-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWVadNwSfBGTavzA4erpNdGlxuU2eZobLGJYxah7hUOa1fBhV0qeIijV7RsDh7kr HuTNjoRZu9bPmiBikHvsHQ== 0000008411-04-000120.txt : 20041214 0000008411-04-000120.hdr.sgml : 20041214 20041214102900 ACCESSION NUMBER: 0000008411-04-000120 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041214 DATE AS OF CHANGE: 20041214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATWOOD OCEANICS INC CENTRAL INDEX KEY: 0000008411 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 741611874 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13167 FILM NUMBER: 041200409 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 2817497845 MAIL ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 10-K 1 f10ksep302004.txt FORM 10-K FOR SEPTEMBER 30, 2004 M SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549 Form 10-K ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMMISSION FILE NUMBER 1-13167 ATWOOD OCEANICS, INC. (Exact name of registrant as specified in its charter) TEXAS 74-1611874 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 15835 Park Ten Place Drive (Zip Code) Houston, Texas 77084 (Address of principal executive offices) Registrant's telephone number, including area code: 281-749-7800 Securities registered New York Stock Exchange pursuant to Section (Name of exchange on which registered) 12(b) of the Act: Common Stock, $1 par value (Title of Class) Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation in S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definite proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12.b-2). Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrants as of December 10, 2004 is $745,872,124 The number of shares outstanding of the issuer's class of Common Stock, $1 par value, as of December 10, 2004: 15,098,626. DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for the fiscal year ended September 30, 2004 - Referenced in Parts I, II and IV of this report. (2) Proxy Statement for Annual Meeting of Shareholders to be held February 10, 2005 - Referenced in Part III of this report. 1 PART I ITEM 1. BUSINESS Atwood Oceanics, Inc. (which together with its subsidiaries is identified as the "Company," "we" or "our," unless the context requires otherwise) is engaged in the international offshore drilling and completion of exploratory and developmental oil and gas wells and related support, management and consulting services. We are headquartered in Houston, Texas, USA. We were organized in 1968 and commenced operations in 1970. During our 36 year history, the majority of our drilling units have operated outside of U.S. waters, and we have conducted drilling operations in most of the major offshore exploration areas of the world. Our current worldwide operations revolve around eight premium offshore mobile drilling units located in four regions - Southeast Asia, Australia, the Mediterranean Sea and the U.S. Gulf of Mexico. Approximately 94%, 94%, and 95% of our contract revenues were derived from foreign operations in fiscal years 2004, 2003 and 2002, respectively. The submersible RICHMOND is our only drilling unit currently working in U.S. waters. We support our operations from our Houston headquarters and offices located in Australia, Malaysia, Egypt, Indonesia, Singapore and the United Kingdom. We expect to commence active operations off the coasts of Vietnam, Japan and Myanmar during the second quarter of fiscal year 2005. For information relating to the contract revenues, operating income and identifiable assets attributable to specific geographic areas of operations, see Note 13 of Notes to Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2004, incorporated by reference herein. The following table presents our wholly-owned and operating rig fleet as of December 10, 2004: Water Depth Rig Name Rig Type Upgraded Rating (feet) ----------- --------------- --------- ------------- ATWOOD EAGLE Semisubmersible 2000/2002 5,000 ATWOOD HUNTER Semisubmersible 1997/2001 5,000 ATWOOD FALCON Semisubmersible 1998 3,700 ATWOOD SOUTHERN CROSS Semisubmersible 1997 2,000 SEAHAWK Semisubmersible 1992/1999 600 Tender Assist ATWOOD BEACON Jack-up 2003(1) 400(2) VICKSBURG Jack-up 1998 300 RICHMOND Submersible 2000/2002 70 (1) The ATWOOD BEACON was constructed in 2003. (2) On July 25, 2004, all three of the ATWOOD BEACON'S legs and its derrick were damaged while the rig was being positioned. After initial repairs to the ATWOOD BEACON are completed, it will have a leg length of 489 feet, giving it a nominal water depth rating of 350 feet. That water depth rating is sufficient for the wells we plan for it to drill in the period soon after repairs are completed. During an appropriate period between future contracts, we plan to increase the leg length to 517, giving it a nominal water depth rating of 400 feet, as per the original design. We also own a semisubmersible hull, the SEASCOUT, which is a candidate for a future conversion to a tender-assist unit once an acceptable contract is identified. In addition to the owned drilling units, we also manage the maintenance and operations of two operator-owned platform rigs offshore Northwest Australia. There is currently a planned break in drilling activity for these two operator-owned rigs. We continue, however, to provide maintenance of these two rigs for future drilling programs. We update and upgrade our fleet and strive to maintain premium, modern equipment. In fiscal year 1997, we commenced an internal upgrade program of all of our active drilling units. Our upgrade program was concluded with the completion of the upgrade of the ATWOOD EAGLE in November 2002. Collectively, we invested $340 million in upgrading seven offshore mobile drilling units. In August 2003, our eighth drilling unit, the ATWOOD BEACON, an ultra-premium, jack-up rig, commenced its initial drilling contract following completion of its construction and commissioning in early August 2003. This drilling unit was constructed on time and on budget at a cost of approximately $120 million. The rig is currently under repair for damage sustained while positioning for a well offshore Indonesia. After incurring our first loss in ten years in fiscal year 2003, we returned to profitability in fiscal year 2004. Of our eight active drilling 2 units, seven have current drilling commitments. The eighth unit, the ATWOOD BEACON, is currently in a shipyard in Singapore being repaired from the damages it incurred in July 2004 while it was being positioned. The ATWOOD BEACON is insured with a $1 million deductible and has loss of hire insurance coverage of $70,000 per day up to 180 days following a 30-day waiting period. The ATWOOD BEACON has been awarded a contract in Vietnam which is to commence between January 15 and April 15, 2005. Based on our current schedule of repairs, we believe the rig will be ready to begin operations under the contract by the end of January 2005, with our loss of hire coverage not scheduled to expire until the end of February 2005. We will continue our emphasis on maintaining high utilization of our drilling equipment throughout industry cycles. We had a 93% equipment utilization rate in fiscal year 2004 and have averaged approximately 90% utilization over the last ten years. At the beginning of fiscal year 2004, worldwide utilization of offshore drilling units was less that 80%. Today, worldwide utilization is approximately 85%, with semisubmersibles continuing to be the weakest sector of the drilling market with current utilization of approximately 84% compared to current jack-up utilization of approximately 90%. Despite continuing geopolitical uncertainties in Iraq, Venezuela, Nigeria as well as other areas of the world, we expect increasing world energy demand. The oil and gas industry will play a major part in meeting this increasing demand. At the current level of worldwide utilization of offshore drilling units, we anticipate that oil and gas companies will be unable to provide crude oil and natural gas to consumers in sufficient quantities in order to keep oil and natural gas prices near the averages of the last decade. We believe that based on the current gap between crude oil demand and the world's current supply potential, a significant drilling campaign will be required to increase the world's crude oil and natural gas supply capacity. Thus, we expect continued improvement in worldwide offshore drilling activities during fiscal year 2005; however, a major slow down in world economic activity could negatively impact this expectation. OFFSHORE DRILLING EQUIPMENT In addition to our owned and operating rigs described above, we also own one semisubmersible hull suitable for conversion to a tender assist vessel at a future date and manage two modern, self-contained platform rigs, giving us a total diversified fleet of owned or managed drilling rigs of eleven rigs. Each type of drilling rig is uniquely designed for different purposes and applications, for operations in different water depths, bottom conditions, environments and geographical areas, and for different drilling and operating requirements. The following descriptions of the various types of drilling rigs we own or managed illustrate the diversified range of applications of our rig fleet. Semisubmersible Rigs. Each semisubmersible drilling unit has two hulls, the lower of which is capable of being flooded. Drilling equipment is mounted on the main hull. After the drilling unit is towed to location, the lower hull is flooded, lowering the entire drilling unit to its operating draft, and the drilling unit is anchored in place. On completion of operations, the lower hull is deballasted, raising the entire drilling unit to its towing draft. This type of drilling unit is designed to operate in greater water depths than a jack-up and in more severe sea conditions than other types of drilling units. Semisubmersible units are generally more expensive to operate than jack-up rigs and are often limited in the amount of supplies that can be stored on board. Semisubmersible Tender-Assist Rigs. Semisubmersible tender assist vessels operate like a semisubmersible except that their drilling equipment is temporarily installed on permanently constructed offshore support platforms. The semisubmersible vessel provides crew accommodations, storage facilities and other support for drilling operations. Jack-up Rigs. A jack-up drilling unit contains all of the drilling equipment on a single hull designed to be towed to the well site. Once on location, legs are lowered to the sea floor and the unit is raised out of the water by jacking the hull up the legs. On completion of the well, the unit is jacked down, and towed to the next location. A jack-up drilling unit can operate in more severe sea and weather conditions than a drillship and is less expensive to operate than a semisubmersible. However, because it must rest on the sea floor, a jack-up cannot operate in water as deep as that in which a semisubmersible unit can operate. A jack-up rig is a bottom supported unit. Submersible Drilling Rigs. The submersible drilling rig we own has two hulls, the lower being a mat, which is capable of being flooded. Drilling equipment and crew accommodations are located on the main hull. After the drilling unit is towed to its location, the lower hull is flooded, lowering the entire unit to its operating draft at which it rests on the sea floor. On completion of operations, the lower hull is deballasted, raising the entire unit to its towing draft. This type of drilling unit is designed to operate in shallow water depths ranging from 9 to 70 feet and can operate in moderately severe sea conditions. Although drilling units of this type are less expensive to operate, like the jack-up rig, they cannot operate in water as deep as that in which a semisubmersible unit can operate. A submersible drilling rig is a bottom supported unit. 3 Modular Platform Rigs. A modular platform rig is similar to a land rig in its basic components. Modular platform rigs are temporarily installed on permanently constructed offshore support platforms in order to perform the drilling operations. After the drilling phase is completed, the modular rig is broken down into convenient packages and moved by workboats. A platform rig usually stays at a location for several months, if not years, since several wells are typically drilled from a support platform. DRILLING CONTRACTS The contracts under which we operate our vessels are obtained either through individual negotiation with the customer or by submitting proposals in competition with other contractors and vary in their terms and conditions. The initial term of contracts for our owned and/or managed vessels has ranged from the length of time necessary to drill one well to several years and is generally subject to early termination in the event of a total loss of the drilling vessel, a force majeure event, excessive equipment breakdown or failure to meet minimum performance criteria. It is not unusual for contracts to contain renewal provisions at the option of the customer. The rate of compensation specified in each contract depends on the nature of the operation to be performed, the duration of the work, the amount and type of equipment and services provided, the geographic areas involved, market conditions and other variables. Generally, contracts for drilling, management and support services specify a basic rate of compensation computed on a dayrate basis. Such agreements generally provide for a reduced dayrate payable when operations are interrupted by equipment failure and subsequent repairs, field moves, adverse weather conditions or other factors beyond our control. Some contracts also provide for revision of the specified dayrates in the event of material changes in certain items of cost. Any period during which a vessel is not earning a full operating dayrate because of the above conditions or because the vessel is idle and not on contract will have an adverse effect on operating profits. An over-supply of drilling rigs in any market area can adversely affect our ability to employ our drilling vessels. Our active rig utilization for fiscal years 2004, 2003 and 2002 was 93%, 92% and 86%, respectively. Of our current drilling contracts, the VICKSBURG has the only contract term that extends beyond fiscal year 2005, with the contract term for the ATWOOD HUNTER expected to extend to the end of fiscal year 2005. We expect options to be exercised on the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD BEACON that could also extend these contracts through fiscal year 2005. Despite not currently having long-term contract commitments, we expect that the RICHMOND, in the Gulf of Mexico, and the ATWOOD SOUTHERN CROSS, in Southeast Asia, will be highly utilized during fiscal year 2005. The SEAHAWK has commenced a short-term drilling program in Malaysia which is expected to extend to the end of January 2005. Contract opportunities for the SEAHAWK following that contract, are being pursued in Southeast Asia and West Africa. Prior to commencing its current contract work, the SEAHAWK incurred approximately 15 days of idle time in late October 2004 and early November 2004. We currently anticipate that the SEAHAWK will incur two to four weeks additional downtime for certain maintenance and repairs in the second fiscal quarter of 2005. The ATWOOD EAGLE and ATWOOD SOUTHERN CROSS are also expected to incur two to four weeks of planned downtime during fiscal year 2005. We can provide no assurance that we will not experience additional idle time on some of our other drilling units during the remainder of fiscal year 2005. Maintaining high equipment utilization in up, as well as down, cycles, is a key factor in generating cash to satisfy current and future obligations. For long moves of drilling equipment, we attempt to obtain either a lump sum or a dayrate as mobilization compensation for expenses incurred during the period in transit. A surplus of certain types of units, either worldwide or in particular operating areas, can result in our acceptance of a contract which provides only partial or no recovery of relocation costs. Additionally, under such a contract, we may not make any profit during the relocation of a rig. In order to maintain equipment utilization during soft market conditions, a few of our rigs incurred long moves during fiscal year 2003 and the first half of fiscal year 2004. During fiscal year 2003, the ATWOOD EAGLE was moved from Greece to Angola at a cost of $8.2 million, with only $2.7 million received in mobilization compensation, and the ATWOOD FALCON was relocated from Australia with mobilization costs of approximately $2 million, which approximated mobilization compensation. During the first half of fiscal year 2004, the ATWOOD EAGLE was moved from Angola to Australia at a cost of approximately $5 million, with $5.5 million received in mobilization compensation, and the ATWOOD SOUTHERN CROSS was relocated from the Mediterranean Sea to India and then to Malaysia at a total cost of approximately $4.4 million, which approximated mobilization compensation. We can give no assurance that we will receive full or partial recovery of any future relocation costs. Operation of our drilling equipment is subject to the offshore drilling requirements of petroleum exploration companies and agencies of foreign governments. These requirements are, in turn, subject to fluctuations in government policies, world demand and prices for petroleum products, proved reserves in relation to such demand and the extent to which such demand can be met from onshore sources. 4 We also contract to provide various types of services to third party owners of drilling rigs. These contracts are normally for a stated term or until termination of operations or stages of operation at a particular facility or location. The services may include, as in the case of contracts we have entered into in connection with operations offshore Australia, the supply of personnel and rig design, fabrication, installation and operation. The contracts normally provide for reimbursement to us for all out-of-pocket expenses, plus a service or management fee for all of the services performed. In most instances, the amount charged for the services may be adjusted if there are changes in conditions, scope or costs of operations. We generally obtain insurance or a contractual indemnity from the owner for liabilities which could be incurred in operations. The majority of our contracts are denominated in U.S. dollars, but occasionally a portion of a contract is payable in local currency. To the extent there is a local currency component in a contract, we attempt to match revenue in the local currency to operating costs such as local labor, shore base expenses, and local taxes, if any. INSURANCE AND RISK MANAGEMENT Our operations are subject to the usual hazards associated with the drilling of oil and gas wells, such as blowouts, explosions and fires. In addition, our vessels are subject to various risks particular to our industry which we seek to mitigate by maintaining insurance. These risks include leg damage to jack-ups during positioning (such as that as we experienced with the ATWOOD BEACON), capsizing, grounding, collision and damage from severe weather conditions. Any of these risks could result in damage or destruction of drilling rigs and oil and gas wells, personal injury and property damage, suspension of operations or environmental damage through oil spillage or extensive, uncontrolled fires. Therefore, in addition to general business insurance policies, we maintain the following insurance relating to our rigs and rig operations: hull and machinery, loss of hire, builder's risk, cargo, war risks, protection and indemnity, and excess liability, among others. Our operations are also subject to disruption due to terrorism. As a result of significant losses incurred by the insurance industry due to terrorism, offshore drilling rig accidents and other events, we have experienced increases in premiums for certain insurance coverages. Although we believe that we are adequately insured against normal and foreseeable risks in our operations in accordance with industry standards, such insurance may not be adequate to protect us against liability from all consequences of well disasters, marine perils, extensive fire damage, damage to the environment or disruption due to terrorism. To date, we have not experienced difficulty in obtaining insurance coverage, although we can provide no assurance as to the future availability of such insurance or the cost thereof. The occurrence of a significant event against which we are not fully insured could have a material adverse effect on our financial position. CUSTOMERS During fiscal year 2004, we performed operations for 21 customers. Because of the relatively limited number of customers for which we can operate at any given time, revenues from two different customers amounted to 10% or more of our revenues in fiscal year 2004 as indicated below: Customer Percentage of Revenues --------------------------------------------------------- ExxonMobil Production Malaysia, Inc. 20% Burullus Gas Co. 10% Our business operations are subject to the risks associated with a business having a limited number of customers for our products or services, and a decrease in the drilling programs of these customers in the areas where we are employed may adversely affect our revenues and therefore, our results of operations and cash flows. COMPETITION We compete with approximately 10 other offshore drilling contractors, most of which are substantially larger than we are and possess appreciably greater financial and other resources. Although some business combinations among offshore drilling companies have resulted in a decrease in the total number of competitors, the offshore drilling industry still remains very competitive, with no single offshore drilling contractor being dominant. Thus, there continues to be competition in securing available offshore drilling contracts. Price competition is generally the most important factor in the offshore 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, safety performance, reputation and customer relations. We believe that we compete favorably with respect to these factors. 