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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 2007
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13167
ATWOOD OCEANICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1611874
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15835 Park Ten Place Drive 77084
Houston, Texas (Zip Code)
(Address of principal executive offices)
281-749-7800
Registrant's telephone number, including area code:
---------------
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 July 31, 2007: 31,671,627 shares of common stock, $1 par
value
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ATWOOD OCEANICS, INC.
FORM 10-Q
For the Quarter Ended June 30, 2007
INDEX
Part I. Financial Information
Item 1. Unaudited Condensed Consolidated Financial Statements Page
a) Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended June 30, 2007 and 2006...............3
b) Condensed Consolidated Balance Sheets
As of June 30, 2007 and September 30, 2006...............................4
c) Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 2007 and 2006...................5
d) Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Nine Months Ended June 30, 2007...........................6
e) Notes to 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..............25
Item 4. Controls and Procedures.................................................26
Part II. Other Information
Item 6. Exhibits ............................................................. .27
Signatures................................................................................28
2
PART I. 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,
------------------------- -------------------------
2007 2006 2007 2006
---- ---- ---- ----
REVENUES:
Contract drilling $ 98,371 $ 71,865 $ 278,875 $ 194,808
Business interruption proceeds - - 2,558 -
-------- -------- --------- ---------
98,371 71,865 281,433 194,808
-------- -------- --------- ---------
COSTS AND EXPENSES:
Contract drilling 47,484 32,136 140,211 103,176
Depreciation 8,438 6,192 24,782 18,789
General and administrative 5,949 4,830 17,991 15,428
Gain on sale of equipment (157) (1,075) (341) (10,350)
-------- -------- --------- ---------
61,714 42,083 182,643 127,043
-------- -------- --------- ---------
OPERATING INCOME 36,657 29,782 98,790 67,765
-------- -------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense, net of capitalized interest (392) (1,435) (1,317) (4,642)
Interest income 304 259 1,177 828
-------- -------- --------- ---------
(88) (1,176) (140) (3,814)
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES 36,569 28,606 98,650 63,951
PROVISION (BENEFIT) FOR INCOME TAXES 4,536 (4,185) 13,775 1,008
-------- -------- --------- ---------
NET INCOME $ 32,033 $ 32,791 $ 84,875 $ 62,943
======== ======== ========= =========
EARNINGS PER COMMON SHARE (SEE NOTE 3):
Basic $ 1.02 $ 1.06 $ 2.72 $ 2.04
Diluted 1.00 1.04 2.68 2.00
AVERAGE COMMON SHARES OUTSTANDING
(SEE NOTE 3):
Basic 31,491 31,037 31,233 30,900
Diluted 31,964 31,580 31,718 31,411
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,
2007 2006
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 73,106 $ 32,276
Accounts receivable, net of an allowance of 71,570 80,222
$600 and $750 at June 30, 2007 and
September 30, 2006, respectively
Income tax receivable 2,854 65
Insurance receivable - 550
Inventories of materials and supplies 24,650 22,124
Deferred tax assets 942 2,563
Prepaid expenses and other 2,667 9,873
---------- ----------
Total Current Assets 175,789 147,673
---------- ----------
NET PROPERTY AND EQUIPMENT 482,062 436,166
---------- ----------
DEFERRED COSTS AND OTHER ASSETS 8,430 9,990
---------- ----------
$ 666,281 $ 593,829
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of notes payable $ 27,000 $ 36,000
Accounts payable 9,574 11,760
Accrued liabilities 22,633 13,201
Deferred Credits 177 404
---------- ----------
Total Current Liabilities 59,384 61,365
---------- ----------
LONG-TERM DEBT,
net of current maturities: - 28,000
---------- ----------
- 28,000
---------- ----------
OTHER LONG TERM LIABILITIES:
Deferred income taxes 16,521 18,591
Deferred credits 28,332 23,284
Other 5,202 3,695
---------- ----------
50,055 45,570
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value;
1,000 shares authorized, none outstanding - -
Common stock, $1 par value, 50,000 shares
authorized with 31,506 and 31,046 issued
and outstanding at June 30, 2007 and
September 30, 2006, respectively 31,506 31,046
Paid-in capital 128,529 115,916
Retained earnings 396,807 311,932
---------- ----------
Total Shareholders' Equity 556,842 458,894
---------- ----------
$ 666,281 $ 593,829
========== ==========
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,
-------------------------------
2007 2006
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 84,875 $ 62,943
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 24,782 18,789
Amortization of debt issuance costs 603 603
Amortization of deferred items (22,856) 9,275
Provision for doubtful accounts (37) 618
Deferred income tax benefit (1,154) (1,581)
Stock-based compensation expense 3,750 3,400
Gain on sale of equipment (341) (10,350)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 8,689 (12,762)
Decrease in insurance receivable 550 -
Decrease (increase) in income tax receivable (2,789) 1,496
Increase in inventory (2,526) (3,276)
Decrease in prepaid expenses and other 6,119 1,717
Increase in deferred costs and other assets (3,498) (5,716)
Decrease in accounts payable (2,186) (1,203)
Increase in accrued liabilities 9,432 6,041
Increase in deferred credits and other liabilities 34,726 4,873
Other (3) 8
------- -------
Net cash provided by operating activities 138,136 74,875
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (70,930) (62,357)
Proceeds from sale of equipment 596 25,520
------- -------
Net cash used by investing activities (70,334) (36,837)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 7,188 6,014
Excess tax benefit from the exercise of stock options 2,840 -
Proceeds from debt - 10,000
Principal payments on debt (37,000) (27,000)
------- --------
Net cash used by financing activities (26,972) (10,986)
------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 40,830 27,052
CASH AND CASH EQUIVALENTS, at beginning of period $ 32,276 $ 18,982
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 73,106 $ 46,034
======== ========
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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, 2006 31,046 $ 31,046 $ 115,916 $ 311,932 $ 458,894
Net income - - - 84,875 84,875
Restricted stock awards 7 7 (7) - -
Exercise of employee stock options 453 453 6,735 - 7,188
Stock option and restricted stock
award compensation expense - - 3,750 - 3,750
Excess tax benefit from exercise of
employee stock options - - 2,135 - 2,135
------ -------- --------- --------- ---------
June 30, 2007 31,506 $ 31,506 $ 128,529 $ 396,807 $ 556,842
====== ======== ========= ========= =========
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, 2007 and for each of the three and nine month periods ended June 30,
2007 and 2006, 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, 2006. 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.
