-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FD2gtfCa96DyvZOvwZxLaNyqm1MdOuhfFH4eC3gdeLWytoMFGIhauvbKuT+2e0U2 69He6tBR99ANT1iRHpfcdg== 0000008411-94-000037.txt : 19941229 0000008411-94-000037.hdr.sgml : 19941229 ACCESSION NUMBER: 0000008411-94-000037 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941228 SROS: NASD 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: 000-06352 FILM NUMBER: 94566524 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 7134922929 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1994 Commission File Number 0-6352 ATWOOD OCEANICS, INC. (Exact name of registrant as specified in its charter) State of Texas 74-1611874 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 15835 Park Ten Place Drive P.O. Box 218350 Houston, Texas 77218 (Address of principal executive offices) Registrant's telephone number, including area code: (713) 492-2929 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value (Title of Class) 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 filing 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 [X] The aggregate market value of the voting stock held by non-affiliates of the registrants as of November 30, 1994 is $63,530,000. The number of shares outstanding of the issuer's class of Common Stock, as of November 30 , 1994: 6,582,613 shares of Common Stock, $1 par value. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 1994 - Referenced in Parts I, II and IV of this report. (2) Proxy Statement for Annual Meeting of Shareholders to be held February 9, 1995 - 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" or "Registrant", unless the context requires otherwise), a corporation organized in 1968 under the laws of the State of Texas, is engaged in contract drilling of exploratory and development oil and gas wells in offshore areas and related support, management and consulting services. The Company currently owns (i) one jack-up, one semisubmersible tender-assist vessel, one submersible, one semisubmersible and one modular, self-contained platform rig, and (ii) the stock of two corporations which are the sole general partners owning 1% interests and limited partners owning 49% interests in the profits and losses of two partnerships, which, collectively, own three semisubmersible rigs. The Company also provides labor, supervisory and consulting services to two operator-owned platform rigs in Australia Activity in the contract drilling industry and related oil service businesses has been depressed since 1982 due to a decline in the price of and demand for oil and natural gas and an oversupply of drilling equipment. Such industry conditions have resulted in intense competition, reduced rates for drilling contracts and reduced utilization levels of drilling rigs. During fiscal year 1994, there were no significant improvements in dayrate levels or other underlying market conditions; however, due to the Company's increase in fleet utilization from 88 percent in 1993 to 99 percent in 1994, the Company enjoyed its first profitable year since 1989. However, due to continuing uncertainties in the market and the fact that several rigs are currently working under short-term contracts, there is no assurance in 1995 that the Company can maintain its equipment utilization rate at its 1994 level. Most of the Company's drilling operations have been conducted outside United States waters. The Company is currently involved in active drilling operations in Australia, Malaysia and Korea. At the present time, the submersible "RICHMOND" is the Company's only drilling vessel located in United States waters. At the end of fiscal year 1992, the RICHMOND had not found profitable contract work for over one year, which, coupled with an uncertain outlook for general improvement in the drilling market, caused the Company to write down certain drilling vessels and other assets by $17 million. However, since March 1993 the RICHMOND has had continuous profitable work in the United States Gulf of Mexico. For information relating to the revenues, profitability and identifiable assets attributable to specific geographic area of operations, see Note 13 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to shareholders for fiscal year 1994, incorporated by reference herein. Page 3 The following table sets forth, for each of the last three fiscal years, the approximate percentage of gross revenues (which include investment income) derived from domestic and foreign operations: Fiscal Year Ended September 30, 1994 1993 1992 Domestic 12% 11% 6% Foreign 88% 89% 94% OFFSHORE DRILLING EQUIPMENT As stated above, the Company's diversified fleet of owned or operated drilling rigs currently consists of four semisubmersibles, one semisubmersible tender assist vessel, one jack-up, one submersible, and one modular, self- contained platform rig. 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 owned or operated by the Company illustrate the diversified range of application of the rig fleet. The 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 a drillship. Semisubmersible units are generally more expensive to operate than jack-up rigs and, compared to a drillship, are often limited in the amount of supplies that can be stored on board. The semisubmersible tender assist vessel operates like a semisubmersible except that its 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 barge 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 barge is raised out of the water by jacking up on these legs. On completion of the well, the barge is jacked downed 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 as deep water as other units. The submersible drilling unit owned by the Company 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 Page 4 towed to 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 other 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 work boats. A platform rig usually stays at a location for several months, if not years, since there are usually several wells drilled from a support platform. DRILLING CONTRACTS The contracts under which the Company operates its 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 the Company's owned and/or operated vessels has ranged from the length of time necessary to drill one well to several months and is generally subject to early termination in the event of a total loss of the drilling vessel, excessive equipment breakdown or failure to meet minimum performance criteria. In the current offshore drilling market, long-term contracts for mobile exploration vessels, such as the Company's semisubmersibles, are extremely rare. However, 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, equipment and services provided, the areas involved, market conditions and other variables. Generally, contracts for drilling, management and support services specify a basic rate of compensation computed on a day rate basis. Such agreements generally provide for a reduced day rate payable when operations are interrupted by equipment failure and subsequent repairs, field moves, adverse weather conditions or other factors beyond the control of the Company. 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 day rate because of the above conditions or because the vessel is idle and not on contract will have an adverse effect on operating profit. A continuing over supply of drilling rigs in the market can adversely affect the Company's ability to employ its drilling vessels and depresses dayrates which can be obtained. Page 5 For long moves, the Company attempts to obtain either a lump sum or a day rate 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 the Company's acceptance of a contract which provides only partial or no recovery of relocation costs. Operation of the Company's 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. As the market continues to be burdened with an oversupply of drilling units, some contracts continue to be offered on a per well basis rather than a fixed time period. The Company also contracts 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 entered into by the Company in connection with operations offshore Australia, the supply of personnel and rig design, fabrication, installation and operation. The contracts normally provide for reimbursement to the Company 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. The Company generally obtains the benefit of insurance or a contractual indemnity from the owner for liabilities which could be incurred in operations. OPERATIONAL RISKS AND INSURANCE The Company's operations are subject to the usual hazards associated with the drilling of oil and gas wells, such as blowouts, explosions and fires. In addition, the Company's 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, and suspension of operations or environmental damage through oil spillage or extensive, uncontrolled fires. Although the Company believes that it is adequately insured against normal and foreseeable risks in its operations in accordance with industry standards, such insurance may not be adequate to protect the Company against liability from all consequences of well disasters, marine perils, extensive fire damage or damage to the environment. To date, the Company has 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 the Company is not fully insured could have a material adverse effect on the Company's financial position. ENVIRONMENTAL PROTECTION Under the Federal Water Pollution Control Act, as amended, 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 Page 6 certain limitations, and must establish financial responsibility to cover such liability. The Company has taken all steps necessary to comply with this law, and has received a Certificate of Financial Responsibility (Water Pollution) from the U.S. Coast Guard. The Company's operations in United States waters are also subject to various other environmental regulations regarding pollution and control thereof, and the Company has taken steps to ensure compliance therewith. CUSTOMERS During fiscal year 1994, the Company performed operations for 17 customers. Because of the relatively limited number of customers for which the Company can operate at any give time, sales to each of 2 different customers amounted to 10% or more of the Company's fiscal 1994 revenues. Esso Australia Limited/Esso Production Malaysia, Inc., and Western Mining Corporation Limited accounted for 39% and 10% respectively, of fiscal year 1994 revenues. The Company's business operations are subject to the risks associated with a business having a limited number of customers for its products or services, and a decrease in the drilling programs of these customers in the areas where they employ the Company may adversely affect the Company's revenues. COMPETITION The Company competes with numerous other drilling contractors, some of which are substantially larger than the Company and possess appreciably greater financial and other resources. In addition, the Company must compete with some large diversified natural resource companies that maintain offshore drilling divisions. The drilling industry is highly competitive, and no one drilling contractor is dominant. Even though improved somewhat from prior years, the supply of drilling equipment continues to exceed demand. As a consequence, 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. The Company believes that it competes 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 and prices of oil and gas, and from time to time by political considerations and policies. It is impracticable to estimate the number of competitors of the Company, some of which may have substantially greater resources and longer operating history than does the Company. In recent years many drilling companies have sought protection from creditors under bankruptcy laws or have undertaken business combinations with other companies as