5 INDUSTRY TRENDS The performance of the offshore drilling industry is largely determined by basic supply and demand for available equipment. Periods of high demand and high dayrates are often followed by periods of low demand and low dayrates. Offshore drilling contractors can mobilize rigs from one region of the world to another or can "cold stack" rigs, taking them out of service, in order to adjust supply in various markets to meet demand. The market is highly cyclical and is typically driven by general economic activity and changes in actual or anticipated oil and gas prices. Generally, sustained high energy prices translate into increased exploration and production spending by oil and gas companies, which in turn results in increased drilling activity and demand for equipment like ours. The markets where we currently operate, offshore Southeast Asia and offshore Australia, the Mediterranean Sea, and shallow water U.S. Gulf of Mexico, offer the potential for higher utilization and dayrates. We expect offshore Southeast Asia and offshore Australia to continue to improve over the longer term based on the stronger demand for oil and gas in that region, largely as a result of the significant growth in the region driven by China's rapidly expanding economy. We also believe that there are attractive future opportunities for the ATWOOD HUNTER, which is currently working in the Mediterranean Sea, and that the improving supply and demand balance of jack-up rigs in the U.S. Gulf of Mexico will lead to higher dayrates for our cantilever submersible, the RICHMOND, which competes against these rigs in the shallow waters of that area. INTERNATIONAL OPERATIONS The large majority of our operations are in foreign jurisdictions which we have historically found to be more stable. We believe international operations provide a better opportunity for attractive contracts and returns over the longer term. Since 1970, we have operated in Southeast Asia, Australia, the Far East, the Mediterranean Sea, the Arabian Gulf, the Red Sea, India, Papua New Guinea, East and West Africa, Central and South America, China and the U.S. Gulf of Mexico. Currently, only one rig is working in the U.S. Gulf of Mexico. Of our international operations, over half are currently in Southeast Asia. We have foreign offices in Australia, Malaysia, Indonesia, the United Kingdom, Singapore and Egypt. Because most of our operations are foreign, virtually all of our tax provision for fiscal years 2004 and 2003 related to taxes in foreign jurisdictions. Due to operating losses in certain foreign jurisdictions with low or zero effective tax rates, our consolidated effective tax rate for fiscal year 2004 exceeded the U.S. statutory rate and our consolidated effective tax rate for fiscal year 2003 significantly exceeded the U.S. statutory rate. In some instances, our tax rate is based on revenues rather than taxable earnings. To the extent our revenues increase, our effective tax rate should decrease. We have reorganized our foreign operations to improve management and tax efficiencies, which contributed to our lower effective tax rate for fiscal year 2004 and which we expect to lower our effective tax rate in the future. EMPLOYEES We currently employ approximately 1,100 persons in our domestic and foreign operations. In connection with our foreign drilling operations, we are often required by the host country to hire substantial portions of our work force in that country and, in some cases, these employees are represented by foreign unions. To date, we have experienced little difficulty in complying with such requirements, and our drilling operations have not been significantly interrupted by strikes or work stoppages. ENVIRONMENTAL REGULATION The transition zone and shallow water areas of the U.S. Gulf of Mexico are ecologically sensitive. Environmental issues have led to higher drilling costs, a more difficult and lengthy well permitting process and, in general, have adversely affected decisions of oil and gas companies to drill in these areas. In the U.S., regulations applicable to our operations include regulations controlling the discharge of materials into the environment, requiring removal and cleanup of materials that may harm the environment or otherwise relating to the protection of the environment. For example, as an operator of a mobile offshore drilling unit in navigable U.S. waters and some offshore areas, we may be liable for damages and costs incurred in connection with oil spills or other unauthorized discharges of chemicals or wastes resulting from or related to those operations. Laws and regulations protecting the environment have become more stringent, and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence or fault on the part of such person. Some of these laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts which were in compliance with all applicable laws at the time they were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on our financial position, results of operations or cash flows. 6 The U.S. Federal Water Pollution Control Act of 1972, commonly referred to as the Clean Water Act, prohibits the discharge of specified substances into the navigable waters of the Unites States without a permit. The regulations implementing the Clean Water Act require permits to be obtained by an operator before specified exploration activities occur. Offshore facilities must also prepare plans addressing spill prevention control and countermeasures. Violations of monitoring, reporting and permitting requirements can result in the imposition of civil and criminal penalties. The U.S. Oil Pollution Act of 1990, or OPA, and related regulations impose a variety of requirement on "responsible parties" related to the prevention of oils spills and liability for damages resulting from such spills. Few defenses exist to the liability imposed by OPA, and the liability could be substantial. Failure to comply with ongoing requirements or inadequate cooperation in the event of a spill could subject a responsible party to civil or criminal enforcement action. We have taken all steps necessary to comply with this law, and have received a Certificate of Financial Responsibility (Water Pollution) from the U.S. Coast Guard. Our operations in U.S. waters are also subject to various other environmental regulations regarding pollution, and we have taken steps to ensure compliance with these regulations. The U.S. Outer Continental Shelf Lands Act authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the outer continental shelf. Included amon these are regulations that require the preparation of spill contingency plans and establish air quality standards for certain pollutants, including particulate matter, volatile organic compounds, sulfur dioxide, carbon monoxide and nitrogen oxides. Specific design and operational standards may apply to outer continental shelf vessels, rigs, platforms, vehicles and structures. Violations of lease conditions or regulations related to the environment issued pursuant to the Outer Continental Shelf Lands Act can result in substantial civil and criminal penalties, as well as potential court injunctions curtailing operations and cancelling leases. Such enforcement liabilities can result from either governmental or citizen prosecution. The U.S. Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as the "Superfund" law, imposes liability without regard to fault or the legality of the original conduct on some classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of a facility where a release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at a particular site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the cost of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources. It is also not uncommon for third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. OTHER GOVERNMENTAL REGULATION Our non-U.S. contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the importation of and operation of drilling units, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of drilling units and other equipment. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings. Our worldwide operations are also subject to a variety of laws and regulations designed to improve safety in the businesses in which we operate. International conventions, including Safety of Life at Sea, also referred to as SOLAS, and the Code for Construction of Mobile Offshore Drilling Units, also referred to as the MODU CODE, generally are applicable to our offshore operations. Historically, we have made significant capital expenditures and incurred additional expenses to ensure that our marine rigs comply with applicable local and international health and safety regulations. Our future efforts to comply with these regulations and standards may increase our costs and may affect the demand for our services by influencing energy prices or limiting the areas in which we may drill. Although significant capital expenditures may be required to comply with these governmental laws and regulations, such compliance has not materially adversely affected our earnings, cash flows or competitive position. 7 SECURITIES LITIGATION SAFE HARBOR STATEMENT Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we and our representatives may from to time to time make other oral or written statements which are also forward-looking statements. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause our actual results of operations, financial condition or cash flows to differ include, but are not necessarily limited to: o our dependence on the oil and gas industry; o the operational risks involved in drilling for oil and gas; o changes in rig utilization and dayrates in response to the level of activity in the oil and gas industry, which is significantly affected by indications and expectations regarding the level and volatility of oil and gas prices, which in turn are affected by such things as political, economic and weather conditions affecting or potentially affecting regional or worldwide demand for oil and gas, actions or anticipated actions by OPEC, inventory levels, deliverability constraints, and future market activity; o the extent to which customers and potential customers continue to pursue deepwater drilling; o exploration success or lack of exploration success by our customers and potential customers; o the highly competitive and cyclical nature of our business, with periods of low demand and excess rig availability; o the impact of the war with Iraq or other military operations, terrorist acts or embargoes elsewhere; o our ability to enter into and the terms of future drilling contracts; o the availability of qualified personnel; o our failure to retain the business of one or more significant customers; o the termination or renegotiation of contracts by customers; o the availability of adequate insurance at a reasonable cost; o the occurrence of an uninsured loss; o the risks of international operations, including possible economic, political, social or monetary instability, and compliance with foreign laws; o the effect SARS or other public health concerns could have on our international operations and financial results; o compliance with or breach of environmental laws; o the incurrence of secured debt or additional unsecured indebtedness or other obligations by us or our subsidiaries; o the adequacy of sources of liquidity; 8 o currently unknown rig repair needs and/or additional opportunities to accelerate planned maintenance expenditures due to presently unanticipated rig downtime; o higher than anticipated accruals for performance-based compensation due to better than anticipated performance by us, higher than anticipated severance expenses due to unanticipated employee terminations, higher than anticipated legal and accounting fees due to unanticipated financing or other corporate transactions, and other factors that could increase general and administrative expenses; o the actions of our competitors in the offshore drilling industry, which could significantly influence rig dayrates and utilization; o changes in the geographic areas in which our customers plan to operate, which in turn could change our expected effective tax rate; o changes in oil and gas drilling technology or in our competitors' drilling rig fleets that could make our drilling rigs less competitive or require major capital investments to keep them competitive; o rig availability; o the effects and uncertainties of legal and administrative proceedings and other contingencies; o the impact of governmental laws and regulations and the uncertainties involved in their administration, particularly in some foreign jurisdictions; o changes in accepted interpretations of accounting guidelines and other accounting pronouncements and tax laws; o the risks involved in the construction, upgrade, and repair of our drilling units; and o such other factors as may be discussed in our other reports filed with the Securities and Exchange Commission, or SEC. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. The words "believe," "impact," "intend," "estimate," "anticipate," "plan" and similar expressions identify forward-looking statements. These forward-looking statements are found at various places throughout the Management's Discussion and Analysis incorporated by reference to our Annual Report to Shareholders for fiscal year 2004 in Part II and elsewhere in this report. When considering any forward-looking statement, you should also keep in mind the risk factors described in other reports or filings we make with the SEC from time to time. Undue reliance should not be placed on these forward-looking statements, which are applicable only on the date hereof. Neither we nor our representatives have a general obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof or to reflect the occurrence of unanticipated events. COMPANY INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's web site at http://www.sec.gov. Our website address is www.atwd.com. We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We have adopted a code of ethics applicable to our chief executive officer and our senior financial officers which is also available on our website. We intend to satisfy the disclosure requirement regarding any changes in or waivers from our code of ethics by posting such information on our website or by filing a Form 8-K for such event. Unless stated otherwise, information on our website is not incorporated by reference into this report or made a part hereof for any purpose. You may also read and copy any document we file at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call the 9 SEC at 1-800-SEC-0330 for further information on the public reference rooms and copy charges. ITEM 2. PROPERTIES Information regarding the location and general character of our principal assets may be found in the table with the caption heading "Offshore Drilling Operations" in the Company's Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. Collectively since fiscal year 1997, we expended $340 million in upgrading seven offshore mobile drilling units. The timing and costs of the various upgrades are as follows: YEAR UPGRADE DRILLING UNITS COMPLETED COST OF UPGRADE -------------------------- ---------------- ------------------ (In Millions) ATWOOD HUNTER (PHASE I) 1997 $ 40 ATWOOD SOUTHERN CROSS 1997 35 ATWOOD FALCON 1998 45 VICKSBURG 1998 35 SEAHAWK 1999 22 ATWOOD EAGLE (PHASE I) 2000 8 RICHMOND 2000 7 ATWOOD HUNTER (PHASE II) 2001 58 ATWOOD EAGLE (PHASE II) 2002 90 --- $340 ==== Besides the above upgrades, in 2000 we acquired a semisubmersible hull, SEASCOUT, for $4.5 million. Subsequently, we have expended an additional $4.3 million in engineering, equipment removal and other costs associated with preparing the SEASCOUT for a future upgrade to a tender-assist vessel when an acceptable tender contract opportunity has been identified. In August 2003, our eighth active drilling unit, the newbuild ultra-premium jack-up, ATWOOD BEACON, commenced its initial drilling contract following completion of construction and commissioning. This drilling unit was constructed at a cost of approximately $120 million. On July 25, 2004, all three of the ATWOOD BEACON'S legs and its derrick were damaged while the rig was being positioned. The rigs and its legs were transported to the builder's shipyard in Singapore for inspection and repairs. Presently, we expect repairs to be completed in January 2005. For more information concerning these costs, see Note 3 in Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2004, incorporated by reference herein. ITEM 3. LEGAL PROCEEDINGS We are party to a number of lawsuits which are ordinary, routine litigation incidental to our business, the outcome of which, individually, or in the aggregate, is not expected to have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS During the fourth quarter of fiscal year 2004, no matters were submitted to a vote of shareholders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS As of December 10, 2004, there were over 750 beneficial owners of our common stock. Our common stock is traded on the New York Stock Exchange. We did not pay cash dividends in fiscal years 2003 or 2004 and we do not anticipate paying cash dividends in the foreseeable future because of the capital-intensive nature of our business. To enable us to maintain our high 10 competitive profile in the industry, we expect to utilize cash reserves at the appropriate time to upgrade existing equipment or to acquire additional equipment. Our credit facility prohibits payment of cash dividends on common stock without lender approval. Market information concerning our common stock may be found under the caption heading "Stock Price Information" in our Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. Equity compensation plan information required by this item may be found in Note 6 to Consolidated Financial Statements contained in our Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. ITEM 6. SELECTED FINANCIAL DATA Information required by this item may be found under the caption "Five Year Financial Review" in our Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item may be found in our Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item may be found under the caption "Disclosures About Market Risk" in the Company's Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information required by this item may be found in our Annual Report to Shareholders for fiscal year 2004, which is incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specific in the SEC's rules and forms. We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 10, 2005, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 10, 2005, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 10, 2005, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 10, 2005, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES This information is incorporated by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders to be held February 10, 2005, to be filed with the SEC not later than 120 days after the end of the fiscal year covered by this Form 10-K. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND EXHIBITS 1. FINANCIAL STATEMENTS The following financial statements, together with the report of PricewaterhouseCoopers LLP dated December , 2004 appearing in our Annual Report to Shareholders for fiscal year 2004, are incorporated by reference herein: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of September 30, 2004 and 2003 Consolidated Statements of Operations for each of the three years in the period ended September 30, 2004 Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2004 Consolidated Statements of Changes in Shareholders' Equity for each of the three years in the period ended September 30, 2004 Notes to Consolidated Financial Statements 12 2. EXHIBITS See the "EXHIBIT INDEX" for a listing of all of the Exhibits filed as part of this report. The management contracts and compensatory plans or arrangements required to be filed as exhibits to this report are as follows: Rights Agreement dated effective October 18, 2002 between the Company and Continental Stock Transfer & Trust Company - See Exhibit 4.1 hereof. Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.1.1 hereof. Form of Atwood Oceanics, Inc. Stock Option Agreement (1990 Stock Option Plan) - See Exhibit 10.1.2 hereof. Amendment No. 1 to the Atwood Oceanics, Inc. 1990 Stock Option Plan - See Exhibit 10.1.3 hereof. Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement (1990 Stock Option Plan) - See Exhibit 10.1.4 hereof. Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.1 hereof. Form of Atwood Oceanics, Inc. Stock Option Agreement (1996 Incentive Equity Plan) - See Exhibit 10.3.2 hereof. Amendment No. 1 to Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.3 hereof. Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement (1996 Incentive Equity Plan) - See Exhibit 10.3.4 hereof. Amendment No. 2 to Atwood Oceanics, Inc. 1996 Incentive Equity Plan - See Exhibit 10.3.5 hereof. Atwood Oceanics, Inc. 2001 Stock Incentive Plan - See Exhibit 10.3.6 hereof. Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated effective as of January 1, 2004 - See Exhibit 10.4.1 hereof. Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated effective as of January 1, 2005 - See Exhibit 10.4.2 hereof. Executive Agreement dated as of September 18, 2002 between the Company and John R. Irwin - See Exhibit 10.5.1 hereof. Executive Agreement dated as of September 18, 2002 between the Company and James M. Holland - See Exhibit 10.5.2 hereof. Executive Agreement dated as of September 18, 2002 between the Company and Glen P. Kelley - See Exhibit 10.5.3 hereof. (b) REPORTS ON FORM 8-K On July 13, 2004, we furnished a report on Form 8-K announcing that Conoco exercised three remaining options and added one more well to the ATWOOD BEACON drilling program and that the ATWOOD EAGLE has two remaining wells for BHP. On July 26, 2004, we filed a report on Form 8-K announcing that the ATWOOD BEACON incurred unexpected leg penetration on two of its legs while positioning for its next well in Indonesia. 