-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FTJ+iotcHfffTkOOCjck2Tz7tssQGm1ZRX3BsoPOuVsJU5Dh/M+3Y+kpolhd1HVL 5lC5wAvi7BtxRUVzd97/Wg== 0000008411-03-000079.txt : 20031229 0000008411-03-000079.hdr.sgml : 20031225 20031229170208 ACCESSION NUMBER: 0000008411-03-000079 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATWOOD OCEANICS INC CENTRAL INDEX KEY: 0000008411 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 741611874 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13167 FILM NUMBER: 031076010 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 2817497845 MAIL ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 10-K 1 f10k093003.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549 ---------------- Form 10-K ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED SEPTEMBER 30, 2003 COMMISSION FILE NUMBER 1-13167 ATWOOD OCEANICS, INC. (Exact name of registrant as specified in its charter) TEXAS (State or other jurisdiction of 74-1611874 incorporation or organization) (I.R.S. Employer Identification No.) 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 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1 par value (Title of Class) Securities registered pursuant to Section 12(g) of the Act: NONE - --------------- 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation in S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12.b-2). Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrants as of December 26, 2003 is $352,700,000. The number of shares outstanding of the issuer's class of Common Stock, as of December 26, 2003: 13,852,301 shares of Common Stock, $1 par value. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 2003 - Referenced in Parts I, II and IV of this report. (2) Proxy Statement for Annual Meeting of Shareholders to be held February 12, 2004 - Referenced in Part III of this report. ================================================================================ PART I ITEM 1. BUSINESS Atwood Oceanics, Inc. (which together with its subsidiaries is identified as the "Company", "Registrant", "we" or "our", unless the context requires otherwise), a corporation organized in 1968 under the laws of the State of Texas, is engaged in the international offshore drilling of exploration and developmental oil and gas wells in offshore areas and related support management and consulting services. Currently, our offshore drilling fleet includes eight active, wholly-owned units, which include: o two semisubmersibles capable of drilling in up to 5,000 feet of water, o one semisubmersible capable of drilling in up to 3,700 feet of water, o one semisubmersible capable of drilling in up to 2,000 feet of water, o one ultra-premium, 400 feet cantilever jack-up, o one premium, 300 feet cantilever jack-up o one semisubmersible self-erecting tender-assist rig, and o one submersible drilling unit. We also own a semisubmersible hull which is a candidate for a future conversion to a tender-assist unit once an acceptable contract is identified. In addition to the owned drilling units, we also manage the maintenance and operations of two operator-owned platform rigs offshore northwest Australia. There is currently an indefinite planned break in drilling activity for these two client-owned rigs; however, we continue to provide maintenance of these two rigs for future drilling programs. In 1997, we commenced an internal upgrade program of all of our active drilling units. Our upgrade program was concluded with the completion of the upgrade of the ATWOOD EAGLE in November 2002. Collectively, we expended $340 million in upgrading seven offshore mobile drilling units. In August 2003, our eighth drilling unit, the newbuild ultra-premium jack-up, ATWOOD BEACON, commenced its initial drilling contract following completion of its construction and commissioning in July 2003. This drilling unit was constructed on time and at a cost of approximately $120 million, compared to budgeted costs of $125 million. Thus, our current worldwide operations revolve around eight premium offshore mobile drilling units located in five areas of the world - the United States, Southeast Asia, the Mediterranean Sea, Africa and Australia. Fiscal year 2003 marked our first operating loss in ten years. Our ability to produce strong financial performance depends on a high demand for drilling equipment, which is dependent on worldwide oil and gas exploration and development activities. Soft market conditions have reduced current worldwide utilization of offshore drilling units to less than 80%. The continuing disconnect between relatively high commodity prices and soft market conditions (especially for semisubmersibles) reflects increased conservatism by exploration and production companies due to a number of factors including: o weak capital markets, o increased focus on reducing debt, and o a host of geopolitical uncertainties (for example, those in Iraq, Venezuela and Nigeria). Our ability to return to profitability will depend on maintaining a relatively high level of equipment utilization. We anticipate that market conditions (especially for semisubmersibles) during fiscal year 2004 will continue to be challenging; however, we expect operating results for fiscal year 2004 to improve over results for fiscal year 2003. During our thirty-five year history, the majority of our drilling units have operated outside of United States waters. Approximately 94%, 95% and 82% of our contract revenues were derived from foreign operations in fiscal years 2003, 2002 and 2001, respectively. The submersible RICHMOND is our only drilling unit currently working in United States waters. In addition to operating in United States waters, we are currently involved in active foreign operations in the territorial waters of Australia, Malaysia, Egypt and India. We expect to commence active operations off the coast of Japan in January 2004. For information relating to the contract revenues, operating income and identifiable assets attributable to specific geographic areas of operations, see Note 12 of Notes to Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2003, incorporated by reference herein. OFFSHORE DRILLING EQUIPMENT Our diversified fleet of owned or operated drilling rigs currently consists of eleven rigs: o four semisubmersibles, o one semisubmersible tender assist rig, o one semisubmersible hull suitable for conversion to a tender assist vessel at a future date, o two jack-ups, o one submersible, and o two modern, self-contained platform rigs. Each type of drilling rig is designed for different purposes and applications, for operations in different water depths, bottom conditions, environments and geographical areas, and for different drilling and operating requirements. The following descriptions of the various types of drilling rigs we own or operate illustrate the diversified range of application of our rig fleet. Each semisubmersible drilling unit has two hulls, the lower of which is capable of being flooded. Drilling equipment is mounted on the main hull. After the drilling unit is towed to location, the lower hull is flooded, lowering the entire drilling unit to its operating draft, and the drilling unit is anchored in place. On completion of operations, the lower hull is deballasted, raising the entire drilling unit to its towing draft. This type of drilling unit is designed to operate in greater water depths than a jack-up and in more severe sea conditions than other types of drilling units. Semisubmersible units are generally more expensive to operate than jack-up rigs and are often limited in the amount of supplies that can be stored on board. Semisubmersible tender assist vessels operate like a semisubmersible except that their drilling equipment is temporarily installed on permanently constructed offshore support platforms. The semisubmersible vessel provides crew accommodations, storage facilities and other support for the drilling operations. A jack-up drilling unit contains all of the drilling equipment on a single hull designed to be towed to the well site. Once on location, legs are lowered to the sea floor and the unit is raised out of the water by jacking the hull up the legs. On completion of the well, the unit is jacked down, and towed to the next location. A jack-up drilling unit can operate in more severe sea and weather conditions than a drillship and is less expensive to operate than a semisubmersible. However, because it must rest on the sea floor, a jack-up cannot operate in water as deep as semisubmersible units. The submersible drilling unit we own has two hulls, the lower being a mat, which is capable of being flooded. Drilling equipment and crew accommodations are located on the main hull. After the drilling unit is towed to its location, the lower hull is flooded, lowering the entire unit to its operating draft at which it rests on the sea floor. On completion of operations, the lower hull is deballasted, raising the entire unit to its towing draft. This type of drilling unit is designed to operate in shallow water depths ranging from 9 to 70 feet and can operate in moderately severe sea conditions. Although drilling units of this type are less expensive to operate, like the jack-up rig, they cannot operate in as deep water as semisubmersible units. A modular platform rig is similar to a land rig in its basic components. Modular platform rigs are temporarily installed on permanently constructed offshore support platforms in order to perform the drilling operations. After the drilling phase is completed, the modular rig is broken down into convenient packages and moved by workboats. A platform rig usually stays at a location for several months, if not years, since several wells are typically drilled from a support platform. DRILLING CONTRACTS The contracts under which we operate our vessels are obtained either through individual negotiations with the customer or by submitting proposals in competition with other contractors and vary in their terms and conditions. The initial term of contracts for our owned and/or operated vessels has ranged from the length of time necessary to drill one well to several years and is generally subject to early termination in the event of a total loss of the drilling vessel, a force majeure event, excessive equipment breakdown or failure to meet minimum performance criteria. It is not unusual for contracts to contain renewal provisions at the option of the customer. The rate of compensation specified in each contract depends on the nature of the operation to be performed, the duration of the work, the amount and type of equipment and services provided, the geographic areas involved, market conditions and other variables. Generally, contracts for drilling, management and support services specify a basic rate of compensation computed on a dayrate basis. Such agreements generally provide for a reduced dayrate payable when operations are interrupted by equipment failure and subsequent repairs, field moves, adverse weather conditions or other factors beyond our control. Some contracts also provide for revision of the specified dayrates in the event of material changes in certain items of cost. Any period during which a vessel is not earning a full operating dayrate because of the above conditions or because the vessel is idle and not on contract will have an adverse effect on operating profits. An over-supply of drilling rigs in any market area can adversely affect our ability to employ its drilling vessels. Our active rig utilization for fiscal years 2003, 2002 and 2001 was 92%, 86% and 80%, respectively. Of our current eight active drilling units, only the VICKSBURG, SEAHAWK and ATWOOD HUNTER have current contract terms that could extend beyond fiscal year 2004. Besides these drilling units, we anticipate that the ATWOOD BEACON, ATWOOD FALCON, and RICHMOND will also be highly utilized in fiscal year 2004. Currently, the ATWOOD EAGLE is idle offshore Angola and is expected to be mobilized to Australia in January 2004 for its next contract opportunity. The ATWOOD SOUTHERN CROSS, after incurring some idle time at the beginning of the first quarter of fiscal year 2004, has just commenced a short-time contract commitment in India. There is no guarantee that we will not experience additional idle time on some of our drilling units during the remainder of fiscal year 2004. For long moves of drilling equipment, we attempt to obtain either a lump sum or a dayrate as mobilization compensation for expenses incurred during the period in transit. A surplus of certain types of units, either worldwide or in particular operating areas, can result in our acceptance of a contract which provides only partial, or no recovery of relocation costs. In order to maintain equipment utilization during these soft market conditions, two of our rigs incurred long moves during fiscal year 2003. The ATWOOD EAGLE was moved from Greece to Angola during the year at a cost of $8.2 million, and we only received $2.7 million in mobilization compensation. The ATWOOD FALCON was relocated to and from Australia at mobilization costs of approximately $2 million, which approximated mobilization compensation. We can give no assurance that it will receive full recovery of any future relocation costs. Operation of our drilling equipment is subject to the offshore drilling requirements of petroleum exploration companies and agencies of foreign governments. These requirements are, in turn, subject to fluctuations in government policies, world demand and prices for petroleum products, proved reserves in relation to such demand and the extent to which such demand can be met from onshore sources. We also contract to provide various types of services to third party owners of drilling rigs. These contracts are normally for a stated term or until termination of operations or stages of operation at a particular facility or location. The services may include, as in the case of contracts we have entered into in connection with operations offshore Australia, the supply of personnel and rig design, fabrication, installation and operation. The contracts normally provide for reimbursement to us for all out-of-pocket expenses, plus a service or management fee for all of the services performed. In most instances, the amount charged for the services may be adjusted if there are changes in conditions, scope or costs of operations. We generally obtain insurance or a contractual indemnity from the owner for liabilities which could be incurred in operations. OPERATIONAL RISKS AND INSURANCE Our operations are subject to the usual hazards associated with the drilling of oil and gas wells, such as blowouts, explosions and fires. In addition, our vessels are subject to those perils peculiar to marine operations, such as capsizing, grounding, collision and damage from severe weather conditions. Any of these risks could result in damage or destruction of drilling rigs and oil and gas wells, personal injury and property damage, suspension of operations or environmental damage through oil spillage or extensive, uncontrolled fires. Our operations are also subject to disruption due to terrorism. As a result of significant losses incurred by the insurance industry in recent times due to terrorism and other events, we have experienced significant increases in premium for certain insurance coverages. Although we believe that we are adequately insured against normal and foreseeable risks in our operations in accordance with industry standards, such insurance may not be adequate to protect us against liability from all consequences of well disasters, marine perils, extensive fire damage, damage to the environment or disruption due to terrorism. To date, we have not experienced difficulty in obtaining insurance coverage, although no assurance can be given as to the future availability of such insurance or cost thereof. The occurrence of a significant event against which we are not fully insured could have a material adverse effect on our financial position. ENVIRONMENTAL PROTECTION Under the Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990, operators of vessels in navigable United States waters and certain offshore areas are liable to the United States government for the costs of removing oil and certain other pollutants for which they may be held responsible, subject to certain limitations, and must establish financial responsibility to cover such liability. We have taken all steps necessary to comply with this law, and have received a Certificate of Financial Responsibility (Water Pollution) from the U.S. Coast Guard. Our operations in United States waters are also subject to various other environmental regulations regarding pollution, and we have taken steps to ensure compliance with these regulations. CUSTOMERS During fiscal year 2003, we performed operations for 18 customers. Because of the relatively limited number of customers for which we can operate at any given time, revenues from each of 3 different customers amounted to 10% or more of our fiscal 2003 revenues as indicated below: PERCENTAGE OF CUSTOMER FISCAL YEAR 2003 REVENUES -------- ------------------------- ExxonMobil Production Malaysia, Inc. 33% Woodside Energy Ltd. 17% Esso Exploration Angola 13% Our business operations are subject to the