a result of the Page 7 downturn in the contract drilling industry. Although these developments have resulted in a decrease in the total number of competitors, management of the Company believes that competition for drilling contracts will continue to be intense for the foreseeable future. FOREIGN OPERATIONS The operations of the Company are conducted primarily in foreign waters and are subject to certain political, economic and other uncertainties not encountered by purely domestic drilling contractors, including risks of expropriation, nationalization, foreign exchange restrictions, foreign taxation, changing conditions and foreign and domestic monetary policies. Generally, the Company purchases insurance to protect against some or all loss due to events of political risk such as nationalization, expropriation, war, confiscation and deprivation. Occasionally, customers will indemnify the Company against such losses. Moreover, offshore drilling activity is affected by government regulations and policies limiting the withdrawal of offshore oil and gas, by regulations affecting production, by regulations restricting the importation of foreign petroleum, by environmental regulations and by regulations which may limit operations in offshore areas by foreign companies and/or personnel. See Note 13 to Consolidated Financial Statements contained in the Company's Annual Report to shareholders for fiscal year 1994, incorporated herein by reference, for a summary of revenues, operating income (loss) and identifiable assets by geographic region. EMPLOYEES The Company currently employs approximately 650 persons in its domestic and worldwide operations. In connection with its foreign drilling operations, the Company has often been required by the host country to hire substantial portions of its work force in that country, and in some cases these employees may be represented by foreign unions. To date the Company has experienced little difficulty in complying with such requirements and the Company's drilling operations have not been interrupted by strikes or work stoppages. ITEM 2. PROPERTIES Information regarding the location and general character of the Company's principal assets may be found in the schedule with the caption heading "Offshore Drilling Operations" in the Company's Annual Report to Shareholders for fiscal year 1994, which is incorporated by reference herein. In October 1993, the Company purchased for $1.5 million the SOUTHERN CROSS, a semisubmersible built in 1976, and the Company sold its forty percent interest in an incorporated Indian joint venture which owns a jack-up and a drillbarge. For more information concerning these transactions, see Notes 4 and 11 to Consolidated Financial Statements contained in the Company's Annual Report to Shareholders for fiscal year 1994, incorporated by reference herein. ITEM 3. LEGAL PROCEEDINGS The Company is not currently involved in any material legal proceedings. Page 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS During the fourth quarter of fiscal 1994, 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 September 30, 1994, there were over 400 beneficial owners of the Company's common stock. The Company did not pay cash dividends in fiscal years 1993 or 1994 and the Company does not anticipate paying cash dividends in the foreseeable future because of the capital intensive nature of its business. Cash reserves will be utilized to offset any operating cash deficiencies which could occur, as well as to acquire additional equipment, at the appropriate time, to enable the company to maintain its high competitive profile in the industry. Market information concerning the Company's common stock may be found under the caption heading "Stock Price Information" in the Company's Annual Report to Shareholders for fiscal 1994, 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 the Company's Annual Report to Shareholders for fiscal 1994, 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 the Company's Annual Report to Shareholders for fiscal 1994, which is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found in the Company's Annual Report to Shareholders for fiscal 1994, which is incorporated by reference herein. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's accountants on accounting and financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY This information is incorporated by reference from the Company's Page 9 definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 9, 1995, to be filed with the Securities and Exchange Commission (the Commission) 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 the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 9, 1995, to be filed with the Commission 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 the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 9, 1995, to be filed with the Commission 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 Upon being awarded a term contract in August 1994, the Company and Helmerich & Payne, Inc. ("H&P") (current owner in conjunction with its wholly- owned subsidiary, Helmerich & Payne International Drilling Co., of 24.31% of the Company's common stock) entered into a joint venture agreement to construct a new generation platform rig which is scheduled to commence operating in offshore Australia in early 1996. H&P will manage the design, construction, testing and mobilization of the new rig; while, the Company will manage the initial installation and daily operation of the new rig. The Company and H&P each have a fifty percent interest in the joint venture. At September 30, 1994, the Company had invested $310,000 in this $26 million project, with an estimated total investment by the Company to be approximately $13 million. Three of the Company's directors, namely Walter H. Helmerich III, Hans Helmerich and George S. Dotson are directors and executive officers of H&P. There are no other business relationships or transactions with management involving the Company or any of its subsidiaries which require disclosure under this Item 13. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Schedules and Exhibits 1. List of Financial Statements The following financial statements, together with the report of Arthur Andersen LLP dated November 29, 1994 appearing in the Company's Annual Report to Shareholders, are incorporated by reference herein: Page 10 Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Changes in Shareholders' Equity Report of Independent Public Accountants Notes to Consolidated Financial Statements 2. List of Financial Statement Schedules The following additional data should be read in conjunction with the Consolidated Financial Statements in the Company's Annual Report to Shareholders: Report of Independent Public Accountants on Additional Note and Schedules Additional Note to Financial Statements Schedule I - Marketable Securities Schedule V - Property and Equipment Schedule VI - Accumulated Depreciation of Property and Equipment 3. Exhibits Listed below are all of the Exhibits filed as part of this report. 3.1.1 Restated Articles of Incorporation dated January 1972 (Incorporated herein by reference to Exhibit 3.1.1 of the Company's Form 10-K for the year ended September 30, 1993). 3.1.2 Articles of Amendment dated March 1975 (Incorporated herein by reference to Exhibit 3.1.2 of the Company's Form 10-K for the year ended September 30, 1993). 3.1.3 Articles of Amendment dated March 1992 (Incorporated herein by reference to Exhibit 3.1.3 of the Company's Form 10-K for the year ended September 30, 1993). 3.2 Bylaws, as amended (Incorporated herein by reference to Exhibit 3.2 of the Company's Form 10-K for the year ended September 30, 1993). 10.1 Atwood Oceanics, Inc. 1981 Incentive Stock Option Plan (Incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-K for the year ended September 30, 1993). 10.2 Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated Page 11 herein by reference to Exhibit 10.2 of the Company's Form 10-K dated September 30, 1993). 10.3 Joint Venture Letter Agreement dated November 4, 1994 between the Company and Helmerich & Payne, Inc. 13.1 Annual Report to Shareholders 22.1 List of Subsidiaries 23.1 Accountants Consent 27.1 Financial Data Schedule 4. Executive Compensation Plans and Arrangements Atwood Oceanics, Inc. 1981 Incentive Stock Option Plan - See Exhibit 10.1 hereof. Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.2 hereof. (b) Reports on Form 8-K During the last quarter of fiscal 1994, the Company did not file with the Securities and Exchange Commission any reports on Form 8-K. Page 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATWOOD OCEANICS, INC. By /s/ JOHN R. IRWIN By /s/ JAMES M. HOLLAND JOHN R. IRWIN, President JAMES M. HOLLAND, (Principal Executive Officer) Senior Vice President and (Principal Financial Accounting Officer) Date: November 30, 1994 Date: November 30, 1994 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 on the dates indicated. By /s/ ROBERT W. BURGESS By /s/ GEORGE S. DOTSON Robert W. Burgess, Director George S. Dotson, Director Date: November 30, 1994 Date: November 30, 1994 By /s/ HANS HELMERICH By/s/ WILLIAM J. MORRISSEY Date: November 30, 1994 Date: November 30, 1994 Page 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON ADDITIONAL NOTE AND SCHEDULES To Atwood Oceanics, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements included in Atwood Oceanics, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated November 29, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The additional note and schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. Such note and schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Houston, Texas November 29, 1994 Page 14 ATWOOD OCEANICS, INC. AND SUBSIDIARIES ADDITIONAL NOTE TO FINANCIAL STATEMENTS SUPPLEMENTARY PROFIT AND LOSS INFORMATION The following amounts were included as a component of net income (loss) for each of the three years in the period ended September 30, 1994: (In thousands) 1992 1993 1994 Maintenance and repairs $3,278 $3,891 $4,478 Dividend income 223 223 236 Interest income 2,869 2,247 2,382 DETAIL OF ACCRUED LIABILITIES Components of accrued liabilities at September 30, 1993 and 1994, are as follows: (In thousands) 1993 1994 Payroll and related accounts $2,892 $3,191 Property and payroll taxes 489 997 Income taxes 1,453 839 Other 1,008 1,546 $5,842 $6,573 Page 15 SCHEDULE I ATWOOD OCEANICS, INC. AND SUBSIDIARIES MARKETABLE SECURITIES September 30, 1994 (In thousands) Number of Shares or Principal Description Amount Cost Debt Securities: U. S. Treasuries $ 22,600 $ 22,451 Common Stocks: Energy 80 2,477 $ 24,928 Market Carrying Description Value Amount Debt Securities: U. S. Treasuries $ 23,270 $ 22,451 Common Stocks: Energy 5,458 2,477 $ 28,728 $ 24,928 Page 16 SCHEDULE V ATWOOD OCEANICS, INC. AND SUBSIDIARIES PROPERTY AND EQUIPMENT For the Three Years in the Period Ended September 30, 1994 (In thousands) Balance Beginning of Year Additions Year ended September 30: 1992 - Drilling vessels, equipment and drill pipe $205,291 $ 2,226 Construction-in-progress --- 13,062 Other 3,688 254 208,979 15,542 1993 - Drilling vessels, equipment and drill pipe 165,077 2,390 Construction-in-progress 14,028 2,845 Other 3,871 67 182,976 5,302 1994 - Drilling vessels, equipment and drill pipe 182,851 6,133 Other 3,924 589 $186,775 $ 6,722 Write- Down of Drilling Vessels Retirements, and Other Transfers Equipment or Sales Year ended September 30: 1992 - Drilling vessels, equipment and drill pipe $(15,677) $(26,763)(1) Construction-in-progress --- 966 Other --- (71) (15,677) (25,868) 1993 - Drilling vessels, equipment and drill pipe --- 15,384 Construction-in-progress --- (16,873) Other --- (14) --- (1,503) 1994 - Drilling vessels, equipment and drill pipe --- (1,459) Other --- (34) $ --- $ (1,493) NOTE - (1) Includes the