13 On July 29, 2004, we furnished a report on Form 8-K announcing our earnings for the quarter ended June 30, 2004, that the ATWOOD SOUTHERN CROSS was awarded a contract by Daewoo International Corporation for two firm wells plus one option well offshore Myanmar, that the ATWOOD BEACON incurred damage to all three legs and the derrick from its July 25, 2004 incident and that the ATWOOD EAGLE was drilling its fifth well for BHP Billiton Petroleum. On August 4, 2004, we furnished a report on Form 8-K announcing that the ATWOOD SOUTHERN CROSS had its second of four option wells exercised by Murphy Sarawak Oil Company, Ltd. and that the ATWOOD FALCON had the first of its three option wells exercised by Sarawak Shell Berhad. On August 12, 2004, we furnished a report on Form 8-K announcing that the ATWOOD BEACON drilling unit was transported to the builder's shipyard in Singapore for inspection with the Company beginning the process of recovering its legs. On September 1, 2004, we furnished a report on Form 8-K announcing that one of the ATWOOD BEACON'S three legs had been recovered and was being transported to the builder's shipyard and that the ATWOOD BEACON had been awarded a contract for a drilling program in Vietnam. On September 22, 2004, we filed a report on Form 8-K announcing that all three of the legs on the ATWOOD BEACON had been recovered and transported to the builder's shipyard in Singapore for repairs, with the ATWOOD BEACON expected to be ready to begin operating in Vietnam by the end of January 2005. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATWOOD OCEANICS, INC. /S/ JOHN R. IRWIN JOHN R. IRWIN, President and Chief Executive Officer DATE: December 10, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /S/ JAMES. M. HOLLAND /S/ JOHN R. IRWIN --------------------- ----------------- JAMES M. HOLLAND JOHN R. IRWIN Senior Vice President and President, Chief Executive Chief Financial Officer Officer and Director (Principal Financial and Accounting Officer) (Principal Executive Officer) Date: December 10, 2004 Date: December 10, 2004 /S/ ROBERT W. BURGESS /S/ GEORGE S. DOTSON --------------------- -------------------- ROBERT W. BURGESS GEORGE S. DOTSON Director Director Date: December 10, 2004 Date: December 10, 2004 /S/ HANS HELMERICH /S/ WILLIAM J. MORRISSEY ------------------ ------------------------ HANS HELMERICH WILLIAM J. MORRISSEY Director Director Date: December 10, 2004 Date: December 10, 2004 /S/ DEBORAH A. BECK DEBORAH A. BECK Director DATE: December 10, 2004 15 EXHIBIT INDEX 3.1.1 Restated Articles of Incorporation dated January 25, 1972 (Incorporated herein by reference to Exhibit 3.1.1 of our Form 10-K for the year ended September 30, 2002). 3.1.2 Articles of Amendment dated March 28, 1975 (Incorporated herein by reference to Exhibit 3.1.2 of our Form 10-K for the year ended September 30, 2002). 3.1.3 Articles of Amendment dated March 20, 1992 (Incorporated herein by reference to Exhibit 3.1.3 of our Form 10-K for the year ended September 30, 2002). 3.1.4 Articles of Amendment dated November 7, 1997 (Incorporated herein by reference to Exhibit 3.1.4 of our Form 10-K for the year ended September 30, 2002). 3.1.5 Certificate of Designations of Series A Junior Participating Preferred Stock of Atwood Oceanics, Inc. dated October 17, 2002 (Incorporated herein by reference to Exhibit 3.1.5 of our Form 10-K for the year ended September 30, 2002). 3.2 Bylaws, as amended and restated (Incorporated herein by reference to Exhibit 3.2 of our Form 10-K for the year ended September 30, 1993). 4.1 Rights Agreement dated effective October 18, 2002 between the Company and Continental Stock Transfer & Trust Company (Incorporated herein by reference to Exhibit 4.1 of our Form 8-A filed October 21, 2002.) 10.1.1 Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.2 of our Form 10-K for the year ended September 30, 1993). 10.1.2 Form of Atwood Oceanics, Inc. Stock Option Agreement - 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.1.2 of our Form 10-K for the year ended September 30, 1999). 10.1.3 Amendment No. 1 to the Atwood Oceanics, Inc. 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.1.3 of our Form 10-K for the year ended September 30, 1999). 10.1.4 Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement 1990 Stock Option Plan (Incorporated herein by reference to Exhibit 10.1.4 of our Form 10-K for the year ended September 30, 1999). 10.3.1 Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to Exhibit 10.1 of our Form 10-Q for the quarter ended June 30, 1997). 10.3.2 Form of Atwood Oceanics, Inc. Stock Option Agreement - 1996 Incentive Equity Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.3.3 Amendment No. 1 to the Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to our Form 10-K for the year ended September 30, 1999). 10.3.4 Form of Amendment No. 1 to the Atwood Oceanics, Inc. Stock Option Agreement -1996 Incentive Equity Plan (Incorporated herein by reference to Exhibit 10.3.4 of our Form 10-K for the year ended September 30, 1999). 10.3.5 Amendment No. 2 to the Atwood Oceanics, Inc. 1996 Incentive Equity Plan (Incorporated herein by reference to Appendix A to our Form DEF14A filed January 12, 2001). 10.3.6 Atwood Oceanics, Inc. 2001 Stock Incentive Plan (Incorporated herein by reference to Appendix A to our Form DEF14A filed January 15, 2002). 10.4.1 Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated as of January 1, 2004 (Incorporated herein by reference to Exhibit 10.4.2 of our Form 10-K for the year ended September 30, 2003). *10.4.2 Atwood Oceanics, Inc. Retention Plan for Certain Salaried Employees dated as of January 1, 2005. 16 10.5.1 Executive Agreement dated as of September 18, 2002 between the Company and John R. Irwin (Incorporated herein by reference to Exhibit 10.5.1 of our Form 10-K for the year ended September 30, 2002). 10.5.2 Executive Agreement dated as of September 18, 2002 between the Company and James M. Holland (Incorporated herein by reference to Exhibit 10.5.2 of our Form 10-K for the year ended September 30, 2002). 10.5.3 Executive Agreement dated as of September 18, 2002 between the Company and Glen P. Kelley (Incorporated herein by reference to Exhibit 10.5.3. of our Form 10-K for the year ended September 30, 2002). 10.7 Credit Agreement for $225 million dated April 1, 2003 among the Company, Atwood Oceanics Pacific Limited and Nordea Bank Finland Plc and other Financial Institutions. (Incorporated herein by reference to Exhibit 99.1 of our 8-K filed April 7, 2003). 10.8 Pooled Assignment and First Amendment to Credit Agreement dated June 27, 2003 among the Company, Atwood Oceanics Pacific Limited and Nordea Bank Finland Plc and other Financial Institutions (Incorporated herein by reference to Exhibit 99.1 of our Form 8-K filed July 30, 2003). 10.9 Second Amendment to Credit Agreement dated June 27, 2003 among the Company, Atwood Oceanics Pacific Limited and Nordea Bank Finland Plc and other Financial Institutions (Incorporated herein by reference to Exhibit 99.2 of our Form 8-K filed July 30, 2003). 10.10 Third Amendment to Credit Agreement dated November 12, 2003 among the Company, Atwood Oceanics Pacific Limited and Nordea Bank Finland Plc and other Financial Institutions. (Incorporated herein of reference to Exhibit 99.2 of our Form 8-K filed November 13, 2003). *13.1 Annual Report to Shareholders. *21.1 List of Subsidiaries. *23.1 Consent of Independent Registered Public Accounting Firm. *31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.2 Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Filed herewith 17 EX-10 2 exh1042.txt EXHIBIT 10.4.2 ----------------------------------- ATWOOD OCEANICS, INC. RETENTION PLAN FOR CERTAIN SALARIED EMPLOYEES ----------------------------------- Effective as of January 1, 2005 This Plan will terminate automatically as of December 31, 2005 if there is no "Effective Date" (as defined in Plan Section 1.5) on or before that date. 1 ATWOOD OCEANICS, INC. RETENTION PLAN FOR CERTAIN SALARIED EMPLOYEES The Company (as defined herein) hereby adopts this Retention Plan for Certain Salaried Employees (the "Plan"), effective as of the 1st day of January, 2005. INTRODUCTION The purpose of this Plan is to secure the interests of the Company's shareholders in the event of a change of control of the Company. In such an event, this Plan would provide an enhanced severance payment and other benefits to encourage certain valued employees to remain employed with the Company during that period of financial uncertainty preceding and following the change of control. If such an event does not occur on or before December 31, 2005, this Plan will terminate automatically, unless otherwise renewed by the Company's Board of Directors. ARTICLE I DEFINITIONS Terms defined above and initially capitalized shall have the respective meanings so ascribed. When used in this Plan and initially capitalized, the following words and phrases shall have the following respective meanings unless the context clearly requires otherwise: 1.1 "Base Salary" as to any Covered Employee for any period, shall mean the greater of the sum of such individual's monthly base salary and Bonus as of the Termination of Employment or as of the date immediately preceding the Effective Date, which is paid to such individual by the Company during employment for such period, before reduction because of an election between benefits or cash provided under a plan of the Company maintained pursuant to Section 125 or 401(k) of the Internal Revenue Code of 1986, as amended, and before reduction for any other amounts contributed by the Company on such individual's behalf to any other employee-benefit plan. 1.2 "Bonus" as to Covered Employee for any period, shall mean the average of bonus payments, if any, made over the preceding three years, including any year for which a bonus has been awarded but not paid, divided by twelve. If the Covered Employee has not been an employee of the Company for at least three years, then Bonus shall be calculated over the period for which the employee has been employed with the Company. 1.3 "Company" shall mean Atwood Oceanics, Inc., a Texas corporation, or any entity that is a successor to it in ownership of substantially all its assets and their affiliates ("Atwood") and its direct and indirect subsidiaries. 1.4 "Covered Employee" shall mean an employee described in Article II of the Plan. 1.5 "Effective Date" shall mean the date on or before December 31, 2005, on which any of the following is effective: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of either (i) the then outstanding shares of common stock of Atwood or (ii) the combined voting power of the then outstanding voting securities of Atwood entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from Atwood; (ii) any 2 acquisition by Atwood; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company; or (b) Atwood shall sell substantially all of its assets to another corporation which is not a wholly owned subsidiary; or (c) Individuals who, as of the date hereof, constitute the Board of Atwood (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Atwood's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. 1.6 "Employment Year" shall mean a period which commences on the first date of employment or any anniversary of such date and ends one year from such date. 1.7 "Good Cause" shall mean a material violation of a Company policy or procedure applicable to employees in the same or similar job position, the willful disregard or failure to follow the reasonable instructions of a superior, the taking of any action, or the failure to take any action, which results in a damage or detriment to the Company, or the conviction of an employee of a felony involving moral turpitude. 1.8 "Health and Life Benefits" shall mean as to any employee, the group-health and life-insurance benefits sponsored by the Company for its full-time employees and provided to or elected by such individual as of the date immediately preceding the Effective Date. 1.9 "Other Severance" shall have the meaning set forth in Section 2.2 of the Plan. 1.10 "Severance Pay" shall mean the sum payable to a Covered Employee upon Termination of Employment as set forth in Section 3.1 of the Plan. 1.11 "Term" shall mean the period commencing on the Effective Date and ending one year after that date. 1.12 "Termination of Employment" shall mean a termination of employment with the Company at the option of the Company for any reason, except a termination of employment for Good Cause shall not mean a Termination of Employment. 1.13 "Years of Continuous Service" shall mean, as to any employee, all full or partial years during which he was employed on a full-time basis by the Company. ARTICLE II. COVERED EMPLOYEES 2.1 Who is a Covered Employee. Any employee of the Company who upon the occurrence of an Effective Date, shall be listed in Schedule 3.1 hereto, which Schedule 3.1 shall be amended from time to time by the Company, and who has a Termination of Employment during the Term shall be a Covered Employee and eligible to receive the benefits described in this Plan. 2.2 Exclusions. Any employee who otherwise is a Covered Employee but who, pursuant to a separate agreement signed on behalf of the Company, receives severance or other salary continuation benefits upon a Termination of Employment (other than payments or benefits under the Company's Executive Life Insurance Plan) shall not be a Covered Employee under this Plan. This Plan shall be in lieu of any plan, program, policy or practice of or contract or agreement with the Company relating to severance of employment ("Other Severance") and any and 3 all benefits of payments arising out of or relating to Other Severance shall be fully offset against any benefits or payments due and owing hereunder. ARTICLE III SEVERANCE PAY AND OTHER BENEFITS 3.1 Amount of Severance Pay. The Company shall pay Severance Pay to a Covered Employee upon a Termination of Employment in an amount equal to the greater of (a) or (b): (a) such individual's weekly Base Salary multiplied by such individual's Years of Continuous Service; or (b) a payment, depending upon the category of employee as identified in Schedule 3.1 hereto, as follows: Category of Employee Payment - ---------------------- ------- Houston Management A: (i) Less than 4 Years of Continuous Service - 6 months' Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 12 months' Base Salary; or (iii) 8 or greater Years of Continuous Service - 18 months' Base Salary Houston Management B, Houston Technical, Rig Management and Other Administration: (i) Less than 4 Years of Continuous Service - 1 month Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 4 months' Base Salary; or (iii) 8 Years but less than 12 Years of Continuous Service - 8 months' Base Salary; or (iv) 12 or greater Years of Continuous Service - 12 months' Base Salary Houston Accounting A, Houston Accounting B and Houston Staff: (i) Less than 4 Years of Continuous Service- 1 month Base Salary; or (ii) 4 Years but less than 8 Years of Continuous Service - 3 months' Base Salary; or (iii) 8 or greater Years of Continuous Service - 6 months' Base Salary 4 3.2 Health and Life Benefits. Upon a Termination of Employment, a Covered Individual's Health and Life Benefits shall ------------------------ be treated as follows: (a) Upon a Termination of Employment and if applicable, the Company will notify each Covered Employee of the right to elect to continue any Company-provided health or disability benefits, all in accordance with and subject to the provisions of the Consolidated Omnibus Budget Reconciliation Act ("COBRA"). The Company shall charge the maximum allowable premium in connection with any COBRA benefits so provided. Other than the benefits provided under COBRA, the Company shall have no further obligation to provide health or disability insurance benefits to any Covered Individual following a Termination of Employment. (b) Upon written request by a Covered Individual within five (5) days of a Termination of Employment, the Company shall assign any life, salary continuation or travel insurance plans or policies to such Covered Individual which by their terms are so assignable, and such Covered Individual will thenceforth become responsible for the payment of any premiums required to maintain said plans or policies from and after the date of Termination of Employment; otherwise, the Company will cease to continue such life insurance plans or policies on behalf of any Covered Employee effective as of the date of Termination of Employment. 3.3 Payment for Unused Vacation. Upon a Termination of Employment, the Company will pay a Covered Employee an amount equal to such individual's weekly Base Salary multiplied by each full and partial week of vacation, which was accrued but unused during the Employment Year in which occurred such individual's Termination of Employment. For purposes of determining payment under this Section 3.3, a full week of vacation consists of five (5) vacation days. ARTICLE IV DISTRIBUTION OF CASH PAYMENTS The Company shall pay a Covered Employee the amount to which he or she is entitled under (as applicable) Plan Section 3.1 (relating to Severance Pay) and Plan Section 3.3 (relating to Payment for Unused Vacation) in one lump sum within a reasonable time, but in no event greater than ten (10) business days, after such Covered Employee's Termination of Employment. ARTICLE V ADMINISTRATION OF PLAN 5.1 In General. The Plan shall be administered by Atwood, which shall be the named fiduciary under the Plan. Atwood may delegate any of its administrative duties, including without limitation duties with respect to the processing, review, investigation, approval, and payment of benefits under the Plan, to a named administrator or administrators. 5.2 Regulations. Atwood shall promulgate any rules and regulations that it deems necessary to carry out the purposes of the Plan, or to interpret the terms and conditions of the Plan; provided that no rule, regulation, or interpretation shall be contrary to the provisions of the Plan. The rules, regulations, and interpretations made by the Atwood shall, subject only to the claims procedure outlined in Section 5.3 hereof, be final and binding on any employee or former employee of the Company, or any successor in interest of either. 5.3 Claims Procedure. The Company shall determine the rights of any employee or former employee of the Company to any benefits hereunder. Any employee or former employee of the Company who believes that he is entitled to receive any benefits other than as initially determined by the Company, may file a claim in writing with Atwood's President. Atwood shall no later than ninety (90) days after the receipt of a claim either allow or deny the claim in writing. 5 A denial of a claim, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reason or reasons for the denial; (b) specific reference to pertinent Plan provisions on which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the claim-review procedure. A claimant whose claim is denied (or his duly authorized representative), may within 30 days after receipt of denial of his claim: (a) request a review upon written application to the Company's personnel administrator; (b) review pertinent documents; and (c) submit issues and comments in writing. Atwood shall notify the claimant of its decision on review within sixty (60) days after receipt of a request for review. Notice of the decision on review shall be in writing. 5.4 Revocability of Company Action. Any action taken by Atwood with respect to the rights under the Plan of any employee or former employee shall be revocable by Atwood as to payments or distributions not yet made to such person, and acceptance of any benefits under the Plan constitutes acceptance of and agreement to any appropriate adjustments made by the Company in future payments or distributions to such person to offset any excess of underpayment previously made to him with respect to any benefits. ARTICLE VI AMENDMENT OR TERMINATION OF PLAN 6.1 Right to Amend or Terminate. Atwood reserves the right at any time prior to the Effective Date, and without prior or other approval of any employee or former employee, to change, modify, amend, or terminate the Plan. All such changes, modifications, or amendments may be retroactive to any date up to and including the original effective date of the Plan, and shall be retroactive to that date unless other provision is specifically made; provided that no such change, modification, or amendment shall adversely affect any benefit under the Plan previously paid or provided to a Covered Employee (or his or her successor in interest). 6.2 Automatic Termination. This Plan shall terminate automatically as of December 31, 2005, or such other extended termination date duly adopted in accordance with the provisions of Section 6.1 above, if there is no Effective Date on or before that date. Termination pursuant to this Plan Section 6.2 shall occur without any action on the part of the Company and shall be effective without prior notice to or approval of any employee or former employee of the Company. ARTICLE VII METHOD OF FUNDING The Company shall pay benefits under the Plan from current operating funds. No property of the Company is or shall be, by reason of this Plan, held in trust for any employee of the Company, nor shall any person have any interest in or any lien or prior claim upon any property of the Company by reason of the Plan or the Company's obligations to make payments hereunder. ARTICLE VIII LEGAL FEES AND EXPENSES; ENFORCEMENT It is the intent of the Company that no Covered Employee be required to incur the expenses associated with the enforcement of his rights under this Plan by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to a Covered Employee hereunder. Accordingly, if it should appear to a Covered Employee that 6 the Company has failed to comply with any of its obligations under this Plan or in the event that the Company or any other person takes any action inconsistent with the terms of this Plan to declare this Plan void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Covered Employee the benefits intended to be provided to such Covered Employee hereunder, the Company irrevocably authorizes such Covered Employee from time to time to retain counsel of his choice, at the expense of the Company as thereafter provided, to represent such Covered Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder, or other person affiliated with the Company in any jurisdiction. Notwithstanding any existing prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to such Covered employee's entering into an attorney-client relationship with such counsel, and in that connection the Company and such Covered Employee agree that a confidential relationship shall exist between such Covered Employee and such counsel. The Company shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by such Covered Employee as a result of the Company's failure to perform under this Plan or any provision thereof; or as a result of the Company or any person contesting the validity or enforceability of this Plan or any provision thereof. ARTICLE IX MISCELLANEOUS 9.1 Limitation on Rights. Participation in the Plan shall not give any employee the right to be retained in the service of the Company or any rights to any benefits whatsoever, except to the extent specifically set forth herein. Unless otherwise agreed in writing, employment with the Company is "at will." 9.2 Headings. Headings of Articles and Sections in this instrument are for convenience only, and do not constitute any part of the Plan. 9.3 Gender and Number. Unless the context clearly indicates otherwise, the masculine gender when used in the Plan shall include the feminine, and the singular number shall include the plural and the plural number the singular. 