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,
2008
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission
File Number: 1-4221
HELMERICH &
PAYNE, INC.
(Exact name of
registrant as specified in its charter)
Delaware
|
|
73-0679879
|
(State or other
jurisdiction of
|
|
(I.R.S. Employer I.D.
Number)
|
incorporation or
organization)
|
|
|
1437 South Boulder Avenue, Tulsa, Oklahoma, 74119
(Address of principal
executive office)(Zip Code)
(918) 742-5531
(Registrants telephone
number, including area code)
N/A
(Former name, former address and former fiscal
year,
if changed since last
report)
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 (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a small reporting company. See the
definitions of large accelerated filer, accelerated filer and small
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
|
|
Accelerated filer
o
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
x
CLASS
|
|
OUTSTANDING AT April 30,
2008
|
|
Common Stock,
$0.10 par value
|
|
104,328,568
|
|
|
|
|
|
|
|
Total
Number of Pages - 33
|
|
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
TABLE OF
CONTENTS
2
PART I.
FINANCIAL INFORMATION
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
ITEM 1. FINANCIAL STATEMENTS
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
90,736
|
|
$
|
89,215
|
|
Accounts
receivable, less reserve of $3,641 at March 31, 2008 and $2,957 at
September 30, 2007
|
|
361,253
|
|
339,819
|
|
Inventories
|
|
33,499
|
|
29,145
|
|
Deferred income
tax
|
|
17,534
|
|
11,559
|
|
Prepaid expenses
and other
|
|
40,963
|
|
29,226
|
|
Total current
assets
|
|
543,985
|
|
498,964
|
|
|
|
|
|
|
|
Investments
|
|
205,660
|
|
223,360
|
|
Property, plant
and equipment, net
|
|
2,395,862
|
|
2,152,616
|
|
Other assets
|
|
10,611
|
|
10,429
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,156,118
|
|
$
|
2,885,369
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
110,865
|
|
$
|
124,556
|
|
Accrued
liabilities
|
|
100,131
|
|
102,056
|
|
Total current
liabilities
|
|
210,996
|
|
226,612
|
|
|
|
|
|
|
|
Noncurrent
liabilities:
|
|
|
|
|
|
Long-term notes
payable
|
|
480,000
|
|
445,000
|
|
Deferred income
taxes
|
|
404,534
|
|
363,534
|
|
Other
|
|
46,508
|
|
34,707
|
|
Total noncurrent
liabilities
|
|
931,042
|
|
843,241
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
Common stock,
$.10 par value, 160,000,000 shares authorized, 107,057,904 shares issued
|
|
10,706
|
|
10,706
|
|
Preferred stock,
no par value, 1,000,000 shares authorized, no shares issued
|
|
|
|
|
|
Additional
paid-in capital
|
|
152,040
|
|
143,146
|
|
Retained
earnings
|
|
1,841,218
|
|
1,645,766
|
|
Accumulated
other comprehensive income
|
|
58,695
|
|
75,885
|
|
Treasury stock,
at cost
|
|
(48,579
|
)
|
(59,987
|
)
|
Total
shareholders equity
|
|
2,014,080
|
|
1,815,516
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
3,156,118
|
|
$
|
2,885,369
|
|
The accompanying
notes are an integral part of these statements.
3
HELMERICH & PAYNE, INC. AND
SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per
share data)
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues:
|
|
|
|
|
|
|
|
|
|
Drilling U.S.
Land
|
|
$
|
365,263
|
|
$
|
269,145
|
|
$
|
712,907
|
|
$
|
539,045
|
|
Drilling
Offshore
|
|
29,789
|
|
28,703
|
|
57,070
|
|
64,457
|
|
Drilling
International Land
|
|
75,757
|
|
71,950
|
|
154,359
|
|
149,796
|
|
Real Estate
|
|
2,835
|
|
2,738
|
|
5,971
|
|
5,637
|
|
|
|
473,644
|
|
372,536
|
|
930,307
|
|
758,935
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
and other:
|
|
|
|
|
|
|
|
|
|
Operating costs,
excluding depreciation
|
|
253,958
|
|
199,456
|
|
489,753
|
|
398,923
|
|
Depreciation
|
|
51,872
|
|
32,952
|
|
95,856
|
|
63,103
|
|
General and
administrative
|
|
14,090
|
|
13,350
|
|
27,993
|
|
23,963
|
|
Gain from
involuntary conversion of long-lived assets
|
|
|
|
(5,170
|
)
|
(4,810
|
)
|
(5,170
|
)
|
Income from
asset sales
|
|
(1,946
|
)
|
(32,336
|
)
|
(2,788
|
)
|
(32,822
|
)
|
|
|
317,974
|
|
208,252
|
|
606,004
|
|
447,997
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
155,670
|
|
164,284
|
|
324,303
|
|
310,938
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest and
dividend income
|
|
1,220
|
|
1,034
|
|
2,335
|
|
2,278
|
|
Interest expense
|
|
(4,773
|
)
|
(1,913
|
)
|
(9,604
|
)
|
(2,832
|
)
|
Gain on sale of
investment securities
|
|
5,476
|
|
177
|
|
5,606
|
|
26,514
|
|
Other
|
|
180
|
|
66
|
|
(436
|
)
|
130
|
|
|
|
2,103
|
|
(636
|
)
|
(2,099
|
)
|
26,090
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes and equity in income of affiliate
|
|
157,773
|
|
163,648
|
|
322,204
|
|
337,028
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
58,784
|
|
59,338
|
|
118,930
|
|
123,436
|
|
Equity in income
of affiliate net of income taxes
|
|
3,065
|
|
2,551
|
|
6,610
|
|
4,055
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
102,054
|
|
$
|
106,861
|
|
$
|
209,884
|
|
$
|
217,647
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.98
|
|
$
|
1.04
|
|
$
|
2.02
|
|
$
|
2.11
|
|
Diluted
|
|
$
|
.96
|
|
$
|
1.02
|
|
$
|
1.98
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
103,883
|
|
103,239
|
|
103,695
|
|
103,276
|
|
Diluted
|
|
106,090
|
|
104,832
|
|
105,740
|
|
104,841
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$
|
0.0450
|
|
$
|
0.0450
|
|
$
|
0.0900
|
|
$
|
0.0900
|
|
The accompanying
notes are an integral part of these statements.
4
HELMERICH & PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
209,884
|
|
$
|
217,647
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
|
95,856
|
|
63,103
|
|
Provision for
bad debt
|
|
688
|
|
99
|
|
Equity in income
of affiliate before income taxes
|
|
(10,662
|
)
|
(6,540
|
)
|
Stock-based
compensation
|
|
3,712
|
|
3,560
|
|
Gain on sale of
investment securities
|
|
(5,476
|
)
|
(26,376
|
)
|
Gain from
involuntary conversion of long-lived assets
|
|
(4,810
|
)
|
(5,170
|
)
|
Income from sale
of assets
|
|
(2,788
|
)
|
(32,822
|
)
|
Deferred income
tax expense
|
|
42,029
|
|
27,354
|
|
Change in assets
and liabilities-
|
|
|
|
|
|
Accounts
receivable
|
|
(25,809
|
)
|
(21,115
|
)
|
Inventories
|
|
(4,354
|
)
|
140
|
|
Prepaid expenses
and other
|
|
(11,919
|
)
|
(18,566
|
)
|
Accounts payable
|
|
(31,994
|
)
|
34,920
|
|
Accrued
liabilities
|
|
(1,195
|
)
|
8,792
|
|
Deferred income
taxes
|
|
4,244
|
|
2,416
|
|
Other noncurrent
liabilities
|
|
5,849
|
|
(1,577
|
)
|
|
|
|
|
|
|
Net cash
provided by operating activities
|
|
263,255
|
|
245,865
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
Capital
expenditures
|
|
(321,711
|
)
|
(433,900
|
)
|
Insurance
proceeds from involuntary conversion
|
|
8,500
|
|
5,170
|
|
Proceeds from
sale of investments
|
|
7,769
|
|
84,812
|
|
Proceeds from
asset sales
|
|
3,668
|
|
37,947
|
|
Other
|
|
|
|
214
|
|
Net cash used in
investing activities
|
|
(301,774
|
)
|
(305,757
|
)
|
|
|
|
|
|
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
Repurchase of
common stock
|
|
|
|
(17,621
|
)
|
Decrease in
notes payable
|
|
|
|
(3,721
|
)
|
Proceeds from
line of credit
|
|
1,710,000
|
|
305,000
|
|
Payments on line
of credit
|
|
(1,675,000
|
)
|
(150,000
|
)
|
Decrease in bank
overdraft
|
|
|
|
(10,195
|
)
|
Dividends paid
|
|
(9,354
|
)
|
(9,311
|
)
|
Proceeds from
exercise of stock options
|
|
8,284
|
|
872
|
|
Excess tax
benefit from stock-based compensation
|
|
6,110
|
|
155
|
|
Net cash
provided by financing activities
|
|
40,040
|
|
115,179
|
|
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
|
1,521
|
|
55,287
|
|
Cash and cash
equivalents, beginning of period
|
|
89,215
|
|
33,853
|
|
Cash and cash
equivalents, end of period
|
|
$
|
90,736
|
|
$
|
89,140
|
|
The accompanying
notes are an integral part of these statements.
