-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TAv5/i3PkdbsCS7pWvSnMo+CZ4dLUCpjo5HFYQotYOVSyKWblvRWiOZtx0TLDi/X DmYPtvIW9C/Y/NsJpVW/hw== 0000008411-07-000082.txt : 20070510 0000008411-07-000082.hdr.sgml : 20070510 20070510120034 ACCESSION NUMBER: 0000008411-07-000082 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070510 DATE AS OF CHANGE: 20070510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATWOOD OCEANICS INC CENTRAL INDEX KEY: 0000008411 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 741611874 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13167 FILM NUMBER: 07835878 BUSINESS ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 2817497845 MAIL ADDRESS: STREET 1: 15835 PARK TEN PL DR STREET 2: SUITE 200 CITY: HOUSTON STATE: TX ZIP: 77084 10-Q 1 f10qmar312007.txt - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------- Form 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 2007 COMMISSION FILE NUMBER 1-13167 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ATWOOD OCEANICS, INC. (Exact name of registrant as specified in its charter) TEXAS 74-1611874 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 15835 Park Ten Place Drive 77084 Houston, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: 281-749-7800 --------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filings requirements for the past 90 days. Yes X No___ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check One): Large accelerated filer X Accelerated filer ___ Non-accelerated filer ___ --- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes___ No X ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 30, 2007: 31,478,777 shares of common stock, $1 par value - ------------------------------------------------------------------------------- ATWOOD OCEANICS, INC. FORM 10-Q For the Quarter Ended March 31, 2007 INDEX Part I. Financial Information Item 1. Unaudited Condensed Consolidated Financial Statements Page a) Condensed Consolidated Statements of Operations For the Three and Six Months Ended March 31, 2007 and 2006.....3 b) Condensed Consolidated Balance Sheets As of March 31, 2007 and September 30, 2006....................4 c) Condensed Consolidated Statements of Cash Flows For the Six Months Ended March 31, 2007 and 2006.........5 d) Condensed Consolidated Statement of Changes in Shareholders' Equity for the Six Months Ended March 31, 2007.................6 e) Notes to Condensed Consolidated Financial Statements....................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................13 Item 3. Quantitative and Qualitative Disclosures about Market Risk....24 Item 4. Controls and Procedures.......................................25 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders............26 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 Six Months Ended March 31, March 31, ------------------------------ ------------------------------ 2007 2006 2007 2006 ---- ---- ---- ---- REVENUES: Contract drilling $ 94,262 $ 67,529 $ 180,504 $ 122,943 Business interruption proceeds - - 2,558 - -------- -------- --------- --------- 94,262 67,529 183,062 122,943 -------- -------- --------- --------- COSTS AND EXPENSES: Contract drilling 43,617 37,270 92,727 71,040 Depreciation 8,329 6,207 16,344 12,597 General and administrative 4,851 4,605 12,042 10,598 Gain on sale of equipment (137) - (184) (9,275) -------- -------- --------- --------- 56,660 48,082 120,929 84,960 -------- -------- --------- --------- OPERATING INCOME 37,602 19,447 62,133 37,983 -------- -------- --------- --------- OTHER INCOME (EXPENSE) Interest expense, net of capitalized interest (388) (1,467) (925) (3,207) Interest income 404 338 873 569 -------- -------- --------- --------- 16 (1,129) (52) (2,638) -------- -------- --------- --------- INCOME BEFORE INCOME TAXES 37,618 18,318 62,081 35,345 PROVISION FOR INCOME TAXES 5,861 2,689 9,239 5,193 -------- -------- --------- --------- NET INCOME $ 31,757 $ 15,629 $ 52,842 $ 30,152 ======== ======== ========= ========= EARNINGS PER COMMON SHARE (SEE NOTE 2): Basic $ 1.02 $ 0.51 $ 1.70 $ 0.98 Diluted 1.01 0.50 1.67 0.96 AVERAGE COMMON SHARES OUTSTANDING (SEE NOTE 2): Basic 31,148 30,926 31,104 30,832 Diluted 31,577 31,446 31,595 31,327
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) March 31, September 30, 2007 2006 ----------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 59,749 $ 32,276 Accounts receivable, net of an allowance of 73,157 80,222 $750 at both March 31, 2007 and September 30, 2006, respectively Income tax receivable 3,578 65 Insurance receivable 1,557 550 Inventories of materials and supplies 24,090 22,124 Deferred tax assets 1,466 2,563 Prepaid expenses and other 4,261 9,873 --------- --------- Total Current Assets 167,858 147,673 --------- --------- NET PROPERTY AND EQUIPMENT 461,687 436,166 --------- --------- DEFERRED COSTS AND OTHER ASSETS 9,846 9,990 --------- --------- $ 639,391 $ 593,829 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of notes payable $ 36,000 $ 36,000 Accounts payable 10,708 11,760 Accrued liabilities 19,929 13,201 Deferred Credits 36 404 --------- --------- Total Current Liabilities 66,673 61,365 --------- --------- LONG-TERM DEBT, net of current maturities: - 28,000 --------- --------- - 28,000 --------- --------- OTHER LONG TERM LIABILITIES: Deferred income taxes 17,438 18,591 Deferred credits 31,472 23,284 Other 2,974 3,695 --------- --------- 51,884 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 31,232 and 31,046 issued and outstanding at March 31, 2007 and September 30, 2006, respectively 31,232 31,046 Paid-in capital 124,828 115,916 Retained earnings 364,774 311,932 --------- --------- Total Shareholders' Equity 520,834 458,894 --------- --------- $ 639,391 $ 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) Six Months Ended March 31, ----------------------------------- 2007 2006 ---------------- ------------- CASH FLOW FROM OPERATING ACTIVITIES: Net Income $52,842 $30,152 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation 16,344 12,597 Amortization of debt issuance costs 402 402 Amortization of deferred items (20,408) 9,311 Provision for doubtful accounts 113 196 Deferred income tax expense (benefit) (558) 310 Stock-based compensation expense 2,494 2,275 Tax benefit from the exercise of stock options - (620) Gain on sale of equipment (184) (9,275) Changes in assets and liabilities: Decrease (increase) in accounts receivable 6,952 (17,432) Increase in insurance receivable (1,007) - Decrease (increase) in income tax receivable (3,513) 2,168 Increase in inventory (1,966) (3,367) Decrease in prepaid expenses and other 4,677 691 Increase in deferred costs and other assets (3,143) (3,967) Increase (decrease) in accounts payable (1,052) 463 Increase in accrued liabilities 6,728 9,252 Increase in deferred credits and other liabilities 31,327 1,191 Other increases (11) 4 -------- ------- Net cash provided by operating activities 90,037 34,351 ------- ------- CASH FLOW FROM INVESTING ACTIVITIES: Capital expenditures (42,109) (43,516) Proceeds from sale of equipment 439 25,177 ------ ------- Net cash used by investing activities (41,670) (18,339) ------- ------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 2,880 5,466 Tax benefit from the exercise of stock options 4,226 620 Principal payments on debt (28,000) (18,000) ------- ------- Net cash used by financing activities (20,894) (11,914) ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 27,473 4,098 CASH AND CASH EQUIVALENTS, at beginning of period $32,276 $18,982 ------- ------- CASH AND CASH EQUIVALENTS, at end of period $59,749 $23,080 ======= ======= - -----------------------------
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 - - - 52,842 52,842 Restricted stock awards 6 6 (6) - - Exercise of employee stock options 180 180 2,700 - 2,880 Stock option and restricted stock award compensation expense - - 2,494 - 2,494 Tax benefit from exercise of employee stock options - - 3,724 - 3,724 ------ ------- -------- -------- -------- March 31, 2007 31,232 $31,232 $124,828 $364,774 $520,834 ====== ======= ======== ======== ========
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 March 31, 2007 and for each of the three and six month periods ended March 31, 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 (consisting of normal recurring 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 March 31, 2007, unrecognized compensation cost, net of estimated forfeitures, related to stock options and restricted stock awards was approximately $5.2 million and $5.3 million, respectively, which we expect to recognize over a weighted average period of approximately 2.5 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 Six Months Ended ------------------ ---------------- March 31, 2007: Increase in contract drilling expenses $ 331 $ 591 Increase in general and administrative expenses 950 1,903 Decrease in income tax provision (333) (666) ----- ------ Decrease of net income $ 949 $1,828 ===== ====== Decrease in earnings per share: Basic $0.03 $ 0.06 Diluted $0.03 $ 0.06 March 31, 2006: Increase in contract drilling expenses $ 150 $ 300 Increase in general and administrative expenses 1,325 1,975 Decrease in income tax provision (464) (691) ------ ------ Decrease of net income $1,011 $1,584 ====== ====== Decrease in earnings per share: Basic $0.03 $0.05 Diluted $0.03 $0.05
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 six months ended March 31, 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 six months ended March 31, 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 six months ended March 31, 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 (177) $ 16.11 $ 6,492 Forfeited (10) $ 28.35 ----- Outstanding at March 31, 2007 1,329 $ 21.77 6.4 $ 49,067 ===== Exercisable at March 31, 2007 917 $ 17.74 5.5 $ 37,557 =====
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 vest 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 six months ended March 31, 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 (6) $ 46.92 Forfeited (1) $ 49.97 ---- ------- Unvested at March 31, 2007 164 $ 43.36 ==== ======= 9 3. EARNINGS (LOSS) PER COMMON SHARE The computation of basic and diluted earnings (loss) per share is as follows (in thousands, except per share amounts): Three Months Ended Six Months Ended --------------------------------- ----------------------------------- Net Per Share Net Per Share Income Shares Amount Income Shares Amount ------- -------- --------- -------- ------ ---------- March 31, 2007: Basic earnings per share $ 31,757 31,148 $ 1.02 $ 52,842 31,104 $ 1.70 Effect of dilutive securities: Stock options options --- 429 $ (0.01) --- 491 $ (0.03) ------ ------ ------- -------- ------ ------- Diluted earnings per share $ 31,757 31,577 $ 1.01 $ 52,842 31,595 $ 1.67 ======== ====== ======= ======== ====== ======= March 31, 2006: Basic earnings per share $ 15,629 30,926 $ 0.51 $ 30,152 30,832 $ 0.98 Effect of dilutive securities: Stock options options --- 520 $ (0.01) --- 495 $ (0.02) -------- ------ ------- -------- ------ ------- Diluted earnings per share $ 15,629 31,446 $ 0.50 $ 30,152 31,327 $ 0.96 ======== ====== ======= ======== ====== =======
The calculation of diluted earnings per share for the three and six month periods ending March 31, 2007 excludes consideration of shares of common stock related to 203,000 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): March 31, September 30, 2007 2006 ---------- ------------ Drilling vessels and related equipment Cost $ 731,669 $ 691,289 Accumulated depreciation (277,106) (261,682) --------- --------- Net book value 454,563 429,607 --------- --------- Drill pipe Cost 14,065 13,271 Accumulated depreciation (8,940) (8,257) --------- --------- Net book value 5,125 5,014 --------- --------- Furniture and other Cost 8,407 7,920 Accumulated depreciation (6,408) (6,375) --------- --------- Net book value 1,999 1,545 --------- --------- NET PROPERTY AND EQUIPMENT $ 461,687 $ 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. Approximately $0.6 million of capitalized costs and $1.0 million of other costs were incurred for the leg installation during the prior quarter. In addition, $2.6 million of revenue recognized from the loss of hire coverage during the quarter ended December 31, 2006 was subsequently collected during the current quarter and is reflected as business interruption proceeds in our Consolidated Statement of Operations. We expect to collect the remaining insurance receivable during the next quarter. 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 $9.3 million. We had no operations or revenues associated with these assets prior to their sale. 11 5. INCOME TAXES Virtually all of our tax provision for each of the three and six months ended March 31, 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 six months ended March 31, 2007 and 2006, our effective tax rate for these periods is significantly less than the United States federal statutory rate. 