Share-Based Compensation

9 Months Ended

Jun. 30, 2011

Share-Based Compensation

Share-Based Compensation

2. SHARE-BASED COMPENSATION

We account for share-based compensation in accordance with ASC 718. Under ASC 718, share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant). As of June 30, 2011, unrecognized compensation cost, net of estimated forfeitures, related to stock options and restricted stock awards was approximately $5.7 million and $7.9 million, respectively, which we expect to recognize over a weighted average period of approximately 2.5 years.

Awards of restricted stock and stock options have both been granted under the Atwood Oceanics, Inc. Amended and Restated 2007 Long-Term Incentive Plan (as amended or restated from time to time, the "2007 Plan") during the nine months ended June 30, 2011. We no longer issue awards of restricted stock or stock options under either the Atwood Oceanics, Inc. 1996 Incentive Equity Plan (the "1996 Plan") or the Atwood Oceanics, Inc. Amended and Restated 2001 Stock Incentive Plan (the "2001 Plan"), but stock options remain outstanding under those plans. 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 the Company.

Stock Options

Under our stock incentive plans, the exercise price of each stock option must be equal to or greater than the fair market value of one share of our common stock on the date of grant, with all outstanding options having a maximum term of 10 years. Options vest ratably over a period from the end of the first to the fourth year from the date of grant under the option agreements for the 2007 and 2001 Plans and from the end of the second to the fifth year from the date of grant under the option agreements for the 1996 Plan. Each option is for the purchase of one share of our common stock. The per share weighted average fair value of stock options granted during the nine months ended June 30, 2011 was $15.72. We estimated the fair value of these stock options using the Black-Scholes pricing model and the following assumptions for the nine months ended June 30, 2011:

Risk-Free Interest Rate	1.9	%
Expected Volatility	44	%
Expected Life (Years)	5.2
Dividend Yield	None

The average risk-free interest rate is based on the five-year U.S. treasury security rate in effect as of the grant date. We determined expected volatility using a six 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. We have never paid any cash dividends on our common stock.

A summary of stock option activity during the nine months ended June 30, 2011 is as follows:

	Number of Options (000s)			Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Life (Years)		Aggregate Intrinsic Value (000s)
Outstanding at September 30, 2010		1,720		$	21.58		6.0	$	15,260
Granted		290		$	37.41		—	$	—
Exercised		(306	)	$	14.63		—	$	7,881
Forfeited		(121	)	$	31.61		—	$	—
Outstanding at June 30, 2011		1,583		$	25.06		6.2	$	30,197
Exercisable at June 30, 2011		1,055		$	20.62		4.9	$	24,810

Restricted Stock

We have also awarded restricted stock under the 2007 Plan to certain employees and to our non-employee directors. All current awards of restricted stock to employees are subject to a vesting and restriction period ranging from three to four years, subject to early termination as provided in the 2007 Plan. All awards of restricted stock to non-employee directors are subject to a vesting and restriction period of a minimum of thirteen months, subject to early termination as provided in the 2007 Plan. 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, 2011 is as follows:

	Number of Shares (000s)			Wtd. Avg. Fair Value
Unvested at September 30, 2010		624		$	34.27
Granted		168		$	37.68
Vested		(102	)	$	39.58
Forfeited		(111	)	$	32.92
Unvested at June 30, 2011		579		$	34.58