It is suggested 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,
2006. In our opinion, the unaudited interim financial statements reflect all
adjustments considered necessary for a fair statement of our financial position
and results of operations for the periods presented.
2. SHARE-BASED COMPENSATION
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, 2007, unrecognized compensation cost, net of estimated
forfeitures, related to stock options and restricted stock awards was
approximately $4.5 million and $4.7 million, respectively, which we expect to
recognize over a weighted average period of approximately 2.3 years. The
recognition of share-based compensation expense had the following effect on our
consolidated statements of operations (in thousands, except per share amounts):
7
Three Months Ended Nine Months Ended
------------------ -----------------
June 30, 2007:
Increase in contract drilling expenses $ 362 $ 953
Increase in general and administrative expenses 895 2,797
Decrease in income tax provision (313) (979)
----- ------
Decrease of net income $ 944 $2,771
====== ======
Decrease in earnings per share:
Basic $0.03 $0.09
Diluted $0.03 $0.09
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
Awards of restricted stock and stock options have both been granted under
our stock incentive plans during the current fiscal year. We deliver newly
issued shares of common stock for restricted stock awards upon vesting and upon
exercise of stock options. All stock incentive plans currently in effect have
been approved by the shareholders of our outstanding common stock.
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. 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, 2007 was $23.64. We estimated the fair value of
each stock option then outstanding using the Black-Scholes pricing model and the
following assumptions for the nine months ended June 30, 2007:
Risk-Free Interest Rate 4.5%
Expected Volatility 46%
Expected Life (Years) 5.25
Dividend Yield None
8
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 10 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, 2007 is as follows:
Wtd. Avg.
Wtd. Avg. Remaining Aggregate
Number of Exercise Contractual Intrinsic
Options (000s) Price Life (Years) Value (000s)
-------------- --------- ------------ ------------
Outstanding at October 1, 2006 1,437 $ 19.56
Granted 79 $ 49.97
Exercised (450) $ 15.90 $ 18,526
Forfeited (13) $ 31.20
------
Outstanding at June 30, 2007 1,053 $ 23.27 6.4 $ 47,774
=======
Exercisable at June 30, 2007 644 $ 18.57 5.4 $ 32,234
=======
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. Awards of restricted stock to non-employee directors
prior to March 2007 vested immediately while awards granted in March 2007 are
subject to three year vesting. All restricted stock awards granted to date are
restricted from transfer for three years from the date of grant, whether vested
or unvested. 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,
2007, is as follows:
Number of Wtd. Avg.
Shares (000s) Fair Value
------------- ------------
Unvested at September 30, 2006 93 $ 38.07
Granted 78 $ 49.99
Vested (7) $ 45.58
Forfeited (2) $ 49.97
---
Unvested at June 30, 2007 162 $ 43.38
===
9
3. EARNINGS (LOSS) 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, 2007:
Basic earnings per share $ 32,033 31,491 $ 1.02 $ 84,875 31,233 $ 2.72
Effect of dilutive securities:
Stock options --- 473 $(0.02) --- 485 $(0.04)
-------- ------ ------ -------- ------ ------
Diluted earnings per share $ 32,033 31,964 $ 1.00 $ 84,875 31,718 $ 2.68
======== ====== ====== ======== ====== ======
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 --- 543 $(0.02) --- 511 $ (0.04)
-------- ------ ------ -------- ------ -------
Diluted earnings per share $ 32,791 31,580 $ 1.04 $ 62,943 31,411 $ 2.00
======== ====== ====== ======== ====== =======
The calculation of diluted earnings per share for the three and nine month
periods ending June 30, 2007 excludes consideration of shares of common stock
related to 77,000 outstanding stock options because such options were
anti-dilutive. These options could potentially dilute basic earnings per share
in the future.