5
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENT OF SHAREHOLDERS EQUITY
SIX MONTHS ENDED MARCH 31,
2008
(in thousands,
except per share amounts)
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
Treasury Stock
|
|
Shareholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Income
|
|
Shares
|
|
Amount
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
107,058
|
|
$
|
10,706
|
|
$
|
143,146
|
|
$
|
1,645,766
|
|
$
|
75,885
|
|
3,573
|
|
$
|
(59,987
|
)
|
$
|
1,815,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to initially apply FASB Interpretation
No. 48
|
|
|
|
|
|
|
|
(5,048
|
)
|
|
|
|
|
|
|
(5,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
209,884
|
|
|
|
|
|
|
|
209,884
|
|
Other comprehensive income,
Unrealized losses on available-for-sale securities (net of $8,402 income
tax), net of realized gains included in net income of $3,476
|
|
|
|
|
|
|
|
|
|
(17,186
|
)
|
|
|
|
|
(17,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net periodic benefit costs-net
actuarial gain (net of $2 income tax)
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
(4
|
)
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital adjustment of equity investee
|
|
|
|
|
|
1,441
|
|
|
|
|
|
|
|
|
|
1,441
|
|
Cash dividends ($0.090 per share)
|
|
|
|
|
|
|
|
(9,384
|
)
|
|
|
|
|
|
|
(9,384
|
)
|
Exercise of stock options
|
|
|
|
|
|
(3,068
|
)
|
|
|
|
|
(677
|
)
|
11,352
|
|
8,284
|
|
Tax benefit of stock-based awards, including excess
tax benefits of $6,110
|
|
|
|
|
|
6,865
|
|
|
|
|
|
|
|
|
|
6,865
|
|
Treasury stock issued for vested restricted stock
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
(3
|
)
|
56
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
3,712
|
|
|
|
|
|
|
|
|
|
3,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2008
|
|
107,058
|
|
$
|
10,706
|
|
$
|
152,040
|
|
$
|
1,841,218
|
|
$
|
58,695
|
|
2,893
|
|
$
|
(48,579
|
)
|
$
|
2,014,080
|
|
The accompanying notes are an integral part of these statements.
6
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
Basis
of Presentation
The accompanying
unaudited consolidated condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and applicable rules and regulations of the Securities and Exchange
Commission (the Commission) pertaining to interim financial information. Accordingly, these interim financial
statements do not include all information or footnote disclosures required by
accounting principles generally accepted in the United States for complete
financial statements and, therefore should be read in conjunction with the
consolidated financial statements and notes thereto in the Companys 2007
Annual Report on Form 10-K and other current filings with the
Commission. In the opinion of
management, all adjustments, consisting of those of a normal recurring nature,
necessary to present fairly the results of the periods presented have been
included. The results of operations for the interim periods presented may not
necessarily be indicative of the results to be expected for the full year.
Certain amounts in
the accompanying consolidated financial statements for prior periods have been
reclassified to conform to current year presentation. Specifically, fiscal year 2007 operating
revenues for Drilling-Offshore and for Drilling-International Land have been
restated to reflect a reclassification between those two segments.
2.
Earnings per Share
Basic earnings per
share is based on the weighted-average number of common shares outstanding
during the period. Diluted earnings per
share includes the dilutive effect of stock options and restricted stock.
A reconciliation
of the weighted-average common shares outstanding on a basic and diluted basis
is as follows (in thousands):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted
average shares
|
|
103,883
|
|
103,239
|
|
103,695
|
|
103,276
|
|
Effect of
dilutive shares:
|
|
|
|
|
|
|
|
|
|
Stock options
and restricted stock
|
|
2,207
|
|
1,593
|
|
2,045
|
|
1,565
|
|
Diluted weighted
average shares
|
|
106,090
|
|
104,832
|
|
105,740
|
|
104,841
|
|
For the three and
six months ended March 31, 2008, options to purchase 710,000 shares of
common stock were outstanding but were not included in the computation of
diluted earnings per share. Inclusion of
these shares would be antidilutive.
For the three
months ended March 31, 2007, options to purchase 605,511 shares of common
stock were outstanding but were not included in the computation of diluted
earnings per share. Inclusion of these
shares would be antidilutive.
For the six months
ended March 31, 2007, options to purchase 1,332,036 shares of common stock
were outstanding but were not included in the computation of diluted earnings
per share. Inclusion of these shares
would be antidilutive.
3.
Inventories
Inventories
consist primarily of replacement parts and supplies held for use in the Companys
drilling operations.
7
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
4.
Investments
The following is a
summary of available-for-sale securities, which excludes those accounted for
under the equity method of accounting, investments in limited partnerships
carried at cost and assets held in a Non-qualified Supplemental Savings Plan.
|
|
|
|
Gross
|
|
Gross
|
|
Est.
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Securities 03/31/08
|
|
$
|
9,035
|
|
$
|
89,927
|
|
$
|
|
|
$
|
98,962
|
|
Equity
Securities 09/30/07
|
|
$
|
11,329
|
|
$
|
117,646
|
|
$
|
|
|
$
|
128,975
|
|
The investment in
the limited partnership carried at cost was $12.4 million at March 31,
2008 and September 30, 2007. The
estimated fair value of the investments carried at cost was $20.2 million and
$22.3 million at March 31, 2008 and September 30, 2007,
respectively. The assets held in the
Non-qualified Supplemental Savings Plan are valued at fair market which totaled
$7.1 million at March 31, 2008 and $7.8 million at September 30,
2007. The recorded amounts for
investments accounted for under the equity method are $87.2 million and $74.2
million at March 31, 2008 and September 30, 2007, respectively. During the six months ended March 31,
2008, the Company increased the equity investment $2.3 million ($1.4 million,
net of tax) to account for capital transactions of the equity investee.
5.
Comprehensive
Income
Comprehensive
income, net of related income taxes, is as follows (in thousands):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Net Income
|
|
$
|
102,054
|
|
$
|
106,861
|
|
$
|
209,884
|
|
$
|
217,647
|
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Unrealized
appreciation (depreciation) on securities
|
|
(13,719
|
)
|
10,402
|
|
(22,112
|
)
|
10,550
|
|
Income taxes
|
|
5,213
|
|
(3,952
|
)
|
8,402
|
|
(4,008
|
)
|
|
|
(8,506
|
)
|
6,450
|
|
(13,710
|
)
|
6,542
|
|
Reclassification
of realized gains in net income
|
|
(5,476
|
)
|
(177
|
)
|
(5,606
|
)
|
(26,514
|
)
|
Income taxes
|
|
2,081
|
|
67
|
|
2,130
|
|
10,075
|
|
|
|
(3,395
|
)
|
(110
|
)
|
(3,476
|
)
|
(16,439
|
)
|
Minimum pension
liability adjustments
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
Income taxes
|
|
1
|
|
|
|
2
|
|
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
income
|
|
$
|
90,151
|
|
$
|
113,201
|
|
$
|
192,694
|
|
$
|
207,750
|
|
8
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The components of
accumulated other comprehensive income, net of related income taxes, are as
follows (in thousands):
|
|
March 31,
|
|
September 30,
|
|
|
|
2008
|
|
2007
|
|
Unrealized
appreciation on securities, net
|
|
$
|
55,755
|
|
$
|
72,941
|
|
Minimum pension
liability
|
|
2,940
|
|
2,944
|
|
Accumulated
other comprehensive income
|
|
$
|
58,695
|
|
$
|
75,885
|
|
6.
Financial
Instruments
During the six
months ended March 31, 2007, the Company liquidated its position in
auction rate securities with no realized gains or losses. The proceeds of $48.3 million were included
in the sale of investments under investing activities on the Consolidated
Condensed Statements of Cash Flows.
There were no purchases or sales of auction rate securities in the six
months ended March 31, 2008.
7.
Cash Dividends
The $0.045 cash
dividend declared December 4, 2007, was paid March 3, 2008. On March 5,
2008, a cash dividend of $0.045 per share was declared for shareholders of
record on May 15, 2008, payable June 2, 2008.
8.
Stock-Based
Compensation
The Company has
one plan providing for common-stock based awards to employees and to
non-employee Directors. The plan permits
the granting of various types of awards including stock options and restricted
stock awards. Restricted stock may be
granted for no consideration other than prior and future services. The purchase price per share for stock
options may not be less than market price of the underlying stock on the date
of grant. Stock options expire ten years
after the grant date. Vesting
requirements are determined by the Human Resources Committee of the Companys
Board of Directors. Readers should refer
to Note 5 of the consolidated financial statements in the Companys Annual
Report on Form 10-K for the fiscal year ended September 30, 2007 for
additional information related to stock-based compensation.
The Company uses
the Black-Scholes formula to estimate the value of stock options granted. The fair value of the options is amortized to
compensation expense on a straight-line basis over the requisite service periods
of the stock awards, which are generally the vesting periods. The Company has
the right to satisfy option exercises from treasury shares and from authorized
but unissued shares.
9
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
During the six
months ended March 31, 2007, the Company repurchased 681,900 shares of its
common stock at an aggregate cost of $15.9 million. The Company has not repurchased any common
stock during fiscal 2008 but may repurchase additional shares if the share
price is favorable.
A summary of
compensation cost for stock-based payment arrangements recognized in general
and administrative expense and cash received from the exercise of stock options
is as follows (in thousands, except per share amounts):
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Compensation
expense
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,468
|
|
$
|
1,382
|
|
$
|
3,165
|
|
$
|
2,890
|
|
Restricted stock
|
|
185
|
|
343
|
|
547
|
|
670
|
|
|
|
$
|
1,653
|
|
$
|
1,725
|
|
$
|
3,712
|
|
$
|
3,560
|
|
|
|
|
|
|
|
|
|
|
|
After-tax stock
based compensation
|
|
$
|
1,025
|
|
$
|
1,069
|
|
$
|
2,302
|
|
$
|
2,207
|
|
|
|
|
|
|
|
|
|
|
|
Per basic share
|
|
$
|
.01
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.02
|
|
Per diluted
share
|
|
$
|
.01
|
|
$
|
.01
|
|
$
|
.02
|
|
$
|
.02
|
|
|
|
|
|
|
|
|
|
|
|
Cash received
from exercise of stock options
|
|
$
|
6,919
|
|
$
|
401
|
|
$
|
8,284
|
|
$
|
872
|
|
STOCK OPTIONS
The following
summarizes the weighted-average assumptions utilized in determining the fair
value of options granted during the six months ended March 31, 2008 and
2007:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
3.3
|
%
|
4.6
|
%
|
Expected stock
volatility
|
|
31.1
|
%
|
35.9
|
%
|
Dividend yield
|
|
.5
|
%
|
.7
|
%
|
Expected term
(in years)
|
|
4.8
|
|
5.5
|
|
Risk-Free
Interest Rate.