retirement of approximately $30 million of assets net of accumulated depreciation related to a drilling vessel (See Schedule VI). Page 17 SCHEDULE V (continued) Balance at End of Year Year ended September 30: 1992 - Drilling vessels, equipment and drill pipe $165,077 Construction-in-progress 14,028 Other 3,871 182,976 1993 - Drilling vessels, equipment and drill pipe 182,851 Construction-in-progress --- Other 3,924 186,775 1994 - Drilling vessels, equipment and drill pipe 187,525 Other 4,479 192,004 Page 18 SCHEDULE VI ATWOOD OCEANICS, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT For the Three Years in the Period Ended September 30, 1994 (In thousands) Balance Additions Beginning Charged to of Year Income Year ended September 30: 1992 - Drilling vessels, equipment and drill pipe $ 93,703 $15,089 Other 1,641 309 95,344 15,398 1993 - Drilling vessels, equipment and drill pipe 83,049 12,730 Other 1,894 315 84,943 13,045 1994 - Drilling vessels, equipment and drill pipe 94,488 13,317 Other 2,137 301 $ 96,625 $13,618 Balance Retirements End or Sales of Year Year ended September 30: 1992 - Drilling vessels, equipment and drill pipe $(25,743)(1) $ 83,049 Other (56) 1,894 (25,799) 84,943 1993 - Drilling vessels, equipment and drill pipe (1,291) 94,488 Other (72) 2,137 (1,363) 96,625 1994 - Drilling vessels, equipment and drill pipe (1,053) 106,752 Other (31) 2,407 $ (1,084) $109,159 (1) See Note (1) on Schedule V EX-10.3 2 EXHIBIT 10.3 JOINT VENTURE LETTER AGREEMENT BETWEEN THE COMPANY AND HELMERICH AND PAYNE, INC. November 4, 1994 Atwood Oceanics, Inc. 15835 Park Ten Place Drive P. O. Box 218350 Houston, TX 77218 Attention: John Irwin, President Re: Platform Drilling Rig 200 Gentlemen: This letter will confirm the agreement ("Agreement") of Helmerich & Payne International Drilling Co. ("H&P") and Atwood Oceanics, Inc. ("Atwood") (sometimes individually referred to herein as "Party" and collectively as the "Parties") for the construction, sale and delivery of an offshore platform drilling rig known as Rig 200 (referred to herein as the "Rig"). On or about August 9, 1994, Atwood Oceanics West Tuna Pty. Ltd. (an Australian corporation owned equally by subsidiaries of H&P and Atwood) entered into a platform drilling rig services contract ("Contract") with Esso Australia Ltd. ("Esso") which, among other things, provides for the operation of a drilling rig on Esso's West Tuna platform located in the Bass Strait, offshore Australia. It is estimated that drilling operations will commence on or about January 1, 1996. As a consequence, H&P and Atwood desire to cause the Rig to be constructed in conformity with the Contract requirements and specifications (attached hereto as Exhibit "A" and incorporated herein by this reference) and to be sold and delivered to Atwood Oceanics West Tuna Pty. Ltd. ("Purchaser") at Barry Beach, Australia as more particularly described in this Agreement. 1. Name of Project. The name of the project shall be the "Rig 200" project ("Project"); provided, however, the business of the Project shall be conducted under the name of H&P. 2. Term of Project. The term of the project is estimated to be approximately twenty-four (24) months. The Project will terminate on the date on which the construction, sale and delivery of the Rig to the Purchaser and all activities necessary or incidental to the foregoing, including the payment of all expenses, have been completed. 3. Principal Office. The principal place of business of the Project shall be at H&P's offices, 1579 East 21st Street, Tulsa, Oklahoma, 74114. 4. Purpose of Project. The Project is formed for the purpose of the construction, sale and delivery of the Rig to Purchaser for its performance of the Contract. 5. Management. H&P, as manager of the Project ("Project Manager"), shall be responsible for general supervision and management of the business affairs and property of the Project. Except as otherwise provided in this paragraph 5, the Project Manager shall have those powers necessary to cause the construction, sale and delivery of the Rig to Purchaser including, but not limited to, execution and administration of rig fabrication, insurance and transportation contracts, and employment of personnel and professional advisors. As to third parties, any document executed by the Project Manager shall be deemed to be the action of the Project. Notwithstanding the foregoing, the Project Manager shall have no power or authority to do, perform or authorize any of the following on behalf of the Project without the consent of all Parties: (i) sell, exchange or otherwise dispose of assets not in the ordinary course of business: (ii) leave or sell the Rig other than as specified in this Agreement; (iii) borrow money on behalf of the Project; and (iv) grant any lien, mortgage, deed of trust or other security arrangement on the property of the Project. Atwood shall have no management rights with regard to the Project and without the prior written consent of the Project Manager, shall not negotiate nor contract with third parties for the provisions of goods or services to the Project. 6. Ownership Interests. Each Party shall own a 50% interest in the Project including, without limitation, the Rig and the sales proceeds therefrom. To the extent that H&P, as Project Manager, owns or is deemed to own legal title to the Rig or any other assets of the Project, H&P agrees to own, hold and manage such assets for the benefit and in the best interests of the parties. 7. Payment of Project Costs. All costs and expenses of the Project shall be shared equally by the Parties. The Project Manager shall have a continuing election to (i) receive in advance Atwood's share of total Project costs which the Project Manager estimates will be expended during a period not to exceed 30 days from the date of a written request therefor; or (ii) pay Project costs on behalf of both Parties and receive reimbursement for Atwood's share of such costs. Atwood shall pay its share of all advances and shall reimburse the Project Manager for its share of all costs of the Project within five (5) days from the date of Atwood's receipt of the Project Manager's invoice therefor. H&P shall reimburse Atwood (within five (5) days of H&P's receipt of an invoice therefor) for H&P's share of any Project costs paid by Atwood at the written request of H&P. 8. Liability and Indemnification. Each Party agrees to assume and indemnify the other Party for its pro rata share of all loss, cost, claims and liability arising out of the Project. Further, neither H&P nor Atwood shall be liable to the Project or to the other for any act or omission taken or suffered by it in connection with the conduct of the business of the Project which it reasonably believed to be in or not opposed to the best interests of the Project and the mutual best interest of the Parties, unless such act or omission constitutes willful misconduct, fraud or gross negligence. 9. Project Funds. All of the Project's funds shall be maintained in a bank account or bank accounts in such bank oor banks as shall be determined by the Project Manager. 10. Devotion of Time. During the existence of the Project, the Project Manager shall devote such time and effort to the Project business and operations as shall be necessary to timely fulfill the purpose of the Project and to promote fully the interest of the Project and the mutual best interest of the Parties. However, each Party (including the Project Manager) shall be free to engage in other business activities and enterprises, including those of the same nature as conducted by the Project. 11. Capital Contributions. The Parties shall equally contribute the required capital for the Project which is presently estimated to be $25,107,400 as set out in Exhibit "B." The Parties acknowledge that the amount of such required capital is an estimate only and both Parties agree to equally share and pay the actual costs of the Project. Other than the costs of constructing, insuring and transporting the Rig, no additional capital contributions to the Project shall be required or permitted without the consent of the Parties. 12. Books and Accounts. The Project Manager shall maintain separate books, records and accounts for the Project. 13. Sale of Rig. Once constructed, the Rig shall be loaded on an ocean going vessel for transportation and delivery to Purchaser. The sale of the Rig to Purchaser shall be consummated in international waters. Purchaser shall tender to the Parties its originally executed promissory note (in form acceptable to the Parties) as full payment for the Rig. Such note shall be in the principal amount of the actual cost of the Project (which is presently estimated to be $25,107,400) for a term of thirty (30) months with accrued interest at the rate of 11 1/2%. The Purchaser shall pay each Party 50% of the monthly principal and interest installment. 14. Status of Parties. The rights and obligations of the Parties with respect to the Project are several and not joint or collective. This Agreement is not intended to create, and shall not be construed to create, a relationship of partnership or an association for profit between the Parties. In the event that for federal income tax purposes, this Agreement and the operations hereunder are regarded as a partnership, each Party hereby affected elects to be excluded from the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the United States Internal Revenue Code of 1986, as amended, as permitted and authorized by Section 761 of the Code and the regulations promulgated thereunder. 15. Limitation of Transfer of Interests. The Parties shall not sell, assign, transfer or pledge their interests under this Agreement or in the Project without the prior written consent of the other Party. 16. Dissolution and Liquidation. Upon dissolution of the Project, the Project Manager shall act as liquidating trustee and immediately proceed to terminate the business of the Project. Upon liquidation of the Project, all creditors of the Project shall be paid and any remaining distributions, if any, shall be shared equally by the Parties. 17. Default. If either Party breaches or fails to perform any of its material obligations under this Agreement and shall have received written notice thereof by the other Party and shall not have cured such breach or failure to perform within fifteen (15) days of receipt of such notice, it shall be deemed to be in default. In such event, the non-defaulting Party shall have such rights and remedies as may be available at law or in equity including the right to seek specific performance or dissolution of the Project. 18. Governing Law. This Agreement, and the obligations of the Parties hereunder, shall be governed by and construed in accordance with the laws of the State of Texas. 19. Successors and Assigns. This Agreement and all the terms, provisions and conditions hereof shall be binding upon and shall enure to the benefit of the Parties hereto and their respective successors and assigns. 20. Entire Agreement. This Agreement contains the entire agreement among the Parties related to the subject matter hereof and all other agreements relative hereto which are not contained herein are terminated. 