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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
Form 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 2006
COMMISSION FILE NUMBER 1-13167
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
ATWOOD OCEANICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1611874
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15835 Park Ten Place Drive 77084
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
281-749-7800
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filings
requirements for the past 90 days. Yes X No___
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer X Accelerated filer ___ Non-accelerated filer ___
---
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.) Yes___ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 8, 2006: 31,042,472 shares of common stock, $1 par
value
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ATWOOD OCEANICS, INC.
FORM 10-Q
For the Quarter Ended June 30, 2006
INDEX
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements Page
Unaudited Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended June 30, 2006 and 2005........3
Unaudited Condensed Consolidated Balance Sheets
As of June 30, 2006 and September 30, 2005........................4
Unaudited Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 2006 and 2005..................5
Unaudited Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Nine Months Ended June 30, 2006......6
Notes to Unaudited Condensed Consolidated Financial Statements...7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................14
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......23
Item 4. Controls and Procedures..........................................24
Part II. Other Information
Item 5. Other Information.................................................25
Item 6. Exhibits ........................................................25
Signature....................................................................27
Exhibits.....................................................................29
2
PART I. FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- -------------------------------
2006 2005 2006 2005
------ ------ ------- -------
REVENUES:
Contract drilling $ 71,865 $ 43,589 $ 194,808 $ 122,376
Business interruption proceeds - - - 7,656
-------- -------- --------- ---------
71,865 43,589 194,808 130,032
-------- -------- --------- ---------
COSTS AND EXPENSES:
Contract drilling 32,136 25,863 103,176 74,667
Depreciation 6,192 6,764 18,789 19,929
Gain on sale of equipment (1,075) - (10,350) -
General and administrative 4,830 3,224 15,428 9,814
-------- -------- --------- --------
42,083 35,851 127,043 104,410
-------- -------- --------- --------
OPERATING INCOME 29,782 7,738 67,765 25,622
-------- -------- --------- --------
OTHER INCOME (EXPENSE)
Interest expense, net of capitalized interest (1,435) (1,913) (4,642) (5,658)
Interest income 259 108 828 212
-------- -------- --------- -------
(1,176) (1,805) (3,814) (5,446)
-------- -------- --------- -------
INCOME BEFORE INCOME TAXES 28,606 5,933 63,951 20,176
PROVISION (BENEFIT) FOR INCOME TAXES (4,185) (56) 1,008 826
-------- -------- --------- -------
NET INCOME $ 32,791 $ 5,989 $ 62,943 $ 19,350
======== ======== ========= =======
EARNINGS PER COMMON SHARE (NOTE 2):
Basic $ 1.06 $ 0.20 $ 2.04 $ 0.64
Diluted 1.04 0.19 2.00 0.62
AVERAGE COMMON SHARES OUTSTANDING
(NOTE 2):
Basic 31,037 30,484 30,900 30,356
Diluted 31,580 31,300 31,411 31,144
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, September 30,
2006 2005
----------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,034 $ 18,982
Accounts receivable, net of an allowance of 52,009 39,865
$642 and $189 at June 30, 2006 and
September 30, 2005, respectively
Income tax receivable 1,782 3,278
Inventories of materials and supplies 18,916 15,640
Deferred tax assets 3,281 3,080
Prepaid expenses and other 3,135 11,208
----------- ----------
Total Current Assets 125,157 92,053
----------- ----------
NET PROPERTY AND EQUIPMENT 428,185 390,778
----------- ----------
ASSET HELD FOR SALE - 9,017
----------- ----------
DEFERRED COSTS AND OTHER ASSETS 6,040 3,846
----------- ----------
$ 559,382 $ 495,694
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable $ 36,000 $ 36,000
Accounts payable 5,270 6,473
Accrued liabilities 17,129 11,088
Deferred Credits 77 2,598
----------- ----------
Total Current Liabilities 58,476 56,159
----------- ----------
LONG-TERM DEBT,
net of current maturities 37,000 54,000
----------- ----------
37,000 54,000
----------- ----------
OTHER LONG TERM LIABILITIES:
Deferred income taxes 18,760 20,140
Deferred credits and other 10,652 3,258
----------- ----------
29,412 23,398
----------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000 shares authorized, none outstanding - -
Common stock, $1 par value, 50,000 shares
authorized with 31,042 and 30,682 issued
and outstanding at June 30, 2006 and
September 30, 2005, respectively 31,042 30,682
Paid-in capital 114,699 105,645
Retained earnings 288,753 225,810
----------- ----------
Total Shareholders' Equity 434,494 362,137
----------- ----------
$ 559,382 $ 495,694
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended June 30,
-----------------------------------
2006 2005
---------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 62,943 $ 19,350
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 18,789 19,929
Amortization of debt issuance costs 603 603
Amortization of deferred costs 9,275 1,599
Provision for doubtful accounts 618 -
Provision for inventory obsolesence 474 73
Deferred income tax benefit (1,581) (330)
Stock option compensation expense 3,400 -
Tax benefit from the exercise of stock options - 1,025
Gain on disposal of assets (10,350) -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (12,762) 2,217
Decrease in income tax receivable 1,496 -
Increase in inventory (3,750) (2,563)
Decrease in prepaid expenses and other 1,717 3,933
Decrease (increase) in deferred costs and other assets (5,716) 5,633
Decrease in accounts payable (1,203) (5,424)
Increase (decrease) in accrued liabilities 6,041 (7,589)
Increase (decrease) in deferred credits and other liabilities 4,873 (544)
Other 8 (15)
-------- ------
Net cash provided by operating activities 74,875 37,897
-------- ------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (62,357) (21,643)
Collection of insurance receivable - 15,750
Proceeds from sale of assets 25,520 -
-------- ------
Net cash used by investing activities (36,837) (5,893)
-------- ------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from stock offering - 53,607
Proceeds from exercise of stock options 6,014 5,991
Proceeds from debt 10,000 10,000
Principal payments on debt (27,000) (92,000)
-------- -------
Net cash used by financing activities (10,986) (22,402)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 27,052 9,602
CASH AND CASH EQUIVALENTS, at beginning of period $ 18,982 $ 16,416
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 46,034 $ 26,018
======== ========
-----------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
PART I. ITEM I - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------
- Total
Common Stock Paid-in Retained Stockholders'
(In thousands) Shares Amount Capital Earnings Equity
--------------------------------------------------------------------------------------------------------------------
September 30, 2005 30,682 $30,682 $105,645 $225,810 $362,137
Net income - - - 62,943 62,943
Restricted stock awards 4 4 - - 4
Exercise of employee stock options 356 356 5,654 - 6,010
Stock option and restricted stock
award compensation expense - - 3,400 - 3,400
------ ------- -------- -------- --------
June 30, 2006 31,042 $31,042 $114,699 $288,753 $434,494
====== ======= ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
PART I. ITEM 1 - FINANCIAL STATEMENTS
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. UNAUDITED INTERIM INFORMATION
The unaudited interim condensed consolidated financial statements as of
June 30, 2006, and for each of the three and nine month periods ended June 30,
2006 and 2005, included herein, have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. The year end condensed consolidated balance sheet data was
derived from the audited financial statements as of September 30, 2005. Although
these financial statements and related information have been prepared without
audit, and certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, we believe that the note disclosures
are adequate to make the information not misleading. The interim financial
results may not be indicative of results that could be expected for a full year.