The
risk-free interest rate is based on U.S. Treasury securities for the expected
term of the option.
Expected
Volatility Rate.
Expected volatility is based on the daily closing price of the Companys
stock based upon historical experience over a period which approximates the
expected term of the option.
Dividend
Yield.
The expected
dividend yield is based on the Companys current dividend yield.
Expected
Term.
The expected
term of the options granted represents the period of time that they are
expected to be outstanding. The Company
estimates the expected term of options granted based on historical experience
with grants and exercises.
10
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
A summary of stock
option activity under the Plan for the three months ended March 31, 2008
and 2007 is presented in the following tables:
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
March 31, 2008
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
Price
|
|
Term
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2008
|
|
6,657
|
|
$
|
18.02
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(560
|
)
|
12.36
|
|
|
|
|
|
Forfeited/Expired
|
|
(77
|
)
|
26.42
|
|
|
|
|
|
Outstanding at
March 31, 2008
|
|
6,020
|
|
$
|
18.44
|
|
5.70
|
|
$
|
171,134
|
|
Vested and
expected to vest at March 31, 2008
|
|
5,988
|
|
$
|
18.37
|
|
5.68
|
|
$
|
170,686
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
March 31, 2008
|
|
4,375
|
|
$
|
14.16
|
|
4.56
|
|
$
|
143,135
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Intrinsic
|
|
March 31, 2007
|
|
Shares
|
|
Exercise
|
|
Contractual
|
|
Value
|
|
Options
|
|
(in thousands)
|
|
Price
|
|
Term
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2007
|
|
6,307
|
|
$
|
15.72
|
|
|
|
|
|
Granted
|
|
2
|
|
27.45
|
|
|
|
|
|
Exercised
|
|
(33
|
)
|
12.02
|
|
|
|
|
|
Forfeited/Expired
|
|
(5
|
)
|
28.90
|
|
|
|
|
|
Outstanding at
March 31, 2007
|
|
6,271
|
|
$
|
15.74
|
|
5.98
|
|
$
|
91,551
|
|
Vested and
expected to vest at March 31, 2007
|
|
6,208
|
|
$
|
15.63
|
|
5.95
|
|
$
|
91,322
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
March 31, 2007
|
|
4,560
|
|
$
|
12.73
|
|
4.98
|
|
$
|
80,304
|
|
A summary of stock
option activity under the Plan for the six months ended March 31, 2008 and
2007 is presented in the following table:
|
|
Six months ended March 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
Shares
|
|
Average
|
|
Shares
|
|
Average
|
|
|
|
|
(in
|
|
Exercise
|
|
(in
|
|
Exercise
|
|
|
|
|
thousands)
|
|
Price
|
|
thousands)
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
October 1,
|
|
6,032
|
|
$
|
15.80
|
|
5,619
|
|
$
|
14.24
|
|
|
Granted
|
|
742
|
|
35.11
|
|
731
|
|
26.90
|
|
|
Exercised
|
|
(677
|
)
|
12.25
|
|
(74
|
)
|
10.62
|
|
|
Forfeited/Expired
|
|
(77
|
)
|
26.42
|
|
(5
|
)
|
28.90
|
|
|
Outstanding at
March 31,
|
|
6,020
|
|
$
|
18.44
|
|
6,271
|
|
$
|
15.72
|
|
|
The
weighted-average fair value of options granted in the first quarter of fiscal
2008 was $10.81. No options were granted
in the second quarter of fiscal 2008.
The weighted-average fair value of options granted in the first quarter
of fiscal 2007 was $10.36 and the weighted-average fair value of options
granted in the second quarter of fiscal 2007 was $9.11.
11
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The total
intrinsic value of options exercised during the three and six months ended March 31,
2008 was $17.3 and $20.2 million respectively. The total intrinsic value of
options exercised during the three and six months ended March 31, 2007 was
$0.5 million and $1.0 million, respectively.
As of March 31,
2008, the unrecognized compensation cost related to the stock options was $14.9
million. That cost is expected to be
recognized over a weighted-average period of 2.8 years.
RESTRICTED STOCK
Restricted stock
awards consist of the Companys common stock and are time vested over 3-5
years. The Company recognizes
compensation expense on a straight-line basis over the vesting period. The fair value of restricted stock awards is
determined based on the closing trading price of the Companys shares on the
grant date. The weighted-average
grant-date fair value of shares granted for the six months ended March 31,
2008 and 2007 was $35.19 and $26.90, respectively.
A summary of the
status of the Companys restricted stock awards as of March 31, 2008 and
2007, and changes during the six months then ended is presented below:
|
|
Six months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Shares
|
|
Grant-Date
|
|
Shares
|
|
Grant-Date
|
|
Restricted Stock Awards
|
|
(in thousands)
|
|
Fair Value
|
|
(in thousands)
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at
October 1,
|
|
240
|
|
$
|
29.27
|
|
213
|
|
$
|
29.57
|
|
Granted
|
|
22
|
|
35.19
|
|
27
|
|
26.90
|
|
Vested
|
|
(3
|
)
|
16.01
|
|
|
|
|
|
Forfeited
|
|
(14
|
)
|
30.24
|
|
|
|
|
|
Unvested at
March 31,
|
|
245
|
|
$
|
29.92
|
|
240
|
|
$
|
29.27
|
|
As of March 31,
2008, there was $4.4 million of total unrecognized compensation cost related to
unvested restricted stock options granted under the Plan. That cost is expected to be recognized over a
weighted-average period of 3.0 years.
9.
Notes
Payable and Long-term Debt
At March 31,
2008, the Company had the following unsecured long-term debt outstanding:
Maturity Date
|
|
Interest Rate
|
|
|
|
Fixed rate debt:
|
|
|
|
|
|
August 15,
2009
|
|
5.91%
|
|
$
|
25,000,000
|
|
August 15,
2012
|
|
6.46%
|
|
75,000,000
|
|
August 15,
2014
|
|
6.56%
|
|
75,000,000
|
|
Senior credit
facility:
|
|
|
|
|
|
December 18,
2011
|
|
2.95%-3.44%
|
|
305,000,000
|
|
|
|
|
|
$
|
480,000,000
|
|
The terms of the
fixed rate debt obligations require the Company to maintain a minimum ratio of
debt to total capitalization.
12
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The Company has an
agreement with a multi-bank syndicate for a $400 million senior unsecured
credit facility which matures December 2011. While the Company has the option to borrow at
the prime rate for maturities of less than 30 days, the Company anticipates
that the majority of all of the borrowings over the life of the facility will
accrue interest at a spread over LIBOR.
The Company pays a commitment fee based on the unused balance of the
facility. The spread over LIBOR as well
as the commitment fee is determined according to a scale based on a ratio of
the Companys total debt to total capitalization. The LIBOR spread ranges from .30 percent to
.45 percent depending on the ratios. At March 31,
2008, the LIBOR spread on borrowings was .35 percent and the commitment fee was
.075 percent per annum.
Financial
covenants in the facility require the Company to maintain a funded leverage
ratio (as defined) of less than 50 percent and an interest coverage ratio (as
defined) of not less than 3.00 to 1.00.
The facility contains additional terms, conditions, and restrictions
that the Company believes are usual and customary in unsecured debt
arrangements for companies that are similar in size and credit quality. At March 31, 2008, the Company had three
letters of credit totaling $25.9 million under the facility and had $305
million borrowed against the facility with $69.1 million available to borrow.
The advances bear interest ranging from 2.95 percent to 3.44 percent.
The Company also
has an agreement with a single bank for an unsecured line of credit for $5
million. Pricing on the line of credit
is prime minus 1.75 percent. The
covenants and other terms and conditions are similar to the aforementioned
senior credit facility except that there is no commitment fee. At March 31, 2008, the Company had no
outstanding borrowings against this line.
The Company maintains
a $5 million unsecured credit facility with a financial institution which it
uses to issue letters of credit in order to obtain surety bonds for its
international operations. At March 31,
2008, the letters of credit outstanding totaled $4.4 million.
10.
Income
Taxes
The Companys effective
tax rate for the first six months of fiscal 2008 and 2007 was 36.9 percent and
36.6 percent, respectively. The
effective tax rate for the three months ended March 31, 2008 and 2007 was
37.3 percent and 36.3 percent, respectively.
The effective rate differs from the U.S. federal statutory rate of 35.0
percent primarily due to state and foreign taxes.
The Company
adopted FASB Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109
(FIN 48) on October 1, 2007. FIN 48 clarifies the accounting
and disclosure requirements for uncertainty in tax positions. FIN 48 requires a two-step approach to
evaluate tax positions and determine if they should be recognized. The first step is recognition based on a
determination of whether it is more-likely-than-not that a tax position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met
the more-likely-than-not recognition threshold, the enterprise should presume
that the position will be examined by the appropriate taxing authority having
full knowledge of all relevant information.
The second step is to measure a tax position that meets the
more-likely-than-not threshold. The tax
position is measured as the largest amount of benefit, determined on a cumulative
probability basis, that is greater than 50 percent likely of being realized
upon ultimate settlement. The cumulative
effect of initially applying the Interpretation must be reported as an
adjustment to the opening balance of retained earnings in the year of adoption.
13
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The net impact to
the Company of the cumulative effect of adopting FIN 48 was a decrease of
approximately $5.0 million in retained earnings.
At October 1,
2007, the Companys liability for unrecognized tax benefits, after the adoption
of FIN 48, was $4.6 million, of which $4.3 million represents tax benefits
that, if recognized, would favorably impact the effective tax
rate. Unrecognized tax benefits increased to $5.1 million at March 31,
2008, mainly due to increases occurring in the first six months related to tax
positions taken during the current year.
Included in this balance is $4.8 million which, if recognized, would
affect our effective tax rate.
The Company
recognizes accrued interest related to unrecognized tax benefits in interest
expense, and penalties in other expense in the consolidated statements of
income. At October 1, 2007 and March 31, 2008, the Company
had accrued interest and penalties of $2.0 million.