10
4. PROPERTY AND EQUIPMENT
A summary of property and equipment by classification is as follows (in
thousands):
June 30, September 30,
2007 2006
------------ ------------
Drilling vessels and related equipment
Cost $ 679,331 $ 661,321
Accumulated depreciation (284,949) (261,682)
--------- ---------
Net book value 394,382 399,639
--------- ---------
Drill pipe
Cost 15,370 13,271
Accumulated depreciation (9,410) (8,257)
--------- ---------
Net book value 5,960 5,014
--------- --------
Furniture and other
Cost 8,736 7,920
Accumulated depreciation (6,523) (6,375)
--------- ---------
Net book value 2,213 1,545
--------- ---------
Construction in progress 79,507 29,968
--------- ---------
NET PROPERTY AND EQUIPMENT $ 482,062 $ 436,166
========= =========
ATWOOD BEACON
During the first quarter of the current fiscal year, we completed the work
to restore the ATWOOD BEACON to its original condition prior to the July 2004
incident offshore of Indonesia whereby all three legs and the derrick incurred
damage while positioning for a well. The majority of the restoration work was
completed in early calendar year 2005, at which time the rig was placed back
into service. The more recent repairs were needed to finish the final leg
extensions to restore the rig to its original condition. We had insurance
coverage to reimburse the costs of repairs and loss of hire coverage of $70,000
per day. $2.6 million of revenue recognized from the loss of hire coverage
during the quarter ended December 31, 2006 is reflected as business interruption
proceeds in our Consolidated Statement of Operations. As of June 30, 2007, all
costs incurred to date and business interruption proceeds earned related to this
incident have been reimbursed by the insurance carrier.
11
SALE OF EQUIPMENT
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 a gain of approximately $10.1 million. We had no
operations or revenues associated with these assets prior to their sale.
5. INCOME TAXES
Virtually all of our tax provision for each of the three and nine months
ended June 30, 2007 and 2006 relates to taxes in foreign jurisdictions.
Accordingly, due to the high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the three and nine months
ended June 30, 2007 and 2006, our effective tax rate for these periods was
significantly less than the United States federal statutory rate. In addition,
during the third quarter of the prior fiscal year, we reversed a $1.8 million
tax contingent liability due to the expiration of the statute of limitations in
a foreign jurisdiction and also recognized a $4.6 million tax benefit due to the
acceptance of certain amended prior year tax returns by a foreign tax authority,
both of which contributed to the low effective tax rates in the prior fiscal
year periods.
On July 20, 2007, we were notified by the Malaysian tax authorities
regarding a potential proposed adjustment relating to fiscal years 2000 to 2003.
Although we believe we are in compliance, we are currently evaluating the merit
of the assertions by the Malaysian tax authorities and plan to vigorously
contest these assertions. While we cannot predict or provide assurance as to the
final outcome of these allegations, we do not expect them to have a material
adverse effect on our consolidated financial position, results of operations or
cash flows.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities", which provides companies with an
option to report selected financial assets and liabilities at fair value and
establishes presentation and disclosure requirements to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. GAAP has required different measurement attributes
for different assets and liabilities that can create artificial volatility in
earnings. The objective of SFAS No. 159 is to help mitigate this type of
volatility in the earnings by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need for companies to
comply with complex hedge accounting provisions. SFAS No. 159 is effective for
fiscal years beginning after November 15, 2007. We are currently analyzing the
provisions of SFAS No. 159 and determining how it will affect accounting
policies and procedures, but we have not yet made a determination of the impact
the adoption will have on our consolidated financial position, results of
operations and cash flows.
In June 2006, the Financial Accounting Standards Board 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 are evaluating the impact of the adoption
of FIN 48 on our consolidated financial position.
12
In September 2005, the FASB issued SFAS No. 157, "Fair Value Measurements",
which defines fair value, establishes methods used to measure fair value and
expands disclosure requirements about fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal periods. We are
currently analyzing the provisions of SFAS No. 157 and determining how it will
affect accounting policies and procedures, but we have not yet made a
determination of the impact the adoption will have on our consolidated financial
position, results of operations and cash flows.
7. COMMITMENTS AND CONTINGENCIES
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
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q for the quarterly period ended June 30, 2007 includes
statements about Atwood Oceanics, Inc. (which together with its subsidiaries is
identified as the "Company," "we" or "our," unless the context indicates
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 time to time, make
other oral or written statements which are also forward-looking statements.
These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future events
impacting us, and therefore involve a number of risks and uncertainties. We
caution that forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied in the
forward-looking statements.