risks associated with a business having a limited number of customers for our products or services, and a decrease in the drilling programs of these customers in the areas where we are employed may adversely affect our revenues. COMPETITION We compete with approximately 10 other drilling contractors, most of which are substantially larger than the Company and possess appreciably greater financial and other resources. Although some business combinations among drilling companies have resulted in a decrease in the total number of competitors, the drilling industry still remains very competitive, with no single drilling contractor being dominant. Thus, there continues to be competition in securing available drilling contracts. Price competition is generally the most important factor in the drilling industry, but the technical capability of specialized drilling equipment and personnel at the time and place required by customers are also important. Other competitive factors include work force experience, rig suitability, efficiency, condition of equipment, reputation and customer relations. We believe that we compete favorably with respect to these factors. If demand for drilling rigs increases in the future, rig availability may also become a competitive factor. Competition usually occurs on a regional basis and, although drilling rigs are mobile and can be moved from one region to another in response to increased demand, an oversupply of rigs in any region may result. Demand for drilling equipment is also dependent on the exploration and development programs of oil and gas companies, which are in turn influenced by the financial condition of such companies, by general economic conditions, by prices of oil and gas, and, from time to time, by political considerations and policies. FOREIGN OPERATIONS Our operations are conducted primarily in foreign waters and are subject to certain political, economic and other uncertainties not encountered by purely domestic drilling contractors. Risks encountered in foreign operations are as follows: o nationalization, o expropriation, o war, o confiscation, o deprivation, o foreign exchange restrictions, o foreign taxation, o changing foreign governments regulations and policies, o foreign monetary policies, and o higher risk of terrorism. Generally, we purchase insurance to protect against some or all of the above risks. Occasionally, customers will indemnify us against such losses. Moreover, offshore drilling activity is affected by government regulations and policies limiting the withdrawal of offshore oil and gas, regulations affecting production, regulations restricting the importation of foreign petroleum, environmental regulations and regulations which may limit operations in offshore areas by foreign companies and/or personnel. See Note 12 to Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2003, incorporated herein by reference, for a summary of contract revenues, operating income and identifiable assets by geographic region. Virtually all of our tax provision for fiscal year 2003 relates to taxes in foreign jurisdictions. Due to the operating loss in the United States, in addition to operating losses in certain nontaxable foreign jurisdiction, our effective tax rate for the fiscal year 2003 significantly exceeds the United States statutory rate. EMPLOYEES We currently employ approximately 800 persons in our domestic and worldwide operations. In connection with our foreign drilling operations, we have often been required by the host country to hire substantial portions of our work force in that country and, in some cases, these employees may be represented by foreign unions. To date, we have experienced little difficulty in complying with such requirements, and our drilling operations have not been significantly interrupted by strikes or work stoppages. SECURITIES LITIGATION SAFE HARBOR STATEMENT Some of the information presented in, or in connection with, this report constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve potential risks and uncertainties. Our future results could differ materially from those discussed here. Some of the factors that could cause or contribute to such differences include: o Our dependence on the oil and gas industry; o the risks involved in the construction and upgrade of our drilling units; o the operational risks involved in drilling for oil and gas; o the efforts of vigorous competition; o the risk of disruption in operations by terrorism; o the risk inherent in international operations, including possible economic, political or monetary instability; and, o governmental regulations and environmental matters. 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 incorporated by reference in Part II and elsewhere in this report. 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. COMPANY INFORMATION Our filings made with the Securities and Exchange Commission ("SEC") may be obtained from the SEC at the physical address and Internet address indicated in our Annual Report to Shareholders for fiscal year 2003, incorporated herein by reference. Our filings made with the SEC pursuant to sections 13(a) and 15(d) of the Exchange Act of 1934 are also available free of charge on our website as soon as reasonably practicable after filing or being furnished to the SEC. Our Internet address is http://www.atwd.com. ITEM 2. PROPERTIES Information regarding the location and general character of our principal assets may be found in the table with the caption heading "Offshore Drilling Operations" in the Company's Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. Collectively since 1997, we expended $340 million in upgrading seven offshore mobile drilling units. The timing and costs of the various upgrades are as follows: YEAR UPGRADE DRILLING UNITS COMPLETED COST OF UPGRADE -------------- ------------ --------------- (In Millions) ATWOOD HUNTER (PHASE I) 1997 $40 ATWOOD SOUTHERN CROSS 1997 35 ATWOOD FALCON 1998 45 VICKSBURG 1998 35 SEAHAWK 1999 22 ATWOOD EAGLE (PHASE I) 2000 8 RICHMOND 2000 7 ATWOOD HUNTER (PHASE II) 2001 58 ATWOOD EAGLE (PHASE II) 2002 90 ---- $340 ==== Besides the above upgrades, in 2000 we acquired a semisubmersible hull, SEASCOUT, for $4.5 million. Subsequently, we have expended an additional $4.3 million in engineering, equipment removal and other costs associated with preparing the SEASCOUT for a future upgrade to a tender-assist vessel when an acceptable tender contract opportunity has been identified. In August 2003, our eighth active drilling unit, the newbuild ultra-premium jack-up, ATWOOD BEACON, commenced its initial drilling contract following completion of construction and commissioning. This drilling unit was constructed at a cost of approximately $120 million. For more information concerning these costs, see Note 3 in Consolidated Financial Statements contained in our Annual Report to Shareholders' for fiscal year 2003, incorporated by reference herein. ITEM 3. LEGAL PROCEEDINGS 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 conditions or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS During the fourth quarter of fiscal year 2003, no matters were submitted to a vote of shareholders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS As of December 29, 2003, there were over 750 beneficial owners of our common stock. We did not pay cash dividends in fiscal years 2002 or 2003 and we do not anticipate paying cash dividends in the foreseeable future because of the capital-intensive nature of our business. To enable us to maintain our high competitive profile in the industry, we expect to utilize cash reserves at the appropriate time, to upgrade existing equipment or to acquire additional equipment. Our credit facilities prohibit payment of cash dividends on common stock without lender approval. Market information concerning our common stock may be found under the caption heading "Stock Price Information" in our Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. Equity compensation plan information required by this item may be found in Note 6 to Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA Information required by this item may be found under the caption "Five Year Financial Review" in our Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item may be found in our Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item may be found under the caption "Disclosures About Market Risk" in the Company's Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found in our Annual Report to Shareholders for fiscal year 2003, which is incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On May 14, 2002, we dismissed Arthur Andersen LLP ("Arthur Andersen") as our independent public accountants and appointed PricewaterhouseCoopers LLP as our new independent accountants. The decision to dismiss Arthur Andersen and to retain PricewaterhouseCoopers was recommended by our Audit Committee and approved by our Board of Directors. Arthur Andersen's reports on our consolidated financial statements for each of the years ended September 30, 2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During the years ended September 30, 2001 and 2000, and the subsequent interim period through May 14, 2002, there were no disagreements between us and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Arthur Andersen's satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with their report. None of the reportable events described in Item 304(a)(1)(v) of Regulation S-K occurred during the years ended September 30, 2001 and 2000 or during the subsequent interim period through May 14, 2002. ITEM 9A. 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, processed, summarized and reported within the time periods specific in the SEC's rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 12, 2004, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 12, 2004, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 12, 2004, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 12, 2004, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 12, 2004, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND EXHIBITS 1. FINANCIAL STATEMENTS The following financial statements, together with the report of PricewaterhouseCoopers LLP dated December 29, 2003 appearing in our Annual Report to Shareholders, for fiscal year 2003, are incorporated by reference herein: Reports of Independent Auditors Consolidated Balance Sheets as of September 30, 2003 and 2002 Consolidated Statements of Operations for each of the three years in the period ended September 30, 2003 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2003 Consolidated Statements of Changes in Shareholders' Equity for each of the three years in the period ended September 30, 2003 Notes to Consolidated Financial Statements 2. EXHIBITS See the "EXHIBIT INDEX" for a listing of all of the Exhibits filed as part of this report. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this report are as follows: Rights Agreement dated effective September 27, 2002 between the Company and Continental Stock Transfer & Trust Company - See Exhibit 4.1 Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.1.1 hereof. Form of Atwood Oceanics, Inc. Stock Option Agreement (1990 Stock Option Plan) - See Exhibit 10.1.2 hereof Amendment No. 1 to the Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.1.3 hereof Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement (1990 Stock Option Plan) - See Exhibit 10.1.4 hereof Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.1 hereof. Form of Atwood Oceanics, Inc. Stock Option Agreement (1996 Incentive Equity Plan) - See Exhibit 10.3.2 hereof Amendment No. 1 to Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.3 hereof Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement (1996 Incentive Equity Plan) - See Exhibit 10.3.4 hereof Amendment No. 2 to Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.5 hereof. Atwood Oceanics, Inc. 2001 Stock Incentive Plan - See Exhibit 10.3.6 hereof. Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated effective as of December 5, 2002 - See Exhibit 10.4.1 hereof. Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated effective as of January 1, 2004 - See Exhibit 10.4.2 hereof. Executive Agreement dated as of September 18, 2002 between the Company and John R. Irwin - See Exhibit 10.5.1 hereof. Executive Agreement dated as of September 18, 2002 between the Company and James M. Holland - See Exhibit 10.5.2 hereof. Executive Agreement dated as of September 18, 2002 between the Company and Glen P. Kelley - See Exhibit 10.5.3 hereof. (b) REPORTS ON FORM 8-K On July 16, 2003, we furnished a report on Form 8-K announcing that ExxonMobil Exploration and Production Malaysia Inc. had exercised an option to extend the contract for the SEAHAWK for one year. On July 29, 2003, in conjunction with releasing our third quarter operating results, we furnished a report on Form 8-K reporting certain information relating to FD disclosure. On July 30, 2003, we filed a report on Form 8-K announcing the closing of the general syndication of our Senior Secured Credit Facility dated as of April 1, 2003 with a total of nine industry banks and the increase of the size of the Senior Secured Credit Facility. On August 21, 2003, we furnished a report on Form 8-K announcing that the ATWOOD HUNTER was awarded a one-well contract by Isramco, and other information relating to FD disclosure. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. /S/ JOHN R. IRWIN JOHN R. IRWIN, President and Chief Executive Officer DATE: December 29, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /S/ JAMES. M. HOLLAND /S/ JOHN R. IRWIN - ----------------- ------------- JAMES M. HOLLAND JOHN R. IRWIN Senior Vice President and Chief Financial Officer President, Chief Executive Officer and Director (Principal Financial and Accounting Officer) (Principal Executive Officer) Date: December 29, 2003 Date: December 29, 2003 /S/ ROBERT W. BURGESS /S/ GEORGE S. DOTSON - ----------------- ---------------- ROBERT W. BURGESS GEORGE S. DOTSON Director Director Date: December 29, 2003 Date: December 29, 2003 /S/ HANS HELMERICH /S/ WILLIAM J. MORRISSEY - -------------- -------------------- HANS HELMERICH WILLIAM J. MORRISSEY Director Director Date: December 29, 2003 Date: December 29, 2003 /S/ DEBORAH A. BECK - --------------- DEBORAH A. BECK Director DATE: December 29, 2003
EXHIBIT INDEX 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 7, 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 (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 September 27, 2002 between the Company and Continental Stock Transfer & Trust Company (Incorporated herein by reference to Exhibit 4.1 of our Form 8-K filed October 21, 2002.) 10.1.1 Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.2 of our Form 10-K for the year ended September 30, 1993). 10.1.2 Form of Atwood Oceanics, Inc. Stock Option Agreement - 1990 Stock Option Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.1.3 Amendment No.1 to the Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.1.4 Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement 1990 Stock Option Plan (Incorporated herein by reference our Form 10-K for the year ended September 30, 1999). 10.2 Joint Venture Letter Agreement dated November 4, 1994 between the Company and Helmerich & Payne, Inc. (Incorporated herein by reference to Exhibit 10.3 of our Form 10-K for the year ended September 30, 1994). 10.3.1 Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to Exhibit 10.2 of our Form 10-Q for the quarter ended June 30, 1997). 10.3.2 Form of Atwood Oceanics, Inc. Stock Option Agreement - 1996 Incentive Equity Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.3.3 Amendment No. 1 to the Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.3.4 Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement -1996 Incentive Equity Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.3.5 Amendment No. 2 to the Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to Appendix A to our Form DEF14A filed January 12, 2001). 10.3.6 Atwood Oceanics, Inc. 2001 Stock Incentive Plan (Incorporated herein by reference to Appendix A to our Form DEF14A filed January 15, 2002). 10.4.1 Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated effective as of December 5, 2002 (Incorporated herein by reference to Exhibit 10.4 of our Form 10-K for the year ended September 30, 2002). *10.4.2 Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated as of January 1, 2004. 10.5.1 Executive Agreement dated as of September 18, 2002 between the Company and John R. Irwin (Incorporated herein by reference to Exhibit 10.5.1 of our Form 10-K for the year ended September 30, 2002). 10.5.2 Executive Agreement dated as of September 18, 2002 between the Company and James M. Holland (Incorporated herein by reference to Exhibit 10.5.2 of our Form 10-K for the year ended September 30, 2002). 10.5.3 Executive Agreement dated as of September 18, 2002 between the Company and Glen P. Kelley (Incorporated herein by reference to Exhibit 10.5.3. of our Form 10-K for the year ended September 30, 2002). 10.6 Vessel Construction Agreement dated July 24, 2001 between the Company and Keppel Fels Limited to construct a KFELS Mod V Enhanced B-Class Jack-up drilling unit (Incorporated herein by reference to Exhibit 10.9 of our Form 10-K for the year ended September 30, 2001). 