7 EXECUTED as of the date first set forth above. ATWOOD OCEANICS, INC. By: /S/ John R. Irwin Name: John R. Irwin Title: President & Chief Executive Officer EX-13 3 exh13-1.txt ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13.1 2004 ANNUAL REPORT TO SHAREHOLDERS THE COMPANY We are engaged in the international offshore drilling and completion of exploratory and developmental oil and gas wells and related support, management and consulting services. Presently, we own and operate a premium, modern fleet of eight mobile offshore drilling units as well as manage the operations of two operator-owned platform drilling units in Northwest Australia. We also own a semisubmersible hull, named the SEASCOUT, which we plan to convert to a tender assist vessel once an acceptable contract opportunity is secured. From fiscal year 1997 to 2003, we have invested approximately $460 million in upgrading seven mobile offshore drilling units and constructing an ultra-premium jack-up unit. We support our operations from our Houston headquarters and offices located in Australia, Malaysia, Egypt, Indonesia, Singapore and the United Kingdom. FINANCIAL HIGHLIGHTS 2004 2003 ------ ------ (In Thousands) FOR THE YEAR ENDED SEPTEMBER 30: REVENUES $163,454 $144,765 NET INCOME (LOSS) 7,587 (12,802) CAPITAL EXPENDITURES 6,527 101,819 AT SEPTEMBER 30: NET PROPERTY AND EQUIPMENT $401,141 $443,102 TOTAL ASSETS 498,936 522,674 TOTAL SHAREHOLDERS' EQUITY 271,589 263,467 1 TO OUR SHAREHOLDERS AND EMPLOYEES: During fiscal year 2004, we returned to profitability with a net income of approximately $8 million or $.54 per diluted share after incurring our first loss in ten years in fiscal year 2003. The past year has also been positive in other respects with a recent successful stock offering enabling us to strengthen our balance sheet by reducing our outstanding long-term debt, an equipment utilization rate of 93%, continuing high standards of safety, health, environmental and security performance and recent activity in the offshore industry that indicates an improving market. With our fleet's improved capability and competitiveness, we are now well-positioned to benefit from market improvements. Our $460 million major capital program which commenced in fiscal year 1997 to upgrade seven existing units and construct a new unit was successfully completed last year. We now have eight premium offshore units, targeted to meet our clients' future needs, available to operate and take advantage of the upside from an improving market environment. Our strategy continues to focus on providing premium equipment and safe, quality services in attractive international markets based on long-standing client relationships. We believe this strategy, our current positioning in four key markets, and the ability to take advantage of attractive international opportunities will provide attractive financial returns over the longer term. For fiscal year 2004, our short-term goals were (1) to strive for full utilization of our fleet, (2) to stay strong in all respects and (3) to be well-positioned to benefit from longer-term market improvements and opportunities. We believe those goals were accomplished. Our current contract backlog provides the opportunity to seek improving dayrates in late fiscal year 2005 and into fiscal year 2006. Of our current drilling contracts, the VICKSBURG has the only contract term that extends beyond fiscal year 2005, with the contract term for the ATWOOD HUNTER expected to extend to the end of fiscal year 2005. We expect options to be exercised on the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD BEACON that could also extend those contracts through fiscal year 2005. Despite not currently having long-term commitments, we are pursuing opportunities that should keep the RICHMOND, in the Gulf of Mexico, and the ATWOOD SOUTHERN CROSS, in Southeast Asia, highly utilized during fiscal year 2005. The SEAHAWK has commenced a short-term drilling program in Malaysia which is expected to extend to the end of January 2005. Contract opportunities for the SEAHAWK, following that work, are being pursued in Southeast Asia and West Africa for fiscal years 2005 and 2006. At the beginning of fiscal year 2004, world-wide utilization of offshore drilling units was less than 80% and today it is around 85%. We believe that oil and gas demand fundamentals and the potential for increasing exploration and development expenditures support further market improvement, increasing worldwide utilization and higher dayrates. We are pleased and proud of the Company's performance during fiscal year 2004 which was achieved through the hard work and talent of our employees around the world. Our achievement of safe operations and value-adding performance during the year has been recognized by our clients. Being responsive to our clients' needs and building longer-term client relationships are the cornerstones of our endeavor to be a preferred provider of offshore drilling and completion services. We look forward to the challenges and opportunities ahead and will continue striving to reward the confidence and trust of our shareholders and our other stakeholders. /s/ John R. Irwin John R. Irwin 2 Atwood Oceanics, Inc. and Subsidiaries FIVE-YEAR FINANCIAL REVIEW (In thousands, except per share amounts, fleet At or For the Years Ended September 30, data and ratios) 2004 2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ STATEMENTS OF OPERATIONS DATA: Revenues $ 163,454 $ 144,765 $ 149,157 $ 147,541 $ 135,973 Contract drilling costs (98,936) (98,500) (75,088) (70,014) (60,709) General and administrative expenses (11,389) (14,015) (10,080) (9,250) (8,449) Depreciation (31,582) (25,758) (23,882) (25,579) (29,624) ------- ------- ------- ------- ------- OPERATING INCOME 21,547 6,492 40,107 42,698 37,191 Other expense (9,145) (4,856) (1,330) (1,577) (1,293) Tax provision (4,815) (14,438) (10,492) (13,775) (12,750) ------ ------- ------- ------- ------- NET INCOME (LOSS) $ 7,587 $ (12,802) $ 28,285 $ 27,346 $ 23,148 ======= ========= ======== ======== ======== PER SHARE DATA: Earnings (loss) per common share: Basic $ 0.55 $ (0.92) $ 2.04 $ 1.98 $ 1.68 Diluted $ 0.54 $ (0.92) $ 2.02 $ 1.96 $ 1.66 Average common shares outstanding: Basic 13,859 13,846 13,839 13,828 13,763 Diluted 14,032 13,846 13,994 13,978 13,916 FLEET DATA: Number of rigs owned or managed, at end of period 11 11 10 11 11 Utilization rate for in-service rigs (1) 93% 92% 86% 83% 71% BALANCE SHEET DATA: Cash and cash equivalents $ 16,416 $ 21,551 $ 27,655 $ 12,621 $ 42,661 Working capital 32,913 26,063 43,735 25,057 47,433 Net property and equipment 401,141 443,102 368,397 306,254 224,107 Total assets 498,936 522,674 445,238 353,878 313,251 Total long-term debt (including current portion) 181,000 205,000 115,000 60,000 46,000 Shareholders' equity (2) 271,589 263,467 276,133 247,636 218,205 Ratio of current assets to current liabilities 1.55 1.52 2.44 2.21 3.71 - ---------
Notes - (1) Excludes managed rigs, the SEASCOUT, and contractual downtime on rigs upgraded. (2) We have never paid any cash dividends on our common stock. 3 OFFSHORE DRILLING OPERATIONS PERCENTAGE MAXIMUM WATER OF 2004 CONTRACT STATUS AT RIG NAME YEAR UPGRADED DEPTH REVENUES LOCATION CUSTOMER DECEMBER 10, 2004 - -------- ------------ ------------- ----------- -------- -------- -------------------- SEMISUBMERSIBLES - - ------------------ ATWOOD EAGLE 2000/2002 5,000 Ft. 18% AUSTRALIA BHP Billiton The rig has commenced drilling one well for Petroleum Pty. BHP which is expected to be completed at ("BHP") the end of December 2004. BHP retains the right to drill two option wells using the rig. The rig has been awarded additional work under its current contract with Woodside to drill four firm wells with option to drill three additional wells off the coast of Australia. The drilling of the four firm wells is expected to take approximate four months to complete, and if all the option wells are drilled, the contract could extend into September 2005. The additional work with Woodside will not commence until February 1, 2005. ATWOOD HUNTER 1997/2001 5,000 Ft. 12% EGYPT BURULLUS On December 31, 2003, the rig commenced a GAS CO. drilling program for Burullus which after ("BURULLUS") the exercise of all six options will be a drilling program totaling sixteen wells. The drilling of all sixteen wells is expected to take until approximately September 2005 to complete. ATWOOD FALCON 1998 3,700 Ft. 16% MALAYSIA SARAWAK SHELL The rig is currently drilling the second of BERHAD ("SHELL") four firm wells for Shell. This contract is currently anticipated to extend into February 2005. One option remains under the Shell contract. Immediately upon completion of the Shell contract, the rig will be move to Japan to commence a two-firm well program for Japan Energy Development Co., Ltd. The drilling of 4 these two wells could take until approximately August 2005 to complete. ATWOOD 1997 2,000 Ft. 8% MALAYSIA MURPHY SARAWAK The rig is currently drilling the fourth of SOUTHERN CROSS OIL COMPANY, LTD. now five firm wells. This contract is ("MURPHY") currently anticipated to extend into January 2005. The rig has been awarded a contract by Daewoo International Corporation ("Daewoo") to drill two firm wells plus an option to drill one additional well offshore Myanmar. The Daewoo work will commence immediately after completing the Murphy program, and is expected to take 90 days to complete. CANTILEVER JACK-UPS - - ---------------------- ATWOOD BEACON Constructed in 400 Ft. 13% UNDER REPAIR AT The process of repairing the damage 2003 A SINGAPORE incurred by the ATWOOD BEACON on July 25, SHIPYARD 2004 continues on schedule. The rig is expected to return to service in January 2005. The ATWOOD BEACON has been awarded a contract by HOANG LONG and HOAN VU Joint Operating Companies to drill three firm wells, with options to drill three additional wells, offshore Vietnam. The three firm wells have a combined expected duration of 200 days and if all option wells are drilled, the program could extend for another 200 days. The drilling of this program must commence between January 15, 2005 and April 15, 2005. VICKSBURG 1998 300 Ft. 15% MALAYSIA EXXONMOBIL In May 2004, the rig's contract with EMEPMI EXPLORATION & was suspended and the rig moved to Thailand 5 PRODUCTION to commence a drilling program for Chevron MALAYSIA INC. Offshore (Thailand) Limited. This program ("EMEPMI") has now been completed. The rig has been relocated back to Malaysia and the EMEPMI contract reinstated. The EMEPMI drilling commitment includes the five months that the contract was suspended plus an extension of twelve months, for a total of seventeen months commencing in October 2004. EMEPMI retains its right to terminate the contract by providing 120 days notice. SUBMERSIBLE - - ------------- RICHMOND 2000/2002 70 Ft. 6% UNITED APPLIED DRILLING The rig is currently drilling a third well STATES TECHNOLOGY INC. for ADTI which was assigned from Helis Oil GULF OF ("ADTI") & Gas Company ('Helis"). Upon completion MEXICO of this well, the rig will have three firm wells to drill for Helis, with Helis retaining one option to drill two additional wells. The drilling of the three remaining firm wells is expected to take until February/March 2005 to complete and if the option wells are drilled, the contract could extend to June/July 2005. SEMISUBMERSIBLE TENDER ASSIST UNITS - - ------------------------------------- SEAHAWK 1992/1999 600 Ft. 11% MALAYSIA SARAWAK SHELL The rig is currently working on a two well BERHAD ("SHELL") drilling program for Shell. This drilling program is expected to extend into late January 2005. Additional work, following the Shell contract, is being pursued in Southeast Asia as well as other areas of the world. 6 SEASCOUT N/A N/A UNITED STATES The SEASCOUT was purchased in December 2000 GULF OF MEXICO for future conversion to a tender-assist unit, similar to the SEAHAWK. There are currently no upgrade plans and the rig is currently cold stacked. MODULAR PLATFORMS - - -------------------- MANAGEMENT CONTRACT GOODWYN 'A' and N/A 1% AUSTRALIA WOODSIDE ENERGY There is currently an indefinite planned NORTH RANKIN 'A' LTD. break in drilling activity for the two client-owned rigs managed by the Company. The Company is involved in maintenance of the two rigs for future drilling programs.
7 SECURITIES LITIGATION SAFE HARBOR STATEMENT Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we and our representatives may from to time to time make other oral or written statements which are also forward-looking statements. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause our actual results of operations or our actual financial conditions to differ include, but are not necessarily limited to: o our dependence on the oil and gas industry; o the operational risks involved in drilling for oil and gas; o changes in rig utilization and dayrates in response to the level of activity in the oil and gas industry, which is significantly affected by indications and expectations regarding the level and volatility of oil and gas prices, which in turn are affected by such things as political, economic and weather conditions affecting or potentially affecting regional or worldwide demand for oil and gas, actions or anticipated actions by OPEC, inventory levels, deliverability constraints, and future market activity; o the extent to which customers and potential customers continue to pursue deepwater drilling; o exploration success or lack of exploration success by our customers and potential customers; o the highly competitive and cyclical nature of our business, with periods of low demand and excess rig availability; o the impact of the war with Iraq or other military operations, terrorist acts or embargoes elsewhere; o our ability to enter into and the terms of future drilling contracts; o the availability of qualified personnel; o our failure to retain the business of one or more significant customers; o the termination or renegotiation of contracts by customers; o the availability of adequate insurance at a reasonable cost; o the occurrence of an uninsured loss; o the risks of international operations, including possible economic, political, social or monetary instability, and compliance with foreign laws; o the effect SARS or other public health concerns could have on our international operations and financial results; o compliance with or breach of environmental laws; 8 o the incurrence of secured debt or additional unsecured indebtedness or other obligations by us or our subsidiaries; o the adequacy of sources of liquidity; o currently unknown rig repair needs and/or additional opportunities to accelerate planned maintenance expenditures due to presently unanticipated rig downtime; o higher than anticipated accruals for performance-based compensation due to better than anticipated performance by us, higher than anticipated severance expenses due to unanticipated employee terminations, higher than anticipated legal and accounting fees due to unanticipated financing or other corporate transactions, and other factors that could increase general and administrative expenses; o the actions of our competitors in the offshore drilling industry, which could significantly influence rig dayrates and utilization; o changes in the geographic areas in which our customers plan to operate, which in turn could change our expected effective tax rate; o changes in oil and gas drilling technology or in our competitors' drilling rig fleets that could make our drilling rigs less competitive or require major capital investments to keep them competitive; o rig availability; o the effects and uncertainties of legal and administrative proceedings and other contingencies; o the impact of governmental laws and regulations and the uncertainties involved in their administration, particularly in some foreign jurisdictions; o changes in accepted interpretations of accounting guidelines and other accounting pronouncements and tax laws; o the risks involved in the construction, upgrade, and repair of our drilling units; and o such other factors as may be discussed in our reports filed with the Securities and Exchange Commission, or SEC. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. The words "believe," "impact," "intend," "estimate," "anticipate," "plan" and similar expressions identify forward-looking statements. These forward-looking statements are found at various places throughout this report. When considering any forward-looking statement, you should also keep in mind the risk factors described in other reports or filings we make with the SEC from time to time. Undue reliance should not be placed on these forward-looking statements, which are applicable only on the date hereof. Neither we nor our representatives have a general obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof or to reflect the occurrence of unanticipated events. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK After incurring our first loss in ten years in fiscal year 2003, we returned to profitability in fiscal year 2004. Of our eight active drilling units, seven have current drilling commitments with one, the ATWOOD BEACON, currently in a shipyard in Singapore being repaired from the damages it incurred on July 25, 2004 to all three legs and the derrick while positioning for its next well offshore Indonesia. We have insurance to cover the costs of repairs in excess of a $1 million deductible which was recorded as an expense in the fourth quarter of fiscal year 2004. At September 30, 2004, the book basis of the ATWOOD BEACON has been reduced by $16.3 million which is the estimated reduction in value caused by the incident. In addition, $7.7 million of costs were incurred related to the recovery of the rig of which $6.7 million is recorded as an insurance receivable at September 30, 2004 and $1.0 million was expensed during the fourth quarter of fiscal year 2004 to account for the insurance deductible. We also have loss of hire insurance coverage of $70,000 per day up to 180 days, which began after a 30-day waiting period commencing July 28, 2004. Revenue recognized from this insurance coverage totaled approximately $2.4 million in fiscal year 2004, and accordingly, a $2.4 million insurance receivable is recorded related to these revenues as of September 30, 2004. The ATWOOD BEACON has been awarded a contract in Vietnam which is to commence between January 15 and April 15, 2005. Based on our current schedule of repairs, we believe the rig will be ready to begin operations under the contract by the end of January 2005, with our loss of hire coverage not scheduled to expire until the end of February 2005. We will continue our emphasis on maintaining high utilization of our drilling equipment throughout industry cycles. We had a 93% equipment utilization rate in fiscal year 2004 and have averaged approximately 90% utilization over the last ten years. In October 2004, we sold in a public offering 1,175,000 shares of our common stock at an effective net price (before expenses) of $45.83 for total proceeds (before expenses) of approximately $53.9 million. We used these proceeds and on cash on hand to repay $55 million outstanding under our revolving credit agreement. Prior to the stock offering, our ratio of outstanding debt to total capitalization was around 40%. It is now approximately 30%. With our premium, modern fleet of drilling units and a strengthened balance sheet, we feel that we are well positioned to benefit from an improving market environment. At the beginning of fiscal year 2004, worldwide utilization of offshore drilling units was less that 80%. Today, worldwide utilization is approximately 85%, with semisubmersibles continuing to be the weakest sector of the drilling market with current utilization of approximately 84% compared to current jack-up utilization of approximately 90%. Despite continuing geopolitical uncertainties in Iraq, Venezuela, Nigeria as well as other areas of the world, we expect increasing world energy demand. The oil and gas industry will play a major part in meeting this increasing demand. At the current level of worldwide utilization of offshore drilling units, we anticipate that oil and gas companies will be unable to provide crude oil and natural gas to consumers in sufficient quantities such that prices will be near the averages of the last decade. We believe that based on the current gap between crude oil demand and the world's current supply potential, a significant drilling campaign will be required to increase the world's crude oil and natural gas supply capacity. Thus, we expect continued improvement in worldwide offshore drilling activities during fiscal year 2005; however, a major slow down in world economic activity could negatively impact this expectation. Of our current drilling contracts, the VICKSBURG has the only contract term that extends beyond fiscal year 2005, with the contract term for the ATWOOD HUNTER expected to extend to the end of fiscal year 2005. We expect options to be exercised on the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD BEACON that could also extend these contracts through fiscal year 2005. Despite not currently having long-term contract commitments, we expect that the RICHMOND, in the Gulf of Mexico, and the ATWOOD SOUTHERN CROSS, in Southeast Asia, will be highly utilized during fiscal year 2005. The SEAHAWK has commenced a short-term drilling program in Malaysia which is expected to extend to the end of January 2005. Contract opportunities for the SEAHAWK, following that contract, are being pursued in Southeast Asia and West Africa. With market trends supporting continued increases in drilling activities, coupled with our leverage to improving dayrates, we expect improved cash flows and operating results in fiscal year 2005 compared to fiscal year 2004 and remain optimistic about the longer-term utilization and fundamentals of the offshore drilling market. 