Important factors that could cause our actual results of operations,
financial conditions or cash flows 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 gas industry, which is significantly affected by
indications and expectations regarding the level and volatility of oil
and gas prices, which in turn are affected by such things as political,
economic and weather conditions affecting or potentially affecting
regional or worldwide demand for oil and gas, actions or anticipated
actions by OPEC, inventory levels, deliverability constraints, and future
market activity;
- 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;
- the termination or renegotiation of contracts by customers;
14
- 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 offshore 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 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;
- the risks involved in the construction, upgrade and repair of our
drilling units; and
15
- such other factors as may be discussed in this report and our other
reports filed with the Securities and Exchange Commission, or SEC.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. The words "believe," "impact,"
"intend," "estimate," "anticipate," "plan," and similar expressions identify
forward-looking statements. These forward-looking statements are found at
various places throughout the Management's Discussion and Analysis in Part I,
Item 2 hereof and elsewhere in this report. When considering any forward-looking
statement, you should also keep in mind the risk factors described in other
reports or filings we make with the SEC from time to time, including our Form
10K for the year ended September 30, 2006. 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.
16
MARKET OUTLOOK
We have 100% of available rig days for the remainder of fiscal year 2007
contracted, with contracted rig days for fiscal years 2008 and 2009 at
approximately 77% and 32%, respectively. A comparison of the average per day
revenues for fiscal year 2006 and for the first nine months of fiscal year 2007
for each of our eight drilling units to their current highest contracted dayrate
commitments is as follows:
Average Per Day Revenues (1)
-----------------------------
Current Highest Percentage Change from
Fiscal Fiscal Contracted Fiscal Year-to-Date 2007
Year Year-to-Date Dayrate to Highest Contracted
2006 2007 Commitment Dayrate Commitment
----------- -------------- ---------------- ---------------------------
ATWOOD EAGLE $129,000 $160,000 $405,000 153%
ATWOOD HUNTER 172,000 221,000 245,000 11%
ATWOOD FALCON 83,000 124,000 200,000 61%
ATWOOD SOUTHERN CROSS 82,000 134,000 380,000 184%
ATWOOD BEACON 88,000 108,000 133,500 24%
VICKSBURG 82,000 96,000 154,000 60%
SEAHAWK 32,000 85,000(2) 72,000 ---
RICHMOND 55,000 81,000 80,000 ---
(1) Includes dayrate and service revenues and amortized deferred fees.
(2) Includes amortized deferred fees of approximately $18,000 per day.
The ATWOOD EAGLE is currently working offshore Australia for BHP Billiton
Petroleum ("BHPB") on a drilling program currently expected to extend into
January 2008. Immediately following the completion of the BHPB work, the rig has
a one-well commitment at a dayrate of $360,000 and a two-year commitment with
Woodside Energy Limited ("Woodside") (expected to commence in March 2008) at a
dayrate of $405,000. The ATWOOD HUNTER is currently working offshore Libya for
Woodside at a dayrate of $245,000. The current Woodside contract extends to
June/July 2008; however, Woodside has advised that they have interest in
farming-out the rig for a period of four to six months which could increase the
ATWOOD HUNTER's dayrate during the farm-out period and extend the Woodside
contract commitment beyond the current June/July 2008 date. The ATWOOD FALCON
has contractual commitments offshore Malaysia with Sarawak Shell Berhad that
extend to July 2009, with a current operating dayrate of $160,000 to $200,000
(depending upon water depth of each well drilled). We expect that most of the
wells drilled will be at the $160,000 dayrate. The ATWOOD SOUTHERN CROSS
currently has contractual commitments in the Black Sea with dayrates ranging
from $145,000 to $380,000. These commitments could extend into the third quarter
of fiscal year 2008 if all option wells are exercised. Currently, the ATWOOD
BEACON is working under a long-term contract commitment offshore India that
extends to January 2009. The dayrate for the contract is $113,000 to January
2008 and $133,500 for one year thereafter. The VICKSBURG is currently working
offshore Thailand under a contract commitment for Chevron Overseas Petroleum
which provides a dayrate of $154,000 to June 2009. The SEAHAWK has a contract
commitment offshore Equatorial Guinea which extends to September 2008 at a
dayrate of approximately $72,000 plus amortized deferred fees of approximately
$18,000 per day. The RICHMOND, our only rig in the U.S. Gulf of Mexico, has a
current contract commitment which should extend to October 2007 at a dayrate of
$80,000.
17
Our contract drilling costs increased 36% for the first nine months of fiscal
year 2007 compared to the same period in fiscal year 2006. A comparative
analysis of per day contract drilling costs is as follows:
Average Per Day Contract Drilling Costs
-------------------------------------------------------------------------------
Percentage
Change from
Fiscal Year
2006
Compared to
First Second Third Third
Fiscal Quarter Quarter of Quarter of Quarter
Year of Fiscal Fiscal Fiscal Fiscal Year
2006 Year 2007 Year 2007 Year 2007 2007
------------ ------------ -- ------------ -- ------------- --------------
ATWOOD EAGLE $74,000 $86,000 $94,000 $108,000 46%
ATWOOD HUNTER 51,000 65,000 65,000 80,000 57%
ATWOOD FALCON 45,000 95,000(1) 50,000 53,000 18%
ATWOOD SOUTHERN CROSS 66,000 (2) 57,000 48,000 59,000 (11%)(2)
ATWOOD BEACON 29,000 44,000 39,000 41,000 41%
VICKSBURG 33,000 41,000 33,000 38,000 15%
SEAHAWK(3) 23,000 74,000 77,000 81,000 252%
RICHMOND 28,000 33,000 38,000 37,000 32%
OTHER 17,000 12,000 26,000 14,000 (18%)
(1) Daily average operating costs were high due to planned maintenance
during the period the rig was in a shipyard undergoing its water depth
upgrade.