10.7 Credit Agreement for $225 million dated April 1, 2003 between the Company and Nordea Bank Finland Plc and other Financial Institutions. (Incorporated herein by reference to Exhibit 99.1 of our 8-K filed April 7, 2003). 10.8 Pooled Assignment and First Amendment to Credit Agreement dated June 27, 2003 between the Company and Nordea Bank Finland Plc and other Financial Institutions (Incorporated herein by reference to Exhibit 99.1 of our Form 8-K filed July 30, 2003). 10.9 Second Amendment to Credit Agreement dated June 27, 2003 between the Company and Nordea Bank Finland Plc and other Financial Institutions (Incorporated herein by reference to Exhibit 99.2 of our Form 8-K filed July 30, 2003). 10.10 Third Amendment to Credit Agreement dated November 12, 2003 between the Company and Nordea Bank Finland Plc and other Financial Institution. (Incorporated herein of reference to Exhibit 99.2 of our Form 8-K filed November 13, 2003). *13.1 Annual Report to Shareholders. 16.1 Letter regarding change in certifying accountants (Incorporated herein by reference to Exhibit 16.1 of our 8-K filed May 21, 2002). *21.1 List of Subsidiaries. *23.1 Consent of Independent Accountants. *31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2 Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Action of 2002. * Filed herewith EX-10 3 exh1042.txt EXHIBIT 10.4.2 ----------------------------------- ATWOOD OCEANICS, INC. RETENTION PLAN FOR CERTAIN SALARIED EMPLOYEES ----------------------------------- Effective as of January 1, 2004 This Plan will terminate automatically as of December 31, 2004 if there is no "Effective Date" (as defined in Plan Section 1.5) on or before that date. ATWOOD OCEANICS, INC. RETENTION PLAN FOR CERTAIN SALARIED EMPLOYEES The Company (as defined herein) hereby adopts this Retention Plan for Certain Salaried Employees (the "Plan"), effective as of the 1st day of January, 2004. INTRODUCTION The purpose of this Plan is to secure the interests of the Company's shareholders in the event of a change of control of the Company. In such an event, this Plan would provide an enhanced severance payment and other benefits to encourage certain valued employees to remain employed with the Company during that period of financial uncertainty preceding and following the change of control. If such an event does not occur on or before December 31, 2004, this Plan will terminate automatically, unless otherwise renewed by the Company's Board of Directors. ARTICLE I DEFINITIONS Terms defined above and initially capitalized shall have the respective meanings so ascribed. When used in this Plan and initially capitalized, the following words and phrases shall have the following respective meanings unless the context clearly requires otherwise: 1.1 "Base Salary" as to any Covered Employee for any period, shall mean the greater of the sum of such individual's monthly base salary and Bonus as of the Termination of Employment or as of the date immediately preceding the Effective Date, which is paid to such individual by the Company during employment for such period, before reduction because of an election between benefits or cash provided under a plan of the Company maintained pursuant to Section 125 or 401(k) of the Internal Revenue Code of 1986, as amended, and before reduction for any other amounts contributed by the Company on such individual's behalf to any other employee-benefit plan. 1.2 "Bonus" as to Covered Employee for any period, shall mean the average of bonus payments, if any, made over the preceding three years, including any year for which a bonus has been awarded but not paid, divided by twelve. If the Covered Employee has not been an employee of the Company for at least three years, then Bonus shall be calculated over the period for which the employee has been employed with the Company. 1.3 "Company" shall mean Atwood Oceanics, Inc., a Texas corporation, or any entity that is a successor to it in ownership of substantially all its assets and their affiliates ("Atwood") and its direct and indirect subsidiaries. 1.4 "Covered Employee" shall mean an employee described in Article II of the Plan. 1.5 "Effective Date" shall mean the date on or before December 31, 2004, on which any of the following is effective: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (i) the then outstanding shares of common stock of Atwood or (ii) the combined voting power of the then outstanding voting securities of Atwood entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from Atwood; (ii) any acquisition by Atwood; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company; or (b) Atwood shall sell substantially all of its assets to another corporation which is not a wholly owned subsidiary; or (c) Individuals who, as of the date hereof, constitute the Board of Atwood (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Atwood's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. 1.6 "Employment Year" shall mean a period which commences on the first date of employment or any anniversary of such date and ends one year from such date. 1.7 "Good Cause" shall mean a material violation of a Company policy or procedure applicable to employees in the same or similar job position, the willful disregard or failure to follow the reasonable instructions of a superior, the taking of any action, or the failure to take any action, which results in a damage or detriment to the Company, or the conviction of an employee of a felony involving moral turpitude. 1.8 "Health and Life Benefits" shall mean as to any employee, the group-health and life-insurance benefits sponsored by the Company for its full-time employees and provided to or elected by such individual as of the date immediately preceding the Effective Date. 1.9 "Other Severance" shall have the meaning set forth in Section 2.2 of the Plan. 1.10 "Severance Pay" shall mean the sum payable to a Covered Employee upon Termination of Employment as set forth in Section 3.1 of the Plan. 1.11 "Term" shall mean the period commending on the Effective Date and ending one year after that date. 1.12 "Termination of Employment" shall mean a termination of employment with the Company at the option of the Company for any reason, except a termination of employment for Good Cause shall not mean a Termination of Employment. 1.13 "Years of Continuous Service" shall mean, as to any employee, all full or partial years during which he was employed on a full-time basis by the Company. ARTICLE II. COVERED EMPLOYEES 2.1 Who is a Covered Employee. Any employee of the Company who upon the occurrence of an Effective Date, shall be listed in Schedule 3.1 hereto, which Schedule 3.1 shall be amended from time to time by the Company, and who has a Termination of Employment during the Term shall be a Covered Employee and eligible to receive the benefits described in this Plan. 2.2 Exclusions. Any employee who otherwise is a Covered Employee but who, pursuant to a separate agreement signed on behalf of the Company, receives severance or other salary continuation benefits upon a Termination of Employment (other than payments or benefits under the Company's Executive Life Insurance Plan) shall not be a Covered Employee under this Plan. This Plan shall be in lieu of any plan, program, policy or practice of or contract or agreement with the Company relating to severance of employment ("Other Severance") and any and all benefits of payments arising out of or relating to Other Severance shall be fully offset against any benefits or payments due and owing hereunder. ARTICLE III SEVERANCE PAY AND OTHER BENEFITS 3.1 Amount of Severance Pay. The Company shall pay Severance Pay to a Covered Employee upon a Termination of Employment in an amount equal to the greater of (a) or (b): (a) such individual's weekly Base Salary multiplied by such individual's Years of Continuous Service; or (b) a payment, depending upon the category of employee as identified in Schedule 3.1 hereto, as follows: Category of Employee Payment -------------------- ------- Houston Management A: (i) Less than 4 Years of Continuous Service - 6 months' Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 12 months' Base Salary; or (iii) 8 or greater Years of Continuous Service - 18 months' Base Salary Houston Management B, Houston Technical, Rig Management and Other Administration: (i) Less than 4 Years of Continuous Service - 1 month Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 4 months' Base Salary; or (iii) 8 Years but less than 12 Years of Continuous Service - 8 months' Base Salary; or (iv) 12 or greater Years of Continuous Service - 12 months' Base Salary Houston Accounting A, Houston Accounting B and Houston Staff: (i) Less than 4 Years of Continuous Service - 1 month Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 3 months' Base Salary; or (iii) 8 or greater Years of Continuous Service - 6 months' Base Salary 3.2 Health and Life Benefits. Upon a Termination of Employment, a Covered Individual's Health and Life Benefits shall be treated as follows: (a) Upon a Termination of Employment and if applicable, the Company will notify each Covered Employee of the right to elect to continue any Company-provided health or disability benefits, all in accordance with and subject to the provisions of the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). The Company shall charge the maximum allowable premium in connection with any COBRA benefits so provided. Other than the benefits provided under COBRA, the Company shall have no further obligation to provide health or disability insurance benefits to any Covered Individual following a Termination of Employment. (b) Upon written request by a Covered Individual within five (5) days of a Termination of Employment, the Company shall assign any life, salary continuation or travel insurance plans or policies to such Covered Individual which by their terms are so assignable, and such Covered Individual will thenceforth become responsible for the payment of any premiums required to maintain said plans or policies from and after the date of Termination of Employment; otherwise, the Company will cease to continue such life insurance plans or policies on behalf of any Covered Employee effective as of the date of Termination of Employment. 3.3 Payment for Unused Vacation. Upon a Termination of Employment, the Company will pay a Covered Employee an amount equal to such individual's weekly Base Salary multiplied by each full and partial week of vacation, which was accrued but unused during the Employment Year in which occurred such individual's Termination of Employment. For purposes of determining payment under this Section 3.3, a full week of vacation consists of five (5) vacation days. ARTICLE IV DISTRIBUTION OF CASH PAYMENTS The Company shall pay a Covered Employee the amount to which he or she is entitled under (as applicable) Plan Section 3.1 (relating to Severance Pay) and Plan Section 3.3 (relating to Payment for Unused Vacation) in one lump sum within a reasonable time, but in no event greater than ten (10) business days, after such Covered Employee's Termination of Employment. ARTICLE V ADMINISTRATION OF PLAN 5.1 In General. The Plan shall be administered by Atwood, which shall be the named fiduciary under the Plan. Atwood may delegate any of its administrative duties, including without limitation duties with respect to the processing, review, investigation, approval, and payment of benefits under the Plan, to a named administrator or administrators. 5.2 Regulations. Atwood shall promulgate any rules and regulations that it deems necessary to carry out the purposes of the Plan, or to interpret the terms and conditions of the Plan; provided that no rule, regulation, or interpretation shall be contrary to the provisions of the Plan. The rules, regulations, and interpretations made by the Atwood shall, subject only to the claims procedure outlined in Section 5.3 hereof, be final and binding on any employee or former employee of the Company, or any successor in interest of either. 5.3 Claims Procedure. The Company shall determine the rights of any employee or former employee of the Company to any benefits hereunder. Any employee or former employee of the Company who believes that he is entitled to receive any benefits other than as initially determined by the Company, may file a claim in writing with Atwood's President. Atwood shall no later than ninety (90) days after the receipt of a claim either allow or deny the claim in writing. A denial of a claim, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reason or reasons for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claim-review procedure. A claimant whose claim is denied (or his duly authorized representative), may within 30 days after receipt of denial of his claim: (a) request a review upon written application to the Company's personnel administrator; (b) review pertinent documents; and (c) submit issues and comments in writing. Atwood shall notify the claimant of its decision on review within sixty (60) days after receipt of a request for review. Notice of the decision on review shall be in writing. 5.4 Revocability of Company Action. Any action taken by Atwood with respect to the rights under the Plan of any employee or former employee shall be revocable by Atwood as to payments or distributions not yet made to such person, and acceptance of any benefits under the Plan constitutes acceptance of and agreement to any appropriate adjustments made by the Company in future payments or distributions to such person to offset any excess of underpayment previously made to him with respect to any benefits. ARTICLE VI AMENDMENT OR TERMINATION OF PLAN 6.1 Right to Amend or Terminate. Atwood reserves the right at any time prior to the Effective Date, and without prior or other approval of any employee or former employee, to change, modify, amend, or terminate the Plan. All such changes, modifications, or amendments may be retroactive to any date up to and including the original effective date of the Plan, and shall be retroactive to that date unless other provision is specifically made; provided that no such change, modification, or amendment shall adversely affect any benefit under the Plan previously paid or provided to a Covered Employee (or his or her successor in interest). 6.2 Automatic Termination. This Plan shall terminate automatically as of December 31, 2004, or such other extended termination date duly adopted in accordance with the provisions of Section 6.1 above, if there is no Effective Date on or before that date. Termination pursuant to this Plan Section 6.2 shall occur without any action on the part of the Company and shall be effective without prior notice to or approval of any employee or former employee of the Company. ARTICLE VII METHOD OF FUNDING The Company shall pay benefits under the Plan from current operating funds. No property of the Company is or shall be, by reason of this Plan, held in trust for any employee of the Company, nor shall any person have any interest in or any lien or prior claim upon any property of the Company by reason of the Plan or the Company's obligations to make payments hereunder. ARTICLE VIII LEGAL FEES AND EXPENSES; ENFORCEMENT It is the intent of the Company that no Covered Employee be required to incur the expenses associated with the enforcement of his rights under this Plan by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to a Covered Employee hereunder. Accordingly, if it should appear to a Covered Employee that the Company has failed to comply with any of its obligations under this Plan or in the event that the Company or any other person takes any action inconsistent with the terms of this Plan to declare this Plan void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Covered Employee the benefits intended to be provided to such Covered Employee hereunder, the Company irrevocably authorizes such Covered Employee from time to time to retain counsel of his choice, at the expense of the Company as thereafter provided, to represent such Covered Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder, or other person affiliated with the Company in any jurisdiction. Notwithstanding any existing prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to such Covered employee's entering into an attorney-client relationship with such counsel, and in that connection the Company and such Covered Employee agree that a confidential relationship shall exist between such Covered Employee and such counsel. The Company shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by such Covered Employee as a result of the Company's failure to perform under this Plan or any provision thereof; or as a result of the Company or any person contesting the validity or enforceability of this Plan or any provision thereof. ARTICLE IX MISCELLANEOUS 9.1 Limitation on Rights. Participation in the Plan shall not give any employee the right to be retained in the service of the Company or any rights to any benefits whatsoever, except to the extent specifically set forth herein. Unless otherwise agreed in writing, employment with the Company is "at will." 9.2 Headings. Headings of Articles and Sections in this instrument are for convenience only, and do not constitute any part of the Plan. 9.3 Gender and Number. Unless the context clearly indicates otherwise, the masculine gender when used in the Plan shall include the feminine, and the singular number shall include the plural and the plural number the singular. EXECUTED as of the date first set forth above. ATWOOD OCEANICS, INC. By: /S/ John R. Irwin Name: John R. Irwin Title: President & Chief Executive Officer EX-13 4 exh131.