation for its contract
commitment in calendar 2006. Based upon these discussions, the SEAHAWK could
incur 6 to 8 weeks of idle time between completion of its current contract and
prior to commencement of its next contract in Southeast Asia. The repairs to the
ATWOOD BEACON from damage it incurred in July 2004 were completed on schedule in
January 2005. We earned approximately $6.4 million in business interruption
proceeds in the quarter ended December 31, 2004 under the ATWOOD BEACON's loss
of hire insurance coverage. In January 2005, the ATWOOD BEACON was mobilized to
Vietnam to commence working under a contract which should keep it employed into
calendar 2006.
In January 2005, the ATWOOD SOUTHERN CROSS incurred around ten days of zero
rate time following the completing of its contract offshore Malaysia and the
commencement of its mobilization for its current contract offshore Myanmar. We
also anticipate that the ATWOOD SOUTHERN CROSS could incur up to four weeks of
additional downtime in the third quarter of fiscal year 2005 following the
completion of its current contract. We expect that the ATWOOD HUNTER, ATWOOD
EAGLE, ATWOOD FALCON, VICKSBURG and RICHMOND will be highly utilized during the
remainder of fiscal year 2005.
-15-
We are optimistic about the longer-term outlook and fundamentals of the
offshore drilling market. With the expected downtime for the SEAHAWK and ATWOOD
SOUTHERN CROSS during a portion of the next two quarters in jurisdictions with a
higher effective tax rate than the U.S. statutory rate, we expect net income for
these quarters to be below the net income for the first quarter; however,
compared to fiscal year 2004, we expect fiscal year 2005 will reflect increasing
earnings and cash flows.
RESULTS OF OPERATIONS
Revenues for the three months ended December 31, 2004 increased 29%
compared to the three months ended December 31, 2003. A comparative analysis of
revenues is as follows:
REVENUES
(In millions)
---------------------------------------------------
Three Months Ended December 31,
---------------------------------------------------
2004 2003 Variance
------ ------ --------
ATWOOD EAGLE $ 8.5 $ 4.7 $ 3.8
ATWOOD HUNTER 5.6 2.7 2.9
ATWOOD BEACON 6.4 4.4 2.0
ATWOOD FALCON 7.7 6.0 1.7
RICHMOND 2.7 2.2 0.5
VICKSBURG 5.9 5.8 0.1
ATWOOD SOUTHERN CROSS 3.6 3.9 (0.3)
SEAHAWK 4.4 5.2 (0.8)
OTHER 0.6 0.4 0.2
--- --- ---
$45.4 $35.3 $10.1
===== ===== =====
The increase in revenue for the ATWOOD EAGLE was due to being 100% utilized
and earning dayrates ranging from $89,000 - $109,000 during the current quarter
compared to an approximate 60% utilization at a dayrate of $90,000 during the
first quarter of the prior fiscal year. Revenue for the ATWOOD HUNTER increased
due to 100% utilization at a dayrate of approximately $62,000 during the quarter
ended December 31, 2004 compared to 80% utilization at dayrates ranging from
$40,000 - $44,000 during the quarter ended December 31, 2003. The ATWOOD BEACON
earned loss of hire insurance at $70,000 per day during the first quarter of the
current fiscal year compared to earning an operating dayrate of approximately
$52,000 during the first quarter of the prior fiscal year. For approximately 20
days of the first quarter of the prior fiscal year, the ATWOOD FALCON was being
mobilized to Japan and was thus, not earning revenue during this period as the
lump sum mobilization revenue earned while relocating was amortized over the
firm operating period of the contract. The increase in revenue for the RICHMOND
was due to earning a dayrate of $29,000 in the current quarter compared to a
dayrate range of $23,000 - $24,000 in the same quarter in the prior fiscal year.
Revenues for the VICKSBURG and ATWOOD SOUTHERN CROSS were comparable to the same
period for in the prior year, while the decrease in revenue for the SEAHAWK was
attributable to the fact that for the quarter ended December 31, 2003, there
were two months amortization of deferred upgrade revenue of approximately $1.3
-16-
million compared to no amortization of such revenue in the quarter ended
December 31, 2004 as amortization of the upgrade revenue ended November 2003.