(2) The daily average operating costs of the ATWOOD SOUTHERN CROSS was high
during fiscal year 2006 due to $8.6 million of mobilization expense
amortization resulting from the rig being relocated from Southeast Asia
to the Mediterranean during the fourth quarter of fiscal year 2005.
(3) During fiscal year 2006, the SEAHAWK worked the first half of the year
in a relatively low operating cost area of Southeast Asia compared to
its current operating area of West Africa. This rig was upgraded and
relocated to West Africa during the second half of
fiscal year 2006 which also contributed to the rig incurring
significantly lower operating costs during fiscal year 2006.
Daily operating costs for fiscal year 2007 also include amortized
deferred costs of approximately $14,000 per day.
Thus far, fiscal year 2007 factors impacting operating cost increases, are
as follows: (1) end of calendar year bonuses paid to rig shorebased personnel;
(2) general salary increases to all rig-based personnel; (3) start-up costs
associated with rigs commencing operations in new drilling areas (VICKSBURG in
Thailand), (ATWOOD BEACON in India), (SEAHAWK in West Africa) and (ATWOOD HUNTER
in Libya); (4) costs associated with maintenance during shipyard periods (ATWOOD
FALCON and ATWOOD BEACON); (5) higher than normal maintenance costs incurred on
the ATWOOD HUNTER and ATWOOD EAGLE; and (6) higher than normal payroll costs
incurred by the ATWOOD EAGLE due to extra personnel assigned to the rig for
training purposes. Operating costs will vary for all rigs depending upon each
rig's specific operating activities.
During the last quarter of fiscal year 2007 and first half of fiscal year
2008, some of our rigs are expected to incur some zero rate days for required
regulatory inspections and planned maintenance. Our goal is to maintain our
fleet and plan our downtime maintenance periods with a focus on minimizing
downtime and achieving longer term returns. The VICKSBURG was off dayrate for
two days in July 2007. The ATWOOD EAGLE could incur ten to fourteen zero rate
18
days during the first or second quarter of fiscal year 2008, while the ATWOOD
HUNTER could incur three to five zero rate days during the fourth quarter of
fiscal year 2007 and fifteen to twenty zero rate days sometime during fiscal
year 2008. The ATWOOD SOUTHERN CROSS could incur seven to ten zero rate days
during the fourth quarter of fiscal year 2007; while the RICHMOND could incur
thirty to sixty zero rate days during the first quarter of fiscal year 2008 for
a life enhancing upgrade. In addition to our planned downtime, we would also
expect to incur some unplanned downtime for maintenance and repairs.
Historically, we have experienced approximately 1% to 1 1/2% of zero rate
downtime days for our fleet as a percentage of all available days.
With a skilled labor shortage continuing to develop in the offshore
drilling industry coupled with our continuing focus on developing and training
personnel, we expect our personnel related costs will continue to increase. We
currently estimate that daily operating costs for our eight operating units
during the last quarter of fiscal year 2007 could range as follows:
ATWOOD EAGLE $100,000 to $110,000
ATWOOD HUNTER $70,000 to $75,000
ATWOOD FALCON $60,000 to $65,000
ATWOOD SOUTHERN CROSS $60,000 to $65,000
SEAHAWK $70,000 to $75,000(1)
ATWOOD BEACON $35,000 to $45,000
VICKSBURG $35,000 to $45,000
RICHMOND $35,000 to $45,000
(1) Includes amortized deferred costs of approximately $14,000 per day.
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 expected by September 30, 2008. We estimate the total costs
of construction (including capitalized interest) will be approximately $160
million. We intend to finance the construction of the new rig from operating
cash flows and cash on hand balances. As of August 7, 2007, we have no
outstanding borrowing under the $100 million revolving credit portion of our
senior secured credit facility.
We will continue to explore opportunities for growth. Revenues, operating
cash flows and earnings for fiscal year 2006 were the highest in our history.
With our backlog of contracted days at historically high dayrates providing
increasing revenue expectations, we anticipate that operating results for fiscal
years 2007 and 2008 will reflect significant improvement over fiscal year 2006
operating results.
