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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED DECEMBER 31, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer X Accelerated filer ___ Non-accelerated filer ___
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act.) Yes___ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 2007: 31,093,040 shares of common stock, $1 par
value
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ATWOOD OCEANICS, INC.
FORM 10-Q
For the Quarter Ended December 31, 2006
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, 2006 and 2005..................3
b) Condensed Consolidated Balance Sheets
As of December 31, 2006 and September 30, 2006.........................4
c) Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2006 and 2005..................5
d) Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended December 31, 2006....................6
e) Notes to Condensed Consolidated Financial Statements....................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk........22
Item 4. Controls and Procedures...........................................23
Part II. Other Information
Item 6. Exhibits .........................................................24
Signatures...................................................................25
Certifications...............................................................27
2
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
December 31,
---------------------------------
2006 2005
------- ------
REVENUES:
Contract drilling $ 86,242 $ 55,414
Business interruption proceeds 2,558 -
-------- --------
88,800 55,414
-------- --------
COSTS AND EXPENSES:
Contract drilling 49,110 33,770
Depreciation 8,015 6,390
General and administrative 7,191 5,993
Gain on sale of equipment (47) (9,275)
-------- --------
64,269 36,878
-------- --------
OPERATING INCOME 24,531 18,536
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (537) (1,740)
Interest income 469 231
-------- --------
(68) (1,509)
-------- --------
INCOME BEFORE INCOME TAXES 24,463 17,027
PROVISION FOR INCOME TAXES 3,378 2,504
-------- --------
NET INCOME $ 21,085 $ 14,523
======== ========
EARNINGS PER COMMON SHARE:
Basic $ 0.68 $ 0.47
Diluted 0.67 0.47
AVERAGE COMMON SHARES OUTSTANDING:
Basic 31,060 30,738
Diluted 31,614 31,208
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, September 30,
2006 2006
---------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,419 $ 32,276
Accounts receivable, net of an allowance
of $863 and $750 at December 31, 2006
and September 30, 2006, respectively 80,376 80,222
Income tax receivable 848 65
Insurance receivable 4,150 550
Inventories of materials and supplies 22,603 22,124
Deferred tax assets 1,928 2,563
Prepaid expenses and deferred costs 7,555 9,873
---------- --------
Total Current Assets 157,879 147,673
---------- --------
NET PROPERTY AND EQUIPMENT 451,760 436,166
DEFERRED COSTS AND OTHER ASSETS 10,900 9,990
---------- --------
$ 620,539 $593,829
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable $ 36,000 $ 36,000
Accounts payable 14,716 11,760
Accrued liabilities 19,060 13,201
Deferred credits 4,118 404
---------- --------
Total Current Liabilities 73,894 61,365
---------- --------
LONG-TERM DEBT,
net of current maturities: 9,000 28,000
---------- --------
9,000 28,000
---------- --------
LONG TERM LIABILITIES:
Deferred income taxes 17,891 18,591
Deferred credits 34,194 23,284
Other 3,816 3,695
---------- --------
55,901 45,570
---------- --------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 7)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000 shares authorized, none outstanding - -
Common stock, $1 par value, 50,000 shares
authorized with 31,080 and 31,046 issued
and outstanding at December 31, 2006
and September 30, 2006, respectively 31,080 31,046
Paid-in capital 117,647 115,916
Retained earnings 333,017 311,932
--------- ---------
Total Shareholders' Equity 481,744 458,894
--------- --------
$ 620,539 $593,829
========== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended December 31,
----------------------------------
2006 2005
----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 21,085 $ 14,523
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 8,015 6,390
Amortization of debt issuance costs 201 201
Amortization of deferred items (8,788) (1,090)
Provision for doubtful accounts 113 -
Deferred federal income tax benefit (80) (50)
Stock-based compensation expense 1,213 885
Gain on sale of equipment (47) (9,275)
Changes in assets and liabilities:
Increase in accounts receivable (267) (3,155)
Increase in insurance receivable (3,600) (406)
Increase in income tax receivable (783) -
(Increase) decrease in inventory (479) 456
(Increase) decrease in prepaid expenses 1,929 (722)
Increase in deferred costs and other assets (2,559) (1,840)
Increase in accounts payable 2,956 174
Increase in accrued liabilities 5,859 1,574
Increase in deferred credits and other liabilities 25,385 5,047
Other (12) 45
-------- --------
Net cash provided by operating activities 50,141 12,757
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (23,606) (6,591)
Proceeds from sale of equipment 56 25,177
-------- --------
Net cash provided (used) by investing activities (23,550) 18,586
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments on debt (19,000) (9,000)
Proceeds from exercise of stock options 498 1,809