10 RESULTS OF OPERATIONS Fiscal Year 2004 Versus Fiscal Year 2003 Revenues for the current fiscal year increased 13% compared to prior fiscal year. A comparative analysis of revenues by rig for fiscal years 2004 and 2003 is as follows: REVENUES (In millions) ------------------------------------ Fiscal Fiscal 2004 2003 Variance ------ ----- -------- ATWOOD BEACON $ 20.7 $ 3.0 $ 17.7 ATWOOD EAGLE 30.4 19.8 10.6 ATWOOD HUNTER 19.4 17.2 2.2 RICHMOND 9.6 8.3 1.3 GOODWYN `A' / NORTH RANKIN `A' 2.0 1.8 0.2 VICKSBURG 24.3 25.0 (0.7) ATWOOD SOUTHERN CROSS 12.5 14.5 (2.0) SEAHAWK 18.6 22.8 (4.2) ATWOOD FALCON 26.0 32.4 (6.4) ---- ---- ---- $163.5 $144.8 $ 18.7 ====== ====== ====== The ATWOOD BEACON was available for operations during the fiscal year 2004 year-to-date period up to its July accident compared to only two months in the prior fiscal year while rig was under construction. The increase in revenue for the ATWOOD EAGLE was due to higher dayrates earned during fiscal year 2004 of approximately $90,000 to $110,000 compared to fiscal year 2003 dayrate of approximately $85,000 and to higher utilization in the current fiscal year as the rig was undergoing its upgrade and relocating to West Africa during the first five months of the prior fiscal year. The increase in revenue for the ATWOOD HUNTER and the RICHMOND was due to higher average dayrates earned during the current fiscal year of $57,000 and $27,000, respectively as compared to the prior fiscal year average dayrates of $54,000 and $23,000, respectively. The ATWOOD HUNTER was also utilized for approximately 20 more days during fiscal year 2004 as compared to fiscal year 2003. Since the end of fiscal year 2001, there has been a planned break in drilling activities on the GOODWYN `A' and NORTH RANKIN `A' platform rigs. We continue to provide a limited amount of maintenance services to these platform rigs during this planned idle period. The VICKSBURG had average per day revenues of $66,000 during fiscal year 2004 compared to $68,500 during fiscal year 2003. The decrease in revenue for the ATWOOD SOUTHERN CROSS was due to lower dayrates earned in the current fiscal year of $30,000 to $35,000 compared to the prior fiscal year of $45,000 to $60,000. The impact of lower dayrates during fiscal year 2004 was partially offset by higher utilization of the rig during fiscal year 2004 of 83% compared to 70% during fiscal year 2003. During the first quarter of the current fiscal year, the amortization of deferred revenue related to the 1999 client reimbursement of the upgrade costs for the SEAHAWK was completed, leading to the decrease in revenue for this rig. The decrease in revenue for the ATWOOD FALCON was primarily due to lower dayrates earned during the current fiscal year of $70,000 to $85,000 compared to $75,000 to $110,000 in the prior fiscal year and also due to the rig being idle during July 2004 while undergoing quarters upgrade and planned maintenance compared to being fully utilized during fiscal year 2003. 11 In total, contract drilling costs for the current fiscal year were comparable to the prior fiscal year. A comparative analysis of contract drilling costs by rig for fiscal years 2004 and 2003 is as follows: CONTRACT DRILLING COSTS (In millions) ---------------------------------- Fiscal Fiscal 2004 2003 Variance ------ ------ -------- ATWOOD BEACON $10.2 $ 1.4 $ 8.8 ATWOOD EAGLE 20.7 19.4 1.3 GOODWYN `A'/NORTH RANKIN `A' 2.1 2.0 0.1 RICHMOND 7.9 8.2 (0.3) SEAHAWK 9.0 9.7 (0.7) ATWOOD HUNTER 12.0 12.9 (0.9) VICKSBURG 8.3 9.3 (1.0) ATWOOD SOUTHERN CROSS 12.3 14.3 (2.0) ATWOOD FALCON 15.1 18.7 (3.6) OTHER 1.3 2.6 (1.3) ----- ----- ----- $98.9 $98.5 $ 0.4 ===== ===== ===== The ATWOOD BEACON incurred operating costs for all of fiscal year 2004 compared to only two months in the prior fiscal year, as the rig was under construction for most of fiscal year 2003. The recording of a $1 million insurance deductible resulting from the damage incurred by the ATWOOD BEACON in its July 2004 incident also contributed to an increase in costs. The increase in daily operating costs of the ATWOOD EAGLE from $53,200 in fiscal year 2003 to $56,700 in fiscal year 2004 was primarily due to an increase in labor costs. Since drilling activities were suspended on the GOODWYN `A' and NORTH RANKIN `A' platforms at the end of fiscal year 2001, we have continued to provide a limited level of maintenance services to these rigs. Decreases in operating costs for the RICHMOND, SEAHAWK and ATWOOD HUNTER were due to declines in maintenance related costs. The decrease in drilling costs for the VICKSBURG was due to the temporary suspension of its contract with ExxonMobil during the current fiscal year (the contract resumed during the first quarter of fiscal year 2005), which in turn, suspended the amortization of expenses related to the upgrade costs incurred for this specific contract. In addition, agent fees were lower compared to prior fiscal year as the VICKSBURG did not incur any agent fees while working in Thailand during the second half of fiscal year 2004. During fiscal 2004, the ATWOOD SOUTHERN CROSS worked in India and Malaysia where daily operating costs are lower than Italy, its primary operating area in fiscal year 2003. The decrease in drilling costs for the ATWOOD FALCON was due to the rig operating in Australia for seven months of fiscal year 2003 at an approximate $25,000 per day higher operating costs compared to Asia, its location for all of fiscal year 2004. The higher operating costs resulted from Australian labor regulations requiring that marine union personnel must be employed for all offshore vessels that have propulsion. During the period that the ATWOOD FALCON worked in Australia, it was equipped with propulsion assist, which required the employment of marine personnel that was not required when the rig worked in Asia. 12 Depreciation expense for the current fiscal year increased 22% as compared to the prior fiscal year. A comparative analysis of depreciation expense by rig for fiscal years 2004 and 2003 is as follows: DEPRECIATION EXPENSE (In millions) -------------------------------- Fiscal Fiscal 2004 2003 Variance ------- ------ -------- ATWOOD BEACON $ 5.2 $ 0.7 $ 4.5 ATWOOD EAGLE 4.8 3.1 1.7 SEAHAWK 5.1 4.7 0.4 ATWOOD SOUTHERN CROSS 4.2 4.0 0.2 VICKSBURG 2.6 2.5 0.1 ATWOOD FALCON 2.7 2.6 0.1 ATWOOD HUNTER 5.4 5.4 - RICHMOND 0.9 1.9 (1.0) OTHER 0.7 0.9 (0.2) ------ ------ ----- $ 31.6 $ 25.8 $ 5.8 ====== ====== ===== The increase in depreciation expense for the ATWOOD BEACON was due to a full year of depreciation expense during fiscal year 2004 compared to only two months in fiscal year 2003 as the rig was under construction for most of the prior fiscal year. The increase in depreciation expense for the ATWOOD EAGLE was also due to a full year of depreciation expense during the current fiscal year compared to only seven months in the prior fiscal year as the rig was being upgraded during the first five months of fiscal year 2003. During the period when a rig is out of service for a significant upgrade that extends its useful life, no depreciation is recognized. The decrease in depreciation expense for the RICHMOND was due to extending its remaining useful life from 2 to 5 years effective October 1, 2003. The depreciable life of this rig was extended based upon an assessment of its commercial viability, coupled with our intent to continue marketing and operating the rig beyond 2 years. General and administrative expense decreased 19% in fiscal year 2004 compared to fiscal year 2003 primarily due to a reduction in professional fees related to our worldwide restructuring initiative incurred in the prior fiscal year. Our worldwide group of consolidated entities derives substantially all of their operating revenues from international offshore drilling of exploratory and developmental oil and gas wells and related support services. At the beginning of fiscal year 2003, we initiated a restructuring of our foreign subsidiaries and deployment of our worldwide assets to focus potential civil litigation which may arise from future offshore activities in foreign operations in the jurisdictions of the areas of those operations, to simplify our worldwide organizational structure for administrative and marketing reasons, to facilitate more efficient management and control of business operations, and to deploy our worldwide assets and capital in a more efficient manner among our consolidated group of companies. In addition to these operational efficiencies, it is expected that this restructuring will also provide long-term tax efficiencies. A significant part of this restructuring involved the contribution of a majority of our non-U.S. operations to Atwood Oceanics Pacific Limited, a wholly-owned Cayman Islands company, which had historically served as our offshore company for marketing, negotiating, and performing drilling contracts outside of the United States. At September 30, 2003, most of our planned restructuring initiative had been completed, with approximately $3 million of the increase in general and administrative expenses related to professional fees associated with this restructuring process. The $4.2 million increase in net interest expense was due to having no capitalized interest in fiscal year 2004 compared to $4.2 million of capitalized interest in fiscal year 2003 as a result of the completion of the upgrades program and construction of the ATWOOD BEACON during fiscal year 2003. Virtually all of our tax provision for fiscal year 2004 relates to taxes in foreign jurisdictions. The $9.6 million decrease in provision for income taxes in fiscal year 2004 compared to fiscal year 2003 was primarily due to the recording of a $4.7 million deferred foreign tax liability in fiscal year 2003 relating to Australian and Malaysian taxes after reassessing certain tax planning strategies in conjunction with the reorganization of our foreign subsidiaries undertaken in fiscal year 2003 and a reduction of $2.1 million in current foreign tax provisions in fiscal year 2004 compared to fiscal year 2003 primarily due to tax efficiencies resulting from the fiscal year 2003 reorganization. 13 Fiscal Year 2003 Versus Fiscal Year 2002 Revenues for fiscal year 2003 decreased 3% compared to the prior year. A comparative analysis of revenues by rig for fiscal years 2003 and 2002 is as follows: REVENUES (In millions) -------------------------------- Fiscal Fiscal 2003 2002 Variance ------ ------ -------- ATWOOD EAGLE $ 19.8 $ 15.2 $ 4.6 ATWOOD BEACON 3.0 - 3.0 VICKSBURG 25.0 22.5 2.5 RICHMOND 8.3 7.1 1.2 SEAHAWK 22.8 22.3 0.5 GOODWYN `A' / NORTH RANKIN `A' 1.8 1.9 (0.1) ATWOOD FALCON 32.4 33.5 (1.1) ATWOOD SOUTHERN CROSS 14.5 19.3 (4.8) ATWOOD HUNTER 17.2 27.4 (10.2) ------ ------ ----- $144.8 $149.2 $(4.4) ====== ====== ===== While utilization was consistent with prior year, the average dayrate for ATWOOD EAGLE during fiscal year 2003 was approximately $85,000 compared to $75,000 in the prior year. Fiscal year 2003 also included $2.7 million of mobilization revenue for the rig's relocation to West Africa. The ATWOOD BEACON commenced operations in August 2003 while being under construction all of the prior fiscal year. Fiscal year 2003 revenues for the VICKSBURG included $2.0 million of client reimbursements for capital upgrades, as utilization and average dayrates were consistent with the prior year. The increase in revenue for the RICHMOND was primarily due to the rig being 100% utilized in fiscal year 2003 compared to having 76 days of idle time in fiscal year 2002. The decrease in revenue for the ATWOOD FALCON was due to its mobilization to Australia and back to Malaysia during fiscal year 2003 compared to working at full operating dayrates for all of fiscal year 2002. Due to the softness of the Mediterranean market, utilization for the ATWOOD SOUTHERN CROSS decreased from approximately 85% in fiscal year 2002 to 70% in fiscal year 2003. Average dayrates for the ATWOOD HUNTER decreased from approximately $90,000 to $54,000 for the same periods. Contract drilling costs for fiscal year 2003 increased 31% as compared to the prior year. As discussed below, in order to maintain relatively high utilization of our fleet during a downturn in the offshore drilling market, we pursued short-term contract opportunities for the ATWOOD EAGLE, ATWOOD FALCON and ATWOOD SOUTHERN CROSS in high operating cost areas of West Africa, Australia and Italy. Compared to fiscal year 2002, approximately 95% of the increase in contract drilling costs in fiscal year 2003 related to these three rigs. A comparative analysis of contract drilling costs by rig for fiscal years 2003 and 2002 is as follows: 14 CONTRACT DRILLING COSTS (In millions) ----------------------------------- Fiscal Fiscal 2003 2002 Variance ------- ------ -------- ATWOOD EAGLE $ 19.4 $ 9.0 $ 10.4 ATWOOD FALCON 18.7 10.2 8.5 ATWOOD SOUTHERN CROSS 14.3 11.1 3.2 ATWOOD BEACON 1.4 - 1.4 SEAHAWK 9.7 9.2 0.5 GOODWYN `A'/NORTH RANKIN `A' 2.0 2.1 (0.1) VICKSBURG 9.3 9.5 (0.2) ATWOOD HUNTER 12.9 13.4 (0.5) RICHMOND 8.2 9.3 (1.1) OTHER 2.6 1.3 1.3 ------ ------ ------ $ 98.5 $ 75.1 $ 23.4 ====== ====== ====== Contract drilling costs for the ATWOOD EAGLE include $8.2 million of mobilization expenses incurred during the rig's relocation to West Africa. In addition, daily operating costs of the ATWOOD EAGLE increased as operating costs in West Africa were approximately 30% higher than in the Mediterranean, the rig's previous location. This increase in daily operating costs relates primarily to a significantly higher onshore cost of services to support our offshore operations, plus higher local labor costs. Due to limited office and living facilities in West Africa compared to the rig's previous location in the Mediterranean, the daily costs for such facilities and other services in West Africa were significantly higher than most other areas of the world. During fiscal year 2003, the ATWOOD FALCON worked seven months in Australia, where operating costs are higher than Southeast Asia, its primary operating location for all of the prior fiscal year, by approximately $25,000 per day due to increased personnel-related costs. Australian labor regulations require that marine union personnel must be employed for all offshore vessels that have propulsion. During the period that the ATWOOD FALCON worked in Australia, it was equipped with propulsion assist, which required the employment of marine personnel that was not required when the rig worked in Southeast Asia. We also incurred approximately $2.0 million in mobilization costs re-locating the ATWOOD FALCON to and from Australia. The increase in costs for the ATWOOD SOUTHERN CROSS resulted from the amortization of the planned maintenance and upgrade costs to meet Italian operating standards, as well as higher costs of operating in Italy for travel, shorebase operations and rentals. In addition, Italian regulations do not allow drilling rigs to operate in Italian waters without having original certification for all electrical equipment. We incurred additional operating costs in complying with this requirement. The ATWOOD BEACON commenced operations in August 2003 while being under construction all of the prior fiscal year. The decrease in costs for the RICHMOND for fiscal year 2003 was due to the shipyard repairs incurred during the prior fiscal year. 15 Depreciation expense for fiscal year 2003 increased 8% as compared to the prior fiscal year. A comparative analysis of depreciation expense by rig for fiscal year 2003 and 2002 is as follows: DEPRECIATION EXPENSE (In millions) ----------------------------------- Fiscal Fiscal 2003 2002 Variance -------- ------- -------- ATWOOD HUNTER $ 5.4 $ 4.2 $ 1.2 ATWOOD EAGLE 3.1 2.2 0.9 ATWOOD BEACON 0.7 - 0.7 RICHMOND 1.9 1.6 0.3 VICKSBURG 2.5 2.3 0.2 ATWOOD SOUTHERN CROSS 4.0 3.9 0.1 SEAHAWK 4.7 4.8 (0.1) ATWOOD FALCON 2.6 2.7 (0.1) OTHER 0.9 2.2 (1.3) ------ ------ ----- $ 25.8 $ 23.9 $ 1.9 ====== ====== ===== During the period when a rig is out of service for a significant upgrade that extends its useful life, no depreciation expense is recognized. The increased depreciation on the ATWOOD HUNTER in fiscal year 2003 was due to a full year of depreciation expense compared to only three quarters in the prior fiscal year as the rig was completing its upgrade and relocation to the Mediterranean during the first quarter of fiscal year 2002. The increase for the ATWOOD EAGLE was due to an increase in the rig's depreciable basis resulting from the completion of its $90 million upgrade during fiscal year 2003. The ATWOOD BEACON commenced operations in August 2003 while being under construction during all of fiscal year 2002. We increased the depreciable basis of the RICHMOND by approximately $1 million during fiscal year 2003 which will be depreciated over the rig's remaining useful life which was 5 years at the time the change was made. Other depreciation expense decreased due to the fact that RIG-200 (sold in May 2003) was fully depreciated to its salvage value in fiscal year 2002 and thus had no depreciation expense for fiscal year 2003. General and administrative expense increased 39% in fiscal year 2003 primarily due to higher professional fees related to our worldwide restructuring initiative. Our worldwide group of consolidated entities derives substantially all of their operating revenues from international offshore drilling of exploratory and developmental oil and gas wells and related support services. At the beginning of fiscal year 2003, we initiated a restructuring of our foreign subsidiaries and deployment of our worldwide assets to focus potential civil litigation which may arise from future offshore activities in foreign operations in the jurisdictions of the areas of those operations, to simplify our worldwide organizational structure for administrative and marketing reasons, to facilitate more efficient management and control of business operations, and to deploy our worldwide assets and capital in a more efficient manner among our consolidated group of companies. In addition to these operational efficiencies, it is expected that this restructuring will also provide long-term tax efficiencies. A significant part of this restructuring involved the contribution of a majority of our non-U.S. operations to Atwood Oceanics Pacific Limited, a wholly-owned Cayman Islands company, which had historically served as our offshore company for marketing, negotiating, and performing drilling contracts outside of the United States. At September 30, 2003, most of our planned restructuring initiative had been completed, with approximately $3 million of the increase in general and administrative expenses related to professional fees associated with this restructuring process. The $3.4 million increase in net interest expense was due to an increase in the average amount of debt outstanding, a $1.2 million write off of deferred financing costs related to the prior credit facility, and due to a $1.9 million decrease in capitalized interest as compared to prior fiscal year as a results of the completion of the upgrade program and construction of the ATWOOD BEACON during fiscal year 2003. Virtually all of our tax provision for fiscal year 2003 relates to taxes in foreign jurisdictions. Due to the low level of operating income in the United States, in addition to operating losses in certain nontaxable foreign jurisdictions, our effective tax rate for the fiscal year 2003 significantly exceeded the United States statutory rate. During fiscal year 2003, we recorded deferred foreign tax liabilities of $4.7 million relating to Australian and 16 Malaysian taxes after reassessing certain tax planning strategies in conjunction with the reorganization of our foreign subsidiaries undertaken in fiscal year 2003. This deferred tax expense had no cash effect during fiscal year 2003. LIQUIDITY AND CAPITAL RESOURCES We currently operate eight active offshore drilling units. Since fiscal year 1997, we have expended approximately $340 million on upgrading seven existing drilling units and approximately $120 million on constructing our eighth drilling unit, the ATWOOD BEACON. After expending approximately $100 million in each of the fiscal years 2001, 2002 and 2003 on our upgrade and rig construction programs, our capital expenditures declined to approximately $6.5 million in fiscal year 2004. We operate in a cyclical industry. Maintaining high equipment utilization in up, as well as down, cycles, is a key factor in generating cash to satisfy current and future obligations. For fiscal years 1999 though 2003, net cash provided by operating activities ranged from a low of approximately $13.7 million in fiscal year 2003 to a high of approximately $70.9 million in fiscal year 1999 compared to net cash provided by operating activities of approximately $25.6 million for fiscal year 2004. Our operating cash flows are primarily driven by our operating income, which reflects dayrates and rig utilization. The low level of net cash provided by operating activities in fiscal year 2003 was due to a downturn in market conditions during which we pursued short-term contract opportunities in high operating cost areas in order to maintain a high utilization of our fleet. Market conditions improved in fiscal year 2004 which enabled us to have higher cash flows and earnings compared to fiscal year 2003. We anticipate continuing improvements in market conditions in fiscal year 2005 and accordingly, expect continuing improvements in cash flows and earnings. Our existing cash commitments for fiscal year 2005 and beyond, outside of completing the funding of repair costs of the ATWOOD BEACON and funding current rig operations, include annual capital expenditures of $6 to $10 million for maintenance of our eight active drilling rigs and required quarterly repayments under the term facility of our credit agreement which will total $36 million for fiscal year 2005. We expect to generate sufficient cash flows from operations to satisfy these obligations. Repair costs for the ATWOOD BEACON are estimated to be approximately $25 million, all of which is expected to be covered by insurance proceeds, and current rig operations will be funded from current operating cash flows. We funded our equipment upgrade and construction programs through a combination of internally generated funds and funds borrowed under credit facilities. On April 1, 2003, we executed a $225 million senior secured credit facility, or the Credit Facility, with four industry banks to refinance our prior existing indebtedness and to provide for on-going working capital and general corporate needs. In June 2003, the borrowing capacity under the Credit Facility was increased to $250 million, with five additional banks joining the syndication group. The Credit Facility contains financial covenants, including but not limited to, requirements for maintaining certain net worth and other financial ratios, and restrictions on disposing of any material assets, paying cash dividends or repurchasing any of our outstanding common stock and incurring any additional indebtedness in excess of $3 million. In June 2003, we also amended the Credit Facility to increase the allowed ratio limit of outstanding debt to earnings before interest, income taxes and depreciation. However, the ratio, as amended in June 2003, was based upon estimates that did not assume a continuing decline in market conditions which negatively impacted our fiscal year 2003 fourth quarter results. Therefore, in November 2003, the Credit Facility was further amended, effective as of September 30, 2003, to redefine the calculation of the ratio of outstanding debt to earnings, before interest, income taxes and depreciation. The November amendment increased the permitted ratio levels from 5.75 to 6.25 at December 31, 2003, reducing to 5.50 at March 31 and June 30, 2004, 4.00 at September 30, 2004 and 3.00 thereafter. We are in compliance with all financial covenants at September 30, 2004 and expect to remain in compliance with all financial covenants during fiscal year 2005. Further, at all times during fiscal years 2002, 2003 and 2004 when we were required to determine compliance with our financial covenants, we were in compliance with the covenants. Aside from the financial covenants, no other provisions exist in the Credit Facility that could result in acceleration of the April 1, 2008 maturity date. The Credit Facility consists of a 5-year $150 million amortizing Term Loan Facility and a 5-year $100 million non-amortizing revolving loan facility. The term loan facility requires quarterly payments of $6 million commencing on December 31, 2003, increasing to quarterly payments of $9 million commencing on December 31, 2004 until maturity on April 1, 2008. The Credit Facility permits prepayment of principal at anytime without incurring a penalty. At September 30, 2004, we had $55 million outstanding under the revolving loan facility and $126 million outstanding under the term loan facility. With the repayment in October 2004 of the then $55 million outstanding under our revolving loan facility from proceeds received from the public offering of 1,175,000 shares of our common stock and cash on hand, we currently have approximately $99 million of available borrowing capacity and with a debt to total capitalization ratio currently less that 30%, we expect to remain in compliance with all financial covenants during fiscal year 2005. 