ATWOOD OCEANICS, INC. · 2016. 9. 28. · CANTILEVER JACK-UPS — ATWOOD BEACON 2003 400 Ft. 2%...

ATWOOD OCEANICS, INC.

2003 ANNUAL REPORT

2003 ANNUAL REPORT TO SHAREHOLDERSTHE COMPANY

Atwood Oceanics, Inc. is engaged in the business of international offshore

drilling of exploratory and developmental oil and gas wells and related support,

management and consulting services. Presently, we own and operate a modern

fleet of eight mobile offshore drilling units as well as manage the operations of

two operator-owned platform drilling units in Northwest Australia. We also own a

semisubmersible hull, named the SEASCOUT, which we plan to convert to a

tender assist vessel once an acceptable contract opportunity is secured. Since

1996, we have expended approximately $460 million in upgrading seven mobile

offshore drilling units and constructing an ultra-premium jack-up unit. We support

our operations from headquarters in Houston and affiliated offices currently

located in Australia, Malaysia, Egypt, Indonesia, India, Angola and the United

Kingdom.

FINANCIAL HIGHLIGHTS

2003 2002

(In Thousands)

FOR THE YEAR ENDED SEPTEMBER 30:

CONTRACT REVENUES $144,765 $149,157NET INCOME (LOSS) (12,802) 28,285CAPITAL EXPENDITURES 101,819 89,416

AT SEPTEMBER 30:

NET PROPERTY AND EQUIPMENT $443,102 $368,397TOTAL ASSETS 522,674 445,238

TOTAL SHAREHOLDERS’ EQUITY 263,467 276,133

2

0

20

40

60

80

100

120

140

160

1999 2003200220012000

0

8

16

24

32

40

48

56

64

1999 2003200220012000-15

-10

-5

0

5

10

15

20

25

30

1999 2003200220012000

0

10

20

30

40

50

60

70

80

90

100

110

1999 2003200220012000

CONTRACT REVENUES($ MILLIONS)

NET INCOME (LOSS)($ MILLIONS)

CAPITAL EXPENDITURES($ MILLIONS)

OPERATING INCOME($ MILLIONS)

PRESIDENT’S MESSAGE

TO OUR SHAREHOLDERS AND EMPLOYEES:

While the Company incurred its first net operating loss in ten years during fiscal year 2003, the pastyear has been positive in many respects in building and positioning the Company for the future. TheCompany’s $460 million capital program which commenced in 1997 to undertake major upgrades of ourseven active mobile offshore drilling units (‘‘MODU’s’’) has been completed, and construction of a newbuildultra-premium jack-up was completed during the year within budget. All eight of our active MODU’scurrently have work commitments. Our safety, health, environment and security performance has continuedat high standards during fiscal year 2003 and was recognized with major awards from two key clients. Wealso refinanced and increased our borrowing capacity under our credit facilities from $175 million to$250 million on attractive terms earlier in the year.

The major upgrade of the 5,000 ft. water-depth semisubmersible, ATWOOD EAGLE, and construction ofthe new 400 ft. ultra-premium jack-up, ATWOOD BEACON, were each completed within budget and ontime. The ATWOOD EAGLE commenced work in early March and has performed well in successfullycompleting contracts with two clients in over eight months of initial service. The ATWOOD BEACON hasbeen operating since early August and has also performed well. The Company now has a diversified fleet ofeight active MODU’s, leveraged to international markets, and is positioned to take advantage of the upsidefrom future market improvements. We are optimistic about longer-term opportunities and believe there arebetter times ahead.

The Company’s strategy continues to focus on providing premium equipment and safe, quality servicesto our clients based on long-standing relationships. The capability of our fleet, significantly improvedthrough upgrade of seven units and new construction of one unit, is targeted at meeting our clients’ futureneeds. We believe that the improved capability and competitiveness of our fleet will support higherutilization and attractive financial returns over the longer term.

During fiscal year 2004, we will be striving to build contract backlog and to achieve high utilization ofour eight active MODU’s. The ATWOOD HUNTER was recently committed on a term contract in Egypt thatshould keep it busy into 2005. The ATWOOD SOUTHERN CROSS has been mobilized from Egypt to Indiaand commenced work in early December 2003 on a one-well plus options program. The mobilization wasfully funded by the client, and the rig now has improved opportunities. The ATWOOD EAGLE successfullycompleted its two contracts in Angola in late November 2003. Plans are now underway to mobilize theATWOOD EAGLE to Australia commencing in January 2004. The ATWOOD EAGLE mobilization will also befully funded by clients. The ATWOOD FALCON will undergo periodic class inspections before mobilizing toJapan in early 2004. Current commitments should keep the ATWOOD FALCON busy into the fourth quarterof fiscal year 2004. The SEAHAWK commenced a year extension to its present contract in Malaysia inDecember 2003. The ATWOOD BEACON, VICKSBURG and RICHMOND all have current commitments andfuture opportunities actively under consideration that should keep these drilling units highly utilized duringfiscal year 2004.

Our short-term goals are to strive for full utilization of our fleet, keep the Company strong in allrespects, return to profitability, and position the Company well to benefit from longer-term marketimprovements and opportunities. We will continue to work hard during fiscal year 2004 to deserve theconfidence and support of our shareholders. We thank our employees for another year of achievementsthrough their combined talents and hard work, and our other stakeholders on whom we depend in manydifferent ways.

JOHN R. IRWIN

3

4

RICHMOND

SEASCOUT

ATWOOD EAGLE*

Corporate Headquarters

Office / Shorebase

Rig

Legend

Great Yarmouth

Luanda

WORLD WIDE

*The rig is currently expected to be mobilized to Australia**The rig is being mobilized to Japan with estimated arrival

5

30°

0°

VICKSBURG

SEAHAWK

ATWOOD FALCON**

ATWOOD SOUTHERN CROSSATWOOD BEACON

ATWOOD HUNTER

Jakarta

Kuala Lumpur

Singapore

Perth

Melbourne

NORTH RANKIN ‘A’GOODWYN ‘A’

Cairo

Chennai

Kashiwazki

OPERATIONS

commencing in January 2004 with estimated arrival in February 2004.in mid-January 2004.

6

ATWOOD EAGLETHE ATWOOD EAGLE HAS SUCCESSFULLY

COMPLETED CONTRACTS WITH TWO CLIENTS INANGOLA SINCE THE COMPLETION OF ITSUPGRADE IN NOVEMBER 2002. THE RIG IS

EXPECTED TO BE MOBILIZED TO AUSTRALIA INJANUARY 2004.

ATWOOD HUNTERTHE ATWOOD HUNTER, WHICH HAS WORKED FORSEVERAL CUSTOMERS IN THE MEDITERRANEANSEA SINCE THE COMPLETION OF ITS UPGRADE INNOVEMBER 2001, IS COMMITTED ON A TERMCONTRACT OFFSHORE EGYPT THAT SHOULD KEEPIT BUSY INTO 2005.

7

ATWOOD BEACONTHE ATWOOD BEACON, OUR NEWBUILD ULTRA-PREMIUM JACK-UP,

HAS BEEN PERFORMING WELL SINCE IT COMMENCED ITS INITIAL OPERATION OFFSHOREMALAYSIA IN EARLY AUGUST 2003.