Contract drilling costs for the three months ended December 31, 2004
increased 12% compared to the three months ended December 31, 2003. An analysis
of contract drilling costs by rig is as follows:
CONTRACT DRILLING COSTS
(In millions)
-------------------------------------------------
Three Months Ended December 31,
-------------------------------------------------
2004 2003 Variance
------ ------ --------
ATWOOD EAGLE $ 5.3 $ 3.8 $ 1.5
ATWOOD FALCON 3.3 2.4 0.9
SEAHAWK 2.4 2.1 0.3
VICKSBURG 2.5 2.2 0.3
ATWOOD BEACON 2.4 2.2 0.2
RICHMOND 2.0 1.9 0.1
ATWOOD HUNTER 2.9 2.9 -
ATWOOD SOUTHERN CROSS 3.0 4.4 (1.4)
OTHER 1.4 0.6 0.8
----- ----- -----
$25.2 $22.5 $ 2.7
===== ===== =====
The increase in drilling costs for the ATWOOD EAGLE was due to an
approximate $20,000 per day higher salary expense attributable to higher
Australian labor costs and additional rig personnel required due to local
operating requirements in Australia during the quarter ended December 31, 2004,
compared to operating in West Africa, its location in the first quarter of the
prior fiscal year. As mentioned earlier, the ATWOOD FALCON was relocating to
Japan for approximately 20 days during the quarter ended December 31, 2003, and
thus, all costs incurred during the mobilization period were deferred and
subsequently amortized over the firm operating portion of the contract. The
increase in drilling costs for the SEAHAWK and VICKSBURG were due to higher
repair and maintenance expenses incurred on the rigs during the current quarter
as compared to the same quarter of the prior fiscal year. The RICHMOND and
ATWOOD HUNTER experienced a similar level of drilling costs compared to the
first quarter of the prior year, while drilling costs for the ATWOOD SOUTHERN
CROSS decreased due to the fact the rig incurred approximately $1.6 million of
boat towing costs while relocating from Egypt to India during the quarter ended
December 31, 2003 compared to no such costs in the quarter ended December 31,
2004. Despite being under repair for the entire quarter ended December 31, 2004,
the ATWOOD BEACON incurred labor, insurance, supplies and other drilling costs
during the quarter. Other drilling costs have increased as the prior fiscal year
quarter includes an insurance premium refund of approximately $500,000.
-17-
An analysis of depreciation expense by rig for the three months ended
December 31, 2004 compared to the three months ended December 31, 2003 is as
follows:
DEPRECIATION EXPENSE
(In millions)
-------------------------------------------
Three Months Ended December 31,
-------------------------------------------
2004 2003 Variance
------ ------ ---------
ATWOOD SOUTHERN CROSS $ 1.1 $ 1.0 $ 0.1
ATWOOD FALCON 0.7 0.7 -
VICKSBURG 0.7 0.7 -
ATWOOD HUNTER 1.3 1.3 -
RICHMOND 0.2 0.2 -
ATWOOD EAGLE 1.2 1.3 (0.1)
ATWOOD BEACON 1.2 1.3 (0.1)
SEAHAWK 0.1 1.2 (1.1)
OTHER 0.0 0.1 (0.1)
----- ----- ------
$ 6.5 $ 7.8 $ (1.3)
===== ===== ======
Effective October 1, 2004, we extended the remaining depreciable life of
the SEAHAWK from 2 months to 5 years which resulted in reduction of depreciation
expense of $950,000 as discussed in Note 4. The depreciable life of this rig was
extended based upon a recent contract that extends the rig's commercial
viability for up to 5 years, coupled with our intent to continue marketing and
operating the rig beyond 2 months.
General and administrative expenses for the first quarter of fiscal year
2005 increased compared to the first quarter of the prior fiscal year due to the
fact that $0.8 million in bonuses were paid during the current quarter versus no
bonus payments in the prior fiscal year. Although the level of our outstanding
debt has been reduced significantly from the prior fiscal year, interest expense
has only decreased slightly due to rising interest rates.