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13.1 2003 ANNUAL REPORT TO SHAREHOLDERS THE COMPANY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Atwood Oceanics, Inc. is engaged in the business of international offshore drilling of exploratory and developmental oil and gas wells and related support, management and consulting services. Presently, we own and operate a modern fleet of eight mobile offshore drilling units as well as manage the operations of two operator-owned platform drilling units in Northwest Australia. We also own a semisubmersible hull, named the SEASCOUT, which we plan to convert to a tender assist vessel once an acceptable contract opportunity is secured. Since 1996, we have expended approximately $460 million in upgrading seven mobile offshore drilling units and constructing an ultra-premium jack-up unit. We support our operations from headquarters in Houston and affiliated offices currently located in Australia, Malaysia, Egypt, Indonesia, India, Angola and the United Kingdom. FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2003 2002 ---- ---- (In Thousands) FOR THE YEAR ENDED SEPTEMBER 30: CONTRACT REVENUES $ 144,765 $ 149,157 NET INCOME (LOSS) (12,802) 28,285 CAPITAL EXPENDITURES 101,819 89,416 AT SEPTEMBER 30: NET PROPERTY AND EQUIPMENT $ 443,102 $ 368,397 TOTAL ASSETS 522,674 445,238 TOTAL SHAREHOLDERS' EQUITY 263,467 276,133 TO OUR SHAREHOLDERS AND EMPLOYEES: While the Company incurred its first net operating loss in ten years during fiscal year 2003, the past year has been positive in many respects in building and positioning the Company for the future. The Company's $460 million capital program which commenced in 1997 to undertake major upgrades of our seven active mobile offshore drilling units ("MODU's") has been completed, and construction of a newbuild ultra-premium jack-up was completed during the year within budget. All eight of our active MODU's currently have work commitments. Our safety, health, environment and security performance has continued at high standards during fiscal year 2003 and was recognized with major awards from two key clients. We also refinanced and increased our borrowing capacity under our credit facilities from $175 million to $250 million on attractive terms earlier in the year. The major upgrade of the 5,000 ft. water-depth semisubmersible, ATWOOD EAGLE, and construction of the new 400 ft. ultra-premium jack-up, ATWOOD BEACON, were each completed within budget and on time. The ATWOOD EAGLE commenced work in early March and has performed well in successfully completing contracts with two clients in over eight months of initial service. The ATWOOD BEACON has been operating since early August and has also performed well. The Company now has a diversified fleet of eight active MODU's, leveraged to international markets, and is positioned to take advantage of the upside from future market improvements. We are optimistic about longer-term opportunities and believe there are better times ahead. The Company's strategy continues to focus on providing premium equipment and safe, quality services to our clients based on long-standing relationships. The capability of our fleet, significantly improved through upgrade of seven units and new construction of one unit, is targeted at meeting our clients' future needs. We believe that the improved capability and competitiveness of our fleet will support higher utilization and attractive financial returns over the longer term. During fiscal year 2004, we will be striving to build contract backlog and to achieve high utilization of our eight active MODU's. The ATWOOD HUNTER was recently committed on a term contract in Egypt that should keep it busy into 2005. The ATWOOD SOUTHERN CROSS has been mobilized from Egypt to India and commenced work in early December 2003 on a one-well plus options program. The mobilization was fully funded by the client, and the rig now has improved opportunities. The ATWOOD EAGLE successfully completed its two contracts in Angola in late November 2003. Plans are now underway to mobilize the ATWOOD EAGLE to Australia commencing in January 2004. The ATWOOD EAGLE mobilization will also be fully funded by clients. The ATWOOD FALCON will undergo periodic class inspections before mobilizing to Japan in early 2004. Current commitments should keep the ATWOOD FALCON busy into the fourth quarter of fiscal year 2004. The SEAHAWK commenced a year extension to its present contract in Malaysia in December 2003. The ATWOOD BEACON, VICKSBURG and RICHMOND all have current commitments and future opportunities actively under consideration that should keep these drilling units highly utilized during fiscal year 2004. Our short-term goals are to strive for full utilization of our fleet, keep the Company strong in all respects, return to profitability, and position the Company well to benefit from longer-term market improvements and opportunities. We will continue to work hard during fiscal year 2004 to deserve the confidence and support of our shareholders. We thank our employees for another year of achievements through their combined talents and hard work, and our other stakeholders on whom we depend in many different ways. /s/ John R. Irwin JOHN R. IRWIN Atwood Oceanics, Inc. and Subsidiaries FIVE-YEAR FINANCIAL REVIEW At or For the Years Ended September 30, - ---------------------------------------------------------------------------------------------------------------------- (In thousands, except per share amounts, fleet data 2003 2002 2001 2000 1999 and ratios) - ------------------------------------------------------ ------------ -------------- ------------- ------------- ------------ STATEMENTS OF OPERATIONS DATA: Contract revenues $144,765 $149,157 $147,541 $135,973 $152,850 Contract drilling costs (98,500) (75,088) (70,014) (60,709) (73,196) General and administrative expenses (14,015) (10,080) (9,250) (8,449) (7,519) Depreciation (25,758) (23,882) (25,579) (29,624) (23,904) -------- --------- -------- -------- -------- OPERATING INCOME 6,492 40,107 42,698 37,191 48,231 Other expense (4,856) (1,330) (1,577) (1,293) (1,724) Tax provision (14,438) (10,492) (13,775) (12,750) (18,787) -------- --------- -------- -------- -------- NET INCOME (LOSS) $(12,802) $ 28,285 $ 27,346 $ 23,148 $ 27,720 ======== ======== ======== ======== ======== PER SHARE DATA: Earnings (loss) per common share: Basic $ (.92) $2.04 $ 1.98 $ 1.68 $ 2.03 Diluted (.92) 2.02 1.96 1.66 2.01 Average common shares outstanding: Basic 13,846 13,839 13,828 13,763 13,649 Diluted 13,846 13,994 13,978 13,916 13,791 FLEET DATA: Number of rigs owned or managed, at end of period 11 10 11 11 11 Utilization rate for in-service rigs (excludes managed rigs and contractual downtime for rigs upgraded) 92% 86% 80% 71% 77% BALANCE SHEETS DATA: Cash and securities held for investment $ 21,551 $ 27,055 $ 12,621 $42,661 $ 43,041 Working capital 26,063 38,577 25,057 47,433 31,519 Net property and equipment 443,102 368,397 306,254 224,107 218,914 Total assets 522,674 445,238 353,878 313,251 293,604 Total long-term debt 205,000 115,000 60,000 46,000 54,000 Shareholders' equity (1) 263,467 276,133 247,636 218,205 192,229 Ratio of current assets to current liabilities 1.52 2.09 2.21 3.71 2.66
_________ Notes - (1) We have never paid any cash dividends on our common stock. OFFSHORE DRILLING OPERATIONS PERCENTAGE MAXIMUM OF 2003 YEAR BUILT WATER CONTRACT CONTRACT STATUS AT RIG NAME (UPGRADED) DEPTH REVENUES LOCATION CUSTOMER DECEMBER 29, 2003 -------- ---------- ------- --------- -------- -------- ------------------ SEMISUBMERSIBLES - - ------------------ ATWOOD FALCON 1983(1998) 3,700 Ft. 22% Malaysia Japan Energy The rig is preparing to be mobilized to preparing to be Development Co. Japan to commence its two-well drilling be mobilized Ltd. ("JED") program for JED. The rig should arrive in Japan Japan around mid-January 2004, with the drilling program estimated to take around 100 to 120 days to complete. Immediately upon completing the JED contract, the rig will be moved to China to drill one well for Husky Oil China Ltd. ATWOOD HUNTER 1981(1997/ 5,000 Ft. 12% Tunisia MP Zarat The rig is drilling a one-well program 2001) for MP Zarat which should be completed by late December 2003 or early January 2004. Immediately upon completing the MP Zarat contract, the rig will be moved to Egypt to commence a drilling program for Burullus Gas Co., which includes ten firm wells, plus options to drill six additional wells. The drilling of the ten firm wells are expected to take around 400 days to complete and if all the option wells are drilled, the contract could extend for around 550 days. ATWOOD EAGLE 1982(2000/ 5,000 Ft. 14% Angola preparing BHP Billiton The rig is currently idle offshore Angola 2002) to mobilize in Petroleum Pty. and preparing to be mobilized in January January 2004 to Ptd. ("BHP") 2004 to Australia. We have commitments Australia and Apache from BHP and Apache to drill three firm Energy Limited wells plus options to drill an additional ("Apache") four wells. Drilling of the three firm wells is expected to take three to four months to complete. In accordance with these commitments, we have entered into a contract with a towing company to transport the rig from Angola to Australia which is estimated to take approximately 30 days, with the tow schedule to commence around mid-January 2004. Drilling contracts with BHP and Apache should be formalized by late December 2003 or early January 2004. ATWOOD 1976(1997) 2,000 Ft. 10% India Cairn Energy SOUTHERN CROSS India Pty. The rig is currently drilling a firm Limited ("Cairn") one-well plus an option of one or two wells program for Cairn. The one firm well is expected to take 60 days to complete and, if the two options are exercised, an additional 70 days could be added to the drilling program. Contract opportunities for additional work in Southeast Asia are being pursued. CANTILEVER JACK-UPS - - ---------------------- ATWOOD BEACON 2003 400 Ft. 2% Malaysia Petronas Carigali In early August 2003, the rig commenced (delivered Snd. Bhd. working under a contract with Murphy in July ("Petronas") Sarawak Oil Company, Ltd. ("Murphy") 2003) which provided for the drilling of three firm wells plus options to drill five additional wells off the coast of Malaysia. Murphy exercised its option to extend the contract for the additional five wells and then assigned four of the option wells to Petronas. Petronas has awarded the rig four more firm wells for a current total of eight wells to be drilled. Petronas is presently drilling its first well. It should take until April/May 2004 to complete the drilling of the eight wells. Contract opportunities for additional work following completion of the Petronas contract are being pursued in Malaysia as well as other areas outside of Malaysia. VICKSBURG 1976(1998) 300 Ft. 17% Malaysia ExxonMobil In October 2002, the rig commenced a Exploration two-year drilling program (with an option & Production by EMEPMI for one additional year), with Malaysia EMEPMI having the right to terminate the Inc. drilling program after one year with at ("EMEPMI") least 120 days notice period. SUBMERSIBLE - - --------------- RICHMOND 1982(2000/ 70 Ft. 6% United States Union Oil Company In September 2003, the rig commenced a 2002) Gulf of Mexico of California two-well plus one option well contract ("Unocal") for UNOCAL. UNOCAL has exercised the option well and in addition, has awarded the rig two more firm wells; thus, providing for a total of five wells to be drilled under the contract. It should take until around February 2004 to complete the drilling of the five wells. SEMISUBMERSIBLE TENDER ASSIST UNITS - - ----------------------------------- SEAHAWK 1974(1992/ N/A 16% Malaysia EMEPMI The rig's current contract terminates in 1999) December 2004, with an option for the Operator to extend. EMEPMI has the right to terminate the contract after the completion of the first six months of the extension period (which commences in December 2003) with 120 days written notice. SEASCOUT 1974 N/A 0% United States The SEASCOUT was purchased in December Gulf of Mexico 2000 for future conversion to a tender-assist unit, similar to the SEAHAWK, once an acceptable contract opportunity is secured. The rig is currently coldstacked. MODULAR PLATFORMS - - ------------------- MANAGEMENT CONTRACT GOODWYN 'A' N/A N/A 1% Australia Woodside Energy There is currently an indefinite planned and NORTH Ltd. break in drilling activity for the two RANKIN 'A client-owned rigs we manage. We are involved in maintenance of the two rigs for future drilling programs.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report to Shareholders and the related Form 10-K for the fiscal year ended September 30, 2003 includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We and our representatives may from time to time make written or verbal forward-looking statements, including statements contained in this report and our other filings with the Securities and Exchange Commission and in our reports to shareholders. Generally, the words "believe", "expect", "intend", "estimate", "anticipate", "plan", and similar expressions identify forward-looking statements. All statements other than statements of historical facts included in this report and the related Form 10-K regarding our financial position, business strategy, budgets and plans and objectives of management for future operations are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performances. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements involve risks and uncertainties that may cause our actual future activities and results of operations to be materially different from those suggested or described in this Annual Report to Shareholders and related Form 10-K. These risks include, but are not limited to: o our dependence on the oil and gas industry; o our ability to secure adequate financing; o competition; o operations risks; o risks involved in foreign operations; o risks associated with possible disruptions in operations due to terrorism; o governmental regulation; and o environmental matters. These risk factors are disclosed in various places throughout this report and the related Form 10-K. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these risk factors. OUTLOOK Even though we incurred our first loss in ten years, fiscal year 2003 was a year marked with some significant accomplishments. Our upgrade program, commenced in fiscal year 1997, was concluded with the completion of the upgrade of the ATWOOD EAGLE in November 2002. Collectively, we have expended approximately $340 million in upgrading seven active offshore mobile drilling units since 1997. In August 2003, an eighth drilling unit, the ATWOOD BEACON, an ultra-premium jack-up drilling vessel, commenced its initial drilling contract following completion of its construction and commissioning. This drilling unit was constructed on time and at a cost of approximately $120 million, compared to budgeted costs of $125 million. Thus, our current worldwide operations revolve around eight active premium offshore mobile drilling units located in five areas of the world - the United States, Southeast Asia, the Mediterranean Sea, Africa and Australia. Current worldwide utilization of offshore drilling units is less than 80%. The continuous disconnect between relatively high commodity prices and soft market conditions (especially for semisubmersibles) reflects increased conservatism by exploration and production companies due to a number of factors including weak capital markets, increased focus on reducing debt, and a host of geopolitical uncertainties (for example, those in Iraq, Venezuela and Nigeria), which have curtailed drilling. The weakest sector of the drilling market is semisubmersibles, with a current worldwide utilization level of less than 70%. We expect that the market outlook for semisubmersibles will continue to be challenging for most, if not all, of fiscal year 2004, with the level of dayrates for mid and deep water work continuing to be relatively low. In recent months, the demand for jack-up drilling units has improved mainly as a result of increased demand in the Gulf of Mexico, Asia Pacific and Mexico, with a current worldwide utilization level of around 85%. We anticipate that utilization for our two jack-up units will be at or above 90% during fiscal year 2004. Of our current eight active drilling units, only the VICKSBURG, SEAHAWK and ATWOOD HUNTER have contract terms that could extend beyond fiscal year 2004. Besides these three drilling units, we anticipate that utilization for the ATWOOD BEACON, ATWOOD FALCON and RICHMOND will also be at or above 90% for fiscal year 2004. Currently, the ATWOOD EAGLE is idle offshore Angola and is expected to be mobilized to Australia in January 2004 for its next contract opportunity. The ATWOOD SOUTHERN CROSS, after incurring some idle time at the beginning of the first quarter of fiscal year 2004, has just commenced a short-term contract commitment in India. Despite the current challenging market conditions, we anticipate that our operating results for fiscal year 2004 will improve over results from fiscal year 2003. With our upgraded, premium equipment, we believe that we are well positioned to take advantage of improving market conditions and remain optimistic about the longer-term outlook and fundamentals of the offshore drilling market. RESULTS OF OPERATIONS Fiscal Year 2003 Versus Fiscal Year 2002 Contract revenues for the current fiscal year decreased 3% compared to prior year. A comparative analysis of contract revenues by rig for fiscal years 2003 and 2002 is as follows: CONTRACT REVENUES (In millions) ------------------------------------ ---------- ----------- ------------- Fiscal Fiscal 2003 2002 Variance ------- -------- -------- ATWOOD EAGLE $ 19.8 $ 15.2 $ 4.6 ATWOOD BEACON 3.0 --- 3.0 VICKSBURG 25.0 22.5 2.5 RICHMOND 8.3 7.1 1.2 SEAHAWK 22.8 22.3 0.5 GOODWYN 'A'/NORTH RANKIN 'A' 1.8 1.9 (0.1) ATWOOD FALCON 32.4 33.5 (1.1) ATWOOD SOUTHERN CROSS 14.5 19.3 (4.8) ATWOOD HUNTER 17.2 27.4 (10.2) ------ ------ ------ $144.8 $149.2 $ (4.4) ====== ====== ====== While utilization was consistent with prior year, the average dayrate for ATWOOD EAGLE during fiscal year 2003 was approximately $85,000 compared to $75,000 in the prior year. The current fiscal year also includes $2.7 million of mobilization revenue for the rig's relocation to West Africa. The ATWOOD BEACON commenced operations in August 2003 while being under construction all of the prior fiscal year. The current fiscal year revenue for the VICKSBURG includes $2.0 million of client reimbursements for capital upgrades, as utilization and average dayrates were consistent with prior year. The increase in revenue for the RICHMOND is primarily due to the rig being 100% utilized in fiscal year 2003 compared to having 78 days of idle time in fiscal year 2002. The decrease in revenue for the ATWOOD FALCON is due to its mobilization to Australia and back to Malaysia during the current fiscal year compared to working at full operating dayrates for all of the prior fiscal year. Due to the softness of the Mediterranean market, utilization for the ATWOOD SOUTHERN CROSS decreased from approximately 85% in fiscal year 2002 to 70% in the current fiscal year. Average dayrates for the ATWOOD HUNTER decreased from approximately $90,000 to $55,000 for the same periods. Contract drilling costs for the current fiscal year increased 31% as compared to the prior year. A comparative analysis of contract drilling costs by rig for fiscal year 2003 and 2002 is as follows: CONTRACT DRILLING COSTS (In millions) ------------------------------------ Fiscal Fiscal 2003 2002 Variance ------ ------ -------- ATWOOD EAGLE $ 19.4 $ 9.0 $10.4 ATWOOD FALCON 18.7 10.2 8.5 ATWOOD SOUTHERN CROSS 14.3 11.1 3.2 ATWOOD BEACON 1.4 --- 1.4 SEAHAWK 9.7 9.2 0.5 GOODWYN 'A'/NORTH RANKIN 'A' 2.0 2.1 (0.1) VICKSBURG 9.3 9.5 (0.2) ATWOOD HUNTER 12.9 13.4 (0.5) RICHMOND 8.2 9.3 (1.1) OTHER 2.6 1.3 1.3 ------ ------ ----- $ 98.5 $75.1 $23.4 ====== ====== ===== Contract drilling costs for the ATWOOD EAGLE include $8.2 million of mobilization expenses incurred during the rig's relocation to West Africa. In addition, daily operating costs for the ATWOOD EAGLE have increased as operating costs in West Africa are approximately 50% higher than in the Mediterranean, the rig's previous location. During fiscal year 2003, the ATWOOD FALCON worked seven months in Australia, where operating costs are higher than Southeast Asia, its primary operating location for all of the prior fiscal year, by approximately $25,000 per day due to increased personnel-related costs. We also incurred approximately $2.0 million in mobilization costs re-locating the ATWOOD FALCON to and from Australia. The increase in costs for the ATWOOD SOUTHERN CROSS resulted from the amortization of the planned maintenance and upgrade costs to meet Italian operating standards, as well as higher costs of operating in Italy for travel, shorebase operations and rentals. The ATWOOD BEACON commenced operations in August 2003 while being under construction all of the prior fiscal year. The decrease in costs for the RICHMOND for fiscal year 2003 is due to the shipyard repairs incurred during the prior fiscal year. Depreciation expense for the current fiscal year increased 8% as compared to the prior fiscal year. A comparative analysis of depreciation expense by rig for fiscal year 2003 and 2002 is as follows: DEPRECIATION EXPENSE (In millions) ----------------------------------- Fiscal Fiscal 2003 2002 Variance ------- ------ ---------- ATWOOD HUNTER $ 5.4 $ 4.2 $ 1.2 ATWOOD EAGLE 3.1 2.2 0.9 ATWOOD BEACON 0.7 --- 0.7 RICHMOND 1.9 1.6 0.3 VICKSBURG 2.5 2.3 0.2 ATWOOD SOUTHERN CROSS 4.0 3.9 0.1 ATWOOD FALCON 2.6 2.7 (0.1) SEAHAWK 4.7 4.8 (0.1) OTHER 0.9 2.2 (1.3) ------ ------ ------ $ 25.8 $ 23.9 $ 1.9 ====== ====== ====== During the period when a rig is out of service for a significant upgrade, no depreciation expense is recognized. The increased depreciation on the ATWOOD HUNTER in fiscal year 2003 is due to a full year of depreciation expense compared to only three quarters in the prior fiscal year as the rig was completing its upgrade and relocation to the Mediterranean during the first quarter of fiscal year 2002. The increase for the ATWOOD EAGLE is due to an increase in the rig's depreciable basis resulting from the completion of its $90 million upgrade during the current fiscal year. The ATWOOD BEACON commenced operations in August 2003 while being under construction all of prior fiscal year. The depreciable basis of the RICHMOND increased by approximately $1 million during the current fiscal year which will be depreciated over the rig's remaining useful life of 2 years. Other depreciation expense decreased due to the fact that RIG-200 (sold in May 2003) was fully depreciated to its salvage value in fiscal year 2002 and thus had no depreciation expense for fiscal year 2003. General and administrative expenses increased 39% in fiscal year 2003 primarily due to higher professional fees related to our worldwide restructuring initiative. The $3.4 million increase in net interest expense is due to an increase in the average amount of debt outstanding, a $1.2 million write off of deferred financing costs related to the prior credit facility, and due to a $1.9 million decrease in capitalized interest as compared to prior fiscal year as a result of the completion of the upgrade program and construction of the ATWOOD BEACON during fiscal year 2003. Virtually all of our current tax provision for fiscal year 2003 relates to taxes in foreign jurisdictions. Due to the operating loss in the United States, in addition to operating losses in certain nontaxable foreign jurisdictions, our effective tax rate for the fiscal year 2003 significantly exceeds the United States statutory rate. We recorded deferred foreign tax liabilities of $4.7 million relating to Australian and Malaysian taxes after reassessing certain tax planning strategies in conjunction with the reorganization of our foreign subsidiaries undertaken in fiscal year 2003. This deferred tax expense has no cash effect on us. RESULTS OF OPERATIONS Fiscal Year 2002 Versus Fiscal Year 2001 An analysis of contract revenues by rig for fiscal years 2002 and 2001 is as follows: CONTRACT REVENUES (In millions) ------------------------------------ Fiscal Fiscal 2002 2001 Variance ------ ------ -------- ATWOOD HUNTER $ 27.4 $ 15.8 $11.6 VICKSBURG 22.5 12.7 9.8 ATWOOD SOUTHERN CROSS 19.3 17.9 1.4 SEAHAWK 22.3 23.4 (1.1) RICHMOND 7.1 11.3 (4.2) GOODWYN 'A'/NORTH RANKIN 'A' 1.9 6.1 (4.2) ATWOOD EAGLE 15.2 19.9 (4.7) ATWOOD FALCON 33.5 40.4 (6.9) ------ ------ ----- $149.2 $147.5 $ 1.7 ====== ====== ===== The ATWOOD HUNTER worked continuously in Egypt during fiscal year 2002 at dayrates ranging from $90,000 to $110,000, compared to being idle for upgrade during a significant portion of fiscal year 2001, which accounts for its increase in revenue. In April/May 2001, the VICKSBURG was relocated from India to Southeast Asia, and after its relocation, received higher dayrates than those received while in India, which accounts for its increase in revenue. The ATWOOD SOUTHERN CROSS had an average per day revenue of approximately $53,000 in fiscal year 2002 compared to approximately $49,000 in fiscal year 2001. In February 2000, the SEAHAWK commenced its four-year contract extension in Malaysia, with its dayrate ranging from a high of $50,000 to a low of $30,000 depending upon the price of oil. The rig was at the top of this dayrate range in fiscal year 2002 and fiscal year 2001. RICHMOND revenues declined in fiscal year 2002 compared to fiscal year 2001 due to 78 days of idle time incurred during the year for certain repairs and inspections and to a decline in dayrate levels in the Gulf of Mexico. At the end of fiscal year 2001, an indefinite planned break in drilling activities was instigated on the GOODWYN 'A'/NORTH RANKIN 'A' platform rigs, which accounts for the decline in revenues from these units in fiscal year 2002. The decline in revenues for the ATWOOD EAGLE was due to the rig undergoing upgrades in a shipyard in Greece from April 2002 to November 2002. In May 2002, the ATWOOD FALCON was relocated from the Philippines to Malaysia following the completion of a long-term contract. The rig's effective dayrate in the Philippines was over $100,000 compared to $70,000 in Malaysia, which accounts for the decline in revenues. Contract drilling costs during fiscal year 2002 increased 7% primarily due to the ATWOOD HUNTER returning to work following its upgrade and to higher operating costs associated with the VICKSBURG, RICHMOND, ATWOOD FALCON, SEAHAWK and ATWOOD SOUTHERN CROSS. An analysis of contract drilling costs by rig for fiscal year 2002 and 2001 is as follows: CONTRACT DRILLING COSTS (In millions) ------------------------------------ Fiscal Fiscal 2002 2001 Variance ------ ------ -------- ATWOOD HUNTER $ 13.4 $8.1 $5.3 VICKSBURG 9.5 7.4 2.1 RICHMOND 9.3 7.6 1.7 ATWOOD FALCON 10.2 8.6 1.6 SEAHAWK 9.2 7.8 1.4 ATWOOD SOUTHERN CROSS 11.1 10.3 0.8 ATWOOD EAGLE 9.0 11.9 (2.9) GOODWYN 'A'/NORTH RANKIN 'A' 2.1 5.7 (3.6) OTHER 1.3 2.6 (1.3) ------ ----- ----- $75.1 $70.0 $5.1 ====== ===== ===== During the period that the ATWOOD HUNTER was in a shipyard in the United States for upgrades and its subsequent relocation to Egypt (April 2001 through November 2001), no drilling costs were incurred. Higher drilling costs for the VICKSBURG were due to operating costs being higher in Southeast Asia than in India. During fiscal year 2002, the RICHMOND incurred higher repairs and maintenance costs. The increase in operating costs for the ATWOOD FALCON is primarily due to additional costs incurred on relocating the rig from the Philippines to Malaysia. The decline in costs for the ATWOOD EAGLE was due to the rig being in a shipyard during the last few months of fiscal year 2002 for upgrade, whereby no drilling costs were incurred. Drilling costs on the GOODWYN 'A'/NORTH RANKIN 'A' platforms declined due to the planned break in drilling activities. An analysis of depreciation expense by rig is as follows: DEPRECIATION EXPENSE (In millions) -------------------------------------- Fiscal Fiscal 2002 2001 Variance ATWOOD HUNTER $ 4.2 $ 1.5 $ 2.7 RICHMOND 1.6 1.5 0.1 ATWOOD SOUTHERN CROSS 3.9 3.9 0.0 ATWOOD FALCON 2.7 2.7 0.0 VICKSBURG 2.3 2.6 (0.3) ATWOOD EAGLE 2.2 3.6 (1.4) SEAHAWK 4.8 6.9 (2.1) OTHER 2.2 2.9 (0.7) ------ ----- ------ $ 23.9 $25.6 $(1.7) ====== ===== ===== The reduced depreciation on the ATWOOD HUNTER in fiscal year 2001 and the ATWOOD EAGLE in fiscal year 2002 was due to the policy of not recognizing depreciation expense during the period a rig is out of service for a significant upgrade. The decrease in depreciation expense for the SEAHAWK was due to the rig's 1992 upgrade costs becoming fully depreciated, thereby leaving only $11 million of its 2000 upgrade cost of approximately $22 million to be depreciated over a remaining period of approximately three years. General and administrative expenses increased 9% in both fiscal year 2002 and 2001, primarily due to higher travel, communication, and other personnel related costs. Our effective tax rate was 27% in fiscal year 2002 compared to 33% in fiscal year 2001. The effective tax rate in fiscal year 2002 was reduced by a $2.3 million foreign income tax credit benefit generated in September 2002. The 44% decline in net interest expense was primarily due to a $1.8 million increase in capitalized interest. Investment income in fiscal year 2002 declined 78% due to us having less funds to invest due to its capital expenditure requirements. LIQUIDITY AND CAPITAL RESOURCES Since 1997, we have expended approximately $340 million on our upgrade program and approximately $120 million on constructing the ATWOOD BEACON. With the completion of our upgrade program and construction of the ATWOOD BEACON during fiscal year 2003, we have no significant capital commitments at September 30, 2003. We have funded our equipment upgrade and construction programs through a combination of internally generated funds and funds borrowed under credit facilities. At September 30, 2002, we had a $175 million credit facility with a bank group under which $115 million had been borrowed. Subsequent to September 31, 2002, an additional $57.5 million was borrowed under this facility to bring the outstanding balance at March 31, 2003 to $172.5 million. On April 1, 2003, we executed a $225 million senior secured credit facility with a new bank group and borrowed $190 million of which $172.5 million was utilized to repay and terminate the $175 million credit facility. In June 2003, the borrowing capacity under the current credit facility was increased to $250 million, with an outstanding balance of $205 million as of September 30, 2003. This credit facility consists of a $150 million term loan facility (requiring quarterly payments of $6 million during fiscal year 2004) and a $100 million revolving loan facility (maturing in March 2008). In November 2003, the credit facility was amended to redefine the calculation of the allowed ratio of outstanding debt to earnings, before interest, income taxes and depreciation and to increase the allowed ratio limits for the first three quarters of fiscal year 2004. On an as amended basis, we are in compliance with all financial covenants at September 30, 2003. Primarily from utilizing $90 million in net proceeds borrowed under our credit facilities, in fiscal year 2003 capital expenditures totaling approximately $101 million were invested as follows: o approximately $25 million in completing the upgrade of the ATWOOD EAGLE, o approximately $64 million in completing the construction of the ATWOOD BEACON and o approximately $12 million in other capital projects . The SEASCOUT, a semisubmersible hull planned for a future conversion and upgrade to a semisubmersible tender assist vessel, continues to be cold-stacked. The cost to convert and upgrade the SEASCOUT could range from $50 million to $70 million. There are no current capital commitments on the SEASCOUT, with a conversion and upgrade not to be undertaken until an acceptable contract opportunity has been secured and adequate financing is in place. We continue to periodically review 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. We have no allowance for doubtful accounts at September 30, 2003. COMMITMENTS (In Thousands) The follow table summarizes our obligations and commitments at September 30, 2003: Fiscal Fiscal Fiscal Fiscal Fiscal 2004 2005 2006 2007 2008 ------ ------ ------ ------ ------ Long-Term Debt $24,000 $36,000 $36,000 $36,000 $73,000 Operating Leases 588 628 647 647 54 ------- ------- ------- ------- ------- $24,588 $36,628 $36,647 $36,647 $73,054 ======= ======= ======= ======= ======= CRITICAL ACCOUNTING POLICIES Significant accounting policies are included in Note 2 to our consolidated financial statements for the year ended September 30, 2003. These policies, along with the underlying assumptions and judgments made by management in their application, have a significant impact on our consolidated financial statements. We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. Our most critical accounting policies are those related to property and equipment, impairment of assets and income taxes. At September 30, 2003, the carrying value of our property and equipment totaled $443.1 million, which represents 85% of total assets. This carrying value reflects the application of our property and equipment accounting policies, which incorporate estimates, assumptions and judgments by management relative to the capitalized costs, useful lives and salvage values of our rigs and vessels. We evaluate the carrying value of our property and equipment when events or changes in circumstances indicate that the carrying value of such assets may be impaired. Asset impairment evaluations are, by nature, highly subjective. The estimates, assumptions and judgments used by management in the application of our property and equipment and asset impairment policies reflect both historical experience and expectations regarding future industry conditions and operations. The use of different estimates, assumptions and judgments, especially those involving the useful lives of our rigs and vessels and expectations regarding future industry conditions and operations, would likely result in materially different carrying values of assets and results of operations. We conduct operations and earn income in numerous foreign countries and are subject to the laws of taxing jurisdictions within those countries, as well as United States federal and state tax laws. At September 30, 2003, we have a $20.7 million net deferred income tax liability, with a current United States federal income tax receivable of approximately $3.3 million. These balances reflect the application of our income tax accounting policies in accordance with statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Such accounting policies incorporate estimates, assumptions and judgments by management relative to the interpretation of applicable tax laws, the application of accounting standards, and future levels of taxable income. The estimates, assumptions and judgments used by management in connection with accounting for income taxes reflect both historical experience and expectations regarding future industry conditions and operations. Changes in these estimates, assumptions and judgments could result in materially different provisions for deferred and current income taxes. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On May 31, 2003, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities (or assets in certain circumstances) in statements of financial position. SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Management does not expect the adoption of SFAS 150 to have a material impact on it financial statements or results of operations. 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 $205 million of long-term debt outstanding at September 30, 2003, is floating rate debt. As a result, our annual interest costs in fiscal year 2004 will fluctuate based on interest rate changes. Because the interest rate on our long-term debt is a floating rate, the fair value of our long-term debt approximates carrying value as of September 30, 2003. The impact on annual cash flow of a 10% change in the floating rate (approximately 40 basis points) would be approximately $0.8 million. We do not have any open derivative contracts relating to our floating rate debt at September 30, 2003. 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 September 30, 2003 amounts, a decrease of 10% in the foreign currency value relative to the United States dollar from the year-end exchange rates would not result in a material foreign currency transaction loss. Thus, we consider our current risk exposure to foreign currency exchange rate movements, based on net cash flows, to be immaterial. We do not have any open derivative contracts relating to foreign currencies at September 30, 2003. Report of Independent Auditors To the Board of Directors and Shareholders of Atwood Oceanics, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in shareholders' equity present fairly, in all material respects, the financial position of Atwood Oceanics, Inc. and its subsidiaries (the "Company") as of September 30, 2003 and September 30, 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The consolidated financial statements of the Company for the year ended September 30, 2001 were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those consolidated financial statements in their report dated November 19, 2001. /s/ Pricewaterhouse Coopers LLP PricewaterhouseCoopers LLP Houston, Texas December 29, 2003 The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP: To the Board of Directors of Atwood Oceanics, Inc.: We have audited the accompanying consolidated balance sheets of Atwood Oceanics, Inc. (a Texas corporation) and subsidiaries as of September 30, 2001 and 2000, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Atwood Oceanics, Inc. and subsidiaries as of September 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Houston, Texas November 19, 2001 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, - ---------------------------------------------------------------------------------------------------- (In thousands) 2003 2002 - ---------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $21,551 $27,655 Accounts receivable 30,864 25,054 Income tax receivable 3,278 3,830 Inventories of materials and supplies, at lower of average cost or market 12,583 9,134 Deferred tax assets 550 223 Prepaid expenses and other 7,186 8,121 ------- ------- Total Current Assets 76,012 74,017 ------- ------- NET PROPERTY AND EQUIPMENT 443,102 368,397 ------- ------- DEFERRED COSTS AND OTHER ASSETS 3,560 2,824 -------- -------- $522,674 $445,238 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $24,000 $ 5,023 Accounts payable 10,403 6,292 Accrued liabilities 8,851 18,967 Deferred credits 6,695 5,158 -------- ------- Total Current Liabilities 49,949 35,440 -------- ------- LONG-TERM DEBT, net of current maturities 181,000 115,000 -------- ------- OTHER LONG-TERM LIABILITIES: Deferred income taxes 21,217 15,545 Deferred credits and other 7,041 8,278 ------- ------- 28,258 23,823 ------- ------- COMMITMENTS AND CONTINGENCIES (NOTE 10) SHAREHOLDERS' EQUITY: Preferred stock, no par value; ___ ___ 1,000,000 shares authorized, none outstanding Common stock, $1 par value; 20,000,000 shares authorized with 13,851,000 and 13,845,000 issued and outstanding at September 30, 2003 and 2002, respectively 13,851 13,845 Paid-in capital 57,404 57.274 Retained earnings 192,212 205,014 -------- -------- Total Shareholders' Equity 263,467 276,133 -------- -------- $522,674 $445,238 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended September 30, - ------------------------------------------------------------------------------ (In thousands, except per share amounts) 2003 2002 2001 - ------------------------------------------------------------------------------- REVENUES: Contract drilling $ 144,765 $ 149,157 $ 147,541 COSTS AND EXPENSES: Contract drilling 98,500 75,088 70,014 Depreciation 25,758 23,882 25,579 General and administrative 14,015 10,080 9,250 -------- -------- -------- 138,273 109,050 104,843 -------- -------- -------- OPERATING INCOME 6,492 40,107 42,698 -------- -------- -------- OTHER INCOME (EXPENSE): Interest expense, net of capitalized interest (5,014) (1,658) (2,939) Investment income 158 328 1,362 ------- -------- -------- (4,856) (1,330) (1,577) ------- -------- -------- INCOME BEFORE INCOME TAXES 1,636 38,777 41,121 PROVISION FOR INCOME TAXES 14,438 10,492 13,775 ------- -------- -------- NET INCOME (LOSS) $(12,802) $ 28,285 $ 27,346 ======== ========= ======== EARNINGS (LOSS) PER COMMON SHARE: Basic $ (.92) $ 2.04 $ 1.98 Diluted (.92) 2.02 1.96 AVERAGE COMMON SHARES OUTSTANDING: Basic 13,846 13,839 13,828 Diluted 13,846 13,994 13,978 The accompanying notes are an integral part of these consolidated financial statements. Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For Years Ended September 30, - ------------------------------------------------------------------------------------------------------------------------- (In thousands) 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ (12,802) $ 28,285 $ 27,346 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 25,758 23,882 25,579 Amortization of debt issuance costs 2,101 358 293 Amortization of deferred items 185 77 107 Deferred federal income tax provision 5,350 2,500 3,298 Gain on sale of assets (421) --- --- Changes in assets and liabilities: (Increase) decrease in accounts receivable (5,200) (8,930) 11,651 (Increase) decrease in inventory (3,449) (23) 433 Increase in deferred costs and other assets (94) (6,275) (994) Increase in accounts payable 4,780 759 1,090 Increase (decrease) in accrued liabilities (4,958) 600 1,011 Increase (decrease) in deferred credits and other liabilities 4,051 6,615 (391) Net mobilization fees and credits (2,007) (1,177) (8,806) Other increases (decreases) 380 (3,229) 1,739 ------- ------- -------- 26,476 15,157 35,010 ------- ------- ------- Net Cash Provided by Operating Activities 13,674 43,442 62,356 ------- ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (101,819) (89,416) (107,778) Non-cash portion of capital expenditures --- 1,269 1,079 Maturities of Treasury notes --- --- 22,600 Proceeds from sale of assets 1,131 --- 429 Other (23) 92 51 -------- ------- ------- Net Cash Used by Investing Activities (100,711) (88,055) (83,619) -------- ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from exercises of stock options 78 181 153 Debt issuance costs paid (4,122) (557) (9) Proceeds from credit facilities 264,500 60,000 20,000 Proceeds from short-term note payable --- 6,154 --- Principal payments on debt (179,523) (6,131) (6,000) -------- ------- ------- Net Cash Provided by Financing Activities 80,933 59,647 14,144 -------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (6,104) 15,034 (7,119) CASH AND CASH EQUIVALENTS, at beginning of period $ 27,655 12,621 19,740 -------- -------- -------- CASH AND CASH EQUIVALENTS, at end of period $ 21,551 $ 27,655 $ 12,621 ======== ======== ======== __________________________ Supplemental disclosure of cash flow information: Cash paid during the year for domestic and foreign income taxes $ 7,914 $ 10,589 $ 9,054 ======= ======== ======== Cash paid during the year for interest, net of amounts capitalized $ 4,003 $ 1,704 $ 3,299 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Accumulated Comprehensive Other Total (In thousands) Income Common Stock Paid-in Comprehensive Retained Stockholders' Shares Amount Capital Income (Loss) Earnings Equity - ---------------------------------------- ---------------- ----------------- ------------ ------------ ---------- ------------- September 30, 2000 $23,135 13,823 $13,823 $55,151 $ (152) $ 149,383 $ 218,205 Net income $27,346 --- --- --- --- 27,346 27,346 Unrealized holding gain on available-for-sale securities, net of tax of $36 66 --- --- --- 66 --- 66 Reclassification adjustment for losses realized in net income, net of tax of $46 86 --- --- --- 86 --- 86 Exercise of employee stock options --- 9 9 144 --- --- 153 Tax benefit from exercises of employee stock options --- --- --- 1,780 --- --- 1,780 -------- ------ ----- ------ ------ ------ ------- September 30, 2001 $ 27,498 13,832 13,832 57,075 --- 176,729 247,636 Net income $ 28,285 --- --- --- --- 28,285 28,285 Exercise of employee stock options --- 13 13 168 --- --- 181 Tax benefit from exercise of employee stock options --- --- --- 31 --- --- 31 -------- ------ ------ ------ ------ ------- ------- $28,285 13,845 13,845 57,274 --- 205,014 276,133 September 30, 2002 Net loss $(12,802) --- --- --- --- (12,802) (12,802) Exercise of employee stock options --- 6 6 72 --- --- 78 Tax benefit from exercise of employee stock options --- --- --- 58 --- --- 58 --------- ----- ------ ------ ------ ------- ------- September 30, 2003 $(12,802) 13,851 $13,851 $57,404 $ --- $192,212 $263,467 ========= ====== ======= ======= ====== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Atwood Oceanics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS Atwood Oceanics, Inc., together with its wholly owned subsidiaries (collectively referred to herein as "we", "our" or the "Company"), is engaged in the business of offshore drilling of exploratory and developmental oil and gas wells and related support, management and consulting services principally in international locations. Presently, we own and operate a modern fleet of eight mobile offshore drilling units and are involved in maintenance of two operator-owned platform drilling units in Northwest Australia for future drilling programs. In December 2000, we purchased a semisubmersible unit for a future conversion to a tender assist vessel once an acceptable contract opportunity is secured (see Note 3). Currently, we are involved in active operations in the territorial waters of Australia, Malaysia, Egypt, India, Angola and the United States. Demand for drilling equipment is dependent on the exploration and development programs of oil and gas companies, which is in turn influenced by the financial conditions of such companies, by general economic conditions, by prices of oil and gas, and from time to time, by political considerations and policies and other factors. Since most of our operations are foreign, such operations are subject to higher risks associated with possible disruptions due to terrorism. Our business operations are subject to the risks associated with a business having a limited number of customers for which it can operate at any given time. A decrease in the drilling programs of customers in the areas where we are employed may adversely affect our revenues. The contracts under which we operate our drilling rigs are obtained either through individual negotiations with the customer or by submitting proposals in competition with the other drilling contractors and vary in their terms and conditions. We compete with several other drilling contractors, most of which are substantially larger and possess appreciably greater financial and other resources. Price competition is generally the most important factor in the drilling industry, but the technical capability of specialized drilling equipment and personnel at the time and place required by customers are also important. Other competitive factors include: o work force experience, o rig suitability, o efficiency, o condition of equipment, o reputation, o safety and environmental performance, and o customer relations. We believe that we compete favorably with respect to these factors. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of Atwood Oceanics, Inc. and all of its wholly owned domestic and foreign subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Foreign exchange - The United States dollar is the functional currency for all areas of our operations. Accordingly, monetary assets and liabilities denominated in foreign currency are remeasured to United States dollars at the rate of exchange in effect at the end of the year, items of income and expense are remeasured at average monthly rates, and property and equipment and other nonmonetary amounts are remeasured at historical rates. Gains and losses on foreign currency transactions and remeasurements are included in contract drilling costs in the consolidated statements of operations. We recorded foreign exchange losses of $.9 million and $.4 million in fiscal years 2003 and 2001 and a foreign exchange gain of $.1 million in fiscal year 2002. Property and equipment - Property and equipment are recorded at cost. Interest costs related to property under construction are capitalized as a component of construction costs. Interest capitalized during fiscal 2003, 2002 and 2001 was $3.3 million, $2.3 million and $.5 million, respectively. Depreciation is provided on the straight-line method over the following estimated useful lives of the various classifications of assets: Years --------- Drilling vessels and related equipment 5-22 Drill pipe 3 Furniture and other 3-10 Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and upgrades are capitalized and depreciated over the remaining useful life of the asset as determined upon completion of the work. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in the Consolidated Statements of Operations for the applicable period. Impairment of Property and equipment - We periodically evaluate our property and equipment to determine that their net carrying value is not in excess of their net realizable value. These evaluations are performed when our Company has sustained significant declines in utilization and dayrates and recovery is not contemplated in the near future. We consider a number of factors such as estimated future cash flows, appraisals and current market value analysis in determining net realizable value. Assets are written down to their fair value if it is below its net carrying value Deferred drydocking costs - We defer the costs of scheduled drydocking and charge such costs to expense over the period to the next scheduled drydocking (normally 30 months). At September 30, 2003 and 2002, deferred drydocking costs totaling $0.4 million and $0.3 million, respectively, were included in Deferred Costs and Other Assets in the accompanying Consolidated Balance Sheets. Income taxes - We account for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS No. 