Atwood Oceanics, Inc. and Subsidiaries

FIVE-YEAR FINANCIAL REVIEW

At or For the Years Ended September 30,

(In thousands, except per share amounts, fleet data and ratios) 2003 2002 2001 2000 1999

STATEMENTS OF OPERATIONS DATA:Contract revenues *********************** $144,765 $149,157 $147,541 $135,973 $152,850Contract drilling costs ******************** (98,500) (75,088) (70,014) (60,709) (73,196)General and administrative expenses******* (14,015) (10,080) (9,250) (8,449) (7,519)Depreciation **************************** (25,758) (23,882) (25,579) (29,624) (23,904)

OPERATING INCOME******************** 6,492 40,107 42,698 37,191 48,231Other expense ************************** (4,856) (1,330) (1,577) (1,293) (1,724)Tax provision**************************** (14,438) (10,492) (13,775) (12,750) (18,787)

NET INCOME (LOSS) **************** $ (12,802) $ 28,285 $ 27,346 $ 23,148 $ 27,720

PER SHARE DATA:Earnings (loss) per common share:

Basic********************************* $ (.92) $ 2.04 $ 1.98 $ 1.68 $ 2.03Diluted ******************************* (.92) 2.02 1.96 1.66 2.01

Average common shares outstanding:Basic********************************* 13,846 13,839 13,828 13,763 13,649Diluted ******************************* 13,846 13,994 13,978 13,916 13,791

FLEET DATA:Number of rigs owned or managed, at end

of period ***************************** 11 10 11 11 11Utilization rate for in-service rigs (excludes

managed rigs and contractual downtimefor rigs upgraded)********************** 92% 86% 80% 71% 77%

BALANCE SHEET DATA:Cash and securities held for investment **** $ 21,551 $ 27,655 $ 12,621 $ 42,661 $ 43,041Working capital************************** 26,063 43,735 25,057 47,433 31,519Net property and equipment ************** 443,102 368,397 306,254 224,107 218,914Total assets ***************************** 522,674 445,238 353,878 313,251 293,604Total long-term debt ********************* 205,000 115,000 60,000 46,000 54,000Shareholders’ equity(1) ******************* 263,467 276,133 247,636 218,205 192,229Ratio of current assets to current liabilities** 1.52 2.44 2.21 3.71 2.66

Notes —(1) We have never paid any cash dividends on our common stock.

8

9

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(200

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tem

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2003

, th

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us o

ne o

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2002

)G

ulf

of M

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tal

of fi

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to

be d

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der

the

cont

ract

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sho

uld

take

unt

ilar

ound

Feb

ruar

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04 t

o co

mpl

ete

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drill

ing

of t

he fi

ve w

ells

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SE

MIS

UB

ME

RS

IBL

E T

EN

DE

RA

SS

IST

UN

ITS

—

SEA

HA

WK

1974

(199

2/19

99)

N/A

.16

%M

alay

sia

EM

EPM

IT

he r

ig’s

cur

rent

con

trac

t te

rmin

ates

in

Dec

embe

r 20

04 w

ith

an o

ptio

n fo

rth

e O

pera

tor

to e

xten

d. E

ME

PMI

has

the

righ

t to

ter

min

ate

the

cont

ract

afte

r th

e co

mpl

etio

n of

the

firs

t si

x m

onth

s of

the

ext

ensi

on p

erio

d (w

hich

com

men

ces

in D

ecem

ber

2003

) w

ith

120

days

wri

tten

not

ice.

SEA

SCO

UT

1974

N/A

0%U

nite

d St

ates

The

SE

ASC

OU

T w

as p

urch

ased

in

Dec

embe

r 20

00 f

or f

utur

e co

nver

sion

Gul

f of

Mex

ico

to a

ten

der-

assi

st u

nit,

sim

ilar

to t

he S

EA

HA

WK

, on

ce a

n ac

cept

able

cont

ract

opp

ortu

nity

is

secu

red.

The

rig

is

curr

ently

col

dsta

cked

.

MO

DU

LA

R P

LA

TF

OR

MS

—

MA

NA

GE

ME

NT

CO

NT

RA

CT

GO

OD

WY

N ‘

A’

and

NO

RT

HN

/AN

/A1%

Aus

tral

iaW

oods

ide

Ene

rgy

The

re i

s cu

rren

tly a

n in

defin

ite

plan

ned

brea

k in

dri

lling

act

ivit

y fo

r th

eR

AN

KIN

‘A

’Lt

d.tw

o cl

ient

-ow

ned

rigs

we

man

age.

We

are

invo

lved

in

mai

nten

ance

of

the

two

rigs

for

fut

ure

drill

ing

prog

ram

s.

MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Annual Report to Shareholders and the ) risks involved in foreign operations;related Form 10-K for the fiscal year ended

) risks associated with possible disruptionsSeptember 30, 2003 includes ‘‘forward-looking

in operations due to terrorism;statements’’ within the meaning of Section 27A

) governmental regulation; andof the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of

) environmental matters.1934, as amended. We and our representatives

These risk factors are disclosed in variousmay from time to time make written or verbalplaces throughout this report and the relatedforward-looking statements, including statementsForm 10-K. All subsequent written and oralcontained in this report and our other filingsforward-looking statements attributable to us, orwith the Securities and Exchange Commissionpersons acting on our behalf, are expresslyand in our reports to shareholders. Generally, thequalified in their entirety by these risk factors.words ‘‘believe’’, ‘‘expect’’, ‘‘intend’’, ‘‘esti-

mate’’, ‘‘anticipate’’, ‘‘plan’’, and similar expres-OUTLOOKsions identify forward-looking statements. All

statements other than statements of historical Even though we incurred our first loss infacts included in this report and the related ten years, fiscal year 2003 was a year markedForm 10-K regarding our financial position, busi- with some significant accomplishments. Ourness strategy, budgets and plans and objectives upgrade program, commenced in fiscal yearof management for future operations are forward- 1997, was concluded with the completion of thelooking statements. Although we believe that the upgrade of the ATWOOD EAGLE in Novemberexpectations reflected in such forward-looking 2002. Collectively, we have expended approxi-statements are reasonable, we can give no mately $340 million in upgrading seven activeassurance that such expectations will prove to offshore mobile drilling units since 1997. Inhave been correct. The forward-looking state- August 2003, an eighth drilling unit, thements are and will be based on management’s ATWOOD BEACON, an ultra-premium jack-upthen current views and assumptions regarding drilling vessel, commenced its initial drillingfuture events and operating performances. We contract following completion of its constructionundertake no obligation to publicly update or and commissioning. This drilling unit was con-revise any forward-looking statements, whether structed on time and at a cost of approximatelyas a result of new information, future events or $120 million, compared to budgeted costs ofotherwise. These forward-looking statements in- $125 million. Thus, our current worldwide opera-volve risks and uncertainties that may cause our tions revolve around eight active premium off-actual future activities and results of operations shore mobile drilling units located in five areas ofto be materially different from those suggested the world — the United States, Southeast Asia,or described in this Annual Report to Sharehold- the Mediterranean Sea, Africa and Australia.ers and related Form 10-K. These risks include,

Current worldwide utilization of offshorebut are not limited to:drilling units is less than 80%. However, our

) our dependence on the oil and gas utilization for fiscal year 2003 was 92% as ourindustry; primary focus is to maintain utilization of our

active drilling units at available market dayrates,) our ability to secure adequate financing; as compared to seeking the most lucrative

contracts with increased risk of idle time. The) competition;continuous disconnect between relatively high

) operations risks; commodity prices and soft market conditions

11

(especially for semisubmersibles) reflects in- RESULTS OF OPERATIONScreased conservatism by exploration and produc-

Fiscal Year 2003 Versus Fiscal Year 2002tion companies due to a number of factorsincluding weak capital markets, increased focus Contract revenues for the current fiscal yearon reducing debt, and a host of geopolitical decreased 3% compared to prior year. A compar-uncertainties (for example, those in Iraq, Vene- ative analysis of contract revenues by rig forzuela and Nigeria) which have curtailed drilling. fiscal years 2003 and 2002 is as follows:The weakest sector of the drilling market is

CONTRACT REVENUESsemisubmersibles, with a current worldwide util-(In millions)

ization level of less than 70%. We expect that theFiscal Fiscal

market outlook for semisubmersibles will con- 2003 2002 Variancetinue to be challenging for most, if not all, of

ATWOOD EAGLE********** $ 19.8 $ 15.2 $ 4.6fiscal year 2004, with the level of dayrates forATWOOD BEACON ******** 3.0 — 3.0

mid and deep water work continuing to be VICKSBURG*************** 25.0 22.5 2.5relatively low. In recent months, the demand for RICHMOND*************** 8.3 7.1 1.2jack-up drilling units has improved mainly as a SEAHAWK**************** 22.8 22.3 0.5

GOODWYN ‘A’/NORTHresult of increased demand in the Gulf ofRANKIN ‘A’************* 1.8 1.9 (0.1)Mexico, Asia Pacific and Mexico, with a current

ATWOOD FALCON ******** 32.4 33.5 (1.1)worldwide utilization level of around 85%. WeATWOOD SOUTHERNanticipate that utilization for our two jack-up

CROSS ***************** 14.5 19.3 (4.8)units will be at or above 90% during fiscal year ATWOOD HUNTER ******** 17.2 27.4 (10.2)2004.