The Company files
a consolidated U.S. federal income tax return, as well as income tax returns in
various states and foreign jurisdictions. The tax years that remain
open to examination by U.S. federal and state jurisdictions include fiscal
years 2003 to 2007. Audits in foreign
jurisdictions are generally complete through fiscal year 2001.
It is reasonably
possible that the amount of the unrecognized tax benefit with respect to
certain unrecognized tax positions will increase or decrease during the next 12
months; however, the Company does not expect the change to have a material
effect on results of operations or financial position.
11.
Contingent
Liabilities and Commitments
In conjunction
with the Companys current drilling rig construction program, purchase
commitments for equipment, parts and supplies of approximately $131.1 million
are outstanding at March 31, 2008.
Various legal
actions, the majority of which arise in the ordinary course of business, are
pending. The Company maintains insurance
against certain business risks subject to certain deductibles. None of these legal actions are expected to
have a material adverse effect on the Companys financial condition, cash flows
or results of operations.
The Company is
contingently liable to sureties in respect of bonds issued by the sureties in
connection with certain commitments entered into by the Company in the normal
course of business. The Company has
agreed to indemnify the sureties for any payments made by them in respect of
such bonds.
12.
Segment Information
The Company
operates principally in the contract drilling industry. The Companys contract
drilling business includes the following reportable operating segments: U.S.
Land, Offshore, and International Land.
The contract drilling operations consist mainly of contracting
Company-owned drilling equipment primarily to major oil and gas exploration
companies. The Companys primary
international areas of operation include Venezuela, Colombia, Ecuador and other
South American countries. The
International Land operations have similar services, have similar types of
customers, operate in a consistent manner and have similar economic and
regulatory characteristics. Therefore,
the Company has aggregated its International Land operations into one
reportable segment. The Company also has
a Real Estate segment whose operations are conducted exclusively in the
metropolitan area of Tulsa, Oklahoma.
The key areas of operation include a shopping center and several
multi-tenant warehouses. Each reportable
segment is a strategic business unit which is managed separately. Other
includes investments and corporate operations.
14
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The Company
evaluates segment performance based on income or loss from operations (segment
operating income) before income taxes which includes:
·
revenues from
external and internal customers
·
direct operating
costs
·
depreciation and
·
allocated
general and administrative costs
but excludes
corporate costs for other depreciation, income from asset sales and other
corporate income and expense.
General and
administrative costs are allocated to the segments based primarily on specific
identification and, to the extent that such identification is not practical, on
other methods which the Company believes to be a reasonable reflection of the
utilization of services provided.
Segment operating
income is a non-GAAP financial measure of the Companys performance, as it
excludes general and administrative expenses, corporate depreciation, income
from asset sales and other corporate income and expense.
The Company
considers segment operating income to be an important supplemental measure of
operating performance by presenting trends in the Companys core
businesses. This measure is used by the
Company to facilitate period-to-period comparisons in operating performance of
the Companys reportable segments in the aggregate by eliminating items that
affect comparability between periods.
The Company believes that segment operating income is useful to
investors because it provides a means to evaluate the operating performance of
the segments and the Company on an ongoing basis using criteria that are used
by our internal decision makers.
Additionally, it highlights operating trends and aids analytical
comparisons. However, segment operating
income has limitations and should not be used as an alternative to operating
income or loss, a performance measure determined in accordance with GAAP, as it
excludes certain costs that may affect the Companys operating performance in
future periods.
In the fourth
quarter of fiscal 2007, the Company began mobilizing an offshore rig from the
U.S. to an international location.
Because an offshore rig requires different technology and marketing
strategies, the chief operating decision-makers evaluation of performance and
resource allocation for this rig is more appropriately aligned with the
Offshore segment. Therefore the Company
will continue to include the operations of this rig in the Offshore operating
segment. Additionally, the Company determined that a management contract for a
customer-owned platform rig located offshore in West Africa was more
appropriately aligned with the Offshore segment for purposes of evaluating
performance and resource allocation.
Therefore, this management contract has been reclassified from the
International segment to the Offshore segment for the quarter and year-to-date
periods ending March 31, 2007. As a
result, the International segment was renamed to International Land. Financial
information for reportable segments for fiscal 2007 has been restated to
reflect this change.
Summarized financial
information of the Companys reportable segments for the six months ended March 31,
2008, and 2007, is shown in the following tables:
15
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
712,907
|
|
$
|
|
|
$
|
712,907
|
|
$
|
287,581
|
|
Offshore
|
|
57,070
|
|
|
|
57,070
|
|
7,717
|
|
International
Land
|
|
154,359
|
|
|
|
154,359
|
|
33,908
|
|
|
|
924,336
|
|
|
|
924,336
|
|
329,206
|
|
Real Estate
|
|
5,971
|
|
437
|
|
6,408
|
|
2,825
|
|
|
|
930,307
|
|
437
|
|
930,744
|
|
332,031
|
|
Eliminations
|
|
|
|
(437
|
)
|
(437
|
)
|
|
|
Total
|
|
$
|
930,307
|
|
$
|
|
|
$
|
930,307
|
|
$
|
332,031
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
539,045
|
|
$
|
|
|
$
|
539,045
|
|
$
|
228,190
|
|
Offshore
|
|
64,457
|
|
|
|
64,457
|
|
11,185
|
|
International
Land
|
|
149,796
|
|
|
|
149,796
|
|
43,948
|
|
|
|
753,298
|
|
|
|
753,298
|
|
283,323
|
|
Real Estate
|
|
5,637
|
|
405
|
|
6,042
|
|
2,428
|
|
|
|
758,935
|
|
405
|
|
759,340
|
|
285,751
|
|
Eliminations
|
|
|
|
(405
|
)
|
(405
|
)
|
|
|
Total
|
|
$
|
758,935
|
|
$
|
|
|
$
|
758,935
|
|
$
|
285,751
|
|
Summarized
financial information of the Companys reportable segments for the three months
ended March 31, 2008, and 2007, is shown in the following tables:
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
365,263
|
|
$
|
|
|
$
|
365,263
|
|
$
|
143,740
|
|
Offshore
|
|
29,789
|
|
|
|
29,789
|
|
3,603
|
|
International
Land
|
|
75,757
|
|
|
|
75,757
|
|
12,752
|
|
|
|
470,809
|
|
|
|
470,809
|
|
160,095
|
|
Real Estate
|
|
2,835
|
|
224
|
|
3,059
|
|
1,301
|
|
|
|
473,644
|
|
224
|
|
473,868
|
|
161,396
|
|
Eliminations
|
|
|
|
(224
|
)
|
(224
|
)
|
|
|
Total
|
|
$
|
473,644
|
|
$
|
|
|
$
|
473,644
|
|
$
|
161,396
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
External
|
|
Inter-
|
|
Total
|
|
Operating
|
|
(in thousands)
|
|
Sales
|
|
Segment
|
|
Sales
|
|
Income
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
Contract
Drilling:
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
$
|
269,145
|
|
$
|
|
|
$
|
269,145
|
|
$
|
109,782
|
|
Offshore
|
|
28,703
|
|
|
|
28,703
|
|
3,805
|
|
International
Land
|
|
71,950
|
|
|
|
71,950
|
|
19,874
|
|
|
|
369,798
|
|
|
|
369,798
|
|
133,461
|
|
Real Estate
|
|
2,738
|
|
207
|
|
2,738
|
|
961
|
|
|
|
372,536
|
|
207
|
|
372,536
|
|
134,422
|
|
Eliminations
|
|
|
|
(207
|
)
|
(207
|
)
|
|
|
Total
|
|
$
|
372,536
|
|
$
|
|
|
$
|
372,536
|
|
$
|
134,422
|
|
16
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following table
reconciles segment operating income per the table above to income before income
taxes and equity in income of affiliate as reported on the Consolidated
Condensed Statements of Income.
|
|
Three Months Ended
March 31,
|
|
Six Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Segment
operating income
|
|
$
|
161,396
|
|
$
|
134,422
|
|
$
|
332,031
|
|
$
|
285,751
|
|
Gain from
involuntary conversion of long-lived assets
|
|
|
|
5,170
|
|
4,810
|
|
5,170
|
|
Income from
asset sales
|
|
1,946
|
|
32,336
|
|
2,788
|
|
32,822
|
|
Corporate
general and administrative costs and corporate depreciation
|
|
(7,672
|
)
|
(7,644
|
)
|
(15,326
|
)
|
(12,805
|
)
|
Operating income
|
|
155,670
|
|
164,284
|
|
324,303
|
|
310,938
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense):
|
|
|
|
|
|
|
|
|
|
Interest and
dividend income
|
|
1,220
|
|
1,034
|
|
2,335
|
|
2,278
|
|
Interest expense
|
|
(4,773
|
)
|
(1,913
|
)
|
(9,604
|
)
|
(2,832
|
)
|
Gain on sale of investment
securities
|
|
5,476
|
|
177
|
|
5,606
|
|
26,514
|
|
Other
|
|
180
|
|
66
|
|
(436
|
)
|
130
|
|
Total other
income (expense)
|
|
2,103
|
|
(636
|
)
|
(2,099
|
)
|
26,090
|
|
|
|
|
|
|
|
|
|
|
|
Income before
income taxes and equity in income of affiliate
|
|
$
|
157,773
|
|
$
|
163,648
|
|
$
|
322,204
|
|
$
|
337,028
|
|
|
|
|
|
|
|
March 31,
|
|
September 30,
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
(in thousands)
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
U.S. Land
|
|
|
|
|
|
$
|
2,307,092
|
|
$
|
2,073,015
|
|
Offshore
|
|
|
|
|
|
154,895
|
|
124,014
|
|
International
Land
|
|
|
|
|
|
335,124
|
|
314,625
|
|
|
|
|
|
|
|
2,797,111
|
|
2,511,654
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
29,823
|
|
30,351
|
|
Other
|
|
|
|
|
|
329,184
|
|
343,364
|
|
|
|
|
|
|
|
$
|
3,156,118
|
|
$
|
2,885,369
|
|
The following
table presents revenues from external customers by country based on the
location of service provided.
|
|
Three Months Ended
March 31,
|
|
Six Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
396,899
|
|
$
|
295,945
|
|
$
|
774,451
|
|
$
|
599,730
|
|
Venezuela
|
|
38,050
|
|
22,832
|
|
79,705
|
|
46,732
|
|
Ecuador
|
|
14,225
|
|
25,597
|
|
33,517
|
|
52,545
|
|
Other Foreign
|
|
24,470
|
|
28,162
|
|
42,634
|
|
59,928
|
|
Total
|
|
$
|
473,644
|
|
$
|
372,536
|
|
$
|
930,307
|
|
$
|
758,935
|
|
17
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
13.