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end given the provisions of enacted tax laws in each respective jurisdiction. Deferred tax assets are reduced by a valuation allowance when, based upon management's estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. Revenue recognition - We account for drilling and management contract revenue in accordance with the term of the underlying drilling or management contract. These contracts generally provide that revenue is earned and recognized on a daily basis. Deferred mobilization revenues and costs - We defer the mobilization revenues and costs relating to moving a drilling rig to a new area and amortize such revenues and costs on a straight-line basis over the life of the applicable drilling contract. Contract revenues and drilling costs are reported in the Statements of Operations at their gross amounts. At September 30, 2003 and 2002, deferred mobilization revenues totaled $3.3 million and $10.4 million, respectively, and deferred mobilization costs totaled $0.9 million and $2.7 million, respectively. Deferred mobilization revenues and deferred mobilization costs are classified as current or long-term in the accompanying Consolidated Balance Sheets based on the expected term of the applicable drilling contracts. Cash and cash equivalents - Cash and cash equivalents consist of cash in banks and highly liquid debt instruments, which mature within three months of the date of purchase. Earnings per common share - Basic and diluted earnings per share have been computed in accordance with SFAS No. 128, "Earnings per Share"(EPS). "Basic" EPS excludes dilution and is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. "Diluted" EPS reflects the issuance of additional shares in connection with the assumed conversion of stock options. The computation of basic and diluted earnings per share under SFAS No. 128 for each of the past three years is as follows (in thousands, except per share amounts): Per Share Net Income Shares Amount Fiscal 2003: Basic earnings per share $(12,802) 13,846 $ (.92) Effect of dilutive securities - Stock options --- --- --- -------- ------ ------ Diluted earnings per share $(12,802) 13,846 $ (.92) ======== ====== ====== Fiscal 2002: Basic earnings per share $ 28,285 13,839 $ 2.04 Effect of dilutive securities- Stock options --- 155 (.02) -------- ------ ------ Diluted earnings per share $ 28,285 13,994 $ 2.02 ======== ====== ====== Fiscal 2001: Basic earnings per share $ 27,346 13,828 $ 1.98 Effect of dilutive securities - Stock options --- 150 (0.02) -------- ------ ------ Diluted earnings per share $ 27,346 13,978 $ 1.96 ======== ====== ====== The calculation of diluted earnings per share for the year ended September 30, 2003 excludes consideration of potential common shares related to all outstanding stock options (see Note 6) because such options were antidilutive. These options could potentially dilute basic EPS in the future. Stock-Based compensation - In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure, an amendment of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of stock-based employee compensation. In addition, the statement amends the disclosure requirements of SFAS No.123 to require pertinent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We do not intend to adopt the fair value based method of stock-based compensation but will continue to apply the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and Related Interpretations. Accordingly, no compensation costs have been recognized in net income from the granting of options pursuant to its 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. See Note 6 for additional information related to our stock incentive plans. 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 and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except for per share amounts): Fiscal Fiscal Fiscal 2003 2002 2001 --------- -------- --------- Net (loss) income, as reported $(12,802) $ 28,285 $ 27,346 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (2,150) (1,696) (1,265) -------- -------- -------- Pro Forma, net income $(14,952) $ 26,589 $ 26,081 ======== ======== ======== Earnings per share: Basic - as reported $ (.92) $ 2.04 $ 1.98 Basic - pro forma $ (1.08) $ 1.92 $ 1.89 Diluted - as reported $ (.92) $ 2.02 $ 1.96 Diluted - pro forma $ (1.08) $ 1.90 $ 1.87 The fair value of grants made in fiscal years 2003, 2002 and 2001 were estimated on the date of grant using the Black-Sholes Option Pricing model with the following weighted-average assumptions: Fiscal Fiscal Fiscal 2003 2002 2001 ------- -------- -------- Risk-Free Interest Rate 3.58% 3.58% 5.10% Expected Volatility 50.00% 46.95% 51.61% Expected Life (Years) 6 6-7 5 Dividend Yield None None None Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation. NOTE 3 - PROPERTY AND EQUIPMENT A summary of property and equipment by classification is as follows (in thousands): September 30, --------------------------- 2003 2002 Drilling vessels and related equipment Cost $ 618,943 $ 540,682 Accumulated depreciation 181,924 176,518 --------- --------- Net book value 437,019 364,164 --------- --------- Drill pipe Cost 10,224 7,685 Less: accumulated depreciation 6,010 6,388 --------- --------- Net book value 4,214 1,297 --------- --------- Furniture and other Cost 9,072 9,156 Accumulated depreciation 7,203 6,220 --------- --------- Net book value 1,869 2,936 --------- --------- NET PROPERTY AND EQUIPMENT $ 443,102 $ 368,397 ========= ========= ATWOOD HUNTER - In 1997, the ATWOOD HUNTER was initially upgraded to extend its water-depth drilling capabilities to 3,600 feet at an aggregate cost of approximately $40 million. From June 2001 to November 2001, the ATWOOD HUNTER was in a shipyard in the United States undergoing another upgrade which included among other improvements, the extension of its water-depth drilling capacity to 5,000 feet for certain environmental conditions, new 120 bed living quarters, a new high capacity crane and the enhancement of its completion and sub-sea tree handling capabilities. The aggregate cost of this upgrade and improvements was approximately $58 million. ATWOOD EAGLE - In January 2000, the water depth drilling capability of the ATWOOD EAGLE was increased from 2,500 feet to 3,300 feet at a cost of approximately $8 million. From April 2002 to late November 2002, the ATWOOD EAGLE was in a shipyard in Greece undergoing another upgrade which included among other improvements, the extensions of its water-depth drilling capacity to 5,000 feet, new 120 bed living quarters, two new high capacity cranes and the enhancement of its completion and sub-sea tree handling capabilities. The aggregate cost of this upgrade and improvements was approximately $90 million. RICHMOND - During August and September 2000, the RICHMOND was upgraded and refurbished at an aggregate cost of approximately $7 million. The upgrade included, among other improvements, the installation of suction piles and the refurbishment of its living quarters. ATWOOD FALCON - The ATWOOD FALCON was upgraded in 1998, at a cost of approximately $45 million. SEAHAWK - In January 2000, the SEAHAWK commenced drilling under its four-year contract extension in Malaysia following completion of its approximately $22 million upgrade. Pursuant to the contract, approximately $20 million in upgrade reimbursement payments were received which were recorded to Deferred Credits. These upgrade reimbursement payments, are being amortized into revenue over the four-year contract extension period, with an unamortized balance of $1.3 million at September 30, 2003. VICKSBURG - In 1998, the VICKSBURG was refurbished and upgraded at a cost of approximately $35 million. In October 2002, the rig commenced a two-year contract in Malaysia. The contract required that we purchase approximately $2 million in additional equipment which was capitalized and expend approximately $1.5 million for inspections and repairs which was recorded to Deferred Credits. Pursuant to the contract, $3.6 million in reimbursement payments and $400,000 in mobilization payments were received and recorded to Deferred Credits. All of these amounts recorded to Deferred Credits are being amortized into revenue and costs over the anticipated two-year term of the VICKSBURG current contract. ATWOOD SOUTHERN CROSS - In 1997, the ATWOOD SOUTHERN CROSS was refurbished and upgraded to achieve 2,000 feet water-depth drilling capabilities at an aggregate cost of approximately $35 million. ATWOOD BEACON - In July 2001, we entered into a vessel construction agreement to construct an ultra-premium jack-up drilling unit in Singapore. The construction and commission of the drilling unit was completed in July 2003 at a total cost, including owner furnished equipment and capitalized interest, of approximately $120 million and subsequently was placed into service in August 2003. SEASCOUT - On December 5, 2000, we purchased the semisubmersible unit SEASCOUT for $4.5 million. We purchased this unit for conversion and upgrade to a semisubmersible tender assist vessel. The conversion and upgrade will not be undertaken until an acceptable contract opportunity has been secured. The rig is currently cold stacked while awaiting an opportunity for an acceptable contract. RIG-200 - During fiscal year 2002, RIG-200 (a platform rig built in 1995 and owned 50% by us and 50% by Helmerich & Payne International Drilling Co. which currently owns approximately 21% of our outstanding common stock) was retired. The rig had not worked since June 1999. In May 2003, we sold our 50% interest in the dismantled RIG-200 to Helmerich & Payne International Drilling Co. at its net book value of $500,000. NOTE 4 - DEBT LONG-TERM DEBT - A summary of long-term debt is as follows (in thousands): September 30, ------------------------- 2003 2002 ------- -------- Credit facility, bearing interest (market adjustable) at approximately 4.00% per annum at September 30, 2003 $205,000 $115,000 Less - current maturities 24,000 --- -------- -------- $181,000 $115,000 At September 30, 2002, we had a $175 million credit facility with a bank group under which $115 million had been borrowed. Subsequent to September 31, 2002, an additional $57.5 million was borrowed under this facility to bring the outstanding balance at March 31, 2003 to $172.5 million. On April 1, 2003, we executed a $225 million Senior Secured Credit Facility (the Credit Facility) with four industry banks to refinance the existing indebtedness and to provide for on-going working capital and general corporate needs. In June 2003, the Credit Facility was increased to $250 million with five additional banks joining the syndication group. The Credit Facility consists of a 5-year $150 million amortizing Term Loan Facility and a 5-year $100 million non-amortizing Revolving Loan Facility. The Term Loan Facility requires quarterly payments of $6 million commencing on December 31, 2003, increasing to quarterly payments of $9 million commencing on December 31, 2004 until maturity on April 1, 2008. The Credit Facility permits prepayment of principal at anytime without incurring a penalty. The collateral at September 30, 2003 for the Credit Facility consists primarily of preferred mortgages on all eight of our active drilling units (with an aggregate net book value at September 30, 2003 totaling approximately $430 million). We are not required to maintain compensating balances; however, 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 Credit Facility contains financial covenants, including but not limited to, requirements for maintaining certain net worth and other financial ratios, and restrictions on disposing of any material assets, paying cash dividends or repurchasing any of our outstanding common stock and incurring any additional indebtedness in excess of $3 million. In November 2003, the Credit Facility was amended, effective as of September 30, 2003, to redefine the calculation of the ratio of outstanding debt to earnings, before interest, income taxes and depreciation. The amendment also increased the permitted ratio levels from 5.75 to 6.25 at December 31, 2003, reducing to 5.50 at March 31 and June 30, 2004, 4.00 at September 30, 2004 and 3.00 thereafter. On an as amended basis, we are in compliance with all financial covenants at September 30, 2003. The Credit Facility also supports issuance, when required, of standby letters of guarantee. At September 30, 2003, standby letters of guarantee in the aggregate amount of approximately $750,000 were outstanding. The maturities of long-term debt are as follows (in thousands): FISCAL YEAR AMOUNT 2004 $ 24,000 2005 36,000 2006 36,000 2007 36,000 2008 73,000 --------- $ 205,000 ========= NOTE 5 - INCOME TAXES Domestic and foreign income before income taxes for the three-year period ended September 30, 2003 is as follows (in thousands): Fiscal Fiscal Fiscal 2003 2002 2001 ------- ------- ------ Domestic income (loss) $(5,112) $ 5,076 $20,414 Foreign income 6,748 33,701 20,707 ------- ------- ------- $ 1,636 $38,777 $41,121 ======= ======= ======= The provision for domestic and foreign taxes on income consists of the following (in thousands): Fiscal Fiscal Fiscal 2003 2002 2001 ------- ------ ------ Current domestic provision (benefit) $ 361 $(3,025) $ 2,502 Deferred domestic provision 700 2,500 3,298 Current foreign provision 8,727 11,017 7,975 Deferred foreign provision 4,650 --- --- ------- ------- ------- $14,438 $10,492 $13,775 Virtually all of our current tax provision for fiscal year 2003 relates to taxes in foreign jurisdictions. Due to the operating loss in the United States, in addition to operating losses in certain nontaxable foreign jurisdictions, our effective tax rate for the fiscal year 2003 significantly exceeds the United States statutory rate. We recorded deferred foreign tax liabilities of $4.7 million relating to Australian and Malaysian taxes after reassessing certain tax planning strategies in conjunction with the reorganization of our foreign subsidiaries undertaken in fiscal year 2003. This deferred tax expense has no cash effect on us. The components of the deferred income tax assets (liabilities) as of September 30, 2003 and 2002 are as follows (in thousands): September 30, --------------------- 2003 2002 ------ ------- Deferred tax assets - Net operating loss carryforwards $ 5,368 $ 359 Tax credit carryforwards 1,590 2,227 Book accruals 550 106 ------- ------- $ 7,508 $ 2,692 ------- ------- Deferred tax liabilities - Difference in book and tax basis of equipment (27,235) (15,545) Net deferred tax assets (liabilities) before valuation allowance (19,727) (12,853) allowance (940) (2,469) -------- -------- Valuation allowance $(20,667) $(15,322) ======== ======== Net current deferred tax assets $ 550 $ 223 Net noncurrent deferred tax liabilities (21,217) (15,545) -------- -------- $(20,667) $(15,322) ======== ======== All of the $5.4 million of Australian net operating loss carryforwards and $0.7 million of the $1.6 million of United States tax credit carryforwards do not expire. Management estimates these tax attributes will be utilized to offset tax obligations in future periods. However, $0.9 million of the United States tax credit carryforwards do expire in 2008, and management estimates these credits will not be available to reduce future tax obligations. Thus, a $0.9 million valuation allowance is recorded as of September 30, 2003. An analysis of the change in the valuation allowance during the current fiscal year is as follows (in thousands): Valuation Allowance as of September 30, 2002 $ 2,469 Expiration of net operating loss carryforwards (242) Utilization of foreign tax credit carryforwards (1,287) ------- Valuation Allowance as of September 30, 2003 $ 940 ======= We do not provide federal income taxes on the undistributed earnings of its foreign subsidiaries that we consider to be permanently reinvested in foreign operations. The cumulative amount of such undistributed earnings was approximately $17 million at September 30, 2003. It is not practicable to estimate the amount of any deferred tax liability associated with the undistributed earnings. If these earnings were to be remitted to us, any United States income taxes payable would be substantially reduced by foreign tax credits generated by the repatriation of the earnings. Such foreign tax credits totaled approximately $7 million at September 30, 2003. The differences between the statutory and the effective income tax rate are as follows: Fiscal Fiscal Fiscal 2003 2002 2001 ------ ------ ------ Statutory income tax rate 35% 35% 35% Impact of foreign reorganization 361 --- --- Foreign losses not benefited for U.S. tax purposes 449 --- --- Increase (decrease) in tax rate resulting from - Foreign tax rate differentials, net of foreign tax credit utilization 38 (8) (2) ---- --- --- Effective income tax rate 883% 27% 33% === === ===
NOTE 6 - CAPITAL STOCK PREFERRED STOCK- In 1975, 1,000,000 shares of preferred stock with no par value were authorized. No shares have been issued. STOCK INCENTIVE PLANS - We have a stock incentive plan ("2001 Plan") whereby 1,000,000 shares of common stock may be granted to officers, board members and key employees through December 5, 2011. At September 30, 2003 options to purchase 179,500 shares were outstanding under this Plan. We also have options outstanding to purchase 588,775 shares under a 1996 Plan and 56,800 shares under a 1990 Plan, however, under the 1996 and 1990 Plans, no additional shares are reserved for grant. Under all plans, the exercise price of each option equals the market price of our common stock on the date of grant, with all outstanding options having a maximum term of 10 years. Options vest over a period from the end of the first to the fourth year from the date of grant under the 2001 Plan and from the end of the second to the fifth year from the date of grant under the 1996 and 1990 Plans. Each option is for the purchase of one share of our common stock. The stock incentive plans also provide for other types of awards, including but not limited to, restricted stock awards. To date, no awards other than options have been granted under the plans. All stock incentive plans currently in effect have been approved by the shareholders of our outstanding common stock. A summary of the status of our Plans as of September 30, 2003, 2002 and 2001, and changes during the years ended on those dates is presented below: Fiscal Fiscal Fiscal 2003 20020 20010 ----------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Number of Average Number of Average Number of Average Options Exercise Price Options Exercise Price Options Exercise Price ---------- -------------- --------- -------------- --------- -------------- Outstanding at beginning of Year 825,075 $ 31.27 672,675 $30.93 423,700 $29.82 Granted 20,000 28.69 171,500 31.46 274,500 32.26 Exercised (6,000) 13.10 (13,100) 13.83 (9,400) 16.36 Forfeited (15,500) 26.78 (6,000) 39.73 (16,125) 32.83 Expired --- --- --- --- --- ------- ------- ------- Outstanding at end of year 823,575 $ 31.37 825,075 $31.27 672,675 $30.93 ======= ======= ======= Exercisable at end of year 431,325 $ 30.32 272,225 $28.30 189,450 $25.85 ======= ======= ======= Available for grant at end of Year 881,125 885,625 41,125 ======= ======= ======= Weighted-average fair value of options granted during the year $14.70 $15.67 $22.14 ======= ======= =======