Tax benefit from the exercise of stock options 54 575
-------- --------
Net cash used by financing activities (18,448) (6,616)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,143 24,727
CASH AND CASH EQUIVALENTS, at beginning of period $ 32,276 $ 18,982
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 40,419 $ 43,709
======== ========
-----------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------
Total
Common Stock Paid-in Retained Stockholders'
(In thousands) Shares Amount Capital Earnings Equity
--------------------------------------------------------------------------------------------------------------------
September 30, 2006 31,046 $ 31,046 $ 115,916 $ 311,932 $ 458,894
Net income - - - 21,085 21,085
Restricted stock awards 5 5 (5) - -
Exercise of employee stock options 29 29 469 - 498
Stock option and restricted stock
award compensation expense 1,213 1,213
Tax benefit from exercise of employee
stock options - - 54 - 54
------ -------- --------- --------- ----------
December 31, 2006 31,080 $ 31,080 $ 117,647 $ 333,017 $ 481,744
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
PART I. ITEM 1 - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED INTERIM INFORMATION
The unaudited interim condensed consolidated financial statements as of
December 31, 2006 and for each of the three month periods ended December 31,
2006 and 2005, 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, 2006. 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,
2006. In our opinion, the unaudited interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair statement of our financial position and results of operations for the
periods presented.
2. SHARE-BASED COMPENSATION
We recognize compensation expense on grants of share-based compensation
awards on a straight-line basis over the required service period for each award.
As of December 31, 2006, unrecognized compensation cost, net of estimated
forfeitures, related to stock options and restricted stock awards was
approximately $5.4 million and $5.9 million, respectively, which we expect to
recognize over a weighted average period of approximately 2.7 years. The
recognition of share-based compensation expense for the three months ended
December 31, 2006 and 2005 of $1.2 million and $0.8 million, respectively, had
the following effect on our consolidated statements of operations (in thousands,
except per share amounts):
Three Months Ended Three Months Ended
December 31, 2006 December 31, 2005
------------------ -------------------
Increase in contract drilling expenses $ 260 $ 150
Increase in general and administrative expenses 953 650
Decrease in income tax provision (334) (228)
----- -----
Decrease of net income $ 879 $ 572
===== =====
Decrease in earnings per share:
Basic $ 0.03 $0.02
Diluted $ 0.03 $0.02
7
Awards of restricted stock and stock options have both been granted
under our stock incentive plans during the current quarter. We deliver newly
issued shares of common stock for restricted stock awards upon vesting and upon
exercise of stock options. All stock incentive plans currently in effect have
been approved by the shareholders of our outstanding common stock.
Stock Options
Under our stock incentive plans, the exercise price of each stock option
equals the fair market value of one share of our common stock on the date of
grant, with all outstanding options having a maximum term of 10 years. Options
vest ratably over a period from the end of the first to the fourth year from the
date of grant. Each option is for the purchase of one share of our common stock.
The per share weighted average fair value of stock options granted during
the three months ended December 31, 2006 was $23.64. We estimated the fair value
of each stock option then outstanding using the Black-Scholes pricing model and
the following assumptions for the three months ended December 31, 2006:
Risk-Free Interest Rate 4.5%
Expected Volatility 46%
Expected Life (Years) 5.25
Dividend Yield None
The average risk-free interest rate is based on the five-year U.S. treasury
security rate in effect as of the grant date. We determined expected volatility
using a 6-year historical volatility figure and determined the expected term of
the stock options using 10 years of historical data. The expected dividend yield
is based on the expected annual dividend as a percentage of the market value of
our common stock as of the grant date.
A summary of stock option activity during the three months ended
December 31, 2006 is as follows:
Wtd. Avg.
Wtd. Avg. Remaining Aggregate
Number of Exercise Contractual Intrinsic
Options (000s) Price Life (Years) Value (000s)
-------------- --------- ----------- ------------
Outstanding at October 1, 2006 1,437 $ 19.56
Granted 79 $ 49.97
Exercised (27) $ 17.12 $ 881
Forfeited ( 2) $ 24.62
------
Outstanding at December 31, 2006 1,487 $ 21.22 6.4 $ 41,272
-----
Exercisable at December 31, 2006 1,047 $ 17.40 5.5 $ 33,067
-----
8
Restricted Stock
We have also awarded restricted stock to certain employees and to our
non-employee directors. The awards of restricted stock to employees are subject
to three year vesting while awards of restricted stock to non-employee directors
vest immediately. All restricted stock awards granted to date are restricted
from transfer for three years from the date of grant, whether vested or
unvested. We value restricted stock awards at fair market value of our common
stock on the date of grant.