17 The collateral at September 30, 2004 for the Credit Facility consists primarily of preferred mortgages on all eight of our active drilling units (with an aggregate net book value at September 30, 2004 totaling approximately $384 million). We are not required to maintain compensating balances; however, we are required to pay a fee of approximately .80% per annum on the unused portion of the revolving loan facility and certain other administrative costs. The SEASCOUT, a semisubmersible hull planned for future conversion and upgrade to a semisubmersible tender assist vessel, continues to be cold-stacked. The cost to convert and upgrade the SEASCOUT will be around $70 million. There are no current capital commitments on the SEASCOUT, with a conversion and upgrade not to be undertaken until an acceptable contract opportunity has been secured and adequate financing is in place. We continue to periodically increase and adjust our planned capital expenditures and financing of such expenditures in light of current market conditions. Our portfolio of accounts receivable is comprised of major international corporate entities with stable payment experience. Historically, we have not encountered significant difficulty in collecting receivables and typically do not require collateral for our receivables. The insurance receivable of approximately $25 million at September 30, 2004 relates to repairs being made to the ATWOOD BEACON. We expect to encounter no difficulty in collecting these receivables. We have no allowances for doubtful accounts at September 30, 2004. COMMITMENTS (In Thousands) The following table summarizes our obligations and commitments at September 30, 2004: Fiscal Fiscal Fiscal Fiscal 2005 2006 2007 2008 ------- ------- ------- ------- Long-Term Debt (1) $36,000 $36,000 $36,000 $73,000 Operating Leases 628 647 647 108 ------- ------- ------- ------- $36,628 $36,647 $36,647 $73,108 ======= ======= ======= ======= (1) The $55 million loan outstanding under the revolving credit facility, due 2008, was repaid from the proceeds of our stock offering in October 2004 and cash on hand. Excluded from the above table is interest associated with borrowings under the Credit Facility because the applicable interest rate is variable. After payment of the $55 million revolving portion of the Credit Facility, the principal amount outstanding under the Credit Facility included in the above table is $126 million which currently bears interest at a rate of approximately 3.8%. CRITICAL ACCOUNTING POLICIES Significant accounting policies are included in Note 2 to our consolidated financial statements for the year ended September 30, 2004. These policies, along with the underlying assumptions and judgments made by management in their application, have a significant impact on our consolidated financial statements. We identify our most critical accounting policies as those that are the most pervasive and important to the portrayal of our financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. Our most critical accounting policies are those related to property and equipment, impairment of assets, income taxes, and employee stock-based compensation. We currently operate eight active offshore drilling units. All of these assets are premium equipment and should provide many years of quality service. At September 30, 2004, the carrying value of our property and equipment totaled $401.1 million, which represents 80% of total assets. This carrying value reflects the application of our property and equipment accounting policies, which incorporate estimates, assumptions and judgments by management relative to the useful lives and salvage values of our rigs and vessels. The estimated useful lives of our drilling units and related equipment range from 3 years to 25 years and our salvage values are generally based on 5% of capitalized costs. Any future increases in our estimates of useful lives or salvage values will have the effect of decreasing future depreciation expense in earlier future years and spreading the expense to later years. Any future decreases in our useful lives or salvage values will have the effect of accelerating future depreciation expense. For example, effective October 1, 2003, we extended the 18 remaining depreciable life of the RICHMOND from 2 to 5 years, due to our recent assessment of the rig's commercial viability, coupled with our intent to continue marketing and operating the rig beyond 2 years. Depreciation expense was recorded over the past fiscal year on a straight-line method and will continue to be recorded on a straight-line method over the next 4 years. However, as a result of the change in depreciable life and related depreciation expenses being extended into years 3 to 5, depreciation expense was lower in the last fiscal year than it otherwise would have been, and the same will be true for fiscal year 2005. We evaluate the carrying value of our property and equipment when events or changes in circumstances indicate that the carrying value of such assets may be impaired. Asset impairment evaluations are, by nature, highly subjective. Operations of our drilling equipment are subject to the offshore drilling requirements of oil and gas exploration and production companies and agencies of foreign governments. These requirements are, in turn, subject to fluctuations in government policies, world demand and price for petroleum products, proved reserves in relation to such demand and the extent to which such demand can be met from onshore sources. The critical estimates which result from these dynamics include projected utilization, dayrates, and operating expenses, each of which impact our estimated future cash flows. Over the last ten years, our equipment utilization rate has averaged approximately 90%; however, if a drilling vessel incurs significant idle time or receives dayrates below operating costs, its carrying value could become impaired. The estimates, assumptions and judgments used by management in the application of our property and equipment and asset impairment policies reflect both historical experience and expectations regarding future industry conditions and operations. The use of different estimates, assumptions and judgments, especially those involving the useful lives of our rigs and vessels and expectations regarding future industry conditions and operations, would likely result in materially different carrying values of assets and results of operations. We conduct operations and earn income in numerous foreign countries and are subject to the laws of taxing jurisdictions within those countries, as well as United States federal and state tax laws. At September 30, 2004, we have an $18.6 million net deferred income tax liability. This balance reflects the application of our income tax accounting policies in accordance with statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Such accounting policies incorporate estimates, assumptions and judgments by management relative to the interpretation of applicable tax laws, the application of accounting standards, and future levels of taxable income. The estimates, assumptions and judgments used by management in connection with accounting for income taxes reflect both historical experience and expectations regarding future industry conditions and operations. Changes in these estimates, assumptions and judgments could result in materially different provisions for deferred and current income taxes. We currently measure compensation expense for our employee stock-based compensation plan using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and provide pro forma disclosures of the effect on net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense. We have elected to follow APB Opinion No. 25 because, as further discussed at Note 2 of the Notes to Consolidated Financial Statements, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-Based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options and employee stock purchase plan shares. Under APB Opinion No. 25, when the exercise price of employees' stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. On March 31, 2004, the FASB issued a proposed Statement, Share-Based Payment, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. The proposed Statement would eliminate the ability to account for share-based compensation transaction using APB Opinion No. 25 and generally would require instead that such transactions be accounted for using a fair-value-based method. If adopted, it is currently anticipated that the proposed Statement would be effective for us beginning in the fourth quarter of fiscal year 2005. 19 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB issued a revised version of Interpretation No. 46, "Consolidation of Variable Interest Entities--An Interpretation of ARB No. 51 ("FIN 46-R") which was originally issued in January 2003. A variable interest entity ("VIE") is created when: (i) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support for other parties; (ii) equity holders at risk either: (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur; or (iii) the equity holders have voting rights that are disproportionate to their economic interests, and the activities of the VIE involve or are conducted on behalf of an equity holder with a disproportionately small voting interest. If an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that absorbs the majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. The application of FIN 26 (as amended by FIN 46-R) is required in financial statements of public entities that have interest in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. We adopted this interpretation in December 2003 and implementation of this interpretation did not have a material effect on our results of operations, our financial position or cash flows. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which supersedes SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 104's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, which was superseded as a result of the issuance of Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables." While the wording of SAB No. 104 has changed to reflect the issuance of EITF No. 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The implementation of SAB No. 104 is not expected to affect our financial position, results of operations or cash flows. DISCLOSURES ABOUT MARKET RISK We are exposed to market risk, including adverse changes in interest rates and foreign currency exchange rates as discussed below. Interest Rate Risk All of the $181 million of long-term debt outstanding at September 30, 2004, was floating rate debt. As a result, our annual interest costs in fiscal year 2005 will fluctuate based on interest rate changes. Because the interest rate on our long-term debt is a floating rate, the fair value of our long-term debt approximates carrying value as of September 30, 2004. The impact on annual cash flow of a 10% change in the floating rate (approximately 40 basis points) would be approximately $0.7 million, which we believe to be immaterial. We did not have any open derivative contracts relating to our floating rate debt at September 30, 2004. Foreign Currency Risk Certain of our subsidiaries have monetary assets and liabilities that are denominated in a currency other than their functional currencies. Based on September 30, 2004 amounts, a decrease of 10% in the foreign currency value relative to the United States dollar from the year-end exchange rates would not result in a material foreign currency transaction loss. Thus, we consider our current risk exposure to foreign currency exchange rate movements, based on net cash flows, to be immaterial. We did not have any open derivative contracts relating to foreign currencies at September 30, 2004. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Atwood Oceanics, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of changes in shareholder's equity present fairly, in all material respects, the financial position of Atwood Oceanics, Inc. (the "Company") and its subsidiaries as of September 30, 2004, and September 30, 2003, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas December 10, 2004 21 CONSOLIDATED BALANCE SHEETS Atwood Oceanics, Inc. and Subsidiaries September 30, - ---------------------------------------------------------------------------------------------- (In thousands) 2004 2003 - ---------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,416 $ 21,551 Accounts receivable 32,475 30,864 Insurance receivable 25,433 - Income tax receivable - 3,278 Inventories of materials and supplies 12,648 12,583 Deferred tax assets 290 550 Prepaid expenses and other 5,704 7,186 --------- --------- Total Current Assets 92,966 76,012 --------- --------- NET PROPERTY AND EQUIPMENT 401,141 443,102 --------- --------- DEFERRED COSTS AND OTHER ASSETS 4,829 3,560 --------- --------- $ 498,936 $ 522,674 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 36,000 $ 24,000 Accounts payable 9,398 10,403 Accrued liabilities 13,822 8,851 Deferred credits 833 6,695 ------- -------- Total Current Liabilities 60,053 49,949 ------- -------- LONG-TERM DEBT, net of current maturities 145,000 181,000 ------- -------- OTHER LONG-TERM LIABILITIES: Deferred income taxes 18,930 21,217 Deferred credits and other 3,364 7,041 ------- -------- 22,294 28,258 ======== ======== COMMITMENTS AND CONTINGENCIES (NOTE 10) SHAREHOLDERS' EQUITY: Preferred stock, no par value; 1,000,000 shares authorized, none outstanding - - Common stock, $1 par value; 20,000,000 shares authorized with 13,873,000 and 13,851,000 issued and outstanding at September 30, 2004 and 2003, respectively 13,873 13,851 Paid-in capital 57,917 57,404 Retained earnings 199,799 192,212 --------- --------- Total Shareholders' Equity 271,589 263,467 --------- --------- $ 498,936 $ 522,674 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 22 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended September 30, - ------------------------------------------------------------------------------------------------------ (In thousands, except per share amounts) 2004 2003 2002 - ------------------------------------------------------------------------------------------------------ REVENUES: Contract drilling $ 161,074 $144,765 $ 149,157 Business interruption proceeds 2,380 - - ------- ------- ------- 163,454 144,765 149,157 COSTS AND EXPENSES: Contract drilling 98,936 98,500 75,088 Depreciation 31,582 25,758 23,882 General and administrative 11,389 14,015 10,080 ------- ------- --------- 141,907 138,273 109,050 ------- ------- --------- OPERATING INCOME 21,547 6,492 40,107 ------- ------- --------- OTHER INCOME (EXPENSE): Interest expense, net of capitalized interest (9,202) (5,014) (1,658) Investment income 57 158 328 ------- ------- --------- (9,145) (4,856) (1,330) ------- ------- --------- INCOME BEFORE INCOME TAXES 12,402 1,636 38,777 PROVISION FOR INCOME TAXES 4,815 14,438 10,492 ------- ------- --------- NET INCOME (LOSS) $ 7,587 $(12,802) $ 28,285 ======= -======== ========= EARNINGS (LOSS) PER COMMON SHARE: Basic $ 0.55 $ (0.92) $ 2.04 Diluted 0.54 (0.92) 2.02 AVERAGE COMMON SHARES OUTSTANDING: Basic 13,859 13,846 13,839 Diluted 14,032 13,846 13,994
The accompanying notes are an integral part of these consolidated financial statements. 23 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For Years Ended September 30, - ------------------------------------------------------------------------------------------------------------------------- (In thousands) 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 7,587 $ (12,802) $ 28,285 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 31,582 25,758 23,882 Amortization of debt issuance costs 711 2,101 358 Amortization of deferred items 603 185 77 Deferred federal income tax provision (benefit) (2,040) 5,350 2,500 (Gain) loss on sale of assets 163 (421) Changes in assets and liabilities: Increase in accounts receivable 1,667 (5,200) (8,930) Increase in insurance receivable (9,133) - - Increase in inventory (65) (3,449) (23) Increase in deferred costs and other assets (970) (94) (6,275) Increase (decrease) in accounts payable (487) 4,780 759 Increase (decrease) in accrued liabilities 4,971 (4,958) 600 Increase in deferred credits and other liabilities (3,678) 4,051 6,615 Net mobilization fees and credits (5,311) (1,062) (1,177) Other decreases 13 (565) (3,229) ------ ------ ------ 18,026 26,476 15,157 ------ ------ ------ Net Cash Provided by Operating Activities 25,613 13,674 43,442 ------ ------ ------ CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (6,527) (101,819) (89,416) Non-cash portion of capital expenditures - - 1,269 Proceeds from sale of assets - 1,131 - Other - (23) 92 ------ -------- ------- Net Cash Used by Investing Activities (6,527) (100,711) (88,055) ------ -------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from exercises of stock options 460 78 181 Debt issuance costs paid (681) (4,122) (557) Proceeds from credit facilities - 264,500 60,000 Proceeds from short-term note payable - - 6,154 Principal payments on debt (24,000) (179,523) (6,131) ------- -------- ------ Net Cash Provided by Financing Activities (24,221) 80,933 59,647 ------- ------ ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (5,135) $ (6,104) $ 15,034 CASH AND CASH EQUIVALENTS, at beginning of period $ 21,551 $ 27,655 $ 12,621 -------- -------- -------- CASH AND CASH EQUIVALENTS, at end of period $ 16,416 $ 21,551 $ 27,655 ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid during the year for domestic and foreign income taxes $ 5,549 $ 7,914 $ 10,589 ======== ======== ======== Cash paid during the year for interest, net of amounts capitalized $ 9,208 $ 4,003 $ 1,704 ======== ======== ======== Non-cash Activities: Increase in receivable related to reduction in value of the ATWOOD BEACON $ 16,300 $ - $ - ======== ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 24 Atwood Oceanics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------ Total Common Stock Paid-in Retained Stockholders' (In thousands) Shares Amount Capital Earnings Equity - ------------------------------------------------------------------------------------------------------------------------------ September 30, 2001 13,832 $13,832 $57,075 $176,729 $247,636 Net income - - - 28,285 28,285 Exercise of employee stock options 13 13 168 - 181 Tax benefit from exercise of employee stock options - - 31 - 31 ------ -------- -------- ---------- -------- September 30, 2002 13,845 13,845 57,274 205,014 276,133 Net loss - - - (12,802) (12,802) Exercise of employee stock options 6 6 72 - 78 Tax benefit from exercise of employee stock options - - 58 - 58 ------ -------- -------- ---------- -------- September 30, 2003 13,851 13,851 57,404 192,212 263,467 Net income - - - 7,587 7,587 Exercise of employee stock options 22 22 438 - 460 Tax benefit from exercise of employee stock options - - 75 - 75 ------ -------- -------- --------- -------- September 30, 2004 13,873 $13,873 $57,917 $199,799 $271,589 ====== ======= ======= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 25 Atwood Oceanics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - NATURE OF OPERATIONS Atwood Oceanics, Inc., together with its wholly owned subsidiaries (collectively referred to herein as "we", "our" or the "Company"), is engaged in offshore drilling and completion of exploratory and developmental oil and gas wells and related support, management and consulting services principally in international locations. Presently, we own and operate a premium, modern fleet of eight mobile offshore drilling units and are involved in maintenance of two operator-owned platform drilling units in Northwest Australia for future drilling programs. In December 2000, we purchased a semisubmersible unit for a future conversion to a tender assist vessel once an acceptable contract opportunity is secured (see Note 3). Currently, we are involved in active operations in the territorial waters of Australia, Malaysia, Egypt, and the United States. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of Atwood Oceanics, Inc. and all of its wholly owned domestic and foreign subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Foreign exchange - The United States dollar is the functional currency for all areas of our operations. Accordingly, monetary assets and liabilities denominated in foreign currency are remeasured to United States dollars at the rate of exchange in effect at the end of the year, items of income and expense are remeasured at average monthly rates, and property and equipment and other nonmonetary amounts are remeasured at historical rates. Gains and losses on foreign currency transactions and remeasurements are included in contract drilling costs in the consolidated statements of operations. We recorded no foreign exchange gains or losses during fiscal year 2004 and recorded a foreign exchange loss of $.9 million in fiscal year 2003 and a foreign exchange gain of $.1 million in fiscal year 2002. Accounts Receivable - We record trade accounts receivable at the amount we invoice our customer. These accounts do not bear interest. Our portfolio of accounts receivable is comprised of major international corporate entities and government organizations with stable payment experience. Historically, our uncollectible accounts receivable have been immaterial, and typically, we do not require collateral for our receivables. We provide an allowance for uncollectible accounts, as necessary, on a specific identification basis. However, we had no allowance for doubtful accounts at September 30, 2004 or 2003. Inventories of Material and Supplies - Inventories consist of spare parts, material and supplies held for consumption and are stated principally at the lower of average cost or market, net of reserves for excess and obsolete inventory of $1.3 million at both September 30, 2004 and 2003. Property and equipment - Property and equipment are recorded at cost. Interest costs related to property under construction are capitalized as a component of construction costs. With our upgrades and new rig construction programs completed at the end of fiscal year 2003, we had no capitalized interest during fiscal year 2004. Interest capitalized during fiscal 2003 and 2002 was $3.3 million and $2.3 million, respectively. 26 Once a rig is placed in service, it is depreciated on the straight-line method over its estimated useful life, with depreciation discontinued only during the period when a drilling unit is out of service while undergoing a significant upgrade that extends its useful life. Our estimated useful lives of our various classifications of assets are as follows: Years Drilling vessels and related equipment...... 5-25 Drill pipe.................................. 3 Furniture and other......................... 3-10 Maintenance, repairs and minor replacements are charged against income as incurred; major replacements and upgrades are capitalized and depreciated over the remaining useful life of the asset as determined upon completion of the work. The cost and related accumulated depreciation of assets sold, retired or otherwise disposed are removed from the accounts at the time of disposition, and any resulting gain or loss is reflected in the Consolidated Statements of Operations for the applicable period. Impairment of property and equipment - We periodically evaluate our property and equipment to determine that their net carrying value is not in excess of their net realizable value. These evaluations are performed when our Company has sustained significant declines in utilization and dayrates and recovery is not contemplated in the near future. We consider a number of factors such as estimated future cash flows, appraisals and current market value analysis in determining net realizable value. Assets are written down to their fair value if they are below their net carrying value Deferred drydocking costs - We defer the costs of scheduled drydocking and charge such costs to expense over the period to the next scheduled drydocking (normally 30 months). At September 30, 2004 and 2003, deferred drydocking costs totaling $0.8 million and $0.4 million, respectively, were included in Deferred Costs and Other Assets in the accompanying Consolidated Balance Sheets. Income taxes - We account for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS No. 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end given the provisions of enacted tax laws in each respective jurisdiction. Deferred tax assets are reduced by a valuation allowance when, based upon management's estimates, it is more likely than not that a portion of the deferred tax assets will not be realized in a future period. Revenue recognition - We account for drilling and management contract revenue in accordance with the term of the underlying drilling or management contract. These contracts generally provide that revenue is earned and recognized on a daily basis. We provide crewed rigs to customers on a daily rate (i.e. "dayrate") basis. Dayrate contracts can be for a specified period of time or the time required to drill a specified well or number of wells. Revenues from dayrate drilling operations, which are classified under contract drilling services, are recognized on a per day basis as the work progresses. In addition, business interruption proceeds are also recognized on a per day basis. See Note 3 for further discussion of the ATWOOD BEACON incident. Deferred fees and costs related to mobilization periods - Lump-sum fees received as compensation for the cost of relocating drilling rigs from one major operating area to another, whether received at commencement or upon termination of the drilling contract, are recognized as earned on a straight-line method over the term of the related drilling contract, as are the dayrates associated with the drilling contract. Dayrates are typically earned uniformly for a particular level of service over the life of a contract. In 27 addition, we defer the mobilization costs relating to moving a drilling rig to a new area and amortize such costs on a straight-line basis over the life of the applicable drilling contract as well. Contract revenues and drilling costs are reported in the Statements of Operations at their gross amounts. At September 30, 2004 and 2003, deferred mobilization revenues totaled $0.8 million and $3.3 million, respectively, and deferred mobilization costs totaled $0.4 million and $0.9 million, respectively. Deferred mobilization revenues and deferred mobilization costs are classified as current or long-term in the accompanying Consolidated Balance Sheets based on the expected term of the applicable drilling contracts. Cash and cash equivalents - Cash and cash equivalents consist of cash in banks and highly liquid debt instruments, which mature within three months of the date of purchase. Insurance receivable - As of September 30, 2004, we have an insurance receivable of $25.4 million related to a claim filed as a result of damage sustained by the ATWOOD BEACON in July 2004 while positioning for its next well offshore Indonesia. We expect to collect this receivable during fiscal year 2005. See Note 3 for further discussion regarding the ATWOOD BEACON incident. Earnings per common share - Basic and diluted earnings per share have been computed in accordance with SFAS No. 128, "Earnings per Share" (EPS). "Basic" EPS excludes dilution and is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. "Diluted" EPS reflects the issuance of additional shares in connection with the assumed conversion of stock options. The computation of basic and diluted earnings per share under SFAS No. 128 for each of the past three fiscal years is as follows (in thousands, except per share amounts): Per Share Net Income Shares Amount ---------- ------ --------- Fiscal 2004: Basic earnings per share $ 7,587 13,859 $ 0.55 Effect of dilutive securities - Stock options - 173 (0.01) ------- ------ ------ Diluted earnings per share $ 7,587 14,032 $ 0.54 ======= ====== ====== Fiscal 2003: Basic earnings per share $(12,802) 13,846 $(0.92) Effect of dilutive securities - Stock options - - - -------- ------ ------ Diluted earnings per share $(12,802) 13,846 $ (0.92) ======== ====== ======= Fiscal 2002: Basic earnings per share $ 28,285 13,839 $ 2.04 Effect of dilutive securities - Stock options - 155 (0.02) -------- ------ ------- Diluted earnings per share $ 28,285 13,994 $ 2.02 ======== ====== ====== The calculation of diluted earnings per share for the years ended September 30, 2004, 2003 and 2002 excludes consideration of shares of common shares which may be issued in connection with outstanding stock options of 101,275, 825,000 and 183,000, respectively, (see Note 6) because such options were antidilutive. These options could potentially dilute basic EPS in the future. 28 Stock-Based compensation - Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" allows companies the choice of either using a fair value method of accounting for options, which would result in expense recognition for all options granted, or using an intrinsic value method as prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", with pro forma disclosure of the impact on net income (loss) of using the fair value option expense recognition method. We apply the recognition and measurement principles of APB Opinion No. 25 and related interpretations. Accordingly, no compensation costs have been recognized in net income from the granting of options pursuant to its stock option plans, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. See Note 6 for additional information related to our stock incentive plans. Had compensation costs been determined based on the fair value at the grant dates consistent with the method of SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except for per share amounts): Fiscal Fiscal Fiscal 2004 2003 2002 ------ ------ ----- Net (loss) income, as reported $7,587 $ (12,802) $ 28,285 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (2,517) (2,150) (1,696) ------ ------ ------ Pro Forma, net income $5,070 $ (14,952) $ 26,589 ====== ========= ======== Earnings per share: Basic - as reported $ 0.55 $ (0.92) $ 2.04 Basic - pro forma $ 0.37 $ (1.08) $ 1.92 Diluted - as reported $ 0.54 $ (0.92) $ 2.02 Diluted - pro forma $ 0.36 $ (1.08) $ 1.90 The fair value of grants made for the past three fiscal years were estimated on the date of grant using the Black-Sholes Option Pricing model with the following weighted-average assumptions: Fiscal Fiscal Fiscal 2004 2003 2002 ------ ------ ----- Risk-Free Interest Rate 4.38% 3.58% 3.58% Expected Volatility 50.00% 50.00% 46.95% Expected Life (Years) 6 6 6-7 Dividend Yield None None None Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 29 NOTE 3 - PROPERTY AND EQUIPMENT A summary of property and equipment by classification is as follows (in thousands): September 30, ------------------------ 2004 2003 ------ ------ Drilling vessels and related equipment Cost $ 608,584 $ 618,943 Accumulated depreciation (211,544) (181,924) -------- -------- Net book value 397,040 437,019 -------- -------- Drill Pipe Cost 10,240 10,224 Accumulated depreciation (7,259) (6,010) -------- ------- Net book value 2,981 4,214 -------- ------- Furniture and other Cost 7,635 9,072 Accumulated depreciation (6,515) (7,203) --------- ------- Net book value 1,120 1,869 --------- ------- NET PROPERTY AND EQUIPMENT $ 401,141 $ 443,102 ========= ========= ATWOOD HUNTER - In 1997, the ATWOOD HUNTER was initially upgraded to extend its water-depth drilling capabilities to 3,600 feet at an aggregate cost of approximately $40 million. From June 2001 to November 2001, the ATWOOD HUNTER was in a shipyard in the United States undergoing another upgrade which included among other improvements, the extension of its water-depth drilling capacity to 5,000 feet for certain environmental conditions, new 120 bed living quarters, a new high capacity crane and the enhancement of its completion and sub-sea tree handling capabilities. The aggregate cost of this upgrade and improvements was approximately $58 million. ATWOOD EAGLE - In January 2000, the water depth drilling capability of the ATWOOD EAGLE was increased from 2,500 feet to 3,300 feet at a cost of approximately $8 million. From April 2002 to late November 2002, the ATWOOD EAGLE was in a shipyard in Greece undergoing another upgrade which included among other improvements, the extensions of its water-depth drilling capacity to 5,000 feet, new 120 bed living quarters, two new high capacity cranes and the enhancement of its completion and sub-sea tree handling capabilities. The aggregate cost of this upgrade and improvements was approximately $90 million. RICHMOND - During August and September 2000, the RICHMOND was upgraded and refurbished at an aggregate cost of approximately $7 million. The upgrade included, among other improvements, the installation of suction piles and the refurbishment of its living quarters. ATWOOD FALCON - The ATWOOD FALCON was upgraded in 1998, at a cost of approximately $45 million. 30 SEAHAWK - In January 2000, the SEAHAWK commenced drilling under its four-year contract extension in Malaysia following completion of its approximate $22 million upgrade. VICKSBURG - In 1998, the VICKSBURG was refurbished and upgraded at a cost of approximately $35 million. ATWOOD SOUTHERN CROSS - In 1997, the ATWOOD SOUTHERN CROSS was refurbished and upgraded to achieve 2,000 feet water-depth drilling capabilities at an aggregate cost of approximately $35 million. ATWOOD BEACON - In July 2001, we entered into a vessel construction agreement to construct an ultra-premium jack-up drilling unit in Singapore. The construction and commission of the drilling unit was completed in July 2003 at a total cost, including owner furnished equipment and capitalized interest, of approximately $120 million and subsequently was placed into service in August 2003. On July 25, 2004, the ATWOOD BEACON incurred damage to all three legs and the derrick while positioning for its next well offshore Indonesia. The rig and its damaged legs were transported to the builder's shipyard in Singapore for inspections and repairs. We expect all repairs to be completed in January 2005. We have insurance to cover the costs of repairs in excess of a $1 million deductible which was recorded as an expense in the fourth quarter of fiscal year 2004. At September 30, 2004, the book basis of the ATWOOD BEACON has been reduced by $16.3 million which is the estimated reduction in value caused by the incident. In addition, $7.7 million of costs were incurred related to the recovery of the rig of which $6.7 million is recorded as an insurance receivable at September 30, 2004 and $1.0 million was expensed during the fourth quarter of fiscal year 2004 to account for the insurance deductible. We also have loss of hire insurance coverage of $70,000 per day up to 180 days, which began after a 30-day waiting period commencing July 28, 2004. Revenue recognized from this insurance coverage totaled approximately $2.4 million in fiscal year 2004 and is reflected as business interruption proceeds on the Consolidated Statement of Operations. Accordingly, a $2.4 million insurance receivable is recorded related to these revenues as of September 30, 2004. SEASCOUT - On December 5, 2000, we purchased the semisubmersible unit SEASCOUT for $4.5 million and subsequently have made certain improvements related to engineering and equipment removal. We purchased this unit for conversion and upgrade to a semisubmersible tender assist vessel. The conversion and upgrade will not be undertaken until an acceptable contract opportunity has been secured. The rig is currently cold stacked while awaiting an opportunity for an acceptable contract. NOTE 4 - DEBT LONG-TERM DEBT - A summary of long-term debt is as follows (in thousands): September 30, -------------------------- 2004 2003 Credit facility, bearing interest (market adjustable) at approximately 4.00% per annum at September 30, 2004 $ 181,000 $ 205,000 Less - current maturities 36,000 24,000 --------- --------- $ 145,000 $ 181,000 ========= ========= 31 On April 1, 2003, we executed a $225 million senior secured credit facility, or the Credit Facility, with four industry banks to refinance our prior existing indebtedness and to provide for on-going working capital and general corporate needs. In June 2003, the borrowing capacity under the Credit Facility was increased to $250 million, with five additional banks joining the syndication group. The Credit Facility contains financial covenants, including but not limited to, requirements for maintaining certain net worth and other financial ratios, and restrictions on disposing of any material assets, paying cash dividends or repurchasing any of our outstanding common stock and incurring any additional indebtedness in excess of $3 million. In June 2003, we also amended the Credit Facility to increase the allowed ratio limit of outstanding debt to earnings before interest, income taxes and depreciation. However, the ratio, as amended in June 2003, was based upon estimates that did not assume a continuing decline in market conditions which negatively impacted our fiscal year 2003 fourth quarter results. Therefore, in November 2003, the Credit Facility was further amended, effective as of September 30, 2003, to redefine the calculation of the ratio of outstanding debt to earnings, before interest, income taxes and depreciation. The November amendment increased the permitted ratio levels from 5.75 to 6.25 at December 31, 2003, reducing to 5.50 at March 31 and June 30, 2004, 4.00 at September 30, 2004 and 3.00 thereafter. We are in compliance with all financial covenants at September 30, 2004 and expect to remain in compliance with all financial covenants during fiscal year 2005. Further, at all times during fiscal year 2002, 2003 and 2004 when we were required to determine compliance with our financial covenants, we were in compliance with the covenants. Aside from the financial covenants, no other provisions exist in the Credit Facility that could result in acceleration of the April 1, 2008 maturity date. The Credit Facility consists of a 5-year $150 million amortizing Term Loan Facility and a 5-year $100 million non-amortizing revolving loan facility. The term loan facility requires quarterly payments of $6 million commencing on December 31, 2003, increasing to quarterly payments of $9 million commencing on December 31, 2004 until maturity on April 1, 2008. The Credit Facility permits prepayment of principal at anytime without incurring a penalty. At September 30, 2004, we had $55 million outstanding under the revolving loan facility and $126 million outstanding under the term loan facility. In October 2004, we repaid the $55 million outstanding under the revolving loan facility from proceeds received from the public offering of 1,175,000 shares of our common stock and cash on hand. The collateral at September 30, 2004 for the Credit Facility consists primarily of preferred mortgages on all eight of our active drilling units (with an aggregate net book value at September 30, 2004 totaling approximately $384 million). We are not required to maintain compensating balances; however, we are required to pay a fee of approximately .80% per annum on the unused portion of the revolving loan facility and certain other administrative costs. The Credit Facility also supports issuance, when required, of standby letters of guarantee. At September 30, 2004, standby letters of guarantee in the aggregate amount of approximately $1.5 million were outstanding. Future maturities of long-term debt are as follows (in thousands): FISCAL YEAR AMOUNT ----------- 2005 $ 36,000 2006 36,000 2007 36,000 2008 73,000 ---- -------- $181,000 ========= NOTE 5 - INCOME TAXES Domestic and foreign income before income taxes for the three-year period ended September 30, 2004 is as follows (in thousands): Fiscal Fiscal Fiscal 2004 2003 2002 ------ ------ ------ Domestic income (loss) $ 1,094 $(5,112) $ 5,076 Foreign income 11,308 6,748 33,701 -------- ------- -------- $ 12,402 $ 1,636 $ 38,777 ======== ======= ======== 32 The provision (benefit) for domestic and foreign taxes on income consists of the following (in thousands): Fiscal Fiscal Fiscal 2004 2003 2002 ------ ------ ------ Current - domestic $ 277 $ 361 $ (3,025) Deferred - domestic (990) 700 2,500 Current - foreign 6,578 8,727 11,017 Deferred - foreign (1,050) 4,650 - ------- ------- -------- $ 4,815 $ 14,438 $ 10,492 ======= ======== ======== Virtually all of our tax provision for the current and prior fiscal years relates to taxes in foreign jurisdictions. Due to the low level of operating income in the United States during the current fiscal year, and the operating loss in the United States in the prior fiscal year, in addition to operating losses in certain nontaxable foreign jurisdictions for both fiscal years, our effective tax rate for the fiscal year 2004 exceeds the United States statutory rate and significantly exceeded the United States statutory rate during fiscal year 2003. In connection with our restructuring in fiscal year 2003, operational changes, uncertainty of proposed changes in laws, and uncertainty in the application of existing laws caused us to reassess our intention to implement other tax planning strategies related to Malaysian and Australian rigs. As a result of that reassessment, we determined that such strategies were no longer viable given the potential risks involved. Therefore, we recorded deferred foreign tax liabilities of $4.7 million relating to Australian and Malaysian taxes in fiscal year 2003. This deferred tax expense had no cash effect during fiscal year 2003. The components of the deferred income tax assets (liabilities) as of September 30, 2004 and 2003 are as follows (in thousands): September 30, ----------------------------- 2004 2003 Deferred tax assets - Net operating loss carryforwards $ 5,130 $ 5,368 Tax credit carryforwards 1,250 1,590 Book accruals 260 550 ------ ------ 6,640 7,508 ------ ------ Deferred tax liabilities - Difference in book and tax basis of equipment (24,090) (27,235) Deferred income (820) - ------- ------- (24,910) (27,235) ------- ------- Net deferred tax assets (liabilities) before valuation allowance (18,270) (19,727) Valuation allowance (370) (940) ------- -------- $(18,640) $(20,667) ======== ======== Net current deferred tax assets $ 290 $ 550 Net noncurrent deferred tax liabilities (18,930) (21,217) ------- -------- $(18,640) $(20,667) ======== ========