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 will be evaluating the impact of the adoption of FIN 48 on our consolidated financial position. 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 year 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. 12 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 March 31, 2007 includes statements about Atwood Oceanics, Inc. (which together with its subsidiaries is identified as the "Company," "we" or "our," unless the context requires otherwise) which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) which are forward-looking statements. In addition, we and our representatives may from to time to time make other oral or written statements which are also forward-looking statements. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us, 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; 13 - the termination or renegotiation of contracts by customers; - the availability of adequate insurance at a reasonable cost; - the occurrence of an uninsured loss; - the risks of international operations, including possible economic, political, social or monetary instability, and compliance with foreign laws; - the effect public health concerns could have on our international operations and financial results; - compliance with or breach of environmental laws; - the incurrence of secured debt or additional unsecured indebtedness or other obligations by us or our subsidiaries; - the adequacy of sources of liquidity; - currently unknown rig repair needs and/or additional opportunities to accelerate planned maintenance expenditures due to presently unanticipated rig downtime; - higher than anticipated accruals for performance-based compensation due to better than anticipated performance by us, higher than anticipated severance expenses due to unanticipated employee terminations, higher than anticipated legal and accounting fees due to unanticipated financing or other corporate transactions and other factors that could increase general and administrative expenses; - the actions of our competitors in the 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 14 - 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. . 15 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 75% and 30%, respectively. A comparison of the average per day revenues for fiscal year 2006 and for the first six 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 $156,000 $405,000 160% ATWOOD HUNTER 172,000 213,000 245,000 15% ATWOOD FALCON 83,000 116,000 200,000 72% ATWOOD SOUTHERN CROSS 82,000 129,000 325,000 152% ATWOOD BEACON 88,000 105,000 133,500 29% VICKSBURG 82,000 93,000 154,000 66% SEAHAWK 32,000 87,000 68,400(2) (2)--- RICHMOND 55,000 81,000 80,000 ---
(1) Includes dayrate and service revenues (2) Does not include amortized deferred fees of approximately $19,000 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 April/May 2008. The ATWOOD FALCON has contractual commitments offshore Malaysia with Sarawak Shell Berhad that extend to July 2009, with an operating dayrate of $113,000 until July 2007, then increasing to $160,000 to $200,000 per day for two years thereafter. The ATWOOD SOUTHERN CROSS currently has contractual commitments in the Black Sea with dayrates ranging from $125,000 to $325,000. 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 $94,500 to June 2007 and $154,000 for two years thereafter. The SEAHAWK has a contract commitment offshore Equatorial Guinea which extends to September 2008 at a dayrate of approximately $68,400 plus amortized deferred fees of approximately $20,000 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. The Australian management contract, which provided an income of approximately $5,000 per day during the first six months of fiscal year 2007, is expected to terminate in May 2007. 16 Our contract drilling costs increased 31% for the first six 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 First Second 2006 Compared to Fiscal Quarter Quarter of Second Quarter Year of Fiscal Fiscal Fiscal Year 2007 2006 Year 2007 Year 2007 -------------- ------------ --------------- -------------------- ATWOOD EAGLE $74,000 $86,000 $94,000 27% ATWOOD HUNTER 51,000 65,000 65,000 27% ATWOOD FALCON 45,000 95,000(1) 50,000 11% ATWOOD SOUTHERN CROSS 66,000(2) 57,000 48,000 (27%) ATWOOD BEACON 29,000 44,000 39,000 34% VICKSBURG 33,000 41,000 33,000 --- SEAHAWK 23,000 74,000(3) 77,000(3) 235% RICHMOND 28,000 33,000 38,000 36% OTHER 17,000 12,000 26,000 53%
(1) Daily 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 due to $8.6 million of mobilization expense amortization during the fiscal year 2006 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 and was upgraded and relocated to West Africa during the second half of fiscal year 2006 which also contributed to the rig incurring low operating costs during fiscal year 2005. Daily operating costs for fiscal year 2007 also include amortized deferred costs of approximately $15,000 per day. Thus far, fiscal year 2007 factors impacting operating cost increases, are as follows: (1) end of calendar year bonuses paid to rig shorebase 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) and (SEAHAWK in West Africa); costs associated with maintenance during shipyard periods (ATWOOD FALCON and ATWOOD BEACON); higher than normal maintenance costs incurred on the ATWOOD HUNTER during the fourteen zero rate days in December 2006 when the rig was undergoing required regulatory inspections and 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 could be off dayrate for ten to fourteen days during the last quarter of fiscal year 2007. The ATWOOD EAGLE could incur ten to fourteen zero rate days during the first or second quarter of fiscal year 2008, while the ATWOOD HUNTER could incur five to ten 17 zero rate days during the fourth quarter of fiscal year 2007. The ATWOOD SOUTHERN CROSS could incur five to ten zero rate days during the last quarter of fiscal year 2007; while the RICHMOND could incur fourteen to twenty-one zero rate days during the first quarter of fiscal year 2008. In addition to our planned downtime, we would also expect to incur some unplanned downtime for maintenance and repairs. Historically, approximately 1% to 1 1/2% of zero rate downtime days has been experienced. 