19
RESULTS OF OPERATIONS
Revenues for the three and nine months ended June 30, 2007 increased
37% and 44%, respectively, compared to the three and nine months ended June 30,
2006. A comparative analysis of revenues is as follows:
REVENUES
(In millions)
----------------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------------ -------------------------------------
2007 2006 Variance 2007 2006 Variance
----------- --------- ----------- ------------ ---------- ----------
SEAHAWK $ 7.4 $ 0.1 $ 7.3 $ 23.3 $ 7.6 $ 15.7
ATWOOD SOUTHERN CROSS 13.1 6.6 6.5 36.5 23.3 13.2
ATWOOD FALCON 12.8 8.4 4.4 33.8 21.8 12.0
ATWOOD EAGLE 15.2 11.9 3.3 43.7 33.3 10.4
RICHMOND 7.3 4.7 2.6 22.0 12.8 9.2
ATWOOD BEACON 10.3 8.4 1.9 29.3 21.4 7.9
VICKSBURG 9.2 7.9 1.3 26.2 22.3 3.9
ATWOOD HUNTER 21.6 21.0 0.6 60.3 43.4 16.9
AUSTRALIA MANAGEMENT
CONTRACTS 1.5 2.9 (1.4) 6.3 8.9 (2.6)
------ ----- ------ ------ ------ ------
$ 98.4 $71.9 $ 26.5 $281.4 $194.8 $ 86.6
====== ===== ====== ====== ====== ======
The increase in fleetwide revenues for the current quarter and year-to-date
periods is primarily attributable to the increase in average dayrates due to
improving market conditions and strong demand for offshore drilling equipment as
previously discussed in "Market Outlook". Increases in revenues for the ATWOOD
HUNTER, ATWOOD FALCON, SEAHAWK, ATWOOD BEACON, RICHMOND, ATWOOD SOUTHERN CROSS,
VICKSBURG and the ATWOOD EAGLE were related to each of these drilling units
working under higher dayrate contracts during the current quarter and fiscal
year-to-date period compared to the same periods in the prior fiscal year. In
addition, during the third quarter of fiscal year 2006, the SEAHAWK was in a
shipyard undergoing a life-enhancing upgrade for the entire quarter and earned
virtually no revenue during this time. Revenue for the AUSTRALIA MANAGEMENT
CONTRACTS was lower for the three and nine month periods ended June 30, 2007
when compared to the prior fiscal year periods due to decreased activity as the
most recent drilling program was completed at the end of the first quarter of
fiscal year 2007.
20
Contract drilling costs for the three and nine months ended June 30,
2007 increased 48% and 36%, respectively compared to the three and nine months
ended June 30, 2006. 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,
------------------------------------ -----------------------------------
2007 2006 Variance 2007 2006 Variance
----------- --------- ----------- ----------- --------- -----------
SEAHAWK $ 7.4 $ 0.3 $ 7.1 $ 21.1 $ 4.4 $ 16.7
ATWOOD EAGLE 9.8 6.8 3.0 26.2 19.0 7.2
ATWOOD HUNTER 7.3 5.2 2.1 19.1 12.9 6.2
ATWOOD SOUTHERN CROSS 5.3 4.1 1.2 14.9 20.2 (5.3)
ATWOOD BEACON 3.8 2.6 1.2 11.3 7.8 3.5
RICHMOND 3.4 2.5 0.9 9.8 7.4 2.4
VICKSBURG 3.4 2.6 0.8 10.1 8.6 1.5
ATWOOD FALCON 4.8 4.1 0.7 18.1 11.3 6.8
AUSTRALIA MANAGEMENT
CONTRACTS 1.0 2.1 (1.1) 4.9 7.3 (2.4)
OTHER 1.3 1.8 (0.5) 4.7 4.3 0.4
------ ------ ----- ------ ------ ------
$ 47.5 $ 32.1 $15.4 $140.2 $103.2 $ 37.0
====== ====== ===== ====== ====== ======
On a fleetwide basis, wage increases and extra personnel for training and
development have resulted in higher personnel costs during the three and nine
months ended June 30, 2007 for virtually every rig when compared to the prior
fiscal year periods. With the SEAHAWK and ATWOOD HUNTER currently working
offshore West and North Africa, respectively, both rigs have experienced
increased travel, freight and shorebase costs due to higher transportation and
living expenses in West and North Africa. Contract drilling costs for the
SEAHAWK also reflect amortization of approximately $1.2 million and $3.9 million
of deferred expenses in the second quarter and year-to-date period of fiscal
year 2007, respectively, compared to none in for the same periods of fiscal year
2006. In addition, as previously noted, the SEAHAWK incurred significantly less
operating costs during the third quarter of the prior fiscal year as the rig was
in a shipyard undergoing a life enhancing upgrade. The ATWOOD HUNTER incurred
additional maintenance costs during a planned regulatory inspection period in
December 2006. In addition to the rising personnel costs mentioned above, the
ATWOOD EAGLE and RICHMOND incurred higher maintenance costs during fiscal year
2007 due to the amount and timing of certain maintenance projects when compared
to the same periods in the prior fiscal year. Year-to-date drilling costs for
the ATWOOD SOUTHERN CROSS have decreased primarily due to $8.6 million of
mobilization expense amortization during the prior fiscal year compared to none
during the current fiscal year. The ATWOOD BEACON has also experienced higher
year-to-date maintenance costs while in a Singapore shipyard having its last leg
sections reattached during the first quarter of fiscal year 2007. While drilling
costs for the VICKSBURG have remained relatively consistent other than higher
personnel costs, the year-to-date increase in drilling costs for the ATWOOD
FALCON is primarily attributable to planned maintenance during its water depth
upgrade which was completed during the first quarter of the current fiscal year.