We suggest that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in our Annual Report to Shareholders for the year ended September 30,
2005. In our opinion, the unaudited interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair statement of our financial position and results of operations for the
periods presented.
2. CAPITAL STOCK
On March 2, 2006, the Board of Directors declared a two-for-one stock split
of our common stock effected in the form of a 100% common stock dividend. All
shareholders of record on March 24, 2006 received one additional share of common
stock for each share held on that date. The additional shares of common stock
were distributed in the form of a stock dividend on April 7, 2006. All share and
per share amounts in the accompanying condensed consolidated financial
statements and related notes have been adjusted to reflect the stock split for
all periods presented.
3. SHARE-BASED COMPENSATION
Effective October 1, 2005, we adopted Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment", or SFAS 123(R), using the modified
prospective application transition method. Under this method, stock-based
compensation cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the requisite service
period (generally the vesting period of the equity grant). In addition,
stock-based compensation cost recognized includes compensation cost for unvested
stock-based awards as of October 1, 2005. Prior to October 1, 2005, we accounted
for share-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", or APB No. 25. No
share-based employee compensation cost has been reflected in net income prior to
October 1, 2005. Before that date, we reported the entire tax benefit related to
the exercise of stock options as an operating cash flow. SFAS 123(R) requires us
to report the tax benefit from the tax deduction that is in excess of recognized
7
compensation costs (excess tax benefits) as a financing cash flow rather than as
an operating cash flow. The cumulative effect of the change in accounting
principle from APB No. 25 to FAS 123(R) was not material.
Under our Amended and Restated 2001 Stock Incentive Plan, or the 2001 Plan,
up to 2,000,000 shares of common stock may be issued to eligible participants in
the form of restricted stock awards or upon exercise of stock options granted
pursuant to the 2001 Plan. Awards of restricted stock and grants of stock
options may be made under the 2001 Plan through September 5, 2011. We also have
another stock incentive plan, the 1996 Plan, under which there are outstanding
stock options. However, no additional options or restricted stock will be
awarded under the 1996 plan.
A summary of share and stock option data for our two stock incentive plans
as of June 30, 2006 is as follows:
2001 1996
Plan Plan
------------ ------------
Shares available for future awards or grants 799,280 -
Outstanding stock option grants 946,400 471,050
Outstanding unvested restricted stock awards 77,600 -
Awards of restricted stock and stock options have both been granted under
our stock incentive plans as of June 30, 2006. We deliver newly issued shares of
common stock for restricted stock awards and upon exercise of stock options. All
stock incentive plans currently in effect have been approved by the shareholders
of our outstanding common stock.
The impact of adopting SFAS 123(R) had no effect on our cash flows for the
nine month ended June 30, 2006, however, has had the following effect on our
consolidated statements of operations (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, 2006:
Increase in contract drilling expenses $ 350 $ 650
Increase in general and administrative expenses 775 2,750
Decrease in income tax provision (271) (963)
----- ------
Decrease of net income $ 854 2,437
===== ======
Decrease in earnings per share:
Basic $ 0.03 $ 0.08
Diluted $ 0.03 $ 0.08
We recognize compensation expense on grants of share-based compensation
awards on a straight-line basis over the required service period for each award.
As of June 30, 2006, unrecognized compensation cost, net of estimated
forfeitures, related to stock options and restricted stock awards was
approximately $5.0 million and $2.3 million, respectively, which we expect to
recognize over a weighted average period of approximately 2.4 years.
8
Stock Options
Under our stock incentive plans, the exercise price of each stock
option equals the fair market value of one share of our common stock on the date
of grant, with all outstanding options having a maximum term of 10 years.
Options vest ratably over a period from the end of the first to the fourth year
from the date of grant under the 2001 Plan and from the end of the second to the
fifth year from the date of grant under the 1996 Plan. Each option is for the
purchase of one share of our common stock.
The per share weighted average fair value of stock options granted
during the nine months ended June 30, 2006 and 2005 was $17.70 and $10.22,
respectively. We estimated the fair value of each stock option on the date of
grant using the Black-Scholes pricing model and the following assumptions:
Nine Months Ended
June 30,
--------------------
2006 2005
--------------------
Risk-Free Interest Rate 4.46% 4.27%
Expected Volatility 42% 35%
Expected Life (Years) 6 6
Dividend Yield None None
The average risk-free interest rate is based on the five-year U.S. treasury
security rate in effect as of the grant date. We determined expected volatility
using a 6-year historical volatility figure and determined the expected term of
the stock options using 15 years of historical data. The expected dividend yield
is based on the expected annual dividend as a percentage of the market value of
our common stock as of the grant date.
A summary of stock option activity during the nine months ended June
30, 2006 is as follows:
Wtd. Avg.
Wtd. Avg. Remaining Aggregate
Number of Exercise Contractual Intrinsic
Options Price Life (Years) Value (000s)
--------- --------- ------------- ------------
Outstanding at October 1, 2005 1,703,300 $ 17.64
Granted 106,000 $ 37.15
Exercised (355,250) $ 16.95 $ 10,048
Forfeited (36,600) $ 22.64
--------- -------
Outstanding at June 30, 2006 1,417,450 $ 19.14 6.6 $ 43,169
========= =======
Exercisable at June 30, 2006 824,888 $ 16.70 5.6 $ 27,138
========= =======
9
Restricted Stock
We have also awarded restricted stock to certain employees and to our
non-employee directors. The awards of restricted stock to employees are subject
to three year vesting, and all restricted stock awards to date are restricted
from transfer for three years form the date of grant. Pursuant to the amendments
to our 2001 Plan approved by our shareholders on February 9, 2006, and as
discussed in our definitive proxy statement sent to our shareholders relating to
our annual shareholders meeting and filed with the SEC on January 13, 2006,
during the quarter ended March 31, 2006, our non-employee directors were
automatically granted stock awards totaling an aggregate of 4,220 shares of our
common stock. We value restricted stock awards at fair market value of our
common stock on the date of grant.