$144.8 $149.2 $ (4.4)

Of our current eight active drilling units,only the VICKSBURG, SEAHAWK and ATWOOD While utilization was consistent with priorHUNTER have contract terms that could extend year, the average dayrate for ATWOOD EAGLEbeyond fiscal year 2004. Besides these three during fiscal year 2003 was approximatelydrilling units, we anticipate that utilization for $85,000 compared to $75,000 in the prior year.the ATWOOD BEACON, ATWOOD FALCON and The current fiscal year also includes $2.7 millionRICHMOND will also be at or above 90% for of mobilization revenue for the rig’s relocation tofiscal year 2004. Currently, the ATWOOD EAGLE West Africa. The ATWOOD BEACON com-is idle offshore Angola and is expected to be menced operations in August 2003 while beingmobilized to Australia in January 2004 for its under construction all of the prior fiscal year.next contract opportunity. The ATWOOD The current fiscal year revenue for the VICKS-SOUTHERN CROSS, after incurring some idle BURG includes $2.0 million of client reimburse-time at the beginning of the first quarter of fiscal ments for capital upgrades, as utilization andyear 2004, has just commenced a short-term average dayrates were consistent with priorcontract commitment in India. Despite the cur- year. The increase in revenue for the RICH-rent challenging market conditions, we antici- MOND is primarily due to the rig being 100%pate that our operating results for fiscal year utilized in fiscal year 2003 compared to having2004 will improve over results from fiscal year 78 days of idle time in fiscal year 2002. The2003. With our upgraded, premium equipment, decrease in revenue for the ATWOOD FALCONwe believe that we are well positioned to take is due to its mobilization to Australia and backadvantage of improving market conditions and to Malaysia during the current fiscal year com-remain optimistic about the longer-term outlook pared to working at full operating dayrates for alland fundamentals of the offshore drilling market. of the prior fiscal year. Due to the softness of the

12

Mediterranean market, utilization for the CROSS resulted from the amortization of theATWOOD SOUTHERN CROSS decreased from planned maintenance and upgrade costs to meetapproximately 85% in fiscal year 2002 to 70% in Italian operating standards, as well as higherthe current fiscal year. Average dayrates for the costs of operating in Italy for travel, shorebaseATWOOD HUNTER decreased from approxi- operations and rentals. The ATWOOD BEACONmately $90,000 to $55,000 for the same periods. commenced operations in August 2003 while

being under construction all of the prior fiscalContract drilling costs for the current fiscal year. The decrease in costs for the RICHMOND

year increased 31% as compared to the prior for fiscal year 2003 is due to the shipyard repairsyear. A comparative analysis of contract drilling incurred during the prior fiscal year.costs by rig for fiscal year 2003 and 2002 is as

Depreciation expense for the current fiscalfollows:year increased 8% as compared to the prior fiscal

CONTRACT DRILLINGyear. A comparative analysis of depreciationCOSTS

(In millions) expense by rig for fiscal year 2003 and 2002 is asFiscal Fiscal follows:2003 2002 Variance

DEPRECIATIONATWOOD EAGLE ************* $19.4 $ 9.0 $10.4 EXPENSE

(In millions)ATWOOD FALCON************ 18.7 10.2 8.5ATWOOD SOUTHERN CROSS ** 14.3 11.1 3.2 Fiscal Fiscal

2003 2002 VarianceATWOOD BEACON *********** 1.4 — 1.4SEAHAWK ******************* 9.7 9.2 0.5 ATWOOD HUNTER************ $ 5.4 $ 4.2 $ 1.2GOODWYN ‘A’/NORTH ATWOOD EAGLE ************* 3.1 2.2 0.9

RANKIN ‘A’ **************** 2.0 2.1 (0.1) ATWOOD BEACON *********** 0.7 — 0.7VICKSBURG ****************** 9.3 9.5 (0.2) RICHMOND ****************** 1.9 1.6 0.3ATWOOD HUNTER************ 12.9 13.4 (0.5) VICKSBURG ****************** 2.5 2.3 0.2RICHMOND ****************** 8.2 9.3 (1.1) ATWOOD SOUTHERN CROSS ** 4.0 3.9 0.1OTHER ********************** 2.6 1.3 1.3 ATWOOD FALCON************ 2.6 2.7 (0.1)

$98.5 $75.1 $23.4 SEAHAWK ******************* 4.7 4.8 (0.1)OTHER ********************** 0.9 2.2 (1.3)

$25.8 $23.9 $ 1.9Contract drilling costs for the ATWOODEAGLE include $8.2 million of mobilization ex-penses incurred during the rig’s relocation to During the period when a rig is out ofWest Africa. In addition, daily operating costs for service for a significant upgrade, no depreciationthe ATWOOD EAGLE have increased as operat- expense is recognized. The increased deprecia-ing costs in West Africa are approximately 50% tion on the ATWOOD HUNTER in fiscal yearhigher than in the Mediterranean, the rig’s 2003 is due to a full year of depreciation expenseprevious location. During fiscal year 2003, the compared to only three quarters in the priorATWOOD FALCON worked seven months in fiscal year as the rig was completing its upgradeAustralia, where operating costs are higher than and relocation to the Mediterranean during theSoutheast Asia, its primary operating location for first quarter of fiscal year 2002. The increase forall of the prior fiscal year, by approximately the ATWOOD EAGLE is due to an increase in$25,000 per day due to increased personnel- the rig’s depreciable basis resulting from therelated costs. We also incurred approximately completion of its $90 million upgrade during the$2.0 million in mobilization costs re-locating the current fiscal year. The ATWOOD BEACONATWOOD FALCON to and from Australia. The commenced operations in August 2003 whileincrease in costs for the ATWOOD SOUTHERN being under construction all of prior fiscal year.

13

The depreciable basis of the RICHMOND in- RESULTS OF OPERATIONScreased by approximately $1 million during the

Fiscal Year 2002 Versus Fiscal Year 2001current fiscal year which will be depreciatedover the rig’s remaining useful life of 2 years. An analysis of contract revenues by rig forOther depreciation expense decreased due to the fiscal years 2002 and 2001 is as follows:fact that RIG-200 (sold in May 2003) was fully

CONTRACT REVENUESdepreciated to its salvage value in fiscal year (In millions)2002 and thus had no depreciation expense for Fiscal Fiscal

2002 2001 Variancefiscal year 2003.

ATWOOD HUNTER******* $ 27.4 $ 15.8 $ 11.6General and administrative expenses in-VICKSBURG ************* 22.5 12.7 9.8creased 39% in fiscal year 2003 primarily due toATWOOD SOUTHERNhigher professional fees related to our worldwide

CROSS**************** 19.3 17.9 1.4restructuring initiative. The $3.4 million increaseSEAHAWK ************** 22.3 23.4 (1.1)in net interest expense is due to an increase inRICHMOND ************* 7.1 11.3 (4.2)

the average amount of debt outstanding, aGOODWYN ‘A’/NORTH

$1.2 million write off of deferred financing costs RANKIN ‘A’ *********** 1.9 6.1 (4.2)related to the prior credit facility, and due to a ATWOOD EAGLE ******** 15.2 19.9 (4.7)$1.9 million decrease in capitalized interest as ATWOOD FALCON ******* 33.5 40.4 (6.9)compared to prior fiscal year as a result of the $149.2 $147.5 $ 1.7completion of the upgrade program and con-struction of the ATWOOD BEACON during fiscal The ATWOOD HUNTER worked continu-year 2003. ously in Egypt during fiscal year 2002 at

dayrates ranging from $90,000 to $110,000, com-Virtually all of our current tax provision forpared to being idle for upgrade during a signifi-fiscal year 2003 relates to taxes in foreigncant portion of fiscal year 2001, which accountsjurisdictions. Due to the operating loss in thefor its increase in revenue. In April/May 2001,United States, in addition to operating losses inthe VICKSBURG was relocated from India tocertain nontaxable foreign jurisdictions, our ef-Southeast Asia, and after its relocation, receivedfective tax rate for the fiscal year 2003 signifi-higher dayrates than those received while incantly exceeds the United States statutory rate.India, which accounts for its increase in reve-

We recorded deferred foreign tax liabilities nue. The ATWOOD SOUTHERN CROSS had anof $4.7 million relating to Australian and Malay- average per day revenue of approximatelysian taxes after reassessing certain tax planning $53,000 in fiscal year 2002 compared to approxi-strategies in conjunction with the reorganization mately $49,000 in fiscal year 2001. In Februaryof our foreign subsidiaries undertaken in fiscal 2000, the SEAHAWK commenced its four-yearyear 2003. This deferred tax expense has no contract extension in Malaysia, with its dayratecash effect on us. ranging from a high of $50,000 to a low of