21. Further Assurances. Each Party from time-to-time shall do and perform such further acts and execute and deliver such further instruments as may be required or reasonably requested by the other Party to establish, maintain, or protect the respective rights and remedies of the Parties hereto and to carry out and effect the intentions and purposes of this Agreement. Please execute and date the counterpart of this Agreement in the space provided and return it to the undersigned. Yours very truly, HELMERICH & PAYNE INTERNATIONAL DRILLING CO. By /s/ James Bishop (Vice) President AGREED AND ACCEPTED THIS 7TH DAY OF NOVEMBER 1994. ATWOOD OCEANICS INC. By /s/ Glen P. Kelley (Vice) President EX-13.1 3 EXHIBIT 13.1 THE COMPANY Atwood Oceanics, Inc. is engaged in the business of international offshore drilling of exploratory and developmental oil and gas wells and related support, management and consulting services. Presently, the Company operates a modern fleet of seven mobile offshore rigs and one modular platform rig, as well as manages the operations of two operator-owned platform rigs in Northwest Australia. The Company also owns a fifty percent interest in an Australian company which has been awarded a term contract for the design, construction and operation of a new generation platform rig which should become operational in 1996. The Company supports its operations from headquarters in Houston and affiliated offices in Australia, Malaysia, Indonesia and Korea. FINANCIAL HIGHLIGHTS (In thousands) 1994 1993 FOR THE YEAR REVENUES $68,794 $ 54,245 EARNINGS (before depreciation, interest and taxes, 15,324 9,281 but after adjustment for 6,209 (1,791) minority interest) 6,412 5,302 NET INCOME (LOSS) 99% 88% CAPITAL EXPENDITURES RIG UTILIZATION AT YEAR END CASH AND AVAILABLE FOR SALE SECURITIES 41,047 35,044 PROPERTY AND EQUIPMENT 82,845 90,150 TOTAL ASSETS 153,460 149,853 TOTAL SHAREHOLDERS' EQUITY 85,959 79,750 PRESIDENT'S MESSAGE TO OUR SHAREHOLDERS AND EMPLOYEES: The Company accomplished a major goal in 1994 with its return to profitability. Net income of $6.2 million marks the Company's best financial performance since 1983. Earnings, including investment income, before depreciation, interest and taxes, but after adjustment for minority interest, increased 65 percent from $9.3 million in 1993 to $15.3 million in 1994; while operating cash flow increased by $8.6 million from 1993. The key factor in achieving these improved results was an increase in utilization of the Company's fleet (excluding the SOUTHERN CROSS, which has not been placed in service) from 88 percent in 1993 to 99 percent in 1994. These results were also achieved without significant improvements in dayrate levels or other underlying market conditions. While utilization of the Company's fleet during 1994 demonstrated what is achievable, improvement in its markets during 1995 remains possible but uncertain at this stage. Based on current contract commitments, the SEAHAWK, VICKSBURG and RIG 19 are expected to remain profitably employed during fiscal year 1995. The GOODWYN 'A' self-contained platform rig should also remain active throughout the forthcoming year and management fees will increase with that unit commencing drilling operations during the first quarter of fiscal year 1995. The EAGLE, FALCON, HUNTER and RICHMOND have contract commitments which should keep those units employed into the second quarter of fiscal year 1995. Ongoing work for these four units is already being pursued, with high utilization of the Company's fleet and continuing profitability remaining as important goals for 1995. Besides achieving profitability, the Company also accomplished another goal in 1994 when an Australian entity, jointly owned by the Company and Helmerich & Payne, Inc., was awarded a contract for a new, state-of-the-art modular platform rig. A project team has already commenced design work. This new growth opportunity should significantly enhance the Company's results commencing in fiscal year 1996. We will continue to further capitalize on the Company's management, services and technical strengths, and to seek profitable new opportunities for self-contained platform rigs and conversion of the SOUTHERN CROSS for use as a tender-assist or service support unit. Opportunities for selective acquisition of existing rig assets will also be monitored and pursued if there are suitable candidates. During 1995, the Company will continue to focus on improving and developing our safety, environmental, quality and performance efforts. We will also continue to emphasize better understanding of our clients' future service needs, ongoing improvement of our services, and further developing our organization for future opportunities. We convey our sincere thanks to our shareholders and employees whose support is so important as we strive to enhance the Company's value through continuing profitability and future growth. Page 3 Atwood Oceanics, Inc. and Subsidiaries FIVE YEAR FINANCIAL REVIEW At or For the Years Ended September 30,
(In thousands, except per share amounts and ratios) 1994 1993 1992 1991 1990 STATEMENTS OF OPERATIONS DATA: Operating revenues $65,975 $51,775 $44,772 $54,476 $53,418 Drilling costs and general and administrative expenses: (48,652) (41,797)(40,144)(51,141) (55,234) OPERATING MARGIN, before adjustment for minority interest 17,323 9,978 4,628 3,335 (1,816) Depreciation (13,618) (13,045)(15,398)(15,123) (11,494) Interest expense (2,892) (3,067) (3,523) (4,795) (3,884) Minority interest in loss of Partnerships 3,303 4,821 4,862 6,034 8,216 OPERATING INCOME (LOSS) 4,116 (1,313) (9,431)(10,549) (8,978) Other income 2,819 2,470 3,092 3,857 6,690 Write-down of drilling vessels and other assets --- --- (17,000) --- --- Tax benefit (provision) (726) (2,948) 2,402 (350) 225 NET INCOME (LOSS) $ 6,209 $(1,791)$(20,937)$(7,042)$(2,063) PER SHARE DATA: Net income (loss) $ .94 $(.27) $(3.18) $(1.07) $(.42) Weighted average shares outstanding 6,582 6,582 6,582 6,594 4,960 FLEET DATA: Number of rigs owned or managed, at end of period 9 10 9 9 11 Utilization rate 99% 88% 75% 81% 80% BALANCE SHEETS DATA: Cash and available for sale securities $41,047 $35,044 $33,877 $45,535 $46,725 Working capital 25,171 14,703 12,236 29,389 52,053 Net property and equipment 82,845 90,150 98,033 113,635 123,820 Total assets 153,460 149,853 165,942 188,283 204,029 Total long-term debt 53,294 58,409 63,016 64,032 62,403 Shareholders' equity 85,959 79,750 81,541 102,478 109,927 Ratio of current assets to current liabilities 2.89 2.24 1.68 4.02 5.77 (The Company has not paid any cash dividends on its common stock.)
Page 4 OFFSHORE DRILLING OPERATIONS
NAME OF RIG TYPE OF RIG PERCENTAGE YEAR MAXIMUM OF 1994 BUILT WATER DEPTH REVENUES DRILLING RIGS WHOLLY OR PARTIALLY OWNED FALCON (1) SEMISUBMERSIBLE 16% 1983 2,000 FT. HUNTER (1) SEMISUBMERSIBLE 15% 1981 1,500 FT. EAGLE (1) SEMISUBMERSIBLE 17% 1982 2,000 FT. SEAHAWK SEMISUBMERSIBLE 16% 1974/1992 N/A TENDER ASSIST VICKSBURG JACK-UP 6% 1976 300 FT. RIG-19 MODULAR 10% 1988 N/A PLATFORM RICHMOND SUBMERSIBLE 8% 1982 70 FT. SOUTHERN CROSS SEMISUBMERSIBLE 0% 1976 1,500 FT. MANAGEMENT/LABOR CONTRACTS GOODWYN "A" MODULAR 3% N/A N/A PLATFORM NORTH RANKIN 'A' MODULAR 4% N/A N/A PLATFORM (1) RIGS OWNED BY TWO TEXAS LIMITED PARTNERSHIPS OF WHICH THE COMPANY IS GENERAL PARTNER AND HAS A 50 PERCENT OWNERSHIP INTEREST. ONE HUNDRED PERCENT (100%) OF THE RESPECTIVE PARTNERSHIPS' REVENUES ARE REFLECTED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND ARE TAKEN INTO ACCOUNT IN STATING THE PERCENTAGE OF 1994 REVENUES ATTRIBUTABLE TO EACH RIG. Page 5 NAME OF RIG LOCATION CUSTOMER CONTRACT STATUS AT NOVEMBER 29, 1994 DRILLING RIGS WHOLLY OR PARTIALLY OWNED FALCON (1) KOREA KOREA Drilling the first of two PETROLEUM firm wells (with one option DEVELOPMENT well). CORPORATION HUNTER (1) MALAYSIA ESSO Drilling the 26th of 30 firm PRODUCTION wells (with eight option MALAYSIA, wells). INC. EAGLE (1) AUSTRALIA/ BHP PETROLEUM Drilling the second of INDONESIA PTY. LTD. possible seven option wells. "ZONE OF COOPERATION" SEAHAWK MALAYSIA ESSO Term contract (estimated PRODUCTION completion 1998). MALAYSIA, INC. VICKSBURG AUSTRALIA WESTERN Under contract until February MINING 1996, subject to early CORPORATION termination under certain LIMITED limited circumstances (with two one year options). RIG-19 AUSTRALIA ESSO Term contract (estimated AUSTRALIA completion 1996). LIMITED RICHMOND UNITED OFFSHORE Drilling the third of six STATES ENERGY firm wells (with two option DEVELOPMENT wells). CORPORATION SOUTHERN CROSS AUSTRALIA (NOT PLACED Idle while the Company IN SERVICE) pursues future contract opportunities. MANAGEMENT/LABOR CONTRACTS GOODWYN "A" AUSTRALIA WOODSIDE Term contract (estimated OFFSHORE completion 1997) PETROLEUM PTY. LTD. ("WOODSIDE") NORTH RANKIN 'A' AUSTRALIA WOODSIDE Term contract
(1) RIGS OWNED BY TWO TEXAS LIMITED PARTNERSHIPS OF WHICH THE COMPANY IS GENERAL PARTNER AND HAS A 50 PERCENT OWNERSHIP INTEREST. ONE HUNDRED PERCENT (100%) OF THE RESPECTIVE PARTNERSHIPS' REVENUES ARE REFLECTED IN THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND ARE TAKEN INTO ACCOUNT IN STATING THE PERCENTAGE OF 1994 REVENUES ATTRIBUTABLE TO EACH RIG. Page 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal Year 1994 Versus Fiscal Year 1993 As a result of 99 percent utilization of its equipment during fiscal year 1994, the Company's operating results reflect significant improvement. Total revenues in 1994 increased 27 percent to $68.8 million from $54.2 million. This increase is primarily attributable to a $14 million increase in drilling revenues, coupled with increases in management fees and dividend and interest income. The higher utilization of the FALCON, HUNTER and RICHMOND, coupled with a full year of operation of the SEAHAWK and the relocation of the EAGLE from Malaysia to Australia, where the dayrate level is higher, accounts for the increase in drilling revenues. An analysis of fleet utilization and drilling revenues by rig for fiscal years 1994 and 1993 are as follows: FLEET UTILIZATION 1994 1993 Idle Rig Utilization Idle Rig Utilizat Days Percentage Days ion Percenta ge Falcon --- 100% 105 71% Hunter --- 100% 110 70% Eagle 11 97% --- 100% Seahawk --- 100% --- 100% Vicksburg --- 100% --- 100% Rig-19 --- 100% --- 100% Richmond --- 100% 149 59% Average for year 99% 88% DRILLING REVENUES BY RIG In millions Variance 1994 1993 Increase Falcon $11.1 $10.5 $ .6 Hunter 10.2 6.9 3.3 Eagle 12.0 9.2 2.8 Seahawk 10.9 6.3 4.6 Vicksburg 4.4 4.4 --- Rig-19 6.9 6.4 .5 Richmond 5.5 3.8 1.7 Other 2.6 2.1 .5 $63.6 $49.6 $14.0 Page 7 The FALCON started fiscal year 1994 working in Australia; however, in the second quarter of the year, the rig was relocated to Malaysia, and during the last quarter, it was relocated to Korea. Even though the FALCON was 100 percent utilized during 1994, its revenues did not reflect any significant increase over 1993 because the rig was relocated to work in Malaysia and Korea where dayrate levels are lower than in Australia due to lower operating costs. The HUNTER worked the entire year in Malaysia and is anticipated to remain under contract in Malaysia during fiscal year 1995. During the first quarter of fiscal year 1994, the EAGLE was relocated from Malaysia to the Australia/Indonesia "Zone of Cooperation". The impact of higher dayrate levels for the EAGLE more than offset the slight reduction in rig utilization in 1994 compared to 1993. The SEAHAWK has been a major contributor to the Company's improvement in operating results since its commencement of operations in February 1993. Relatively long-term, stable contracts for the VICKSBURG and RIG-19 continue to provide consistency to these operations. The RICHMOND has worked continuously on a profitable basis since March 1993. In October 1993, the Company sold its forty percent interest in an Indian joint venture company, realizing a gain of $201,000. Currently, the Company has no involvement in India. The improvement in management fees is attributable to an increased level of management services being provided to two operator-owned platform rigs in Northwest Australia. The increase in dividend and interest income is due to an increase in interest earned from a higher level of short-term cash investments. Increases in rig utilization, coupled with a full year of operations of the SEAHAWK and the relocation of the EAGLE to the "Zone of Cooperation" accounts for the 18 percent increase in drilling costs in 1994 compared to 1993. An analysis of drilling costs by rig is as follows: In millions Variance Increase 1994 1993 (Decrease) Falcon $7.7 $ 7.9 $ (.2) Hunter 7.6 6.3 1.3 Eagle 10.5 6.1 4.4 Seahawk 6.1 4.1 2.0 Vicksburg 2.2 2.8 (.6) Rig-19 4.6 4.3 .3 Richmond 3.6 2.7 .9 Other 2.0 3.5 (1.5) $44.3 $37.7 $ 6.6 Because of increased labor costs, operating costs in Australia are significantly higher than in Malaysia. Hence, the relocation of the FALCON out of Australia and the EAGLE out of Malaysia affected the level of drilling costs for these two rigs. The increase in drilling costs for the HUNTER is due to its 100 percent utilization in 1994 compared to 70% in 1993. Likewise, the increase in RICHMOND's drilling cost is due to increased utilization. The SEAHAWK had a full year of operations in 1994 compared to approximately eight months in 1993 which accounts for its increase in drilling costs. The reduction in "other" drilling costs relates primarily to the Company's termination of its involvement in India. 