Pensions and Other
Post-retirement Benefits
The following
provides information at March 31, 2008 and 2007 related to the
Company-sponsored domestic defined benefit pension plan.
Components of Net Periodic Benefit Cost
|
|
Three Months Ended
March 31,
|
|
Six Months Ended
March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Service Cost
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Interest Cost
|
|
1,189
|
|
1,216
|
|
2,379
|
|
2,432
|
|
Expected return on plan assets
|
|
(1,458
|
)
|
(1,281
|
)
|
(2,916
|
)
|
(2,562
|
)
|
Recognized net actuarial loss
|
|
(3
|
)
|
35
|
|
(6
|
)
|
70
|
|
Net pension expense
|
|
$
|
(272
|
)
|
$
|
(30
|
)
|
$
|
(543
|
)
|
$
|
(60
|
)
|
Plan Assets
The
weighted-average asset allocations for the pension plan by asset category
follow:
At March 31,
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Asset Category
|
|
|
|
|
|
Equity
Securities
|
|
75.7
|
%
|
77.2
|
%
|
Debt Securities
|
|
22.9
|
%
|
20.5
|
%
|
Real Estate and
Other
|
|
1.4
|
%
|
2.3
|
%
|
Total
|
|
100.0
|
%
|
100.0
|
%
|
Employer
Contributions
The Company does not
anticipate that it will be required to fund the Pension Plan in fiscal
2008. However, the Company expects to
make discretionary contributions to fund distributions in lieu of liquidating
pension assets. The Company estimates
contributing $3.0 million in fiscal 2008.
Through March 31, 2008, the Company had contributed $1.5 million to
the Pension Plan. Subsequent to March 31,
2008, the Company contributed an additional $750,000 to the Plan.
Foreign Plan
The Company
maintains an unfunded pension plan in one of the international
subsidiaries. Pension expense was
approximately $92,000 and $67,000 for the three months ended March 31,
2008 and 2007, respectively. Pension
expense was approximately $131,000 and $157,000 for the six months ended March 31,
2008 and 2007, respectively.
14.
Risk Factors
The Company derives its revenue in Venezuela from
Petroleos de Venezuela, S.A. (PDVSA), the Venezuelan state-owned petroleum
company. The Company is exposed to risks
of currency devaluation in Venezuela primarily as a result of bolivar fuerte
(Bsf) receivable and Bsf cash balances.
The net receivable from PDVSA, as disclosed in the
Companys 2007 Annual Report on Form 10-K, was approximately $50 million at
November 1, 2007. At March 31, 2008, the
net receivable from PDVSA was approximately $54 million. As of May 1, 2008, the net receivable from
PDVSA was approximately $59 million. The
Company continues to communicate with PDVSA regarding the settlement of the
outstanding receivables and at this time, has no reason to believe the amounts
will not be paid.
18
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The Company continues the application process with the
Venezuelan government requesting the approval to convert bolivar fuerte cash
balances to U.S. dollars. Upon approval from the Venezuelan government, the
Companys Venezuelan subsidiary will remit approximately $8.3 million as a
dividend to its U.S. based parent and repatriate additional paid-in capital of
approximately $23 million.
While the Company has
been successful in obtaining government approval for conversion of bolivare
fuerte to U.S. dollars, there is no guarantee that future conversion to U.S.
dollars will be permitted. In the event
that conversion to U.S. dollars would be prohibited, then bolivar fuerte cash
balances would increase and expose the Company to increased risk of devaluation.
Past devaluation losses
may not be reflective of the potential for future devaluation losses. Even though Venezuela continues to operate
under the exchange controls in place and the Venezuelan bolivar fuerte exchange
rate has remained fixed at Bfs 2.150 to one U.S. dollar since the devaluation
in March 2005, the exact amount and timing of devaluation is
uncertain. At May 1, 2008, the
Company had the equivalent of $36 million in cash in Bsfs exposed to the risk
of currency devaluation.
While the Company is
unable to predict future devaluation in Venezuela, if current activity levels
continue and if a 10 percent to 20 percent devaluation were to occur, the
Company could experience potential currency devaluation losses ranging from
approximately $5.3 million to $9.6 million.
As disclosed in the
Companys 2007 Annual Report on Form 10-K, the Ecuadorian government was
negotiating with the Companys customers to resolve contract disputes created
by a government decree that modified the original contracts for splitting
profits on oil production. The
negotiations have resulted in some operators returning to the Ecuadorian
market. Currently, the Company has two
rigs working in Ecuador and four rigs are idle.
One of the four idle rigs has a contract and is expected to return to
work during the third quarter of fiscal 2008. Two rigs that were in Ecuador
have been transferred from Ecuador to Colombia with work expected to begin in
the third quarter of fiscal 2008.
15.
Gain Contingencies
In August 2007, the
Company experienced a fire on U.S. Land Rig 178, a 1,500 horsepower FlexRig2,
when the well it was drilling had a blowout.
There were no significant personal injuries although the drilling rig
was lost. The rig was insured at a value
that approximated replacement cost. At September 30,
2007, the net book value of the rig was removed from property, plant and
equipment and a receivable from insurance was recorded, net of a $1.0 million
insurance deductible expensed. During
the six months ended March 31, 2008, gross insurance proceeds of approximately
$8.5 million were received and a gain of approximately $4.8 million was
recorded. The Company anticipates
settling the insurance claim in fiscal 2008 and expects to receive additional
insurance proceeds of less than $0.5 million.
In August 2005, the
Companys Rig 201, which operates on an operators tension-leg platform in the
Gulf of Mexico, lost its entire derrick and suffered significant damage as a
result of Hurricane Katrina. The rig was
insured at a value that approximated replacement cost. Capital costs incurred in conjunction with
rebuilding the rig were capitalized in fiscal 2007 and are being depreciated in
accordance with the Companys accounting policies. Insurance proceeds received through September 30,
2007 totaled approximately $19.3 million with approximately $16.7 recorded as a
gain from involuntary conversion of long-lived assets. During the six months ending March 31,
2008, no proceeds were received and no gain recorded. The Company continues to work with insurance
providers on claims. Any future proceeds
received will be recorded as gain from involuntary conversion of long-lived
assets when received. The Company
expects to settle this claim in fiscal 2008 and estimates additional proceeds
to range from $5 million to $10 million.
19
HELMERICH &
PAYNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(Unaudited)
16. Recently Issued Accounting Standards
In December 2007,
the Financial Accounting Standards Board (FASB)issued SFAS No. 141(R),
Business Combinations
and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51
. Both of these standards are effective
for financial statements issued for fiscal years beginning after December 15,
2008. SFAS No. 141(R) will be
applied prospectively to business combinations occurring after the effective
date. Earlier application is
prohibited. The Company is currently
evaluating the potential impact of adopting SFAS No. 160 but does not
expect its adoption to have a significant impact.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115.
SFAS No. 159 permits entities to choose
to measure many financial instruments and certain other items at fair
value. SFAS No. 159 is effective as
of the beginning of an entitys first fiscal year that begins after November 15,
2007. The Company is currently evaluating
whether the elective provisions of SFAS No. 159 will be adopted.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. This statement
is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB
Staff Position No. FAS 157-2,
Effective Date of FASB
Statement No. 157
(the FSP).
The FSP amends SFAS No. 157, Fair Value Measurements, to delay the
effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (that is, at least
annually). For items within its scope,
the FSP defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The Company is currently
evaluating SFAS No. 157 and FAS 157-2 to determine the impact, if any, on
the Consolidated Financial Statements.
20
ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2008
RISK
FACTORS AND FORWARD-LOOKING STATEMENTS
The following
discussion should be read in conjunction with the consolidated condensed
financial statements and related notes included elsewhere herein and the
consolidated financial statements and notes thereto included in the Companys
2007 Annual Report on Form 10-K.
The Companys future operating results may be affected by various trends
and factors, which are beyond the Companys control. These include, among other
factors, fluctuations in natural gas and crude oil prices, early termination of
drilling contracts, forfeiture of early termination payments under fixed term
contracts due to sustained unacceptable performance, unsuccessful collection of
receivables, including Venezuelan receivables, inability to procure key rig
components, failure to timely deliver rigs within applicable grace periods,
disruption to or cessation of business of the Companys limited source vendors
or fabricators, currency exchange losses, changes in general economic and
political conditions, adverse weather conditions including hurricanes, rapid or
unexpected changes in technologies, and uncertain business conditions that
affect the Companys businesses. Accordingly, past results and trends should
not be used by investors to anticipate future results or trends. The Companys risk factors are more fully
described in the Companys 2007 Annual Report on Form 10-K. No material changes in the risk factors have
occurred.
With the exception
of historical information, the matters discussed in Managements Discussion &
Analysis of Financial Condition and Results of Operations include
forward-looking statements. These
forward-looking statements are based on various assumptions. The Company cautions that, while it believes
such assumptions to be reasonable and makes them in good faith, assumptions
about future events and conditions almost always vary from actual results. The differences between good faith
assumptions and actual results can be material. The Company is including this
cautionary statement to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, the Company. The factors identified in this cautionary
statement are important factors (but not necessarily all important factors)
that could cause actual results to differ materially from those expressed in
any forward-looking statement made by, or on behalf of, the Company.