A summary of restricted stock activity for the nine months ended June 30,
2006, is as follows:
Number of Wtd. Avg.
Shares Fair Value
--------- ----------
Unvested at October 1, 2005 - ---
Granted 86,220 $ 37.65
Vested (4,220) $ 47.40
Forfeited (4,400) $ 37.15
------ -------
Unvested at June 30, 2006 77,600 $ 37.15
====== =======
Prior Year Pro Forma Expense
The following table illustrates the effect on net income and earnings per
share as if the fair value-based method provided by SFAS 123(R) had been applied
for all outstanding and unvested awards for periods prior to our adoption of
SFAS 123(R) as of October 1, 2005 (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, 2005:
Net income, as reported $5,989 $19,350
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects 421 1,264
----- -------
Pro Forma, net income $5,568 $18,086
====== =======
Earnings per share:
Basic - as reported $0.20 $0.64
Basic - pro forma $0.18 $0.60
Diluted - as reported $0.19 $0.62
Diluted - pro forma $0.18 $0.58
10
4. EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per share is as follows
(in thousands, except per share amounts):
Three Months Ended Nine Months Ended
------------------ ------------------
Net Per Share Net Per Share
Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ ---------
June 30, 2006:
Basic earnings per share $ 32,791 31,037 $ 1.06 $ 62,943 30,900 $ 2.04
Effect of dilutive securities:
Stock options and
restrictedtstockpawards --- 543 $(0.02) --- 511 $(0.04)
-------- ------- ------- -------- -------- ------
Diluted earnings per share $ 32,791 31,580 $ 1.04 $ 62,943 31,411 $ 2.00
======== ====== ====== ======== ======= ======
June 30, 2005:
Basic earnings per share $ 5,989 30,484 $ 0.20 $ 19,350 30,356 $ 0.64
Effect of dilutive securities:
Stock options and
restrictedtstockpawards --- 816 $(0.01) --- 788 $(0.02)
-------- ------- ------ -------- ------- ------
Diluted earnings per share $ 5,989 31,300 $ 0.19 $ 19,350 31,144 $ 0.62
======== ====== ====== ======== ====== ======
The calculation of diluted earnings per share for the three and nine month
period ending June 30, 2006, excludes consideration of common shares which would
be issued upon the exercise of 101,000 stock options because such options were
anti-dilutive. These options could potentially dilute basic earnings per share
in the future.
11
5. PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as follows (in
thousands):
June 30, September 30,
2006 2005
---------------- -------------
Drilling vessels and related equipment
Cost $ 679,401 $ 624,118
Accumulated depreciation (254,545) (236,736)
-------- ---------
Net book value 424,856 387,382
-------- ---------
Drill pipe
Cost 9,889 10,742
Accumulated depreciation (7,878) (8,407)
-------- ---------
Net book value 2,011 2,335
-------- ---------
Furniture and other
Cost 7,645 7,395
Accumulated depreciation (6,327) (6,334)
-------- ---------
Net book value 1,318 1,061
-------- ---------
NET PROPERTY AND EQUIPMENT $ 428,185 $ 390,778
========= =========
In October 2005, we sold our semisubmersible hull, SEASCOUT, which was
reported as an asset held for sale in the consolidated balance sheet at
September 30, 2005, for $10.0 million (net after certain expenses) and our spare
15,000 P.S.I. BOP Stack for $15.0 million, resulting in an aggregate gain of
approximately $10.1 million for both of these assets. Of this amount, $9.3
million was recorded in the three months ended December 31, 2005, and $0.8
million in the three months ended June 30, 2006. We had no operations or
revenues associated with these assets prior to their sale.
12
6. INCOME TAXES
Virtually all of our tax provision for each of the three and nine months
ended June 30, 2006 and 2005, relates to taxes in foreign jurisdictions. During
the current quarter, we reversed a $1.8 million tax contingent liability due to
the expiration of the statute of limitations in a foreign jurisdiction. In
addition, we earned a high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the three and nine months
ended June 30, 2006. Subsequent to the end of the current quarter and as
previously reported, on August 3, 2006, we were advised by a foreign tax
authority that it had approved acceptance of certain amended prior year tax
returns. The acceptance of these amended tax returns resulted in the recognition
of a $4.6 million tax benefit in the current quarter. As a result of these
items, our effective tax rate for the three and nine months ended June 30, 2006
is significantly less than the U.S. statutory rate.
During the first quarter of fiscal year 2005, we received a $1.7 million
tax refund in Malaysia related to a previously reserved tax receivable. In
addition, a $1.0 million deferred tax benefit was recognized during the third
quarter of fiscal year 2005 due to the filing, and subsequent acceptance by the
local tax authority, of amended prior year tax returns. We also earned revenue
from our loss of hire insurance coverage on the ATWOOD BEACON in a zero tax
jurisdiction. As a result of these items, our effective tax rate for the three
and nine months ended June 30, 2005, was significantly less than the U.S.
statutory rate.
7. SIGNIFICANT ACCOUNTING POLICIES
In July 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement 109." FIN 48 prescribes a
comprehensive model for recognizing, measuring, presenting, and disclosing
uncertain tax positions within the financial statements. The provisions of FIN
48 are effective for fiscal years beginning after December 15, 2006. We will be
evaluating the impact of the adoption of FIN 48 on our consolidated financial
position.
8. COMMITMENTS AND CONTINGENCIES
On May 3, 2006, we received notice from the Malaysian tax authorities
regarding alleged non-compliance with withholding tax provisions of the
Malaysian Income Tax Act for years of assessment 2001 to 2004. The alleged under
withholding of tax is approximately $2.1 million, which is also subject to a
100% penalty. This matter was settled with the Malaysian tax authorities during
the current quarter with no assessment of withholding tax or related penalties.
We are party to a number of lawsuits which are ordinary, routine litigation
incidental to our business, the outcome of which, individually, or in the
aggregate, is not expected to have a material adverse effect on our financial
position, results of operations, or cash flows.