10 An analysis of depreciation expense by rig is as follows: In millions 1994 1993 Partnership rigs $ 9.9 $ 10.1 Seahawk 2.2 1.4 Rig-19 1.2 1.2 Other .3 .3 $13.6 $13.0 The approximate $200,000 increase in general and administrative expense is due to increased travel and other corporate support activities. Interest expense relates solely to non-recourse notes payable to a bank group and to the limited partner by Atwood Deep Seas, Ltd. in which the Company owns a fifty percent interest. The reduction 11 in interest expense is due to principal reduction and a slight reduction in average interest rates during 1994 compared to 1993. Due to the Partnerships' rigs having virtually 100 percent utilization in 1994, the level of net operating loss incurred by these rigs in 1994 compared to 1993 declined, thereby, reducing the amount of loss absorbed by the minority partner from $4.8 million in 1993 to $3.3 million in 1994. The Company's effective income tax rate for 1994 and 1993 was 10 percent and 255 percent, respectively. The high tax rate in 1993 was due to the write-off of certain tax refund claims to foreign tax expense and to the Company having limited depreciable tax basis in its interest in the partnerships' assets. Effective October 1, 1993, the Company adopted the provision of Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". This change in accounting for income taxes resulted in no cumulative effect being recorded in the Company's statement of operations. Fiscal Year 1993 Versus Fiscal Year 1992 Total revenues increased 13 percent for fiscal year 1993 compared to fiscal year 1992 primarily due to increases in drilling revenues. Higher utilization of drilling equipment, primarily the RICHMOND, coupled with the commencement of the SEAHAWK operations, account for the increase in drilling revenues. An analysis by rig of the increase in drilling revenues is as follows: In millions Variance Increase 1993 1992 (Decrease ) Falcon $10.5 $12.1 $ (1.6) Hunter 6.9 8.6 (1.7) Eagle 9.2 7.3 1.9 Seahawk 6.3 --- 6.3 Vicksburg 4.4 4.5 (.1) Rig-19 6.4 6.8 (.4) Richmond 3.8 --- 3.8 Other 2.1 2.8 (.7) Total $ 49.6 $ 42.1 $ 7.5 The decrease in revenues for the FALCON and HUNTER is attributable to a decline in utilization; while an increase in the EAGLE revenues is due to the rig working 100 percent in 1993 compared to 68 percent in 1992. The SEAHAWK commenced its initial drilling operations in February 1993. The decline in revenues for RIG-19 is due to the rig being relocated to a new platform which resulted in a reduced dayrate period. Prior to the RICHMOND going back to 12 work in March 1993, it had been idle for approximately eighteen months. Despite the commencement of the SEAHAWK operation and higher equipment utilization, drilling costs for 1993 only increased $1.7 million or 5 percent. An analysis of drilling costs by rig is as follows: In millions Variance Increase 1993 1992 (Decrease) Falcon $ 7.9 $ 9.2 $(1.3) Hunter 6.3 6.3 --- Eagle 6.1 5.6 .5 Seahawk 4.1 --- 4.1 Vicksburg 2.8 3.2 (.4) Rig-19 4.3 4.9 (.6) Richmond 2.7 1.0 1.7 Other 3.5 5.8 (2.3) Total $37.7 $36.0 $ 1.7 The decrease in drilling costs for the FALCON is due to the rig having more idle time in 1993 than in 1992. When a rig is idle, certain payroll and rig maintenance costs can be reduced. The increase in the EAGLE's drilling costs is due to the rig incurring no idle time during 1993. The decrease in VICKSBURG and RIG-19 costs is due to certain reductions in payroll related expenses. The increase in drilling costs for the RICHMOND is due to the rig returning to work in 1993. In 1992, due to adverse market conditions and an uncertain outlook for improvement in the drilling market, the Company wrote down certain assets by $17 million. Of this amount, approximately $10.5 million was attributable to the RICHMOND. Prior to this write-down, the RICHMOND's depreciation was approximately $3.6 million per year. The reduction in depreciation resulting from the write-down of the carrying value of the RICHMOND, offset somewhat by commencement of depreciation on the SEAHAWK, accounts for the reduction in depreciation expense in 1993 compared to 1992. LIQUIDITY AND CAPITAL RESOURCES In October 1993, the Company applied the $1.3 million it received from the sale of its equity in an Indian joint venture company toward the $1.5 million purchase of the SOUTHERN CROSS, a semisubmersible built in 1976 acquired by the Company for future contract opportunities. Before the unit can be placed in service, an additional capital investment, estimated to range from $6 to $30 million depending upon the extent of modification, will be required. Upon being awarded a term contract in August 1994, the Company and Helmerich & Payne, Inc. (current owner of 24 percent of the Company's common 13 stock) entered into a joint venture agreement to construct a new generation platform rig which is scheduled to commence operating in offshore Australia in early 1996. At September 30, 1994, the Company had invested approximately $310,000 in this project, with estimated total investment by the Company to be approximately $13 million. Except for this project and an estimated $4 million to be spent on existing rigs, the Company currently has no additional significant capital expenditure commitments for fiscal year 1995; however, the Company has submitted bids and is actively pursuing profitable expansion opportunities. At September 30, 1994, the Company continued to have $22.5 million invested in United States treasury bonds with maturities in the years 2000 and 2001 and $2.5 million invested in equity securities. At November 29, 1994, these investments had a aggregate market value of approximately $29 million. The Company portfolio of accounts receivable is comprised of major international corporate entities and government organizations with stable payment experience. Thus, the Company continues to experience no difficulties in receivable collections and anticipates no problems in collecting the $13.9 million of accounts receivable at September 30, 1994. At September 30, 1994, one of the Partnerships had long-term notes of $47.4 million payable to a bank group, with the remaining balance of long-term debt of $6 million payable to the limited partner. The Company has not guaranteed any portions of these long-term notes. Of the $47.4 million notes payable to a bank group, Atwood Oceanics, Inc. owns approximately $8 million which is reflected on the balance sheet as "long-term notes receivable" with a cost basis at September 30, 1994 of approximately $6 million. The bank group's primary collateral for its note is the preferred mortgages on the EAGLE and HUNTER. The bank debt is being repaid in quarterly installments of $750,000, with a balloon payment of $37.7 million payable in March 1998. As of September 30, 1994, the Company, under the provision of SFAS No. 109, has net current deferred tax assets of $1.8 million (after applying a valuation reserve of $7.7 million) and net noncurrent deferred tax liabilities of $1.65 million. Working capital at September 30, 1994 was $25.2 million which is $10.5 million higher than at September 30, 1993. Currently, the Company continues to have all of its drilling equipment, except the SOUTHERN CROSS which has not been placed in service, under contract. The key factor in the Company's return to profitability in 1994 was its ability to maintain a higher level of equipment utilization. Equipment utilization will again be a key factor in maintaining profitability in 1995. Based upon current contract commitments, the SEAHAWK, VICKSBURG and RIG-19 are expected to remain profitably employed during fiscal year 1995 and beyond. On the other hand, the EAGLE, FALCON, HUNTER and RICHMOND have contracts which could expire after the first quarter of fiscal year 1995. The Company will continue to focus on maintaining high utilization of its drilling equipment. Improvements in underlying market conditions and dayrate levels during 1995 remain possible; however, market uncertainties still exist with no clear long- term trends. 14 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, (In thousands) 1994 1993 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,119 $10,087 Accounts receivable 13,915 10,768 Current maturities of long-term notes receivable 400 400 Inventories of materials and supplies, 4,194 3,850 at lower of average cost or market 1,800 --- Deferred tax assets 2,044 1,498 Prepaid expenses 38,472 26,603 Total Current Assets AVAILABLE FOR SALE SECURITIES 24,928 24,957 LONG-TERM NOTES RECEIVABLE, net of current maturities 5,985 6,389 PROPERTY AND EQUIPMENT, at cost: Drilling vessels, equipment and drill pipe 187,525 182,851 Other 4,479 3,924 192,004 186,775 Less - accumulated depreciation 109,159 96,625 Net Property and Equipment 82,845 90,150 DEFERRED COSTS AND OTHER ASSETS 1,230 1,754 $153,460 $149,853 The accompanying notes are an integral part of these consolidated financial statements. 15 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, (In thousands, except share data) 1994 1993 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of notes payable by partnership $ 3,000 $ 3,000 Accounts payable 3,728 3,058 Accrued liabilities 6,573 5,842 Total Current Liabilities 13,301 11,900 LONG-TERM NOTES PAYABLE BY PARTNERSHIP, net of current maturities 50,294 55,409 DEFERRED CREDITS: Income taxes 1,650 --- Other 639 --- 2,289 --- MINORITY INTEREST IN PARTNERSHIPS 1,617 2,794 SHAREHOLDERS' EQUITY: Preferred stock, no par value; 1,000,000 shares authorized, none outstanding --- --- Common stock, $1 par value; 10,000,000 shares authorized with 6,582,000 issued and outstanding in 1994 and 1993 6,582 6,582 Paid-in capital 54,273 54,273 Retained earnings 25,104 18,895 Total Shareholders' Equity 85,959 79,750 $153,460 $149,853 The accompanying notes are an integral part of these consolidated financial statements. 16 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS For Years Ended September 30,
(In thousands, except per share amounts) 1994 1993 1992 REVENUES: Drilling $63,640 $49,573 $42,142 Indian joint venture 201 510 485 Management fees 2,335 1,692 2,145 Dividends and interest 2,618 2,470 3,092 68,794 54,245 47,864 COSTS AND EXPENSES: Drilling 44,328 37,694 36,035 Depreciation 13,618 13,045 15,398 General and administrative 4,324 4,103 4,109 Interest 2,892 3,067 3,523 Write-down of drilling vessels and other assets --- --- 17,000 65,162 57,909 76,065 INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES 3,632 (3,664) (28,201) MINORITY INTEREST IN LOSS OF PARTNERSHIPS 3,303 4,821 4,862 INCOME (LOSS) BEFORE INCOME TAXES 6,935 1,157 (23,339) PROVISION (BENEFIT) FOR INCOME TAXES 726 2,948 (2,402) NET INCOME (LOSS) $ 6,209 $ (1,791) $(20,937) INCOME (LOSS) PER COMMON SHARE $.94 $(.27) $(3.18) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,582 6,582 6,582 The accompanying notes are an integral part of these consolidated financial statements.