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 be at higher levels. We currently estimate that daily operating costs for our eight operating units could range as follows: ATWOOD EAGLE $95,000 to $105,000 ATWOOD HUNTER $65,000 to $75,000 ATWOOD FALCON $50,000 to $60,000 ATWOOD SOUTHERN CROSS $50,000 to $60,000 SEAHAWK $65,000 to $75,000* ATWOOD BEACON $35,000 to $45,000 VICKSBURG $35,000 to $45,000 RICHMOND $35,000 to $45,000 *Includes amortized deferred costs of approximately $15,000 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 to occur 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 primarily from expected operating cash flows and cash on hand balances; however, if and when necessary, the $100 million revolving portion of our credit facility may provide some funding for the new rig. As of May 8, 2007, we have no outstanding borrowing under the $100 million revolving credit portion of our 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 year 2007 and 2008 will reflect significant improvement over fiscal year 2006 operating results. 18 RESULTS OF OPERATIONS Revenues for the three and six months ended March 31, 2007 increased 40% and 49%, respectively, compared to the three and six months ended March 31, 2006. A comparative analysis of revenues is as follows: REVENUES (In millions) --------------------------------------------------------------------------- Three Months Ended March 31, Six Months Ended March 31, ------------------------------------ ------------------------------------ 2007 2006 Variance 2007 2006 Variance ----------- --------- ----------- ------------ --------- ---------- ATWOOD HUNTER $ 21.0 $ 12.1 $ 8.9 $ 38.7 $ 22.4 $ 16.3 ATWOOD FALCON 12.1 6.6 5.5 21.0 13.4 7.6 SEAHAWK 7.8 2.9 4.9 15.9 7.5 8.4 ATWOOD BEACON 10.3 7.1 3.2 19.1 13.0 6.1 RICHMOND 7.2 4.1 3.1 14.7 8.1 6.6 ATWOOD SOUTHERN CROSS 12.0 10.7 1.3 23.4 16.7 6.7 VICKSBURG 8.5 7.8 0.7 17.0 14.5 2.5 ATWOOD EAGLE 13.6 13.4 0.2 28.4 21.4 7.0 AUSTRALIA MANAGEMENT CONTRACTS 1.8 2.8 (1.0) 4.9 5.9 (1.0) ------ ------ ------- ------ ------ ------ $ 94.3 $ 67.5 $ 26.8 $183.1 $122.9 $ 60.2 ====== ====== ======= ====== ====== ======
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 compared to the first quarter of the prior fiscal year. Revenue for the AUSTRALIA MANAGEMENT CONTRACTS was lower for the three and six month periods ended March 31, 2007 when compared to the prior fiscal year periods due to decreased activity during the current quarter as the most recent drilling program was completed at the end of the first quarter of fiscal year 2007. 19 Contract drilling costs for the three and six months ended March 31, 2007 increased 17% and 31%, respectively compared to the three and six months ended March 31, 2006. An analysis of contract drilling costs by rig is as follows: CONTRACT DRILLING COSTS (In millions) -------------------------------------------------------------------------- Three Months Ended March 31, Six Months Ended March 31, ------------------------------------ ----------------------------------- 2007 2006 Variance 2007 2006 Variance ----------- --------- ----------- ----------- --------- ----------- SEAHAWK $ 6.9 $ 1.7 $ 5.2 $ 13.7 $ 4.1 $ 9.6 ATWOOD EAGLE 8.5 6.2 2.3 16.4 12.2 4.2 ATWOOD HUNTER 5.8 3.9 1.9 11.8 7.7 4.1 ATWOOD FALCON 4.6 3.5 1.1 13.3 7.2 6.1 RICHMOND 3.4 2.5 0.9 6.4 4.9 1.5 ATWOOD BEACON 3.5 2.8 0.7 7.6 5.1 2.5 VICKSBURG 2.9 2.5 0.4 6.6 6.0 0.6 AUSTRALIA MANAGEMENT CONTRACTS 1.4 2.4 (1.0) 3.9 5.2 (1.3) ATWOOD SOUTHERN CROSS 4.3 10.6 (6.3) 9.6 16.1 (6.5) OTHER 2.3 1.2 1.1 3.4 2.5 0.9 ------ ------ ------ ------ ------ ------ $ 43.6 $ 37.3 $ 6.3 $ 92.7 $ 71.0 $ 21.7 ====== ====== ====== ====== ====== ======
On a fleetwide basis, wage increases and extra personnel for development or training have resulted in higher personnel costs during the three and six months ended March 31, 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 $1.4 million and $2.7 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. 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 the both quarters of fiscal year 2007 due to the amount and timing of certain maintenance projects when compared to the same periods in the prior fiscal year. 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. 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, 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. Drilling costs for the ATWOOD SOUTHERN CROSS have decreased primarily due to $6.0 million of mobilization expense amortization during the second quarter of the prior fiscal year compared to none during the current quarter. Other drilling costs have also increased due to rising personnel costs. 20 Depreciation expense for the three and six months ended March 31, 2007 increased 34% and 29% compared to the three months ended March 31, 2006. An analysis of depreciation expense by rig is as follows: DEPRECIATION EXPENSE (In millions) --------------------------------------------------------------------- Three Months Ended March 31, Six Months Ended March 31, ---------------------------------- -------------------------------- 2007 2006 Variance 2007 2006 Variance ------- ------- --------- ------- ------ -------- SEAHAWK $ 1.6 $ 0.1 $ 1.5 $ 3.0 $ 0.3 $ 2.7 ATWOOD FALCON 1.1 0.7 0.4 2.0 1.4 0.6 ATWOOD SOUTHERN CROSS 0.8 0.6 0.2 1.6 1.3 0.3 ATWOOD HUNTER 1.4 1.3 0.1 2.9 2.7 0.2 ATWOOD BEACON 1.3 1.3 - 2.5 2.7 (0.2) VICKSBURG 0.7 0.7 - 1.4 1.4 - ATWOOD EAGLE 1.1 1.2 (0.1) 2.3 2.3 - RICHMOND 0.2 0.3 (0.1) 0.5 0.5 - OTHER 0.1 0.0 0.1 0.1 0.0 0.1 ----- ----- ------ ------ ------ ------ $ 8.3 $ 6.2 $ 2.1 $ 16.3 $ 12.6 $ 3.7 ===== ===== ====== ====== ====== ======
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 have 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 first and second quarter fiscal year 2007 levels. General and administrative expenses for the six months ended March 31, 2007 increased compared to the prior fiscal year period primarily due to an approximate $0.7 million increase in annual bonus compensation. 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 $0.8 million and $1.6 million of capitalized interest charges related to the construction of the ATWOOD AURORA during the three and six months ended March 31, 2007, respectively. Year-to-date interest income has increased when compared to the prior fiscal year due to higher interest rates earned on higher cash balances. Virtually all of our tax provision for each of the three and six months ended March 31, 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 six months ended March 31, 2007 and 2006, our effective tax rate for these periods is significantly less than the United States federal statutory rate. Excluding any discrete items that may be incurred, we expect our effective tax rate to be between 13% and 16% for the entire fiscal year 2007. 