RESULTS OF OPERATIONS
Three Months Ended March 31,
2008 vs. Three Months Ended March 31, 2007
The Company reported net income of $102.1 million ($0.96 per diluted
share) from operating revenues of $473.6 million for the second quarter ended March 31,
2008, compared with net income of $106.9 million ($1.02 per diluted share) from
operating revenues of $372.5 million for the second quarter of fiscal year
2007. Net income for the second quarter
of fiscal 2008 includes approximately $3.3 million ($0.03 per diluted share) of
after-tax gains from the sale of available-for-sale securities and
approximately $1.2 million ($0.01 per diluted share) of after-tax gains from
the sales of assets. Net income for the
second quarter of fiscal 2007 includes approximately $20.5 million ($0.20 per
diluted share) of after-tax gains from the sale of assets and approximately
$3.3 million ($0.03 per diluted share) of after-tax gains from involuntary
conversion of long-lived assets.
The following tables
summarize operations by business segment for the three months ended March 31,
2008 and 2007. The Offshore and
International Land segments for the three and six months ended March 31,
2007 have been restated to reflect a change made to the reportable operating
segments in the fourth fiscal quarter of 2007.
Operating statistics in the tables exclude the effects of offshore
platform and international management contracts, and do not include
reimbursements of out-of-pocket expenses in revenue, expense and margin per
day calculations. Per day calculations
for international operations also exclude gains and losses from translation of
foreign currency transactions. Segment
operating income is described in detail in Note 12 to the consolidated
condensed financial statements.
21
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
March 31, 2008
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
U.S. LAND OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
365,263
|
|
$
|
269,145
|
|
Direct operating
expenses
|
|
181,757
|
|
132,399
|
|
General and
administrative expense
|
|
4,257
|
|
3,151
|
|
Depreciation
|
|
35,509
|
|
23,813
|
|
Segment
operating income
|
|
$
|
143,740
|
|
$
|
109,782
|
|
|
|
|
|
|
|
Revenue days
|
|
14,272
|
|
11,156
|
|
Average rig
revenue per day
|
|
$
|
24,415
|
|
$
|
23,032
|
|
Average rig
expense per day
|
|
$
|
11,557
|
|
$
|
10,774
|
|
Average rig
margin per day
|
|
$
|
12,858
|
|
$
|
12,258
|
|
Rig utilization
|
|
94
|
%
|
97
|
%
|
U.S. LAND segment
operating income increased to $143.7 million for the second quarter of fiscal
2008 compared to $109.8 million in the same period of fiscal 2007. Revenues were $365.3 million and $269.1
million in the second quarter of fiscal 2008 and 2007, respectively. Included
in U.S. land revenues for the three months ended March 31, 2008 and 2007
are reimbursements for out-of-pocket expenses of $16.8 million and $12.2
million, respectively. The $33.9 million increase in segment operating income
was primarily the result of increased revenue days as a result of adding new
rigs to the segment.
Average U.S. land rig
margin per day increased 4.9 percent for the comparable quarters. U.S. land rig utilization was 94 percent and
97 percent for the second quarter of fiscal 2008 and 2007, respectively. U.S. land rig activity days for the second
quarter of fiscal 2008 were 14,272 compared with 11,156 for the same period of
fiscal 2007, with an average of 156.8 and 124.0 rigs working during the second
quarter of fiscal 2008 and 2007, respectively.
The increase in rig days and average rigs working is attributable to 34
new rigs entering the fleet since the end of the second quarter of fiscal 2007.
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
OFFSHORE OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
29,789
|
|
$
|
28,703
|
|
Direct operating
expenses
|
|
21,918
|
|
20,709
|
|
General and
administrative expense
|
|
1,114
|
|
1,500
|
|
Depreciation
|
|
3,154
|
|
2,689
|
|
Segment
operating income
|
|
$
|
3,603
|
|
$
|
3,805
|
|
|
|
|
|
|
|
Revenue days
|
|
514
|
|
522
|
|
Average rig
revenue per day
|
|
$
|
41,209
|
|
$
|
29,603
|
|
Average rig
expense per day
|
|
$
|
29,144
|
|
$
|
19,885
|
|
Average rig
margin per day
|
|
$
|
12,065
|
|
$
|
9,718
|
|
Rig utilization
|
|
65
|
%
|
64
|
%
|
OFFSHORE revenues include
reimbursements for out-of-pocket expenses of $3.3 million and $3.8 million
for the three months ended March 31, 2008 and 2007, respectively.
22
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31, 2008
Segment operating income
declined in the second quarter of fiscal 2008 compared to the second quarter of
fiscal 2007 primarily as a result of increased depreciation associated with
capital improvements to the rig fleet.
Although there was a
decrease in revenue days due to two rigs working in the second quarter of
fiscal 2007 that, during the second quarter of 2008, were preparing for work
under new contracts, average rig margin increased 24 percent for the comparable
quarters. The increase is due to one rig
that completed a contract at the beginning of the second quarter of fiscal 2007
working the entire second quarter of fiscal 2008. Additionally, another rig
earned a full dayrate in the second quarter of fiscal 2008 compared to a lower
standby rate in the second quarter of fiscal 2007.
At March 31,
2008, the Company had six of its nine platform rigs working. One rig is
contracted and began operations during the third quarter of fiscal 2008. Another rig began operations in Trinidad
during the third quarter of fiscal 2008.
The ninth rig is currently in the yard undergoing capital improvement
and is expected to return to work with a contract in the second quarter of
fiscal 2009.
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
INTERNATIONAL LAND OPERATIONS
|
|
in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
75,757
|
|
$
|
71,950
|
|
Direct operating
expenses
|
|
50,129
|
|
45,704
|
|
General and
administrative expense
|
|
1,300
|
|
1,031
|
|
Depreciation
|
|
11,576
|
|
5,341
|
|
Segment
operating income
|
|
$
|
12,752
|
|
$
|
19,874
|
|
|
|
|
|
|
|
Revenue days
|
|
1,795
|
|
2,262
|
|
Average rig
revenue per day
|
|
$
|
39,695
|
|
$
|
27,001
|
|
Average rig
expense per day
|
|
$
|
25,299
|
|
$
|
15,722
|
|
Average rig
margin per day
|
|
$
|
14,396
|
|
$
|
11,279
|
|
Rig utilization
|
|
73
|
%
|
93
|
%
|
INTERNATIONAL LAND
segment operating income for the second quarter of fiscal 2008 was $12.8
million, compared to $19.9 million in the same period of fiscal 2007. Rig utilization for international land
operations was 73 percent for the second quarter of fiscal 2008, compared with
93 percent for the second quarter of fiscal 2007. During the current quarter, an average of
19.7 rigs worked compared to an average of 25.1 rigs in the second quarter of
fiscal 2007. International land revenues were $75.8 million in the second
quarter of fiscal 2008, compared with $72.0 million in the second quarter of
fiscal 2007. The increase in revenue is
attributable to increased dayrates from contract renewals, primarily in
Venezuela, during the second quarter of fiscal 2007. Second quarter average rig
expense per day for fiscal 2008 increased 61 percent from the second quarter of
fiscal 2007, primarily from labor cost increases in international markets that
were linked to increased dayrates. Additionally, rig utilization decreased and
segment operating income decreased as idle rigs continued to incur operating
expenses and depreciation. Depreciation
and operating income for the quarter ended March 31, 2008 were negatively
impacted by an adjustment of approximately $5.9 million, related to prior
years depreciation. Included in
international land revenues for the three months ended March 31, 2008 and
2007 are reimbursements for out-of-pocket expenses of $4.5 million and $10.8
million, respectively.
23
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31,
2008
As disclosed in the
Companys 2007 Annual Report on Form 10-K, the Ecuadorian government was
negotiating with the Companys customers to resolve contract disputes created
by a government decree that modified the original contracts for splitting
profits on oil production. The
negotiations have resulted in some operators returning to the Ecuadorian
market. Currently, the Company has two
rigs working in Ecuador and four rigs are idle.
One of the four idle rigs has a contract and is expected to return to
work during the third quarter of fiscal 2008. Two rigs that were in Ecuador are
currently being transferred from Ecuador to Colombia with work expected to
begin in the third quarter of fiscal 2008.
OTHER
General and
administrative expenses increased to $14.1 million in the second quarter of
fiscal 2008 from $13.4 million in the second quarter of fiscal 2007. The $0.7 million increase is primarily due to
additions in employee count that has resulted in an increase in employee
compensation, including taxes and benefits, compared to the same period in
2007.
Interest expense was $4.8
million and $1.9 million in the second quarter of fiscal 2008 and 2007,
respectively. Capitalized interest, all attributable to the Companys rig
construction, was $1.2 million and $2.6 million for the three months ended March 31,
2008 and 2007, respectively. With
advances on the credit facility, interest expense before capitalized interest
increased $1.5 million during the second quarter of fiscal 2008 compared to the
second quarter of fiscal 2007.
Income from the sale of
investment securities was $5.5 million, $3.3 million after-tax ($0.03 per
diluted share) in the second quarter of fiscal 2008. In the second quarter of fiscal 2007, income
from the sale of investment securities had no effect on diluted earnings per
share.
Six Months Ended March 31, 2008 vs. Six
Months Ended March 31, 2007
The Company reported net income of $209.9 million ($1.98 per diluted
share) from operating revenues of $930.3 million for the six months ended March 31,
2008, compared with net income of $217.6 million ($2.08 per diluted share) from
operating revenues of $758.9 million for the first six months of fiscal year
2007. Net income for the first six
months of fiscal 2008 includes $3.4 million ($0.03 per diluted share) of
after-tax gains from the sale of available-for-sale securities. The proceeds from the sale of securities in
the six months ending March 31, 2008 were used to fund capital
expenditures. Net income for the first
six months of fiscal 2007 includes $16.3 million ($0.15 per diluted share) of
after-tax gains from the sale of available-for-sale securities. The proceeds from the sale were used to repurchase
681,900 shares of Company common stock for approximately $15.9 million in October 2006
and funding capital expenditures. Also
included in net income are after-tax gains from the sale of assets of
approximately $1.8 million ($0.01 per diluted share) for the six months ended March 31,
2008, compared to approximately $20.8 million ($0.21 per diluted share) for the
six months ended March 31, 2007.