13
PART I. ITEM 2
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q for the quarterly period ended June 30, 2006 includes
statements about Atwood Oceanics, Inc. (which together with its subsidiaries is
identified as the "Company," "we" or "our," unless the context requires
otherwise) which are not historical facts (including any statements concerning
plans and objectives of management for future operations or economic
performance, or assumptions related thereto) which are forward-looking
statements. In addition, we and our representatives may from to time to time
make other oral or written statements which are also forward-looking statements.
These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us, which we deem reasonable, but which therefore involve a number of
risks and uncertainties. We can give no assurance that such expectations and
assumptions will prove to be correct. We caution that forward-looking statements
are not guarantees and that actual results could differ materially from those
expressed or implied in the forward-looking statements.
Important factors that could cause our actual results of operations or
our actual financial conditions to differ include, but are not necessarily
limited to:
- our dependence on the oil and gas industry;
- the operational risks involved in drilling for oil and gas;
- changes in rig utilization and dayrates in response to the level of
activity in the oil and natural gas industry, which is significantly
affected by indications and expectations regarding the level and
volatility of oil and natural gas prices, which in turn are affected by
such things as political, economic and weather conditions affecting or
potentially affecting regional or worldwide demand for oil and natural
gas, actions or anticipated actions by OPEC, inventory levels,
deliverability constraints, and future market activity;
- the extent to which customers and potential customers continue to pursue
deepwater drilling;
- exploration success or lack of exploration success by our customers and
potential customers;
- the highly competitive and cyclical nature of our business, with periods
of low demand and excess rig availability;
- the impact of the war with Iraq or other military operations, terrorist
acts or embargoes elsewhere;
- our ability to enter into and the terms of future drilling contracts;
- the availability of qualified personnel;
- our failure to retain the business of one or more significant customers;
14
- the termination or renegotiation of contracts by customers;
- the availability of adequate insurance at a reasonable cost;
- the occurrence of an uninsured loss;
- the risks of international operations, including possible economic,
political, social or monetary instability, and compliance with foreign
laws;
- the effect public health concerns could have on our international
operations and financial results;
- compliance with or breach of environmental laws;
- the incurrence of secured debt or additional unsecured indebtedness or
other obligations by us or our subsidiaries;
- the adequacy of sources of liquidity;
- currently unknown rig repair needs and/or additional opportunities to
accelerate planned maintenance expenditures due to presently
unanticipated rig downtime;
- higher than anticipated accruals for performance-based compensation due
to better than anticipated performance by us, higher than anticipated
severance expenses due to unanticipated employee terminations, higher
than anticipated legal and accounting fees due to unanticipated
financing or other corporate transactions and other factors that could
increase general and administrative expenses;
- the actions of our competitors in the oil and gas drilling industry,
which could significantly influence rig dayrates and utilization;
- changes in the geographic areas in which our customers plan to operate,
which in turn could change our expected effective tax rate;
- changes in oil and natural gas drilling technology or in our competitors'
drilling rig fleets that could make our drilling rigs less competitive or
require major capital investments to keep them competitive;
- rig availability;
- the effects and uncertainties of legal and administrative proceedings
and other contingencies;
- the impact of governmental laws and regulations and the uncertainties
involved in their administration, particularly in some foreign
jurisdictions;
- changes in accepted interpretations of accounting guidelines and other
accounting pronouncements and tax laws; and
- the risks involved in the construction, upgrade and repair of our
drilling units.
15
You should also read the risk factors set forth in our Form 10K for the
year ended September 30, 2005 filed with the Securities and Exchange Commission,
or SEC. 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.
MARKET OUTLOOK
There continues to be very strong demand for offshore drilling equipment,
with all of our eight drilling units having contractual dayrate commitments that
are the highest in their respective histories. Currently, we have 100% of
available rig days for the remainder of fiscal year 2006 contracted, with
contracted rig days for fiscal years 2007 and 2008 at 98% and 75%, respectively.
A comparison of the average per day revenues for fiscal year 2005 and for the
first nine months of fiscal year 2006 for each of our eight drilling units to
their current highest contracted dayrate commitment is as follows:
Average Per Day Revenues for
---------------------------------
Percentage
First Nine Current Highest Change from
Fiscal Months Contracted First Nine
Year Fiscal Year Dayrate Months Fiscal
2005 2006 Commitment Year 2006
-------------- -------------- ------------------- ------------------
ATWOOD HUNTER $61,000 $158,000 $245,000 55%
ATWOOD EAGLE 95,000 122,000 420,000 244%
ATWOOD FALCON 82,000 80,000 200,000 150%
ATWOOD SOUTHERN CROSS 42,000 85,000 305,000 259%
ATWOOD BEACON 66,000 78,000 133,500 71%
VICKSBURG 65,000 82,000 154,000 88%
SEAHAWK 45,000 28,000 * 68,430 144%
RICHMOND 33,000 47,000 80,000 70%
* Average per day revenue is low due to the rig earning no revenues during
the current quarter while the rig was in a shipyard undergoing a life enhancing
upgrade during the entire quarter.
The ATWOOD HUNTER is currently working offshore Mauritania for Woodside
Energy Limited ("Woodside") at a dayrate of $240,000 under a contract commitment
that extends to May 2008. The ATWOOD EAGLE is currently working offshore
Australia on the last well under its current contract commitment with Woodside.
Upon completion of drilling this well, the rig will commence a ten-well program
for BHP Billiton Petroleum ("BHPB") which is estimated to take until August 2007
to complete with a dayrate for most of this period at approximately $158,000.