$30,000 depending upon the price of oil. The rigwas at the top of this dayrate range in fiscalyear 2002 and fiscal year 2001. RICHMONDrevenues declined in fiscal year 2002 comparedto fiscal year 2001 due to 78 days of idle timeincurred during the year for certain repairs andinspections and to a decline in dayrate levels inthe Gulf of Mexico. At the end of fiscal year

14

2001, an indefinite planned break in drilling being higher in Southeast Asia than in India.activities was instigated on the GOODWYN During fiscal year 2002, the RICHMOND incurred‘A’/NORTH RANKIN ‘A’ platform rigs, which higher repairs and maintenance costs. The in-accounts for the decline in revenues from these crease in operating costs for the ATWOODunits in fiscal year 2002. The decline in revenues FALCON is primarily due to additional costsfor the ATWOOD EAGLE was due to the rig incurred on relocating the rig from the Philip-undergoing upgrades in a shipyard in Greece pines to Malaysia. The decline in costs for thefrom April 2002 to November 2002. In May 2002, ATWOOD EAGLE was due to the rig being in athe ATWOOD FALCON was relocated from the shipyard during the last few months of fiscalPhilippines to Malaysia following the completion year 2002 for upgrade, whereby no drilling costsof a long-term contract. The rig’s effective were incurred. Drilling costs on the GOODWYNdayrate in the Philippines was over $100,000 ‘A’/NORTH RANKIN ‘A’ platforms declined duecompared to $70,000 in Malaysia, which ac- to the planned break in drilling activities.counts for the decline in revenues.

An analysis of depreciation expense by rigis as follows:Contract drilling costs during fiscal year

2002 increased 7% primarily due to the DEPRECIATION EXPENSE(In millions)ATWOOD HUNTER returning to work following

Fiscal Fiscalits upgrade and to higher operating costs associ-2002 2001 Varianceated with the VICKSBURG, RICHMOND,

ATWOOD FALCON, SEAHAWK and ATWOOD ATWOOD HUNTER *********** $ 4.2 $ 1.5 $ 2.7RICHMOND ****************** 1.6 1.5 0.1SOUTHERN CROSS. An analysis of contractATWOOD SOUTHERN CROSS ** 3.9 3.9 0.0drilling costs by rig for fiscal year 2002 and 2001ATWOOD FALCON *********** 2.7 2.7 0.0is as follows:VICKSBURG****************** 2.3 2.6 (0.3)

CONTRACT ATWOOD EAGLE ************* 2.2 3.6 (1.4)DRILLING COSTS SEAHAWK ******************* 4.8 6.9 (2.1)

(In millions) OTHER ********************** 2.2 2.9 (0.7)Fiscal Fiscal

$23.9 $25.6 $(1.7)2002 2001 Variance

ATWOOD HUNTER************ $13.4 $ 8.1 $ 5.3The reduced depreciation on the ATWOODVICKSBURG ****************** 9.5 7.4 2.1

HUNTER in fiscal year 2001 and the ATWOODRICHMOND ****************** 9.3 7.6 1.7EAGLE in fiscal year 2002 was due to the policyATWOOD FALCON************ 10.2 8.6 1.6

SEAHAWK ******************* 9.2 7.8 1.4 of not recognizing depreciation expense duringATWOOD SOUTHERN CROSS ** 11.1 10.3 0.8 the period a rig is out of service for a significantATWOOD EAGLE ************* 9.0 11.9 (2.9) upgrade. The decrease in depreciation expenseGOODWYN ‘A’/NORTH for the SEAHAWK was due to the rig’s 1992

RANKIN ‘A’ **************** 2.1 5.7 (3.6)upgrade costs becoming fully depreciated,OTHER ********************** 1.3 2.6 (1.3)thereby leaving only $11 million of its 2000

$75.1 $70.0 $ 5.1upgrade cost of approximately $22 million to bedepreciated over a remaining period of approxi-

During the period that the ATWOOD mately three years.HUNTER was in a shipyard in the United Statesfor upgrades and its subsequent relocation to General and administrative expenses in-Egypt (April 2001 through November 2001), no creased 9% in both fiscal year 2002 and 2001,drilling costs were incurred. Higher drilling costs primarily due to higher travel, communication,for the VICKSBURG were due to operating costs and other personnel related costs. Our effective

15

tax rate was 27% in fiscal year 2002 compared to calculation of the allowed ratio of outstanding33% in fiscal year 2001. The effective tax rate in debt to earnings, before interest, income taxesfiscal year 2002 was reduced by a $2.3 million and depreciation and to increase the allowedforeign income tax credit benefit generated in ratio limits for the first three quarters of fiscalSeptember 2002. The 44% decline in net interest year 2004. On an as-amended basis, we are inexpense was primarily due to a $1.8 million compliance with all financial covenants at Sep-increase in capitalized interest. Investment in- tember 30, 2003.come in fiscal year 2002 declined 78% due to us

Primarily from utilizing $90 million in nethaving less funds to invest due to its capitalproceeds borrowed under our credit facilities, inexpenditure requirements.fiscal year 2003 capital expenditures totalingapproximately $102 million were invested asLIQUIDITY AND CAPITAL RESOURCESfollows:

Since 1997, we have expended approxi-) approximately $25 million in completingmately $340 million on our upgrade program and

the upgrade of the ATWOOD EAGLE,approximately $120 million on constructing theATWOOD BEACON. With the completion of our ) approximately $64 million in completingupgrade program and construction of the the construction of the ATWOOD BEA-ATWOOD BEACON during fiscal year 2003, we CON andhave no significant capital commitments atSeptember 30, 2003. ) approximately $13 million in other capital

projectsWe have funded our equipment upgrade

and construction programs through a combina- The SEASCOUT, a semisubmersible hulltion of internally generated funds and funds planned for a future conversion and upgrade to aborrowed under credit facilities. At Septem- semisubmersible tender assist vessel, continuesber 30, 2002, we had a $175 million credit facility to be cold-stacked. The cost to convert andwith a bank group under which $115 million had upgrade the SEASCOUT could range frombeen borrowed. Subsequent to September 31, $50 million to $70 million. There are no current2002, an additional $57.5 million was borrowed capital commitments on the SEASCOUT, with aunder this facility to bring the outstanding conversion and upgrade not to be undertakenbalance at March 31, 2003 to $172.5 million. On until an acceptable contract opportunity hasApril 1, 2003, we executed a $225 million senior been secured and adequate financing is in place.secured credit facility with a new bank group We continue to periodically review and adjustand borrowed $190 million of which $172.5 mil- our planned capital expenditures and financinglion was utilized to repay and terminate the of such expenditures in light of current market$175 million credit facility. In June 2003, the conditions.borrowing capacity under the current creditfacility was increased to $250 million, with an Our portfolio of accounts receivable is com-outstanding balance of $205 million as of Sep- prised of major international corporate entitiestember 30, 2003. This credit facility consists of a with stable payment experience. Historically, we$150 million term loan facility (requiring quarterly have not encountered significant difficulty inpayments of $6 million during fiscal year 2004) collecting receivables and typically do not re-and a $100 million revolving loan facility (matur- quire collateral for our receivables. We have noing in March 2008). In November 2003, the allowance for doubtful accounts at September 30,credit facility was amended to redefine the 2003.

16

COMMITMENTS (In Thousands) property and equipment and asset impairmentpolicies reflect both historical experience and

The following table summarizes our obliga- expectations regarding future industry conditionstions and commitments at September 30, 2003: and operations. The use of different estimates,

Fiscal Fiscal Fiscal Fiscal Fiscal assumptions and judgments, especially those2004 2005 2006 2007 2008involving the useful lives of our rigs and vessels

Long-Term Debt *** $24,000 $36,000 $36,000 $36,000 $73,000and expectations regarding future industry con-

Operating Leases ** 588 628 647 647 54ditions and operations, would likely result in

$24,588 $36,628 $36,647 $36,647 $73,054 materially different carrying values of assets andresults of operations.