Also included in net income for fiscal 2008 is approximately $3.1
million ($0.03 per diluted share) of after-tax gains from involuntary
conversion of long-lived assets compared to approximately $3.3 million ($0.03
per diluted share) of after-tax gains from involuntary conversion of long-lived
assets in fiscal 2007.
24
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
March 31,
2008
The following tables summarize operations by business segment for the
six months ended March 31, 2008 and 2007.
Operating statistics in the tables exclude the effects of offshore
platform and international management contracts, and do not include
reimbursements of out-of-pocket expenses in revenue, expense and margin per
day calculations. Per day calculations
for international operations also exclude gains and losses from translation of
foreign currency transactions. Segment
operating income is described in detail in Note 12 to the financial statements.
|
|
Six Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
U.S. LAND OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
712,907
|
|
$
|
539,045
|
|
Direct operating
expenses
|
|
347,322
|
|
259,756
|
|
General and
administrative expense
|
|
8,651
|
|
6,603
|
|
Depreciation
|
|
69,353
|
|
44,496
|
|
Segment
operating income
|
|
$
|
287,581
|
|
$
|
228,190
|
|
|
|
|
|
|
|
Revenue days
|
|
28,159
|
|
21,704
|
|
Average rig
revenue per day
|
|
$
|
24,213
|
|
$
|
23,615
|
|
Average rig
expense per day
|
|
$
|
11,231
|
|
$
|
10,747
|
|
Average rig
margin per day
|
|
$
|
12,982
|
|
$
|
12,868
|
|
Rig utilization
|
|
94
|
%
|
98
|
%
|
U.S. LAND segment
operating income in the first six months of fiscal 2008 increased to $287.6
million from $228.2 million in the first six months of fiscal 2007.
Revenues were $712.9
million in the first six months of fiscal 2008, compared with $539.0 million in
the same period of fiscal 2007. Included
in U.S. land revenues for the six months ended March 31, 2008 and March 31,
2007 are reimbursements for out-of-pocket expenses of $31.1 million and $26.5
million, respectively. The $59.4 million increase in segment operating income
was primarily the result of higher land rig margins and increased activity
days.
U.S. land rig revenue
days for the first six months of 2008 were 28,159 compared with 21,704 for the
same period of 2007, with an average of 153.9 and 119.3 rigs working during the
first six months of fiscal 2008 and 2007, respectively. The increase in rig days and average rigs
working is attributable to new build rigs entering the fleet in fiscal 2007 and
2008.
|
|
Six Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
OFFSHORE OPERATIONS
|
|
(in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
57,070
|
|
$
|
64,457
|
|
Direct operating
expenses
|
|
41,129
|
|
44,847
|
|
General and
administrative expense
|
|
2,212
|
|
2,958
|
|
Depreciation
|
|
6,012
|
|
5,467
|
|
Segment
operating income
|
|
$
|
7,717
|
|
$
|
11,185
|
|
|
|
|
|
|
|
Revenue days
|
|
974
|
|
1,110
|
|
Average rig
revenue per day
|
|
$
|
41,503
|
|
$
|
34,488
|
|
Average rig
expense per day
|
|
$
|
28,207
|
|
$
|
22,012
|
|
Average rig
margin per day
|
|
$
|
13,296
|
|
$
|
12,476
|
|
Rig utilization
|
|
60
|
%
|
68
|
%
|
25
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31,
2008
U.S. OFFSHORE operating
revenues, direct operating expenses and segment operating income decreased due
to lower activity. Included in offshore revenues for the six months ended March 31,
2008 and March 31, 2007 are reimbursements for out-of-pocket expenses of
$6.2 million and $7.5 million, respectively.
Segment operating income decreased to $7.7 million in the first six
months of fiscal 2008 from $11.2 million in the first six months of fiscal
2007. Rig days were 974 and 1,110 for
the first six months of fiscal 2008 and 2007, respectively. The decrease in
days is primarily due to two rigs preparing for work under new contracts in
fiscal 2008 that were working during the six months ended March 31, 2007.
At March 31, 2008,
the Company had six of its nine platform rigs working. One rig is contracted
and began operations during the third quarter of fiscal 2008. Another rig began operations in Trinidad
during the third quarter of fiscal 2008.
The ninth rig is currently in the yard undergoing capital improvement
and is expected to return to work with a contract in the second quarter of
fiscal 2009.
|
|
Six Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
INTERNATIONAL LAND OPERATIONS
|
|
in thousands,
except days and per day amounts)
|
|
Revenues
|
|
$
|
154,359
|
|
$
|
149,796
|
|
Direct operating
expenses
|
|
100,911
|
|
93,364
|
|
General and
administrative expense
|
|
2,238
|
|
1,594
|
|
Depreciation
|
|
17,302
|
|
10,890
|
|
Segment
operating income
|
|
$
|
33,908
|
|
$
|
43,948
|
|
|
|
|
|
|
|
Revenue days
|
|
3,776
|
|
4,628
|
|
Average rig
revenue per day
|
|
$
|
36,981
|
|
$
|
27,354
|
|
Average rig
expense per day
|
|
$
|
22,704
|
|
$
|
15,291
|
|
Average rig
margin per day
|
|
$
|
14,277
|
|
$
|
12,063
|
|
Rig utilization
|
|
77
|
%
|
95
|
%
|
INTERNATIONAL LAND
segment operating income in the first six months of fiscal 2008 was $33.9
million, compared to $43.9 million in the same period of 2007. Depreciation and operating income for the
quarter ended March 31, 2008 were negatively impacted by an adjustment of
approximately $5.9 million, related to prior years depreciation. Rig utilization for international land
operations averaged 77 percent for the first six months of fiscal 2008,
compared with 95 percent for the first six months of fiscal 2007. An average of 20.7 rigs worked during the
first six months of fiscal 2008, compared to 25.6 rigs in the first six months
of fiscal 2007. International revenues
were $154.4 million and $149.8 million in the first six months of fiscal 2008
and 2007, respectively. The overall increase in margins per day was primarily
the result of dayrate increases in several foreign markets. Included in International land revenues for
the six months ended March 31, 2008 and 2007 are reimbursements for out-of-pocket
expenses of $14.7 million and $23.0 million, respectively.
Direct operating
expenses for the first six months of fiscal 2008 were up eight percent from the
first six months of fiscal 2007 as several international markets incurred labor
cost increases and as idle rigs continued to incur operating expenses.
OTHER
General and
administrative expenses increased to $28.0 million in the first six months of
fiscal 2008 from $24.0 million in the first six months of fiscal 2007. The $4.0 million increase is primarily
attributable to additions in employee count that has resulted in an increase in
employee compensation, including taxes and benefits, compared to the same
period in 2007.
26
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF
OPERATIONS
March 31, 2008
Interest expense was $9.6
million and $2.8 million for the six months ended March 31, 2008 and 2007,
respectively. With advances on the credit facility to fund capital expenditures
and growth, interest expense before capitalized interest increased $4.7 million
for the six months ended March 31, 2008, compared to the six months ended March 31,
2007. During these same comparable periods, capitalized interest related to the
Companys rig construction decreased $2.1 million as fewer new rigs are built
in fiscal 2008 compared to fiscal 2007.
In the first six months
of fiscal 2008, income from the sale of investment securities was $5.6 million,
$3.4 million after-tax ($0.03 per diluted share). Income from the sale of investment securities
was $26.5 million, $16.3 million after-tax ($0. 15 per diluted share) in the
first six months of fiscal 2007. The gain in both periods was from the sale of
available-for-sale investments.
Income from asset sales
decreased to $2.8 million in the first six months of fiscal 2008, compared to
$32.8 million for the same period of fiscal 2007. The decrease of $30.0 million is primarily
due to the sale of two domestic offshore rigs in fiscal 2007.
In the first six months
of fiscal 2008, the Company recorded income of approximately $4.8 million from
involuntary conversion of long-lived assets as a result of insurance proceeds
on Rig 178 that was lost in a well blowout fire in the fourth quarter of fiscal
2007.
In fiscal 2007, the
Company recorded income of $5.2 million from involuntary conversion of
long-lived assets that sustained significant damage as a result of hurricane
Katrina in 2005.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
Cash and cash equivalents
increased to $90.7 million at March 31, 2008 from $89.2 million at September 30,
2007. The following table provides a summary of cash flows for the six-month
periods ended March 31 (in thousands):
Net Cash provided (used) by:
|
|
2008
|
|
2007
|
|
Operating
activities
|
|
$
|
263,255
|
|
$
|
245,865
|
|
Investing
activities
|
|
(301,774
|
)
|
(305,757
|
)
|
Financing
activities
|
|
40,040
|
|
115,179
|
|
Increase in cash
and cash equivalents
|
|
$
|
1,521
|
|
$
|
55,287
|
|
Operating activities
Cash flows from operating
activities increased $17.4 million for the six months ended March 31, 2008
compared to the same period ended March 31, 2007. This is primarily due to the net effect of a
reduction in accounts payable in fiscal 2008 and gain on sale of investment
securities in fiscal 2007. The accounts
payable decrease at March 31, 2008 is a result of reduced capital spending
associated with the construction of FlexRigs.
In the six months ended March 31, 2007, the Company had gains from
investment securities and sales of assets of $59.2 million compared to gains of
$8.3 million in the first six months of fiscal 2008.
Investing activities
Capital expenditures
decreased $112.2 million as the building of new FlexRigs was at a reduced pace
in the first six months of fiscal 2008 compared to the first six months of
fiscal 2007. Proceeds from sales of investments, sales of assets and
involuntary conversion of long-lived assets decreased $108.0 million. This decrease is primarily due to the sale of
available-for-sale securities and auction rate securities in the first quarter
of fiscal 2007 that were used to help fund capital expenditures.