A summary of restricted stock activity for the three months ended December
31, 2006, is as follows:
Number of Wtd. Avg.
Shares (000s) Fair Value
------------- ----------
Unvested at September 30, 2006 93 $ 38.07
Granted 76 $ 49.97
Vested (5) $ 49.97
Forfeited - $ -
-----
Unvested at December 31, 2006 164 $ 43.24
=====
9
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, 2006:
Basic earnings per share $21,085 31,060 $ 0.68
Effect of dilutive securities -
Stock options --- 554 $ 0.01
------- ------ ------
Diluted earnings per share $21,085 31,614 $ 0.67
======= ====== ======
December 31, 2005:
Basic earnings per share $14,523 30,738 $ 0.47
Effect of dilutive securities -
Stock options --- 470 $ -
------- ------ ------
Diluted earnings per share $14,523 31,208 $ 0.47
======= ====== ======
The calculation of diluted earnings per share for the three month period
ending December 31, 2006 excludes consideration of shares of common stock
related to 276,000 outstanding stock options because such options were
anti-dilutive. These options could potentially dilute basic earnings per share
in the future.
10
4. PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as follows (in
thousands):
December 31, September 30,
2006 2006
----------------- ------------
Drilling vessels and related equipment
Cost $ 714,573 $ 691,289
Accumulated depreciation (269,292) (261,682)
--------- ---------
Net book value 445,281 429,607
--------- ---------
Drill Pipe
Cost 13,249 13,271
Accumulated depreciation (8,576) (8,257)
--------- ---------
Net book value 4,673 5,014
--------- ---------
Furniture and other
Cost 8,115 7,920
Accumulated depreciation (6,309) (6,375)
--------- ---------
Net book value 1,806 1,545
--------- ---------
NET PROPERTY AND EQUIPMENT $ 451,760 $ 436,166
========= =========
ATWOOD BEACON
During the current quarter, we completed the work to restore the ATWOOD
BEACON to its original condition prior to the July 2004 incident offshore of
Indonesia whereby all three legs and the derrick incurred damage while
positioning for a well. The majority of the restoration work was completed in
early calendar year 2005, at which time the rig was placed back into service.
The current quarter repairs were needed to finish the final leg extensions to
restore the rig to its original condition. We have insurance coverage to
reimburse the costs of repairs and loss of hire coverage of $70,000 per day.
Approximately $0.6 million of capitalized costs and $1.0 million of other costs
were incurred for the leg installation during the current quarter, while revenue
recognized from the loss of hire coverage totaled $2.6 million during the
current quarter and is reflected as business interruption proceeds on the
Consolidated Statement of Operations. We expect to collect the related insurance
receivable during the next quarter.
SALE OF EQUIPMENT
In October 2005, we sold our semisubmersible hull, SEASCOUT, for $10
million (net after certain expenses) and our spare 15,000 P.S.I. BOP Stack for
approximately $15 million for a gain of approximately $9.3 million. We had no
operations or revenues associated with these assets prior to their sale.
11
5. INCOME TAXES
Virtually all of our tax provision for each of the three months ended
December 31, 2006 and 2005 relates to taxes in foreign jurisdictions.
Accordingly, due to the high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the first quarters of
fiscal years 2007 and 2006, our effective tax rate for these periods is
significantly less than the United States federal statutory rate.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board issued FIN 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement 109." FIN 48 prescribes a comprehensive model for recognizing,
measuring, presenting, and disclosing uncertain tax positions within the
financial statements. The provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006. We will be evaluating the impact of the
adoption of FIN 48 on our consolidated financial position.
In September 2005, the FASB issued SFAS No. 157, "Fair Value Measurements",
or SFAS No. 157, which defines fair value, establishes methods used to measure
fair value and expands disclosure requirements about fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal year
beginning after November 15, 2007, and interim periods within those fiscal
periods. We are currently analyzing the provisions of SFAS No. 157 and
determining how it will affect accounting policies and procedures, but we have
not yet made a determination of the impact the adoption will have on our
consolidated financial position, results of operations and cash flows.