BHPB also has the option to drill three additional wells at a dayrate of
approximately $168,000 which could take until late first quarter of fiscal year
2008 to complete if exercised. Immediately following the completion of the BHPB
work, the rig has a one-well commitment at a dayrate of $360,000 and a one-year
commitment with Woodside at a dayrate of $420,000; however, before the middle of
October 2006, this one-year commitment can be extended at Woodside's option to a
two or three year commitment at a dayrate of $405,000. The ATWOOD FALCON has
contractual commitments offshore Malaysia with Shell that extend to July 2009,
with operating dayrates of $93,000 to $113,000 until July 2007, then increasing
to $160,000 to $200,000 per day for two years thereafter. This contractual
commitment requires the rig to undergo an upgrade to extend its water depth
drilling capabilities from 3,700 to 5,000 feet. Shell is contractually obligated
to pay $24 million of the upgrade costs (expected to be approximately $32
million) along with payment of $90,000 per day (for up to 85 days) during the
16
upgrade period. The ATWOOD SOUTHERN CROSS is currently working offshore Italy at
a dayrate of $70,000 on a drilling program that is expected to extend into
September 2006. Immediately upon completion of this drilling program, we expect
to relocate the rig to the Black Sea to work for four customers at dayrates
ranging from $125,000 to $305,000. This work could extend into the second or
third quarter of fiscal year 2008 if all option wells are exercised. Currently,
the ATWOOD BEACON is working offshore Vietnam at a dayrate of $110,000 on a
drilling program that is expected to extend to September 2006. Immediately upon
completion of its current drilling program, we plan to have the final section of
legs installed on the ATWOOD BEACON at a shipyard in Singapore before relocating
the rig to India to commence a 25-month contract at dayrates ranging from
$113,000 to $133,500. The VICKSBURG is currently working offshore Malaysia at
dayrates ranging from $82,000 to $87,000. Following completion of its work in
Malaysia (estimated November 2006), the rig will move to Thailand to work under
a contract commitment for Chevron which provides a dayrate of $94,500 for the
first eight months and $154,000 for two years thereafter. The SEAHAWK is
expected to arrive offshore Equatorial Guinea in early August 2006 to commence a
two-year firm commitment (plus four six-month options) drilling program at a
operating dayrate of $68,430. The RICHMOND, our only rig in the U.S. Gulf of
Mexico, has a current contract commitment which should extend to July 2007 at a
dayrate of $80,000.
The current strong market environment is not only supporting high equipment
utilization with historical high dayrate commitments, but also has resulted in a
significant increase in our operating costs. Over the next few months, we expect
daily operating costs for the ATWOOD EAGLE to average between $75,000 and
$80,000. The ATWOOD HUNTER, during the time it works offshore Mauritania and
Libya, is expected to incur daily operating costs between $50,000 and $55,000.
We expect that the ATWOOD FALCON and ATWOOD SOUTHERN CROSS to have average daily
operating costs of around $45,000, with daily operating costs for the ATWOOD
BEACON, VICKSBURG and RICHMOND of around $30,000. The daily operating costs of
the SEAHAWK, when it returns to work in August 2006 offshore Equatorial Guinea,
is now expected to be between $45,000 and $50,000 per day; however, there should
be some decline in the level of operating costs after the initial start-up
period. Overall we expect our average operating costs for fiscal year 2006 to
reflect an average increase of approximately 25% over operating costs for fiscal
year 2005. Despite the increase in operating costs, our operating margin for the
quarter ended June 30, 2006 was 55%.
Our ninth mobile offshore drilling unit, an ultra-premium class jack-up to
be named the ATWOOD AURORA, is currently under construction in Brownsville,
Texas, with delivery to occur by September 30, 2008. We estimate the total costs
of construction (including administrative and overhead costs and capitalized
interest) will be around $160 million. We intend to finance the construction of
the new rig primarily from expected cash on hand balances; however, if and when
necessary, the $100 million revolving portion of our Credit Facility may provide
some funding for the new rig. As of August 8, 2006 and taking into account a
borrowing in July 2006, we have $15 million outstanding under the revolving
portion of our Credit Facility.
We will continue to explore opportunities for growth. Revenues, operating
cash flows and earnings for fiscal year 2006 are expected to be the highest in
our history. With our backlog of contracted days providing increasing revenue
expectations, we anticipate that operating results for fiscal year 2007 and 2008
will reflect significant improvement over fiscal year 2006 operating results.
17
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues for the three and nine months ended June 30, 2006 increased 65%
and 50%, respectively, compared to the three and nine months ended June 30,
2005. A comparative analysis of revenues is as follows:
REVENUES
(In millions)
---------------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ ------------------------------------
2006 2005 Variance 2006 2005 Variance
----------- --------- ----------- ------------ --------- ----------
ATWOOD HUNTER $21.0 $ 5.6 $15.4 $ 43.4 $ 16.4 $ 27.0
ATWOOD SOUTHERN CROSS 6.6 2.8 3.8 23.3 9.1 14.2
ATWOOD EAGLE 11.9 8.7 3.2 33.3 26.7 6.6
ATWOOD BEACON 8.4 5.9 2.5 21.4 18.2 3.2
VICKSBURG 7.9 5.8 2.1 22.3 17.8 4.5
RICHMOND 4.7 3.0 1.7 12.8 8.3 4.5
ATWOOD FALCON 8.4 7.7 0.7 21.8 20.8 1.0
SEAHAWK 0.1 2.4 (2.3) 7.6 9.6 (2.0)
AUSTRALIA MANAGEMENT
CONTRACTS 2.9 1.7 1.2 8.9 3.1 5.8
----- ----- ----- ------ ------ ------
$71.9 $43.6 $28.3 $194.8 $130.0 $ 64.8
===== ===== ===== ====== ====== ======
The increase in revenue for the ATWOOD HUNTER was due to an increase in
average dayrates from $61,000 and $60,000 during each of the three and nine
months ended June 30, 2005, respectively, to $228,000 and $159,000 during the
three and nine months ended June 30, 2006, respectively. During the current
quarter and year-to-date period, the ATWOOD SOUTHERN CROSS earned $70,000 per
day at 100% utilization and $69,000 per day at approximately 80% utilization,
respectively, compared to $37,000 at approximately 80% utilization and $38,000
at approximately 90% utilization during the third quarter and year-to-date
period of the prior fiscal year, respectively. During the current year-to-date
period, the ATWOOD SOUTHERN CROSS also recognized $8.1 million from the
amortization of up front mobilization fees which were previously received
compared to none in the prior fiscal year. The increase in revenue for the
ATWOOD EAGLE was due to an increase in average dayrates from $95,000 and $97,000
during each of the three and nine months ended June 30, 2005, respectively, to
$129,000 and $122,000 during the three and nine months ended June 30, 2006,
respectively. During the current quarter and year-to-date period, the ATWOOD
BEACON earned $92,000 and $79,000 per day, respectively, compared to $64,000 and
$67,000 during the third quarter and year-to-date period of the prior fiscal
year, respectively. The increase in revenue for the VICKSBURG was due to an
increase in average dayrates from $63,000 and $65,000 during the quarter and
year-to-date period ended June 30, 2005, respectively, to $85,000 and $82,000
during the quarter and year-to-date period ended June 30, 2006, respectively.