27
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31,
2008
Financing activities
The Companys net
proceeds from long-term debt and notes payable totaled $35 million in the first
six months of fiscal 2008 compared to $151 million in the first six months of
fiscal 2007. However, in fiscal 2007, the
Company purchased treasury shares for $17.6 million and reduced bank overdraft
positions of $10.2 million.
Other Liquidity
The Companys
operating cash requirements and estimated capital expenditures, including rig
construction, for fiscal 2008 will be funded through current cash, cash
provided from operating activities, funds available under the credit facilities
and, if needed, sales of available-for-sale securities. The Companys indebtedness totaled $480
million at March 31, 2008, as described in Note 9 to the Consolidated
Condensed Financial Statements.
Backlog
The Companys contract
drilling backlog, consisting of executed contracts with original terms in
excess of one year, as of May 1, 2008 and October 31, 2007 was $1.854
billion and $1.969 billion, respectively.
Approximately 75.7 percent of the May 1, 2008 backlog is not
reasonably expected to be filled in fiscal 2008. Term contracts customarily provide for
termination at the election of the customer with an early termination payment
to be paid to the Company if a contract is terminated prior to the expiration
of the fixed term. However, under
certain limited circumstances, such as destruction of a drilling rig,
bankruptcy, sustained unacceptable performance by the Company, or delivery of a
rig beyond certain grace and/or liquidated damage periods, no early termination
payment would be paid to the Company. In
addition, a portion of the backlog represents term contracts for new rigs that
will be constructed in the future. The
Company obtains certain key rig components from a single or limited number of
vendors or fabricators. Certain of these
vendors or fabricators are thinly capitalized independent companies located on
the Texas Gulf Coast. Therefore,
disruptions in rig component deliveries may occur. Accordingly, the actual amount of revenue
earned may vary from the backlog reported.
See Fixed Term Contract Risk, Limited Number of Vendors, Thinly
Capitalized Vendors and Operating and Weather Risks under Item 1A. Risk Factors of the Companys Annual Report
on Form 10-K filed with the Securities and Exchange Commission on November 26,
2007.
The following table sets
forth the total backlog by reportable segment as of May 1, 2008 and October 31,
2007, and the percentage of the May 1, 2008 backlog not reasonably
expected to be filled in fiscal 2008:
Reportable
|
|
Total Backlog
|
|
Percentage Not Reasonably
|
|
Segment
|
|
05/01/2008
|
|
10/31/2007
|
|
Expected to be Filled in Fiscal 2008
|
|
|
|
(in billions)
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1.616
|
|
$
|
1.696
|
|
74.7%
|
|
Offshore
|
|
.223
|
|
.234
|
|
88.1%
|
|
International
|
|
.015
|
|
.039
|
|
0.0%
|
|
|
|
$
|
1.854
|
|
$
|
1.969
|
|
|
|
28
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31,
2008
Capital Resources
During the six
months ended March 31, 2008, the Company committed to build 17 new
FlexRigs. Seven of the new rigs will
work in Latin American locations and the remaining ten will be deployed in
locations in the United States. Five of
the seventeen rigs will operate under five-year term contracts and the
remaining twelve under three-year term contracts. Subsequent to March 31, 2008, the
Company announced contracts had been signed for an additional three rigs to be
built. These 20, along with the 77 rigs
announced in fiscal years 2005, 2006 and 2007 brings the Companys commitment
to a total of 97 new FlexRigs. The
drilling services are performed on a daywork contract basis. Through March 31, 2008, 84 rigs were
completed for delivery and had begun field operations. The remaining rigs are expected to be
completed by the end of calendar 2008.
Capital expenditures were
$321.7 million and $433.9 million for the first six months of fiscal 2008 and
2007, respectively. Capital expenditures
decreased from 2007 primarily due to the Companys current construction program
of new FlexRigs being at a reduced pace than the previous year as rigs
committed to build were completed.
The Company anticipates
capital expenditures to be approximately $650 million for fiscal 2008,
including construction of new FlexRigs.
There were no
other significant changes in the Companys financial position since September 30,
2007.
MATERIAL
COMMITMENTS
Material commitments as
reported in the Companys 2007 Annual Report on Form 10-K have not changed
significantly with the exception of obligations that have been recorded for
uncertain tax positions upon adoption of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48) as of October 1,
2007. Upon adoption of FIN 48 at October 1,
2007, the Company recorded $5.3 million of obligations for uncertain tax
positions and related interest and penalties.
At March 31, 2008, the Company had $7.1 million recorded for
uncertain tax positions and related interest and penalties. However, the timing
of such payments to the respective taxing authorities cannot be estimated at
this time.
CRITICAL
ACCOUNTING POLICIES
The Companys
accounting policies that are critical or the most important, to understand
the Companys financial condition and results of operations and that require
management of the Company to make the most difficult judgments are described in
the Companys 2007 Annual Report on Form 10-K. There have been no material changes in these
critical accounting policies other than the adoption of FIN 48, on October 1,
2007. The adoption of FIN 48 resulted in
an increase in the Companys liability for unrecognized tax benefits of $3.3
million and accrued penalties and interest of $2.0 million. The total $5.0 million, net of deferred taxes
of $0.3 million, was accounted for as a decrease to the September 30,
2007 retained earnings balance. See Note
10 to the Companys consolidated condensed financial statements for additional
information and related disclosures.
29
MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
March 31,
2008
RECENTLY
ISSUED ACCOUNTING STANDARDS
In December 2007,
the Financial Accounting Standards Board (FASB) issued SFAS No. 141(R),
Business Combinations
and SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements-an
amendment of ARB No. 51.
Both of these standards are effective
for financial statements issued for fiscal years beginning after December 15,
2008. SFAS No. 141(R) will be
applied prospectively to business combinations occurring after the effective
date. Earlier application is
prohibited. The Company is currently
evaluating the potential impact of adopting SFAS No. 160 but does not
expect its adoption to have a significant impact.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB
Statement No. 115
. SFAS No. 159 permits entities to choose
to measure many financial instruments and certain other items at fair
value. SFAS No. 159 is effective as
of the beginning of an entitys first fiscal year that begins after November 15,
2007. The Company is currently
evaluating whether the elective provisions of SFAS No. 159 will be
adopted.
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. This statement
is effective for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB
Staff Position No. FAS 157-2,
Effective Date of FASB
Statement No. 157
(the FSP).
The FSP amends SFAS No. 157, Fair Value Measurements, to delay the
effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (that is, at least
annually). For items within its scope,
the FSP defers the effective date of SFAS No. 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The Company is currently
evaluating SFAS No. 157 and FAS 157-2 to determine the impact, if any, on
the Consolidated Financial Statements.
30
PART I. FINANCIAL INFORMATION
March 31, 2008
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a description
of the Companys market risks, see
·
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk in the Companys
2007 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on November 28, 2007;
·
Note 9 to the
Consolidated Condensed Financial Statements contained in Item 1 of Part I
hereof with regard to interest rate risk is incorporated herein by reference;
and
·
Note 14 to the
Consolidated Condensed Financial Statements contained in Item 1 of Part I
hereof with regard to credit risk is incorporated herein by reference.
ITEM 4. CONTROLS
AND PROCEDURES
As of the end of the period covered by this report, an evaluation was
performed with the participation of the Companys management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Companys disclosure controls and
procedures. Based on that evaluation,
the Companys management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Companys disclosure controls and
procedures were effective as of March 31, 2008, at ensuring that
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and
forms. There have been no changes in the
Companys internal controls over financial reporting that occurred during the
most recent fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls over financial reporting.
31
PART II.
OTHER INFORMATION
ITEM
4.
SUBISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Helmerich & Payne, Inc.
was held on March 5, 2008. Proxies
for the meeting were solicited by and on behalf of the Board of Directors of
Helmerich & Payne, Inc., and there was no solicitation in
opposition to such solicitation. The
matter presented for vote received the following for and withheld votes as
noted below:
To elect two Directors comprising the class of
Directors of the Company known as the Second Class for a three-year term
expiring in 2011. Each of the nominees
for directorship was elected by the affirmative vote of a plurality of the
shares of voted common stock. The number
of votes for and withheld from each Director, respectively, were as follows:
William L. Armstrong 91,856,598 for and 1,977,446 shares withheld; and John D.
Zeglis 91,164,496 for and 2,669,548 shares withheld. There were no broker non-votes or other
abstentions. The other Directors whose
term of office as Director continued after the meeting are W.H. Helmerich, III,
Hans Helmerich, Glen A. Cox, Edward B. Rust, Jr., Paula Marshall and Randy
A. Foutch.
ITEM 6. EXHIBITS
The following
documents are included as exhibits to this Form 10-Q. Those exhibits below incorporated by
reference herein are indicated as such by the information supplied in the
parenthetical thereafter. If no
parenthetical appears after an exhibit, such exhibit is filed or furnished
herewith.
Exhibit
Number
|
|
Description
|
|
|
|
31.1
|
|
Certification of Chief
Executive Officer, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of Chief Financial Officer, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32
|
|
Certification of Chief
Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
32
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.
|
|
|
HELMERICH & PAYNE, INC.
|
|
|
|
(Registrant)
|
|
|
|
|
Date:
|
May 6, 2008
|
|
By:
|
/S/ HANS C HELMERICH
|
|
|
|
|
Hans C. Helmerich, President
|
|
|
|
|
|
|
|
|
|
|
Date:
|
May 6, 2008
|
|
By:
|
/S/ DOUGLAS E. FEARS
|
|
|
|
|
Douglas E. Fears, Chief Financial Officer
|
|
|
|
|
(Principal Financial Officer)
|
EXHIBIT INDEX
The following
documents are included as exhibits to this Form 10-Q. Those exhibits below incorporated by
reference herein are indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears
after an exhibit, such exhibit is filed or furnished herewith.
Exhibit
Number
|
|
Description
|
31.1
|
|
Certification of Chief Executive Officer, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of Chief Financial Officer, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
32
|
|
Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
33
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