17 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For Years Ended September 30,
(In thousands) 1994 1993 1992 CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 6,209 $ (1,791) $(20,937) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation 13,618 13,045 15,398 Amortization of deferred items 531 (104) (156) Deferred federal income tax benefit (150) --- (3,593) Write off of foreign tax refund claims --- 1,736 --- Write-down of drilling vessel and other assets --- --- 17,000 Gain on sale of equity in Indian joint venture (201) --- --- Minority interest in loss of Partnership (3,303) (4,821) (4,862) Changes in assets and liabilities: Decrease (increase) in accounts receivable (3,147) 5,009 (3,876) Increase (decrease) in accounts payable 670 (3,057) 2,387 Increase (decrease) in accrued liabilities 731 1,870 958 Other (358) (1,078) (3,595) TOTAL ADJUSTMENTS 8,391 12,600 19,661 Net Cash Provided (Used) by Operating Activities 14,600 10,809 (1,276) CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from maturity of United States Treasury Bills --- --- 4,953 Capital Expenditures (6,412) (5,302) (15,542) Proceeds from sale of equity in Indian joint venture 1,300 --- --- Investment in joint venture venture (310) --- --- Payments received on notes receivable 404 1,948 1,556 Net Cash Used by Investing Activities (5,018) (3,354) (9,033) CASH FLOW FROM FINANCING ACTIVITIES: Principal payments by Partnership on long-term note (3,000) (3,000) (3,000) Net advances by (payments to) limited partner (550) 1,773 1,700 Proceeds (repayment) of short-term note payable --- (5,000) 5,000 Net Cash Provided (Used) by Financing Activities (3,550) (6,227) 3,700 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,032 1,228 (6,609) CASH AND CASH EQUIVALENTS, at beginning of period 10,087 8,859 15,468 CASH AND CASH EQUIVALENTS, at end of period $16,119 $10,087 $ 8,859 __________________________ Supplemental disclosure of cash flow information: Cash paid during the year for domestic and foreign income taxes $ 1,657 $ 1,038 $ 1,087 Cash paid during the year for interest $ 2,380 $ 2,793 $ 3,281 The accompanying notes are an integral part of these consolidated financial statements.
18 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Common Stock Paid-in Retained (In thousands) Shares Amount Capital Earnings September 30, 6,582 $6,582 $54,273 $41,623 1991 Net loss --- --- --- (20,937) September 30, 6,582 6,582 54,273 20,686 1992 Net loss --- --- --- (1,791) September 30, 6,582 6,582 54,273 18,895 1993 Net income --- --- --- 6,209 September 30, 6,582 $6,582 $54,273 $25,104 1994 - ---------------------- Preferred stock, no par value, of 1,000,000 shares was authorized in 1975 and no shares have been issued. The accompanying notes are an integral part of these consolidated financial statements. 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and 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, 1994 and 1993, and the related consolidated statements of operations, cash flows and changes in shareholders' equity for each of three years in the period ended September 30, 1994. 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 generally accepted auditing standards. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Houston, Texas November 29, 1994 Page 20 Atwood Oceanics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of Atwood Oceanics, Inc. ("AOI") and all of its wholly owned domestic and foreign subsidiaries and two Texas Limited Partnerships, Atwood Deep Seas, Ltd. ("Deep Seas") and Atwood Falcon I, Ltd. ("Falcon"), of which AOI is both a limited and the general partner (all of such entities being collectively referred to herein as the "Company"). The other limited partner's interest in the net assets and loss of the two partnerships is reflected in the Company's financial statements as "minority interest in partnerships." All significant intercompany accounts and transactions have been eliminated in consolidation. (See Notes 2 and 5 regarding Deep Seas indebtedness.) Foreign exchange - Monetary assets and liabilities denominated in foreign currency are translated to U.S. dollars at the rate of exchange in effect at the end of the year and items of income and expense are translated at average monthly rates. Gains and losses on foreign currency transactions and translations are included in drilling costs in the consolidated statements of operations. The Company incurred foreign exchange losses of $417,000, $140,000 and $456,000 in 1994, 1993 and 1992, respectively. Depreciation, maintenance and retirement policies - 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 8-12 Drill pipe 3 Furniture and Other 3-10 Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and betterments are capitalized and depreciated over the remaining useful life of the asset as determined upon completion of the work. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in the consolidated statements of operations for the applicable period. Deferred costs - The Company defers and amortizes the costs of moving a drilling vessel to a new area on a straight-line basis over the life of the applicable drilling contract. There were no unamortized mobilization costs at September 30, 1994 or 1993. The Company defers the cost of scheduled drydocking and the cost is charged to expense over the period to the next scheduled drydocking (normally two years). Federal income taxes - The Company accounts for income taxes in accordance with Statement of Page 21 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. Revenue recognition - The Company accounts for drilling and management contracts using the percentage of completion method of accounting, under which revenues are recognized on a daily basis as earned. Cash and cash equivalents - Cash and cash equivalents consist of cash in banks and certificates of deposit which mature within three months of the date of purchase. Receivables - Based upon the Company's historical collection of accounts receivable, the Company has not established an allowance for doubtful accounts. Investments - The Company carries its investments in marketable securities at the lower of aggregate cost or market value. When investments are sold, the Company uses the weighted average cost method to compute gain or loss. Loss per share - Loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding during each period. The dilutive effect of stock options is immaterial. NOTE 2 - LONG-TERM NOTES RECEIVABLE An analysis of long-term notes receivable is as follows: (In thousands) 1994 1993 Principal amount of $8.1 million of Deep Seas' long-term debt, bearing interest at approximately 5 percent per annum at September 30, 1994 $ 6,385 $ 6,789 Less - current maturities 400 400 $ 5,985 $ 6,389 Quarterly payments of $127,500 are received on the Deep Seas note. The Company acquired the note for $2.2 million less than its principal amount and proportionately recognizes the discount as income ($112,000 and $114,000 in 1994 and 1993, respectively) as principal payments are received. Page 22 NOTE 3 - SECURITIES HELD FOR INVESTMENT At September 30, 1994 and 1993, the Company's investment in securities consisted of the following: (In thousands) Cost Market Value 1994 1993 1994 1993 Equity Securities $ 2,477 $ 2,477 $ 5,458 $ 5,615 United States Treasury Bonds 22,451 22,480 23,270 26,069 Total $24,928 $24,957 $28,728 $31,684 There were no sales of marketable securities in fiscal year 1994 or 1993. At November 29, 1994, the market value of the equity securities was $5.8 million and the market value of the treasury bonds were $22.9 million resulting in combined unrealized gains of $3.8 million at such date. NOTE 4 - PROPERTY AND EQUIPMENT In October 1993, the Company purchased for $1.5 million the SOUTHERN CROSS, a semisubmersible built in 1976 which has been idle in Australia since the end of 1992. For the rig to be placed in service, additional capital investment (estimated to range from $6 to $30 million depending upon extent of modification) will be required. At September 30, 1994, the Company had incurred approximately $500,000 in additional costs related to evaluating and preparing the rig for possible utilization alternatives. The vessel will remain idle in Australia for an indefinite period of time as the Company pursues future contract opportunities. In August 1994, Atwood Oceanics West Tuna Pty. Ltd., an Australian company owned 50 percent by the Company and 50 percent by Helmerich & Payne, Inc. (H&P) (current owner of 24 percent of the Company's common stock), was awarded a term contract for the design, construction and operation of a new generation platform rig. The rig is scheduled to commence operating in offshore Australia in early 1996. The Company and H&P have entered into a joint venture agreement to construct the rig whereby H&P will manage the design, construction, testing and mobilization of the new rig; while, the Company will manage the initial installation and daily operations of the new rig. At September 30, 1994, the Company had invested $310,000 in this project, with an estimated total investment by the Company to be approximately $13 million. Page 23 NOTE 5 - LONG-TERM NOTES PAYABLE A summary of long-term notes payable is as follows: (In thousands) 1994 1993 Note payable to bank group by Deep Seas, bearing interest at approximately 5 percent per annum at September 30, 1994, of which the Company owns $8.1 million at September 30, 1994 $ 47,375 $ 50,375 Notes payable to limited partner by Deep Seas: Non-interest bearing with maturity in 2011, net of $3.2 million and $3.3 million discount in 1994 and 1993, respectively 800 750 Bearing interest at prime rate (7 3/4 percent at September 30, 1994), with maturity in 2011 5,119 7,284 53,294 58,409 Less - current maturities 3,000 3,000 $ 50,294 $ 55,409 The note payable to bank group requires principal payments of $750,000 per quarter, with a balloon payment of $37.7 million payable in March 1998. The Company has not guaranteed any portion of this long-term note. The bank group's collateral for this long-term note consists principally of preferred mortgages on the HUNTER and EAGLE. The loan documents with the bank group prohibit the cash payment of management fees, partnership profits and certain other cash disbursements by Deep Seas prior to the time the note is paid in full. The interest bearing note payable to limited partner relates to cash advances made by the limited partner since 1990 to help fund cash shortfalls of Deep Seas plus accrued interest on such advances. To reflect the additional support to Deep Seas operations provided by the limited partner, $3 million and $5 million of these advances were reclassified to "minority interest in partnerships" during 1994 and 1993, respectively. The maturities of long-term debt for each of the years ending September 30, 1995 through 1999 are as follows: $3,000,000, $3,000,000, $3,000,000, $38,375,000 with $5,919,000 due after 1999. Page 24 NOTE 6 - INCOME TAXES The provision (benefit) for domestic and foreign taxes on income consists of the following: (In thousands) 1994 1993 1992 Current domestic provision $ 400 $ 460 $ 131 Deferred domestic benefit (150) --- (3,593) Foreign provision 476 2,488 1,060 $ 726 $ 2,948 $ (2,402) Effective October 1, 1993, the Company adopted the provision of SFAS No. 109, "Accounting for Income Taxes". As of October 1, 1993, there was no cumulative effect of the accounting change for income taxes reflected in the Company's statement of operations. For fiscal year 1994, the provision of SFAS No. 109 resulted in a $150,000 deferred benefit. As of September 30, 1994, the Company had deferred tax assets totalling $16.6 million, deferred tax liabilities totalling $8.7 million and a valuation allowance in the amount of $7.7 million. The valuation allowance is based on the likelihood that the deferred tax assets in the amount of $7.7 million will not be realized based on current outlook for the partnership rigs. The components of the deferred income tax assets (liabilities) as of September 30, 1994 are summmarized as follows: (In thousands) September 30, 1994 Deferred tax assets - Net operating loss carryforwards $ 9,090 Investment tax credit carryforwards 4,290 Foreign tax credits carryforwards 1,810 Book revenues 1,370 16,560 Deferred tax liabilities - Difference in book and tax basis of equipment 200 Income recognized for tax in excess of book 8,400 Deferred charges 140 8,740 Net deferred tax assets before valuation allowance 7,820 Valuation allowances (7,670) Net deferred tax asset $ 150 Net current deferred tax assets $ 1,800 Net noncurrent deferred tax liabilities (1,650) Net deferred tax asset $ 150 Page 25 The differences between the statutory and the effective income tax rate are as follows:
1994 1993 1992 Statutory income tax rate 34% 34% (34)% Increase (decrease) in tax rate resulting from - Reversal of timing differences at prior years rate --- --- (9) Foreign tax rate differentials (18) --- --- Book depreciation on partnerships' assets with no tax basis 19 113 6 Foreign taxes not creditable against domestic income taxes --- 96 4 Investment tax credits (14) 23 --- Financial losses in excess of benefits recognizable for tax purposes --- --- 23 Financial income not subject to domestic income taxes (2) (16) --- Other, net (9) 5 --- Effective incoem tax rate 10% 255% (10)%
At September 30, 1994, the Company had approximately $1.7 million in investment tax credits and approximately $1.8 million in foreign tax credits (which commence expiration in 1996) available to reduce future tax obligations. The Company also has available approximately $25 million in net operating loss carryforwards and approximately $3 million in investment tax credits applicable to its partnership interests. These tax attributes can only be used to reduce future tax payments resulting from partnership earnings and are subject to various limitations. As the result of the Company's unsuccessful efforts to collect $3.4 million of previously paid foreign taxes considered refundable, these taxes were written-off in the fourth quarter of 1993. Legal action is currently being pursued; however, it will take several years to ultimately resolve this issue. This additional foreign income tax expense, after adjustment for minority interest, added $1.7 million ($.25 per share) to the Company's fiscal year 1993 net loss. For several years, the Company has pursued legal action to collect certain tax refund claims in India. As a result of favorable court decisions in India, and upon the Company providing a letter of guarantee, the Company received a tax refund of $639,000 (net of taxes on interest and other related expense), which is reflected in the balance sheet as other deferred credits, pending ultimate resolution of the issue by the Indian High Court. NOTE 7 - CAPITAL STOCK Stock Option Plans - The Company has a stock option plan ("Stock Plan") under which non- qualified and incentive stock options may be granted to officers and key employees through December 5, 2000. The maximum number of shares of common stock that may be granted under the Stock Plan is 330,000. The Company also has options outstanding to purchase 32,000 shares (at prices ranging from $12.25 to $14.75 per share) under an incentive stock option plan ("Incentive Plan") which expired for future grant purposes on November 17, 1991. Under Page 26 the Stock Plan, the Compensation Committee of the Board of Directors determines the option exercise period, which cannot be less than six months or more than ten years from the date of grant, and the option prices, which cannot be less than the fair market value on the date of the grant. The rights to exercise options under the Stock Plan currently vest over a period of sixty-three months after the date of grant. At September 30, 1994, options under the Stock Plan to purchase 222,500 shares, at prices ranging from $9.75 to $13.38 per share, were outstanding, leaving 107,500 shares available for grant. The rights to exercise these options vest at 25 percent per year commencing two years after date of grant. At September 30, 1994, options to purchase 53,000 shares under the Stock Plan and 5,300 shares under the Incentive Plan were currently exercisable. Total option activity for the years ended September 30, 1994, 1993 and 1992 was as follows: 1994 1993 1992 Stock options outstanding, at beginning of year 258,800 242,300 213,300 Stock options granted (the Stock Plan) 44,000 54,000 42,000 Stock options cancelled (48,300) (37,500) (13,000) Stock options outstanding, end of year 254,500 258,800 242,300 Weighted average exercise price of options outstanding $ 12.19 $ 12.44 $ 14.00 NOTE 8 - RETIREMENT PLAN The Company has a contributory retirement plan (the "Plan") under which qualified participants may make contributions of up to 5% of their compensation, as defined (the basic contribution). The Company makes a contribution to the Plan equal to twice the basic contribution. Company contributions vest 100 percent to each participant beginning with the fourth year of participation. If a participant terminates his employment before becoming fully vested, the unvested portion is credited to the Company's account and can be used only to offset Company contribution requirements. In 1994 and 1992, the Company made cash contributions of $702,000 and $732,000, respectively, and did not utilize any forfeitures to reduce its contribution requirements. In 1993, the Company used $195,000 of forfeiture to reduce its contribution requirements which resulted in actual cash contributions of $477,000. As of September 30, 1994, there remained approximately $162,000 of contribution forfeitures which can be utilized to offset future Company contributions. NOTE 9 - COMMITMENTS The terms of some drilling contracts require that the Company provide standby letters of guarantee. To support these requirements and the Indian tax guarantee, the Company has an unsecured short-term line of credit, Page 27 totalling $3.0 million, with a bank. At September 30, 1994, the Company had approximately $1 million in outstanding commitments related to the unsecured short-term line of credit. NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS The Financial Accounting Standards Board has issued Statement No. 107, "Disclosures about Fair Value of Financial Instruments", which will require the Company to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in its consolidated balance sheets. Because the amount of its total assets at September 30, 1994 is below the applicable threshold, the Company is not required to adopt the new standard until fiscal year 1996. NOTE 11 - SALE OF EQUITY INTEREST IN INDIAN JOINT VENTURE In October 1993, the Company sold its forty percent interest in Great Atwood Limited ("GAL") for $1.3 million which resulted in the Company recognizing an after tax gain of $201,000. In December 1993, the Company terminated its involvement in the operations of GAL's two offshore drilling rigs through cancellation of technical collaboration and expatriate labor agreements. The Indian joint venture's results of operations attributable to the Company for each of the three years in the period ended September 30, 1994 are as follows: (In thousands)
1994 1993 1992 Gain on sale of equity interest $ 201 $ --- $ --- Dividends --- 24 --- Amortization of deferred gain --- 371 277 Interest income --- 115 208 $ 201 $ 510 $ 485
NOTE 12 - WRITE-DOWN OF CERTAIN ASSETS In September 1992, due to adverse market conditions and at that time, an uncertain outlook for improvement in the drilling market, the Company wrote down certain of its drilling vessels and other assets by $17 million. The $17 million write-down in 1992 added $13.6 million, after tax ($2.06 per share) to the Company's fiscal year 1992 net loss. NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS The Company is engaged in offshore contract drilling. The contract drilling operations consist of contracting Company owned or managed offshore drilling equipment primarily to major oil and gas exploration companies. Operating income (loss) is total revenues less operating expenses. In computing operating income (loss) for each geographic area, none of the following items were considered: investment income, general corporate expenses, interest expense, minority interest in loss of partnerships and domestic and foreign income taxes. Identifiable assets are those assets that are used by the Company in operations in each geographic area. Corporate assets are principally cash and cash equivalents and investments in marketable securities. In 1994 and 1993, revenues from 2 customers accounted for 49 percent and 51 percent respectively, of drilling revenues; while in 1992 Page 28 revenues from four customers accounted for 90 percent of drilling revenues. All of the Company's customers are in the oil and gas offshore exploration and production industry. This could affect the Company's overall exposure to market risk in as much as these customers could be affected by similar economic or other conditions. The Company's portfolio of accounts receivable is comprised of major international corporate entities and government organizations with stable payment experience, and, as a result, its credit risks are minimal. Historically, the Company's uncollectible accounts receivable have been immaterial, and typically, the Company does not require collateral for its receivables. A summary of revenues, operating income (loss) and identifiable assets by geographic areas is as follows: (In thousands) 1994 1993 1992 REVENUES: United States $ 5,483 $ 3,842 $ 9 Australia 31,192 23,497 23,236 Southeast Asia 28,935 22,004 18,412 India/Middle East 566 2,432 3,115 Other income 2,618 2,470 3,092 $ 68,794 $ 54,245 $ 47,864 OPERATING INCOME (LOSS) United States $ 1,160 $ 602 $ (5,029) Australia 6,013 1,671 2,972 Southeast Asia 902 (1,968) (4,885) India/Middle East 155 731 1,186 Africa --- --- (905) General corporate expense (4,324) (4,103) (4,109) Write-down of drilling vessels and --- --- (17,000) other assets (274) (597) (431) Other income/expense, net $ 3,632 $ (3,664) $ (28,201) IDENTIFIABLE ASSETS: United States $ 19,132 $ 10,890 $ 2,200 Australia 39,182 43,386 54,365 Southeast Asia 63,024 62,470 73,639 India/Middle East 7 1,345 2,001 Africa 2 16 14 General corporate 32,113 31,746 33,723 $ 153,460 $ 149,853 $165,942 Page 29 NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly results for fiscal year 1994, 1993 and 1992 are as follows: QUARTERS ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, (In thousands, except per share amounts) 1994 Revenues $ 16,674 $ 17,117 $ 17,441 $17,562 Income before income taxes 1,883 1,553 1,661 1,838 Net Income 1,600 1,305 1,626 1,678 Earnings per common share .24 .20 .25 .25 1993 Revenues $ 11,374 $ 12,796 $14,067 $16,008 Income (loss) before income taxes (312) (531) 855 1,145 Net income (loss) (502) (1,147) 377 (519) (a) Earnings (loss) per common share (.08) (.17) .06 (.08) 1992 Revenues $ 11,820 $ 11,368 $ 12,204 $ 12,472 Loss before income taxes (1,491) (1,779) (1,034) (19,035) (b) Net loss (1,545) (1,820) (1,329) (16,243) Loss per common share (.23) (.28) (.20) (2.47) (a) The Company expensed certain foreign income tax refund claims related to operations in prior years which had a $1.7 million negative effect on 1993 fourth quarter results. (b) The Company wrote down the recoverable value of drilling vessels and other assets by $17 million in the fourth quarter of fiscal year 1992.