CRITICAL ACCOUNTING POLICIESWe conduct operations and earn income in

Significant accounting policies are included numerous foreign countries and are subject toin Note 2 to our consolidated financial state- the laws of taxing jurisdictions within thosements for the year ended September 30, 2003. countries, as well as United States federal andThese policies, along with the underlying as- state tax laws. At September 30, 2003, we havesumptions and judgments made by management a $20.7 million net deferred income tax liability,in their application, have a significant impact on with a current United States federal income taxour consolidated financial statements. We iden- receivable of approximately $3.3 million. Thesetify our most critical accounting policies as those balances reflect the application of our incomethat are the most pervasive and important to the tax accounting policies in accordance with state-portrayal of our financial position and results of ment of Financial Accounting Standards No. 109,operations, and that require the most difficult, ‘‘Accounting for Income Taxes’’. Such account-subjective and/or complex judgments by man- ing policies incorporate estimates, assumptionsagement regarding estimates about matters that and judgments by management relative to theare inherently uncertain. Our most critical ac- interpretation of applicable tax laws, the applica-counting policies are those related to property tion of accounting standards, and future levels ofand equipment, impairment of assets and in- taxable income. The estimates, assumptions andcome taxes. judgments used by management in connection

with accounting for income taxes reflect bothAt September 30, 2003, the carrying value ofhistorical experience and expectations regardingour property and equipment totaled $443.1 mil-future industry conditions and operations.lion, which represents 85% of total assets. ThisChanges in these estimates, assumptions andcarrying value reflects the application of ourjudgments could result in materially differentproperty and equipment accounting policies,provisions for deferred and current income taxes.which incorporate estimates, assumptions and

judgments by management relative to the capi-RECENTLY ISSUED ACCOUNTINGtalized costs, useful lives and salvage values ofPRONOUNCEMENTSour rigs and vessels. We evaluate the carrying

value of our property and equipment whenOn May 31, 2003, the Financial Accountingevents or changes in circumstances indicate that

Standards Board (FASB) issued FASB Statementthe carrying value of such assets may beNo. 150 (‘‘SFAS 150’’), ‘‘Accounting for Certainimpaired. Asset impairment evaluations are, byFinancial Instruments with Characteristics ofnature, highly subjective.both Liabilities and Equity’’, which improves the

The estimates, assumptions and judgments accounting for certain financial instruments that,used by management in the application of our under previous guidance, issuers could account

17

for as equity and requires that those instruments on our long-term debt is a floating rate, the fairbe classified as liabilities (or assets in certain value of our long-term debt approximates carry-circumstances) in statements of financial posi- ing value as of September 30, 2003. The impacttion. SFAS 150 is generally effective for all on annual cash flow of a 10% change in thefinancial instruments entered into or modified floating rate (approximately 40 basis points)after May 31, 2003, and otherwise is effective at would be approximately $0.8 million. We do notthe beginning of the first interim period begin- have any open derivative contracts relating toning after June 15, 2003. Management does not our floating rate debt at September 30, 2003.expect the adoption of SFAS 150 to have amaterial impact on it financial statements or Foreign Currency Riskresults of operations.

Certain of our subsidiaries have monetaryassets and liabilities that are denominated in aDISCLOSURES ABOUT MARKET RISKcurrency other than their functional currencies.

We are exposed to market risk, including Based on September 30, 2003 amounts, a de-adverse changes in interest rates and foreign crease of 10% in the foreign currency valuecurrency exchange rates as discussed below. relative to the United States dollar from the year-

end exchange rates would not result in aInterest Rate Risk

material foreign currency transaction loss. Thus,All of the $205 million of long-term debt we consider our current risk exposure to foreign

outstanding at September 30, 2003, is floating currency exchange rate movements, based onrate debt. As a result, our annual interest costs net cash flows, to be immaterial. We do not havein fiscal year 2004 will fluctuate based on any open derivative contracts relating to foreigninterest rate changes. Because the interest rate currencies at September 30, 2003.

18

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Atwood Oceanics, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidatedstatements of operations, of cash flows and of changes in shareholders’ equity present fairly, in allmaterial respects, the financial position of Atwood Oceanics, Inc. and its subsidiaries (the ‘‘Company’’)as of September 30, 2003 and September 30, 2002, and the results of their operations and their cashflows for the years then ended in conformity with accounting principles generally accepted in theUnited States of America. These financial statements are the responsibility of the Company’smanagement; our responsibility is to express an opinion on these financial statements based on ouraudits. We conducted our audits of these statements in accordance with auditing standards generallyaccepted in the United States of America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. The consolidated financial statements of the Company forthe year ended September 30, 2001 were audited by other independent accountants who have ceasedoperations. Those independent accountants expressed an unqualified opinion on those consolidatedfinancial statements in their report dated November 19, 2001.

PricewaterhouseCoopers LLP

Houston, TexasDecember 29, 2003

19

The following report is a copy of a report previously issued by Arthur Andersen LLPand has not been reissued by Arthur Andersen LLP:

To the Board of Directors of Atwood Oceanics, Inc.:

We have audited the accompanying consolidated balance sheets of Atwood Oceanics, Inc. (aTexas corporation) and subsidiaries as of September 30, 2001 and 2000, and the related consolidatedstatements of operations, cash flows and changes in shareholders’ equity for each of the three years inthe period ended September 30, 2001. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by manage-ment, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Atwood Oceanics, Inc. and subsidiaries as of September 30, 2001 and 2000, andthe results of their operations and their cash flows for each of the three years in the period endedSeptember 30, 2001, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLPHouston, TexasNovember 19, 2001

20


CONSOLIDATED BALANCE SHEETS

September 30,(In thousands) 2003 2002

ASSETSCURRENT ASSETS:

Cash and cash equivalents ********************************************* $ 21,551 $ 27,655Accounts receivable *************************************************** 30,864 25,054Income tax receivable ************************************************* 3,278 3,830Inventories of materials and supplies, at lower of average cost or market ***** 12,583 9,134Deferred tax assets **************************************************** 550 223Prepaid expenses and other ******************************************** 7,186 8,121

Total Current Assets************************************************* 76,012 74,017NET PROPERTY AND EQUIPMENT *************************************** 443,102 368,397DEFERRED COSTS AND OTHER ASSETS********************************** 3,560 2,824

$522,674 $445,238

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:

Current maturities of long-term debt************************************* $ 24,000 $ 5,023Accounts payable ***************************************************** 10,403 6,292Accrued liabilities***************************************************** 8,851 13,809Deferred credits******************************************************* 6,695 5,158

Total Current Liabilities ********************************************** 49,949 30,282LONG-TERM DEBT, net of current maturities******************************* 181,000 115,000OTHER LONG-TERM LIABILITIES:

Deferred income taxes ************************************************* 21,217 15,545Deferred credits and other********************************************** 7,041 8,278

28,258 23,823COMMITMENTS AND CONTINGENCIES (NOTE 10)SHAREHOLDERS’ EQUITY:

Preferred stock, no par value; 1,000,000 shares authorized, none outstanding** — —Common stock, $1 par value; 20,000,000 shares authorized with 13,851,000

and 13,845,000 issued and outstanding at September 30, 2003 and 2002,respectively ******************************************************** 13,851 13,845

Paid-in capital ******************************************************** 57,404 57,274Retained earnings***************************************************** 192,212 205,014

Total Shareholders’ Equity******************************************** 263,467 276,133$522,674 $445,238

The accompanying notes are an integral part of these consolidated financial statements.