7. 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.
12
PART I. ITEM 2
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
This Form 10-Q for the quarterly period ended December 31, 2006 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,
financial conditions or cash flows 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 gas industry, which is significantly affected by
indications and expectations regarding the level and volatility of oil
and gas prices, which in turn are affected by such things as political,
economic and weather conditions affecting or potentially affecting
regional or worldwide demand for oil and gas, actions or anticipated
actions by OPEC, inventory levels, deliverability constraints, and future
market activity;
- 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;
13
- the termination or renegotiation of contracts by customers;
- 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 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 offshore 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 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;
14
- the risks involved in the construction, upgrade and repair of our
drilling units; and
- such other factors as may be discussed in this report and our other
reports filed with the Securities and Exchange Commission, or SEC.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. The words "believe," "impact,"
"intend," "estimate," "anticipate," "plan," and similar expressions identify
forward-looking statements. These forward-looking statements are found at
various places throughout the Management's Discussion and Analysis in Part I,
Item 2 hereof and elsewhere in this report. When considering any forward-looking
statement, you should also keep in mind the risk factors described in other
reports or filings we make with the SEC from time to time, including our Form
10K for the year ended September 30, 2006. 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.
15
MARKET OUTLOOK
Currently, we have approximately 95% of available rig days for the
remainder of fiscal year 2007 contracted, with contracted rig days for fiscal
year 2008 and 2009 at approximately 75% and 30%, respectively. A comparison of
the average per day revenues for fiscal year 2006 and for the first three months
of fiscal year 2007 for each of our eight drilling units to their current
highest contracted dayrate commitments is as follows:
Average Per Day Revenues (1)
----------------------------
First Three Current Highest Percentage Change
Fiscal Months of Contracted from First Three
Year Fiscal Year Dayrate Months of Fiscal
2006 2007 Commitment Year 2007
---------- -------------- ------------------ ----------------
ATWOOD EAGLE $129,000 161,000 $405,000 152%
ATWOOD HUNTER 172,000 193,000 245,000 27%
ATWOOD FALCON 83,000 97,000 200,000 106%
ATWOOD SOUTHERN CROSS 82,000 124,000 305,000 146%
ATWOOD BEACON 88,000 95,000 133,500 41%
VICKSBURG 82,000 92,000 154,000 67%
SEAHAWK 32,000 88,000 68,400(2) (2)---
RICHMOND 55,000 81,000 80,000 ---
(1) Includes dayrate and service revenues
(2) Does not include amortized deferred fees of approximately $20,000 per day
The ATWOOD EAGLE is currently working offshore Australia for BHP Billiton
Petroleum ("BHPB") on a drilling program expected to extend into October 2007.
Immediately following the completion of the BHPB work, the rig has a one-well
commitment at a dayrate of $360,000 and a two-year commitment with Woodside
Energy Limited ("Woodside") at a dayrate of $405,000. The ATWOOD HUNTER is
currently working offshore Mauritania for Woodside at a dayrate of $240,000 and
will move during the next quarter to Libya under the Woodside contract with a
dayrate of $245,000. The current Woodside contract extends to April/May 2008.
The ATWOOD FALCON has contractual commitments offshore Malaysia with Shell that
extend to July 2009, with an operating dayrate of $113,000 until July 2007, then
increasing to $160,000 to $200,000 per day for two years thereafter. The ATWOOD
SOUTHERN CROSS currently has contractual commitments in the Black Sea with a
dayrate ranging from $125,000 to $305,000. These commitments could extend into
the second or third quarter of fiscal year 2008 if all option wells are
exercised. Currently, the ATWOOD BEACON is working under a long-term contract
commitment offshore India that extends to January 2009. The dayrate for the
contract is $113,000 to January 2008 and $133,500 for one year thereafter. The
VICKSBURG is currently working offshore Thailand under a contract commitment for
Chevron which provides a dayrate of $94,500 to June 2007 and $154,000 for two
years thereafter. The SEAHAWK has a contract commitment offshore Equatorial
Guinea which extends to September 2008 at a dayrate of approximately $68,400
plus amortized deferred fees of approximately $20,000 per day. The RICHMOND, our
only rig in the U.S. Gulf of Mexico, has a current contract commitment which
should extend to May/June 2007 at a dayrate of $80,000.