Page 30 DIRECTORS ROBERT W. BURGESS (3) Senior Vice President CIGNA Investment Division CIGNA Companies Bloomfield, Connecticut GEORGE S. DOTSON (1, 2, 3) Vice President Helmerich & Payne, Inc. President Helmerich & Payne, International Drilling Co. Tulsa, Oklahoma W. H. HELMERICH, III Chairman Helmerich & Payne, Inc. Tulsa, Oklahoma HANS HELMERICH (1, 3) President, Chief Executive Officer Helmerich & Payne, Inc. Tulsa, Oklahoma JOHN R. IRWIN (1) President, Chief Executive Officer Atwood Oceanics, Inc. Houston, Texas WILLIAM J. MORRISSEY (2) Bank Executive, Retired Elkhorn, Wisconsin (1) Executive Committee (2) Audit Committee (3) Compensation Committee ANNUAL MEETING The annual meeting of stockholders will be held on February 9, 1995 at the Company's principal office: 15835 Park Ten Place Drive, Houston, Texas. A formal notice of the meeting together with a proxy statement and form of proxy will be mailed to stockholders about January 16, 1995. Page 31 OFFICERS JOHN R. IRWIN President, Chief Executive Officer JAMES M. HOLLAND Senior Vice President and Secretary GLEN P. KELLEY Vice President - Contracts and Administration LARRY P. TILL Vice President - Operations TRANSFER AGENT AND REGISTRAR Liberty Bank & Trust of Oklahoma City, N.A. P. O. Box 25848 100 N. Broadway, 7th Floor (73102) Oklahoma City, OK 73125 FORM 10-K A copy of 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 STOCK PRICE INFORMATION - Atwood Oceanics, Inc. stock is traded Over-the-Counter with the NASDAQ/NMS Symbol "ATWD". No cash dividends on common stock were paid in fiscal year 1993 or 1994, and none are anticipated in the foreseeable future. As of September 30, 1994, there were over 400 beneficial owners of the common stock of Atwood Oceanics, Inc. As of November 29, 1994, the closing sale price of the common stock of Atwood Oceanics, Inc., as reported by NASDAQ, was $12.75 per share. The following table sets forth the range of high and low closing sale prices per share of common stock as reported by NASDAQ for the periods indicated. 1993 1994 QUARTERS ENDED LOW HIGH LOW HIGH December 31 8 1/2 11 1/4 10 3/4 12 March 31 8 3/4 11 1/2 11 13 5/8 June 30 10 1/2 11 1/2 12 1/2 14 September 30 10 1/4 11 1/ 12 1/2 14 7/8 APPENDIX Page 27 The following graphic and immage informmation in the form of "Bar Charts" are located in the Annual Report immediately following "Highlights". BAR CHART - REVENUES ($ MILLIONS) 1990 1991 1992 1993 1994 $60.1 $58.3 $47.9 $54.2 $68.8 BAR CHART - EARNINGS, BEFORE DEPRECIATION, INTEREST AND TAXES ($ MILLIONS) 1990 1991 1992 1993 1994 $3.0 $4.3 $4.3 $9.3 $15.3 BAR CHART - OPERATING CASH FLOW ($ MILLIONS) 1990 1991 1992 1993 1994 $(4.2) $1.2 $2.9 $8.1 $16.8 BAR CHART - NET INCOME (LOSS) ($ MILLIONS) 1990 1991 1992 1993 1994 $(2.1) $(7.0) $(20.9) $(1.8) $6.2 BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS) 1990 1991 1992 1993 1994 $19.7 $5.2 $15.5 $5.3 $6.4 BAR CHART - CASH AND AVAILABLE FOR SALE SECURITIES ($ MILLIONS) 1990 1991 1992 1993 1994 $46.7 $45.5 $33.9 $35.0 41.0 EX-22.1 4 EXHIBIT 22.1 SUBSIDIARY COMPANIES AND STATE OR JURISDICTION OF INCORPORATION Atwood Oceanics Drilling Company Texas 100% Swiftdrill, Inc. Texas 100% Eagle Oceanics, Inc. Texas 100% Hunter Co. Texas 100% Falcon Co. Texas 100% Atwood Deep Seas, Ltd. Texas Limited 50% Partnership Atwood Falcon I, Ltd. Texas Limited 50% Partnership Atwood Oceanics Australia Pty. Ltd. Australia 100% Atwood Oceanics Services Pty. Ltd. Australia 100% Atwood Oceanics Platforms Pty. Ltd. Australia 100% Deep Seas Drilling Pty. Ltd. Australia 100% Atwood Oceanics Drilling Pty. Ltd. Australia 100% Clearways Sdn. Bhd. Malaysia 30% Atwood Oceanics (M) Sdn. Bhd. Malaysia 100% Clearways Offshore Development Drilling Sdn. Bhd. Malaysia 30% Atwood Oceanics International, S.A. Panama 100% Atwood Oceanics Pacific Limited Cayman Islands, 100% B.W.I. Aurora Offshore Services GmbH West Germany 100% All Oceans Drilling B.V. Netherlands 100% Atwood Oceanics Singapore Pte. Ltd. Singapore 100% Swiftdrill Nigeria Limited Nigeria 60% P. T. Pentawood Offshore Drilling Indonesia 80% Isobuild Sdn. Bhd. Malaysia 90% Vista Mayang Sdn. Bhd. Malaysia 90% Atwood Oceanics West Tuna Pty. Ltd. Australia 50% Atwood Oceanics (NZ) Ltd. New Zealand 100% EX-23.1 5 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in previously filed Registration Statement No. 33- 39993 of Atwood Oceanics, Inc. on Form S-3 and previously filed Registration Statement Nos. 33-36921 and 33-52065 of Atwood Oceanics, Inc. on Form S-8 of (i) our report dated November 29, 1994 on the consolidated financial statements of Atwood Oceanics, Inc. and subsidiaries and (ii) our report dated November 29, 1994 on the additional note and schedules included or incorporated by reference in the annual report on Form 10-K of Atwood Oceanics, Inc. for the year ended September 30, 1994. ARTHUR ANDERSEN LLP Houston, Texas December 21, 1994 EX-27 6 ART. 5 FDS FOR FORM 10-K DATED SEPTEMBER 30, 1994
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS DESCRIBED IN ITEM 14 OF THE COMPANY'S ANNUAL REPORT ON FORM 10K FOR THE YEAR ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR SEP-30-1994 SEP-30-1993 OCT-01-1993 OCT-01-1992 SEP-30-1994 SEP-30-1993 16,119 10,087 24,928 24,957 20,300 17,557 0 0 4,194 3,850 38,472 26,603 192,004 186,775 109,159 96,625 153,460 149,853 13,301 11,900 50,294 55,409 6,582 6,582 0 0 0 0 54,273 54,273 153,460 149,853 66,176 51,775 68,794 54,245 48,652 41,797 48,652 41,797 13,618 13,045 0 0 2,892 3,067 6,935 1,157 726 2,948 6,209 (1,791) 0 0 0 0 0 0 6,209 (1,791) .94 (.27) .94 (.27)
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