21


CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30,

(In thousands, except per share amounts) 2003 2002 2001

REVENUES:Contract drilling********************************************* $144,765 $149,157 $147,541

COSTS AND EXPENSES:Contract drilling********************************************* 98,500 75,088 70,014Depreciation************************************************ 25,758 23,882 25,579General and administrative *********************************** 14,015 10,080 9,250

138,273 109,050 104,843

OPERATING INCOME ***************************************** 6,492 40,107 42,698

OTHER INCOME (EXPENSE):Interest expense, net of capitalized interest ********************* (5,014) (1,658) (2,939)Investment income ****************************************** 158 328 1,362

(4,856) (1,330) (1,577)

INCOME BEFORE INCOME TAXES ***************************** 1,636 38,777 41,121PROVISION FOR INCOME TAXES******************************* 14,438 10,492 13,775

NET INCOME (LOSS) ****************************************** $ (12,802) $ 28,285 $ 27,346

EARNINGS (LOSS) PER COMMON SHARE:Basic ****************************************************** $ (.92) $ 2.04 $ 1.98Diluted***************************************************** (.92) 2.02 1.96

AVERAGE COMMON SHARES OUTSTANDING:Basic ****************************************************** 13,846 13,839 13,828Diluted***************************************************** 13,846 13,994 13,978


22


CONSOLIDATED STATEMENTS OF CASH FLOWS

For Years Ended September 30,

(In thousands) 2003 2002 2001

CASH FLOW FROM OPERATING ACTIVITIES:Net income (loss) ******************************************* $ (12,802) $ 28,285 $ 27,346

Adjustments to reconcile net income to net cash provided byoperating activities:Depreciation ********************************************* 25,758 23,882 25,579Amortization of debt issuance costs ************************ 2,101 358 293Amortization of deferred items ***************************** 185 77 107Deferred federal income tax provision *********************** 5,350 2,500 3,298Gain on sale of assets************************************* (421) — —

Changes in assets and liabilities:(Increase) decrease in accounts receivable ******************* (5,200) (8,930) 11,651(Increase) decrease in inventory **************************** (3,449) (23) 433Increase in deferred costs and other assets ****************** (94) (6,275) (994)Increase in accounts payable******************************* 4,780 759 1,090Increase (decrease) in accrued liabilities ********************* (4,958) 600 1,011Increase (decrease) in deferred credits and other liabilities ***** 4,051 6,615 (391)Net mobilization fees and credits *************************** (1,062) (1,177) (8,806)Other increases (decreases) ******************************** (565) (3,229) 1,739

26,476 15,157 35,010

Net Cash Provided by Operating Activities **************** 13,674 43,442 62,356

CASH FLOW FROM INVESTING ACTIVITIES:Capital expenditures **************************************** (101,819) (89,416) (107,778)Non-cash portion of capital expenditures ********************** — 1,269 1,079Maturities of Treasury notes ********************************* — — 22,600Proceeds from sale of assets ********************************* 1,131 — 429Other ***************************************************** (23) 92 51

Net Cash Used by Investing Activities ******************** (100,711) (88,055) (83,619)

CASH FLOW FROM FINANCING ACTIVITIES:Proceeds from exercises of stock options ********************** 78 181 153Debt issuance costs paid ************************************ (4,122) (557) (9)Proceeds from credit facilities ******************************** 264,500 60,000 20,000Proceeds from short-term note payable ************************ — 6,154 —Principal payments on debt ********************************** (179,523) (6,131) (6,000)

Net Cash Provided by Financing Activities **************** 80,933 59,647 14,144

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (6,104) 15,034 (7,119)CASH AND CASH EQUIVALENTS, at beginning of period ********* $ 27,655 12,621 19,740

CASH AND CASH EQUIVALENTS, at end of period ************** $ 21,551 $ 27,655 $ 12,621

Supplemental disclosure of cash flow information:Cash paid during the year for domestic and foreign income taxes $ 7,914 $ 10,589 $ 9,054

Cash paid during the year for interest, net of amounts capitalized $ 4,003 $ 1,704 $ 3,299


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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

AccumulatedOther Total

Comprehensive Paid-in Comprehensive Retained Shareholders’Common Stock(In thousands) Income Shares Amount Capital Income (Loss) Earnings Equity

September 30, 2000******** $ 23,135 13,823 $13,823 $55,151 $(152) $149,383 $218,205

Net income************* $ 27,346 — — — — 27,346 27,346Unrealized holding gain

on available-for-salesecurities, net of taxof $36 *************** 66 — — — 66 — 66

Reclassificationadjustment for lossesrealized in net income,net of tax of $46 ****** 86 — — — 86 — 86

Exercise of employeestock options ********* — 9 9 144 — — 153

Tax benefit from exercisesof employee stockoptions ************** — — — 1,780 — — 1,780

September 30, 2001******** $ 27,498 13,832 13,832 57,075 — 176,729 247,636

Net income************* $ 28,285 — — — — 28,285 28,285Exercise of employee

stock options ********* — 13 13 168 — — 181Tax benefit from exercise

of employee stockoptions ************** — — — 31 — — 31

September 30, 2002******** $ 28,285 13,845 13,845 57,274 — 205,014 276,133

Net loss**************** $(12,802) — — — — (12,802) (12,802)Exercise of employee

stock options ********* — 6 6 72 — — 78Tax benefit from exercise

of employee stockoptions ************** — — — 58 — — 58

September 30, 2003******** $(12,802) 13,851 $13,851 $57,404 $ — $192,212 $263,467


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF OPERATIONS and other resources. Price competition is gener-ally the most important factor in the drilling

Atwood Oceanics, Inc., together with its industry, but the technical capability of special-wholly owned subsidiaries (collectively referred ized drilling equipment and personnel at theto herein as ‘‘we’’, ‘‘our’’ or the ‘‘Company’’), is time and place required by customers are alsoengaged in the business of offshore drilling of important. Other competitive factors include:exploratory and developmental oil and gas wells

) work force experience,and related support, management and consultingservices principally in international locations.

) rig suitability,Presently, we own and operate a modern fleet of

) efficiency,eight mobile offshore drilling units and areinvolved in maintenance of two operator-owned

) condition of equipment,platform drilling units in Northwest Australia for

) reputation,future drilling programs. In December 2000, wepurchased a semisubmersible unit for a future

) safety and environmental performance,conversion to a tender assist vessel once an andacceptable contract opportunity is secured (see

) customer relations.Note 3). Currently, we are involved in activeoperations in the territorial waters of Australia, We believe that we compete favorably withMalaysia, Egypt, India, Angola and the United respect to these factors.States.

NOTE 2 — SUMMARY OF SIGNIFICANTDemand for drilling equipment is dependentACCOUNTING POLICIESon the exploration and development programs of

oil and gas companies, which is in turn influ- Consolidation —enced by the financial conditions of such compa-

The consolidated financial statements in-nies, by general economic conditions, by pricesclude the accounts of Atwood Oceanics, Inc. andof oil and gas, and from time to time, by politicalall of its wholly owned domestic and foreignconsiderations and policies and other factors.subsidiaries. All significant intercompany ac-Since most of our operations are foreign, suchcounts and transactions have been eliminated inoperations are subject to higher risks associatedconsolidation.with possible disruptions due to terrorism. Our

business operations are subject to the risksForeign exchange —

associated with a business having a limitednumber of customers for which it can operate at The United States dollar is the functionalany given time. A decrease in the drilling currency for all areas of our operations. Accord-programs of customers in the areas where we ingly, monetary assets and liabilities denomi-are employed may adversely affect our revenues. nated in foreign currency are remeasured toThe contracts under which we operate our United States dollars at the rate of exchange indrilling rigs are obtained either through individ- effect at the end of the year, items of incomeual negotiations with the customer or by submit- and expense are remeasured at average monthlyting proposals in competition with the other rates, and property and equipment and otherdrilling contractors and vary in their terms and nonmonetary amounts are remeasured at histori-conditions. We compete with several other drill- cal rates. Gains and losses on foreign currencying contractors, most of which are substantially transactions and remeasurements are included inlarger and possess appreciably greater financial contract drilling costs in the consolidated state-

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Cont.)

Deferred drydocking costs —ments of operations. We recorded foreign ex-change losses of $.9 million and $.4 million in We defer the costs of scheduled drydockingfiscal years 2003 and 2001 and a foreign ex- and charge such costs to expense over thechange gain of $.1 million in fiscal year 2002. period to the next scheduled drydocking (nor-

mally 30 months). At September 30, 2003 andProperty and equipment —2002, deferred drydocking costs totaling $0.4 mil-

Property and equipment are recorded at lion and $0.3 million, respectively, were includedcost. Interest costs related to property under in Deferred Costs and Other Assets in theconstruction are capitalized as a component of accompanying Consolidated Balance Sheets.construction costs. Interest capitalized duringfiscal 2003, 2002 and 2001 was $3.3 million, Income taxes —$2.3 million and $.5 million, respectively.