Virtually all of our tax provision for each of the three months ended
December 31, 2004 and 2003 relates to taxes in foreign jurisdictions. In
December 2004, we received a $1.7 million tax refund in Malaysia related to a
previously reserved tax receivable. In addition, we earned revenue from our loss
of hire insurance coverage on the ATWOOD BEACON in a zero tax jurisdiction
during the three months ended December 31, 2004. As a result, our effective tax
rate for this period was significantly less than the United States statutory
rate. This effective tax rate for the current quarter is also significantly less
when compared to the first quarter of the prior year due to an operating loss in
the United States and operating losses in certain nontaxable jurisdictions which
produced an effective tax rate significantly higher than the United States
statutory rate for the three months ended December 31, 2003. Excluding any other
discrete items that may be incurred, we expect our effective tax rate to be
within a range of 15 to 20% for fiscal year 2005.
-18-
LIQUIDITY AND CAPITAL RESOURCES
Due to the cyclical nature of the offshore drilling industry, maintaining
high equipment utilization of our eight active drilling units in up, as well as
down, cycles is a key factor in generating cash to satisfy current and future
obligations. Since fiscal year 2000, net cash provided by operating activities
ranged from a low of approximately $14 million in fiscal year 2003 to a high of
approximately $62 million in fiscal year 2001, with net cash provided by
operating activities in fiscal year 2004 of approximately $26 million. Net cash
provided by operating activities for the quarter ended December 31, 2004 was
approximately $19 million. We expect that in fiscal year 2005, net cash provided
by operating activities will range between $40 and $50 million. Our operating
cash flows are primarily driven by our operating income, which reflects dayrate
and rig utilization. Assuming higher dayrates and strengthening market
conditions, we should have higher cash flows and earnings in fiscal year 2005
compared to fiscal year 2004. Currently, our existing cash commitments for the
remainder of fiscal year 2005 and beyond, outside of funding current rig
operations, and restoration of the ATWOOD BEACON which is fully reimbursed
through insurance, includes annual capital expenditures of $6 to $10 million for
maintenance of our eight active drilling rigs and quarterly repayments of $9
million under the term portion of our senior secured credit facility. We expect
to generate sufficient cash flows from operations to satisfy these obligations.
At December 31, 2004, we had $117 million outstanding under the term
portion of our senior secured credit facility. In October 2004, upon concluding
our 1,175,000 stock offering, we repaid the $55 million then outstanding under
the revolving portion of our senior secured credit facility with proceeds from
the offering and cash on hand. In January 2005, we re-borrowed $10 million under
the revolving portion of our senior secured credit facility. We currently have
approximately $89 million of available borrowing capacity and with a debt to
total capitalization ratio currently less than 30%, we expect to remain in
compliance with all financial covenants during the remainder of fiscal year
2005. The collateral for our senior secured credit facility consists primarily
of preferred mortgages on all eight of our active drilling units (with an
aggregate net book value at December 31, 2004 totaling approximately $391
million). We are required to pay a fee of approximately .80% per annum on the
unused portion of the revolving loan facility and certain other administrative
costs.
The SEASCOUT, a semisubmersible hull planned for future conversion and
upgrade to a semisubmersible tender assist vessel, continues to be cold-stacked.
We expect that the cost to convert and upgrade the SEASCOUT to be approximately
$70 million. We have no current capital commitments on the SEASCOUT, as we do
not expect to undertake a conversion and upgrade until an acceptable contract
opportunity has been secured and adequate financing is in place. We continue to
periodically increase and adjust our planned capital expenditures and financing
of such expenditures in light of current market conditions.
Our portfolio of accounts receivable is comprised of major international
corporate entities with stable payment experience. Historically, we have not
encountered significant difficulty in collecting receivables and typically do
not require collateral for our receivables. The insurance receivable of
approximately $25 million at September 30, 2004 and approximately $10 million at
December 31, 2004 related to repairs made to the ATWOOD BEACON. We expect to
encounter no difficulty in collecting the remaining approximately $10 million
due from the repairs made to the ATWOOD BEACON.