AUSTRALIA MANAGEMENT CONTRACTS costs have decreased due to the decreased
activity resulting from the completion of the current drilling program at the
end of the first quarter of the current fiscal year. Other drilling costs have
also increased due to rising personnel costs.
21
Depreciation expense for the three and nine months ended June 30, 2007
increased 35% and 32% compared to the three and nine months ended June 30, 2006.
An analysis of depreciation expense by rig is as follows:
DEPRECIATION EXPENSE
(In millions)
----------------------------------------------------------------------
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------------- ---------------------------------
2007 2006 Variance 2007 2006 Variance
---------- --------- ----------- --------- --------- ----------
SEAHAWK $ 1.6 $ - $ 1.6 $ 4.6 $ 0.2 $ 4.4
ATWOOD FALCON 1.1 0.7 0.4 3.1 2.1 1.0
ATWOOD SOUTHERN CROSS 0.9 0.8 0.1 2.5 2.1 0.4
ATWOOD HUNTER 1.4 1.4 - 4.3 4.0 0.3
ATWOOD BEACON 1.3 1.3 - 3.8 4.0 (0.2)
VICKSBURG 0.7 0.7 - 2.2 2.1 0.1
ATWOOD EAGLE 1.1 1.1 - 3.4 3.5 (0.1)
RICHMOND 0.2 0.2 - 0.7 0.7 -
OTHER 0.1 - 0.1 0.2 0.1 0.1
------ ----- ------ ------ ------ ------
$ 8.4 $ 6.2 $ 2.2 $ 24.8 $ 18.8 $ 6.0
====== ===== ====== ====== ====== ======
Depreciation expense has increased for the SEAHAWK, ATWOOD FALCON and
ATWOOD SOUTHERN CROSS as these rigs have recently undergone upgrades within the
past year, while depreciation expense for all other rigs has remained relatively
consistent with the prior fiscal year periods. The SEAHAWK was almost fully
depreciated prior to its upgrade; accordingly, ongoing quarterly depreciation
expense will approximate quarterly fiscal year 2007 levels.
General and administrative expenses for the current quarter increased
compared to the prior fiscal year quarter primarily due to rising personnel
costs. The year-to-date increase also includes an approximate $0.7 million
increase in annual bonus compensation over the prior fiscal year. The decrease
in the year-to-date gain of sale of equipment is due to the sale of 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 a gain of
approximately $10.1 million in the prior fiscal year. Interest expense has
decreased for both the current quarter and year-to-date period primarily due to
the reduction of our outstanding debt and due to $0.6 million and $2.2 million
of capitalized interest charges related to the construction of the ATWOOD AURORA
during the three and nine months ended June 30, 2007, respectively. Year-to-date
interest income has increased when compared to the prior fiscal year due to
interest earned on higher cash balances.
22
Virtually all of our tax provision for each of the three and nine months
ended June 30, 2007 and 2006 relates to taxes in foreign jurisdictions.
Accordingly, due to the high level of operating income earned in certain
nontaxable and deemed profit tax jurisdictions during the three and nine months
ended June 30, 2007 and 2006, our effective tax rate for these periods was
significantly less than the United States federal statutory rate. In addition,
during the third quarter of the prior fiscal year, we reversed a $1.8 million
tax contingent liability due to the expiration of the statute of limitations in
a foreign jurisdiction and also recognized a $4.6 million tax benefit due to the
acceptance of certain amended prior year tax returns by a foreign tax authority,
both of which contributed to the low effective tax rates in the prior fiscal
year periods. Excluding any discrete items that may be incurred, we expect our
effective tax rate to be between 13% and 15% for fiscal year 2007.
On July 20, 2007, we were notified by the Malaysian tax authorities
regarding a potential proposed adjustment relating to fiscal years 2000 to 2003.
Although we believe we are in compliance, we are currently evaluating the merit
of the assertions by the Malaysian tax authorities and plan to vigorously
contest these assertions. While we cannot predict or provide assurance as to the
final outcome of these allegations, we do not expect them to have a material
adverse effect on our consolidated financial position, results of operations or
cash flows.
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 2001 through 2006, net
cash provided by operating activities ranged from a low of approximately $13.7
million in fiscal year 2003 to a high of approximately $85.5 million in fiscal
year 2006. For the nine months ended June 30, 2007, net cash provided by
operating activities totaled approximately $138.1 million. Our operating cash
flows are primarily driven by our operating income, which reflects dayrates and
rig utilization. With 100% of our available operating rig days committed for
fiscal year 2007 and approximately 77% committed for fiscal year 2008 at
historically high dayrates, we anticipate significant increases in cash flows
and earnings during fiscal years 2007 and 2008 when compared to fiscal year
2006. Other than our expected capital expenditures of approximately $110 million
(including funding for the construction of our new jack-up rig), the only
additional firm cash commitment for fiscal year 2007, 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
2007. We expect to generate sufficient cash flows from operations to satisfy
these obligations.