21 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 six months ended March 31, 2007, net cash provided by operating activities totaled approximately $90.0 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 75% committed for fiscal year 2008, at historically high dayrates, we anticipate significant increases in cash flows and earnings during fiscal years 2007 and 2008. Other than our expected capital expenditures of approximately $115 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 March 31, 2007, we had $36 million outstanding under the term portion of our credit facility and no funds borrowed under the $100 million revolving portion of our credit facility. We are in compliance with all financial covenants under our credit facility at March 31, 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 the credit facility that could result in acceleration of the April 1, 2008 maturity date. At March 31, 2007, the collateral for our credit facility consists primarily of preferred mortgages on all eight of our active drilling units (with an aggregate net book value at March 31, 2007 totaling approximately $393 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 credit facility and certain other administrative costs. During the first six months of fiscal year 2007, we used internally generated cash to expend approximately $27 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 $6 million in other capital expenditures. We had cash and cash equivalents on hand at March 31, 2007 of approximately $60 million. We estimate that our total capital expenditures for the second half of fiscal year 2007 will be approximately $75 million, with approximately $60 million of these estimated expenditures relating 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; however, we have an approximate $0.8 million allowance for doubtful accounts at March 31, 2007. 22 Insurance receivables increased by $1.0 million at March 31, 2007 compared to September 30, 2006 due to the completion in the first quarter of fiscal year 2007 of the work to restore the ATWOOD BEACON to its original condition prior to the July 2004 incident when the legs were damaged. We had insurance coverage to reimburse the costs of repairs and loss of hire coverage of $70,000 per day. Approximately $0.6 million of capitalized costs and $1.0 million of other costs were incurred for the leg installation during the prior quarter. In addition, $2.6 million of revenue recognized from the loss of hire coverage during the prior quarter was subsequently collected during the current quarter and is reflected as business interruption proceeds in our Consolidated Statement of Operations. We expect to collect the remaining insurance receivable during the next quarter. Long-term deferred credits have increased by approximately $8 million at March 31, 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. 23 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 the $36 million of long-term debt outstanding at March 31, 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 March 31, 2007. The impact on annual cash flow of a 10% change in the floating rate (approximately 70 basis points) would be approximately $0.3 million, which we believe to be immaterial. We did not have any open derivative contracts relating to our floating rate debt at March 31, 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 March 31, 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 March 31, 2007. 24 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. 25 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our annual meeting of shareholders was held on February 8, 2007, at which the shareholders voted on the election of seven director nominees, all of whom were incumbent directors and who were elected or re-elected. In addition to voting on election of seven director nominees, the shareholders voted on a proposal to adopt the Atwood Oceanics, Inc. 2007 Long-Term Incentive Plan (the "2007 Plan") which was approved by shareholders. No other matters were presented for a vote at the annual meeting. Of the 29,436,586 shares of common stock present in person or by proxy, the number of shares voted for or against in connection with the election of each director and the three proposals are as follows: ELECTION OF DIRECTORS NAME CAST FOR VOTES WITHHELD - ----------------- ---------- -------------- Deborah A. Beck 28,886,786 549,800 Robert W. Burgess 28,886,556 550,030 George S. Dotson 28,880,521 556,065 Hans Helmerich 28,887,156 549,430 John R. Irwin 28,968,928 467,658 James R. Montague 29,048,288 388,298 William J. Morrissey 27,337,594 2,098,992 PROPOSAL TO ADOPT THE 2007 PLAN VOTES FOR VOTES AGAINST VOTES WITHHELD - --------- ------------- -------------- 24,547,271 2,147,738 2,741,577 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). 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 and 3.2 for provisions of our Amended and Restated Certificate of Formation and Second Amended and Restated By-Laws defining the rights of our shareholders (Incorporated herein by reference to Exhibit 3.1 of our Form 8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q filed May 10, 2006). 10.1 Atwood Oceanics, Inc. Long-Term Incentive Plan (Incorporated herein by reference to Appendix B to our DEF 14A filed January 9, 2007). *10.1.1 Form of Atwood Oceanics, Inc. Stock Option Agreement - 2007 Long-Term Incentive Plan. *10.1.2 Form of Restricted Stock Award Agreement - 2007 Long-Term Incentive Plan. *10.1.3 Form of Non-Employee Director Restricted Stock Award Agreement - 2007 Long-Term Incentive Plan. *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: May 9, 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). 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 and 3.2 for provisions of our Amended and Restated Certificate of Formation and Second Amended and Restated By-Laws defining the rights of our shareholders (Incorporated herein by reference to Exhibit 3.1 of our Form 8-K filed February 14, 2006 and Exhibit 3.2 of our Form 10-Q filed May 10, 2006). 