The following table summarizes information about stock options outstanding at September 30, 2003: Options Outstanding Options Exercisable ----------------------------------------------------- ------------------------------------ Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price --------------- ------ ---------------- -------------- -------- -------------- $6.56 to 6.69 9,750 1.1 years $ 6.60 9,750 $ 6.60 16.63 to 18.97 128,050 4.0 years 17.62 128,050 17.62 27.82 to 28.00 73,000 4.3 years 27.91 63,000 28.00 30.06 to 37.75 513,000 7.8 years 32.39 148,250 33.24 42.71 to 52.06 101,275 4.9 years 48.46 83,775 49.02 ------- ------- ------- 6.56 to 52.06 825,075 6.5 years $ 31.37 432,825 $ 30.31 ======= ======= =======
RIGHTS AGREEMENT - In September 2002, we authorized and declared a dividend of one Right for each outstanding share of common stock as of November 5, 2002, subject to lender approval and consent, which was obtained. One Right will also be associated with each share of common stock that becomes outstanding after November 5, 2002 but before the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as defined in Rights Agreement effective October 18, 2002, which governs the Rights). The Rights are not exercisable until a person or group of affiliated or associated persons begin to acquire or acquires beneficial ownership of 15 percent or more of our outstanding common stock. This provision does not apply to shareholders already holding 15 percent or more of our outstanding common stock as of November 5, 2002 until they acquire an additional 5 percent. When exercisable, each Right entitles the registered holder to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock, no par value, at a price of $150 per one one-thousandth of a preferred share, subject to adjustment. The Rights will expire on November 5, 2012. At September 30, 2003, 500,000 preferred shares have been reserved for issuance in the event that Rights are exercised. NOTE 7 - RETIREMENT PLAN We have a contributory retirement plan (the "Plan") under which qualified participants may make contributions, which together with our contributions, can be up to 100% of their compensation, as defined, to a maximum of $40,000. Participants must contribute from 1 to 5 percent of their earnings as a required contribution ("the basic contribution"). We make contributions to the Plan equal to twice the basic contributions. After six consecutive months of service, an employee can elect to become a participant in the Plan. Our contributions vest 100% to each participant after three years of service with us including any period of ineligibility mandated by the Plan. If a participant terminates employment before becoming fully vested, the unvested portion is credited to our account and can be used only to offset our contribution requirements. In fiscal year 2003, no forfeitures were utilized to reduce our cash contribution requirements; while in fiscal year 2002, $200,000 of forfeitures were utilized to reduce our cash contribution requirements. In fiscal years 2003 and 2002, actual cash contributions totaled approximately $2.5 million and $2.2 million, respectively. As of September 30, 2003, there are approximately $157,000 of contribution forfeitures, which can be utilized to reduce our future cash contribution requirements. NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities included in the accompanying Consolidated Balance Sheets approximate fair value due to the short maturity of these instruments. Since the Credit Facility (as described in Note 4) has a market adjustable interest rate, the carrying value approximated fair value as of September 30, 2003. The same was true of our prior credit facility and the carrying value approximated fair value as of September 30, 2002. NOTE 9 - CONCENTRATION OF MARKET AND CREDIT RISK All of our customers are in the oil and gas offshore exploration and production industry. This industry concentration has the potential to impact our overall exposure to market and credit risks, either positively or negatively, in that our customers could be affected by similar changes in economic, industry or other conditions. However, we believe that the credit risk posed by this industry concentration is offset by the creditworthiness of our customer base. Our portfolio of accounts receivable is comprised of major international corporate entities and government organizations with stable payment experience. Historically, our uncollectible accounts receivable have been immaterial, and typically, we do not require collateral for our receivables. At September 30, 2001, we had approximately $3.6 million in allowance for doubtful accounts related to two contract disputes, compared to no allowance at September 30, 2003 or 2002. During fiscal year 2002, the entire $3.6 million was offset against accounts receivable. However, we continue to pursue collection of one contract dispute of approximately $2.1 million. Significant customers are as follows (in thousands): Fiscal Fiscal Fiscal 2003 2002 2001 ------- ------- ------- ExxonMobil Production Malaysia, Inc. $47,827 $23,417 $25,885 Esso Exploration Angola 19,514 --- --- Woodside Energy Ltd. 25,324 1,907 6,068 Shell Philippines Exploration B.V. --- 22,370 37,981 Burullus Gas Company 5,541 27,319 --- Carigali - Triton Operating Company --- 20,474 --- Rashid Petroleum Company 738 8,740 15,738 NOTE 10 - COMMITMENTS AND CONTINGENCIES OPERATING LEASES We lease our Houston, Texas office space under an operating lease agreement which will expire in fiscal 2007. Future minimum lease payments for operating leases for the fiscal years ending September 30 are as follows (in thousands): 2004........................ 588 2005........................ 628 2006........................ 647 2007........................ 547 2008........................ 54 Total rent expense under operating leases was approximately $567,000, $539,000 and $474,000 for fiscal years ended September 30, 2003, 2002, and 2001 respectively. LITIGATION We are party to a number of lawsuits which are ordinary, routine litigation incidental to our business, the outcome of which, individually, or in the aggregate, is not expected to have a material adverse effect on our financial position or results of operations. NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On May 31, 2003, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities (or assets in certain circumstances) in statements of financial position. SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. Management does not expect the adoption of SFAS 150 to have a material impact on it financial statements or results of operations. NOTE 12 - OPERATIONS BY GEOGRAPHIC AREAS We are engaged in offshore contract drilling. The contract drilling operations consist of contracting our owned or managed offshore drilling equipment primarily to major oil and gas exploration companies. Operating income is contract revenues less operating costs, general and administrative expenses and depreciation. In computing operating income (loss) for each geographic area, other income (expense) and domestic and foreign income taxes were not considered. Total assets are those assets that we use in operations in each geographic area. General corporate assets in fiscal year 2000 were principally investments in marketable securities, which were liquidated during fiscal year 2001. A summary of revenues, operating margin and identifiable assets by geographic areas is as follows (in thousands): Fiscal Fiscal Fiscal 2003 2002 2001 ------- -------- --------- CONTRACT REVENUES: United States $ 8,303 $ 7,066 $ 27,128 Southeast Asia 59,671 78,330 70,472 Mediterranean Sea 51,468 61,584 37,815 Australia 25,323 1,907 6,068 India --- --- 6,058 -------- -------- -------- $144,765 $149,157 $147,541 ======== ======== ======== OPERATING INCOME (LOSS): United States $ (4,232) $ (5,891) $ 3,223 Southeast Asia 23,163 39,890 29,134 Mediterranean Sea (7,692) 17,846 17,574 Australia 9,268 (1,658) 57 India --- --- 1,960 General and administrative expenses (14,015) (10,080) (9,250) -------- -------- -------- $ 6,492 $ 40,107 $ 42,698 ======== ======== ======== TOTAL ASSETS: United States $ 38,336 $ 43,548 $122,894 Southeast Asia 245,446 176,763 133,369 Mediterranean Sea 122,586 219,019 90,849 Africa 111,179 --- --- Australia 3,062 3,720 5,264 India --- --- 123 General corporate and other 2,065 2,188 1,379 -------- -------- ------- $522,674 $445,238 $353,878 NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly results for fiscal years 2003 and 2002 are as follows (in thousands, except per share amounts): QUARTERS ENDED -------------------------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, -------------- --------- -------- ------------- 2003 - ---- Revenues $ 29,841 $ 35,073 $ 41,847 $ 38,005 Income (loss) before income taxes 2,374 1,428 2,207 (4,373) Net income (loss) 950 587 (82) (14,257) Earnings per common share - Basic .07 .04 (.01) (1.03) Diluted .07 .04 (.01) (1.03) 2002 - ---- Revenues $ 37,234 $43,740 $37,402 $30,781 Income before income taxes 12,387 10,715 9,174 6,501 Net income 8,158 6,830 6,132 7,165 Earnings per common share - Basic .59 .49 .44 .52 Diluted .59 .49 .44 .51
____________ The sum of the individual quarterly net income per common share amounts may not agree with year-to-date net income per common share as each quarterly computation is based on the weighted average number of common shares outstanding during that period. DIRECTORS OFFICERS DEBORAH A. BECK (2,3,4) JOHN R. IRWIN Executive Vice President - Planning and Technology President, Chief Executive Officer Northwest Mutual Life Insurance Company Milwaukee, Wisconsin JAMES M. HOLLAND Senior Vice President, Chief Financial Officer and ROBERT W. BURGESS (2,3,4) Secretary Financial Executive, Retired Orleans, Massachusetts GLEN P. KELLEY Vice President - Contracts and Administration GEORGE S. DOTSON (1,2,3,4) Vice President Helmerich & Payne, Inc. President Helmerich & Payne International Drilling Co. Tulsa, Oklahoma HANS HELMERICH (1, 4) President, Chief Executive Officer Helmerich & Payne, Inc. Tulsa, Oklahoma JOHN R. IRWIN (1) President, Chief Executive Officer Atwood Oceanics, Inc. Houston, Texas WILLIAM J. MORRISSEY (2,4) Bank Executive, Retired Elkhorn, Wisconsin (1) Executive Committee (2) Audit Committee (3) Compensation Committee (4) Nominating & Corporate Governance Committee ___________________________________________
ANNUAL MEETING The annual meeting of stockholders will be held at 10:00 a.m. Central Standard Time on February 12, 2004 at our principal office: 15835 Park Ten Place Drive, Houston, Texas, 77084. A formal notice of the meeting together with a proxy statement and form of proxy will be mailed to stockholders on or about January 15, 2004. TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 FORM 10-K A copy of our Form 10-K as filed with the Securities and Exchange Commission is available free on request by writing to: Secretary, Atwood Oceanics, Inc. P. O. Box 218350 Houston, Texas 77218 A copy may also be read and copied at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operations of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically at http://www.sec.gov. We also maintain an Internet site that contains information about us along with reports, proxy and information statements filed with the Securities and Exchange Commission at http://www.atwd.com. A copy of our Form 10-K may be obtained free of charge from our website. STOCK PRICE INFORMATION - The common stock of Atwood Oceanics, Inc. is traded on the New York Stock Exchange ("NYSE") under the symbol "ATW". No cash dividends on common stock were paid in fiscal year 2002 or 2003, and none are anticipated in the foreseeable future. As of December 29, 2003, there were over 750 beneficial owners of the common stock of Atwood Oceanics, Inc. As of December 26, 2003, the closing sale price of the common stock of Atwood Oceanics, Inc., as reported by NYSE, was $32.50 per share. The following table sets forth the range of high and low sales prices per share of common stock as reported by the NYSE for the periods indicated. Fiscal Fiscal 2003 2002 --------------------- ------------------- QUARTERS ENDED LOW HIGH LOW HIGH December 31 $24.39 $32.96 $24.23 $35.99 March 31 24.45 31.10 29.81 47.14 June 30 24.81 30.30 37.50 50.32 September 30 23.06 28.20 27.49 37.72 BAR CHART - CONTRACT REVENUES ($ MILLIONS) 1999 2000 2001 2002 2003 $152.9 $136.0 $147.5 $149.2 $144.8 BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS) 1999 2000 2001 2002 2003 $38.8 $34.8 $107.8 $89.4 $101.8 BAR CHART - OPERATING INCOME ($ MILLIONS) 1999 2000 2001 2002 2003 $48.2 $37.2 $42.7 $40.1 $6.5 BAR CHART - NET INCOME (LOSS) ($ MILLIONS) 1999 2000 2001 2002 2003 $27.7 $23.1 $27.3 $28.3 $(12.8) EX-21 5 exh211.txt SUBSIDIARY COMPANIES EXHIBIT 21.1 SUBSIDIARY COMPANIES AND STATE OR JURISDICTION OF INCORPORATION UNITED STATES - Atwood Drilling Inc. Delaware 100% Atwood Hunter Co. Delaware 100% Atwood Management, Inc. Delaware 100% Atwood Oceanics Management, LP Delaware 100% ATW Management, Inc. Delaware 100% Atwood Deep Seas, Ltd. Texas 100% FOREIGN - Atwood Oceanics Drilling Pty. Ltd. Australia 100% Atwood Oceanics Australia Pty. Ltd. Australia 100% Atwood Oceanics Platforms Pty. Ltd. Australia 100% Atwood Oceanics Services Pty. Ltd. Australia 100% Atwood Oceanics West Tuna Pty. Ltd. Australia 100% Atwood Oceanics Pacific Limited Cayman Islands, B.W.I. 100% Alpha Offshore Drilling Services Cayman Islands, B.W.I. 100% Atwood Oceanics International Limited Cayman Islands, B.W.I. 100% Swiftdrill Offshore Drilling Services Cayman Islands, B.W.I. 100% Swiftdrill, Inc. Cayman Islands, B.W.I. 100% Atwood Oceanics Leasing Limited Labuan 100% Atwood Oceanics (M) Sdn Bhd Malaysia 100% Clearways Offshore Drilling Sdn Bhd Malaysia 49% Drillquest (M) Sdn Bhd Malaysia 100% PT Alpha Offshore Drilling Indonesia 100% PT Pentawood Offshore Drilling Indonesia 80% Aurora Offshore Services Gmbh Germany 100% Swiftdrill Nigeria Limited Nigeria 60% Atwood Oceanics Services Singapore 100% EX-23 6 exh231.txt EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-52065; No. 333-74255 and No. 333-87786) and on Form S-3 (No. 333-92388) of our report dated December 29, 2003 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders and which is incorporated in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas December 29, 2003 EX-31 7 exh311.txt EXHIBIT 31.1 CERTIFICATIONS I, John R. Irwin, certify that: 1. I have reviewed this annual report on Form 10-K of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]; and (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 29, 2003 /s/ John R. Irwin John R. Irwin Chief Executive Officer EX-31 8 exh312.txt EXHIBIT 31.2 CERTIFICATIONS I, James M. Holland, certify that: 1. I have reviewed this annual report on Form 10-K of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]; and (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 29, 2003 /s/ James M. Holland James M. Holland Chief Financial Officer EX-32 9 exh321.txt 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 Annual Report of Atwood Oceanics, Inc. (the "Company") on Form 10-K for the period ended September 30, 2003, 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. Section 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: December 29, 2003 /s/ John R. Irwin John R. Irwin President and Chief Executive Officer EX-32 10 exh322.txt 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 Annual Report of Atwood Oceanics, Inc. (the "Company") on Form 10-K for the period ended September 30, 2003, 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. Section 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: December 29, 2003 /s/ James M. Holland James M. Holland Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----