-19-
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 $117 million at
December 31, 2004 approximates its fair value. The impact on annual cash flow of
a 10% change in the floating rate (approximately 45 basis points) would be
approximately $0.5 million, which we do not believe to be material. We did not
have any open derivative contracts relating to our floating rate debt at
December 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
December 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 $0.6 million,
which we do not believe to be material. We did not have any open derivative
contracts relating to foreign currencies at December 31, 2004.
-20-
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 controls 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 filings is recorded, process, summarized and
reported within the time periods specified in the SEC's rules,
regulations 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) Changes 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.
-21-
PART II. OTHER INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
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 dated 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).
*31.1 Certification of Chief Executive Officer
*31.2 Certification of Chief Financial Officer
*32.1 Certificate of Chief Executive Officer pursuant to Section 9006
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
-22-
(b) Reports on Form 8-K
1) On October 5, 2004, we filed a report on Form 8-K announcing that we
had filed a preliminary prospectus supplement for an underwritten
joint public offering with a selling shareholder of a total of
2,000,000 shares of common stock pursuant to effective shelf
registration statements on Form S-3 previously filed with the
Securities and Exchange Commission.
2) On October 14, 2004, we filed a report on Form 8-K announcing that we
had entered into an underwriting agreement with Goldman, Sachs & Co.,
Credit Suisse First Boston LLC, Jefferies & Company, Inc.,
Raymond James & Associates, Inc. and Stifel, Nicolaus & Company,
Incorporated related to our underwritten joint public offering with a
selling shareholder of a total of 2,175,000 shares of our common stock
at a public offering price of $48.50 per share less the underwriters
discount of $2.67 per share, for net proceeds before expenses of $45.83
per share pursuant to effective shelf registration statement on Form
S-3 previously filed with the Security and Exchange Commission.
3) On October 19, 2004, we filed a report on Form 8-K announcing the
closing of our underwritten joint public offering with a selling
shareholder of a total of 2,175,000 shares of common stock at a public
offering price of $48.50 per share less the underwriter discount of
$2.67 per share, for net proceeds before expenses of $45.83 per share
pursuant to effective shelf registration statements on Form S-3
previously filed with the Securities and Exchange Commission.
4) On October 20, 2004, we furnished a report on Form 8-K announcing that
the SEAHAWK had completed its contract with ExxonMobil Exploration &
Production Malaysia Inc. and had received a commitment from Sarawak
Shell Berhad ("Shell") to use the rig to drill a two-well program
offshore Malaysia and providing an update on contract status for our
other drilling units.
5) On November 1, 2004, we filed a report on Form 8-K announcing that the
ATWOOD FALCON had been awarded a contract with Japan Energy Development
Co., Ltd. to drill one firm well with an option to drill one additional
well off the coast of Japan and that the ATWOOD EAGLE has been awarded
additional work under an existing contract with Woodside Energy, Ltd.
6) On November 16, 2004, we furnished a report on Form 8-K announcing our
earnings for the quarter and year ended September 30, 2004, along with
supporting information.
-23-
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: February 9, 2005 /s/JAMES M. HOLLAND_
James M. Holland
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer and
Secretary
-24-
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 dated March 1975 (Incorporated herein by
reference to Exhibit 3.1.2 of ourForm 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).
*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
-25-
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
-26-
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: February 9, 2005
/s/ JOHN R. IRWIN
John R. Irwin
Chief Executive Officer
-27-
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
-28-
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: February 9, 2005
/s/ JAMES M. HOLLAND
James M. Holland
Chief Financial Officer
-29-
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 December 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. 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: February 9, 2005 /s/ JOHN R. IRWIN
John R. Irwin
President and Chief Executive Officer
-30-
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 December 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. 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: February 9, 2005 /s/JAMES M. HOLLAND
James M. Holland
Senior Vice President and
Chief Financial Officer
-31-