10.1 Atwood Oceanics, Inc. 2007 Long-Term Incentive Plan (Incorporated herein by reference to Appendix B to our DEF 14A filed January 9, 2007). *10.1.1 Form of Atwood Oceanics, Inc. Stock Option Agreement - 2007 Long-Term Incentive Plan. *10.1.2 Form of Restricted Stock Award Agreement - 2007 Long-Term Incentive Plan. *10.1.3 Form of Non-Employee Director Restricted Stock Award Agreement - 2007 Long-Term Incentive Plan. *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 EX-31 2 exh311.txt EXHIBIT 31.1 CERTIFICATIONS I, John R. Irwin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 9, 2007 /s/ JOHN R. IRWIN John R. Irwin Chief Executive Officer EX-31 3 exh312.txt EXHIBIT 31.2 CERTIFICATIONS I, James M. Holland, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Atwood Oceanics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 9, 2007 /s/ JAMES M. HOLLAND James M. Holland Chief Financial Officer EX-32 4 exh321.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Irwin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. Date: May 9, 2007 /s/ JOHN R. IRWIN John R. Irwin President and Chief Executive Officer EX-32 5 exh322.txt EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Atwood Oceanics, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Holland, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. Date: May 9, 2007 /s/JAMES M. HOLLAND James M. Holland Senior Vice President and Chief Financial Officer EX-10 6 exh1011.txt EXHIBIT 10.1.1 FORM OF STOCK OPTION AGREEMENT 2007 LONG-TERM INCENTIVE PLAN This is an Agreement dated the ______ day of ______________ 200__, between ATWOOD OCEANICS, INC., (the "Company") and ________________________ ("Option Holder"). Recitals: The Company has adopted its 2007 Long-Term Incentive Plan (as amended, restated, or otherwise modified from time to time, the "Plan") for the granting to Participants (as defined in the Plan) of options to purchase shares of the Common Stock of the Company. Pursuant to said Plan, the Compensation Committee of the Company's Board of Directors has approved and ratified the execution of this Stock Option Agreement between the Company and the Option Holder. Agreement: 1. The Company grants to the Option Holder the right and option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of __________ shares of the Common Stock, $1.00 par value, of the Company at the option price of $_______ per share (the "Options"), exercisable from time to time, subject to the provisions of this Agreement, during a period commencing at the end of the first year following the date of this Agreement (the "Anniversary Date") and expiring at the close of business ten (10) years from the date of this Agreement (the "Expiration Date"). 2. To the extent such rights shall not have been exercised and to the extent the Options were exercisable at the time of any termination on or after the Option Holder's "Retirement Date" as such term is defined in the Atwood Oceanics, Inc. Employees' Retirement Plan (or its successor) ("Retirement"), death of the Option Holder or the Option Holder's Disability(as defined as defined in Section 22(e) of the Internal Revenue Code of 1986, as amended), the Option Holder (or his or her personal representative in the case of death) shall be entitled to exercise all or any part of any vested but unexercised Options during the remaining term of such Options. If an Option Holder's employment with the Company, its subsidiaries or affiliates (collectively, the "Company Group") terminates for any other reason besides Retirement, death or Disability, the Option Holder shall be entitled to exercise all or any part of any vested but unexercised Options for a period of up to three months from such date of termination. It is understood and agreed that neither the grant of this Option nor the execution of this Agreement shall create any right of the Option Holder to remain in the employ of the Company Group, and that the Company Group retains the right to terminate such employment at will, for due cause or otherwise. 3. These Options are non-exercisable during the first (1) year during which the Agreement is in effect. Thereafter, these Options are exercisable at the times and for the percentage of shares herein granted as follows: (i) On or After the First Anniversary Date: _________________ - 25% (ii) On or After the Second Anniversary Date: _________________ - 25% (iii) On or After the Third Anniversary Date: _________________ - 25% (iv) On or After the Fourth Anniversary Date: _________________ - 25% Provided, however, that the Options are cumulative, so that any shares not purchased pursuant to exercise of vested Options within any one of the periods above specified may be purchased thereafter in a subsequent period, in whole or in part, until the expiration or termination of the Options. 4. The Option Holder shall give written notice of the exercise of one or more Options to the Secretary of the Company at its office in Houston, Texas, specifying the number of shares to be purchased and accompanied by payment in cash or by certified or cashier's check payable to the order of the Company of the full purchase price of the shares to be purchased. Payment may also be made by delivery to the Company of an executed irrevocable Option exercise form together with irrevocable instructions to a broker dealer to sell a sufficient portion of the shares and deliver the sale proceeds to the Company in satisfaction of the exercise price. Payments may also be made in Common Stock of the Company or a combination of cash and Common Stock of the Company, as specified in the Plan. 5. In no event may the Options granted hereby be exercised to any extent after the Expiration Date. The employment of the Option Holder shall be deemed to continue during any leave of absence, which has been authorized by the Company Group, provided that no exercise of Options may take place during any such authorized leave of absence except during the first three months thereof. 