The increase in revenue for the RICHMOND was also due to an increase in average
dayrates from $32,000 and $30,000 during each of the three and nine months ended
June 30, 2005, respectively, to $51,000 and $47,000 during the three and nine
months ended June 30, 2006, respectively. While the ATWOOD FALCON has
experienced a consistent level of revenues for the current quarter and
year-to-date period as compared to the same periods in the prior fiscal year,
third quarter and year-to-date fiscal year 2006 revenues for the SEAHAWK
decreased when compared to the prior fiscal year as the rig was in the shipyard
for the entire quarter undergoing a life enhancing upgrade in preparation for
18
its next contract in West Africa. As one of our managed platform rigs in
Australia commenced a new drilling program during the current fiscal year,
service activities for our management contracts for the three and nine months
ended June 30, 2006 have increased accordingly as compared to the same periods
for the prior fiscal year.
Contract drilling costs for the three and nine months ended June 30, 2006,
increased 24% and 38%, respectively, compared to the three and nine months ended
June 30, 2005. An analysis of contract drilling costs by rig is as follows:
CONTRACT DRILLING COSTS
(In millions)
--------------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ -----------------------------------
2006 2005 Variance 2006 2005 Variance
----------- --------- ----------- ----------- --------- -----------
ATWOOD HUNTER $ 5.2 $ 3.1 $ 2.1 $ 12.9 $ 8.6 $ 4.3
ATWOOD EAGLE 6.8 5.3 1.5 19.0 16.0 3.0
ATWOOD SOUTHERN CROSS 4.1 2.7 1.4 20.2 8.0 12.2
ATWOOD BEACON 2.6 2.1 0.5 7.8 6.4 1.4
VICKSBURG 2.6 2.2 0.4 8.6 6.6 2.0
ATWOOD FALCON 4.1 3.9 0.2 11.3 10.0 1.3
RICHMOND 2.5 2.5 - 7.4 6.6 0.8
SEAHAWK 0.4 2.5 (2.1) 4.4 7.3 (2.9)
AUSTRALIA MANAGEMENT
CONTRACTS 2.1 1.4 0.7 7.3 3.0 4.3
OTHER 1.7 0.2 1.5 4.3 2.2 2.1
------ ----- ----- ------ ----- -----
$ 32.1 $25.9 $ 6.2 $103.2 $74.7 $28.5
====== ===== ===== ======= ===== =====
In addition to the items discussed below, the increase in fleetwide
drilling costs was primarily attributable to four areas: rising personnel costs
due to wage increases, increased repairs and maintenance expenses and freight
costs due to the amount and timing of various repairs and maintenance projects
and equipment enhancements and rising insurance costs due to increased premiums.
The increase in drilling costs for the ATWOOD HUNTER also includes higher agent
commissions due to increased revenues for the three and nine months ended June
30, 2006, compared to same periods of the prior fiscal year. Drilling costs for
the ATWOOD EAGLE for the current quarter and year-to-date period also include a
higher amount of allocated costs from Australian support centers when compared
to the prior fiscal year. The increase in drilling costs for the ATWOOD SOUTHERN
CROSS is also due to $8.8 million of mobilization expense amortization during
the year-to-date period of fiscal year 2006, while there was none during the
prior fiscal year. An insurance recovery, during the third quarter of fiscal
year 2005, of previously expensed costs contributed to the increase in current
quarter drilling costs for the ATWOOD BEACON while the current year-to-date
period also includes assessed value-added tax and the related interest and
penalties from a foreign tax authority relating to a prior contract. Before
relocating to its next contract, the VICKSBURG entered a shipyard for
approximately five days during the first quarter of the current fiscal year to
undergo planned inspections and maintenance which contributed to the increase in
current year-to-date costs. Other than the fleetwide items mentioned above, the
ATWOOD FALCON and RICHMOND experienced a relatively consistent level of
operations when compared to the prior fiscal year, while the decrease in
drilling costs for the SEAHAWK is primarily due to lower operating costs during
the entire current quarter as the rig was in a shipyard undergoing a life
19
enhancing upgrade in preparing for its next contract in West Africa. As
previously mentioned, one of our managed platform rigs in Australia commenced a
new drilling program during current fiscal year, and service activities for our
management contracts for the three and nine months ended June 30, 2006, have
increased accordingly. Other drilling costs for the current quarter and
year-to-date period ended June 30, 2006, have also increased due to the
recording of stock option compensation expense for field personnel during the
current quarter and year-to-date period compared to none in the prior fiscal
year.
An analysis of depreciation expense by rig for the three and nine months
ended June 30, 2006, compared to the three and nine months ended June 30, 2005,
is as follows:
DEPRECIATION EXPENSE
(In millions)
----------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------------- ---------------------------------
2006 2005 Variance 2006 2005 Variance
---------- --------- ----------- --------- --------- ----------
RICHMOND $ 0.3 $ 0.2 $ 0.1 $ 0.7 $ 0.7 $ -
ATWOOD BEACON 1.3 1.3 - 4.0 3.9 0.1
ATWOOD FALCON 0.7 0.7 - 2.1 2.0 0.1
VICKSBURG 0.7 0.7 - 2.1 2.0 0.1
ATWOOD HUNTER 1.4 1.4 - 4.0 4.0 -
ATWOOD EAGLE 1.1 1.2 (0.1) 3.5 3.5 -
SEAHAWK - 0.2 (0.2) 0.2 0.4 (0.2)
ATWOOD SOUTHERN CROSS 0.7 1.1 (0.4) 2.1 3.3 (1.2)
OTHER - - - 0.1 0.1 -
----- ----- ----- ----- ----- -----
$ 6.2 $ 6.8 $(0.6) $18.8 $19.9 $(1.1)
===== ===== ===== ===== ===== =====
In accordance with our company policy, no depreciation expense was recorded
during the month of December 2005 and part of January 2006 for the SOUTHERN
CROSS, as the rig was undergoing a life enhancing upgrade whereby the useful
life of the rig was extended from approximately two to five years in January
2006. Effective October 1, 2004, we extended the remaining depreciable life of
the SEAHAWK from 2 months to 5 years, based upon entry into a contract that
extended the rig's commercial viability for up to 5 years, coupled with our
intent to continue marketing and operating the rig beyond 2 months. During the
current quarter, no depreciation expense was recorded for the SEAHAWK, as the
rig was undergoing a life enhancing upgrade as a result of the previously
mentioned contract.