Our operating costs for the first quarter of fiscal year 2007 continue to
reflect some degree of volatility. Factors impacting high operating costs during
the first quarter of fiscal year 2007 were end of calendar year bonuses paid to
rig shorebase personnel; start-up costs associated with rigs commencing
16
operations in new drilling areas (VICKSBURG in Thailand, ATWOOD BEACON in India
and SEAHAWK in West Africa); additional costs associated with maintenance during
shipyard periods (ATWOOD FALCON and ATWOOD BEACON) and higher than normal
maintenance costs incurred on the ATWOOD HUNTER during the fourteen zero rate
days in December when the rig was undergoing required regulatory inspections. At
this time, there is no planned downtime for any of our rigs for the remainder of
fiscal year 2007. The VICKSBURG and ATWOOD EAGLE currently have planned required
regulatory inspections during the first quarter of fiscal year 2008 that could
be moved forward to the fourth quarter of fiscal year 2007 depending upon each
rig's operating schedule. With no planned downtime periods for the remainder of
fiscal year 2007 (assuming the VICKSBURG and ATWOOD EAGLE required inspections
remain as currently scheduled for the first quarter of fiscal year 2008), there
should be less volatility in operating costs for the remainder of fiscal year
2007.
The ATWOOD FALCON had an average operating cost during the first quarter of
fiscal year 2007 of $95,000 per day due to maintenance costs incurred during its
shipyard upgrade. With the expensing of these costs now complete, we expect
ongoing operating costs for the ATWOOD FALCON to be between $45,000 and $50,000.
The ATWOOD SOUTHERN CROSS is also expected to have average daily operating costs
in the Black Sea between $45,000 and $50,000. Operating costs for the ATWOOD
EAGLE and ATWOOD HUNTER are expected to be approximately $85,000 and $55,000,
respectively. Operating costs for our bottom supported drilling units are
expected to average between $30,000 and $35,000 per day for the ATWOOD BEACON
and RICHMOND and $35,000 to $40,000 for the VICKSBURG, which is incurring higher
operating costs in Thailand than when it worked in Malaysia. The SEAHAWK is
expected in incur operating costs between $60,000 and $70,000 per day (including
amortization of certain deferred costs) while continuing to work in a start-up
environment offshore Equatorial Guinea. Operating costs will vary for all rigs
depending upon each rig's specific operating activities. As shown from the high
costs incurred in the first quarter of fiscal year 2007, the daily operating
cost estimates provided above may increase when a rig is being relocated to a
new drilling location, when a rig is undergoing required inspections or when a
rig is undergoing extraordinary maintenance or equipment replacement.
Our ninth mobile offshore drilling unit, an ultra-premium class jack-up to
be named the ATWOOD AURORA, is currently under construction in Brownsville,
Texas, with delivery to occur by September 30, 2008. We estimate the total costs
of construction (including capitalized interest) will be approximately $160
million. We intend to finance the construction of the new rig primarily from
expected operating cash flows and cash on hand balances; however, if and when
necessary, the $100 million revolving portion of our credit facility may provide
some funding for the new rig. As of February 7, 2007, we have no outstanding
borrowing under the $100 million revolving credit portion of our credit
facility.
We will continue to explore opportunities for growth. Revenues, operating
cash flows and earnings for fiscal year 2006 were the highest in our history.
With our backlog of contracted days providing increasing revenue expectations,
we anticipate that operating results for fiscal year 2007 and 2008 will reflect
significant improvement over fiscal year 2006 operating results.
17
RESULTS OF OPERATIONS
Revenues for the three months ended December 31, 2006 increased 60%
compared to the three months ended December 31, 2005. A comparative analysis of
revenues is as follows:
REVENUES
(In millions)
---------------------------------------------
Three Months Ended December 31,
---------------------------------------------
2006 2005 Variance
------- -------- -----------
ATWOOD HUNTER $17.8 $10.3 $ 7.5
ATWOOD EAGLE 14.8 8.0 6.8
ATWOOD SOUTHERN CROSS 11.4 6.0 5.4
RICHMOND 7.5 3.9 3.6
SEAHAWK 8.1 4.6 3.5
ATWOOD BEACON 8.7 5.9 2.8
ATWOOD FALCON 8.9 6.8 2.1
VICKSBURG 8.5 6.7 1.8
AUSTRALIA MANAGEMENT CONTRACTS 3.1 3.2 (0.1)
----- ----- -----
$88.8 $55.4 $33.4
===== ===== =====
The increase in fleetwide revenues is primarily attributable to the
increase in average dayrates due to improving market conditions and strong
demand for offshore drilling equipment as previously discussed in Market
Outlook. Thus, increases in revenues for the ATWOOD HUNTER, ATWOOD EAGLE, ATWOOD
SOUTHERN CROSS, RICHMOND, SEAHAWK, ATWOOD BEACON, ATWOOD FALCON and the
VICKSBURG were related to each of these drilling units working under higher
dayrate contracts during the current quarter compared to the first quarter of
the prior fiscal year while the AUSTRALIA MANAGEMENT CONTRACTS experienced a
consistent level of revenues for the current quarter when compared to the prior
year quarter.