6. No shares of Common Stock issuable upon the exercise of the Options shall be issued and delivered unless and until all applicable requirements of law and the Securities and Exchange Commission pertaining to the issuance and sale of such shares, and all applicable listing requirements of any national securities exchange on which shares of the same class are then listed, shall have been complied with. 7. The Options granted hereby may be transferred by the Option Holder to, (i) the ex-spouse of the Option Holder pursuant to the terms of domestic relations order, (ii) the spouse, children or grandchildren of the Option Holder, (iii) a trust or trusts for the exclusive benefit of the spouse, children or grandchildren of the Option Holder, or (iv) a partnership in which spouse, children or grandchildren of the Option Holder are the only partners; provided in each case that there may be no consideration for any such transfer and subsequent transfers or transferred Options shall be prohibited except those made in accordance with this section or by will or by the laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The provisions with respect to termination of employment set forth in Section 2 of this Agreement shall continue to apply with respect to the original Option Holder, in which event the Options shall be exercisable by the transferee only to the extent and for the periods specified herein. The original Option Holder will remain subject to withholding taxes upon exercise of any such Options by the transferee. The Company shall have no obligation whatsoever to provide notice to any transferee of any matter, including without limitation, early termination of an Option on account of termination of employment with the Company Group of the original Option Holder. Except as set forth above, no Option shall be transferable by the Option Holder otherwise than by the will or by laws of descent and distribution, and all Options shall be exercisable, during the Option Holder's lifetime only by the Option Holder. At the request of the Option Holder, Common Stock purchased upon exercise of an Option may be issued or transferred into the name of the Option Holder and another person jointly with rights of survivorship. 8. If the outstanding shares of the Common Stock of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment to the type, number, and the exercise price of the securities to be issued upon exercise of the Options (to be conclusively determined by the Board of Directors of the Company) shall be made to the Options governed by this Agreement. 9. Subject to the provisions of the Plan, in the event of a Change of Control (as defined in the Plan) all Options granted hereby will become automatically fully vested and immediately exercisable. 10. Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other Option Holder welfare plan or program of the Company Group. 11. Neither the Option Holder nor any other person legally entitled to exercise these Options shall be entitled to any of the rights or privileges of a shareholder of the Company in respect of any shares issuable upon any exercise of these Options unless and until a certificate or certificates representing such shares shall have been actually issued and delivered to him or her. 12. The Options hereby granted are subject to, and the Company and Option Holder agree to be bound by, all of the terms and conditions of the Plan, except that no amendment to the Plan shall adversely affect the Option Holder's rights under this Agreement. A copy of the Plan in its present form is available for inspection during business hours by the Option Holder or other persons entitled to exercise these Options at the Company's principal office. 13. Upon an exercise of the Options hereby granted, the Company Group may be required to withhold federal or local tax with respect to the realization of compensation. The Company Group is hereby authorized to satisfy any such withholding requirement out of (i) any cash distributable upon exercise and (ii) any other cash compensation then or thereafter payable to the Option Holder. To the extent that the Company Group in its sole discretion determines that such sources are or may be insufficient to fully satisfy such withholding requirement, Option Holder, as a condition to the exercise of the Options, shall deliver to the Company, on behalf of the Company Group, cash in an amount determined by the Company Group to be sufficient to satisfy any such withholding requirement. 14. These Options has been granted, executed and delivered the day and year first above written at Houston, Texas, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Texas, without regard to conflicts of laws. ATWOOD OCEANICS, INC. By___________________________________ ------------------------------------- Option Holder EX-10 7 exh1012.txt M EXHIBIT 10.1.2 FORM OF RESTRICTED STOCK AWARD AGREEMENT 2007 LONG-TERM INCENTIVE PLAN This is an Agreement dated the ______ day of ______________ 200__, between ATWOOD OCEANICS, INC., (the "Company") and ________________________ ("Restricted Stock Award Recipient "). Recitals: The Company has adopted its 2007 Long-Term Incentive Plan (as amended, restated, or otherwise modified from time to time, the "Plan") for the awarding to Participants (as defined in the Plan) shares of Common Stock of the Company as restricted stock. Pursuant to said Plan, the Compensation Committee of the Company's Board of Directors has approved and ratified the execution of this Restricted Stock Award Agreement between the Company and the Restricted Stock Award Recipient. It is understood and agreed that neither the award of restricted stock nor the execution of this Agreement shall create any right of the Recipient to remain in the employ of the Company, and that the Company retains the right to terminate such employment at will, for due cause or otherwise. Agreement: 1. The Company awards to the Restricted Stock Award Recipient ______shares of restricted Common Stock, $1.00 per value, of the Company (the "Restricted Stock"). The Restricted Stock has a restriction period of ________ years (the "Restriction Period"). [Vesting of the Restricted Stock will only occur if the Restricted Stock Award Recipient remains in the employment of the Company, its subsidiary or affiliate (collectively, the "Company Group for the prescribed Restriction Period.] At the end of the Restriction Period, the restriction imposed by the Compensation Committee shall lapse with respect to the Restricted Stock covered by this Agreement. 2. The holder of Restricted Stock may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the Restricted Stock during the applicable Restriction Period. 3. During any Restriction Period, if any dividends or other distributions are paid in shares of Common Stock, the Restricted Stock Award Recipient shall receive such dividends, but all such shares of Common Stock shall be subject to the same restrictions as the shares of Restricted Stock with respect to which they were paid. 4. The employment of the Restricted Stock Award Recipient, as it relates to the Restriction Period, shall be deemed to continue during any leave of absence, which has been authorized by the Company Group. 