33 All of the $5.1 million of Australian net operating loss carryforwards and $0.9 million of the $1.3 million of United States tax credit carryforwards do not expire. Management estimates these tax attributes will be utilized to offset tax obligations in future periods. However, $0.4 million of the United States tax credit carryforwards expire in 2008, and management estimates these credits will not be available to reduce future tax obligations. Thus, a $0.4 million valuation allowance is recorded as of September 30, 2004. An analysis of the change in the valuation allowance during the current fiscal year is as follows (in thousands): Valuation Allowance as of September 30, 2003 940 Utilization of foreign tax credit carryforwards (570) ----- Valuation Allowance as of September 30, 2004 $ 370 ===== We do not provide federal income taxes on the undistributed earnings of our foreign subsidiaries that we consider to be permanently reinvested in foreign operations. In addition, there was no cumulative amount of such undistributed earnings at September 30, 2004. The differences between the statutory and the effective income tax rate are as follows: Fiscal Fiscal Fiscal 2004 2003 2002 ------ ------ ------ Statutory income tax rate 35% 35% 35% Impact of foreign reorganization - 361 - Prior period foreign tax true-ups (3) - - Increase (decrease) in tax rate resulting from - Foreign tax rate differentials, net of foreign tax credit utilization 7 487 (8) --- --- --- Effective income tax rate 39% 883% 27% === === ===
NOTE 6 - CAPITAL STOCK PREFERRED STOCK- In 1975, 1,000,000 shares of preferred stock with no par value were authorized. No shares have been issued. EQUITY INCENTIVE PLANS - We have a stock incentive plan ("2001 Plan") whereby 1,000,000 shares of common stock may be granted to officers, board members and key employees through December 5, 2011. At September 30, 2004, options to purchase 355,000 shares were outstanding under this Plan. We also have options outstanding to purchase 578,525 shares under a 1996 Plan and 49,150 shares under a 1990 Plan; however, under the 1996 and 1990 Plans, no additional shares are reserved for grant. Under all plans, the exercise price of each option equals the market price of one share of our common stock on the date of grant, with all outstanding options having a maximum term of 10 years. Options vest over a period from the end of the first to the fourth year from the date of grant under the 2001 Plan and from the end of the second to the fifth year from the date of grant under the 1996 and 1990 Plans. Each option is for the purchase of one share of our common stock. The stock incentive plans also provide for other types of awards, including but not limited to, restricted stock awards. To date, no awards other than options have been granted under the plans. All stock incentive plans currently in effect have been approved by the shareholders of our outstanding common stock. 34 A summary of the status of our Plans as of September 30, 2004, 2003 and 2002, and changes during the years ended on those dates is presented below: Fiscal 2004 Fiscal 2003 Fiscal 2002 ------------------------ ---------------------- ----------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Options Price Options Price Options Price --------- --------- --------- --------- ----------- --------- Outstanding at beginning of Year 823,575 $ 31.37 825,075 $ 31.27 672,675 $ 30.93 Granted 185,000 27.65 20,000 28.69 171,500 31.46 Exercised (21,400) 21.53 (6,000) 13.10 (13,100) 13.83 Forfeited (4,500) 31.07 (15,500) 26.78 (6,000) 39.73 Expired - - - - - - -------- -------- -------- ------- -------- ------- Outstanding at end of year 982,675 $ 30.92 823,575 $ 31.37 825,075 $ 31.27 ======= ======= ======= ======= ======= ======= Exercisable at end of year 547,800 $ 31.33 431,325 $ 30.32 272,225 $ 28.30 ======= ======= ======= ======= ======= ======= Available for grant at end of Year 700,625 881,125 885,625 ======= ======= ======= Weighted-average fair value of options granted during the Year $ 14.15 $ 14.70 $ 15.67 ======= ======= =======
The following table summarizes information about stock options outstanding at September 30, 2004: Options Outstanding Options Exercisable --------------------------------------------------- ------------------------------------- Weighted Average Range of Remaining Weighted Average Weighted Average Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price - --------------- -------- ------------------ ---------------- ------ ----------------- $ 6.56 to 6.69 5,300 0.3 years $ 6.56 5,300 $ 6.56 16.63 to 18.97 119,350 2.9 years 17.67 119,350 17.67 27.82 to 28.00 247,000 7.3 years 27.26 64,500 27.97 30.06 to 37.75 499,750 6.7 years 32.43 269,875 32.89 42.71 to 52.06 111,275 4.3 years 47.62 88,775 48.87 ------- ------- ------- ------- 6.56 to 52.06 982,675 6.1 years $30.92 547,800 $ 31.33 ======= ======= ======= =======
RIGHTS AGREEMENT - In September 2002, we authorized and declared a dividend of one Right for each outstanding share of common stock as of November 5, 2002, subject to lender approval and consent, which was obtained. One Right will also be associated with each share of common stock that becomes outstanding after November 5, 2002 but before the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date (as defined in Rights Agreement effective October 18, 2002, which governs the Rights). The Rights are not exercisable until a person or group of affiliated or associated persons begin to acquire or acquires beneficial ownership of 15 percent or more of our outstanding common stock. This provision does not apply to shareholders already holding 15 percent or more of our outstanding common stock as of November 5, 2002 until they acquire an additional 5 percent. When exercisable, each Right entitles the registered holder to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Stock, no par value, at a price of $150 per one one-thousandth of a preferred share, subject to adjustment. The Rights will expire on November 5, 2012. At September 30, 2004, 500,000 preferred shares have been reserved for issuance in the event that Rights are exercised. 35 NOTE 7 - RETIREMENT PLAN We have a contributory retirement plan (the "Plan") under which qualified participants may make contributions, which together with our contributions, can be up to 100% of their compensation, as defined, to a maximum of $40,000. Participants must contribute from 1 to 5 percent of their earnings as a required contribution ("the basic contribution"). We make contributions to the Plan equal to twice the basic contributions. After six consecutive months of service, an employee can elect to become a participant in the Plan. Our contributions vest 100% to each participant after three years of service with us including any period of ineligibility mandated by the Plan. If a participant terminates employment before becoming fully vested, the unvested portion is credited to our account and can be used only to offset our contribution requirements. During fiscal years 2004 and 2002, $120,000 and $200,000 of forfeitures were utilized to reduce our cash contribution requirements, respectively. In fiscal year 2003, no forfeitures were utilized to reduce our cash contribution requirements. In fiscal years 2004, 2003 and 2002, actual cash contributions totaled approximately $2.4 million, $2.5 million and $2.2 million, respectively. As of September 30, 2004, there are approximately $56,000 of contribution forfeitures, which can be utilized to reduce our future cash contribution requirements. NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities included in the accompanying Consolidated Balance Sheets approximate fair value due to the short maturity of these instruments. Since the Credit Facility (as described in Note 4) has a market adjustable interest rate, the carrying value approximated fair value as of September 30, 2004 and 2003. NOTE 9 - CONCENTRATION OF MARKET AND CREDIT RISK All of our customers are in the oil and gas offshore exploration and production industry. This industry concentration has the potential to impact our overall exposure to market and credit risks, either positively or negatively, in that our customers could be affected by similar changes in economic, industry or other conditions. However, we believe that the credit risk posed by this industry concentration is offset by the creditworthiness of our customer base. Revenues from significant customers from the prior three fiscal years are as follows (in thousands): Fiscal Fiscal Fiscal 2004 2003 2002 -------- -------- ------- ExxonMobil Production Malaysia, Inc. $ 33,256 $ 47,827 $ 23,417 Esso Exploration Angola 180 19,514 - Woodside Energy Ltd. 5,825 25,324 1,907 Shell Philippines Exploration B.V. - - 22,370 Burullus Gas Company 16,734 5,541 27,319 Carigali - Triton Operating Company - - 20,474 Rashid Petroleum Company - 738 8,740 36 NOTE 10 - COMMITMENTS AND CONTINGENCIES OPERATING LEASES We lease our Houston, Texas office space under an operating lease agreement which will expire in fiscal year 2008. Future minimum lease payments for operating leases for the fiscal years ending September 30 are as follows (in thousands): 2005.....................................628 2006.....................................647 2007.....................................647 2008.....................................108 Total rent expense under operating leases was approximately $597,000, $567,000 and $539,000 for fiscal years ended September 30, 2004, 2003, and 2002 respectively. LITIGATION We are party to a number of lawsuits which are ordinary, routine litigation incidental to our business, the outcome of which, individually, or in the aggregate, is not expected to have a material adverse effect on our financial position, results of operations, or cash flows. NOTE 11 - SUBSEQUENT EVENTS In October 2004, we sold in a public offering 1,175,000 shares of our common stock at an effective net price (before expenses) of $45.83 for total proceeds of approximately $53.9 million. We used these proceeds and cash on hand to repay the $55 million outstanding as of September 30, 2004 under the revolving portion of our Credit Facility. NOTE 12 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB issued a revised version of Interpretation No. 46, "Consolidation of Variable Interest Entities-- An Interpretation of ARB No. 51 ("FIN 46-R") which was originally issued in January 2003. A variable interest entity ("VIE") is created when: (i) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support for other parties; (ii) equity holders at risk either, (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur; or (iii) equity holders have voting rights that are disproportionate to their economic interests, and the activities of the VIE involve or are conducted on behalf of an equity holder with a disproportionately small voting interest. If an entity is deemed to be a VIE, pursuant to FIN 46-R, an enterprise that absorbs the majority of the expected losses of the VIE is considered the primary beneficiary and must consolidate the VIE. The application of FIN 26 (as amended by FIN 46-R) is required in financial statements of public entities that have interest in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. We adopted this interpretation in December 2003 and implementation of this interpretation did not have a material effect on our results of operations or our financial position or cash flows. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which supersedes SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 104's primary purpose is to rescind accounting guidance contained in SAB No. 101 related to multiple element revenue arrangements, which was superseded as a result of the issuance of Emerging Issues Task Force ("EITF") No. 00-21, "Revenue Arrangements with Multiple Deliverables." While the wording of SAB No. 104 has changed to reflect the issuance of EITF No. 00-21, the revenue recognition principles of SAB No. 101 remain largely unchanged by the issuance of SAB No. 104. The implementation of SAB No. 104 is not expected to affect our financial position, results of operations or cash flows. 37 NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS We are engaged in offshore contract drilling. Our contract drilling operations consist of contracting owned or managed offshore drilling equipment primarily to major oil and gas exploration companies. Operating income is contract revenues less operating costs, general and administrative expenses and depreciation. In computing operating income (loss) for each geographic area, other income (expense) and domestic and foreign income taxes were not considered. Total assets are those assets that we use in operations in each geographic area. A summary of revenues, operating margin and identifiable assets by geographic areas is as follows (in thousands): Fiscal Fiscal Fiscal 2004 2003 2002 --------- -------- --------- CONTRACT REVENUES: United States $ 9,565 $ 8,303 $ 7,066 Southeast Asia 97,654 59,671 78,330 Mediterranean Sea 28,627 51,468 61,854 Australia 27,608 25,323 1,907 --------- --------- -------- $ 163,454 $ 144,765 $ 149,157 ========= ========= ========= OPERATING INCOME (LOSS): United States $ (2,197) $ (4,232) $ (5,891) Southeast Asia 30,070 23,163 39,890 Mediterranean Sea 385 (7,692) 17,846 Australia 4,678 9,268 (1,658) General and administrative expenses (11,389) (14,015) (10,080) --------- --------- --------- $ 21,547 $ 6,492 $ 40,107 ========= ========= ========= TOTAL ASSETS: United States $ 30,370 $ 38,336 $ 43,548 Southeast Asia 258,648 245,446 176,763 Mediterranean Sea 95,253 122,586 219,019 Africa - 111,179 - Australia 113,331 3,062 3,720 General corporate and other 1,334 2,065 2,188 --------- --------- --------- $ 498,936 $ 522,674 $ 445,238 ========= ========= ========= 38 NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly results for fiscal years 2004 and 2003 are as follows (in thousands, except per share amounts): QUARTERS ENDED --------------------------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, ------------- ----------- ------------ --------------- FISCAL 2004 Revenues $ 35,325 $ 36,810 $ 48,386 $ 42,933 Income (loss) before income taxes (64) 2,235 8,589 1,642 Net income (loss) (1,904) 462 5,685 3,344 Earnings per common share - Basic (0.14) 0.03 0.41 0.24 Diluted (0.14) 0.03 0.40 0.24 FISCAL 2003 Revenues $ 29,841 $ 35,073 $ 41,847 $ 38,004 Income (loss) before income taxes 2,374 1,428 2,207 (4,373) Net income (loss) 950 587 (82) (14,257) Earnings per common share - Basic 0.07 0.04 (0.01) (1.03) Diluted 0.07 0.04 (0.01) (1.03)
- ----- The sum of the individual quarterly net income per common share amounts may not agree with year-to-date net income per common share as each quarterly computation is based on the weighted average number of common shares outstanding during that period. 39 DIRECTORS OFFICERS DEBORAH A. BECK (2, 3, 4) JOHN R. IRWIN Executive Vice President - Planning and Technology President, Chief Executive Officer Northwest Mutual Life Insurance Company Milwaukee, Wisconsin JAMES M. HOLLAND Senior Vice President, Chief Financial Officer and ROBERT W. BURGESS (2, 3, 4) Secretary Financial Executive, Retired Orleans, Massachusetts GLEN P. KELLEY Senior Vice President - Marketing and Administration GEORGE S. DOTSON (1, 2, 3, 4) Vice President Helmerich & Payne, Inc. President Helmerich & Payne International Drilling Co. Tulsa, Oklahoma HANS HELMERICH (1, 4) President, Chief Executive Officer Helmerich & Payne, Inc. Tulsa, Oklahoma JOHN R. IRWIN (1) President, Chief Executive Officer Atwood Oceanics, Inc. Houston, Texas WILLIAM J. MORRISSEY (2, 4) Bank Executive, Retired Elkhorn, Wisconsin (1) Executive Committee (2) Audit Committee (3) Compensation Committee (4) Nominating & Corporate Governance Committee - -------------------------------------------
40 ANNUAL MEETING The annual meeting of stockholders will be held at 10:00 A.M., Central Standard Time, on Thursday, February 10, 2005 at our principal office: 15835 Park Ten Place Drive, Houston, Texas, 77084. A formal notice of the meeting together with a proxy statement and form of proxy will be mailed to stockholders on or about January 15, 2005. TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 FORM 10-K A copy of our Form 10-K as filed with the Securities and Exchange Commission is available free on request by writing to: Secretary, Atwood Oceanics, Inc. P. O. Box 218350 Houston, Texas 77218 We file annual report on Form 10-K as well as quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC's web site at http://www.sec.gov. Our website address is www.atwd.com. We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on our website is not incorporated by reference into this report or made a part hereof for any purpose. You may also read and copy any document we file, including our Form 10-K, at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and copy charges. STOCK PRICE INFORMATION - The common stock of Atwood Oceanics, Inc. is traded on the New York Stock Exchange ("NYSE") under the symbol "ATW". No cash dividends on common stock were paid in fiscal year 2003 or 2004, and none are anticipated in the foreseeable future. As of December 10, 2004, there were over 750 beneficial owners of the common stock of Atwood Oceanics, Inc. As of December 10, 2004, the closing sale price of the common stock of Atwood Oceanics, Inc., as reported by NYSE, was $49.40 per share. The following table sets forth the range of high and low sales prices per share of common stock as reported by the NYSE for the periods indicated. Fiscal Fiscal 2004 2003 ----------------------- ------------------------ LOW HIGH LOW HIGH ----------------------- ------------------------ QUARTERS ENDED December 31 $ 23.30 $ 33.69 $ 24.39 $ 32.96 March 31 31.53 40.27 24.45 31.10 June 30 33.64 42.90 24.81 30.30 September 30 36.48 48.75 23.06 28.20 41 BAR CHART - REVENUES ($ MILLIONS) - ---------------------------------- 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $136.0 $147.5 $149.2 $144.8 $163.5 BAR CHART - CAPITAL EXPENDITURES ($ MILLIONS) - --------------------------------------------- 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $34.8 $107.8 $89.4 $101.8 $6.5 BAR CHART - OPERATING INCOME ($ MILLIONS) - ------------------------------------------- 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $37.2 $42.7 $40.1 $6.5 $21.5 BAR CHART - NET INCOME (LOSS) ($ MILLIONS) - ------------------------------------------- 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- $23.1 $27.3 $28.3 ($12.8) $7.6
42 EX-21 4 exh21-1.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARY COMPANIES AND STATE OR JURISDICTION OF INCORPORATION UNITED STATES - Atwood Drilling, Inc. Delaware 100% Atwood Hunter Co. Delaware 100% Atwood Management, Inc. Delaware 100% Atwood Oceanics Management, LP Delaware 100% ATW Management, Inc. Delaware 100% Atwood Deep Seas, Ltd. Texas 100% FOREIGN - Atwood Oceanics Drilling Pty. Ltd. Australia 100% Atwood Oceanics Australia Pty Limited Australia 100% Atwood Oceanics Platforms Pty. Ltd. Australia 100% Atwood Oceanics Services Pty. Ltd. Australia 100% Atwood Oceanics West Tuna Pty. Ltd. Australia 100% Atwood Oceanics Pacific Limited Cayman Islands, B.W.I. 100% Alpha Offshore Drilling Services Cayman Islands, B.W.I. 100% Atwood Oceanics International Limited Cayman Islands, B.W.I. 100% Swiftdrill Offshore Drilling Services Cayman Islands, B.W.I. 100% Swiftdrill, Inc. Cayman Islands, B.W.I. 100% Atwood Oceanics Leasing Limited Labuan 100% Atwood Oceanics (M) Sdn Bhd Malaysia 100% Clearways Offshore Drilling Sdn. Bhd. Malaysia 49% Drillquest (M) Sdn. Bhd. Malaysia 100% PT Alpha Offshore Drilling Indonesia 100% PT Pentawood Offshore Drilling Indonesia 80% Aurora Offshore Services Gmbh Germany 100% Swiftdrill Nigeria Limited Nigeria 60% Atwood Oceanics Services Singapore 100% EX-32 5 exhb23-1.txt CERTIFCATION EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-52065; No. 333-74255 and No. 333-87786) and on Form S-3 (No. 333-92388 and 333-117534) of our report dated December 10, 2004 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders and which is incorporated in this Annual Report on Form 10-K. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Houston, Texas December 10, 2004 EX-31 6 exh31-1.txt CERTIFICATIONS EXHIBIT 31.1 CERTIFICATIONS I, John R. Irwin, certify that: 1. I have reviewed this annual report on Form 10-K of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Releases 34-47986 and 34-49313]; and (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 1 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2004 /s/ John R. Irwin John R. Irwin Chief Executive Officer 2 EX-32 7 exh31-2.txt CERTIFICATIONS EXHIBIT 31.2 CERTIFICATIONS I, James M. Holland, certify that: 1. I have reviewed this annual report on Form 10-K of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Releases 34-47986 and 34-49313]; and (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 2 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2004 /s/ James M. Holland James M. Holland Chief Financial Officer EX-32 8 exh32-1.txt CERIFICATIONS OF CEO EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Atwood Oceanics, Inc. (the "Company") on Form 10-K for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Irwin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented. Date: December 10, 2004 /s/ John R. Irwin ----------------- John R. Irwin President and Chief Executive Officer EX-32 9 exh32-2.txt CERTIFICATIONS FOR CFO EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Atwood Oceanics, Inc. (the "Company") on Form 10-K for the period ended September 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Holland, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for the periods presented. Date: December 10, 2004 /s/ James M. Holland --------------------- James M. Holland Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----