18
Contract drilling costs for the three months ended December 31, 2006
increased 45% compared to the three months ended December 31, 2005. An analysis
of contract drilling costs by rig is as follows:
CONTRACT DRILLING COSTS
(In millions)
------------------------------------------
Three Months Ended December 31,
------------------------------------------
2006 2005 Variance
------ -------- ---------
ATWOOD FALCON $ 8.7 $ 3.8 $ 4.9
SEAHAWK 6.8 2.4 4.4
ATWOOD HUNTER 5.9 3.7 2.2
ATWOOD EAGLE 7.9 6.0 1.9
ATWOOD BEACON 4.0 2.4 1.6
RICHMOND 3.1 2.4 0.7
VICKSBURG 3.8 3.5 0.3
ATWOOD SOUTHERN CROSS 5.3 5.5 (0.2)
AUSTRALIA MANAGEMENT CONTRACTS 2.5 2.8 (0.3)
OTHER 1.1 1.3 (0.2)
----- ----- -----
$49.1 $33.8 $15.3
===== ===== =====
On a fleetwide basis, wage increases and increased headcount have resulted
in higher personnel costs during the first quarter of fiscal year 2007 for
virtually every rig when compared to the prior year first quarter. The increase
in drilling costs for the ATWOOD FALCON is primarily attributable to planned
maintenance during its water depth upgrade which was completed in November 2006.
With the SEAHAWK and ATWOOD HUNTER currently working offshore West Africa, both
rigs have experienced increased travel, freight and shorebase costs due to
higher transportation and living expenses in West Africa. Contract drilling
costs for the SEAHAWK also reflect amortization of approximately $1.4 million of
deferred expenses in the first quarter of fiscal year 2007 compared to none in
the first quarter of fiscal year 2006. The ATWOOD HUNTER incurred additional
maintenance costs during a planned regulatory inspection period in December
2006. In addition to the rising personnel costs mentioned above, the ATWOOD
EAGLE and RICHMOND incurred higher maintenance costs during the first quarter of
fiscal year 2007 due to the amount and timing of certain maintenance projects
when compared to the same period in the prior year. The ATWOOD BEACON also
experienced higher maintenance costs during the first quarter of fiscal year
2007 while it was in a Singapore shipyard having its last leg sections
reattached. The VICKSBURG, ATWOOD SOUTHERN CROSS, AUSTRALIA MANAGEMENT CONTRACTS
and other drilling costs have remained relatively consistent when compared to
the first quarter of the prior fiscal year.
19
Depreciation expense for the three months ended December 31, 2006
increased 25% compared to the three months ended December 31, 2005. An analysis
of depreciation expense by rig is as follows:
DEPRECIATION EXPENSE
(In millions)
-----------------------------------------
Three Months Ended December 31,
-----------------------------------------
2006 2005 Variance
------- -------- ---------
SEAHAWK $1.5 $0.2 $ 1.3
ATWOOD FALCON 0.9 0.7 0.2
ATWOOD SOUTHERN CROSS 0.8 0.7 0.1
ATWOOD HUNTER 1.4 1.3 0.1
ATWOOD BEACON 1.3 1.3 -
VICKSBURG 0.7 0.7 -
RICHMOND 0.2 0.2 -
ATWOOD EAGLE 1.1 1.2 (0.1)
OTHER 0.1 0.1 -
---- ---- -----
$8.0 $6.4 $ 1.6
==== ==== =====
Depreciation expense has increased for the SEAHAWK and ATWOOD FALCON as
both rigs recently finished their upgrades, which were completed subsequent to
the first quarter of the prior fiscal year, while depreciation expense for all
other rigs have has remained relatively consistent with the prior year quarter.