As of June 30, 2007, we had $27 million outstanding under the term portion
of our senior secured credit facility and no funds borrowed under the $100
million revolving portion of our senior secured credit facility. We are in
compliance with all financial covenants under our senior secured credit facility
at June 30, 2007, and expect to remain in compliance with all financial
covenants during the remainder of fiscal year 2007. Aside from unforeseen
noncompliance with the financial covenants, no other provisions exist in our
senior secured credit facility that could result in acceleration of the April 1,
2008 maturity date.
23
At June 30, 2007, the collateral for our senior secured credit facility
consists primarily of preferred mortgages on all eight of our active drilling
units (with an aggregate net book value at June 30, 2007 totaling approximately
$386 million). We are not required to maintain compensating balances; however,
we are required to pay a fee of approximately 0.60% per annum on the unused
portion of the revolving portion of our senior secured credit facility and
certain other administrative costs.
During the first nine months of fiscal year 2007, we used internally
generated cash to expend approximately $53 million toward the construction of
the ATWOOD AURORA, approximately $9 million on completing the water depth
upgrade and equipment maintenance of the ATWOOD FALCON and approximately $9
million in other capital expenditures. We estimate that our total capital
expenditures for the fourth quarter of fiscal year 2007 will be approximately
$40 million, with most all of these estimated expenditures related to the
construction of the ATWOOD AURORA. In fiscal year 2008, we expect to expend
approximately $45 million in completing the construction of the ATWOOD AURORA.
We anticipate using internally generated funds to satisfy these obligations.
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.
Prepaid expenses and other deferred assets have decreased $7.2 million at
current quarter end when compared to September 30, 2006 due to the amortization
of rig insurance premiums which are generally renewed and paid for during the
fourth quarter of each fiscal year.
Accrued liabilities have increased by $9.4 million from September 30, 2006
primarily due to the increase of accrued, but unpaid, agent fees and current
income tax liabilities.
Long-term deferred credits have increased by approximately $5 million at
June 30, 2007 compared to September 30, 2006 primarily due to deferred fees
associated with the upgrade of the ATWOOD FALCON. Lump sum fees received for
upgrade costs reimbursed by our customers are reported as deferred credits in
the accompanying Consolidated Balance Sheets and are recognized as earned on a
straight-line method over the term of the related drilling contract.
24
PART I. ITEM 3
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
All of our $27 million of long-term debt outstanding at June 30, 2007, was
floating rate debt. As a result, our annual interest costs in fiscal year 2007
will fluctuate based on interest rate changes. Because the interest rate on our
long-term debt is a floating rate and due to our debt maturing in 2008, the fair
value of our long-term debt approximated carrying value as of June 30, 2007. The
impact on annual cash flow of a 10% change in the floating rate (approximately
70 basis points) would be approximately $0.2 million, which we believe to be
immaterial. We did not have any open derivative contracts relating to our
floating rate debt at June 30, 2007.
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, 2007 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 gain of approximately $0.5 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, 2007.
25
PART I. ITEM 4
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, process, summarized and reported within the time
periods specified in the SEC's rules, regulations 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.
26
PART II. OTHER INFORMATION
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).
3.3 Amendment No. 1 to Second Amended and Restated By-Laws,
dated June 7, 2007 (Incorporated herein by reference to
Exhibit 3.1 of our Form 8-K filed June 12, 2007).
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 of Atwood Oceanics, Inc. 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, 3.2, and 3.3 for provisions of our
Amended and Restated Certificate of Formation and Second
Amended and Restated By-Laws (as amended) defining the
rights of our shareholders (Incorporated herein by
reference to Exhibit 3.1 of our Form 8-K filed
February 14, 2006, Exhibit 3.2 of our Form 10-Q filed
May 10, 2006, and Exhibit 3.1 of our Form 8-K filed June
12, 2007).
*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
27
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 8, 2007 /s/JAMES M. HOLLAND_
------------------
James M. Holland
Senior Vice President, Chief Financial Officer,
Chief Accounting Officer and Secretary
28
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).
3.3 Amendment No. 1 to Second Amended and Restated By-Laws,
dated June 7, 2007 (Incorporated herein by reference to
Exhibit 3.1 of our Form 8-K filed June 12, 2007).
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 of Atwood Oceanics, Inc.
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, 3.2, and 3.3 for provisions of our
Amended and Restated Certificate of Formation and Second
Amended and Restated By-Laws (as amended) defining the
rights of our shareholders (Incorporated herein by
reference to Exhibit 3.1 of our Form 8-K filed
February 14, 2006, Exhibit 3.2 of our Form 10-Q
filed May 10, 2006, and Exhibit 3.1 of our Form 8-K
filed June 12, 2007).
*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
29