General and administrative expenses for the third quarter and year-to-date
period of fiscal year 2006 increased compared to the third quarter and
year-to-date period of the prior fiscal year primarily due to the recording
approximately $0.8 million and $2.8 million of stock option compensation
expense, respectively. Year-to-date amounts for the current fiscal year also
include an approximate $0.6 million increase in annual bonus compensation, and
$1.5 million increase in professional fees primarily related to higher
Sarbanes-Oxley compliance costs. We expect our general and administrative
expenses to remain at a higher level than reported in prior periods due to stock
option compensation expense as described in Note 3 to our unaudited financial
statements included in this report and due to a high level of professional fees.
Although the level of our outstanding debt has been reduced significantly from
the prior fiscal year, interest expense has only decreased slightly due to
rising interest rates.
20
Virtually all of our tax provision for each of the three and nine months
ended June 30, 2006 and 2005, relates to taxes in foreign jurisdictions. During
the current quarter, we reversed a $1.8 million tax contingent liability due to
the expiration of the statute of limitations in a foreign jurisdiction. In
addition, we earned a high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the three and nine months
ended June 30, 2006. Subsequent to the end of the current quarter and as
previously reported, on August 2, 2006, we were advised by a foreign tax
authority that it had approved acceptance of certain amended prior year tax
returns. The acceptance of these amended tax returns resulted in the recognition
of a $4.6 million tax benefit in the current quarter. As a result of these
items, our effective tax rate for the three and nine months ended June 30, 2006
is significantly less than the U.S. statutory rate.
During the first quarter of fiscal year 2005, we received a $1.7 million
tax refund in Malaysia related to a previously reserved tax receivable. In
addition, a $1.0 million deferred tax benefit was recognized during the third
quarter of fiscal year 2005 due to the filing, and subsequent acceptance by the
local tax authority, of amended prior year tax returns. We also earned revenue
from our loss of hire insurance coverage on the ATWOOD BEACON in a zero tax
jurisdiction. As a result of these items, our effective tax rate for the three
and nine months ended June 30, 2005, was significantly less than the U.S.
statutory rate.
Excluding any other discrete items that may occur, we expect our effective
tax rate to be approximately 11-13% for the fourth quarter of fiscal year 2006
and approximately 4-6% for fiscal year 2006.
LIQUIDITY AND CAPITAL RESOURCES
Since we operate in a very cyclical industry, maintaining high equipment
utilization in up, as well as down, cycles is a key factor in generating cash to
satisfy current and future obligations. For fiscal years 2000 through 2005, net
cash provided by operating activities ranged from a low of approximately $13.7
million in fiscal year 2003 to a high of approximately $62.3 million in fiscal
year 2001. For the nine months ended June 30, 2006, net cash provided by
operating activities totaled approximately $75 million. Our operating cash flows
are primarily driven by our operating income, which reflects dayrates and rig
utilization. As 100% and 98% of our available operating rig days are committed
for fiscal years 2006 and 2007, respectively, at historically high dayrates, we
anticipate significant improvement in cash flows and earnings during fiscal
years 2006 and 2007. Other than our expected capital expenditures of $90 million
to $95 million (including funding for the construction of the new jack-up rig),
the only additional firm cash commitment for fiscal year 2006, outside of
funding current rig operations, is our required quarterly repayments under the
term portion of our senior secured Credit Facility which will total $36 million
for fiscal year 2006, and of which $9 million will be due in the fourth quarter
of fiscal year 2006. We expect to generate sufficient cash flows from operations
to satisfy most of these obligations; however, some funding from the revolving
portion of our Credit Facility may be required.
21
As of June 30, 2006, we had $63 million outstanding under the term portion
of our Credit Facility and $10 million outstanding under the $100 million
revolving portion of our Credit Facility. We are in compliance with all
financial covenants under our Credit Facility at June 30, 2006, and expect to
remain in compliance with all financial covenants during the remainder of fiscal
year 2006. Aside from unforeseen noncompliance with the financial covenants, no
other provisions exist in the Credit Facility that could result in acceleration
of the April 1, 2008 maturity date.
At June 30, 2006, the collateral for our Credit Facility consists primarily
of preferred mortgages on all eight of our active drilling units (with an
aggregate net book value at June 30, 2006 totaling approximately $385 million).
We are not required to maintain compensating balances; however, we are required
to pay a fee of approximately 0.70% per annum on the unused portion of the
revolving portion of our Credit Facility and certain other administrative costs.
In October 2005, we sold our semisubmersible hull, SEASCOUT, for $10
million (net after certain expenses) and our spare 15,000 P.S.I. BOP Stack for
approximately $15 million. For the 2006 fiscal year-to-date period, gains on the
sales of certain excess equipment totaled approximately $10.4 million in the
aggregate. The approximate $25 million in cash received from the sales of excess
equipment, plus borrowings under the Revolving Credit Facility ($10 million
outstanding at June 30, 2006) along with increasing operating cash flows, has
allowed us to expend approximately $28 million toward the construction of the
ATWOOD AURORA, approximately $15 million on upgrading the SEAHAWK, approximately
$5 million in completing the ATWOOD SOUTHERN CROSS upgrade, approximately $6
million toward the ATWOOD FALCON upgrade and approximately $8 million in other
capital expenditures during the first nine months of fiscal year 2006 and have
cash and cash equivalents remaining on hand at June 30, 2006 of approximately
$46 million.
Our accounts receivable have increased by $12.1 million since September 30,
2005, primarily due to our increased rig utilization, higher dayrates, and also
due to winding down contracts with certain customers. Our portfolio of accounts
receivable is comprised of major international corporate entities with stable
payment experience. Historically, we have not encountered significant difficulty
in collecting receivables and typically do not require collateral for our
receivables; however, we have a $0.6 million allowance for doubtful accounts at
June 30, 2006.
Our accrued liabilities have increased by $6.0 million since September 30,
2005, primarily due to purchases related to the upgrades of the SEAHAWK and
ATWOOD FALCON compared to no upgrades in progress that date.
22
PART I. ITEM 3
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk, including adverse changes in interest
rates and foreign currency exchange rates as discussed below.
INTEREST RATE RISK
With the interest rate on our long-term debt under our Credit Facility
at a floating rate, the outstanding debt of $73 million at June 30, 2006
approximates its fair value. The impact on annual cash flow of a 10% change in
the floating rate (approximately 70 basis points) would be approximately $0.5
million, which we do not believe to be material. We did not have any open
derivative contracts relating to our floating rate debt at June 30, 2006.