The SEAHAWK was almost fully depreciated prior to its upgrade, accordingly,
ongoing quarterly depreciation expense will approximate first quarter fiscal
year 2007 levels.
General and administrative expenses for the first quarter of fiscal year
2007 increased compared to the first quarter of the prior fiscal year primarily
due to an approximate $0.7 million increase in annual bonus compensation.
Interest expense has decrease primarily due to the reduction of our outstanding
debt and due to $0.8 million of capitalized interest charges related to the
construction of the ATWOOD AURORA. Interest income has increased when compared
to the first quarter of fiscal year 2006 due to higher interest rates earned on
higher cash balances.
Virtually all of our tax provision for each of the three months ended
December 31, 2006 and 2005 relates to taxes in foreign jurisdictions.
Accordingly, due to the high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the first quarter of
fiscal year 2007 and 2006, our effective tax rate for both quarters is
significantly less than the United States federal statutory rate. Excluding any
discrete items that may be incurred, we expect our effective tax rate to be
between 13% and 18% for the entire fiscal year 2007.
20
LIQUIDITY AND CAPITAL RESOURCES
Since we operate in a very cyclical industry, maintaining high equipment
utilization in up, as well as down, cycles is a key factor in generating cash to
satisfy current and future obligations. For fiscal years 2001 through 2006, net
cash provided by operating activities ranged from a low of approximately $13.7
million in fiscal year 2003 to a high of approximately $85.5 million in fiscal
year 2006. For the three months ended December 31, 2006, net cash provided by
operating activities totaled approximately $50.1 million. Our operating cash
flows are primarily driven by our operating income, which reflects dayrates and
rig utilization. With approximately 95% and 75% of our available operating rig
days committed for fiscal years 2007 and 2008, respectively, at historically
high dayrates, we anticipate significant increases in cash flows and earnings
during fiscal years 2007 and 2008. Other than our expected capital expenditures
of around $115 million (including funding for the construction of our new
jack-up rig), the only additional firm cash commitment for fiscal year 2007,
outside of funding current rig operations, is our required quarterly repayments
under the term portion of our senior secured credit facility which will total
$36 million for fiscal year 2007. We expect to generate sufficient cash flows
from operations to satisfy these obligations.
As of December 31, 2006, we had $45 million outstanding under the term
portion of our credit facility and no funds borrowed under the $100 million
revolving portion of our credit facility. We are in compliance with all
financial covenants under our credit facility at December 31, 2006, and expect
to remain in compliance with all financial covenants during the remainder of
fiscal year 2007. Aside from unforeseen noncompliance with the financial
covenants, no other provisions exist in the credit facility that could result in
acceleration of the April 1, 2008 maturity date.
At December 31, 2006, the collateral for our credit facility consists
primarily of preferred mortgages on all eight of our active drilling units (with
an aggregate net book value at December 31, 2006 totaling approximately $399
million). We are not required to maintain compensating balances; however, we are
required to pay a fee of approximately 0.60% per annum on the unused portion of
the revolving portion of our credit facility and certain other administrative
costs.
During the first three months of fiscal year 2007, we used internally
generated cash to expend approximately $13 million toward the construction of
the ATWOOD AURORA, approximately $8 million on completing the water depth
upgrade and equipment maintenance of the ATWOOD FALCON and approximately $3
million in other capital expenditures. We had cash and cash equivalents on hand
at December 31, 2006 of approximately $40 million. We estimate that our total
capital expenditures for the last three quarters of fiscal year 2007 will be
around $95 million, with approximately $70 million of these estimated
expenditures relating to the construction of the ATWOOD AURORA. In fiscal year
2008, we expect to expend approximately $45 million in completing the
construction of the ATWOOD AURORA. We anticipate using internally generated
funds to satisfy these obligations.
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; however, we have a $0.9 million
allowance for doubtful accounts at December 31, 2006.
21
Insurance receivables increased by $3.6 million during the current quarter
due to the completion of the work to restore the ATWOOD BEACON to its original
condition prior to the July 2004 incident when the legs were damaged. The
majority of the restoration work was completed in early calendar year 2005, at
which time the rig was placed back into service. The current quarter repairs
were needed to finish the final leg extensions to restore the rig to their
original condition. We have insurance coverage to reimburse the costs of repairs
and loss of hire coverage of $70,000 per day. Approximately $0.6 million of
capitalized costs and $1.0 million of other costs were incurred for the leg
installation during the current quarter, while revenue recognized from the loss
of hire coverage totaled $2.6 million during the current quarter and is
reflected as business interruption proceeds on the Consolidated Statement of
Operations. We expect to collect the related insurance receivable during the
next quarter.