We account for income taxes in accordanceDepreciation is provided on the straight-line with Statement of Financial Accounting Stan-

method over the following estimated useful lives dards (‘‘SFAS’’) No. 109 ‘‘Accounting for Incomeof the various classifications of assets: Taxes’’. Under SFAS No. 109, deferred income

taxes are recorded to reflect the tax conse-Yearsquences on future years of differences between

Drilling vessels and related equipment ********** 5-22 the tax basis of assets and liabilities and theirDrill pipe *********************************** 3 financial reporting amounts at each year-endFurniture and other ************************** 3-10

given the provisions of enacted tax laws in eachMaintenance, repairs and minor replace- respective jurisdiction. Deferred tax assets are

ments are charged against income as incurred; reduced by a valuation allowance when, basedmajor replacements and upgrades are capitalized upon management’s estimates, it is more likelyand depreciated over the remaining useful life of than not that a portion of the deferred tax assetsthe asset as determined upon completion of the will not be realized in a future period.work. The cost and related accumulated depreci-ation of assets sold, retired or otherwise dis- Revenue recognition —posed are removed from the accounts at the

We account for drilling and managementtime of disposition, and any resulting gain or

contract revenue in accordance with the term ofloss is reflected in the Consolidated Statements

the underlying drilling or management contract.of Operations for the applicable period.

These contracts generally provide that revenue isearned and recognized on a daily basis.Impairment of Property and equipment —

We periodically evaluate our property and Deferred mobilization revenues andequipment to determine that their net carrying costs —value is not in excess of their net realizable

We defer the mobilization revenues andvalue. These evaluations are performed when our

costs relating to moving a drilling rig to a newCompany has sustained significant declines in

area and amortize such revenues and costs on autilization and dayrates and recovery is not

straight-line basis over the life of the applicablecontemplated in the near future. We consider a

drilling contract. Contract revenues and drillingnumber of factors such as estimated future cash

costs are reported in the Statements of Opera-flows, appraisals and current market value analy-

tions at their gross amounts.sis in determining net realizable value. Assetsare written down to their fair value if it is below At September 30, 2003 and 2002, deferredits net carrying value. mobilization revenues totaled $3.3 million and

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$10.4 million, respectively, and deferred mobiliza- the past three years is as follows (in thousands,tion costs totaled $0.9 million and $2.7 million, except per share amounts):respectively. Deferred mobilization revenues and Per Sharedeferred mobilization costs are classified as Net Income Shares Amountcurrent or long-term in the accompanying Con-

Fiscal 2003:solidated Balance Sheets based on the expected Basic earnings perterm of the applicable drilling contracts. share ************* $(12,802) 13,846 $ (.92)

Effect of dilutiveCash and cash equivalents — securities —

Stock options ****** — — —Cash and cash equivalents consist of cash

Diluted earnings perin banks and highly liquid debt instruments,share ************* $(12,802) 13,846 $ (.92)

which mature within three months of the date ofpurchase. Fiscal 2002:

Basic earnings pershare ************* $ 28,285 13,839 $ 2.04Earnings per common share —

Effect of dilutiveBasic and diluted earnings per share have securities —

been computed in accordance with SFAS Stock options ****** — 155 (.02)No. 128, ‘‘Earnings per Share’’ (EPS). ‘‘Basic’’ Diluted earnings perEPS excludes dilution and is computed by share ************* $ 28,285 13,994 $ 2.02dividing net income (loss) by the weighted-

Fiscal 2001:average number of common shares outstandingBasic earnings per

for the period. ‘‘Diluted’’ EPS reflects the issu- share ************* $ 27,346 13,828 $ 1.98ance of additional shares in connection with the Effect of dilutiveassumed conversion of stock options. securities —

Stock options ****** — 150 (0.02)The computation of basic and diluted earn-

Diluted earnings perings per share under SFAS No. 128 for each ofshare ************* $ 27,346 13,978 $ 1.96

The calculation of diluted earnings per sharefor the year ended September 30, 2003 excludesconsideration of potential common shares relatedto all outstanding stock options (see Note 6)because such options were antidilutive. Theseoptions could potentially dilute basic EPS in thefuture.

Stock-Based compensation —

In December 2002, the FASB issued SFASNo. 148, ‘‘Accounting for Stock Based Compen-sation — Transition and Disclosure, an amend-ment of SFAS No. 123, ‘‘Accounting for Stock-Based Compensation’’. SFAS No. 148 amendsSFAS No. 123 to provide alternative methods oftransition for a voluntary change to the fair valuebased method of stock-based employee compen-

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sation. In addition, the statement amends the The fair value of grants made in fiscal yearsdisclosure requirements of SFAS No. 123 to 2003, 2002 and 2001 were estimated on the daterequire pertinent disclosures in both annual and of grant using the Black-Scholes Option Pricinginterim financial statements about the method of model with the following weighted-averageaccounting for stock-based employee compensa- assumptions:tion and the effect of the method used on FISCAL FISCAL FISCALreported results. We do not intend to adopt the 2003 2002 2001fair value based method of stock-based compen-

Risk-Free Interest Rate *** 3.58% 3.58% 5.10%sation but will continue to apply the recognition Expected Volatility ******* 50.00% 46.95% 51.61%and measurement principles of APB Opinion Expected Life (Years) ***** 6 6-7 5No. 25, ‘‘Accounting for Stock Issued to Employ- Dividend Yield*********** None None Noneees’’, and related interpretations. Accordingly, nocompensation costs have been recognized in net USE OF ESTIMATES —income from the granting of options pursuant to

The preparation of financial statements inits stock option plans, as all options granted

conformity with generally accepted accountingunder those plans had an exercise price equal to

principles requires management to make exten-the market value of the underlying common

sive use of estimates and assumptions thatstock on the date of grant. See Note 6 for

affect the reported amounts of assets and liabili-additional information related to our stock incen-

ties and disclosure of contingent assets andtive plans.

liabilities at the date of the financial statementsHad compensation costs been determined and the reported amounts of revenues and

based on the fair value at the grant dates expenses during the reporting period. Actualconsistent with the method of SFAS No. 123, our results could differ from those estimates.net income and earnings per share would havebeen reduced to the pro forma amounts indi- RECLASSIFICATIONS —cated below (in thousands, except for per share

Certain reclassifications have been made toamounts):

the prior period financial statements to conformFISCAL FISCAL FISCAL to the current year presentation.

2003 2002 2001

Net (loss) income, asreported *************** $(12,802) $ 28,285 $ 27,346

Deduct: Total stock-basedemployee compensationexpense determinedunder fair-value-basedmethod for all awards,net of related tax effects (2,150) (1,696) (1,265)

Pro forma net income ***** $(14,952) $ 26,589 $ 26,081

Earnings per share:Basic — as reported***** $ (.92) $ 2.04 $ 1.98Basic — pro forma ****** $ (1.08) $ 1.92 $ 1.89Diluted — as reported *** $ (.92) $ 2.02 $ 1.96Diluted — pro forma***** $ (1.08) $ 1.90 $ 1.87

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NOTE 3 — PROPERTY AND EQUIPMENT shipyard in Greece undergoing another upgradewhich included, among other improvements, the

A summary of property and equipment byextension of its water-depth drilling capacity to

classification is as follows (in thousands):5,000 feet, new 120 bed living quarters, two new

September 30, high capacity cranes and the enhancement of its2003 2002 completion and sub-sea tree handling capabili-

ties. The aggregate cost of this upgrade andDrilling vessels and relatedimprovements was approximately $90 million.equipment

Cost ********************** $ 618,943 $ 540,682Accumulated depreciation*** (181,924) (176,518) RICHMOND —

Net book value*********** 437,419 364,164During August and September 2000, the

Drill pipeRICHMOND was upgraded and refurbished at anCost ********************** 10,224 7,685aggregate cost of approximately $7 million. TheAccumulated depreciation*** (6,010) (6,388)upgrade included, among other improvements,Net book value*********** 4,214 1,297the installation of suction piles and the refurbish-

Furniture and otherment of its living quarters.Cost ********************** 9,072 9,156

Accumulated depreciation*** (7,203) (6,220)ATWOOD FALCON —Net book value*********** 1,869 2,936

NET PROPERTY AND The ATWOOD FALCON was upgraded inEQUIPMENT ************* $ 443,102 $ 368,397 1998 at a cost of approximately $45 million.