FOREIGN CURRENCY RISK
Certain of our subsidiaries have monetary assets and liabilities that
are denominated in a currency other than their functional currencies. Based on
June 30, 2006 amounts, a decrease in the value of 10% in the foreign currencies
relative to the U.S. dollar from the year-end exchange rates would result in a
foreign currency transaction loss of approximately $0.8 million. Thus, we
consider our current risk exposure to foreign currency exchange rate movements,
based on net cash flows, to be immaterial. We did not have any open derivative
contracts relating to foreign currencies at June 30, 2006.
23
PART I. ITEM 4
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures as of the end of the period covered by this report have been
designed and are effective at the reasonable assurance level so that
the information required to be disclosed by us in our periodic SEC
filings is recorded, processed, summarized and reported within the time
periods specified 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) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred
during the fiscal quarter covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
24
PART II. OTHER INFORMATION
ATWOOD OCEANICS, INC. AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
(b) We have not made any material changes in the procedures by
which our security holders may recommend nominees to our Board
of Directors. However, we have clarified and reconfirmed the
procedures for communications between interested parties,
including the holders of our common stock, as previously
disclosed on our current report on Form 8-K, filed May 23,
2006 with the SEC, as set forth below.
We have a specific process for communications between
interested parties and either the Board of Directors as a
whole or the non-management members of the Board of Directors.
The interested party may submit such communications in care of
our Secretary, James M. Holland, at the address of our
headquarters, which is 15835 Park Ten Place Drive, Suite 200,
Houston, Texas 77084. Each written communication intended for
the Board of Directors as a whole or the non-management
members of the Board of Directors and received by the
Secretary, will be promptly forwarded to the specified party.
The interested party may alternatively submit such
communications through the MySafeWorkplace system. The
MySafeWorkplace system can be contacted via telephone at
1-800-461-9330 or on the internet at www.MySafeWorkplace.com.
The interested party should click on the "Incident Type"
button and then select "Communicate with non-employee
directors". The communication process is also further detailed
on our website, www.atwd.com, along with other of our
corporate governance guidelines.
ITEM 6. EXHIBITS
(a) Exhibits
3.1 Amended and Restated Certificate of Formation dated February
9, 2006 (Incorporated herein by reference to Exhibit
3.1 of our Form 8-K filed February 14, 2006).
3.2 Second Amended and Restated By-Laws, dated May 5, 2006
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-Q filed May 10, 2006).
4.1 Rights Agreement dated effective October 18, 2002 between the
Company and Continental Stock & Transfer & Trust Company
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-A filed October 21, 2002).
4.2 Certificate of Adjustment dated as of March 17, 2006
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-K filed March 23, 2006).
4.3 See Exhibit Nos. 3.1 and 3.2 for provisions of our Amended and
Restated Certificate of Formation and Second Amended and
Restated By-Laws defining the rights of our shareholders
(Incorporated herein by reference to Exhibit 3.1 of our Form
8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q
filed May 10, 2006).
24
10.1 Form of Non-Employee Director Restricted Stock Award Agreement
Amended and Restated Atwood Oceanics, Inc. 2001 Stock
Incentive Plan (Incorporated herein by reference to Exhibit
10.1 to our Form 8-K filed June 1, 2006).
*31.1 Certification of Chief Executive Officer
*31.2 Certification of Chief Financial Officer
*32.1 Certificate of Chief Executive Officer pursuant to Section
906 of Sarbanes - Oxley Act of 2002.
*32.2 Certificate of Chief Financial Officer pursuant to Section
906 of Sarbanes - Oxley Act of 2002.
*Filed herewith
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATWOOD OCEANICS, INC.
(Registrant)
Date: August 9, 2006 /s/JAMES M. HOLLAND
-----------------
James M. Holland
Senior Vice President, Chief Financial
Officer, Chief Accounting Officer and Secretary
27
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Amended and Restated Certificate of Formation dated February
9, 2006 (Incorporated herein by reference to Exhibit
3.1 of our Form 8-K filed February 14, 2006).
3.2 Second Amended and Restated By-Laws, dated May 5, 2006
(Incorporated herein by reference to Exhibit 3.2 of our Form
10-Q filed May 10, 2006).
4.1 Rights Agreement dated effective October 18, 2002 between the
Company and Continental Stock & Transfer & Trust Company
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-A filed October 21, 2002).
4.2 Certificate of Adjustment dated as of March 17, 2006
(Incorporated herein by reference to Exhibit 4.1 of our Form
8-K filed March 23, 2006).
4.3 See Exhibit Nos. 3.1 and 3.2 for provisions of our Amended and
Restated Certificate of Formation and Second Amended and
Restated By-Laws defining the rights of our shareholders
(Incorporated herein by reference to Exhibit 3.1 of our Form
8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q
filed May 10, 2006).
10.1 Form of Non-Employee Director Restricted Stock Award Agreement
Amended and Restated Atwood Oceanics, Inc. 2001 Stock
Incentive Plan (Incorporated herein by reference to Exhibit
10.1 to our Form 8-K filed June 1, 2006).
*31.1 Certification of Chief Executive Officer
*31.2 Certification of Chief Financial Officer
*32.1 Certificate of Chief Executive Officer pursuant to Section
906 of Sarbanes - Oxley Act of 2002.
*32.2 Certificate of Chief Financial Officer pursuant to Section 906
of Sarbanes - Oxley Act of 2002.
*Filed herewith
28
EXHIBIT 31.1
CERTIFICATIONS
I, John R. Irwin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atwood
Oceanics, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4. The registrant's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) 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) Designed such internal control over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
29
(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: August 9, 2006
/s/ JOHN R. IRWIN
----------------
John R. Irwin
Chief Executive Officer
30
EXHIBIT 31.2
CERTIFICATIONS
I, James M. Holland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Atwood
Oceanics, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting to
be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
31
(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: August 9, 2006
/s/ JAMES M. HOLLAND
James M. Holland
Chief Financial Officer
32
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company")
on Form 10-Q for the period ended June 30, 2006, 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 for the periods presented.
Date: August 9, 2006 /s/ JOHN R. IRWIN
-----------------
John R. Irwin
President and Chief Executive Officer
33
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company")
on Form 10-Q for the period ended June 30, 2006, 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 for the periods presented.
Date: August 9, 2006 /s/JAMES M. HOLLAND
-------------------
James M. Holland
Senior Vice President and
Chief Financial Officer
34