Long-term deferred credits have increased by $10.9 million during the
current quarter primarily due to deferred fees associated with the upgrade of
the ATWOOD FALCON. Lump sum fees received for upgrade costs reimbursed by our
customers are reported as deferred credits in the accompanying Consolidated
Balance Sheets and are recognized as earned on a straight-line method over the
term of the related drilling contract.
22
PART I. ITEM 3
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including adverse changes in interest rates
and foreign currency exchange rates as discussed below.
INTEREST RATE RISK
All of the $45 million of long-term debt outstanding at December 31, 2006,
was floating rate debt. As a result, our annual interest costs in fiscal year
2007 will fluctuate based on interest rate changes. Because the interest rate on
our long-term debt is a floating rate and due to our debt maturing in 2008, the
fair value of our long-term debt approximated carrying value as of December 31,
2006. The impact on annual cash flow of a 10% change in the floating rate
(approximately 70 basis points) would be approximately $0.3 million, which we
believe to be immaterial. We did not have any open derivative contracts relating
to our floating rate debt at December 31, 2006.
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, 2006 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 gain of approximately $0.3 million.
Thus, we consider our current risk exposure to foreign currency exchange rate
movements, based on net cash flows, to be immaterial. We did not have any open
derivative contracts relating to foreign currencies at December 31, 2006.
23
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 effective at the reasonable assurance level so 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.
24
PART II. OTHER INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS
(a) Exhibits
3.1 Amended and Restated Certificate of Formation dated
February 9, 2006 (Incorporated herein by reference to Exhibit
3.1 of our Form 8-K filed February 14, 2006).
3.2 Second Amended and Restated By-Laws, dated May 5, 2006
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-Q filed May 10, 2006).
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).
4.2 Certificate of Adjustment of Atwood Oceanics, Inc. dated as
of March 17, 2006 (Incorporated herein by reference to
Exhibit 4.1 of our Form 8-K filed March 23, 2006).
4.3 See Exhibit Nos. 3.1 and 3.2 for provisions of our Amended and
Restated Certificate of Formation and Second Amended and
Restated By-Laws defining the rights of our shareholders
(Incorporated herein by reference to Exhibit 3.1 of our Form
8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q
filed May 10, 2006).
10.1 Fourth Amendment to Credit Agreement dated June 15, 2005 among
the Company, Atwood Oceanics Pacific Limited and Nordea Bank
Finland Plc and other Financial Institutions (Incorporated
herein by reference to Exhibit 10.1 of our Form 8-K filed July
8, 2005).
10.2 Atwood Oceanics, Inc. Retention Plan for Certain Salaried
Employees dated as of January 1, 2007 (Incorporated herein
by reference to Exhibit 10.2.2 of our Form 10-K filed
December 13, 2006)
*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
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 8, 2007 /s/JAMES M. HOLLAND_
------------------
James M. Holland
Senior Vice President,
Chief Financial Officer, Chief
Accounting Officer and Secretary
26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Certificate of Formation dated
February 9, 2006 (Incorporated herein by reference to Exhibit
3.1 of our Form 8-K filed February 14, 2006).
3.2 Second Amended and Restated By-Laws, dated May 5, 2006
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-Q filed May 10, 2006).
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).
4.2 Certificate of Adjustment of Atwood Oceanics, Inc. dated as
of March 17, 2006 (Incorporated herein by reference to
Exhibit 4.1 of our Form 8-K filed March 23, 2006).
4.3 See Exhibit Nos. 3.1 and 3.2 for provisions of our Amended and
Restated Certificate of Formation and Second Amended and
Restated By-Laws defining the rights of our shareholders
(Incorporated herein by reference to Exhibit 3.1 of our Form
8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q
filed May 10, 2006).
10.1 Fourth Amendment to Credit Agreement dated June 15, 2005 among
the Company, Atwood Oceanics Pacific Limited and Nordea Bank
Finland Plc and other Financial Institutions (Incorporated
herein by reference to Exhibit 10.1 of our Form 8-K filed July
8, 2005).
10.2 Atwood Oceanics, Inc. Retention Plan for Certain Salaried
Employees dated as of January 1, 2007 (Incorporated herein
by reference to Exhibit 10.2.2 of our Form 10-K filed
December 13, 2006)
*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
27