SEAHAWK —ATWOOD HUNTER —

In January 2000, the SEAHAWK commencedIn 1997, the ATWOOD HUNTER was initiallydrilling under its four-year contract extension inupgraded to extend its water-depth drillingMalaysia following completion of its approxi-capabilities to 3,600 feet at an aggregate cost ofmately $22 million upgrade. Pursuant to theapproximately $40 million. From June 2001 tocontract, approximately $20 million in upgradeNovember 2001, the ATWOOD HUNTER was inreimbursement payments were received whicha shipyard in the United States undergoingwere recorded to Deferred Credits. These up-another upgrade which included among othergrade reimbursement payments, are being amor-improvements, the extension of its water-depthtized into revenue over the four-year contractdrilling capacity to 5,000 feet for certain environ-extension period, with an unamortized balancemental conditions, new 120 bed living quarters,of $1.3 million at September 30, 2003.a new high capacity crane and the enhancement

of its completion and sub-sea tree handlingVICKSBURG —capabilities. The aggregate cost of this upgrade

and improvements was approximately In 1998, the VICKSBURG was refurbished$58 million. and upgraded at a cost of approximately $35 mil-

lion. In October 2002, the rig commenced a two-ATWOOD EAGLE —

year contract in Malaysia. The contract requiredIn January 2000, the water depth drilling that we purchase approximately $2 million in

capability of the ATWOOD EAGLE was in- additional equipment which was capitalized andcreased from 2,500 feet to 3,300 feet at a cost of expend approximately $1.5 million for inspec-approximately $8 million. From April 2002 to late tions and repairs which was recorded to De-November 2002, the ATWOOD EAGLE was in a ferred Credits. Pursuant to the contract,

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$3.6 million in reimbursement payments and 200 to Helmerich & Payne International Drilling$400,000 in mobilization payments were received Co. at its net book value of $500,000.and recorded to Deferred Credits. All of theseamounts recorded to Deferred Credits are being NOTE 4 — DEBTamortized into revenue and costs over the LONG-TERM DEBT —anticipated two-year term of the VICKSBURG

A summary of long-term debt is as followscurrent contract.(in thousands):

ATWOOD SOUTHERN CROSS — September 30,2003 2002In 1997, the ATWOOD SOUTHERN CROSS

was refurbished and upgraded to achieve 2,000 Credit facility, bearing interest(market adjustable) atfeet water-depth drilling capabilities at an aggre-approximately 4.00% pergate cost of approximately $35 million.annum at September 30, 2003 $205,000 $115,000

Less — current maturities ****** 24,000 —ATWOOD BEACON —$181,000 $115,000

In July 2001, we entered into a vesselconstruction agreement to construct an ultra- At September 30, 2002, we had a $175 mil-premium jack-up drilling unit in Singapore. The lion credit facility with a bank group underconstruction and commission of the drilling unit which $115 million had been borrowed. Subse-was completed in July 2003 at a total cost, quent to September 30, 2002, an additionalincluding owner furnished equipment and capi- $57.5 million was borrowed under this facility totalized interest, of approximately $120 million bring the outstanding balance at March 31, 2003and subsequently was placed into service in to $172.5 million. On April 1, 2003, we executedAugust 2003. a $225 million Senior Secured Credit Facility (the

Credit Facility) with four industry banks toSEASCOUT — refinance the existing indebtedness and to pro-

vide for on-going working capital and generalOn December 5, 2000, we purchased thecorporate needs. In June 2003, the Credit Facilitysemisubmersible unit SEASCOUT for $4.5 mil-was increased to $250 million with five addi-lion. We purchased this unit for conversion andtional banks joining the syndication group. Theupgrade to a semisubmersible tender assistCredit Facility consists of a 5-year $150 millionvessel. The conversion and upgrade will not beamortizing Term Loan Facility and a 5-yearundertaken until an acceptable contract opportu-$100 million non-amortizing Revolving Loan Fa-nity has been secured. The rig is currently coldcility. The Term Loan Facility requires quarterlystacked while awaiting an opportunity for anpayments of $6 million commencing on Decem-acceptable contract.ber 31, 2003, increasing to quarterly payments of$9 million commencing on December 31, 2004RIG-200 —until maturity on April 1, 2008. The Credit

During fiscal year 2002, RIG-200 (a platform Facility permits prepayment of principal at anyrig built in 1995 and owned 50% by us and 50% time without incurring a penalty. The collateralby Helmerich & Payne International Drilling Co. at September 30, 2003 for the Credit Facilitywhich currently owns approximately 21% of our consists primarily of preferred mortgages on alloutstanding common stock) was retired. The rig eight of our active drilling units (with anhad not worked since June 1999. In May 2003, aggregate net book value at September 30, 2003we sold our 50% interest in the dismantled RIG- totaling approximately $430 million). We are not

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required to maintain compensating balances; NOTE 5 — INCOME TAXEShowever, we are required to pay a fee of

Domestic and foreign income before incomeapproximately .80% per annum on the unused

taxes for the three-year period ended Septem-portion of the revolving loan facility and certain

ber 30, 2003 is as follows (in thousands):other administrative costs. The Credit Facility

FISCAL FISCAL FISCALcontains financial covenants, including but not2003 2002 2001limited to, requirements for maintaining certain

Domestic income (loss)** $ (5,112) $ 5,076 $20,414net worth and other financial ratios, and restric-Foreign income ******** 6,748 33,701 20,707tions on disposing of any material assets, paying

cash dividends or repurchasing any of our $ 1,636 $38,777 $41,121outstanding common stock and incurring anyadditional indebtedness in excess of $3 million. The provision for domestic and foreign taxesIn November 2003, the Credit Facility was on income consists of the following (in thousands):amended, effective as of September 30, 2003, to

FISCAL FISCAL FISCALredefine the calculation of the ratio of outstand- 2003 2002 2001ing debt to earnings, before interest, income

Current domestictaxes and depreciation. The amendment also provision (benefit) **** $ 361 $ (3,025) $ 2,502increased the permitted ratio levels from 5.75 to Deferred domestic6.25 at December 31, 2003, reducing to 5.50 at provision ************ 700 2,500 3,298March 31 and June 30, 2004, 4.00 at Septem- Current foreign provision 8,727 11,017 7,975

Deferred foreignber 30, 2004 and 3.00 thereafter. On an asprovision ************ 4,650 — —amended basis, we are in compliance with all

$14,438 $10,492 $13,775financial covenants at September 30, 2003. Asidefrom the financial covenants, no other provisions

Virtually all of our tax provision for fiscalexist in the credit facility that could result inyear 2003 relates to taxes in foreign jurisdictions.acceleration of the April 1, 2008 maturity date.Due to the operating loss in the United States, inaddition to operating losses in certain nontaxableThe Credit Facility also supports issuance,foreign jurisdictions, our effective tax rate for thewhen required, of standby letters of guarantee.fiscal year 2003 significantly exceeds the UnitedAt September 30, 2003, standby letters of guar-States statutory rate.antee in the aggregate amount of approximately

$600,000 were outstanding. We recorded deferred foreign tax liabilitiesof $4.7 million relating to Australian and Malay-The maturities of long-term debt are assian taxes after reassessing certain tax planningfollows (in thousands):strategies in conjunction with the reorganization

Fiscal Year Amount of our foreign subsidiaries undertaken in fiscalyear 2003. This deferred tax expense has no2004 ************************************ $ 24,000

2005 ************************************ 36,000 cash effect on us.2006 ************************************ 36,0002007 ************************************ 36,0002008 ************************************ 73,000

$205,000

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The components of the deferred income tax We do not provide federal income taxes onassets (liabilities) as of September 30, 2003 and the undistributed earnings of our foreign subsidi-2002 are as follows (in thousands): aries that we consider to be permanently rein-

vested in foreign operations. The cumulativeSeptember 30,amount of such undistributed earnings was2003 2002approximately $17 million at September 30, 2003.

Deferred tax assets — It is not practicable to estimate the amount ofNet operating loss any deferred tax liability associated with the

carryforwards ************** $ 5,368 $ 359undistributed earnings. If these earnings were toTax credit carryforwards******* 1,590 2,227be remitted to us, any United States incomeBook accruals **************** 550 106taxes payable would be substantially reduced by7,508 2,692foreign tax credits generated by the repatriation

Deferred tax liabilities —of the earnings. Such foreign tax credits totaledDifference in book and taxapproximately $7 million at September 30, 2003.basis of equipment ********* (27,235) (15,545)

Net deferred tax assets (liabilities) The differences between the statutory andbefore valuation

ATWOOD OCEANICS, INC. · 2016. 9. 28. · CANTILEVER JACK-UPS — ATWOOD BEACON 2003 400 Ft. 2%...

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Transcript of ATWOOD OCEANICS, INC. · 2016. 9. 28. · CANTILEVER JACK-UPS — ATWOOD BEACON 2003 400 Ft. 2%...