5. If the outstanding shares of the Common Stock of the Company are increased, decreased, changed into, or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate adjustment shall be made in the Restricted Stock on the same basis as any other similarly situated shareholder of the Company. 6. Subject to the provisions of the Plan, in the event of a Change of Control (as defined in the Plan), [all Restricted Stock shall vest and] the Restriction Period shall terminate. 7. Nothing herein contained shall affect the right of the Restricted Stock Award Recipient to participate in and receive benefits under and in accordance with the then current provisions of any pension, insurance, profit sharing or other Restricted Stock Award Recipient welfare plan or program of the Company Group. 8. The Restricted Stock Award Recipient shall not be entitled to any of the rights or privileges of a shareholder of the Company in respect of any shares of Common Stock until a certificate or certificates representing such shares shall have been actually issued and delivered to him or her. 9. The Restricted Stock is subject to, and the Company and Restricted Stock Award Recipient agree to be bound by, all of the terms and conditions of the Plan, except that no amendment to the Plan shall adversely affect the Restricted Stock Award Recipient's rights under this Agreement. A copy of the Plan in its present form is available for inspection during business hours by the Restricted Stock Award Recipient at the Company's principal office. 10. Upon lapse of the Restriction Period [and vesting] of the Restricted Stock, the Company Group may be required to withhold federal or local tax with respect to the realization of compensation. Any federal or local tax withholding requirements with respect to the realization of compensation must be fully satisfied by the Restricted Stock Award Recipient upon the lapse of the Restriction Period [and vesting] by delivering to the Company, on behalf of the Company Group, cash in an amount determined by the Company Group to be sufficient to satisfy any such withholding requirement. 11. This Agreement has been executed and delivered the day and year first above written at Houston, Texas, and the interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Texas, without regard to conflicts of laws. ATWOOD OCEANICS, INC. --------------------------------- Restricted Stock Award Recipient EX-10 8 exh1013.txt EXHIBIT 10.1.3 FORM OF NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AWARD AGREEMENT This Agreement is dated the ____ day of ___________, 20__, between ATWOOD OCEANICS, INC., (the "Company") and ___________________ (the "Participant"). Recitals: The Company has adopted an Amended and Restated 2007 Long-Term Incentive Plan (the "Plan") which provides for grants of restricted stock awards of Common Stock to Non-Employee Directors of the Company, and the Participant is a Non-Employee Director of the Company. Pursuant to said Plan, the Compensation Committee has approved and ratified the execution of this Agreement between the Company and the Participant. All capitalized terms not defined herein shall have the meaning set forth in the Plan as in effect on the date hereof. Agreement: 1. The Company hereby awards to the Participant ______shares of restricted Common Stock, equal in value to $__________, the ("Restricted Stock Award"). The number of shares of Common Stock included in the Restricted Stock Award is based upon the Fair Market Value of one share of Common Stock on ___________, 20__ (the "Date of Grant"). 2. The shares of Common Stock included in the Restricted Stock Award are restricted such that ownership of such shares cannot be sold, transferred, pledged, exchanged, hypothecated, or otherwise disposed of until three (3) years from the Date of Grant (the "Restriction Period"). The stock certificates evidencing the shares of Common Stock included in the Restricted Stock Award may be endorsed with a legend to reflect such restrictions. 3. During any Restriction Period, the Participant shall have the rights of a shareholder with respect to the shares of Common Stock included in the Restricted Stock Award, including, but not by way of limitation, the right to vote such shares and to receive dividends and to purchase securities pursuant to that certain Rights Agreement by and between the Company and Continental Stock Transfer & Trust Company (as Rights Agent) dated October 18, 2002, as the same may be amended, modified or supplement from time to time. If any dividends or other distributions are paid in shares of Common Stock, all such shares shall be subject to the same restrictions on transferability as the shares included in the Restricted Stock Award with respect to which they were paid. 4. If the outstanding shares of the Common Stock are changed into, or exchanged for, a different number or kind of shares or securities of the Company (whether by reason of merger, consolidation, recapitalization, reclassification, stock split, spinoff, combination of shares or otherwise), an appropriate and proportionate adjustment (to be conclusively determined by the Board of Directors of the Company) shall be made in the shares of Common Stock included in the Restricted Stock Award. 5. The Restricted Stock Award governed by this Agreement is subject to, and the Company and the Participant agree to be bound by, all of the terms and conditions of the Plan as the same shall be amended from time to time in accordance with the terms thereof, but no such amendment shall adversely affect the Participant's rights under this Agreement or the Restricted Stock Award governed hereby. A copy of the Plan in its present form is available for inspection during business hours by the Participant at the Company's principal office. 6. The value of the Restricted Stock Award is $________, and such amount is additional compensation to each Participant for services rendered to the Company and will be included with all other compensation paid during the year for services performed and reported on Internal Revenue Service Form 1099. Each Participant will be responsible for payment of all income taxes assessable on the Restricted Stock Award. 7. The Restricted Stock Award has been granted, executed and delivered the day and year first above written at Houston, Texas, and the interpretation, performance and enforcement on this Agreement shall be governed by the laws of the State of Texas. ATWOOD OCEANICS, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ PARTICIPANT By: --------------------------------- Name: ------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----